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Specialty Drugs and the Cost Conundrum

January 3, 2013
Related Topics: Top Stories - Frontpage, Health Care Costs, Health Care Benefits, Benefits

With the price of specialty drugs for conditions such as cancer and rheumatoid arthritis expected to rise dramatically in coming years, employers are becoming increasingly aware of the need to manage their costs. But doing that is easier said than done.

Unlike traditional drugs, such as antibiotics and most blood pressure pills, specialty medications can be covered under a medical plan, a pharmacy plan or both.

And figuring out which option is the most cost effective can be tricky.

"There's no one place you can go to see what your specialty drug spend is because you have to look in three different buckets—medical plan, pharmacy plan or through the various vendors," says David Dross, national leader of Mercer's managed pharmacy consulting group. "This is the most confounding part of the pharmacy puzzle."

In addition to being covered under two benefit plans, specialty drugs can be distributed by a number of providers, including retail pharmacies, specialty pharmacies, a physician's office or a home health agency, posing "unique challenges to health plans related to coverage, patient cost share, provider reimbursement, clinical management, and patient access," according to the 2012 EMD Serono Specialty Digest, an annual report of specialty drug trends. Biopharmaceutical company EMD Serono Inc., is a division of Merck KGaA in Darmstadt, Germany.

"There are lots of cogs in this wheel and that complicates the management of these drugs," says Cheryl Larson, vice president of the Midwest Business Group on Health, which is launching an online tool kit this month to teach employers how to manage specialty drugs, also known as biologics. These drugs are derived from living organisms and have no generic substitute, making them expensive to develop. The average pharmacy costs for such specialty drugs as Enbrel, Humira or Remicade to treat rheumatoid arthritis is $14,500 annually.

Specialty drugs make up almost 20 percent of employers' total drug costs, and that figure is expected to rise to 40 percent by 2017. The average price tag for a specialty drug is $2,000—10 times greater than that for a nonspecialty medication, according to the 2012 Specialty Drug Benefit Report from the Pharmacy Benefit Management Institute, a research organization in Scottsdale, Arizona.

About half of all specialty drugs—47 percent—are billed under a medical plan and 53 percent are billed under a pharmacy plan, according to the Express Scripts 2011 Drug Trend Report. Most oncology medications, like conventional IV chemotherapy that is administered at a hospital or doctor's office, are covered under a medical benefit, but self-administered drugs, such as chemotherapy pills and injections to treat arthritis, are typically covered under the pharmacy benefit plan. So, employers are tracking specialty drug costs in two claims databases, which are difficult to integrate.

While claims that fall under the pharmacy plan are easier to track, in part because pharmacy benefit managers provide employers with detailed reports, those that are covered under a medical plan are difficult to decipher, Larson says.

"It's hard to track what goes through the medical plan because employers can't see what's billed due to the way doctors process claims. They can see what happens to costs under the pharmacy plan because often the [pharmacy benefit managers] they contract with track that data carefully."

Some medications may be cheaper to provide through a pharmacy plan versus a medical plan, or in some cases, it could be the opposite, Larson says.

In order for employers to get a handle on their specialty-drug costs they must first find out how much they are spending annually on these medications and then figure out which benefit plan covers them, Dross says.

"After that you need to examine what kind of programs you have in place to manage this spend," he says. "Then comparisons can be made. An employer could decide they don't want to run a particular drug through the medical plan anymore. It forces them to go through the pharmacy plan, which has two main advantages. One, you will get detailed tracking information like how many prescriptions for this drug and 'sponsor cost is X and employee cost is Y.' Also, many PBMs and carriers have divisions that are 100 percent devoted to specialty drugs so presumably, patients get higher touch services."

Indeed, less than 20 percent of employers receive cost data for medications covered by the medical plan from their pharmacy benefit manager or other health care vendors, according to the Pharmacy Benefit Management Institute report. Given that half of all specialty-drug spending occurs on the medical side, employers are facing a huge information gap, according to the report. And that has big implications for employers trying to manage their drug spending, experts say.

Rita Pyrillis is Workforce's senior writer. Comment below or email

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