Good News Bad News The High Cost of Specialty Drugs

Spending on specialty drugs continues to be one of the fastest-growing areas of health spending. In an August report, the Congressional Research Service (CRS) references data from IMS Health that found specialty drug expenditures grew 26.5% in 2014, while total US prescription drug spending rose 13%.

Behind the surge in cost are expensive new drugs to treat hepatitis C, cancer, and multiple sclerosis, as well as increased prices for brand-name medications. In a July issue brief on specialty drugs, America’s Health Insurance Plans (AHIP) reports that in 2014 the average monthly cost of commonly used specialty medications — which often require injections or infusions — ranged from $5,700 to treat neutropenia (a low white-blood cell count) to more than $105,000 to treat prostate cancer. While specialty drugs accounted for just 1% of all scripts written last year, they represented nearly one-third of total spending. And there is little relief in sight. An increase of 16% each year is forecast for 2015 through 2018, AHIP reports. Because specialty drugs are based on advanced research involving living proteins, opportunities for preferred alternatives and generic substitutions are limited.

For employers, increases in spending on drugs accounted for about 70% of the growth in overall medical cost in 2014, Mercer estimates. While it may be that higher spending on more effective drugs is actually helping to hold down other medical costs, it’s still worth taking a close look at your specialty drug claims and developing a strategy to restrain cost growth. Mercer’s National Survey of Employer-Sponsored Health Plans found that experience varied widely among large employers in 2014. About a quarter of large employers (23%) saw an increase in the average annual cost per employee for specialty medications at the last renewal — and among those, the average increase was a sharp 22% — up from 15% in 2013. But at the same time, another 23% reported that the average cost stayed the same, suggesting that some employers are having success in managing this substantial cost. (The remainder — 52% — don’t track the change in specialty drug cost from year to year.)

What can employers do? A first step is to determine whether specialty medications are best covered under your medical or pharmacy programs so you can steer members to the most appropriate source. Assess the impact and ROI of current utilization management programs. Consider various disease-specific support programs that may reduce costs, and check that all compound medications require prior authorization and that both quantity and dollar value limits are in place.

Over two-fifths of large US employers (42%) encourage plan members to fill their specialty medications through a specialty pharmacy, most commonly by excluding some or all specialty medications from the retail drug plan or medical benefit (22%) or by offering lower cost-sharing (11%) if the plan member uses the specialty pharmacy. Specialty pharmacies help control cost with such services as patient support and education to ensure compliance and monitor side effects, and specialized handling and distribution of medications directly to the patient or care provider.

Beth Umland
by Beth Umland

Director of Research, Health, Mercer

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