Five steps to control escalating costs of speciality drugs

Speciality drugs are derived from living cells, often infused or injected and often require supervision. The prices for speciality drugs are much higher than branded or generic drugs.

For example in employer sponsored plans, speciality drugs usage is about 2-5%, yet they make up over 30% of the overall cost. In comparison, the generics are typically over 75% of the mix but less than 35% of the overall cost. Unfortunately, this trend is likely to accelerate in near future. The cost of specialty drugs is expected to increase by 63% before 2016 with a steady increase each year expected through 2023.

From the billing perspective, oral medications are typically managed under the pharmacy benefit while medications that are infused or injected are generally managed as a medical benefit. This means two different types of medication claims, one from providers and other from PBMs.

With medication costs becoming a significant part of overall healthcare spend, it is becoming critical to know how much a self-funded employer is spending on medications, across all channels.

Large employer sponsored plans have known for years that specialty drugs have often been a major source of revenues for providers.  Avoiding one administration of these high cost drugs can mean savings of thousands of dollars to the employer. This is making employers contemplate several strategies including moving specialty drugs from the medical benefit to the pharmacy benefit to reduce costs. In nutshell whoever is managing these costs on behalf of the employer must ensure that decisions about where and how an infusion drug is administered are driven at least in part by cost considerations.

Step 1: Analyze Claims Data

The starting point of cost reduction program is analyzing your claim data to identify speciality drug categories that can provide the greatest return on investment.

Step 2: Tiered Plans and Narrow Networks

Create plans with tiers of coverage for specialty drugs with multiple alternatives. Biosimilars should be considered as alternatives to such speciality drugs.  The second step is to limit the number of distributors to secure lower prices.

Step 3: Pre-authorization

Specialty drugs dispensed should be matched against the formulary rules for authorization. Prior authorization can make sure the right members that meet the right clinical criteria are getting the right drugs at the right time in order to attain the best health outcomes.

Step 4: Code Standardization

All medication claims (inpatient, outpatient or PBM) should be codified in  a consistent manner, preferably in NDC format. In addition to the code, the provider should provide NDC Unit of Measurement (UOM) and NDC quantity. If this is not immediately possible, you can also ask your TPA to convert HCPCS J Codes to NDC during claim processing before applying the pricing rules for calculating rebates and discounts (both flat and performance/volume based).

Step 5: Cost Comparison

Compare the prices paid to the medicare pricing for similar drugs using the NDC coding and handle the discrepancy by taking it up with the network provider or PBM.

Talk to us about how our health insurance solution for employers can help you in implementing robust pharmacy benefits program to lower your costs.