One aspect of specialty drugs that makes management of their use and cost difficult is that many are covered as medical benefit under health plans, not as a pharmacy benefit. In Medicare, for example, many drugs administered in a physician’s office are reimbursed under Part B. As the use of specialty drugs rises, this problem has received special attention from PBM’s and other vendors. MagellanRx has issued a special trend report focusing solely on these medical benefit drugs, based on both a survey of benefit managers and a review of claims data. (Magellan Report) Drugs usually end up under the medical benefit because they have a route of administration other than oral and need special attention during or shortly after administration. They are typically injected or infused. The category continues to grow rapidly; of the new drugs approved in 2016, 13 were covered under the medical benefit and in 2015 these medical benefit specialty drugs accounted for 50% of all specialty spend. 4% of commercial members and 12% of Medicare beneficiaries end up with a claim under the specialty medical benefit.
Since 2011 medical benefit spend is up 55% for commercial payers and only 5% for Medicare, which sets prices by fiat. Of this medical benefit spending almost half is related to oncology for commercial payers and 57% is for Medicare. It is hard to understate the cost impact of these compounds. In 2015 the top 25 medical benefit drugs ranked by spending had an average per patient annual cost of $24,751 for commercial payers and $11,063 for Medicare. The ten single most expensive drugs by unit price averaged annual cost of $421,000 for commercial payers and $268,780 for Medicare. This is really just outrageous, there is no way these prices are justified by development costs and in many cases these medications are not curative and make only very incremental improvements in treatment outcomes. These drugs are dispensed not only in physician offices but as commonly in hospital outpatient departments, with some small home administration. For reasons that can only be explained by hospital market and political power, the same medical benefit drug administered in a hospital outpatient department often cost as much as two times more than when administered in a physician’s office. Commercial payers have to fight this as best they can, but it is inexcusable for Medicare to let this happen.
Payers use formulary preferences where they can, but these drugs often don’t have clear substitutes. They use prior authorization very commonly, and step edits, and other utilization management techniques infrequently. Member cost-sharing is also common and increasing, although given typical prices, payers are still responsible for well over 90% of total cost. Especially in oncology, payers have looked for new models of risk-sharing with providers to encourage them to utilize the drugs carefully. But given the pipeline for these drugs, very aggressive pricing controls are going to be needed to avoid having the system overwhelmed with the cost of the compounds.