Medical Benefit Specialty Drug Management–A Call to Action

Specialty Pharmacy TimesJanuary/February 2017
Volume 8
Issue 1

Specialty drug trend management typically focuses on drug formulations administered via a payer or plan sponsor pharmacy benefit, which overlooks drug spending occurring under a payer or plan sponsor medical benefit.

Specialty drug utilization and cost management have dominated managed care conferences and journals over the last few years, showing no sign of abating.

Typically, much of the focus in specialty drug trend management is on oral and self-administered drug formulations traditionally administered through a payer’s or plan sponsor’s pharmacy benefit. Unfortunately, this overlooks approximately 36% to 50%1,2 of specialty drug spend that is occurring under a payer or plan sponsor medical benefit, rather than pharmacy benefit. Drugs administered through the medical benefit are mostly injectable or intravenous formulations, and are typically administered in physician offices or clinics under the supervision of a trained certified professional (nurse, physician).

Medical benefit specialty drugs treat a wide range of diseases or conditions; however, specialty drugs used for cancer, anemia, neutropenia, rheumatoid arthritis, Crohn’s disease, age-related macular degeneration, and psoriasis make up much of the medical benefit specialty drug spend. An observation from a recently released white paper3 highlights plan sponsor concerns on management gaps for specialty drugs administered through the medical benefit.

“One of the biggest challenges is identifying what costs are running through the medical benefit versus the pharmacy benefit. With a high percentage of costs occurring through medical, as well as a variety of payment dispensing options, it can be difficult to achieve full transparency on overall spending and utilization.”

—Cheryl Larson, President Midwest Business Group on Health

A major hindrance for transparent, medical benefit specialty utilization and spend data is the use of less descriptive health care common procedure coding system (HCPCS) through a traditional CMS 1500 claims billing format. Other complexities for effectively managing medical benefit specialty drug spend include cost differences by site of service, provider reliance on dispensing drug revenues, and variable fee schedules.

It is, perhaps, not surprising that medical benefit specialty drug spend plan sponsors are frustrated about their inability to adequately recognize whether covered employees and dependents are receiving the most clinically appropriate and cost-effective drug therapies.

Current Strategies to Manage Specialty Drugs

A stakeholder survey2 identified a number of key main-payer strategies for managing specialty drugs. We will explore how these strategies are applied for medical benefit specialty drugs and their implications:

Network Management

For medical benefit specialty drugs, the 4 major sites of care or service channels are physician offices; outpatient hospital clinics; home setting; and pharmacy benefit manager (PBM), specialty or retail pharmacy. Reimbursement methods vary with average sales price (ASP)-based reimbursement most commonly used for physician offices, while percentage of billed charges and average wholesale price (AWP) are most commonly used with outpatient hospital clinics, home, and PBM/specialty/retail sites of service.

While some payers and PBMs advocate the use of “white-bagging,” in which providers are required to acquire specialty drugs directly through the specialty pharmacy, this tactic undoubtedly creates friction among large numbers of providers, particularly oncologists, hematologists, and rheumatologists. The main source of friction is the revenue gleaned from drug dispensing and/or drug administration, and whether any of the revenue can be transferred into payer or plan sponsor savings.

It has been suggested,4 especially among community-based oncology practices, that white-bagging increases administrative burdens on providers, while also increasing drug waste. Several community-based oncology practices4 said the cost of drug waste ranged from $875,000 to more than $1.25 million dollars annually.

Such drug waste cost estimates, if correct, could certainly mitigate any payer or plan sponsor savings significantly. While there are some therapy exceptions, such as self-administered injectable drugs used for respiratory syncytial virus, most payers and plan sponsors have settled into not utilizing white-bagging as a primary tool for managing medical benefit specialty trend.

“One note of caution as we look to the medical benefit drug spend is the importance that needs to be placed on careful analysis prior to taking action. Some medical drug spend may actually turn out to be accomplished more cost effectively by pulling it out of the physician office. What’s more, other delivery methods may do the exact opposite of what is desired and drive up costs. A surgical approach to interventions, with good data mining, is essential.”

—Thomas A. Sondergeld, Vice President, Global Benefits & Mobility — Walgreens Boots Alliance

Drug Reimbursement

Most payers utilize ASP for medical benefit drugs where a mark-up to ASP is applied. While the potential for provider perverse incentives4 still exists, most payers and plan sponsors have adopted ASP-based reimbursement for medical benefit drugs. CMS, along with several regional and national payers, have launched pilot programs aimed at moving away from drug fee-for-service models into bundled payments, episode of care, shared savings from total cost of care, and medical homes.

For the foreseeable future, ASP-based pricing will likely remain the prevailing model for medical benefit drug reimbursement. It should be noted that few, if any, PBM, specialty pharmacy, and retail pharmacy operations have the capacity to manage ASP-based claims.

Site of care or service management

Since the advent of the Affordable Care Act, hospitals have rapidly acquired community-based specialist practices (ie, oncology, hematology, rheumatology) and rebranded as out-patient facilities. To the angst of payers and plan sponsors, the cost for drug administration in a hospital outpatient setting6 greatly exceeds the same service provided in a community-based setting.

The most common site-of-care management tactics includes member outreach to encourage the use of lower-cost care sites and preferred sites that offer lower member out-of-pocket costs, narrowing provider networks and white bagging.

Opportunities for improvement

As Larson noted, plan sponsors require, and yet are not receiving, full transparency on medical benefit drug spend and utilization to accurately assess whether covered employees and dependents are receiving high-quality and cost-effective specialty drug therapy. Sondergeld also suggests a measured approach to yield the maximum benefit for plan sponsors.

To address this concern, payers or external vendors should be able to provide transparent and actionable data accurately reflecting optimal network management, while navigating the varied reimbursement models and sites of services. At a minimum, these data should be provided quarterly.

Utilization and Clinical Management

Prior authorizations

Prior authorization, usually in the form of pre-certification,2 is the most common mechanism for determining coverage for medical benefit specialty drugs. To a significantly lesser degree, claims processing edits that can be applied before or after claims payment are also utilized. The issue for providers and patients is that traditional medical benefit prior authorizations create administrative burdens for payers and providers, and can possibly delay patient treatment.

Projected national direct and indirect costs for prior authorizations ranged between $23 and $31 billion in 2006.7 Traditional prior authorizations applied to the medical benefit may also not fit within existing provider clinical and operational workflows, as in the case of cancer drug treatment plans that frequently require the use of multiple specialty medications. Hence, a provider’s office may need to submit a prior authorization for each drug, creating incremental administrative burdens.

Approval delays on any drug in the treatment plan can delay the administration of the entire drug treatment plan for the patient. An alternative option is changing the way traditional prior authorizations are administered, by holistically assessing all of the drugs the patient is to receive for the condition, and doing so in a provider-centric fashion that minimizes administrative burdens on providers, patients, payers, and plan sponsors.

Additionally, the availability of an actively practicing physician specialist or sub-specialist (ie, oncologist, hematologist, rheumatologist, ophthalmologist) to provide peer-to-peer interventions on cases that do not conform to payer or plan sponsor coverage rules is a more effective way to build provider collaboration, while ensuring best evidence-based practices at a lower cost.

Another forward-thinking prior authorization opportunity involves ensuring that submitted medical benefit drug claim quantities are as close as possible to meeting individual patient dose requirements. Since medical benefit drug claims utilize fewer drug-specific HCPCS codes, it is usually difficult to identify whether the least-costly available commercial package size was utilized.

One way to address this is by informing providers on clinical appropriateness and approved drug quantities that are cross-walked to the most appropriate commercially available package size. This should minimize drug waste, while also identifying any potential issues of abuse.

Benefit Design

For medical benefit specialty drugs, benefit design includes patient out-of-pocket costs and whether specialty drugs are covered exclusively under the medical benefit, or under both medical and pharmacy benefit. Ideally, payers and plan sponsors should be able to provide or receive integrated clinical and financial data for specialty drugs, regardless of benefit design. One way to strategically achieve this is to have a single source managing all prior authorizations, regardless of benefit design, triaging to the most cost-effective site of service, matching claims to authorizations, and finally, offering in close to real-time, transparent, integrated clinical and financial data.

The Value of Effective Medical Benefit Drug Management

A recently released white paper4 expressing payer and plan sponsor insight into the value of an effective medical benefit drug management program highlights examples of best practices:

  • Control of spending from a clinically-based partner with evidence-based experiences.
  • Alignment of appropriate, transparent, nationally recognized, evidence-based guidelines, dose checks, and competent clinic dialogue.
  • Evidence-based insights through the combination of good, measurable outcomes, and integration with the most up-to-date peer-reviewed clinical data.
  • Efficiency in benefit design, provider capabilities, and identification of providers who significantly deviate from transparently developed “best practice” metrics.
  • Meaningful collaborative clinical support that recognizes unique patient characteristics.
  • Administered utilization management that mirrors physician, clinical, and operational workflow, while minimizing management burdens.

Key Elements for Successful Medical Benefit Drug Management

  • Actively practicing credentialed clinicians, ideally physician specialists or subspecialists, to provide peer-to-peer interventions that incorporate the latest nationally accepted evidence- based medicine.
  • Objective site-of-service management, ideally free from the revenue conflicts of drug dispensing.
  • Integrating relevant clinical data with financial data that ensures concordance to evidence-based medicine, while reducing waste.
  • Availability of near real-time transparent and actionable data.
  • Improving the quality of care while reducing specialty drug trend.
  • Prior authorization mechanism that minimizes administrative burdens while, fitting within physician clinical and operational workflows.

Can PBMs or Specialty Pharmacies Play a Role in Medical Benefit Drug Management?

The short answer is yes, but only with the right set of tools and the right mindset, that collaboratively working with providers is a necessary element for success.

“In this era of rapidly evolving drug therapies, inclusion of practicing subspecialists is a key element to any effective medical or drug benefit management process,” said Anthony Lam, MD, chief medical officer at PharMedQuest. “They can best identify cost-saving opportunities that do not compromise patient care, while maximizing physician buy-in through meaningful and collegial peer-to-peer interactions at the subspecialist level.”

The new presidential administration will likely have significant impact on the future of the Affordable Care Act. Clearly, what is currently needed by payers and plan sponsors is an effective prior authorization mechanism that addresses specialty spend under the medical benefit, which is also provider-friendly, and ensures that high-quality, cost-effective drug therapy measures for rare and complex diseases are being followed.


  • PBMI 2016 Specialty Drug Benefit Report
  • EMD Serono Specialty Digest — 12th Edition
  • Access Market Intelligence Whitepaper, Bend the Curve, A New Era for the Management of Specialty Pharmaceuticals (
  • Community Oncology — March/April 2005 – Dawn Holcombe
  • MedPac — November 12, 2014
  • Avalere Whitepaper — Total Cost of Cancer Care by Site of Service – March 2012
  • Casolino LP, Nicholson S., Gans DN, et al. What does it cost physician practices to interact with health insurance plans? Health Aff (Millwood) 2009;28 (4); w533-43

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