- A complex industry has developed to manage the delivery and costs of the therapeutic innovations in specialty pharma
- Healthcare payers are focused on managing specialty pharma spending, their most rapidly growing medical cost
- The accelerating pace of change and disruptive therapeutic advances create significant opportunities across healthcare delivery
Pharmaceuticals are central to the effort to improve medical outcomes and control medical costs. Recent patent expiries of “blockbuster” pills (small molecules) such as Lipitor, Plavix, Singulair and Zyprexa highlight the industry’s ongoing reorientation toward development and marketing of specialty pharmaceuticals (large molecules). These large molecules, usually monoclonal antibodies or other disease-modifying agents delivered by intravenous injection or infusion, and increasingly orally, represent the highest achievement in our understanding of human genetics. The diseases the drugs treat have many symptoms and manifestations, and the drugs can dramatically ease the heavy burdens borne both by patients and healthcare systems. Many have been and are being developed with companion diagnostics to target patients whose genetic makeup (biomarkers) suggests they will respond to treatment. These pharmaceuticals comprise not only the fastest-growing area of prescription drug sales, but also the fastest-growing area of the healthcare service companies that manage them from distribution to patient administration to payment. Specialty drugs often cost tens of thousands of dollars per treatment year, and, for some rare diseases, can exceed several hundred thousand dollars. This article focuses on the increasingly complex industry that has developed to manage the delivery and costs of the rapid therapeutic innovations of the past several decades.
CVS Caremark, one of the largest providers and payment managers of specialty drugs, estimates that specialty drug and related medical support spending in the U.S. alone will grow from $92 billion in 2012 to $235 billion in 2018 and from 30% to 50% of total drug spending over the same period. Specialty drugs now comprise about one-half of all new drug launches. 24% of total prescription volume is described or defined as specialty. The average specialty prescription costs $2,000, well above the $68 blended average cost of oral solids (small molecules) dispensed as brands or generics. The leading specialty drug categories are oncology, autoimmune (rheumatoid arthritis, for example), and central nervous system (multiple sclerosis). A sub-sector within specialty that is growing even faster is “ultra orphan” drugs, those costing hundreds of thousands of dollars annually for chronic treatment and for which there is virtually no competition.
Specialty growing in absolute dollars and percent of drug spend
Payers are intensely focused on managing specialty pharmaceutical spending, their most rapidly growing medical cost. A Milliman study estimates that 3.6% of health plan members account for 25% of total healthcare costs, and that nearly 30% of this spending is on specialty drugs. High-cost specialty medications require special management, including patient identification and support, infusion, rare but serious side effect monitoring under FDA supervision and logistics like temperature sensitivity. Care is increasingly delivered at skilled nursing facilities, rehab centers, hospital-based doctor offices, imaging centers and the patient’s home.
Healthcare payers are managing the costs of specialty pharmaceuticals via the establishment of strict formularies (essentially narrow drug lists that enable purchasing efficiencies) and pricing leverage. Narrower formularies make it more difficult to raise prices, even in sole source or minimally competitive categories, as do higher patient deductibles and copays, though these are reached quickly due to high specialty drug prices. Sophisticated claims management technology includes prior medical and payer authorization before medicines are dispensed and the use of strict guidelines to qualify patients, often called step therapy. Pharmacy benefit managers (PBMs) drive specialty therapeutic effectiveness and improved outcomes for patients and payers by monitoring patient adherence, that is, getting patients to engage more in self-care by taking their medicines and appearing for their treatments (adherence), monitoring and reporting side effects, and refilling prescriptions. These efforts lead to reduced disease-related hospital admissions and fewer emergency room visits and readmissions.
When the FDA approves more specialty generics, called biosimilars, PBMs and other service companies will be at the fore of promoting the interchangeability of biosimilars with their respective innovator products, distributing these lower-cost drugs and monitoring their effectiveness and economics. Overall, the accelerating pace of change and disruptive therapeutic advances create significant opportunities across healthcare delivery. The imperatives for care delivery in more cost-effective settings, driven by serious public health issues, demographics and increased consumerism, are compelling the rapid transition from fee-for-service to outcomes-based payments. There are large financial incentives for innovative therapeutics and service companies across specialty pharmaceuticals, the leading edge of 21st century medicine.