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Employers in a bind over specialty drugs

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As specialty drug costs help push U.S. health care spending and health plan costs to new heights, employers have to balance managing those costs while ensuring sick workers get drugs that may save their lives.

Managing spending on specialty drugs, which are used to treat complex diseases such as cancer, multiple sclerosis and hemophilia, has become a top priority for employers as specialty costs have soared.

Spending for specialty drugs increased 30.9% to $311.11 per plan member in 2014, the highest increase ever recorded, according to pharmacy benefit manager Express Scripts Holding Co., accounting for just 1% of U.S. prescriptions but 31.8% of spending.

Specialty drugs, and particularly hepatitis C medications, also were a factor in the double-digit jump in total U.S. prescription drug spending in 2014, the Centers for Medicare and Medicaid Services said last week. The 12.2% surge to $297.7 billion compares with 2.4% growth in 2013.

While the costs may be high, the flipside is that specialty drugs can significantly improve a sick patient's quality of life and sometimes even cure them.

“There are two sides to that coin,” said Jane Lutz, executive director of the Pharmacy Benefit Management Institute in Minneapolis.

“Specialty medications represent great hope and promise for those individuals who have been suffering from very awful diseases, where in the past there haven't been medications to help them cope,” Ms. Lutz said. At the same time, the institute's employer members say “specialty costs are so incredibly high that they are really struggling to be able to offer an affordable benefit to their employees,” she said.

The debate around the growing cost of prescription drugs was thrust into the spotlight earlier this year when Turing Pharmaceuticals jacked a 62-year-old generic drug's price to $750 a pill, up from $13.50, prompting widespread backlash.

Certain specialty drugs treatments can cost a payer hundreds of thousands of dollars.

The rising prices and regulatory investigations have presidential candidates campaigning for reform. Bills introduced in several states call for drug pricing transparency. And pharmacy benefit managers are driving hard negotiations with drugmakers to lower prices through rebates and discounts.

Last week, the Senate Finance Committee released results of an 18-month investigation into Gilead Sciences Inc.'s drug pricing strategies, finding it priced its hepatitis C treatments Sovaldi and Harvoni based on maximizing profits, not research and development or providing affordable access.

Sovaldi's wholesale price is $1,000 per pill, or $84,000 for a single course of treatment. Successor Harvoni, introduced in October 2014, costs $94,500 for a course of treatment, according to the Senate committee's report.

Gilead disagrees with the report's conclusions and “stand(s) behind the pricing of our therapies” because of the value represented by “reducing the long-term costs associated with managing chronic HCV,” the company said in a statement.

Indeed, some specialty drugs — like the wave of hepatitis C treatments introduced starting in 2013 — offer a cure and may reduce long-term medical costs.

Others improve the quality of life but do not cure the disease, so some argue there's no telling if there will be long-term savings. For instance, Vertex Pharmaceuticals Inc.'s cystic fibrosis drug Orkambi, approved in July, is an improved treatment for certain patients but costs $259,000 a year over a lifetime.

Employers face the delicate balancing act of managing costs while providing plan members with affordable treatment necessary to live and be productive.

Tactics commonly used to manage traditional prescription drug spending, such as step therapy, prior authorization and price transparency tools, can be applied to specialty medications.

Complicating matters is specialty drugs have few or no brand or generic alternatives and often require special handling and delivery via injection or infusion.

“You really can't solve this problem with plan design. You really can't solve this by shifting costs, (because) you reach an affordability barrier,” said Craig Oberg, St. Paul, Minnesota-based managing consultant at The Burchfield Group Inc. If the health plan puts too much of a burden on employees and they forgo their medication, the consequences could be more costly.

“There aren't two or three things that every employer can do and have this specialty pharmacy fully managed. You have to exercise a lot of different options,” Mr. Oberg said.

Among fast growing employer strategies are using a freestanding pharmacy or a PBM's specialty pharmacy. While 33% of employers used a freestanding or PBM specialty pharmacy this year, 55% plan to do so next year, the Washington-based National Business Group on Health said in an August survey.

Because of better management, using a freestanding or specialty pharmacy helps “make sure the medication is targeted to the patients who need it the most,” said Steve Wojcik, the group's Washington-based vice president of public policy.

And PBMs can negotiate with drugmakers for better deals on medications and pass savings on to employers, sources said.

Additionally, an NBGH survey found 32% of employers plan to implement “site of care” management strategies in 2016, up from 18% this year. That means directing employees to the lowest-cost place to fill and administer the drug.

“Tight control” to ensure appropriate use of specialty drugs is essential, said Cameron Congdon, Boston-based senior consultant of health and group benefits at Towers Watson & Co.

“If you're going to spend the money that you're probably going to have to spend, you want to get the best total outcome that you can,” he said.

Still, many employers are shifting costs. Growing more common among employers is the use of fourth and fifth tiers in the copayment structure versus the traditional three, so employees will pay a higher copayment for specialty medications, Ms. Lutz said.