A Bitter Pill: The High Cost of Specialty Drugs

The good news: Pharmaceutical companies are developing a range of drugs to treat diseases that are chronic and/or rare. The bad news: Their high (some might say outrageous) cost.

Overall, prescription drug prices rose 12 percent in 2014. Sales of specialty drugs contributed greatly to the jump. Specialty drugs:


  • Are usually self-administered, high cost, injectable or oral drugs
  • Can require clinical training to administer
  • Treat chronic conditions (e.g., cancer, multiple scleroses, rheumatoid arthritis, hepatitis C)
  • May need special storage and handling
  • Aren’t available from many retail pharmacies.


People are taking notice of the cost increases. In the August issue of the medical journal Mayo Clinic Proceedings, more than 100 oncologists signed on to an editorial titled “In Support of a Patient-Driven Initiative and Petition to Lower the High Price of Cancer Drugs.” The physicians said that, due to cost, about 10-20 percent of cancer patients do not take their prescriptions as prescribed. The greater their out-of-pocket cost, the less likely they are to comply with prescription instructions.


That should come as no surprise, given the cost of cancer drugs. Consider the following facts:


  • The cost of cancer drugs has increased an average of $8,500 a year over the past 15 years.
  • Treatment with new cancer drugs cost an average of $100,000 per year in 2012.
  • All new cancer drugs approved by the US Food and Drug Administration last year cost more than $120,000 per year of use.


On top of that, copayments and deductibles have been increasing, leaving many patients paying 20 to 30 percent of their prescription drug costs. This has forced many to “make difficult choices between spending their incomes [and liquidating assets] on potentially lifesaving therapies or forgoing treatment to provide for family necessities,” the doctors wrote.

These facts aside, some new, high-cost drugs might pay off. For example, a drug that prevents liver failure or averts probable heart conditions can save thousands of dollars in surgery, emergency room and lost life and productivity costs. However, the problem for employers is that employees might not stay around long enough for these long-run cost savings to materialize.


The Mayo Clinic Proceedings editorial suggested the following fixes for the current system:


  • Create a review mechanism to propose a fair price for new treatments, based on their value to patients and heath care.
  • Allow Medicare to negotiate drug prices (currently forbidden under Medicare reform).
  • Allow the Patient-Centered Outcomes Research Institute, created by the Affordable Care Act, and similar organizations to include drug prices in their assessments of treatment value.
  • Allow importation of cancer drugs across borders for personal use.
  • Pass legislation to prevent drug companies from delaying access to generic drugs (pay-for-delay).
  • Reform the patent system to make it more difficult to unnecessarily prolong product exclusivity.
  • Encourage organizations that represent cancer specialists and patients to consider the overall value of drugs when creating treatment guidelines.


Until these things happen, employers can take some steps to control their prescription drug costs:


  • Consider using a pharmacy benefit manager (PBM). You can do this by “carving out” prescription drug benefits from your health plan. The PBM then manages your drug benefits. Volume buying allows PBMs to give participants retail and mail-order drugs at deep discounts. They also contract with manufacturers to obtain rebates that can be passed on to clients.

While PBM pricing is often more transparent than insurance company pricing, a PBM’s financial interests may not always align with those of their clients. Some PBMs retain the difference between the discount applied to the client’s invoice and the actual amount reimbursed to the retail pharmacy. With mail-order purchases, certain PBMs rely on their market power to generate revenue by purchasing volume-based brand and generic drugs at a deeper discount than the prices clients pay. And sometimes they refuse to reimburse for certain high-cost drugs.

  • Consider plan design. Specialty drugs and biologics are often the subject of off-label, experimental or questionable uses. Some health plans link payments for a drug to its efficacy—in other words, a “pay for performance” system. Others are using evidence-based treatment guidelines and precertification requirements to reduce off-label prescribing of specialty drugs.


For a more in-depth discussion of how we might help you control prescription drug benefit costs, please contact us.