Re-Thinking Management Strategies for Specialty Drug Cost Containment

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A 2016 report by the Kaiser Family Foundation reported that approximately one-quarter of the people in the United States have difficulty affording their medications. For low-income individuals, the cost of prescriptions may have reached a tipping point; people whose annual incomes were under $25,000 were more likely to forego filling a prescription than people with higher incomes, and the reason they cite is high cost. The problem is, skipping medications can worsen health, leading to higher medical costs in the long run.

Can high drug costs prevent higher-cost emergency care later? In many cases, yes. 

Specialty drugs for treating inflammatory conditions, multiple sclerosis, HIV, and cancer represent the highest out-of-pocket costs for consumers. As a result, pharmacy spending under employer insurance plans accounts for nearly 20 percent of total healthcare costs, and pharmaceutical spending in the US is expected to rise by 34 percent from 2015 through 2020, an increase driven largely by specialty drug costs. Moreover, 42 percent of the later stage drug pipeline is made up of specialty drugs. How can employers help contain these costs, so their employees can benefit from these powerful medications?

Encouraging Participative Pricing

The chances of Medicare being able to negotiate drug costs are currently very slim, but doctors, private insurers, and Accountable Care Organizations (ACOs) can still collaborate with manufacturers on clinical studies to be better able to evaluate both outcomes and financial benefits of therapeutic specialty drugs. Some organizations are already doing this. The American Society of Clinical Oncology has an ongoing project to rate drugs in terms of cost-effectiveness, but such algorithms are only a starting point. It will take time for data to accumulate to help doctors understand total care costs with and without specialty drugs.

Supporting Extension of Accountability to Include Pharmaceuticals

Healthcare providers face greater accountability (in terms of reimbursement, pay-for-performance, and penalties) in today’s reimbursement environment, and some argue that pharmaceutical firms should share in this accountability. If a pharmaceutical product fails to yield sufficient benefits compared to costs, corrective measures, like additional treatment regimens at no further cost, may be a way for pharmaceutical manufacturers to share in healthcare outcome accountability.

Should specialty drug manufacturers share in healthcare outcome accountability? Some believe they should, as a way to help contain costs. 

Supporting Better Regulation of Generic Drug Costs

Monopoly-like environments can result from manufacturers exiting the market. Medicare is not allowed to negotiate drug prices with manufacturers, but it is possible price relief could be pursued as an antitrust issue. The chances of antitrust regulators setting price caps are greater than the chances of Medicare being granted authority to negotiate drug prices. What is more, antitrust regulators can thoroughly review merger proposals to ensure operating efficiencies would lead to more competitive drug prices rather than higher drug prices.

Understanding Both Medical and Pharmaceutical Spending

Employers and insurers must learn to understand the steep prices of specialty drugs in the context of costly treatment of conditions like cancer. Does a drug with a very high price prevent hospitalizations, surgery, or other high-cost treatments? If so, the high drug costs may be justified. Both medical treatment and pharmacy spend must be examined to determine if high drug costs offset other medical treatment spending. This is not easy or straightforward, but it could be a powerful proactive step that employers can take in managing costs.

Pharmacy spending accounts for about half of total medical cost inflation. Steps like participative pricing based on outcomes, inserting pharmaceutical companies into the accountability matrix, pursuing antitrust relief for generic prices that jump when manufacturers exit the market, and learning to consider pharmaceutical spending in the context of total healthcare costs and outcomes are ways that employers, governments, and pharmaceutical companies can ensure that specialty drugs are not priced out of reach of consumers.

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