Employers grappling with the steady rise in prescription drug costs may be in for a rude awakening in the not-so-distant future.
The specialty drug market is primed to explode in the next five to 10 years, and some experts believe the time for companies to take action is now.
The anticipated flood of specialty drugs will put further financial strain on organizations and employees alike looking to capitalize on the health benefits from innovative drugs that will help to treat and manage chronic conditions. Some estimates place as much as a five-fold increase in current volumes of specialty drugs over the next decade.
Last month, IMS Health reported a 5.1% increase in U.S. prescription drug sales in 2009 to just over $300 billion, up from a 1.8% percent growth rate witnessed in 2008.
IMS attributed a 7.5% increase in the use of specialty pharmaceuticals as one of the factors driving this notable growth and estimated that the specialty segment now accounts for 21% of U.S. market value.
"We're at the tip of the iceberg in the specialty drug market," observes Connie Perry, vice president for practice leadership at Thomson Reuters. "It's going to be a very delicate balancing act in providing good access and providing optimal care management and optimal cost structure."
Such conditions as cancer, rheumatoid arthritis, asthma, cardiovascular disease, diabetes, multiple sclerosis and cirrhosis may be the benefit of specialty penetration in the market.
Hefty price tag
But progressive pills to treat these serious ailments will come with a hefty price tag for both the employer and employee alike. Effective communication about the overall cost burden and health value will be key to successful implementation.
Separate research from Medco found that the specialty drug market increased from a share of 12.4% in 2007 to 15.8% in 2008. Moreover, Medco estimates that between 30-40% of drugs currently in the pipeline fall in the specialty category.
Innovative cost-control measures currently employed in the benefit designs of companies nationwide will be critical to containment of expenditures related to prescription drug cost offerings.
"The most knowledgeable plan sponsors recognize the impact of prescription drugs on overall medical costs and plan sponsors are concerned," says Nick Vasilopoulos, senior vice president of market strategy for Medco Health Solutions. "Some plan sponsors are requiring members to take a look at utilization."
In the current climate, employers still are exploring avenues to encourage the use of generic counterparts as opposed to brand name drugs to realize cost savings. Companies are keeping an eye on the calendar for patent expiration dates that will bode well for increased generic utilization.
"Generic dispensing rates are near 70%, the highest we have ever seen," Perry says. "As additional drugs lose patents, plan sponsors could see generic utilization at 75%. It's critical to maximize generic dispensing rates as much as possible."
In addition to a larger share of generic substitutions entering the marketplace, companies are offering their workforces incentives to opt for generic counterparts, whenever available.
Value-based approaches to prescription drug coverage are seen as a growing strategy, one that comes with controversy however, for cost-containment on behalf of employers. The lowering of copayments for generic options, even down to zero dollars for the employee, is gaining traction.
"Some of our research for companies has shown that 95% of all drugs could be filled in as generic," Perry observes. "We're starting to find some moments for optimal use and almost full generic utilization."
Perry says one critical component that many companies fail to initiate is a thorough data dissection of current usage. This will help identify opportunities for cost-saving measures that may provide the most bang for the buck.
The investment on behalf of the employer to roll out these programs should be met with analytics that support company direction. This is particularly true as employers prepare for increased specialty drug coverage.
Vasilopoulos notes that a key to improved health and lowering utilization rates may be in the hands of the pharmacists in the field, those working with the patients.
He notes that Medco has a program that puts pharmacists through training to treat specific chronic conditions. This can lead to cost containment through a more targeted prescription remedy unique to the patient, benefiting from the knowledge of a condition-specialized doctor.
Coalition power
The Pittsburgh Business Group on Health is one example of employers banding together to reap savings at the negotiating table for its members. While overall prescription drug costs increased nationwide, the PBGH reported a decrease of 2.2% in pharmaceutical drug expenses in 2008. This translated into approximately $12 million in savings for PBGH members over the course of the year.
Of its 55 employer members, 23 have bought prescription drugs through a carved-out, self-insured arrangement. Participating company sizes vary in range from 600 employees up into the thousands. Having this many lives to negotiate with, PBGH has substantial persuasion to secure coalition discounts in partnering with players in the prescription drug market.
"When you are able to combine expenditures, you are able to leverage the power of the group from a financial and performance perspective," notes Chris Whipple, Executive Director of PBGH. "For a coalition, it is key to really listen to the employer members and bring [their concerns] to the table for our partners."
PBGH does not develop any prescription strategy for the employer, recognizing that while one method may work for one company, the same might not be true for another. Companies maintain their own individual benefit strategies to serve their employees - and their own bottom line - as best they see fit.
Members of the PBGH share lessons learned in collaborative meetings once or twice during the year.
"Another value of coalition programs is the ability of employers to pool their peers and share lessons learned as they develop their own strategies," Whipple says. "The key question for employers is how to best use dollars wisely."
Reform impact unknown
The recent passage of health care reform has left many in the industry with many questions to ponder, and prescription drug coverage is no exception. In particular, those in the pharmaceutical field are watching closely the impact this will have on Medicare.
"The impact the changes will have on employers is significant," Whipple says. "I think we have to wait until there is more details and understanding about what the regulations are going to say."
Perry says evaluation of the impact is still being determined, but conceded that there is going to be "a lot of ramifications to employers."
Reform aside, employers will have their hands full with cost containment strategies related to the current challenging economic environment and the bolstered specialty market soon to come to market.
Kevin Sweeney, a former EBN associate editor, is a freelance writer based in Frederick, Md.
