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Specialty Drugs Appearing as the Next Wave of Health Care Costs

The Midwest Business Group on Health and other organizations aim to educate employers about the cost of biologics, which treat serious illnesses such as cancer. Their cost is expected to rise to 40 percent of employers' total drug costs by 2017.

September 28, 2012

There is a coming wave of health care costs that few employers are prepared for, but the Midwest Business Group on Health is throwing out a lifeline this fall with an online educational tool kit and a series of initiatives to help employers prepare for the approaching storm of rising specialty-drug costs.

Specialty drugs, also called biologics, which treat serious and complex conditions such as cancer and rheumatoid arthritis, make up about 17 percent of employers' total drug costs even though just 1 percent of the workforce takes them. And total costs are expected to grow to 40 percent by 2017. The average monthly price tag for a specialty drug is $2,000—10 times greater than that for non-specialty medication, according to the 2012 Specialty Drug Benefit Report by the Pharmacy Benefit Management Institute, a research organization in Scottsdale, Arizona.

Yet, 78 percent of employers "claim little to moderate understanding" of these drugs, a 2011 Midwest Business Group on Health employer survey shows. The survey marked the start of a four-year program to educate employers called the National Employer Initiative on Biologics Specialty Pharmacy.

Soaring cost have taken many employers by surprise, says F. Randy Vogenberg, principal at the Institute for Integrated Healthcare in Massachusetts and a co-leader of the Midwest Business Group initiative.

In part, this is because overall pharmacy spending is relatively low due to the number of drugs now available in generic form. But specialty medications are derived from living organisms and have no substitute, unlike most drugs that are made chemically. Many biologics, such as chemotherapy drugs, are administered in a doctor's office and require extensive monitoring, further driving up costs. Pharmacy costs alone for an employee who takes Enbrel, Humira or Remicade to treat rheumatoid arthritis are around $14,500 annually, according to a recent report by the Center for Studying Health System Change, a health-policy research institute in Washington.

"When I started looking at this issue in 2003 and up until 2009, it wasn't showing up on the radar for everybody," Vogenberg says. "But then specialty drugs started doubling in cost and employers started saying, 'Look [at] what I'm spending. What are these drugs and what do they do?' It's like a whole new world for employers."

Cheryl Larson, vice president of the Midwest Business Group on Health, is on a mission to answer those questions, starting with the tool kit. It's scheduled to launch on the website of the Chicago-based employer's coalition at the end of October. The coalition also plans to conduct educational seminars around the country, Larson says.

"This is about creating awareness," she says. "There is a lot of misunderstanding of the definitions of specialty drugs. Part of our tool kit will help define what that means and how it falls into the overall pharmacy benefits strategy. We want to make sure that employers understand the basics and give them information that they can use in the short term."

There are several reasons specialty drugs are difficult to manage, Vogenberg says. One is that with so many players—the employer, the health plan, the pharmacy benefits manager, among others, it's unclear who should be in charge of controlling costs and monitoring care. Another reason is the lack of a standard definition of a specialty drug. Given technological advancements, such as oral cancer drugs, the parameters are always changing, he says.

"Let's say you have a drug that's a tablet that would be covered under a pharmacy benefit plan and if it's an injection it would be covered under a medical plan because it's administered by a doctor," Vogenberg says. "It's getting more and more confusing. You can have an oral oncology pill today that used to be an injection, only it's not a $50 pill, it's a $5,000 pill, but it's managed as a specialty drug because of the cost."

And that leads to more confusion over whether to offer biologics through a pharmacy benefit plan or a medical plan.

"Most employers are using traditional pharmacy benefits for biologics, and they need to re-examine that," Larson says. "Medication and treatment compliance are critical when it comes to specialty drugs. There are a lot of PBMs that service the vendors that supply employers and we've found that employers are relying on those PBMs to tell them what the benefit plan design should be, she says of pharmacy benefits managers. "We want to see more transparency."

To help employers better understand these issues, the Midwest Business Group on Health plans to roll out its initiative in four phases over the next three years starting with the tool kit. The second phase will focus on developing innovative benefit plan design, the third will involve researching new insurance products, and the fourth will center on educating employers, vendors and pharmacy benefits managers on the findings.

"We're not going to reduce the costs of biologics, so employers need a good understanding of how these diseases can impact productivity," Larson says. "This is a fast, fast moving train."

Rita Pyrillis is Workforce's senior writer. Comment below or email editors@workforce.com.