The Growing Cost of Specialty Pharmacy-Is it Sustainable?

Specialty drugs represent the fastest growing sector of pharmacy spending today. What qualifies a specific drug or therapy to be classified as a specialty pharmaceutical is not clearly defined, as there is no industry standard definition for specialty drugs. A common definition of a specialty pharmaceutical includes the Medicare cost threshold and attempts to categorize the unique nature of specialty medications. This definition has 5 key components:

• Cost >$600/month and
• Treats a rare condition OR
• Requires special handling OR
• Uses a limited distribution network OR
• Requires ongoing clinical assessment

We only have to take a brief look back to see that 10 years ago, most specialty drugs were injectable agents used to treat conditions such as rheumatoid arthritis, multiple sclerosis, and growth disorders. Today, the list of agents that is considered specialty includes many oral drugs and even some inhaled agents. In just more than 2 decades, the specialty drug market place has grown substantially. In 1990 there were 10 specialty drugs on the market, whereas in 2012 there were nearly 300 agents that meet the definition of a specialty drugs. Even more astounding is that approximately 40% of current agents in the pharmaceutical pipeline are likely to be considered specialty agents when they are released to the market.

A good example of the growth of specialty pharmaceuticals was 2012. The US Food and Drug Administration approved 39 new agents last year, the most in 15 years. Of those newly approved drugs, 25 can be classified as specialty agents according to the above definition. Of those 25 specialty drugs, more than 50% (13 agents) were for cancer.¹ The emphasis on specialty drug development is here to stay and it will become the major driver of pharmacy cost in the future.

According to Express Scripts' most recent Drug Trend Report, specialty drugs had an annual yearly cost of more than $170 per member per year (PMPY) in 2011 and the growth trend that year was at 17.1%; this trend is expected to grow to 22% by 2014.² The report further notes that specialty drug growth shows no signs of slowing in the near future due to the combination of price inflation and new drug approvals. In fact, some industry experts have predicted that specialty drugs will represent 45% of pharmaceutical manufacturer sales by 2017. A recent report by Artemetrx revealed some even more astounding projections: “By 2018, specialty drug spend is expected to surpass traditional drug spend (ie, nonspecialty) for most plan sponsors due to the double-digit growth in specialty that will continue for the foreseeable future across both the pharmacy and medical benefit.” These projections were based on a careful analysis of both the medical and pharmacy specialty utilization. In the past, many studies reported that specialty drug spend represented only 15% to 20% of total drug spend. However, in this analysis with the careful inclusion of specialty drugs covered under the medical benefit, including those drugs used in hospital in-patient stays, the analysts concluded that that specialty drug spend already represents 30% of total drug spend for the typical commercial plan sponsor in 2012.³

One of the more astounding conclusions reached in this analysis is that specialty spending will go from $290 PMPY in 2012 up to $845 PMPY by 2018 because of the strong pipeline, price inflation, and expanded indications.³ Restated, this means that even a moderately sized plan of 1 million members will be approaching $1 billion in specialty drug spend annually, almost 50% of which will be oncology related. And, with annual trends of 20% growth, that number will again double in less than 4 years!

Those staggering numbers lead one to speculate about how plans and the customers they represent will manage this category in the future. Certainly, employers are taking notice of this trend and are working to develop strategies to better manage the category. In just one instance, the Midwest Business Group on Health plans to roll out a multipart specialty initiative in 4 phases over the next 3 years, starting with a tool kit that employers can use to better understand this category of drugs. 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 benefit managers on the findings.⁴

It is clear that specialty drugs have become an increasingly important part of the healthcare continuum. These drugs potentially offer doctors and the patients they treat he ability to manage conditions that were previously considered untreatable. However, they come at a price, often more than $2000 per month of therapy and, as we have already discussed, those costs are growing. Effectively managing this benefit will become increasingly more challenging as the number of agents continues to increase and the average cost per patient grows. Progressive plan managers are already looking at a number of new strategies that include:

1. Developing new benefit designs that may include “preferred” tiers of specialty agents
2. Development of risk arrangements with providers for selected specialty categories
3. Development of performance guarantees from manufacturers of these agents
4. Demanding more comparative data, especially in crowded categories such as autoimmune disorders, multiple sclerosis, and hepatitis C
5. Managing the oncology benefit more actively, including the creation of preferred agents in selected categories. (eg, renal cell cancer, multiple myeloma)
6. Creation of closed specialty formularies in which some agents deemed to be of lower clinical or economic value will only be covered by exception

There is no one single answer to how to best manage this category of drugs, and the impact of these agents on the overall medical cost curve is still somewhat unknown. For instance, will some chronic diseases ultimately cost the system less due to the potential for specialty drugs to modify the course of a chronic disease? Or, will these potential cost savings be outweighed by a growing number of patients living longer with chronic conditions? What will be the impact of biosimilars? The answer to these questions lies in the future. Meanwhile, the challenge of effectively managing this benefit and the costs associated with it will continue to challenge those who are responsible for this benefit.

References

1. 2012 FDA drug approvals. Nat Rev Drug Discov. 2013;12(2):87-90.

2. Express Scripts Drug Trend Report website. http://www.drugtrendreport.com/specialty/specialty-drugs. Accessed February 15, 2013.

3. Artemetrx. Specialty Drug Trend Across the Medical and Pharmacy Benefit. http://www.artemetrx.com/docs/ARTEMETRX_Specialty_Trend_Rpt.pdf. Accessed February 18, 2013.

4. Specialty Drugs Appearing as the Next Wave of Health Care Costs. Workforce.com website. http://www.workforce.com/article/20120928/NEWS02/120929952/specialty-drugs-appearing-as-the-next-wave-of-health-care-costs#. Accessed February 15, 2013.