Something Has to Give: Balancing Specialty Drug Cost With Value
The ever-growing price tag for new specialty drugs is testing the limits of the health care system to afford these revolutionary therapies.
The Growing Cost of Specialty
A few years ago, discussions were had regarding how patients and payers were going to afford specialty medications such as adalimumab (Humira), which has an annual cost of approximately $40,000 before rebates, according to the Institute of Cost Effectiveness Report (ICER). Currently, it is not unusual for newly launched specialty medications to have even higher prices.
For example, ledipasvir/sofosbuvir (Harvoni), which launched in October 2014 for the treatment of hepatitis C, has a wholesale price of approximately $95,000 for a twelve week course of therapy. Tezacaftor/ivacaftor and ivacaftor (Symdeko), which was FDA-approved in 2018 for the treatment of cystic fibrosis, launched with an annual price tag of approximately $290,000.
Recently, a gene therapy named voretigene neparvovec-rzyl (Luxturna) was approved for the treatment of an inherited retinal disease with a price tag of nearly $850,000. Although all of these specialty medications have changed the treatment paradigm in their respective disease states, the cost of these medications is certainly pushing the boundaries of the US health care system.
Despite only 2% of the population using specialty medications, it is estimated that these drugs will represent nearly 50% of payer costs by 2020. With the research and development pipeline of many pharmaceutical manufacturers being focused on specialty drugs, patients and payers are faced with a harsh reality of how they are going to balance cost and true clinical value.
Patients and payers will not be able to continue to pay these high costs. Will patients simply stop filling their specialty medication because they must remortgage their home to afford their chemotherapy? Will the health care sector be forced to realign incentives and de-link administrative fees from the list price of a medication?
Will pharmacy benefit managers (PBMs) and insurance companies continue to leverage utilization management tools while creating more aggressive plan designs to help manage costs for payers? Will the regulations change so that manufacturers can no longer charge a high launch price for a medication without demonstrating incremental clinical value compared to its competitors?
All of these questions are valid but there is certainly not one answer to this conundrum. In order for specialty medications to continue to be utilized, something will have to give but what?
Considerations for Further Management of Specialty Medications
Improved Utilization Management
PBMs and insurance companies have certainly employed various utilization management tools, such as prior authorization, quantity limits, step therapy, and formulary strategies, to ensure appropriate access to specialty medications while still managing costs; however, this is no longer enough. Additional innovation and an increased appetite for more aggressive plan designs may be needed in order to keep up with the trend of specialty.
We have started to see more aggressive plan design strategies come to the market, such as CVS Health’s recent collaboration with ICER, whereby medications will not be covered unless they meet a certain quality adjusted life threshold. Although this is certainly a shift in the right direction, the question is whether or not payers are willing to push the envelope and take a stance to exclude medications through plan design that have not demonstrated true clinical value based on their cost.
Although plan designs such as these are intended to focus on therapeutic classes that have several treatment options available, some payers may see this as somewhat of an ethical dilemma since these medications are FDA-approved. Regardless of the current appetite for these and other plan designs, this is certainly a lever that many payers will need to weigh moving forward as specialty costs rise and total spend grows.
Incentivizing Value-Based Care
Although some pharmaceutical manufacturers complete head-to-head clinical trials as part of the FDA approval process in order to demonstrate clinical superiority compared with other medications in the same class, this is not a requirement. Instead, a manufacturer must demonstrate that their medication is both safe and effective.
However, as we continue down this path of unsustainable health care costs, the requirement to demonstrate true incremental value may be something that should be considered as part of the approval process. This would not only encourage innovation towards medications that are clinically better than existing therapies, but it would also keep new “me too” medications from launching with higher list prices, ultimately driving up the cost of an entire therapeutic class.
Another concept that PBMs and insurance companies are beginning to leverage is value-based contracting, are agreements between manufacturers and payers in which coverage and reimbursement are tied to a drug’s efficacy.
There are many benefits to this approach, including reduced payer risk and the ability to generate real-world medical evidence. However, there are also many challenges that exist with this type of set up, including technology limitations and establishing outcomes that are both “meaningful and measurable within a reasonable timeframe.”
Still, some value-based contracting has already been established in the marketplace today, including an agreement between Spark Therapeutics and payers for Luxturna. Spark will actually pay rebates if a patient fails to meet certain clinical thresholds in both the short term (30 to 90 days) and long term (30 months). Despite the challenges associated with value-based contracting, I believe these types of arrangements will be necessary to continue to drive incremental value into the system, not just cost.
Technology is Paramount
Technology is another area within the health care space that will need to continue to grow and evolve in order to help to improve care as well as control costs. Although huge advancements have been made in technology to further engage patients and to improve the coordination of care among all stakeholders— including the patient, prescriber, and pharmacy—additional investments are needed to continue to enhance clinical coordination among all stakeholders and improve the transparency of costs.
For example, today 50% of specialty spend is in the pharmacy benefit, while 50% may be under the medical benefit. Additional investments need to be made to marry this information together so that it is available to all stakeholders for the duration of the patient’s life, not just under a patient’s insurer who may change over time.
Technology could also be used to provide clinical support services to patients in order to promote both adherence and to decrease emergency department visits and/or hospitalizations. With more than 90% of American adults having a cell phone, using various apps to monitor clinical outcomes, as well as text messaging to promote adherence, could help to not only engage patients in their disease state but also provide a record of actions to be shared with health care professionals to promote better outcomes.
There is no question that the current economic state of the US health care system is in jeopardy and that something has to change in order to support the rising costs of care. Although the costs associated with medications are certainly high and rising as previously mentioned, this is only one component of the problem.
There are several factors that are contributing to the overall burden of the health care system, including the fact that many administrative fees that are part of the reimbursement and payment system are based on the price of the drug itself so the higher the drug the more money there is for everyone to go around. While the current administration is certainly pushing for improvements in drug pricing and pricing transparency, continued changes to regulations may need to occur in order to better manage health care spend and trend.
Changes such as delinking the price of a drug from various fees in the industry could help to create transparency in costs and encourage pharmaceutical manufacturers to set prices that may be more in line with what is currently paid on a net basis. Additionally, regulations that discourage the use of television advertisements may be another area of focus to drive down costs and decrease utilization that occurs because patients see these advertisements on TV.
Finally, prohibiting continued patent litigations, or even so-called “pay for delay” strategies, may be another area I can see becoming more regulated, especially if these types of strategies continue to hold up the entrance of biosimilar products into the marketplace that could be a cost saver to the system. All in all, as far as which regulations will change is unclear, but it is certainly an area that could be redefined as specialty continues to grow.
One of the major mitigators of trend in the non-specialty space has been the availability of generic medications. However, this is not the case in the specialty world. Although a few specialty generics such as imatinib, tetrabenzine, and glatiramer have launched into the market, by and large, the majority of specialty medications are branded products.
Despite the Affordable Care Act creating an abbreviated licensure pathway for biosimilars—biological products are approved based on demonstrating similarity to a previously approved biological drug with no clinically meaningful differences in safety and efficacy from the reference product—the use of these products has been limited.
Reasons for this include ongoing patent litigations, the gross to net bubble, patient and physician pushback, and lack of regulatory clarity. As specialty costs continue to rise, it will be crucial to improve regulatory guidance regarding biosimilars and encourage and incentivize use of these potentially cost-saving products. This may be accomplished with utilization management tactics and formulary strategies.
Specialty medications have altered the lives of many patients living with chronic conditions, such as multiple sclerosis, hereditary angioedema, and hemophilia, but these medications come at a cost—sometimes a very high cost that payers and patients cannot afford. With the increasing costs of health care and continued high launch prices of specialty medications, both patients and payers are being forced to make decisions about whether or not treatment and its associated costs are warranted on a per patient basis.
Because the health care landscape is shifting with respect to these life-changing yet costly therapies, the management associated with these medications needs to shift as well. Areas including benefit management strategies, value-based contracting, technology, regulations, and generics are all potential areas to examine in order to achieve both value and cost savings within the health care sector.
About the Author
Lauren Meyer earned her Doctor of Pharmacy degree from the Duquesne University School of Pharmacy and her Master of Science in Pharmacy Business Administration (MSPBA) program at the University of Pittsburgh, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines. She has spent the past several years working as a clinical advisor assisting employers with their pharmacy benefit management strategy but she recently started a new role where she will play a key role integrating pipeline, disease state prevalence and clinical practice guidelines to support pricing new business. Prior to these experiences, she completed a PGY-1 managed care residency.