Payers Target Rising Specialty Drug Spend

Insurers and pharmacy benefits managers rate the quality of patient outcomes as their primary concern. They are actively looking for ways to cut the cost of those outcomes without impacting quality.

This article published with permission from The Burrill Report.

In mid-October 2013, pharmacy benefits manager Express Scripts announced that it would exclude 48 drugs from its national preferred formulary starting on Jan. 1, 2014, providing coverage for cheaper alternatives it said would achieve similar patient outcomes. Express Scripts recommended that its insurer clients exclude these drugs from their plans’ coverage options — in other words, not reimburse doctors, hospitals and patients for the cost of using these drugs.

Among the drugs on the list were five classified as specialty drugs and some newly approved compounds, including GlaxoSmithKline’s Breo Ellipta for COPD and Pfizer’s oral rheumatoid arthritis drug Xeljanz.

Insurers, and the pharmacy benefits managers who work with them, rate the quality of patient outcomes as their primary concern. They are actively looking for ways to cut the cost of those outcomes without impacting their quality. As a result, the U.S. health care system has been undergoing a transformation with payers, providers, patients and pharmaceutical companies seeking new ways to deliver and pay for health care. With the implementation of the provisions of the Affordable Care Act, these stakeholders are increasingly challenged to determine the value of the services they provide.

One place payers are eyeing for cost-cutting measures is their drug spend, currently the fastest growing portion of their overall health care bill, as accountable care organizations, integrated health systems and other risk-sharing arrangements are being implemented to improve outcomes and reduce the cost of care delivery.

During an earnings call one week after announcing the formulary changes at Express Scripts, Chief Medical Officer Steve Miller said it was the first time the pharmacy benefits manager recommended such an action as the cost of drugs in many therapy classes continues to rise. The formulary changes reduced drug costs for clients using its formulary by as much as 3%, an aggregate of about $700 million in annual savings. While branded drugs represent only 20% of the prescriptions filled, they account for 70% of Express Script’s clients’ drug spending.

“Branded drug price inflation is growing at double-digit rates every year,” said Miller. “When you add that to health care reform and the requirements of the essential medical benefits package, increasing specialty cost trends, direct consumer advertising and co-pay cards, plan sponsors and patients are looking at significant challenges in controlling drug spend.”

Roger Longman, chief executive officer of health care consultancy Real Endpoints, says it was inevitable that something like Express Script’s decision would happen as payers scramble to find ways to reign in health care spending.

“It was a cannon shot across the bow of the pharmaceutical industry — maybe not quite across the bow, but it seems to have hit some spars,” says Longman. “The ship is still sailing but it was certainly shaken.”

While generics account for about 80% of prescriptions filled, specialty drugs account for 30% of the increase in the drug spend of payers, according to Albert Thigpen, senior vice president of Pharmacy Operations and Industry Relations at Catamaran, a national pharmacy benefits manager. He says that over the next four or five years, 50% of the total drug spend will be for specialty drugs, which will be driven by 1% to 3% of the population.

Specialty drugs are high-cost drugs that typically must be administered by a physician or other trained medical professional. They include most biologics, such as treatments for cancer, immune-deficiencies, autoimmune diseases, and rare diseases and genetic conditions. Although used by a only a small subset of very sick patients, they are expensive and can range in cost anywhere from about $35,000 up to $500,000 per patient per year depending on the therapeutic category, according to Thigpen.

The specialty drug spend is outpacing all other sectors of health care costs and, therefore, is a natural target for cost-cutting by payers and pharmacy benefits managers. At the same time, these are the drugs that drugmakers are most keenly focused on developing and bringing to market. And for many patients, these are the only drugs that will help them.

“There have been great advances in the last 20 years and that is good, but there is a price to pay for that,” says Thigpen. “That is what payers are struggling with. We see this innovation coming and it is expensive, how do we get it to the people who need it the most so we can reduce long-term medical cost by having healthier people in general and invest in the right products and services that help us do that?”

While Express Scripts has taken to cutting certain drugs from its formulary, this is difficult in the realm of specialty drugs where for many conditions, few treatment alternatives exist. Even in the case of a disease such as multiple sclerosis, where there are several different approved therapies, there’s broad variability and differences in the clinical makeup of the drugs and how a patient with the disease responds to them, Thigpen says.

So Catamaran and other PBMs are taking a proactive approach, monitoring the pipeline, and instituting programs aimed at improving patient adherence to their medications as a way to contain costs. These programs, which are evolving along with integrated care delivery systems, place the specialty pharmacist into a central role in the whole continuum of care for these patients.

“If you improve education and oversight you decrease adverse events, hospitalizations, ER visits, unnecessary physician visits, and all the cost associated with them,” says Suzanne Tschida, vice president, Specialty Benefit & Outcomes Strategy at OptumRx, the pharmacy benefits division of health insurer UnitedHealth.

Where a specialty drug is positioned in the formulary is important, but when it is the only treatment option for a patient with a serious disease, other steps must be taken to mitigate its expense.

“You have to make sure you can deploy end-to-end programs that are going to deliver value, and provide the appropriate clinical management and clinical expertise and oversight for these disease states,” Tschida says, “along with adherence programs, so you can make sure the right member is getting on the right drug at the right dose, the right duration, the right response.”

She says OptumRx has seen significant medical cost savings and total health care outcomes savings for members using its specialty program and clinical support services, including improved adherence for the four years its program has been running.

Health insurance provider Humana’s PBM also employs a variety of novel tactics to control its specialty pharmacy spend outside of the cost of the drugs. These include specialty pharmacy point of sale interventions such as dose optimization and management, assessing each patient before refilling the drug, and “integration across the patient journey,” says Kim Caldwell, Humana’s director of Pharmacy and Professional Affairs. He says their programs complement what the doctor is doing.

“This is a complete triangle — the patient, Humana and the providers,” Caldwell says. “It has to be in concert or no one will be on the same page.”

Electronic health records and data analytics play a key role for the implementation of payers’ programs, connecting the dots among payers, providers and patients. Humana’s Anvita Health, for example, is a health care analytics that provides caregivers and payers with real time clinical insights to improve outcomes.

Payers are also working hard with pharmaceutical companies, both to negotiate better prices and to advise them while their compounds are still in clinical development or ahead of a launch. Catamaran’s Thigpen says the biotech industry in general is very open to structuring deals that benefit both the payer and the drugmaker.

“Most of the biotech companies have a product that is valuable,” Thigpen says. “They also have a short time line to recoup a very expensive investment that they have made and we are cognizant of positioning [the drug] in such a place where it will be valuable to the patients who need it the most, but not at an egregious value that [drugmakers] end up distancing themselves from payer accessibility or reimbursement. That’s where the discussion has to occur.”

He concedes that the industry has gotten smarter about creating the right deals to get their products out there, but he says where they fall down is when they get “greedy” on price inflation. That’s what has happened for multiple sclerosis therapies where he says there was 22% to 25% price inflation in 2012. That is not showing value.

“The payers will not stomach it and continue it, and you will see backlashes and physician pullback,” Thigpen says. “And then they run the risk of non-adoption, or if they are adopted, at some point in the formulary if they get egregious, it’s just as easy to take it off.”

That’s what Express Scripts is doing. It decided to take the drugs off the formulary rather than move them to a higher tier where the co-pay is higher because of the pharmaceutical company tactic of offering coupons and rebates to patients to get them to use expensive drugs instead of lower cost alternatives.

Payers say, ultimately, they want to drive the cost down as far as possible without sacrificing patient access to appropriate medication. Tschida says OptumRx’s strategy is to "use appropriate reimbursement and pricing, clinical utilization management programs, and having a preferred product strategy, to leverage the lowest cost product within a category as clinically similar medications and work with manufacturers to get rebates for the preferred agents as compared to the non-preferred agents — really driving down the price point for the medication.”

It remains to be seen whether or not efforts by payers, especially to improve adherence and compliance to drug regimens, will be as successful in containing the rising cost of specialty drugs as they hope. Comparative effectiveness studies and evidence-based care pathways are still lacking. Although payers and drugmakers are beginning to work together, their differing objectives often make it difficult for them to trust how each assesses value.

In fact, one of the key challenges is how to assess the value of drugs, says Real Endpoint’s Longman. He thinks it will take third parties to determine a drug’s value based on the overall health outcomes and medical costs of taking care of the patient, one that can be trusted by all parties.

One thing is clear in a health care system constrained by rising costs; payers see the move toward a patient-centric approach to healthcare as an important part of dealing with the rising cost of specialty drugs.

Copyright 2013 Burrill & Company. For more life sciences news and information, visit www.burrillreport.com.