By Stanton R. Mehr
President, SM Health Communications
The extent of the problem is considerable. Even those tracking it for many years are alarmed at its size and how fast it’s growing. In 2012, only 1-2% of patients used specialty pharmaceuticals, yet they accounted for 28% of total pharmacy expenditures. By the year 2019 or 2020, specialty pharmaceuticals will account for one half of all pharmacy costs. This will be fueled by their high costs and the magnitude of the drug pipeline, pushing new drug launches every year. To add to the cost nightmare for payers, most of the specialty drugs require regular monitoring and lab testing.
I used the term cost nightmare because it really is. But not just for payers. For patients and providers as well. Payers acknowledge that for many disorders, like rheumatoid arthritis and cancer, the specialty pharmaceuticals represent some of the most effective medications available. However, costs for these products are so radically higher than for traditional drugs, that they feel obligated to apply crude utilization management tools, like prior authorization and step therapies, to try to restrain inappropriate use. The problem is, in doing so, they are viewed by patients as preventing access to necessary treatments for serious disorders, even if that is not the case. Furthermore, they cannot cost shift much more than is already being done.
How much can patients afford to pay? Is 20% of a therapy that costs $2,500 each month reasonable? Jan Berger, MD, JD, a well-respected editor and former medical executive, said it best: “How many times will a patient write that $500 check? Maybe for the first month. Possibly for the second month. I’d don’t see it happening in the third month.”
And providers are not immune to challenges associated with specialty drugs. The average oncology office spends hours each day working through the insurance bureaucracy of precertification, prior authorization, and step therapy call backs. They are pressured to relinquish their buy-and-bill revenue stream (if one remains) and are heeding the call of consolidation with other like-minded physicians or selling their practice to hospital systems.
As of March 31, 2014, 7 million newly insured Americans have entered the health system, and according to Express Scripts, the early returns show that a greater proportion than expected are utilizing specialty drugs. The system cannot sustain these costs for very long.
All of these stakeholders are turning to the manufacturers. The spotlight on them has brightened recently because of the attention paid to outsized prices for the medications they are introducing. Gliead’s oral hepatitis C medication, at a retail price of $84,000 per course of treatment, or $1,000 a pill, helped set the fuse. Assuming that over the course of time, Sovaldi is found to actually save money by avoiding other treatments like liver transplant, there is still no explanation of how patients will afford the co-insurance upfront. For the patient and provider, the least cost-effective medication is the one that is never taken. That may not be the case for the payer.
In any case, the burden of proof will be on the manufacturer to demonstrate value (not incremental value but real, significant value for the money paid). For the manufacturer of specialty drugs, that generally means one of two approaches: (1) Finding a subgroup of patients in whom real, or at least optimal, improvement is seen, which implies biomarker identification and patient testing and (2) proving that the downstream benefits of the specialty product exceed its costs. As we’ve already discussed, the downstream benefits need to be astounding to convince payers. For example, if Sovaldi cost $8,000 for a course of treatment, no one would question its value in therapy and perhaps even when it should be used. Even at that price, some patients may balk at a $1,600 out-of-pocket price tag.
However, manufacturers need to pay for clinical trial development and consider the number of patients who may benefit from a specialty drug (and calculate a tidy profit for the shareholders). The question of patient affordability will eventually enter into the equation, because it certainly is not yet present. Yet, physicians in several specialties are acknowledging that the question of affordability has entered the doctor’s office, and with a drug formulary, this can dictate which treatments are prescribed.
The manufacturers have avoided another approach that helps payers cope with the large price tag of specialty products: Outcomes- or risk-based contracting. This “putting your money where your mouth is” approach attacks the challenge head on. If the drug works, based on contractually agreed upon markers of improvement, the manufacturer is paid full price (and perhaps can justify a higher price than originally considered attainable). If the drug does not achieve this outcome, it is free of charge. There might be some middle ground as well, depending on the disorder treated (e.g., partial payment for a degree of function or improvement). Agreeing on outcomes measures, the amount of administrative work needed by payers to measure outcomes, and the ability to employ better therapy decision making models are the devilish details that must be mentioned.
For the payer, this is value. For the manufacturer, it enforces a focus on the right patient for their specialty agent. For the health system, it helps control an unsustainable cost trend.
1. How do you define a specialty medication? What are its characteristics?
2. Do you believe we're approaching a reckoning, where the cost of these agents will be unsustainable?
3. How does your organization try to ensure the value it receives from a hepatitis C drug like Sovaldi?
SM Health Communications provides writing, consulting, and innovative market research services for the payer markets. Its proprietary P&T Insight™ virtual P&T Committee program is the leading mock P&T Committee product in the field. For more information, please visit www.smhealthcom.com or contact Stanton R. Mehr, President, at firstname.lastname@example.org.