Rising Costs Of Specialty Drugs And Strategies Employers Need To Combat Them

Future-proofing pharmacy benefits

Pharmacy is used more than any other employee benefit, which makes it critical to talent acquisition and retention. But it has also become a more costly benefit — pharmacy benefits have undergone a 40% increase in percentage spend since 2008, and they also account for 21 cents of every healthcare dollar.

Specialty drugs are the key contributors to this growth in costs. Specialty drug prices have increased by an average of 4.8% in 2020—more than triple the general inflation rate of 1.3%. Meanwhile, utilization is rising alongside specialty drug prices: between 2019 and 2020, there was an 8.3% increase in the average number of claims per specialty drug user. We can expect this number to continue rising, as over 1,000 specialty drugs are currently under development to treat more than 7,000 identified rare diseases, which impact about 10% of Americans. 
 

The majority of employers lack the scale and benefits staff to purchase pharmacy in a sophisticated manner, making affordability a significant challenge. Benefits consultants can help self-insured employers reduce costs and the risk that specialty drugs pose while continuing to protect employees by fully optimizing their pharmacy benefits. This includes proactive contract management, innovative clinical strategies and ensuring a great service experience. 

However, the significant cost of specialty drugs means that one large, unexpected claim could financially devastate a self-funded employer. Thus, it’s also critical to mitigate the risk of expensive, potentially catastrophic specialty drug claims by implementing specialty-specific stop-loss insurance. When combined, these strategies can help self-insured employers sleep easier at night, knowing both their employees’ health – and the health of their business – is covered. 

Prescriptions for Success

Any strategies used to optimize pharmacy benefits should focus on improving both the economic and clinical value of benefit plans. That way, employers can save benefits dollars while still covering the medications that matter.
 
This process begins with obtaining a transparent contract that ensures the best terms for the employer. From a contract perspective, the best practices for managing specialty medications on self-funded plans include defining specialty and limited distribution medications, securing pricing discount guarantees, and aligning drug rebates. 

As part of this process, it’s essential to understand that some specialty drugs are limited distribution drugs (LDDs), which have an exclusive arrangement with a particular specialty pharmacy. It’s important to obtain a list of specialty drugs and LDDs from the pharmacy benefits provider since these lists can dictate which drugs qualify for rebates and how they are applied to the pharmacy benefits plan. 

The specialty drugs that qualify for rebates can carry implications for contracts, and a contract may include different guarantees for specialty drugs or LDDs. But it’s important to ensure that those guarantees are in place and that associated rebates apply to specialty medications filled through the mail, retail, or both. From there, brokers can ensure that a client’s contract includes drug pricing discounts for drugs under an overall specialty guarantee. 
 
In addition to a strong contract, implementing a clinical utilization management strategy can help identify areas of waste, reduce unnecessary benefits plan costs, and enhance value and safety for plan members. This begins with pharmacy experts conducting a thorough analysis of specialty pharmacy claims data, so that brokers and employers can gain an understanding of what conditions, drug classes and specific medications are driving costs within the plan. After potential risk areas within a plan are identified, tailored clinical strategies can be implemented to optimize drug utilization. 

Clinical management strategies include optimizing the drug formulary, reviewing clinical appropriateness to ensure the necessity of prescription drug treatments, dose optimization, and monitoring for drug pricing and prescribing practices that could be contributing to wasteful pharmacy spending.

Stopping Your Losses

While it’s important to ensure that pharmacy benefits plans are optimized for patients and purse strings alike, it’s also important to ensure that a large, unexpected claim won’t cripple a self-funded benefit plan. Stop-loss insurance policies do just that, by ensuring that employers with self-funded benefit plans don’t assume all liability for losses that arise from plans. Instead, the policy provider assumes liability for losses that exceed deductibles.
 
Traditional stop-loss insurance covers both medical and pharmacy insurance, and two primary forms of stop-loss insurance exist: specific stop-loss and aggregate stop-loss. Specific stop-loss protects employers against a high claim from an individual, while aggregate stop-loss caps the amount that an employer would pay in total during a contract period. While specific stop-loss could adequately protect an employer, companies will often want to use both specific stop-loss and aggregate stop-loss to protect their plans.
 
But traditional stop-loss alone isn’t a viable cure-all for unexpected claims because it does not offer long-term protection for specialty claims. According to an Oliver Wyman analysis, 44% of specialty drug spending was used primarily for long-term treatment of chronic conditions, and using stop-loss insurance alone would be similar to providing long-term disability coverage to employees while only buying short-term insurance for the plan.
 
Supplemental stop-loss coverage, however, protects clients where traditional stop-loss falls short. Supplemental stop-loss limits the expenses that the plan and its stop-loss carrier incur for catastrophic pharmacy claims for covered expenses. That way, employers are protected from large specialty drug claims both in the short-term as well as the long-term. 

Future-Proofing Pharmacy Benefits

Long-term protection against specialty drug claims is certainly necessary— with 60% of drugs in today’s pipeline being specialty drugs, the specialty medication market shows no signs of slowing down. Additionally, 44% of new specialty prescriptions target chronic conditions, and up to 90% of claimants remain on pharmacy benefit plans in future years, leaving many self-funded employers financially exposed long-term. 
 
Fortunately, employers have a variety of strategies at their disposal to ensure that they get the most out of their self-funded pharmacy benefits plans. By utilizing proactive contract management, innovative clinical strategies, traditional stop-loss and supplemental stop-loss insurance to reinforce their pharmacy benefits plans, brokers can help their self-funded employer clients meet member needs without fearing a catastrophic pharmacy claim.  

Paul Fortunato is the Senior Director, Clinical Initiatives, RxBenefits, and Product Owner, RxPharmacy Assurance. Paul has more than 25 years of experience in account management, having worked with middle market and national accounts employers and health plans in designing strategies to manage their pharmacy and medical pharmacy benefit.   Connect Paul Fortunato