Specialty Drugs

What is a specialty drug? Specialty drugs made up less than 1% of all written prescriptions in 2014 (according to research by Express Scripts), yet this 1% of prescriptions accounted for 32% of total drug expenditures in the same year. Specialty drug costs are devastating to Medicare, Medicaid, private insurance, self –funded employer plans and workers compensation programs.

Specialty drugs are medications to treat chronic, rare or complex conditions like MS, hepatitis C, and certain cancers. They rarely have generic counter parts. Their outcomes in many cases are astounding. Case in point is the new drug for hepatitis C. A course of treatment will cost about $84,000 over three months. This is actually a cure, not something to simply make someone feel better. With that cure comes the elimination of future years on very expensive treatments and painful side effects. While there are some discount coupons available for some of these drugs, many remain very expensive. These drugs are essentially non-existent to those who cannot afford them or have a third party (insurance) that can pay the cost. The same Express Scripts report mentioned above notes that the new PCSK9 inhibitors for high blood cholesterol could eventually cost the health system and therefore the payers of healthcare as much as $100 billion a year.

Why do specialty drugs cost so much? All medications are becoming more expensive. Actually, the largest increases are in generic drugs. While generic drugs are desirable from a cost standpoint, it is not uncommon to see a 1,000% mark up on a generic drug. While the cost is low, they are a large volume piece of the pie. Without true transparency in pricing, pharmacy benefit managers will continue to use this area to create staggering profits. When it comes to specialty drugs, the end price is often arbitrary. In one case, someone bought a patent and decided to charge $1,000 a pill without any analysis of ingredient cost or research and development expense.

Most drug companies will explain they have an obligation to their stock holders and need to set a reserve to continue to research other drugs. For years the FDA has been a part of the problem in slow walking tests before approving a drug. This cost the developer a lot of money because they could not begin selling the product for years as they were waiting on approval. This has been addressed by Congress in a bill allowing manufactures to speed up the process on medicine that is specific for individuals with fatal diseases and a short time to try a new drug that might otherwise be considered experimental. For some reason, this new ability doesn’t seem to be adding a lot of velocity to the process.

How are specialty drugs impacting healthcare costs? Many of these drugs eliminate the need for surgery or expensive alternative treatment that must be performed on an out-patient or in-patient basis. This understandably cuts back on other medical costs. In some cases, the specialty treatment not only works faster but overall costs less. A 2015 AARP Public Policy report states that specialty drug therapy is 18 times higher than brand name prescriptions and 189 times higher than a generic. This reports shows that one drug costs $53,000 a year when the average household income that year was $52,250.

The number of people taking specialty drugs is also increasing. The same study showed the number of Americans taking at least $100,000 of medication per year tripled between 2013 and 2014.

What can an employer group do to combat the cost issue? First, embrace it. It is not going away. Second, understand it. Third, rely on professionals to assist with programs that will make sure the correct medicine is prescribed, administered correctly and purchased at the very best rate. It is here where an independent third party consultant can be invaluable.

One more word of caution regarding prescription costs in closing. In addition to specialty drugs, there is another class lurking in the pharmaceutical forest. The class is called “designer drugs.” This is not to be confused with illegal street drugs. These are real and very legal. Since the complete mapping of the human genome was completed on April 14, 2003, science has known it is now possible to develop a drug that will only work on one unique individual. There will be no side effects and the full strength of the medicine will target the issue for which it is developed. The medicine will not need FDA approval since it is designed for one individual only. All current drugs, including specialty drugs, must work on a range of individuals with tolerable side effects. With all of these regulations eliminated, the entire pharmacy world as we know it will disappear. How these are priced and the ultimate cost impact is unknowable at this time. As we look back on our lives and forward into the future, one thing is certain: change. In twenty, ten or even just five years from now, healthcare will look totally different than it looks today.