Specialty prices, cost shifting raise alarms

Specialty and biologically engineered medicines have been a boon to millions of Americans with life-threatening and life-altering conditions. But their lofty prices are squeezing patients and payers and spawning a growing legislative backlash that threatens insurers and employer-based health plans.

“The imperative to find cost-effective alternatives to biologics reflects the growing demand for these specialty drugs,” IMS Health noted. “Since their origins in the 1980s, biologics have prospered into a U.S. $138 billion market [in 2010].”

There’s no question payers, patients, managed care organizations, insurers and pharmaceutical companies will have to eventually come to some workable arrangement that will allow the flow of needed specialty meds to continue, at a cost that can be borne by patients and their health plan sponsors. According to IMS Health, these drugs account for just 1% of total units dispensed but already generate 17% of pharmaceutical cost outlays by insurers. By one estimate from Express Scripts, specialty and biotech medicines will account for 40% of what payers spend for drugs by 2014.

“Although prevalence of specialty medication utilization is relatively low at the population level, … costs are high — averaging $1,766.79 per prescription,” Express Scripts noted in its “2012 Drug Trend Report.” “The top three specialty therapy classes (i.e., inflammatory conditions, multiple sclerosis and cancer) each had trend [price] increases of more than 15%. Hepatitis C, which had the greatest increase in trend of 194.8%, was influenced by the release of two new oral drugs: Incivek (telaprevir) and Victrelis (boceprevir).”

To cope with the rising costs, a growing number of employer-sponsored health plans are adjusting their drug coverage for their highest-cost employees and retirees. That means adding a fourth tier to drug plans to account for specialty medications and charging patients higher co-pays of up to 30% or more of the cost of those drugs.

For patients who depend on the highest-price specialty pharmaceuticals, that could easily generate thousands or tens of thousands of dollars in out-of-pocket costs. A Kaiser Family Foundation survey reports the number of American workers now in a four-tier health plan has doubled to 14% over the past five years.

“There’s no question … that management is getting more aggressive” in controlling costs for cancer treatment, for instance, noted Mark Zitter, founder and CEO of The Zitter Group, a benefits consulting firm. Nevertheless, an April report from Zitter on controlling oncology costs noted, “despite their expanded use of [average sales price] reimbursement, coinsurance-based cost-sharing and prior authorizations, payers have been unable to rein in costs” for their plan members who are dealing with cancer.

The problem of higher out-of-pocket costs for individual health plan members is well-documented. “Companies anticipate that employees’ out-of-pocket expenses will rise to 18% of total allowed charges in 2012,” the National Business Group on Health noted. “Altogether, the share of total healthcare expenses paid by employees, including premium and out-of-pocket costs, is expected to be 34.4% in 2012, up from 33.2% in 2011.”

Alarm over rising co-pays and premiums is getting attention from many state lawmakers. According to the New York Times, at least 20 states have introduced legislation to limit out-of-pocket costs for consumers for high-ticket specialty drugs, and at least two — New York and Vermont — have enacted permanent or temporary measures to cap co-pays or ban four-tier plans.

Employer-based health plan sponsors, insurers and managed care organizations, however, flatly reject charges that they’re unfairly shifting cost burdens onto patients. The real problem, they argued, lies with the biotech manufacturers that set prices.

“This is a pricing issue, not a coverage issue,” asserted Mark Merritt, president of the Pharmaceutical Care Management Association, which represents pharmacy benefit managers. “We’re getting savings where we can, but fundamentally, the cost sharing is a symptom of the problem, not the problem, and it’s really not a channel or distribution issue; it’s really just very expensive products for a small population, and it’s something payers are grappling with.”

One development that will relieve some of the upward pressure on these hugely expensive drugs will be the increasing use of biosimilar medicines, which, like generics, mimic the properties of patented pioneer products and offer competition that reduces market pricing, sometimes dramatically. IMS Health predicted “accelerated growth over the next decade and beyond” for me-too biotech drugs, to as much as $2.6 billion in annual sales by 2015.

“Although currently small and narrowly focused on a few disease areas and countries, the biosimilars opportunity is set to expand as patents expire on leading biologics, U.S. legislation comes into effect and payers push for their wider adoption to manage burgeoning costs,” IMS reported late last year. “Potentially, this market could be the single fastest-growing biologics sector in the next five years.”