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Stream of pricey cancer drugs to hit employer costs

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PALM SPRINGS, Calif. — Expensive specialty drugs, one-third of which are for cancer, give patients greater hope, but insurers, pharmacy benefit managers and employers need to find innovative ways to deal with the escalating costs.

“If you look at the drug pipeline, it is more robust than any time in my 35 years of health care,” said Dr. Steve Miller, chief medical officer of St. Louis-based Express Scripts Holding Co.

More than 7,000 drugs are in development, and most are specialty medications, he said. And while all won't make it to market, the U.S. Food and Drug Administration is approving a record numbers of drugs.

While this means “tremendous hope for many unmet medical needs,” Dr. Miller said if payers “don't have solutions on how to manage specialty patients going forward, we're going to get crushed.”

According to health care analytics firm IMS Health Inc., prescription drug spending reached $373.9 billion in 2014, up 13.1% from 2013 for the fastest growth rate since 2001. Specialty drugs to treat hepatitis C, cancer and multiple sclerosis drove much of that growth and accounted for one-third of total prescription drug spending, Danbury, Connecticut-based IMS Health said in a report last year.

Specialty drugs are “obviously the topic that PBMs and payers are focused on, and we don't think it's going away,” said George Hill, New York-based equity research analyst at Deutsche Bank A.G.

Buzz surrounding drug price sticker shock has focused largely on hepatitis C drugs such as Sovaldi, introduced in 2013 with a cost of about $84,000 per course of treatment; and successor Harvoni, which debuted in 2014 at an even higher $94,500 per course.

But the biggest issue for employers and other payers is a pipeline of cancer drugs hitting the market, several experts said during the Pharmacy Benefit Management Institute's Feb. 29-March 2 conference in Palm Springs, California.

“Enormous numbers of drugs are coming out (for) cancer and they are coming out at price points we have never seen before,” Dr. Miller said. “We talk about the average chemotherapy now costing over $100,000 a year, 14 million patients with cancer — you can do the math. We're talking about an enormous spend for cancer.”

But experts say it's hard to contain costs when it comes to cancer.

“Most oncology drugs are covered under the medical benefit, where there is less oversight,” Mr. Hill said. “It's hard to get very aggressive in cost containment in oncology without looking terrible.”

“Cancer was an area in benefit design that, not so many years ago, no one would touch with a 10-foot pole. You were afraid to say no,” said Sharon Frazee, vice president of research and education at Plano, Texas-based PBMI.

Still, she said, employers and other payers are “less afraid, more willing to say, "Let's make reasoned choices; let's work together to do this,' and to explain to people why this drug is preferred over that drug,” she said, adding there's always an appeals process for patients with a medical necessity.

Employers and other payers are using cost-sharing tiers and formulary exclusions to control specialty drug costs, experts said.

Express Scripts is poised to tackle cancer drug prices using indication-based pricing, which means it will pay more for a drug when it's used for more effective treatment. For example, the PBM will reimburse the drugmaker at a higher rate when Tarceva is used to fight lung cancer versus pancreatic cancer, because the drug is more effective in treating lung cancer, Dr. Miller said.

“It's basically disincentiving the overuse of drugs that have very little impact on survival,” Ms. Frazee said.

Yet the conversation about high drug prices may help ultimately lower them, Mr. Hill said.

“Even the Republicans are talking about drug pricing and drug price control,” he said. “If you continue to gouge the system, you will draw the ire of regulators on both sides.”