Specialty Medicines The Biggest Impact to Your Healthcare Costs BY: DOUG ADELBERG, SENIOR VICE PRESIDENT, LOVITT & TOUCHÉ Many factors impact employer health care costs, such as trend, increased utilization and increased hospital charges. However, the single largest factor is specialty medications. What makes a drug a “specialty drug”? It starts with a small molecule drug versus large molecule drug. Small molecule drugs, like Aspirin, are simple and easy to duplicate. They can be processed into easily digestible tablets for pennies on the dollar. They usually have few amino acids and can be replicated by other companies. These drugs are used to treat colds, flu, allergies, headaches and other common infections. Mid-size molecule drugs, like Insulin, are slightly more complicated. They have many more amino acids and can be replicated, but the cost to manufacture and distribute is higher. These drugs target chronic conditions to improve lifestyle. Large molecule drugs, like Humira, may contain up to 1,300 amino acids. These drugs are specifically designed to treat a small portion of the population who suffer from rare, life threatening or debilitating diseases. The production process is very complicated and tends to yield small quantities. Duplication is very complex and expensive, as the manufacturing process is part of the patent and is subject to regulatory review. These drugs are usually stored, handled and delivered by specialty pharmacies, which adds to the overall cost. Aspirin 30 The pipeline of new drugs is loaded with specialty medications, upwards of 5,000. According to the Federal Drug Administration, more than 40% of drugs that are filed for patents are in the specialty category. The patent life on specialty medications is one of the primary reasons for this redirection of research and development money. Traditional medications have a five-year patent life before they can be manufactured as a generic medication while specialty medications have a 12-year patent life. The cost of specialty medications is expected to increase from an estimated cost of $87 billion in 2012 to more than $400 billion in 2020. In 2013, Medicare spent $300 million to treat Hepatitis C with traditional medications. In the same year, Medicare also spent $4.5 billion on specialty medications to treat Hepatitis C. One of the newest drugs on the market to treat Hepatitis C is Sovaldi. The cost for a 12-week course of treatment is about $84,000 compared to the traditional medication approach that runs about $25,000 per year. Compare both of these to the cost of a liver transplant, which may exceed $500,000. While taking Sovaldi, the patient experiences few, if any, significant side effects that are very common in the traditional medication approach. There is help on the horizon. Biosimilar medications are copies of complex medications approved by the FDA as Insulin RISK & BUSINESS MAGAZINETM FALL 2015 Humira “highly similar” to the original drug. Biosimlars are expected to generate savings of 15%-30% less than the brand name. The FDA approved the first biosimilar earlier this year called Zarxio. In the biosimilar pipeline are drugs similar to Humira, Enbrel, Remicade, Lantus, Neulasta and Neupogen, which represent more than $26 billion in 2014 sales. Self-insured employers have some additional options to manage increasing specialty medication costs: 1 Implement a four-tier drug plan with higher cost sharing for specialty medications. 2 Carve specialty medication out of the plan and utilize a vendor that specializes in purchasing, distribution and administration of specialty medications to assist with cost containment. 3 Limit the supply to ensure that waste does not occur. 4 Require prior authorization for all specialty medications. 5 Implement a site of service strategy to ensure that the most cost-effective delivery option is utilized. As healthcare costs continue to rise, access to data is a critical element in the decision-making process for employers. Employee impact needs to be balanced with cost-containment strategies. The impact of specialty medications will necessitate a change in current strategy, and a solid foundational plan needs to be fluid over time, stressing management and execution.