With specialty drugs expected to account for as much as half of total drug expenditures in the next few years, plan sponsors are duly concerned about managing the financial effects of these high-cost medications. Half of large employers say the cost of specialty medications is their second or third highest cost-driver, behind high-cost claims and special conditions, according to a survey from the National Business Group on Health. Forty-three percent, meanwhile, developed a specialty pharmacy cost management strategy for 2014 and another 18% are planning to do so this year.

Specialty medications treat complex conditions such as hepatitis C, multiple sclerosis, cancer, HIV and rheumatoid arthritis and often require special handling, storage and administration. The Pharmacy Benefit Management Institute estimates specialty medications, which currently make up about 30% of total drug expenses, will increase to 50% or more of total drug expenditures by 2017 or 2018.

Also see: How specialty drugs are changing the role of the benefit adviser

And while specialty medications can provide good clinical outcomes in some patients – Hepatitis C drug Sovaldi, for example, has been found to eliminate the virus in about 90% of patients who use it alongside another drug – the cost of these drugs is steep. A 12-week treatment course of Sovaldi can cost upwards of $84,000.

Specialty medications are “a very small percentage of employers’ claims, but the represent a significant amount of their drug spend,” says Allan Zimmerman, national pharmacy practice leader with consulting firm PricewaterhouseCoopers. And, he adds, the solutions for controlling specialty spend have been “somewhat elusive.”

Specialty drugs are sometimes billed under the medical benefit, rather than the pharmacy benefit, making it difficult for plan sponsors to get a true understanding of their total spend. As a cost containment strategy, the majority of plan sponsors (90%) use prior authorization for specialty drugs billed under the pharmacy benefit, according to PBMI research. Other management tactics include using preferred formularies for specialty drugs, clinical care management programs, step therapy and limiting specialty products to a 30-day supply.

“One of the challenges is that payers often have fewer lower-cost alternatives [to specialty drugs] because there isn’t a generic alternative available,” says Sam Stearns, director of analytics at Verisk Health, a data analytics firm.

Also see: PBM expands access to specialty meds at retail pharmacies

And yet even cost management tactics such as prior authorization and step therapy don’t always work as well as they should, says Dr. Brenda Motheral, president and co-founder of Artemetrx Specialty Drug Solutions, a consulting firm that works with employers nationwide, who notes that pharmacy benefit managers aren’t effectively enforcing prior authorizations. And while that lax enforcement might not be such a big deal for traditional drugs, it’s a different story with specialty drugs because of their higher costs.

“In that PA process, if the PBM doesn’t require documentation of the diagnosis or the lab values or the disease severity – if they just rely on what the physician’s office tells them – then they’re not effectively enforcing the PA,” she says, adding that plan sponsors cannot assume the prior authorization process is being used effectively.

“Employers have to start to monitor – in essence, audit – their PBMs and prior authorization processes,” she says. “It’s still very rare. It’s only been within the last six months that there’s starting to be an awareness of the need for this to happen. At this point, it’s typically your largest employers who have started doing it. But it’s important for all employers to understand this is going to have to become part of the oversight of their vendors going forward.”

V-BID defined

But by focusing exclusively on the cost of specialty drugs, plan sponsors and others in the health care industry may be missing the bigger picture, believes Mark Fendrick, M.D., director of the University of Michigan’s Center for Value-Based Insurance Design.

“We need to change the conversation from how much things cost to how much health they produce,” he says. “Just because something is expensive or inexpensive – whether it be a computer or a car or a restaurant meal – doesn’t automatically mean it’s good or bad.”

Also see: Value-based insurance design gains momentum

In a nutshell, value-based insurance design aims to reduce barriers to services and providers that offer high value, while discouraging the use of services and providers that are lower value. It’s based on the concept of clinical nuance – that medical services can differ in the benefit provided, and that the clinical benefit derived from a specific treatment depends on a number of factors, including the characteristics of the patient receiving the treatment, who provides it and where the services is delivered.

V-BID programs have been shown to increase drug adherence, particularly among those with chronic conditions. In one retrospective study from Walgreens, employees enrolled in a V-BID program that offered zero copays on certain diabetes and high cholesterol drugs had higher adherence rates than those not enrolled in the program. In the case of the diabetic patients, the adherence rate was 70%, compared to 45% for those not enrolled in the V-BID program.

“Given that specialty drugs in general cost so much more, we need to continue to expand this V-BID principle of clinical nuance – that medical services differ in the clinical benefit they provide,” says Fendrick. “Some doctor visits, some diagnostic tests and, in the case of specialty pharmaceuticals, have much different value.”

Also see: Health care cost increases driven by specialty drugs, economy

V-BID applied to specialty

Fendrick is the co-author of Supporting Consumer Access to Specialty Medications Through Value-Based Insurance Design, a report which outlines four ways payers and purchasers can apply V-BID concepts to specialty drugs:

1. Impose no more than modest cost-sharing on high-value medications. Plans with three or more drug tiers have become the norm, and cost-sharing varies among tiers. Within specialty tiers, drugs are often subject to coinsurance rather than flat copays. Abolishing four- and five-tier rankings would promote access to all medically necessary treatments, although the white paper acknowledges this approach may limit the possibility for clinically nuanced differentiation among treatments within the tiers.

“The fact that people pay the same coinsurance for a drug that will cure cancer 90% of the time as one that will never cure a case doesn’t make any sense to me at all,” says Fendrick. “We have to change the cost-sharing dynamic in this country.”

Also see: Zero copay program achieves better patient adherence

2. Reduce cost-sharing in accordance with patient- or disease-specific characteristics. “If this is a service I would beg my patients to do, these are the services I believe should have reduced cost-sharing,” says Fendrick.

3. Relieve patients from high cost-sharing after failure on a different medication. “I call this ‘reward the good soldier’,” explains Fendrick. “The patient tries the less expensive medicine and if it doesn’t achieve the clinical outcomes that are desired, then the patient gets a break.”

4. Use cost-sharing to encourage patients to select high-performing providers and settings. “It’s not the services, per se, but going to the places that have the best outcomes, the ones that have the fewest adverse effects,” says Fendrick. “Sometimes, for example, it’s better to go to a community-based infusion center than it is to go to an academic hospital.”

Among the best performers in the NBGH survey – those employers who have managed to keep their overall pharmacy spending low – 21% are planning to use some sort of value-based benefit design in 2015, says Shari Davidson, vice president with NBGH. “That was across all pharmacy, not just specialty,” she notes.

Also see: Specialty pharmacy: You can’t manage what you can’t measure


PwC’s Zimmerman says that while value-based insurance design for specialty drugs is not common at this point, it will have to become more common in the future. One of the challenges, he maintains, is the lack of evidence-based research demonstrating V-BID’s value in specialty pharmacy.

“To really execute on a V-BID [strategy], you really need to rely on evidence-based research [and] effectiveness studies and if those studies exist and demonstrate value, then it would certainly make sense to incent the use of those particular products,” he says. Short of that, he continues, it’s very difficult for plan sponsors to pick and choose which drugs or disease states should be subject to V-BID, given that these specialty drugs are used to treat very severe diseases.

Another reason V-BID in specialty isn’t yet widely used, believes Fendrick, is that it requires all stakeholders to be on the same page – no easy feat in health care or benefit plan design. The employer, the health plan and the PBM need to work together “and that may be one of the reasons inertia is hard to overcome, because you need various people to pull the levers,” he says. 

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