Small group of specialty drugs could make up half of total pharmacy spending by 2018

Some patients are paying sky-high prices for ‘specialty medications’ when cheaper options exist, a team of researchers has found.

A specialty medication is defined by Medicare as any drug that costs more than $600 a month. Such drugs typically require special handling like refrigeration or additional supplies like syringes. They represent only a fraction of prescriptions filled, but by 2018, are expected to account for half of total annual pharmacy spending, or $235 billion, according to a study published in the October issue of Health Affairs.

Though specialty medications are used by only 3.6 percent of the commercial population, rising costs of these drugs accounted for a 3.2 percent increase in total prescription drug spending in 2013. That’s $329.2 billion according to a report by the IMS Institute for Healthcare Informatics.

Several factors contribute to the soaring costs.Health Affairs

There’s the simple issue of supply and demand. Huge dollar amounts go into developing drugs that, in the case of rare diseases, few patients buy.

Another obstacle is that generic alternatives for these drugs are typically unavailable. Unlike more popular drugs, there’s no regulatory or scientific pathway for specialty medications to become generics. The Hatch-Waxman Act, which became a law in 1984, paved the way for generics to be manufactured, a move that led to “astronomical” savings, according to Dr. Alan M. Lotvin, the executive vice president for specialty pharmacy at CVS Caremark and lead author of the Health Affairs report. The legislation required that a generic drug be “bioequivalent” to the original. In other words, the active ingredient in the generic version must be absorbed at the same rate and extent as the original drug. But specialty medications are often too complex to be replicated under these requirements.

Plus, the price is set by manufacturers, Lotvin said. “To put it simply, the expansion of Medicaid and the 340b program make it harder for manufacturers to raise prices once they’re on the market. So the economically rational approach is to start off at a higher price.”

Lotvin’s team found that specialty drugs are not always the only or even the best choice. In other words, some patients may disproportionately shoulder a hefty burden of drug costs when a cheaper option may work just as well.

So how can a patient navigate the choices available? Here are some tips from Lotvin.

  • Check whether the drugs are being sold in-house. Doctors choose drugs based on their assessment of the care needed for the patient, but if there are two equivalent drugs, the doctor has an incentive to prefer those where they both purchase and administer the product, Lotvin said.
  • With some specialty drugs, doctors are required to fill out extra medical details about the patient — details on the diagnosis or other drugs the patient is taking, for example — before insurance will cover the drug. The process is known as prior authorization, or prior approval. This is a good thing, Lotvin said. Prior authorization adds another quality check to the prescribing process.
  • Finally, a specialty drug is typically less expensive when administered at home or in a doctor’s office rather than in a hospital.

“Administering a specialty medication is usually less expensive outside of the outpatient hospital setting — at a physician’s office or a home setting,” he said.