One of the difficulties in managing use and cost of specialty drugs is that many are paid for under the medical benefit due to special handling or administration needs. So traditional PBM or other drug management strategies don’t often reach those drugs. Now, however, because of their explosive growth, more firms are focused on how to manage across medical and pharmacy benefits. A report from Magellan Health talks specifically about medical benefit drug trend. (Magellan Report) The survey covered 48 plans with over 125 million covered lives. Most of the responses relate to large or very large insurer organizations and about 60% of the covered lives are fully insured. Over 50% of total specialty cost is covered under the medical benefit. Over the last four years medical benefit specialty pharmacy trend has been 9% to 13% for commercial members and around 3% for Medicare ones. In 2013, 49% of medical pharmacy costs were billed from hospital outpatient departments for commercial members and 35% for Medicare ones. Hospital outpatient costs for the same drug can be twice as expensive, or more, than for the same drug in a physician office setting. Many of these medical benefit drugs are for oncology, 52% of commercial costs and 60% for Medicare, and payers say that hospitals are buying up oncology practices, which typically then shifts the billing to hospital outpatient and raises costs. For the top ten specialty drugs in medical benefit spend, many of which are cancer medications, the average per patient yearly cost is over $100,000.
Payers are responding to the rise in medical benefit specialty drug costs by using formularies with preferred products, 90% of covered lives have this design, and more are starting to look at varying cost-share by site of service, which seems like a no-brainer, but only 19% of payers were doing this in 2014, although 13% more said they intended to adopt this approach in 2015. Given the wide spread in drug costs, patients should be strongly incented to use physician’s offices. Prior authorization and step edits are also used to encourage patients to get prescriptions for preferred formulary drugs. Many plans do receive rebates on these drugs, which indicates some success in driving use to the preferred compounds. The specialty drug pipeline is full and a large number will be approved in the next few years. These drugs are already a real spending issue, and not just for plans. Patients typically have very high copays, often deductibles and even coinsurance. While they can make a meaningful treatment difference, regulators should permit and encourage anything that helps keep the prices down, for example stop letting hospitals buy oncology practices and mandate that reimbursement in all settings will be what it is in the cheapest setting. That alone could save billions of dollars across the system.