Covered California’s spokesman, Dana Howard, said the exchange officials had to balance several important factors, and in the end they believed the decisions they made were “the most feasible way to provide health plans that are affordable both in terms of premiums and cost sharing.” He noted that lower-income people, who would be most affected by the high drug costs, are also the ones who will benefit the most from subsidies intended to reduce their premiums and out-of-pocket costs.

Sonja Radovic, a 45-year-old working mother of two who was diagnosed with breast cancer five years ago, would not qualify for any of those subsidies. She said her expense for Feraston, a hormonal drug, could skyrocket by as much as 10 times should she ever need to buy coverage through the exchange — from the current $860 a year to $8,600 under the plan with the lowest premium.

She is confident that her employer, a small business with 11 employees, will keep its current coverage, though that could conceivably change should the economy sour again. “What part of ‘Affordable’ are they not understanding?” Radovic asks. “And that’s just on one drug. What about other even more expensive specialty drugs?”

Feraston is far from the most expensive medication. The average cost of treating a variety of cancers with one of five specialty drugs is $3,682 per month, or $44,184 a year, according to Express Scripts, the giant St. Louis-based pharmacy benefit-management company. For multiple sclerosis, the average cost is $3,584 per month, and for hepatitis C the monthly price tag is $3,284.

Kalydeco, the only effective therapy for cystic fibrosis, can carry a price tag of up to $180,000 per year, says Suzanne J. Tschida, a vice president at Optum RX, a Minnesota-based pharmacy benefit-management company whose main operations are in Irvine.

In 2012, specialty drugs accounted for 24.5 percent of all U.S. prescription drug spending, even though less than 2 percent of the population is affected by the related illnesses, according to Express Scripts.

Still, if you are one of the unlucky 2 percent and you’re paying 20 or 30 percent of even the somewhat-less-stratospherically-priced drugs, it could quickly overwhelm your household budget. For plans in Covered California, the amount patients must pay out of their own pockets each year before their insurers will cover 100 percent of their medical expenses is as high as $6,350 for individual plans and $12,700 for family plans.

“I think it shows that these benefits designs essentially discriminate against people who have these serious illnesses,” says Dan Mendelson, CEO of Avalere Health Inc., a Washington, D.C.-based medical data company.

An Avalere study showed that when monthly out-of-pocket payments hit $100, 10 percent of patients stopped filling their prescriptions. At $500 a month, 25 percent stopped. That can lead to sicker patients and an even greater financial burden on the health care system down the line, many observers argue.

Not everybody buying coverage in the exchange will be affected equally. In Covered California’s second least-expensive plan, individuals with incomes between $15,856 and $22,980 will face much lower co-insurance payments, reduced or no deductibles and an out-of-pocket maximum of just $2,250. Howard acknowledges that it might still be “a strain” for those people to cope with their medical expenses, but “we think this $2,250 annual limit on their payments will help many avoid bankruptcy.”

Mendelson notes that Covered California did not invent this type of health-plan design. It is merely following a trend that started with Medicare’s Part D drug benefit and has been adopted in recent years by many commercial insurers. The proportion of private commercial plans that make enrollees pay a percentage of specialty drug costs rather than a flat dollar co-payment rose from 14 percent in 2008 to 34 percent last year, according to Avalere.

“In some ways, the implementation (of such plans) by the exchange makes the affordability of specialty drugs a more visible problem, but it’s not introducing a new problem for the people who need these drugs,” says Ha Tu, a senior researcher at the Center for Studying Health System Change, a Washington, D.C.-based think tank.

Joan W. Clements, a 70-year-old Costa Mesa resident who was diagnosed with chronic myeloid leukemia nearly 12 years ago, knows that as well as anybody. She has been kept alive for more than a decade by Gleevec, a revolutionary drug that has turned her disease from fatal to manageable. Over the past decade, Clements has seen the total cost of her Gleevec nearly double, from $6,000 to $11,000 a month.

With a 30 percent co-insurance payment under her Medicare drug plan, and a gap in coverage known as the “donut hole,” Clements’ out-of-pocket payments for the drug would be unaffordable on the modest Social Security income that she and her husband, Jerry, receive each month. Luckily for her, Novartis, which manufactures Gleevec, provides a subsidy to cover the amount that Medicare doesn’t. Otherwise, says Clements, “I would be dead.”

Nelson, of the Leukemia and Lymphoma Society, says California could have chosen differently. She notes that the insurance exchange in New York limits patient liability on specialty drugs to a flat dollar co-payment that tops out at $70 per prescription.

Tu argues that such a generous benefit will lead to a spike in premiums that will deter the young and the healthy from buying insurance and create an ever-sicker pool of insured people whose medical needs will only reinforce the escalating cost of insurance. In California, that is unlikely to happen, she says, though the high co-insurance payments are “a horrible thing for people who are sick.”

Why some drugs cost so much…

By 2019 or 2020, specialty medications are expected to account for half of all drug spending. Managing their fast-rising costs is key to keeping health insurance premiums affordable for all. 

Sources:  Express Scripts; Ha Tu, Center for Studying Health System Change; Avalere Health Inc.

Contact the writer: 714-796-2440 or bwolfson@ocregister.com

Although some approaches have succeeded in reducing costs, they have also created a patchwork in which states such as Alabama pay $11 per prescription to dispense Medicaid drugs but with low ingredient fees, while other states pay $2 in dispensing fees and higher costs for ingredients. Neither approach is transparent.

The battle for change now pits pharmaceutical manufacturers, pharmacy benefit managers and both physical and mail-order pharmacies against one another. They are lobbying state legislators around the country to encourage the use of certain medications, incentives and rebates. At the same time, drug costs have increased, and people are using more medications as they develop chronic diseases such as heart disease or diabetes.

One approach is moving to managed care. Managed-care plans mean the state contracts out its pharmaceutical services to a group that agrees to provide services for a lower cost. Rather than a pharmacy charging a set amount every time a person fills a prescription, a managed-care system gets paid more the more money it saves. 

This can be good for the patient in that there are fewer opportunities for drug duplication. However, there have been concerns that insurers will not pay for medications a doctor prescribes, such as for behavioral health issues, or that quality will be cut along with costs.

Big pharmacy management providers say they can save the states as much as $33 billion over 10 years, according to a 2011 report commissioned by the Pharmaceutical Care Management Association. A new report that assumes Medicaid expansion in all the states because of the Affordable Care Act estimates $90 billion in savings, according to the Lewin Group.

The ACA allowed states to expand their Medicaid programs to cover more people. Some of the nation’s most populous states, such as California and New York, have expanded, while others, such as Texas, have not. Expansion can provide a windfall to any drug provider in Medicaid.

“Medicaid expansion puts a premium on this,” said Mark Merritt, CEO of the Pharmaceutical Care Management Association.

A PAINLESS SOLUTION?

Merritt called moving to managed care “relatively pain-free,” saying that it allows states to reduce costs without reducing benefits. Others in the field, however, say it creates pain for business that will lose their markets to out-of-state corporate management firms.

“For a long time, the evidence has been that the states have been very generous to the pharmacies,” said Adam Fein, founder of Pembroke Consulting, a management advisory and business research firm.

Changing the system can allow states to cut the overly high payments to pharmacies, Fein said. States haven’t saved as much money as anticipated from using generic medications, because of the way they reimburse pharmacies.

Now, however, the law lets states create maximum allowable costs for drugs based on the cost of the drugs to the pharmacy. The upper limit under the law is 175% of the manufacturing average costs, but the final federal rule has not been issued. When it is, Fein said, the federal reimbursement rate for states and pharmacies will be cut.

That means pharmacies will then tell the government how much they paid for the medications, and the government will pay that amount plus a dispensing fee to the pharmacy, Fein said. That makes for a more-transparent process and eliminates under-the-table negotiations. Alabama, Colorado, Idaho, Iowa, Louisiana and Oregon use this system already.

“Managed care could be better or worse,” Fein said. Medicare uses managed care, and there are proven methods to save costs, such as systems that steer patients to less-expensive medications, preferred pharmacies and mailed-medication programs. “Some are working better than others, but it’s buyer-beware, just like anything else.”

OTHER OPTIONS

Managed care isn’t the only option, Maresca said. “Some states just don’t have the market,” she said. “Rural states may not see it as feasible.”

But, because there are federal funds for coordinated care, it may become feasible at a local level, she said, such as within a hospital or for a specific population of patients.

“There’s a recognition that the states need to be a bit more sophisticated to deliver managed care,” she said.

THE NEW YORK EXPERIENCE

New York changed to a managed pharmacy program for Medicaid in October because the state had a 13% annual growth rate for Medicaid, which was eating 40% of the state budget. Jason Halgerson, the state’s Medicaid director, said the results have been dramatic. “We’re seeing $400 million in savings in a year,” Halgerson said. “We had hoped for $200 million. We reduced drug spending by about one-quarter.”

States had worried they would lose federal rebates for medications and would be unable to negotiate for lower prices if they moved to managed care.

“There are legitimate concerns,” Halgerson said. “In behavioral health, it can be difficult to get medications approved, and we worried that it would be challenging for providers to get medications approved.”

Pharmacies have been receptive, Halgerson said, because they have experience with managed care and were worried more about “downward reimbursement payments and mail order pharmacy.”

“We’re all under fiscal pressure,” he said.

Alabama just created a commission to look ways to save in the Medicaid pharmacy program.

“We’re nothing close to that,” Don Williamson, Alabama’s state health officer, said of New York’s $400 million in savings. “Our program is only $600 million total.”

But Alabama still needs to save money, Williamson said, because “our Medicaid demand exceeds our resources.”

Alabama faces different problems from New York because much of the state is rural, and the national pharmacy chains don’t have the same reach as they do in cities. So, Alabama is trying to work with local pharmacies and providers, rather than an outside corporation, to create regional managed drug benefit programs, Williamson said.

“For us, it’s going to be an interesting balancing act,” he said.

He cited Colorado and Oregon as states that have moved in that direction. His commission will present its findings Dec. 1.

by Kelly Kennedy, USA TODAY

Follow @KellySKennedy on Twitter.