Specialty Drug Pricing

Now this report is from the trade association for health plans, so it should be viewed skeptically, but the data is the same that you get from other sources which are unlikely to share the same bias.  And the raw data on what is paid for specialty drugs is consistent with the idea that whoever pays for this is just getting ripped off in a major way.  Specialty drugs are those that typically aren’t pills and require special handling and administration, like an injection or infusion.  They are very common now in cancer treatment and as therapies for conditions such as arthritis.  Their price tags are astronomical, and while they are a small fraction of all prescriptions, they now account for over half of all drug spending.  It is not uncommon for a course of treatment or the annual cost to exceed tens of thousands or hundreds of thousands of dollars.  And patients bear part of this cost.  Some have now gone off patent, but creation of generics, referred to as bio-similars, has been slow.

The way drug companies price these medications is bad enough, but because most are administered in doctors’ offices, hospital outpatient clinics or specialty pharmacies, huge markups are common.  What this means is that while the drug company would be happy to be paid price X, the provider is marking that up to X plus Y, with Y often being 25%, 50% or even more.  The pharmacy benefit managers do little to control these costs because they make lots of money on rebates and other fees.  The report, put together by Oliver Wyman, a respected actuarial firm, compares the costs to payers for specialty drugs delivered in a specialty pharmacy or a hospital outpatient center.

Specialty pharmacies aren’t necessarily the lowest cost provider but they are a net $13 billion cheaper than other delivery locations.  The savings if only specialty pharmacies were used is .7% of ALL health care spending in the US.  It amounts to a $50 annual premium saving for single coverage and $175 for family coverage on health insurance.   Congress has dawdled over even forcing Medicare and Medicaid to pay the same amount for drugs no matter what location they are delivered at, and to have that amount be the lowest price paid anywhere.  These markups should be completely banned.  There is no provider cost justification for the markup.  No insurer or government program should pay more than the cost a manufacturer is willing to accept following negotiation.  The amount of health spending represented by these drugs is only going to grow, so controls need to be enacted now.   (AHIP Report)