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Managing the Rising Cost of Specialty Drugs 6/13/2018

Rising Costs

By Anthony Colantino, Employee Benefits Advisor

As employers look ahead to the future, many are concerned over the threat of shrinking profit margins in the wake of continually rising medical expenditures. A large part of these outlays stem from skyrocketing pharmaceutical costs. Ironically, less than one percent of Americans account for more than 20 percent of total spending on prescription drugs, according to a recent report by Express Scripts, a pharmacy benefits manager (PBM). But, these few individuals each incur more than $50,000 annually in prescription drug costs.

The primary driver of increased expenses? Specialty medicines for cancer, hepatitis C, multiple sclerosis, and other critical illnesses. In fact, specialty pharmacy revenues are expected to rise from $115 billion in 2016 to $212 billion in 2020, industry experts note. It’s no wonder that nearly two-thirds of all employers ranked managing specialty drugs as a top priority in a recent poll by Midwest Business Group on Health. Although these high-dollar medications can mean the difference between life and death for plan members, the lack of controls and resulting astronomical price increases have left insurance companies and employers footing a hefty bill.

No Roof on Costs
Drug manufacturers claim the high prices are necessary to recoup the cost of research and development, but a dramatic spike in costs in just the past few years points to another trend. Price gouging related to specialty drugs may be highly unethical, but it is not illegal, and until recently has gone mostly unchecked.

In 2015, the price of Daraprim (pyrimethamine) skyrocketed from $13.50 to $750 per tablet after Turing Pharmaceuticals acquired marketing rights to the medication, which is commonly used in the treatment of HIV/AIDS. Similarly, Mylan Inc. was the focus of public outrage in 2016 after the pharmaceutical marketing firm jacked up the price of EpiPen emergency injectors to $600/pair, a six-fold increase from the price in 2007. The automatic injector is used to deliver a life-saving dose of the generic medicine epinephrine to an individual suffering from allergy-induced anaphylactic shock. Pfizer, the drug’s manufacturer, owned more than 90 percent of the market last year, with no competition on the immediate horizon, giving the manufacturer and its marketing arm nearly insurmountable leverage in deciding what to charge. (The cost has since been reduced, following extensive scrutiny of the price increase by the media and federal lawmakers.)

Other factors driving up the price of medications relate to what qualifies as a “specialty drug.” For example, some manufacturers are combining common medications for which generic options are available into new drugs that are they classed as specialty medicines. In other cases, they may change the way a drug is administered—introducing a topical version of a medication previously only available in oral form, for example—and then classifying the new formulation as a specialty drug with a premium price tag.

Conflicts of Interest

The lack of checks and balances in how these medications are prescribed by doctors and approved by plan providers costs employers millions of dollars annually in potentially unnecessary medical expenditures for health care benefits. Many of our clients now see roughly half of their total benefits spend tied to pharmacy, compared to 15 to 30 percent of spending four years ago, and they are desperate for a solution to stop the bleeding.

Larger employers often try to mitigate costs by using a pharmaceutical benefits manager, but the practice is increasingly ineffective because of conflicts of interest built into the compensation structure. Pharmaceutical companies offer insurers and PBMs big discounts and rebates to ensure their drugs are included on formularies or insurance plans and drive profits. They then incentivize PBMs to authorize specific drugs for patient use by tying compensation to the available rebates. The result is a classic case of the fox guarding the henhouse. While employers rely PBMs to help manage drug costs, PBMs literally are being paid to approve and dispense more expensive medications. Meanwhile, even with high deductibles, plan members mostly are oblivious to the expense, because their insurance company covers most of the cost.

Objective Analysis
An innovative method of introducing controls into this process is the use of evidence-based pharmacy risk management. In this model, an objective third party, MMA Rx Solutions, confirms that prescribed medications not only are safe and effective, but also appropriate for each patient and the stage of their health condition, based on the latest research on drug outcomes. For example, Marsh & McLennan Agency has gathered data through a joint collaborative with the University of Arkansas Medical Sciences College of Pharmacy to provide employers with independent and unbiased assessments of drug suitability for plan members prior to authorization and release by the plan’s PBM.

This approach can slash employer outlays for pharmaceutical expenditures exponentially while still ensuring that all parties are acting in the patient’s best interest. A recent analysis comparing one employee benefit plan’s actual PBM claim data against MMA Rx Solutions’ evidence-based research of more than 1,500 drugs revealed the remarkable potential for cost savings:

  • $2.13 per script with the adjusted plan compared to $42 per script on the current plan for antihistamines.
  • $1.15 per script with the adjusted plan compared to $217 per script on the current plan for anticoagulants.
  • $21 per script with the adjusted plan compared to $187 per script on the current plan for gastric acid reducers.
  • $17 per script with the adjusted plan compared to $138 per script on the current plan for overactive bladder medication.

Similarly, a case study analysis of a school district with a 6,000-member health benefits plan revealed a total savings opportunity of more than $612,000, after reductions in specialty drug and formulary costs based on current research of drug efficacy and available alternatives. A separate analysis of authorized specialty drug and formulary prescriptions for a health system with 12,000 plan members showed potential savings of 26.46 percent and 13.06 percent, respectively. That amounts to nearly $3.3 million in annual savings by implementing the evidence-based approach, which requires clinical review and prior authorization of prescribed medications in advance of acting on the PBM’s recommendation.

Improved Cost Savings

Marsh & McLennan Agency recently added new specialty Rx programs to MMA Rx Solutions offerings, enabling us to offer these cost-saving measures to our clients. In addition to managing PBM performance, MMA Rx Solutions clients benefit from expert review and negotiations on pharmacy contracts, more plan control and customization, and better cost and trend management through proprietary analytics, among other features. The result is a typical net savings of 12 to 20 percent on their pharmacy contract. To learn more about evidence-based pharmacy risk management and how we can help your company save thousands on health care expenses, please call our office to speak with a member of our Employee Benefits team.