Drug therapy is growing more complex and costly! So-called specialty drugs are gradually displacing traditional drugs as the primary component of drug spending. The market is expanding rapidly. Only about 10 such drugs were available 20 years ago but today there are more than 300.
These drugs typically treat medical conditions that are life-threatening, chronic and often rare. Cancer treatments are the most common type of specialty drugs, making up one-third of total. Drugs for autoimmune disorders, rheumatoid arthritis, and Crohn's disease, medications for HIV and drugs for multiple sclerosis are responsible for another third of specialty drug spending.
Although only about 1 percent of drugs prescribed, specialty drugs now account for more than one-quarter prescription drug spending. This is expected to grow to 50 percent by 2020.
Specialty drug therapy costs from at least $15,000 per year, to as much as $750,000 per year. Most have no close substitutes, rendering health plans’ traditional efforts by to control costs by encouraging generic substitution largely ineffective. Due to these medications’ high cost, health plans carefully manage the procurement and administering of these drugs. For instance, health plans are increasingly relying on exclusive preferred pharmacy networks to reduce costs and ensure the quality of specialty drug therapy.
When drug plans create preferred pharmacy networks they negotiate for the lowest possible prices. Negotiated prices are the result of bargaining power — the ability of the drug plan to deny business to a firm if their bid isn’t favorable. Bargaining power also strengthens the ability of drug plans to demand quality-enhancing safeguards and patient protections.
As you might expect, when a new market segment displaces an old one, stakeholders in the old market understandably don’t want to be shut out. As preferred pharmacy networks have become more common, so too have the calls for lawmakers to enact laws that restrict the ability of health plans to partner with exclusive pharmacy networks. The less competitive drug providers lobby CMS, Congress and state legislatures to restrict the ability of drug plans to effectively negotiate for lower prices. This past January the Centers for Medicare and Medicaid Services (CMS) tried to ban preferred pharmacy networks in Medicare drug plans. CMS had been under pressure from pharmacy interests shut out of Medicare Part D drug plans.
Numerous states already have regulations that interfere with negotiations between drug plans, drug makers and pharmacies.So-called, any-willing-provider and freedom-of-choice laws reduce the drug plans’ power to bargain for lower prices or ensure quality by making it harder to exclude high-cost (or low-quality) pharmacies from their preferred networks. According to the Federal Trade Commission (FTC), such consumer protection laws are actually costly to taxpayers, employers and patients. Not only do such policies boost patients’ costs, they also compromise safety and invite fraudulent providers who jeopardize the effectiveness of specialty drug therapies.
So what’s the problem? Dispensing and administering specialty drugs requires a level of experience and expertise that most traditional pharmacies simply do not possess. A specialty drug pharmacy doesn’t resemble the corner drugstore most consumers have come to know. These new drugs represent the latest high-tech therapies, including large-molecule biologics (essentially derived from organic substances or living organisms) — most of which may require careful handling. Stocking and dispensing biological agents require sophisticated logistical planning, climate-controlled shipping, meticulous storage — with specific protocols and documentation. Patients who receive these therapies require extensive monitoring, risk evaluation, mitigation strategies for side effects and the close support by a physician.
Physicians are in a position to evaluate the expertise and capabilities of the specialty pharmacy providers their patients patronize. In a recent survey, two-thirds of the physicians agreed that “some” traditional pharmacies are competent to handle and dispense specialty medications, but three-fourths also agreed that “most” pharmacies do not possess the expertise and capability to manage complex drugs.
After intense lobbying by a diverse group of stakeholders, CMS backed away from its proposed ban on preferred pharmacy networks — at least for now. However, the federal agency never officially withdrew its proposed rule change. Unfortunately, this isn’t the end of the debate about whether health plans have the right to lower enrollees’ costs using exclusive networks. When there’s money at stake, politicians (both state and federal) are often receptive to constituents’ pleas for help. Small businesses like community pharmacies often get a sympathetic reception when they descend on the state capitols lobbying for protection against health plans that force them to compete on price. However, Congress and state legislatures should avoid these bogus consumer protections.
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