Specialty drugs have seen the fastest market growth of any drug category since 2004.  In fact, the rapidly growing research and development pipeline means that the number of FDA-approved specialty drugs will continue to increase. This includes orphan and ultra-orphan drugs that affect smaller patient populations so costs are spread out over a smaller number of individuals – as few as 50-100 patients. With the current lack of biosimilar availability for specialty drugs, there is limited competition and less than expected cost savings.

Read more about managing specialty drug costs here.

Factors Driving Overall Costs

There are significant shifts taking place in the drug industry, including:

  • Drug manufacturers are directing research and development investments away from conventional drugs towards more profitable specialty drugs.
  • Mergers and acquisitions among manufacturers and smaller research organizations are leading to rapidly accelerating drug research.
  • The process to research, develop and manufacture a specialty drug is more complex and expensive than conventional drugs, making for a higher cost per unit.
  • Specialty drugs for treating conditions such as rheumatoid arthritis and multiple sclerosis (immunologic) and various cancers (oncologic) will continue to make up approximately two-thirds of drug spend within the pharmacy benefit over the next several years.
  • Venture capitalists and other private investors are making significant financial investments in this growing sector.
  • Revenue pressure will continue to drive mergers and acquisitions of PBMs, specialty pharmacies, hospitals and manufacturers.

Employer Considerations for the Future

Since specialty drugs will continue to be the main driver of overall health care benefit cost trends for employers, for both medical and pharmacy benefits, employers need to implement benefit design changes sooner than later.  Consider the critical and key elements below when planning or implementing your benefit plan design strategy, ensuring each element focuses on total cost management, optimizes patient care and improves plans performance.  These examples represent what can be done today to enable change to occur:

Critical Elements

  • Identify if benefit coverage and plan design efforts are achieving desired outcomes.
  • Determine what specialty drugs costs are hidden in the medical benefit.
  • Ensure drug formularies are based on value (e.g. clinical efficacy, cost and patient safety) NOT on PBM rebates or contract discounts from the manufacturer.
  • Ensure plan members are appropriately incented to use lower cost services (e.g. targeted sites of care for drug infusions) that includes the patient as a risk partner.
  • Get vendors to provide actionable data and real-time reporting, and then using that data to identify and understand the total costs of care.

Key Elements

  • Address the lack of transparency in drug pricing, rebates and vendor contracting.
  • Determine if existing patient programs are robust enough to positively impact costs and patient outcomes, especially for those employers who are paying for the patient programs.
  • Adopt coverage and benefit policies that drive effective use of drugs, patient adherence programs and require mandatory use of integrated specialty pharmacies.
  • Integrate outcomes-based and performance-based contracting and/or risk sharing with payers, providers and manufacturers.

The next section of this toolkit will explore the elements above more fully and provide guidance and examples to aid you in your benefit decision-making.