5 Strategies to Manage Rising Specialty Drug Costs

Specialty drugs continue to be top of mind for employers and plan sponsors, as the cost for these drugs have increased 43% since 2016. Pharmaceutical manufacturers have invested heavily into the development of these products leading to a record number of specialty drugs being approved in 2023 and a growing pipeline of new specialty drugs in the years to come.

Despite these trends, 1 in 4 employers have little or no understanding of specialty pharmacy, and 30% don’t know how much they spend on specialty drugs.

In a recent Truveris webinar, “Managing Specialty Spend in Pharmacy Contracts,” our pharmacists and pharmacy contract experts discussed the complexities of specialty medications, the market dynamics at play, and proven strategies for plan sponsors to manage specialty drug costs.

What Is a Specialty Drug?

There is no standard industry definition for a specialty drug. With 65% of new to market medications being defined as specialty, and specialty medications accounting for more than half (55%) of the cost in pharmacy spend, but only 2% of claims, understanding the definition of a specialty drug is critical.

There are certain commonalities and conditions that a PBM may use to classify whether or not a drug on their formulary is considered specialty. These include:

1. Treatment Indication: Specialty drugs treat complex or rare conditions. Left untreated, these conditions can progress or even be fatal.
2. Complex Manufacturing Development: Specialty drugs are often composed of complex molecules that may require unique and costly manufacturing processes to produce.
3. Cost: Specialty drugs typically cost thousands of dollars per month or per claim.
4. High Touchpoint Care and Monitoring: A specialty pharmacist at a specialty pharmacy is responsible for dispensing, managing, ensuring adherence, and providing patient advocacy.
5. Limited Access: Specialty drugs may have limited distribution or are only available from certain manufacturers and pharmacies.
6. Storage, Handling, and Administration: Certain specialty drugs have unique storage requirements or complex administration requiring patient counseling or healthcare professional assistance.

Additionally, each PBM determines the selection of specialty drugs and is allowed to define which drugs can be added or removed from their specialty list.

The High Cost of Specialty Drugs

The reason that specialty drugs have been an area of focus for plan sponsors has to do with the rising costs and growing pipeline.

Between 2019 and 2022, specialty spend increased by $46B (reaching $325B in 2022). “Multiple studies and insights from industry stakeholders show that this trend will continue,” according to Jake Powers, Pharm.D., Clinical Advisor, Truveris.

In 2023, 51 new specialty drugs were approved – an all-time high. And as of May 2024, there have been 13 new approvals. In addition, over the last two years, multiple specialty drugs have had an annual cost per member worth over half a million dollars.

Expanded indications for certain specialty drugs are also anticipated to impact spend. For example, Dupixent’s anticipated approval to treat chronic obstructive pulmonary disease (COPD) could have a significant impact on spend across specialty.

Strategies to Control Specialty Drug Costs

As plan sponsors look ahead to this year and beyond, they should take a multifaceted approach and prioritize several key areas to control specialty spend.

Strategy 1: Review Pharmacy Contracts

There are several aspects of a PBM contract that can have a significant impact on specialty spend. These can be related to specialty Average Wholesale Price (AWP) discounts, rebate guarantees, and dispensing fees. “Knowing your current contract guarantees can give you a baseline when you’re undergoing a RFP or a market check to drive value back to the plan sponsor by focusing on improvements within one or more of these categories,” according to Blake Shrout, Pharm.D. Clinical Advisor, Truveris.

Some areas include definitions of certain provisions such as rebates, specialty claims, and exclusions. It is also important to understand when a PBM is able to make changes to these items, such as rebate minimums.

“Having transparency within your PBM contract can go a long way in preventing any unforeseen issues that may arise and having a third party to help with navigating them is important,” says Shrout.

Strategy 2: Consider Innovative Plan Design Changes

Working with a specialty carve-out vendor may decrease specialty drug spend by offering more stringent utilization management strategies and a more tailored approach to control.

These vendors can also offer alternative funding, or exclude certain medications in an effort to obtain funding from patient assistance programs or charitable foundations and pay for them outside of the plan.

Something to consider, however, is that the percentage of plans that are using alternative funding is declining due to administrative issues and ethical concerns related to using money from charitable organizations.

• Copay adjudicator programs, which include accumulator and maximizer programs, can help reduce the amount of spend that’s going to the plan by utilizing manufacturer co-pay assistance that is available.
• Site-of-care programs direct members to receive therapy in the most cost-effective manner, such as receiving infusions at home or at an infusion center instead of at a hospital.
• Similarly, “white bagging” programs allow for medications to be dispensed at a specialty pharmacy and shipped to the provider’s office to be administered rather than medication being billed under the medical plan. “This strategy can result in lower cost of the plan due to improved access to rebates through the pharmacy benefit versus the medical plan,” Shrout said.
• Value-based manufacturer agreements are contracts between payors and manufacturers in which reimbursement is tied to a value-based clinical outcome, reducing the risk associated with the drugs.

“None of these solutions are a magic bullet to solve for specialty costs, but each should be analyzed for a specific plan based on your unique population to understand if one or a combination will be the most beneficial,” says Shrout.

Strategy 3: Consider Formulary Design

Plan sponsors should consider their formulary design including areas such as having a specialty-specific formulary, specialty tiers and networks, deductibles, and cost-sharing, and a biosimilar strategy. Formulary design can drive competition, create leverage for optimized rebate offers, and provide transparency. However, they can also create more complexity, higher member costs, and member dissatisfaction with the plan.

Strategy 4: Implement Robust Utilization Management (UM) Programs

Prior authorization is critical to reducing specialty spend by ensuring these drugs are used appropriately. When evaluating UM programs, plan sponsors should opt for an evidence-based prior authorization process which entails more stringent requirements. “This is particularly important for specialty drugs since they’re approved for very specific indications,” Shrout said. Additionally, a re-authorization process that verifies there has been a clinical benefit from using the drug is important.

Strategy 5: Consider Pharmacy Oversight and Reporting

Plan sponsors must also have transparency into their PBM contracts and ensure the PBM is living up to their guarantees. Plan sponsors should be able to analyze specific areas such as claim guarantees, specialty drug adjudication, and prior authorization rates. Specialty drugs are a complex aspect of PBM contracts, so working with a partner that has deep clinical expertise and the right technology is important. With a platform that has dedicated specialty drug insights and a team of pharmacy experts, Truveris enables greater transparency into each area of your PBM contract, identifies trends, and discovers optimization opportunities.

To learn more about how your organization can manage the high cost of specialty, watch our webinar, “Managing Specialty Spend in Pharmacy Contracts,” or contact us today.