How to Manage the Rising Costs of Specialty Drugs 

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Feb 2, 2021

The cost of prescription drugs has risen significantly in recent years, imposing a financial burden on employers and their members. In fact, pharmacy benefits now account for an average 21 cents of every healthcare dollar. The most significant driver of prescription-drug spending is the rapid growth in the innovation, availability, and use of high-cost specialty medications over the last 10 years. 

With groundbreaking advances in areas such as cancer and rare diseases, new therapies can be lifesaving, but they come at a substantial cost. Specialty drugs now account for over 40% of pharmacy spend, but less than 2% of prescription drug claims — meaning that a small portion of an employer’s members or drug claims often accounts for the largest portion of its pharmacy benefits costs. 

What’s more, spending on specialty medications is forecasted to continue increasing 15% year over year. This alarming fact is often why employers feel as though their pharmacy spend is spiraling beyond their control. 

Many HR leaders are in a challenging situation, as they need to reduce the high cost of pharmacy benefits without leaving employees vulnerable. Specialty drug costs are of particular concern, as they often worry about how the cost of new medications will affect their already tight budgets. However, simply transferring costs to members is not an effective strategy, as Gallup has indicated that 1 in 5 adults say they or someone in their household was already not able to afford a drug prescribed to them last year. 

So what can HR leaders do to reduce pharmacy-benefits costs while continuing to provide employees with a rich benefit?

Developing a Proactive Pharmacy Strategy

A proactive pharmacy strategy requires a comprehensive approach to pharmacy benefits that includes both in-depth contract and clinical oversight, and it begins with carving out your pharmacy benefits.

Carving Out Pharmacy Benefits

From a contract perspective, simply paying a premium and taking the prescription drug plan offered by the medical insurance company may sound like the most convenient approach to managing pharmacy benefits. However, most pharmacy strategies apply a large population approach to managing clinical outcomes and drug trends. 

This traditional, one-size-fits-all model of pharmacy benefits management is no longer as impactful as it once was and may be costing you more unnecessarily. In fact, small to mid-size self-insured businesses with carved-in pharmacy plans — meaning, bundled with the medical carrier — end up paying an average 25% to 30% more in annual costs than necessary. And as drug costs continue to rise, keeping your pharmacy benefit carved-in with your medical carrier severely limits your options. 

A good first step to proactively managing your pharmacy strategy is to consider carving out your pharmacy benefits. A carve-out arrangement is one in which you break out your pharmacy from your medical benefits plan by working with a pharmacy benefits optimizer (PBO), employee benefits consultant, pharmacy consultant, and/or third-party administrator to negotiate a contract directly with a pharmacy benefits manager (PBM). This approach enables you to obtain more visibility and control of your plan’s design and costs. Employers with self-funded, carved-out pharmacy programs have full control over selecting their pharmacy benefits partner, pharmacy network, drug formulary, clinical oversight programs, stop-loss carrier, and more.

Obtaining a Transparent Contract

With greater control over the prescription drug program comes greater control over the pharmacy benefits contract. Visibility into your pharmacy arrangement is critical to evaluating whether you have a contract optimized for your employees’ specific medication needs and your financial objectives. Given the inherent complexity and nuanced language used in most PBM contracts, there are several common pharmacy contracting pitfalls to avoid. You can identify these by asking the following types of questions:

  • What are the pricing terms and client-level guarantees?
  • Are specialty drugs excluded from the pricing and rebate guarantees?
  • How are generic and brand drugs defined? 
  • Do you have an opportunity to customize the formulary?
  • What are your rights to audit, perform periodic market checks, and exit the contract, if necessary? 

Contracts often contain complex legal language that makes it challenging to identify exactly what you are getting in the arrangement. It’s important to apply a keen eye and expert insight, question the specifics of your contract, and ensure the terms are written in your best interest.

Developing a Tailored Clinical Strategy

It’s also critical to manage your plan strategically from a clinical perspective. “Set it and forget it” does not work with pharmacy benefits.

HR leaders often feel caught between a rock and a hard place when it comes to drug access and cost, believing that they need to either maintain open coverage to keep members happy — which comes at a significant cost to the employer — or close off access completely to lower their spend. There is, however, a middle ground to balance costs with access. In fact, tailored clinical strategies can generate savings of up to 7% to 10% with minimal member impact.

A key component in building your clinical strategy involves improving visibility into your current pharmacy spend and implementing safeguards that can address both current and future challenges. This begins with identifying risk areas through an analysis of your plan’s prescription claims data. Such an analysis can help you determine which drugs and drug classes are driving plan costs. Many times, one or two high-cost specialty drugs can have a significant impact on the overall budget. 

Understanding which medications your members rely on is essential to implementing data-driven strategies that will reduce costs while ensuring employees are cared for. Employers do need to support their employees with chronic and rare conditions and ensure they have access to the treatment they need, which will undoubtedly include specialty medications. Ensuring employees have access to medical care needn’t equate to wasteful spending, however. 

PBMs typically use automated rules in their claims processing systems to help approve and deny drugs, but your clinical strategy should also include a team of independent pharmacists working proactively on your behalf to analyze claims and review prior authorization requests manually. 

For claims that don’t look right, the clinical team can work with prescribers to ensure employees receive the most appropriate drug at the right dose and at the lowest price. Using strategies that promote preferred cost-effective medications, you can lower your costs while improving healthcare outcomes for your members.

Here are several questions to help determine the level of visibility you have into your pharmacy drug trend:

  • Do you know the clinical risk areas and clinical program performance for your plan now?
  • Are you making decisions based on recommendations specific to your plan’s utilization data?
  • Are you able to evaluate the financial and member impact of plan changes before you make them?
  • Are you paying more than is necessary on high-cost drugs with low clinical value?
  • Is your plan protected against unnecessary high-cost prescription claims?
  • Are you leveraging available manufacturer assistance funds to offset costs for specialty medications?

Managing the high costs of specialty medications requires ongoing, independent contract and clinical oversight. As specialty drugs now account for up to 50% of an employer’s total pharmacy spend, HR leaders have an opportunity to drive value for both their organizations and their members by proactively improving visibility into drug spend and effectively managing the trends that are driving up their plan costs.