By Scott Pickens and Jamie Solak

"Houston, we have a problem."

from Medical Cost Trend Behind the Numbers, PWC Health Research Institute, June 2013

Fortunately most payers and many employers are increasingly aware of the rapidly evolving challenge of specialty drug spending. Between greater availability and high pricing this spending is growing at an unsustainable rate. These drugs can make a real difference in the lives of thousands of patients and their families. But how do we as an industry manage the large and increasing cost burden while ensuring appropriate access to those who need them?

The good news is that there are a set of best practice strategies payers and employers can use to address this challenge. Some of these strategies are generally well understood. A few are less so. None are simple to implement or execute. This article will highlight 4 core strategies with high potential for impact. But often these 4 are not enough.  Leading organizations are finding that implementing an additional 4 "optimizing" strategies can support the core approaches to best meet the challenge of specialty drug program design and management.

The Accelerating Cost Challenge

Specialty drugs are generally defined as complex drugs addressing serious conditions for

specific groups of patients, which often require special administration mechanisms. Typically there is no lower cost substitute. The FDA is recently speeding up their review process to where specialty drugs represent the majority of new drug approvals. In 2013, 19 of 28 new approvals were for specialty drugs. Some are biologics

which are derived from living organisms instead of chemicals. Some, called orphan drugs, are developed to treat rare diseases and don't allow drug makers to spread research and development costs over a large market. Many of the drugs require special handling and storage and can't be purchased easily at retail pharmacies. 

For example, a new multiple sclerosis therapy

is expected soon that may

add $40,000 a year to the cost of treatment. A new

high cholesterol drug for people who can't use statins can cost $1000 per month. A cystic fibrosis drug impacting only 7% or 300,000 afflicted Americans sells for $300,000 per year. Last year's introduction of hepatitis C therapies costing as much as $95,000 have set the table for new specialty drugs coming soon treating cancer and heart disease.

These drugs accounted for 31.8 % of all US drug spending in 2014 which represents a 30.9% year over year increase from 2013 according to the Express Scripts 2014 Drug Trend Report. Average projected cost trend for these drugs is over 20% each year for 2015-2017 according to the same report.  

The Total Cost of Access

Ideally, access for whomever can benefit from these drugs is available at reasonable cost. Clinical benefits from these drugs by definition accrue to a fairly narrow set of patients and indirectly their families and caregivers. Unfortunately it is the inability to spread research and development costs over larger numbers of potential patients that can drive the costs for these drugs so high. This has the unfortunate effect of making it challenging for drug makers to recover their costs with some minimal margin at a price that is affordable for most patients via their payers. 

But economic benefits to offset the costs can also be very real and take the form of clinical cost savings or avoidance, as well as increased productivity of employees or ill family members of employees. In some cases these cost savings can exceed the cost of the drug - in other cases not. Understanding the full scope of both costs and benefits is ultimately necessary to determine which policies and practices are most appropriate for employers and their payers.

4 Core Strategies for Payers

The following 4 strategies are increasingly used by payers to address the challenge of managing cost while assuring appropriate access to specialty drugs.

1.     Ensure Effective Utilization and Adherence

Specialty drugs are typically newly or only recently available to treat less common or very complex diseases. As a result many physicians are not necessarily completely up to speed on appropriate effective usage. It has been reported that is not uncommon in cancer treatment for example for a third of oncology regimens to be at variance to guidelines. Monitoring the appropriate use - medical necessity and effectiveness - of specialty drugs is key. Requiring prior authorization for specialty drug prescriptions can be a very effective tool to support medically appropriate usage. 

Other effective approaches include step therapy and dosage management. Specialty Drugs focus on a specific set of patients with specific characteristics. Step therapy - trying less expensive drugs first - ensures that if some less expensive solution can work it is given a chance to do so. Dosage management limits doses based on whether the patient is responding. Paid for but ineffective drugs are extremely wasteful at these prices and potentially dangerous.

Finally, care coordination is a key best practice. Particularly for patients with chronic illnesses. Managing the integration of benefits and clinical care including appropriate coordination of prescription drugs as part of overall treatment can maximize patient compliance (sometimes called adherence) and reduce wasteful spending.  

2.     Integrate Pharmacy and Medical Benefits 

Sometimes specialty drugs are managed under the medical benefit plan separate from the pharmacy benefit plan.   This approach is problematic in that it inhibits visibility of total prescribing and utilization patterns necessary to optimize the effectiveness of comprehensive and coordinated utilization management. Managing all drugs under the pharmacy benefit plan allows for integrated data collection, reporting, and analysis of all the data necessary to create actionable benefit management information. 

And applying the same cost sharing mechanisms shown to be effective in managing demand for more common drugs - e.g. out of pocket cost tiers and coinsurance - to specialty drugs is at least as effective for those as well.

3.     Maximize Treatment Adherence

Obviously patient compliance with treatment protocols that include specialty drugs is critical to cost effectiveness. Engagement with both patients and providers is key to assure that both understand the treatment plan, what to expect, how and when to take the drugs, possible side effects, etc. so that patients can achieve the desired results if they are clinically achievable. Nothing is more unfortunate that a patient missing out on the benefits of a very expensive drug due to ignorance or misunderstanding by patient or provider of the best way to achieve those benefits. Common engagement practices such as phone outreach and consultation can be effective. But even approaches that would not make financial sense for less expensive therapies such as dedicated house call visits, etc. may be warranted in certain situations.

4.     Utilize Specialty Pharmacies

Specialty pharmacies have better trained personnel and are better and equipped than regular pharmacies to coordinate the often complex delivery and treatment processes associated with these drugs. They are typically better positioned with specially designed information systems to monitor and track usage, and to support a focus on patient education and engagement.

These companies typically serve multiple providers and networks and can distribute their costs and leverage their reach to offer best pricing for certain high cost drugs.

And they can retain ownership of the drug to the point of delivery to provider for administration or delivery to the patient at home to take to the doctor for administration - practices known as white and brown bagging respectively. IN both instances the provider doesn't purchase the drug so there is no additional markup.

But while these 4 core strategies can be effective, in practice they are often less so than they could or should be. What is missing?

4 Additional Payer Strategies to Optimize Specialty Drug Management

1.     Really Understand Your Population, Market and Economics

Unfortunately simple economics dictate that offering every specialty drug at any price to every potential patient is economically unsustainable. So how do you decide what to offer to whom, when, how, and at what price to the ultimate payer and cost to the patient?

It is critical for the payer to understand the cost, efficacy and potential cost savings or offsets from prescribing a specialty drug to various patient populations in order to determine whether to facilitate patient access to the drug at all, and if so, at what payer price and patient cost, and through what mechanism or channel to offer it.

Without this comprehensive understanding payers today often find themselves simply executing blindly and reactively rather than proactively to the availability of great sounding new therapies at unsustainable prices. 

There is no substitute for solid comprehensive market research to gain such understanding. The required investment will be minimal compared to the advantages of more effective strategy and management that can result.  

Such research should provide an understanding of not only real but market perceptions of efficacy, value, costs and benefits, competitor directions and approaches, etc. by target population. There are exciting new approaches and supporting tools to this work including expert crowd sourcing, and powerful new statistical survey techniques combined with powerful enabling computing capability.

2.     Enhance Data-Driven Performance Management

There is too much as stake given the cost of specialty drugs to not have a clear and accurate understanding of how your specialty drug management program is performing at all times. Define exactly what the financial, quality, service, and compliance performance objectives of your program are in detail and the associated metrics and target values that will demonstrate a successful program. Utilize state of the art techniques borrowed from business intelligence disciplines to create, collect, report, and analyze data to describe performance, predict future performance, and prescribe actionable initiatives to improve performance.

3.     Formalize Specialty Drug Program Management

Properly designing, implementing and managing a specialty drug program as a payer - including programs involving direct contracts - is a complex undertaking requiring coordination of resources, strategies, and tactics across multiple internal and external organizational functions and enterprises. The very significant resources at stake combined with the potential political ramifications across the market require a formal comprehensive program management approach. This often starts with a robust business case with a clear return-on-investment for a formal specialty drug management program. This includes a dedicated leader with both high level expertise as well as access to key decision makers. This leader should be supported by appropriate direct staff as required. There should be clear program accountability to performance objectives, and tools and processes to measure, report, analyze, and support program performance.

4.     Get Expert Help If Needed

Designing and implementing an effective specialty drug management program is a complex undertaking. Understanding the interoperation of all the components and players to inform program design requires significant and varied expertise and experience. And program design and implementation take dedicated resources. Most organizations don't have the required expertise in sufficient capacity to effectively re-purpose to create, implement, and operate such a program. Investment in expert consulting for program research, design, and implementation can very cost effectively pave the way for permanent staffing for program operation and management.

Combining the four core strategies with the four optimizing strategies above offers an effective approach to managing the increasing challenge of managing specialty drug costs while assuring appropriate access wherever possible.

About The Arlington Healthcare Group

Arlington Healthcare Group helps healthcare enterprises optimize their growth while achieving their financial, quality, service level, and compliance operational performance objectives.