While rapidly rising drug costs are starting to raise concern among employers, one major driver of health care costs is drug spending that’s not even part of the pharmacy benefits you offer your staff.
Most health plans never anticipated including in their drug benefits packages specialty drugs – a new class of pharmaceuticals that are tailored to individuals based on their genetic makeup or other factors.
The problem is that they typically have high price tags that can exceed $100,000 a year, and the costs are often difficult to detect since the cost is often listed as a medical billing, rather than as a pharmaceutical.
Specialty drugs – also called biologics – which treat serious and complex conditions such as cancer and rheumatoid arthritis, make up about 17% of employers’ total drug costs, even though just 1% of the workforce takes them.
The new medicines are prompting a rapid escalation in the cost of drugs and have become one of the biggest concerns facing employers and their employees in terms of their health care costs.
Unequal pricing
It’s not uncommon for specialty drugs that treat multiple sclerosis, cancer or heart disease to cost $50,000 to more than $100,000 a year. And because they are often administered in clinics or hospitals and not dispensed from pharmacies, they fall under medical benefit claims 47% of the time, according to data in a brief by Health Affairs.
These drugs have risen to the radar nationally thanks to the often shocking prices that have shown up on bills. Forbes recently had an article looking at the drug Harvoni, which completely cures the majority of people with the most common type of hepatitis C. But the maker, Gilead Sciences, charges $94,500 for the 12-week treatment, or about $1,000 a pill.
Prices for specialty drugs in the United States far exceed prices for the same drugs in other countries. Another Hepatitis C drug, Sovaldi, costs $84,000 in the U.S. per treatment. The same drug is priced at $900 in Egypt and $51,000 in France.
New drugs to treat common conditions are also driving up costs. For example, U.S. costs for powerful new cholesterol management drugs called PCSK9s are expected to be $7,000 to $12,000 per patient per year, compared with about $1,000 on average for conventional drug therapies.
Murky numbers
Unfortunately, employer-sponsored plans are often not able to get a clear picture of what those costs are, due to the complexities of billing for such drugs.
The Minnesota Health Action Group, a coalition of big businesses, municipalities and some government agencies in Minnesota, is trying to change that.
One of the group’s committees has been studying the issue of specialty drug costs in an effort to find a working solution for the problem. At this point it’s not even clear how much of health care dollars is spent on these drugs.
The Action Group is working with Minnesota employers and providers to identify the codes for specialty drug payments and get a better understanding of what is being spent on specialty drugs on the medical benefit side.
A political solution
The Action Group said it might be necessary to turn to legislators to bring price information to the public.
That’s already happening in some states. For example in California, the state Legislature is considering a bill, AB 339, that would cap the price that employees in employer-sponsored plans would pay for specialty drugs.
The legislation comes on the heels of Covered California, which, beginning in 2016, will cap at $150 or $250 the maximum amount silver, gold and platinum plan enrollees will pay for a prescription each month. Those with bronze plans will pay a maximum of $500 per month per prescription. The change is set to be reviewed in a year.
The Minnesota Health Action Group also plans to push for price transparency of specialty drugs, for health insurers to adopt coverage and benefit policies that encourage appropriate use of the drugs.
Call to action
The Action Group has formed a Specialty Pharmacy Learning Network to assist employer members find solutions to the specialty drug quandary.
The group recommends that employers:
• Start by understanding their current specialty pharmacy drug spend, including the 50% of spend that is administered by health plans as part of their medical benefit.
• Ask their health plans and pharmacy vendors to project specific future costs given their company’s population and drugs that are currently in the pipeline.
• Evaluate their health plans and pharmacy benefit plan designs to make sure the plans aren’t inadvertently driving employees to higher-cost sites of care (like clinics, instead of hospitals) for specialty drug treatments.
• If possible, work with their health plans to contract with providers who administer high-cost drugs on a fixed-fee basis.
