Specialty medications represent the next big source of runaway health care costs for employers who self-fund their health benefits. Yet specialty medications also have tremendous potential both to save lives and to enhance them.

Specialty medications are used to treat complex, chronic conditions that are often life-threatening. These medications currently represent 1 percent of all prescriptions, but more than one-fifth of prescription medication costs.

variety of pills

A 2013 study predicts specialty drugs will account for 50 percent of all drug costs by 2018.

That percentage is projected to grow rapidly as new specialty medications are introduced. A 2013 study by Express Scripts predicts specialty drug spending will increase 67 percent by year-end 2015. A separate 2013 study from Prime Therapeutics predicts specialty drugs will account for 50 percent of all drug costs by 2018.

The Sovaldi Story

The cost of specialty medications made headlines when Gilead Sciences announced it was pricing its new hepatitis C medication Sovaldi at $1,000 per pill, which adds up to roughly $84,000 over a 12-week course of treatment.

Gilead Sciences and its supporters defend the price by noting that innovation is expensive and the lifetime cost of treating a person with hepatitis C can exceed Sovaldi’s price tag. Sovaldi is considered 90 percent effective in curing hepatitis C, which is estimated to infect between 2.2 million and 3.2 million people nationwide.

Critics concerned about the enormous chunk that health care already takes out of the American economy – more than 17 percent of gross domestic product (GDP) – say costs set at the level of Sovaldi are unaffordable. That opinion is often shared by individuals who need care as well as employers, insurers or other payers that cover most of the cost.

What Employers Can Do

Specialty medications can be difficult to address because they can do so much good for people, even when the cost appears sky-high. It’s clear that employers need to get in front of this issue now to effectively manage specialty medication costs.

These steps can help you get started.WisconsinRx National CooperativeRx

  • Work with a pharmacy benefits manager. The Alliance has an ongoing partnership with WisconsinRx/National CooperativeRx, a not-for-profit prescription drug purchasing cooperative. They can provide guidance and, working in conjunction with their preferred provider CVS Caremark, can design programs and benefits that encourage cost-effective use of specialty medications.
  • Learn about specialty medications. The National Business Coalition on Health offers a two-page Health Action Brief. The Midwest Business Group on Health (MBGH) offers Specialty Pharma 101 for a slightly longer overview. The Campaign for Sustainable Rx Pricing website combines information with a call to action.
  • Download the MBGH Employer Toolkit on specialty medications.
  • Consider Value-Based Insurance Design (VBID), which can play an important role in addressing specialty medication costs. The July 22 Alliance Learning Circle will feature Dr. Mark Fendrick, a leading authority on VBID practices. Online registration will be open soon.

Competition Will Help

Over time, competition could help bring down the price of specialty medications.

Even drugs like Sovaldi eventually have competitors; several new Hepatitis C drugs are expected to hit the market before year-end 2014.

Equally important, employers and other payers who create strategies to help manage the cost of specialty medications will demonstrate there is a limit to what the market will pay. By taking steps to address the cost of specialty medications, employers can contribute to this important debate.

Paul Meyer

Paul Meyer

Chief Operating Officer at The Alliance
Paul Meyer joined The Alliance in 1996 and served as the director of finance and operations until he became chief operating officer in 2007. As the COO of The Alliance, his main duties include overseeing the claims and customer service, finance, MIS, and HR departments as well as business planning and reporting. Meyer also serves as the treasurer of The Alliance Board of Directors.

In addition to his work at The Alliance, Meyer serves as board chair for National CooperativeRx / WisconsinRx, providing direction for this not-for-profit prescription drug purchasing cooperative. Meyer also serves on a number of other boards, including the Wisconsin Statewide Health Information Network (WISHIN), Catholic Charities of Madison, and All Saints Neighborhood.

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