Human Capital & Careers

Specialty Drugs Eat More of Health-Care Spending Pie

Thanks to a proliferation of high-cost drugs for complex conditions, pharmacy expenses outpace overall medical cost growth.
David McCannFebruary 25, 2015
Specialty Drugs Eat More of Health-Care Spending Pie

While the rise in corporate health-care costs has significantly moderated in 2014 and 2015, inflation in the cost of drugs continues to outpace the overall medical spending trend.

In a Buck Consultants survey of 170 organizations, 77% of them said they spent at least 16% of total heath-care costs on pharmacy benefits in 2014. That was up from 71% that said so the year before. A major culprit is the continuing proliferation of high-cost drugs used to treat complex conditions like multiple sclerosis, rheumatoid arthritis, hepatitis C, and hemophilia.

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There is no end in sight for that trend. “With costs for specialty drugs showing no signs of decreasing, we could easily see the average percentage of total health-care spend employers are paying for pharmacy increase … to 20%,” says Buck principal Paul Burns. Although these products often account for less than 2% of total claims, they often account for 20% or more of total annual pharmacy-plan costs.

The average cost of a month’s supply of a specialty drug exceeds $2,500, and the annual cost per course of treatment can reach $75,000, according to Buck. Most companies understand the potential cost hit, as 77% of survey participants said they have drug-utilization-management policies such as requiring employees to obtain prior authorization. However, Buck reports, 22% of respondents said they don’t even know how much they are spending on such drugs, although that number was down from 32% in 2013.

One reason for a lack of awareness: some companies that track specialty-drug spending look only at pharmacy benefits, ignoring the fact that more than half of specialty-drug utilization occurs through medical benefits, Burns says.

Many companies are improving in that regard, however. Another notable survey finding was a sharp increase in 2014 in the proportion of pharmacy benefits managers (PBMs) receiving claims data from plan sponsors’ medical and disease-management vendors, to 73% compared with 55% in 2013.

That shift reflects the fact that many plan sponsors have begun expending significant effort to integrate data from all benefit programs. In particular, sharing such information with a PBM “helps ensure medical conditions are treated with pharmaceuticals when appropriate — by sharing data, a PBM can help identify gaps in care — and helps the PBM identify and intervene on potential drug-condition safety concerns,” says Anna Goldbeck, another principal in Buck’s pharmacy practice.

Overall, while pharmacy costs still account on average for less than one-fifth of health-care spending, controlling them is among the most effective ways to reign in the overall expense. Seventy-one percent of survey participants said having affordable pharmacy benefits has a “high impact” on a health-cost containment strategy.

Fewer respondents said the same about medical plan case management (50%), disease-management programs (44%), work-site wellness and health activities (35%), hospital/emergency room discharge counseling (30%), health coaching (28%), and health risk assessments (22%).

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