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Specialty Drug Management, Spending and Trend Explored

May 14, 2012 By: Nadia Category: HealthCare, Medicine Advice, Medtipster, Prescription News Source: Ha T. Tu, Divya R. Samuel, Health System Change, April 2012

Spending on specialty drugs — typically high-cost biologic medications to treat complex medical conditions — is growing at a high rate and represents an increasing share of U.S. pharmaceutical spending and overall health spending.

Absence of generic substitutes, or even brand-name therapeutic equivalents in many cases, gives drug manufacturers near-monopoly pricing power and makes conventional tools of benefit design and utilization management less effective, according to a new qualitative study from the Center for Studying Health System Change (HSC).

Despite the dearth of substitutes, cost pressures have prompted some employers to increase patient cost sharing for specialty drugs. Some believe this is counter-productive, since it can expose patients to large financial obligations and may reduce patient adherence, which in turn may lead to higher costs.

Utilization management has focused on prior authorization and quantity limits, rather than step-therapy approaches — where lower-cost options must first be tried — that are prevalent with conventional drugs.

Unlike conventional drugs, a substantial share of specialty drugs — typically clinician-administered drugs — are covered under the medical benefit rather than the pharmacy benefit.

The challenges of such coverage — high drug markups by physicians, less utilization data, less control for health plans and employers — have led to attempts to integrate medical and pharmacy benefits, but such efforts are still in early development.

Health plans are experimenting with a range of innovations to control spending, but the most meaningful, wide-ranging innovations may not be feasible until substitutes, such as biosimilars, become widely available, which for many specialty drugs will not occur for many years.

High and Rising Specialty Drug Spending

Specialty drugs — typically high-cost biologic medications used to treat a variety of serious, complex conditions ranging from cancer to rheumatoid arthritis to blood disorders — are an increasing concern for employers and other purchasers.

  • While specialty drugs are prescribed for only one in every 100 commercial health plan enrollees, these drugs account for an estimated 12% to 16% of commercial prescription drug spending today.
  • The monthly spending per patient for a specialty drug typically exceeds $1,200.

Spending on specialty drugs is expected to rise dramatically as drugs currently in development come to market during the next decade and beyond.

Benefit Design Strategies

Mainstream commercial insurance products rarely exclude specialty drugs from their formularies. Once a new specialty drug receives approval from the Food and Drug Administration (FDA) and the health plan’s pharmacy and therapeutics (P&T) committee, its addition to the formulary is typically assured. P&T committee review typically focuses on ensuring safe and appropriate use and preventing off-label use, rather than restricting access to specialty drugs. The rare exceptions to this pattern of comprehensive formulary inclusion are found in the few specialty drug classes where many close substitutes exist — for example, growth hormone — and some niche insurance products aimed at individual and small-group purchasers that provide limited benefits to achieve much lower premiums.

Four-tier pharmacy benefit design. For specialty drugs covered under the pharmacy benefit, some employers choose to transfer a portion of the high costs to patients by adding another, higher cost-sharing tier to the standard three-tier pharmacy benefit design. While it is hard to generalize about the multitude of four-tier designs, the practice of transitioning from flat-dollar copayments in the lowest three tiers to coinsurance, where the patient pays a percentage of the total drug cost, in the fourth tier is quite common.

  • A typical design might require a generic copayment of $15,
  • a preferred brand copayment of $30,
  • a nonpreferred-brand copayment of $60, and
  • specialty drug coinsurance in the range of 10% to 25 percent.

Within the fourth tier, some employers — especially large employers — retain a degree of financial protection for patients by applying out-of-pocket maximums per prescription fill — for example, $100 to $250 — or per year — perhaps, $5,000.


Obtaining lowest unit price. For specialty drugs covered under the pharmacy benefit, health plans take different approaches to obtain discounted prices from specialty drug manufacturers. It is common for smaller health plans to turn to one of the major PBMs — which all have acquired or developed their own specialty pharmacy divisions — to negotiate unit prices on their behalf, since the largest PBMs are best able to leverage their high volumes to obtain the steepest discounts from manufacturers.

Health plans with high volumes overall — such as the major national plans — or large regional market shares — such as some Blue Cross Blue Shield plans — often find it more advantageous to negotiate prices with manufacturers directly rather than relying on a PBM. Whatever their approach to price negotiations, when it comes to the distribution of specialty drugs to patients, most health plans contract with specialty pharmacies, since these entities have expertise on such matters as special drug handling and patient education.

Some specialty drugs are eligible for rebates on top of the discounted prices. These rebates are typically negotiated by whichever entity — PBM or health plan — is responsible for setting up the formulary and are paid to that entity after the drug has been purchased. Manufacturers are much more likely to offer rebates in drug classes where substitutes are available — for example, rheumatoid arthritis, multiple sclerosis and growth hormone deficiency. The size of rebates typically depends on the PBM or health plan’s willingness to grant the drug preferred-product status and place it in lower cost-sharing tiers.

Utilization and Care Management

Utilization management. Specialty drugs covered under the pharmacy benefit are subject to more pervasive and stringent utilization management (UM) than those under the medical benefit. Prior authorization, for example, is widely practiced — “nearly universal,” according to one respondent — under the pharmacy benefit but far less prevalent under the medical benefit, where retrospective review remains more common. One benefits consultant estimated that specialty drugs under the medical benefit are subject to prior authorization only about 5% of the time.

A major reason is that most contracts between health plans and providers contain no provisions for prior authorization or other UM protocols for specialty drugs under the medical benefit. Health plans are concerned that pushing to add a prior-authorization provision will result in provider resistance and perhaps provider exit from health plan networks. As with provider payment methods discussed previously, respondents suggested that implementing prior authorization under the medical benefit appears to be easier for regional Blue Cross Blue Shield plans whose large market shares give them leverage over providers.

Care management. Experts viewed strong clinical care management as critical to promoting both good health outcomes and cost containment. Key challenges include very sick patients with complex chronic conditions requiring complicated drug regimens, the need to adjust drugs or fine-tune dosage, and strong side effects leading patients to abandon drug regimens. Experts cited cancer and hepatitis C as examples where medications caused such unpleasant, sustained side effects that keeping patients compliant over time was particularly difficult. Several respondents emphasized the importance of a “high-touch” approach to care management, where staff not only has clinical expertise but also the ability to “form personal connections with patients” and motivate them to adhere to demanding drug regimens.

Key Takeaways

Among the common themes that emerged from interviews with industry experts, the following stand out:

Key drug management strategies that have proven effective for conventional drugs often are less applicable to specialty drugs: The lack of close substitutes for most specialty drugs greatly reduces, or eliminates altogether, the ability of tools like cost-sharing tiers and step therapy to steer patients and providers to cost-effective alternatives. It also sharply limits incentives for drug manufacturers to offer substantial price concessions. In contrast, other tools, such as prior authorization and quantity limits — which can help curb unnecessary or inappropriate use, improve patient safety, and reduce waste — are emphasized more in the management of specialty drugs.

Biosimilars are expected to lead to key breakthroughs in specialty drug management, but their impact won’t be seen for many years: The introduction of generic substitutes should allow payers to broaden the use of preferred drug tiers and step therapy, thereby exerting downward pressure on prices. However, achieving therapeutic equivalence — for biosimilar manufacturers — and assessing therapeutic equivalence — for regulators — are likely to be difficult, given the complex nature of biologics. Also, the expensive manufacturing process means that biosimilars may not yield savings as sizable as those achieved by conventional generic drugs. And, it will be an uncertain number of years before biosimilars can make an impact on competition and cost, because (1) innovator products are granted 12 years of market exclusivity and often are protected by patents lasting years beyond that; and (2) the FDA approval process — which has yet to be finalized — is expected to be rigorous and lengthy.

Integration of medical and pharmacy benefits is a goal worth pursuing, but how to achieve it isn’t clear: Efforts to overhaul the currently fragmented benefit structure — which can misalign incentives for patients and providers and result in uncoordinated patient management — are in the early stages of development, and results are uneven at best. Equalizing patient cost sharing for specialty drugs regardless of whether they are covered under the pharmacy or medical benefit is probably the most straightforward dimension of integration. Other aspects of integration present tougher challenges. The ability to track utilization and spending under the medical benefit remains limited, which in turn hinders the ability to manage a large segment of specialty drug utilization. Real-time integration of utilization data remains hampered by limitations in claims and billing systems. Also, as office-administered drugs are moved out of the medical benefit’s buy-and-bill approach, health plans will have to deal with fallout from physicians who see both their margins and clinical autonomy eroding.

Patient adherence is critical to good health outcomes: As one pharmacy consultant observed, “Price tags and performance guarantees [from PBMs] are one thing, but if you [can’t achieve] compliance, it’s all a waste.” Both financial factors — high out-of-pocket costs — and nonfinancial factors — strong side effects — pose formidable barriers to patient adherence and positive health outcomes. A combination of non-punitive cost sharing and strong care management may reduce these barriers. One benefit design approach that can help make financial burden more manageable is an income-based cost-sharing structure.

Employers should ensure that their specialty drug strategies are aligned with their overall benefits and business strategies: Decisions on specialty drug coverage require tough trade-offs between cost and access. Which cost-access combination an employer chooses will be heavily influenced by competitive conditions in the industry and the geographic and labor markets where an employer operates. Short-term cost containment can have unintended consequences — for example, increased cost sharing leading to reduced adherence to drug regimen, in turn leading to high-cost complications. Such negative impacts come more into play for employers with low worker turnover and those still offering comprehensive retiree health benefits, as these are the employers likely to be paying the bill in the long term for patients currently taking specialty drugs. Cost-benefit comparisons of different drug coverage options will be more accurate if they are able to account for impact on employee productivity — which is hard to measure — as well as direct medical costs.

PBMs’ interests may not align with employers’ interests: Some employers may be relying heavily on their PBMs to set specialty drug policies, determine specialty drug lists, and pass through discounts from manufacturers, without independently verifying whether their own needs are best served in these arrangements. Employers need to recognize that PBMs’ interests can diverge sharply from their own interests, as PBMs don’t have the same incentives as employers to limit the volume and the prices of drugs. Because the specialty drug sector is complex and the vast majority of employers lack the in-house expertise to deal with PBMs on an equal footing, many employers likely would benefit from having independent experts assess their PBM contract terms and audit compliance with those terms.

Is PBM Spread Pricing Increasing The Cost of Your Self-Funded Employee Health Plan?

December 28, 2011 By: Nadia Category: HealthCare, Medicine Advice, Medtipster, Prescription News, Prescription Savings Source: Terrance Killilea, Pharm.D. and Scott Haas, 12.08.11

Pharmacy benefit managers (PBMs) are contractors hired by health plans to administer health plan pharmacy benefits, and PBMs that practice spread pricing, charge plan sponsors (employers) more for prescription drugs than what’s actually paid to the pharmacy.

Spread pricing is largely unknown to employers and those who pay health bills. The practice is occasionally understood by some participants in the health system (health plans, brokers), but often not acted upon due to relationships. Spread pricing has a significant impact on health plan costs. For example, when a PBM pays a pharmacy a minor amount (say $6) for a prescription, but charges the employer and patient a much higher price (say $30). This higher amount is reflected in both the co-pay and the billing to the employer.

Clearly, this has an impact on the cost of a self-funded program, but it also impacts the premiums of fully insured programs through experience. Health plans providing fully insured coverage, where spread pricing is occurring, either do not know about spread pricing or know about it and share in the revenue. This revenue sharing often amounts to a per prescription fee paid to the health plan by the PBM. This arrangement occurs in both self-funded and fully insured situations. Regardless of the setting, spread pricing increases the cost of prescription claims above the actual cost paid to the pharmacy.

Health plans often use terms such as “transparency” or “pass-through” to explain pricing, but this does not address the actual issue of spread pricing. Elimination of spread pricing lowers claim costs for patients and plan sponsors, increases the affordability of medications, and is likely to improve overall health outcomes.

Until recently, spread pricing did not affect members of a health benefit plan. When a PBM reported a claim cost of $45, paid the pharmacy $12, and charged the member a $10 co-pay, the member was not affected by the higher claim cost. The plan, however, experienced a charge of $33 more than what was actually paid to the pharmacy. In this type of copayment  design, it’s the plan sponsor (employer) who bears the increased cost of spread pricing. 

Now, with increasing frequency, employers are establishing high deductible health plans (HDHP). An estimated 18 million Americans were covered under this type of plan in 2010*. A HDHP typically has an annual deductible of at least $1,200 for individual coverage and all expenses (except some preventive visits), including pharmacy costs, go toward the deductible. In the most common claim scenario, it’s the prescription drug cost that accumulates to satisfy the member’s deductible and out-of-pocket expenses. In some families, the prescription cost is the primary source of medical care cost, particularly in plans where maintenance check-ups and other wellness services have no co-pay or out-of-pocket exposure.

Spread pricing results in higher consumer costs. It is not unusual for generic prescription charges to be $30-$50 above the actual claim cost.** But more important, may be the affect on compliance and cost of care. While not being specifically studied, it’s reasonable to believe that compliance diminishes as the cost of prescriptions increase by 400% or more. The impact of multiple members of a family, on multiple medications, can be dramatic. The effect of high patient prescription costs on decreased adherence to therapy was the subject of a 2010 Wall Street Journal article.*** Spread pricing was not mentioned as a factor.

If higher medication costs lead to lower compliance, it’s likely to be more significant in patients with multiple or complex disease states. While the extent of lower compliance is variable, higher cost results in lower affordability and is likely to affect disease outcome. This is particularly true in situations where members are paying all of the drug cost, such as in a HDHP.

According to a recent Consumer Reports poll, 48% of adults have taken steps to save money due to the economy. Included among the actions taken were:

  • Putting off a doctor’s visit (21%)
  • Delaying a medical procedure (17%)
  • Taking risks to save on medications (28%), including;
    • Not filling a prescription (16%)
    • Taking an expired medication (13%)
    • Sharing a prescription with someone else (4%).

When one considers that a complex patient with hypertension, hyperlipidemia, and type-2 diabetes can be effectively treated with generic drugs cumulatively costing less than $300 per year, substantial compliance and successful treatment is likely. The likelihood of compliance decreases, however, when spread pricing drives the cost of that same therapy up to $2,000.

Finally, prescription cost increases due to spread pricing, places members and their families above the deductible ceiling quicker. Thus, the cost of therapy impacts the plan sponsor sooner, and negates the fiscal value of a HDHP. While this may not have a direct impact on care, it certainly increases net costs to plan sponsors, in spite of the establishment of a HDHP.

While spread pricing has been a common practice in the PBM marketplace for years, the impact on member costs and member quality of care is now greater. It’s advisable for all plan sponsors to assess the extent of spread pricing that is occurring in their pharmacy benefit and examine methods to eliminate it.


  • *American Association of Preferred Provider Organizations. APPO 2010 study of consumer-directed health plans.
  • **Based on competitive claim analysis where a transparent PBM has reported actual costs paid to pharmacies. There is no reason to believe that a larger PBM would be paying the pharmacy more than the smaller PBM for which the actual claim price is known.
  • ***

About the Authors

Dr. Killilea and Mr. Haas both work in the Portland, OR office of Wells Fargo Insurance Services USA, Inc.  Terrance Killilea, Pharm.D. is Vice President, Integrated Healthcare Metrics -Clinical and Fiscal Integration.  Scott Haas is Vice President, Integrated Healthcare Metrics.

70% of Employers Do Not Know What They are Spending on Specialty Pharmacy

October 03, 2011 By: Nadia Category: HealthCare, Medtipster, Prescription News, Prescription Savings Source: PRNewswire, 9/29/2011, Midwest Business Group on Health (MBGH)

Few employers have a thorough understanding of specialty pharmacy benefits, and only a fraction are of them are aggressively managing what is becoming one of the fastest-growing areas of health care spending, a new survey shows.

A national survey released Sept. 29 by the nonprofit Midwest Business Group on Health in Chicago, one of the nation’s largest business coalitions, found:

Survey Findings

  • 70% do not know how much their company was spending on specialty drugs
  • 25% of employers have little or no understanding of specialty pharmacy and
  • 53% have only a moderate understanding.
  • 30% indicated that they did not know how much their total specialty pharmacy claim costs had increased during the past three to five years.

“In addition to the uncertainty and challenges that health reform and the economy are placing on employers, health plans and pharmacy benefit managers, the real driver of drug cost trend growth for employers lies in biologics and specialty pharmacy,” said Cheryl Larson, MBGH Vice President, in a statement. “Our research confirms there is a broad lack of awareness and specific knowledge about benefit design related to specialty pharmacy that illustrates key gaps that need to be addressed.”

The objectives of the survey were to identify and assess the level of knowledge and benefit design gaps of employer plan sponsors in the area of specialty medications and biologic products used to treat conditions such as multiple sclerosis and arthritis. These drugs often require special approvals for their use, instructions on dosing and side effects, and appropriate storage and distribution.

The proportion of employers’ pharmacy benefit expenditures attributable to 

  • Specialty drugs grew by 17.4% in 2010, the fastest pace since 2004, according to Medco Health Solutions Inc.’s 2011 Drug Trend Report, which found that
  • Specialty drugs represented 16.3% of total health benefit costs.

How survey was conducted

The survey was conducted by MBGH in July 2011 with guidance from Randy Vogenberg, principal at the Institute for Integrated Health Inc., a Baltimore-based consultant that provides integrated pharmaceutical benefits consulting and education to self-insured employers and business coalitions.

Of the 120 employers responding to the survey,

  • 69% were self-insured,
  • 19% were fully insured, and
  • 13% offered a combination of self-insured and fully insured benefit plans.
  • Employers responding ranged in size from 500 to 25,000 employees.

About Midwest Business Group on Health (MBGH)

The Chicago based Midwest Business Group on Health (MBGH) was founded in January 1980 by a small group of large Midwest employers to help employers and their population obtain more value from their health care benefit dollars.

Steep Co-Pays May Cause Some to Abandon Prescriptions

November 17, 2010 By: Nadia Category: HealthCare, Medicine Advice, Medtipster, Prescription News Source: HealthDay, 11.15.2010 – By Serena Gordon

In these tough economic times, even people with health insurance are leaving prescription medications at the pharmacy because of high co-payments.

This costs the pharmacy between $5 and $10 in processing per prescription, and across the United States that adds up to about $500 million in additional health care costs annually, according to Dr. William Shrank, an assistant professor of medicine at Harvard Medical School and lead author of a new study.

“A little over 3 percent of prescriptions that are delivered to the pharmacy aren’t getting picked up,” said Shrank. “And, in more than half of those cases, the prescription wasn’t refilled anywhere else during the next six months.”

Results of the study are published in the Nov. 16 issue of the Annals of Internal Medicine.

Shrank and his colleagues reviewed data on the prescriptions bottled for insured patients of CVS Caremark, a pharmacy benefits manager and national retail pharmacy chain. CVS Caremark funded the study.

The study period ran from July 1, 2008 through Sept. 30, 2008. More than 10.3 million prescriptions were filled for 5.2 million patients. The patients’ average age was 47 years, and 60 percent were female, according to the study. The average family income in their neighborhoods was $61,762.

Of the more than 10 million prescriptions, 3.27 percent were abandoned.

Cost appeared to be the biggest driver in whether or not someone would leave a prescription, according to the study.

If a co-pay was $50 or over, people were 4.5 times more likely to abandon the prescription, Shrank said, adding that it’s “imperative to talk to your doctor and pharmacist to try to identify less expensive options, rather than abandoning an expensive medication and going without.”

Drugs with a co-pay of less than $10 were abandoned just 1.4 percent of the time, according to the study. People were also a lot less likely to leave generic medications at the pharmacy counter, according to Shrank.

The medications most frequently abandoned were cough, cold, allergy, asthma and skin medications, those used on an as-needed basis. Insulin prescriptions were abandoned 2.2 percent of the time, but Douglas Warda, director of pharmacy for ambulatory services at the University of Chicago Medical Center, said this might be a cost issue, but it could also be that some people are afraid to inject insulin.

The study also found that antipsychotic medications were abandoned 2.3 percent of the time.

Drugs least likely to be abandoned included opiate medications for pain, blood pressure medications, birth control pills or hormone replacement therapy, and blood-thinning medications, according to the study.

Young people between the ages of 18 and 34 were the most likely to forgo their prescriptions, and new users of medications were 2.74 times more likely to leave their drugs behind.

Prescription orders that were delivered to the pharmacy electronically — via the computer — were 64 percent more likely to be abandoned than prescriptions walked into the pharmacy.

“We’re definitely not saying that e-prescribing is bad; it’s great, but there appear to be some unintended consequences,” said Shrank.

There was no way to tell if people never tried to pick up their prescriptions, or if they went to retrieve them but chose to leave them behind because of the cost.

Warda said he believes that more patients might pick up their medications if the instructions from their physicians were clearer. For example, prescriptions for proton pump inhibitors were left at the pharmacy 2.6 percent of the time. These medications reduce the amount of acid in the stomach and can help prevent heartburn or more serious problems. “If the physician message is, ‘You need to take these medications for two to three months and it will reduce your pain and help your body heal,’ fewer people might abandon these medications,” he said.

Plus, if cost is an issue for you, bring it up with your doctor ahead of time, he added. “Don’t get blindsided at the pharmacy. Always ask your physician if there’s a generic option, or if there’s something cheaper that might work just as well. Sometimes people are embarrassed to say anything, but it’s better to ask and get a medication you can afford.

“If you get to the pharmacy, and you can’t afford the medication, follow up with your doctor or ask the pharmacist if there’s a cheaper alternative,” suggested Warda.

Generic drugs saved Medicare and beneficiaries $33 billion in 2007

September 16, 2010 By: Nadia Category: HealthCare, Medicine Advice, Medtipster, Prescription News, Prescription Savings Source: Associated Press (AP) – 9.16.2010

Generic medications saved the government and Medicare prescription drug plan beneficiaries about $33 billion in 2007, according to a Congressional Budget Office report.

The report, highlighted on Wednesday by the trade group Pharmaceutical Care Management Association, says an additional $14 billion is expected as first-time generics enter the market through 2012. Medicare Part D is Medicare’s prescription drug program.

“This new research highlights the importance of this proven pharmacy benefit management cost-savings tool,” the Pharmaceutical Care Management Association said in a statement. “Tools pioneered by pharmacy benefit managers, including encouraging the use of generic medications, have lowered costs and expanded access to prescription drugs for seniors in Medicare Part D.”

Pharmaceutical Care Management Association is a trade and lobbying group representing pharmacy benefit managers. During the second-quarter of 2010, the group spent $551,889 lobbying the federal government on issues that affect pharmacy benefit managers, including federal reimbursement on pharmacy payments, rebates, and the regulation of imported prescription drugs. Other issues included lobbying for audit reform on pharmacy benefit managers, according to a filing with the House Clerk’s office on July 20.

Pharmacy benefits managers include Medco Health Solutions Inc., based in Franklin Lakes, N.J., which saw a 14 percent jump in second-quarter profit to $356.9 million on a 10 percent boost in revenue to $16.41 billion. Other pharmacy benefit mangers include Express Scripts Inc., based in St. Louis, which saw second-quarter profit surge 50 percent to $289.9 million on a doubling of revenue to $11.29 billion.

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