AHIP Issue (Updated 6-4-14)

8/10/2019 AHIP Issue (Updated 6-4-14)

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Introduction

Spending on specialty drugs represents an increasing share of U.S. prescription drugspending and is growing at a rapid and unsustainable rate. Addressing these cost-trendsis critically important to ensuring a sustainable health care system and achievingaffordability for businesses and consumers. In 2012, U.S. spending on prescriptiondrugs totaled $263.3 billion25% of which was spent on specialty drugs.1

Figure 1: U.S. Spending on Prescription Drugs, 2012

Specialty drugswhich are generally understood to be drugs that are structurallycomplex and often require special handling or delivery mechanismsare pricedmuch higher than traditional drugs. While these drugs have been ground breakingin the treatment of cancer, rheumatoid arthritis, multiple sclerosis, and other chronic

conditions, the cost of treating a patient with specialty drugs can exceed tens ofthousands of dollars a year. Te treatment regimen for some of the most expensivespecialty drugs can cost $750,000 per year.2

While these drugs offer tremendous promise when medically necessary, their highcosts and extended use has put a strain on our health care system. Health plans,employers, and other stakeholders are searching for new ways to restrain cost growthwhile simultaneously maintaining access to safe and effective drugs for patients.

Tis issue brief explores recent trends in the specialty drug market, highlights some ofthe innovative strategies health plans are adopting to control costs, and recommendsadditional policy solutions to further promote high-value, high-quality care.

Americas Health

Insurance Plans

Issue

Brief

601 Pennsylvania A

South Building

Suite Five Hundred

Washington, D.C. 2

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Specialty DrugsIssues and ChallengesAdvancing Effective Strategies to Address Soaring Drug Costs While

Assuring Access to Effective Treatments and Promoting Continued

Medical Innovation

Issue Brief

Prescriptions Written in 2012 Prescription Drug Spending in 2012

1%

99%75%

25%

nTraditional Drugs nSpecialty Drugs

Source: Specialty Terapy Class Forecast, 2012. Express Scripts Drug rend Report.


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Unlike their traditional counterparts, spendingon specialty drugs has shown no signs ofmoderation; an increase of 63 percent is forecastover the 2014-2016 period. By some estimates,

spending on specialty drugs alone will total morethan $400 billion by 2020, and will comprisealmost half of all prescription drug spending and9.1% of national health spending.6

Figure 3: Components of Commercial Trend,

2013(January-December 2013 compared tosame period in 2012)

Source: Te 2013 Drug rend Report. Express Scripts, April 2014. Available at:http://lab.express-scripts.com/drug-trend-report/

Te increasing presence of specialty drugs in the

pharmaceutical market further explains theirposition as the driver of drug spending. In 2010,specialty drug approvals by the Food and DrugAdministration (FDA) exceeded traditional drugapprovals for the first time (Figure 4), a trend thathas continued each year since. And in 2013, 19of the 28 drugs approved by the FDA70%were specialty drugs.7A recent report by healthcare accrediting agency URAC noted that themarked increase of chronic illnesses in Americans(such as cancer, obesity, diabetes) coupled with

the increasing complexity of the pharmaceuticalindustry has positioned the specialty drug marketfor continued growth.8

Prescription Drug Cost Trends

National spending on all pharmaceuticals hasmoderated in recent years following similartrends in overall health care spending. Te

Centers for Medicare & Medicaid Services(CMS) estimates that prescription drug spendingwas approximately 9.4 percent ($263.3 billion) ofall health care spending in 2012, growing only0.4 percent from 2011.3While CMS attributesthis decline to greater adoption of generic drugsand several blockbuster drugs losing patentexclusivity, it projects sustained increases in drugspending from 2015-2022 of six percent or moreannually as both drug prices and utilizationincrease.4

Specialty drugs account for a disproportionateshare of overall drug spending because of theirextremely high cost. Te average annual retailcost for a specialty medication to treat a chroniccondition was almost $29,000 in 20095, withsome drugs costing as much as $750,000 (Figure 2).

Figure 2: Selected Conditions, Top Medical

Conditions and Specialty Drugs, 2010

Source: Limited Options to Manage Specialty Drug Spending. Center forStudying Health System Change Research Brief. April 2012.

Because of the comparatively high cost of thesedrugs, the commercial trend for pharmaceuticalspending in 2013 was driven in large part byincreases in the unit cost of specialty drugs(Figure 3).

2

Issue Brief June 2014 Americas Health Insurance Plans

Health Condition

Average Cost Per

Treated MemberPer Year

Inflammation Conditions(Embrel, Humira, Remicade)

$14,455

Multiple Sclerosis (Copazone,Avonex, Rebif, Tysabri, Avastin,Provenge)

$24,118

Cancer (Revlimid, Gleevec,Tarceva, Avastin, Provenge)

$11,089

Pulmonary Hypertension(Tracleer, Revatio, Letairis)

$32,570

Respiratory Conditions (Xolair,

Prolastin)

$18,550

0%

3%

6%

9%

12%

15%

nTraditional

nSpecialty

nAll Drugs

.Utilization Unit Costmn Total

0.5%

2.5%1.9%

2.4%2.4%

11.6%

14.1%

4.9% 5.4%


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The Prescription Drug Market

Unsustainable growth of specialty drug spendingis due to many complex factors but can beexplained, in part, by the legal and regulatorytreatment of these therapies in the prescriptiondrug market. Under current law, brand namebiologic drugs are given a 12 year exclusivityperiod upon approval from the FDAin effecta government-approved monopoly. Tis period

of exclusivity is typically longer than the patentprotection remaining for traditional drugs bythe time they are brought to market. Althoughthese exclusivity periods give pharmaceuticalmanufacturers the incentive to take on therisk of developing groundbreaking drugs, theyalso precipitate a number of negative policyconsequences.

Granting exclusivity to specialty drugs removesthe economic benefits of price competition,resulting in higher prices relative to what theywould be in a perfectly competitive market. Tistrend can be seen in Medicare spending for PartB drugs, which are most often specialty drugssince they are covered through the medical,rather than pharmacy benefit. Te GovernmentAccountability Office released a report examiningtrends in Part B spending and found that in2010, not only did 10 drugs account for 44percent of all Part B spending, but none of these

drugs had a generic version also approved bythe FDA.9Te lack of adequate substitutes forthese drugs constrains payers (health plans, thegovernment, or employers) efforts to implement

effective cost-containment policies. Healthplans have developed expertise in using value-based purchasing or cost-sharing designs thatsteer individuals toward high-quality/high-value treatments and care. But when generic ortherapeutic alternatives do not exist, the optionsavailable for encouraging high-value and cost-effective care are limited.

Even when effective, less-costly substitutes doexist, payment incentives are not necessarily

aligned to encourage their use. Recently releaseddata from CMS on Part B expenditures highlightthis problem in the way two biologicsAvastinand Lucentisare used to treat certain diseasesof the eye. Although the two drugs have beenfound to be similarly effective at treating age-related macular degeneration, Lucentis costs morethan $2,000 per dose, while Avastin costs just$55. An analysis of Part B expenditures for thesetwo drugs found that if providers only prescribedAvastin instead of Lucentis over the next decade,

it would result in nearly $29 billion in savings tothe health care system.10

As a result of this confluence of factorsincreased FDA approvals for specialty drugs,near-monopoly pricing, and the growing needfor effective treatmentsexperts project thatspending on specialty drugs is expected toskyrocket over the next decade and beyond...intensifying the cost and access trade-offs thatpayers and purchasers already face.11

Health Plan Efforts to ManageSpecialty Drug Spending WhileEnsuring Access to High Quality Care

Health plans have developed a number ofstrategies in response to sustained cost increasesthat ensure access to critically important drugswhile also holding down costs.

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Figure 4: FDA Traditional and Specialty Drug

Approvals, 20052012

nSpecialty Drug Approvals nTraditional Drug Approvals

2005 2006 2007 2008 2009 2010 2011 2012

Source: Medical Cost rend: Behind the Numbers 2014,PricewaterhouseCoopersHealth Research Institute. June 2013. Figure 6.

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8

10

14

18

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18

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12

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Integration of Pharmacy and Medical

Benefits

Because of their complex nature and their deliverymechanism, specialty drugs are often covered

through the medical, rather than the pharmacybenefit. Tis distinction has interfered with theincorporation of traditional cost-sharingmechanisms by obscuring prescribing and utilizationpatterns across the two benefits causing amismatch between utilization managementtechniques used for specialty and traditional drugs.

Health plans have begun developing innovativebenefit designs that both recognize the uniquenature of specialty drugs but allow for appropriate

tiers and/or coinsurance rates. More tightlyintegrating the pharmacy and medical benefitsalso allows plans to better track the usage ofspecialty drugs across its enrollees and identifyadditional areas for benefit modernization.

Policies to Maximize Treatment Adherence

Coverage of a specialty drug is ultimately fruitlessif patients have poor adherence to a dosingregimen, or if they discontinue use after filling theprescriptionleading to poor outcomes and highercosts. Health plans are helping to ensure thatpatients are taking their medications by engagingthem about the disease and the therapeutic process.Health plans are also helping patients understandhow to take their medications correctly bycoordinating with providers and making sure thatpatients understand the guidelines for using themedication and any potential side effects.

Growing Role of Specialty Pharmacies

Many health plans now contract with specialtypharmacies that supply enrollees with thespecialty drugs they need and coordinate theoften complex delivery and treatment processesassociated with these drugs. Tese pharmaciesare better suited than traditional pharmaciesto monitor and track the use of specialty drugsand have the necessary training and expertise tohandle their distribution. Specialty pharmaciesalso employ dedicated teams of health care

specialists that can help enrollees understand howto manage their medication and can help ensurethat these drugs are administered at the mostappropriate site of care.

Utilization and Pharmacy Management

By covering specialty drugs for their intendeduses and monitoring the effectiveness and anyside effects that occur during the therapy session,health plans can help to ensure that individualsare receiving safe and cost-effective care.

Policy Options to Promote High-Quality,Cost-Effective Drug Coverage

Although health plan efforts at lowering thegrowth of spending on specialty drugs haveshown signs of success, substantial reforms areneeded at the state and federal levels to bettercontrol specialty drug spending and promotepatient safety in the aggregate and over the longterm. Policymakers can leverage the experienceof health plans and other payers to enact policiesthat strike the appropriate balance between costcontrol and promoting individuals access toeffective treatments. Tese policy options include:

Encouraging alternative payment andincentive structuressuch as coverage withevidence developmentfor new drugs andtechnologies.Such payment strategies canensure access to new drugs while generatingadditional evidence on the value to patientsof these new medications. As part of abroader value-based purchasing strategy, thesealternative arrangementssuch as outcomes-base contracting or reimbursing providers

a flat fee for obtaining drugs, rather than apercentage of the drugs total costprovideenhanced financial incentives for manufacturersof new drugs and medical technologies thatare contingent on agreed-upon standardsfor quality care, performance, and healthoutcomes. Greater use and availability ofcomparative effectiveness data is a key elementin the future growth of these innovativepayment arrangements.


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Shortening the exclusivity period forgeneric biologicsto promote greater pricecompetition and earlier access to lower-costspecialty drugs or generic biologics.Congress

should shorten the exclusivity period forbiologics to allow for more competition fromfollow-on or generic biologicssimilar to thepatent protections afforded to traditional, smallmolecule prescription drugs. By shorteningthe exclusivity period, this proposal wouldfacilitate the entry of lower-cost, genericbiologic drugsreducing costs throughoutthe health care system. While specialtyand other breakthrough drugs can offerlifesaving treatments to patients with serious

medical conditions, there are opportunitiesto help reduce costs and improve efficiencyin delivering high-quality, cost-effectivetreatments to patients. By shortening theexclusivity period, policymakers can ensuregreater price competition in the specialty drugarea and help alleviate cost pressures for payersand consumers.

Te U.S. Federal rade Commission (FC) hasconcluded that the current 12-year exclusivityperiod is unnecessary to promote innovation bypioneer biologic drug manufacturers and mayharm consumers by directing scarce researchand development dollars toward developinglow-risk clinical and safety data for drugproducts with proven mechanisms of actionrather than toward new medical inventionsto address unmet medical needs.12PresidentObamaas part of the Administrations mostrecent budget proposal to Congresssupportsa shorter exclusivity period as a way to strike

an appropriate balance between promotingaffordable access to medication while at thesame time encouraging innovation to developneeded therapies.13Te Administrationestimates that reducing the exclusivity periodwill save $3.3 billion over ten years.14

Remove barriers at the state level thatrestrict the use of biosimilars.While theAffordable Care Act authorized the FDA to

develop an abbreviated licensure pathwayfor biosimilar drugs, it has yet to issue finalstandards that will determine when a biosimilardrugs is truly interchangeable with an already

approved biologic. Ahead of these standards,some states have already adopted legislationthat may restrict the availability of biosimilarsbefore they even reach the market. Teseproposals will limit patient access to drugs thatare not clinically different, yet cost substantiallyless than their brand-name counterparts.

Expanding agencies authority to considerresearch on treatment effectiveness.Consumers and providers have a right to know

which treatments and drug regimens workand which are less effective. In the absenceof a national process for measuring the cost-effectiveness of procedures and drugs, manyproviders are attempting to control costs bybasing coverage decisions on the relative costsof similar treatments. Sloane-Kettering CancerCenter announced in 2012 that it would notprovide patients with Zaltrapa drug usedto treat advanced colorectal cancer becauseit cost more than double the price of Avastin

while offering no clinical advantages.15

Healthcare systems in Europe have also begunpursuing policies that reimburse only for drugsthat have been clinically proven to work.

o expand this evidence base in America,Congress should provide new authorizinglanguage for the Patient-Centered OutcomesResearch Institute (PCORI ) that explicitlyallows it to consider research on cost-effectiveness as a valid component of patientoutcomes research. PCORI and the Agency

for Healthcare Research and Quality(AHRQ ), in their funding of research on theeffectiveness of treatments and technologiesand their dissemination of the results of thatresearch, should prioritize the establishment ofa multi-stakeholder, deliberative process thatcan use such research to provide trustworthyrecommendations on high-value and low-valuecare options to providers, payers, and patients.


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Conclusion

Te skyrocketing cost of specialty drugs remainsa critical concern for policymakers and payersgiven the current trajectory of pricing trends

in this fast-growing and emerging area. Teserecommendations represent actionable steps thatcould be implemented to ensure the efficientand effective use of these high-cost treatmentswhileat the same timepromoting continuedmedical advances and innovations that offerpromise and benefit patients and consumers.

1 Express Scripts: Drug rend Report, Specialty Terapy Class Forecast. Availableat: http://www.drugtrendreport.com/commercial/specialty-forecast-by-therapy-class

2 Brian Schill ing. Purchasing High Performance: Specialty Drugs Poised toSkyrocket but Many Employers Have Yet o ake Notice. Te CommonwealthFund; April 2012

3 National Health Spending in 2012: Rate of Health Spending Growth Remained

Low For the Fourth Consecutive Year. Health Affairs.January 2014. Availableat: http://content.healthaffairs.org/content/33/1/67.full.pdf

4 National health Expenditure Projections, 2012-2022. Te Department ofHealth and Human Services, Centers for Medicare & Medicaid Services.Available at: http://www.cms.gov/Resea rch-Statist ics-Data-and-Systems/Statistics-rends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf

5 Rx Price Watch Report: rends In Retail Prices of Specialty Prescription DrugsWidely Used by Medicare Beneficiaries, 2005 to 2009. AARP Public PolicyInstitute. Available at: http://www.aarp.org/content/dam/aarp/research/public_policy_institute/health/2011/rx-pricewatch-01-2012.pdf

6 Express Scripts Lab, 2013 Drug rend Report. April 2014. Available at:http://lab.express-scripts.com/

7 Specialty Drug Approvals in 2013. Express Scripts Insights. March 26, 2014.Available at: http://lab.express-scripts .com/insights/drug-options/specialty-d rug-approvals-in-2013

8 CVS Caremark, Specialty rend Management: Where to Go Next, Insights2013. Available at: http://info.cvscaremark.com/cvs-insights/insights-specialty-

trend-management9 Medicare: Information on Highest-Expenditure Part B Drugs. GAO estimony

before the Subcommittee on Health, Committee on Energy and Commerce,House of Representatives. June 28, 2013. Available at: http://www.gao.gov/assets/660/655608.pdf

10 David Hutton et. al. Switching o Less Expensive Blindness Drug Could SaveMedicare Par t B $18 Billion Over A en-Year Period.Health Affairs, 33 no. 6(2014): 931-939

11 Ha . u and Divya R. Samuel. Limited Options to Manage Specia lty DrugSpending. Center for Studying Health System Change; April 2012

12 Federal rade Commission Report. Emerging Health Care Issues: Follow-OnBiologic Drug Competition. June 2009.

13 Obama Administrations FY 2014 Budget Proposal.

14 Fiscal Year 2014 Budget, Page 198. Available at: http://www.aarp.org/content/dam/aarp/research/public_policy_institute/health/2011/rx-pricewatch-01-2012.pdf http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/budget.pdf

15 Peter Bach, Leonard Saltz, and Robert Wittes. In Cancer Care, Cost Matters.October 14, 2012. Available at : http://www.nytimes.com/2012/10/15/opinion/a-hospital-says-no-to-an-11000-a-month-cancer-drug.html?_r=1&

16 Washington State: An Integrated Approach to Evidence-Based DrugPurchasing. Te Commonwealth Fund http://www.commonwealthfund.org/Newsletters/States-in-Action/2006/Mar/March-2006/Profiles--In-Depth-Looks-at-Initiatives-that-Are-Making-a-Difference/Washington-State--An-Integrated-Approach-to-Evidence-Based-Drug-Purchasing.aspx

17 Ha . u and Divya R. Samuel. Limited Options to Manage Specia lty DrugSpending. Center for Studying Health System Change; April 2012

18 Least Costly Alternative Policies: Impact on Prostate Cancer Drugs CoveredUnder Medicare Part B. Department of Health and Human Services, Officeof the Inspector General. November 2012. Available at: http://oig.hhs.gov/oei/reports/oei-12-12-00210.pdf

18 Estimates Effects on Direct Spending and Revenues for Health Care Programsof Proposals in the Presidents 2014 Budget. Available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44247_APB_HealthCarePrograms.pdf

For additional information or questions about this Issue Brief,contact our Federal Affairs Department at 202.778.3200 or

[email protected]. Copyright 2014 by AmericasHealth Insurance Plans. All rights reserved.

Americas Health Insurance Plans

601 Pennsylvania Ave., NW

South Building Suite 500

Washington, DC 20004

202.778.3200 www.ahip.org

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AHIP Issue (Updated 6-4-14)