PALM SPRINGS, Calif. (March 8, 2016) — To rein in rising specialty drug costs, employers most often use prior authorization, step therapy and cost-sharing strategies, but more are also experimenting with formulary exclusions and value-based pricing models, a new report shows.
One of the fastest growing areas of healthcare costs, specialty drug spending increased 26.5 percent in 2014 to $124.1 billion and accounted for one-third of total spending on medicine, up from less than a quarter of the total in 2010, according to an April 2015 report by IMS Health Inc.
Specialty drug spending is expected to increase further as costly drugs, many of which treat cancer, enter the market, experts say. According to Express Scripts Holding Co., cancer drugs comprise more than a third of the more than 7,000 drugs awaiting U.S. Food and Drug Administration approval.
When it comes to prescription drug benefit plan design, employers are most concerned with managing the specialty drug trend, at 84 percent, and reducing inappropriate utilization, at 52 percent, according to the report released this week by the Plano, Texas-based Pharmacy Benefit Management Institute (PBMI) and sponsored by Walgreen Co. The report is based on a survey of 341 employers.
Cost-sharing, step therapy and prior authorization are the most prevalent ways employers manage specialty drug costs under the pharmacy benefit, PBMI said in the report.
The report showed that last year:
- 93 percent of employers used prior authorization for specialty drugs, down slightly from 97 percent in 2014;
- 79 percent used clinical care management, down from 88 percent;
- 78 percent used step therapy programs, down from 83 percent; and
- 69 percent of employers in 2015 limited specialty drug prescriptions to a 30-day supply, down from 72 percent the previous year.
Employers are also experimenting with newer strategies, including formulary exclusions, specialty drug cost-sharing tiers and value-based pricing models.
With the introduction of the expensive hepatitis C drugs, such as Sovaldi and Harvoni, formulary exclusions for specialty drugs “have become much more front and center,” Sharon Glave Frazee, Plano-based vice president of research and education with PBMI, said in an interview Tuesday at the organization's 2016 Drug Benefit Conference in Palm Springs, California.
Forty-eight percent of employers reported using formulary exclusions, which means certain drugs are excluded from coverage under the benefit plan, according to the survey. Of those that use them, 46 percent said they are considering increasing the number of excluded medications. Of the 39 percent of employers who said they do not use formulary exclusions, 32 percent said they are considering implementing them, the survey showed.
Meanwhile, more than half of employers — 57 percent — reported using a separate cost-sharing tier for specialty drugs, the report showed. That's down from 62 percent in 2014 and up from 41 percent in 2013, according to a separate PBMI report. Of the 41 percent who did not report using a separate tier for specialty medications, 31 percent planned to do so in the next few years.
Interest in value-based pricing models is also increasing, with 82 percent of surveyed employers somewhat or very interested in such models.
“If you pay for a lot of drugs that have very little long-term value, it dilutes what's available for everybody else,” Ms. Frazee said of value-based and indication-based pricing models, which ties pricing to a drug's effectiveness. “It's a public health perspective, essentially. You are trying to get the most good for the most people out of a limited pool of dollars.”
Though spending on specialty drugs shows no signs of slowing, she said employers are “more educated now than they've ever been.”
“When Sovaldi first came out, nobody was ready, and so you saw people panicking...because they didn't have the dollars to pay for that,” Ms. Frazee said. “The PBMs, the health plans, the consultants and the brokers have really learned from the lesson there” and now budget and make plan design changes in advance “to make sure it has as little of a negative impact on you and on your members” as possible.
This report appeared on the website of Business Insurance magazine, a Chicago-based sister publication of Tire Business.