Risk & Business Magazine Lovitt & Touché Fall 2015 | Page 30

Specialty Medicines

The Biggest Impact to Your Healthcare Costs
BY: DOUG ADELBERG, SENIOR VICE PRESIDENT, LOVITT & TOUCHÉ

Many factors impact employer health
care costs, such as trend, increased
utilization and increased hospital
charges. However, the single largest
factor is specialty medications.
What makes a drug a “specialty drug”? It
starts with a small molecule drug versus
large molecule drug.
Small molecule drugs, like Aspirin, are
simple and easy to duplicate. They can be
processed into easily digestible tablets for
pennies on the dollar. They usually have
few amino acids and can be replicated by
other companies. These drugs are used to
treat colds, flu, allergies, headaches and
other common infections.
Mid-size molecule drugs, like Insulin,
are slightly more complicated. They
have many more amino acids and can be
replicated, but the cost to manufacture
and distribute is higher. These drugs
target chronic conditions to improve
lifestyle.
Large molecule drugs, like Humira, may
contain up to 1,300 amino acids. These
drugs are specifically designed to treat
a small portion of the population who
suffer from rare, life threatening or
debilitating diseases. The production
process is very complicated and tends
to yield small quantities. Duplication
is very complex and expensive, as the
manufacturing process is part of the
patent and is subject to regulatory review.
These drugs are usually stored, handled
and delivered by specialty pharmacies,
which adds to the overall cost.

Aspirin

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The pipeline of new drugs is loaded
with specialty medications, upwards of
5,000. According to the Federal Drug
Administration, more than 40% of
drugs that are filed for patents are in the
specialty category.
The patent life on specialty medications
is one of the primary reasons for this
redirection of research and development
money. Traditional medications have a
five-year patent life before they can be
manufactured as a generic medication
while specialty medications have a
12-year patent life. The cost of specialty
medications is expected to increase from
an estimated cost of $87 billion in 2012 to
more than $400 billion in 2020.
In 2013, Medicare spent $300 million
to treat Hepatitis C with traditional
medications. In the same year, Medicare
also spent $4.5 billion on specialty
medications to treat Hepatitis C.
One of the newest drugs on the market
to treat Hepatitis C is Sovaldi. The cost
for a 12-week course of treatment is about
$84,000 compared to the traditional
medication approach that runs about
$25,000 per year. Compare both of these
to the cost of a liver transplant, which
may exceed $500,000. While taking
Sovaldi, the patient experiences few, if
any, significant side effects that are very
common in the traditional medication
approach.
There is help on the horizon. Biosimilar
medications are copies of complex
medications approved by the FDA as

Insulin

RISK & BUSINESS MAGAZINETM FALL 2015

Humira

“highly similar” to the original drug.
Biosimlars are expected to generate
savings of 15%-30% less than the brand
name. The FDA approved the first
biosimilar earlier this year called Zarxio.
In the biosimilar pipeline are drugs
similar to Humira, Enbrel, Remicade,
Lantus, Neulasta and Neupogen, which
represent more than $26 billion in 2014
sales.
Self-insured employers have some
additional options to manage increasing
specialty medication costs:
1 Implement a four-tier drug plan with
higher cost sharing for specialty
medications.
2 Carve specialty medication out
of the plan and utilize a vendor
that specializes in purchasing,
distribution and administration of
specialty medications to assist with
cost containment.
3 Limit the supply to ensure that waste
does not occur.
4 Require prior authorization for all
specialty medications.
5 Implement a site of service strategy
to ensure that the most cost-effective
delivery option is utilized.
As healthcare costs continue to rise,
access to data is a critical element in the
decision-making process for employers.
Employee impact needs to be balanced
with cost-containment strategies. The
impact of specialty medications will
necessitate a change in current strategy,
and a solid foundational plan needs to be
fluid over time, stressing management
and execution.