Rising drug costs have always been a concern to employers, but one major driver of health care costs might be drug spending that’s not even part of your pharmacy benefit.
Specialty drugs have emerged as a significant concern for employer-sponsored health plans, because these costs are often hidden in medical claims, rather than pharmaceutical billing, and because they often are extremely expensive. Specialty drugs that treat multiple sclerosis, cancer, or heart disease can range in cost from $50,000 to more than $100,000 a year. And because they are often administered in clinics or hospitals, they fall under medical benefit claims 47 percent of the time, according to data in a brief by Health Affairs.
The high cost of specialty drugs has drawn notice from President Obama, who has suggested allowing Medicare to negotiate prices for such drugs, and the editorial page of the New York Times. In a separate article, the Times noted that Medicare beneficiaries and government programs account for 25 to 33 percent of spending on specialty drugs.
“The rising cost of specialty drugs has the potential to bankrupt our health care system,” said John Bennett, M.D., of the Capital District Physicians’ Health Plan, in the article. “What good is a miracle drug if you can’t afford it?”
A hidden cost for employers
If approximately 30 percent of specialty drugs costs are paid for by government payers, the private health insurance system is picking up the other 70 percent. And employer-sponsored plans are often not able to get a clear picture of what those costs are, due to the complexities of billing for such drugs.
One group of employers trying to get a better picture is the Minnesota Health Action Group, a coalition of payers that includes 3M, Best Buy, Target, Wells Fargo Bank, and government groups such as the City of Minneapolis and the Minnesota Department of Human Services.
An Action Group committee has been studying the issue of specialty drug costs for more than six months, and the group plans to continue to devote resources to working on solutions for the problem.
“Specialty pharmacy is probably the No. 1 issue on employers’ radar right now,” said Carolyn Pare, president and CEO of the group. “The costs are absolutely crazy and completely unsustainable.”
Pare said the group’s Specialty Pharmacy Learning Network is working with employers, policymakers, and health industry groups to get a handle on the high costs of specialty drug pricing.
A call for transparency
One of the experts the Action Group is working with is Stephen Schondelmeyer, Pharm.D.,Ph.D, director of the PRIME Institute at the University of Minnesota. Schondelmeyer said that many employers have no idea of how much specialty drugs are costing them. “This is a drug spend they don’t even realize they have,” he said. “And that’s where the growth of these new products is and new utilization is expected.”
Schondelmeyer is working with Minnesota employers and providers to identify the codes for specialty drug payments and get a better understanding of what is being spent on specialty drugs on the medical benefit side.
He says eventually health plans should require providers to provide the specific code of each drug used in a clinical setting. “The way it’s recorded now, an employer can’t tell whose product was used, how much was paid, and how much it costs in the system elsewhere,” he said. He added that under the current system, drug manufacturers will not even let providers share information on discounts or rebates they receive for using certain drugs.
Schondelmeyer said that when prices are difficult or impossible to quantify, and consumers don’t have alternatives, marketplace principles don’t work. “If my doctor has written a prescription for my cancer drug, I don’t have any choice,” he noted. “That’s not a market setting the prices. We’ve got to find ways to make this work more like a market, including price transparency.”
A political solution?
Both Schondelmeyer and officials with the Action Group said it might be necessary to turn to legislators to bring price information to the public. Linda Davis, a health care consultant who works with MNHAG, said recent surveys have found that drug prices are the second-highest concern for consumers when it comes to health care issues. “It’s not only a concern of employers, consumers are worried about it as well,” Davis said. “I think that’s really increasing the possibility of legislative action.”
Schondelmeyer said business owners understand that the question is a practical one. “We don’t have unlimited resources. Congress faces that every day. Employers face that every day when they try to pay for the health benefits of their employees. The goal isn’t to cut benefits; the goal is pay a reasonable price for their benefits so they can continue to provide other benefits.”
The Times editorial noted that several states are considering bills that require drug makers to report profits and expenses for costly drugs or sometimes for all drugs. “Such disclosures might shame companies into restraining their price increases and provide state officials with information to determine what action to take.”
The practice of “naming and shaming” is also something employers are considering. Schondelmeyer said. “We’ll report the extremely high prices they’re charging and ask them to justify it publicly,” he said. He noted that he preferred to work with providers and insurers to find a more collaborative approach to transparency.
According to Schondelmeyer, the next step for employers is to continue to push for price transparency of specialty drugs, while adopting coverage and benefit policies that encourage appropriate use of the drugs.
He also warns employers that pharmacy benefit administers might have a conflict of interest when it comes to specialty pharmacy pricing. “Don’t rely upon benefit administrators who are also selling and managing a product,” he said. “You need someone analyzing your data who doesn’t make any money from selling the products that they’re analyzing.”