Yearly Archives: 2013

Without action, a one-way ticket to rising drug costs

If you are of a certain age, you recall that at the turn of this century, working families and seniors took bus trips to Canada in pursuit of lower-cost prescriptions unavailable here at home. Passengers lined up with empty shopping bags and suitcases and returned with several months’ worth of prescriptions. Unless we take action soon, many Americans may again find themselves booking bumpy bus rides up north.

Our healthcare system is on the brink of returning to sky-high prescription drug costs for consumers, large employers, and Medicare and Medicaid. This time, the culprit is the rapidly rising cost of specialty biologic drugs, which can easily cost hundreds of thousands of dollars per year, even for those with Medicare or good private insurance.

Specialty biologic drugs are sophisticated prescriptions that are transforming lives for millions of Americans with inflammatory conditions, multiple sclerosis, cancer, HIV, or hepatitis C. These breakthrough drugs help people return to work, spend quality time with loved ones, and enjoy many of the things we all too often take for granted. However, when a year’s supply of a medication starts to rival the cost of a home, we have a big problem.

Consider these troubling trends: In 2012, the unit-cost increase for specialty biologic drugs was 18.7 percent for commercial payers, 16.7 percent for Medicaid, and 26.8 percent for Medicare. And that’s despite the fact that specialty prescriptions actually declined.

Because specialty drugs comprise a small percentage of the overall number of prescriptions — at least for now — these double-digit price increases are generally hidden. By 2016, we project that seven of the 10 top-selling prescriptions will be specialty drugs. Between now and the end of 2015, we estimate that spending on specialty prescriptions will increase 67 percent.

It turns out that the best way to bend that cost curve downward has a lot to do with the reason the Canadian prescription-drug express is running less frequently.

One of the great healthcare success stories of the past decade has been the dramatic decline in the growth rate of prescription drug spending for traditional pills. In 1999, the annual growth rate was galloping along at 18.2 percent. Confronted with this unsustainable growth that threatened to overwhelm budgets, employers turned to pharmacy benefit managers (PBMs) to help control runaway costs.

Working on behalf of consumers and payers, PBMs created competition by compelling discounts from drug manufacturers who wanted placement for their medications on employers’ and health plans’ drug lists. Similarly, PBMs negotiated discounts with tens of thousands of chain drugstores and independent pharmacies to help ensure lower prescription drug costs. PBMs expanded the availability of lower-cost generic drugs and introduced new lower-cost pharmacy options, including a 90-day medication supply delivered to a patient’s doorstep. This strategy works. By 2011, the annual rate of growth in prescription drug costs was down to just 3 percent.

But today, these gains are at risk. Our specialty drug system currently lacks the same market-based tools that we used in the past to bring down the costs of traditional medications. The good news is there are at least two common-sense steps policymakers should take in the coming months to address the high cost of specialty drugs.

First, we must more rapidly bring to market generic versions of high-cost specialty drugs — called biosimilars. Despite being safely used in at least 27 healthcare systems including Japan, Germany, the United Kingdom, France and Canada, biosimilars remain unavailable in the United States. The Affordable Care Act directed the U.S. Food and Drug Administration to create a clear pathway for bringing biosimilars to market, but the follow-up has been lacking.

Second, policymakers should reject legislation that brand-name drugmakers are pushing in every state to significantly undermine the ability of employers and Medicaid to encourage the use of biosimilars — if and when they ever come to market. Yes, even before lower-cost biosimilars have come to market anywhere in our nation, these big biotech firms are advocating legislation that would make it almost impossible for physicians and patients to take advantage of them.

The growth of specialty drugs presents our system with great opportunities and challenges. In the years ahead, we have the experience and know-how to expand access to specialty drugs while driving down costs for consumers and payers. Stakeholders have done so before and can do so again, if given the chance.

Without the political will to do something now, the cost of specialty drugs — as well as the popularity of bus rides to Canada — will grow exponentially.

By Steve Miller, M.D. – 07/11/13 01:00 PM ET
Miller is chief medical officer of Express Scripts, a pharmacy benefit manager with headquarters in St. Louis.

MCOs’ Shifting Control Over Office-Administered Products from Medical to Pharmacy Benefit, Particularly Affecting Rheumatoid Arthritis Therapies

This Trend is Part of Overall Effort by Payers to Control Access to and Costs for Rheumatoid Arthritis, Multiple Sclerosis and Oncology Therapies, According to a New Report from Decision Resources

BURLINGTON, Mass., July 31, 2013 — /PRNewswire/ — Decision Resources, one of the world’s leading research and advisory firms for pharmaceutical and healthcare issues, finds that 68 percent of surveyed managed care organization (MCO) pharmacy directors either currently or plan to transition specialty product coverage from the medical benefit to the pharmacy benefit for office-administered products, particularly affecting therapies in rheumatoid arthritis. This transition, which is slated to be completed in 2015 or later after many of the policies in the Affordable Care Act begin to take effect, comes as MCOs deal with a cost trend for specialty drugs that far exceeds those for small molecule therapies. As a result, MCOs are implementing strategies to control access to specialty therapies in rheumatoid arthritis, multiple sclerosis and oncology.
The Physician & Payer Forum 2013 report entitled Market Access for High-Cost Biologics in Multiple Sclerosis, Oncology, and Rheumatoid Arthritis also finds that 85 percent of surveyed plans have some utilization restrictions in place for specialty drugs, particularly prior authorization for therapies covered under the pharmacy or medical benefit. However, other restrictions are slated to increase in use. In the next 12 months, 63 percent of surveyed payers expect to have site of care restrictions in place, while 66 percent will have preferred and non-preferred specialty tiers. Furthermore, some MCOs plan to eliminate grandfathered coverage for specialty therapies while 52 percent anticipate restricting use of copay coupons for non-preferred specialty agents.
In addition, surveyed neurologists, rheumatologists and payers report notable restrictions around specialty therapies treating MS and RA, reflecting the launch of newer premium-priced therapies. Of note, however, MCOs’ traditional laxer restrictions around oncology may be giving way to greater management by payers, particularly through the use of clinical pathways and companion diagnostics.
“Increased complexity in benefit design is impacting all pharmaceuticals, and plan members continue to have increases in financial responsibility. This is especially true for higher cost specialty drugs which are covered more often in a co-insurance tier,” said Senior Director Brenda Cole. “In addition, competition in the form of both new brands and generic introductions are allowing MCOs increased leverage with manufacturers, especially in the MS and RA markets, but also in some oncology markets. Payers have been talking about increasing restrictions and using differential co-pays to lower costs with specialty drugs and this report shows how they are taking action and what trends are likely to continue and evolve.”
All company, brand, or product names contained in this document may be trademarks or registered trademarks of their respective holders.

Why the Fervor Over Drug Adherence?

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Drug adherence is one of the hottest topics in pharmacy today. What is driving this and what does it mean for community pharmacies?
Everywhere you turn — in industry publications, academic research, conferences, and even the mainstream press — there is mention of “drug adherence.” (A Google search of this term generates over 10 million hits.) It seems that increasingly drug adherence is a priority for the government, Medicare Advantage plans, private payers, pharmaceutical companies, PBMs, ACOs — and pharmacies.
But why is drug adherence getting so much attention lately? And why should community pharmacies care about it?

Why Adherence? Because Non-Adherence Remains a Huge Problem

Medication adherence is not a new issue, but remains an enormous problem. Half of the 4 billion prescriptions written annually are not filled in their entirety.[i] And, recent studies confirm that the failure to take medications as prescribed has a costly impact on the U.S. healthcare system, with estimates that the current cost could be as much as $290 billion annually — or 13% of total healthcare expenditures.[ii]
Even though the problem of non-adherence to prescribed drugs has been known and researched extensively, the rates of non-adherence have not changed much in three decades.[iii]
A few salient facts that illustrate the continuing adherence problem[iv]:
  • Nearly two-thirds of Americans who take medications do not take them properly.
  • 64% percent of Americans who take medications don’t always take their medications as prescribed; only 33% say they never miss taking their prescription medications.
  • Those who must manage multiple medications are most likely to not adhere; 70% of individuals who take 3 or more medications do not take them properly.
“Drugs don’t work in patients who don’t take them.”
— C. Everett Koop, former U.S. Surgeon General

Why Adherence? Because It Has Been Proven to Work

There is better and better evidence showing the adherence-focused interventions can work. A recent Health Affairs blog posting on adherence[v] highlighted three 2011 studies that showed associations between medication adherence and cost savings; the savings was attributable to lower medical utilization. When people were more adherent to their medications, their overall medical costs declined. These studies included patients with CHF (congestive heart failure), hypertension, diabetes and dyslipidemia. Even though spending on medications increased, there were corresponding decreases in hospitalizations and emergency department visits yielding benefit-cost ratios ranging from 3 to 1 (for dyslipidemia) to even 10 to 1 (for hypertension).
 Further, according to a recent Congressional Budget Office (CBO) report, a 1% increase in the number of prescriptions filled by Medicare beneficiaries would cause Medicare spending on medical services to fall by roughly 0.2% ($1.7B).[vi]
“CBO reviewed dozens of newer studies and determined a body of research now demonstrates a link between changes in prescription drug use and changes in the use of and spending for medical services.”
— CBO Report, November 29, 2012
The evidence base increasingly shows that better drug adherence leads to a reduction in healthcare costs, and has a positive return on investment.

Why Adherence? Because Multiple Stakeholders Are Now Focused on It

A key reason adherence is now getting so much attention is because multiple stakeholders are increasingly interested in it for varying reasons. Here is who and why they are interested:
    • Government. Health expenditures in the U.S. now represent 17.9% of GDP, total $2.7 trillion, and are continuing to rise. The federal government and state governments pay for much of Medicare and Medicaid, and they view the level of healthcare spending and the continued growth in spending as unsustainable. As a result, efforts are under way to change the payment system and to find ways to control costs. Data showing that improvements in drug adherence can improve outcomes and reduce costs are getting governmental attention as officials look for ways to reduce spending.
    • Health plans. Like the government, health plans are continuing to see costs rise and are aware that improved drug adherence can translate into improved outcomes and decreased costs.
    • Medicare Advantage plans. Per Health Affairs,[vii] health plans provide pharmacy benefits to about 12 million Medicare beneficiaries in Medicare Advantage (MA) programs. MA plans receive a “Star Rating” of 1 to 5, and are focused on receiving 4- or 5-Star Ratings because these plans receive additional payments, which can be significant, as well as marketing advantages.
Of the 53 measures of quality used to calculate Star Ratings, 3 deal with drug adherence. For the 2013 Plan Ratings, CMS assigned the highest weight[viii] to outcomes and intermediate outcomes due to their clinical relevance. Therefore, medication measures used by Medicare receive a “triple rating,” accounting for 45% of total Star Ratings within Part D Stand-Alone PDPs, and 20% for the Medicare Advantage programs.
The Star Ratings program is spurring new attention and investments in medication adherence programs among Medicare Advantage plans.
  • PBMs. Increasingly, PBMs are forming “preferred networks” of pharmacies. Previously, the main criterion to be part of a PBM’s preferred network was cost/pricing. But this is changing. Today and in the future, PBMs are expected to be increasingly basing network decisions on “performance,” which looks at outcomes and factors such as drug adherence.
  • Pharmaceutical manufacturers. Non-adherence costs pharmaceutical manufacturers tens of billions of dollars each year, giving pharma companies a significant incentive to improve adherence.[ix]
Stakeholder Why they care about drug adherence
Payers (government and commercial) To reduce total medical costs
Medicare Advantage plans For good Star Ratings and bonus payments
PBMs New definition of “performance”
Pharmaceutical manufacturers To increase revenue

Why Adherence? Because There Are Significant Short- and Long-Term Benefits for Pharmacies

In addition to the many stakeholders interested in improving drug adherence, there are also distinct advantages for pharmacies. These include:
  • Benefits to patients. Certain studies have shown medical costs have declined and outcomes improved from better patient adherence.
  • Filling more prescriptions. Improvements in adherence will mean more patients are having more prescriptions filled, which will generate more fills and refills at the store level and help drive additional revenue, traffic and profit for store owners.
  • Advancing professionally. It is the pharmacist’s basic role to ensure that patients understand their medications and take them as prescribed. This is the right thing to do professionally. Importantly, pharmacists are well positioned in the healthcare system to play a key role in driving adherence, which is just one more way that pharmacy continues to evolve in serving as a valuable community health resource.

Why Adherence Matters

So, non-adherence to prescribed drugs remains a significant, costly problem. But when patients fill their prescriptions and adhere to them, the results include improved outcomes and lower costs. Many stakeholders see the value in drug adherence and are motivated to improve adherence. For community pharmacies, it is important to understand the factors driving the increased emphasis on adherence, the benefits to the pharmacy (more prescriptions filled), improved patient outcomes, and the role of a community pharmacy in improving drug adherence.
BY   |     |  TOPIC: PATIENT CARE & COUNSELING, PHARMACY OPERATIONS
[I] DAVID M. CUTLER, PHD, AND WENDY EVERETT, SCD, “THINKING OUTSIDE THE PILLBOX—MEDICATION ADHERENCE AS A PRIORITY FOR HEALTH CARE REFORM,” NEW ENGLAND JOURNAL OF MEDICINE 362: 1553-155, APRIL 29, 2010, HTTP://WWW.NEJM.ORG/DOI/FULL/10.1056/NEJMP1002305
[II] NEW ENGLAND HEALTHCARE INSTITUTE, “THINKING OUTSIDE THE PILLBOX: A SYSTEM-WIDE APPROACH TO IMPROVING PATIENT MEDICATION ADHERENCE FOR CHRONIC DISEASE,” AUGUST 12, 2009, WEBSITE
[III] ASHISH ATREJA, MD, MPH, NARESH BELLAM, MD, MPH, AND SUSAN R. LEVY, PHD, “STRATEGIES TO ENHANCE PATIENT ADHERENCE: MAKING IT SIMPLE,” MEDSCAPE GENERAL MEDICINE, 7(1), 4, MARCH 15, 2005, HTTP://WWW.NCBI.NLM.NIH.GOV/PMC/ARTICLES/PMC1681370/
[IV] GREENBERG QUINLAN ROSNER RESEARCH PUBLIC OPINION STRATEGIES, LACK OF MEDICATION ADHERENCE HARMS AMERICANS’ HEALTH: RESULTS FROM A U.S. NATIONAL SURVEY OF ADULTS, MAY 2, 2013, HTTP://POS.ORG/DOCUMENTS/CAHC_2013_PUBLIC_POLL_MEMO.PDF
[V]AARON MCKETHAN, JOSH BENNER, AND ALAN BROOKHART, “SEIZING THE OPPORTUNITY TO IMPROVE MEDICATION ADHERENCE,” HEALTHAFFAIRS BLOG, AUGUST 28, 2012, HTTP://HEALTHAFFAIRS.ORG/BLOG/2012/08/28/SEIZING-THE-OPPORTUNITY-TO-IMPROVE-MEDICATION-ADHERENCE/
[VI] CONGRESSIONAL BUDGET OFFICE, OFFSETTING EFFECTS OF PRESCRIPTION DRUG USE ON MEDICARE’S SPENDING FOR MEDICAL SERVICES, NOVEMBER 29, 2012, HTTP://WWW.CBO.GOV/PUBLICATION/43741
[VII]AARON MCKETHAN, JOSH BENNER, AND ALAN BROOKHART, “SEIZING THE OPPORTUNITY TO IMPROVE MEDICATION ADHERENCE,” HEALTHAFFAIRS BLOG, AUGUST 28, 2012, HTTP://HEALTHAFFAIRS.ORG/BLOG/2012/08/28/SEIZING-THE-OPPORTUNITY-TO-IMPROVE-MEDICATION-ADHERENCE/
[VIII] 4 CMS. MEDICARE HEALTH & DRUG PLAN QUALITY AND PERFORMANCE RATINGS 2013 PART C & PART D TECHNICAL NOTES. 8/9/2012
[IX] LIZ TIERNEY, “PATIENT NON-ADHERENCE COSTS UNDERESTIMATED,” PACKAGING WORLD, MARCH 22, 2013, HTTP://WWW.PACKWORLD.COM/PRINT/54751

Diabetes Drugs will Lead Specialty Category

Diabetes Drugs Will Lead Specialty Category
Diabetes drugs will lead the way in a dramatic rise in spending over the next two years on specialty drugs, according to a study by Express Scripts, a St. Louis-based prescription benefits management company.
The study estimates that U.S. spending on such drugs will reach nearly $115 billion in 2014. Specialty drugs are defined as drugs used to treat very serious ailments, such as cancer and autoimmune diseases like diabetes. The drugs require special handling and administration.
Their costs are high due to several factors, including the expense of developing them, and the fact that physicians are delaying treatment of some patients until drugs now under development come to market.
Heading the list of expensive specialty drug therapies will be diabetes drugs, where spending on them is expected to increase by 24 percent between now and 2015. (Other disease categories where Express Scripts expects to see higher spending on drugs are cancer, multiple sclerosis, and inflammatory conditions such as rheumatoid arthritis.)
According to Express Scripts, diabetes became the costliest prescription drug therapy class in 2011. The increasing incidence of the disease in the general population, plus an abundance of new diabetes drugs in the pipeline will add to the overall cost of drugs in that class.
Jun 14, 2013

Evolving Definition: What is a Specialty Pharmacy?

There has been a lot of buzz in the healthcare world lately about “specialty pharmacy” as an opportunity for rapid growth, financial opportunity, and expansive change, however there is some debate as to what exactly constitutes a specialty pharmacy.  
 
Here we will examine that questions and look at some of the definitions that have been recently emerging by focusing on three key questions:

what is a specialty pharmacy
What is a Specialty Drug?
Specialty Pharmacies are most often focused on the dispensation of specialty drugs.  While there is no standardized definition of what constitutes a specialty drug, most often the meet the following criteria:
  • the drug is a specialized, high cost product (typically more than $500 per dose or $6000 or more per year)
  • the drug is utilized as a complex therapy for a complex disease
  • the drug requires special handling or administering, shipping, or storage (such as an injectable)
  • the drug may have a Food and Drug Administration (FDA) Risk Evalaution and Mitigation Strategy (REMS) in place specifying that there is required training, certifications, or other requirements that must be met in order for the drug to be administered.
  • The drug has the potential for significant waste due to high cost
Specialty drugs are used to treat a variety of complex and chronic conditions including but not limited to: anemia, cancer, infertility, multiple sclerosis, HIV and hepatitis.  Some categorize specialty drugs as meeting all of the three H’s: High Cost, High Complexity, High Touch.
Because of the specialized way in which these drugs need to be administered, specialty pharmacies come into play with a specific focus on this group of drugs and the required comprehensive and coordinated delivery and support required to effectively deliver these drugs to patients.  Leading us to the question “What is a Specialty Pharmacy?”

What is a Specialty Pharmacy?

Now that we have identified what a specialty drug is, we can begin to touch on what constitutes a specialty pharmacy.  In broad terms, a specialty pharmacy is a specific type of pharmaceutical delivery system which coordinates delivery and offers comprehensive support in the distribution of drugs which are high cost or complex and utilized to treat complex conditions.

The Academy of Managed Care Pharmacy (AMCP) in a recent publication entitled Format for Formulary Submission, version 3.1 defined specialty pharmacy as the following:
“Specialty pharmacies are distinct from traditional pharmacies in coordinating many aspects of patient care and disease management.  They are designed to efficiently deliver medications with specialized handling, storage, and distribution requirements with standardized processes that permit economies of scale.  Specialty pharmacies are also designed to improve clinical and economic outcomes for patients with complex, often chronic and rare conditions, with close contact and management by clinicians.  health care professionals employed by specialty pharmacies provide patient education, help ensure appropriate medication use, promote adherence, and attempt to avoid unnecessary costs.  Other support systems coordinate sharing of information among clinicians treating patients and help patients locate resources to provide financial assistance with out of pocket expenditures.”
 
What we are essentially seeing is a distinct new entity emerging in the form of Specialty Pharmacy that collaborates and  coordinate for patients on a much more meaningful level than expected by traditional pharmacies.  
Not only do specialty pharmacies specialize in the administration of specific medications, they also work to educate patients, conduct coordination regarding care, and manage inefficiencies related to cost providing a service in which the pharmacist and patient are much more collaborative and closely connected.  
In addition to this being a newly emerging care model, statistics have shown that the emergence of specialty pharmacies has gained incredible momentum in recent years, which brings us to our third question:

Why is This Area Poised For Growth?

The specialty pharmacy care model is being supported by several initiatives and is another way in which healthcare providers are looking to improve patient care while effectively managing costs in one coordinated system.  This means that the specialty pharmacy model is in the right place at the right time from a care provision perspective.  Add to this the explosion in specialty drugs.  

  • “Within 4 years, specialty drugs will account for 40% to 45% of pharmaceutical manufacturer sales” Specialty Pharmacy Today
  • “7 of the top 10 bestselling drugs (by revenue) are projected to be specialty drugs in 2016 compared with 3 in 2010″ EvaluatePharma
  • Furthermore, according to Jon Haas, VP, Managed Markets, Palio “in 1990 there were 10 specialty drugs on the market, while in 2010 there were 250 specialty drugs”
Growth for this segment of the healthcare industry is undeniable, and specialty pharmacies will begin to see much more competition in the coming years and should begin positioning themselves for success early to capitalize on the expected gains in their market over the next decade.  
One of the ways that specialty pharmacies can accomplish this is through pharmacy accreditation. Later this week will will focus on the two accrediting bodies for specialty pharmacy accreditation, and how accreditation can give specialty pharmacies a strategic advantage in the marketplace.
Authored by:
Linda Ringquist, MBA is a Healthcare Marketing Consultant with BHM Healthcare Solutions – www.bhmpc.com a firm recognized as one of the “top healthcare organizations to watch in 2013”. Her primary areas of expertise are content management, social media (especially Linkedin), healthcare blogging, project management, strategic coordination, and marketing analytics.

Expiring Prescription Drug Patents Benefit Consumers

Medicine is getting cheaper. That may come as a surprise amid hand-wringing about the spiraling cost of health care, but two new studies, one from research company IMS Health and one from pharmacy benefit manager Express Scripts, show that the amount of money Americans spend on prescription drugs went down in 2012 for the first time in decades.
The reason for this welcome development is an influx of generic medications. Recently, the patents on a slew of blockbuster drugs — like Lipitor, which fights cholesterol, and Plavix, which prevents blood clots — have expired, paving the way for less expensive versions. The research behind a new drug is protected for a fixed number of years, after which competing firms can begin manufacturing generic forms.
In 2012, 84 percent of all prescriptions were dispensed as generics, the highest rate in history. It’s a boon for consumers.
These new studies also found the prices of specialty medicines are rising. These new drugs involve cutting edge technologies and can, therefore, be expensive, priced as they are to help inventors recoup their investments. Fearful of what the newest medicines may cost patients and insurers, some politicians have proposed measures aimed at forcing these prices down.
We shouldn’t fear the price tag of these new medicines. Expensive medicine may be a bitter pill, but these advanced therapies offer hope to millions of patients, keeping them healthier for longer. Lawmakers must continue to promote smart policies that encourage the research investments critical to invention.
We’re living in a golden age of drug development. New treatments for everything from cancer to rare genetic diseases are entering the market all the time, many of which are cutting-edge biologic medicines derived from living cells.
Biologics offer amazing promise. Consider their potential impact on cancer. Conventional cancer treatments often generate significant collateral damage to the patient. In contrast, the biologic approach injects a genetically engineered protein designed to knock out a tumor’s ability to produce new blood vessels, thereby cutting off its capacity to grow. No innocent tissue is harmed in the process. Such a biologic has already been approved for treating colorectal cancer.
Or consider a vaccine that, when injected directly into a tumor, would not only destroy the malignant cells but also stimulate the body’s immune system to go after similar tumor cells. That therapy for treating melanoma is already in the development pipeline, along with 906 other biologics targeting over 100 diseases from autoimmune disorders to viruses. There are currently 176 biologics in development to treat infectious diseases alone.
But the most specialized and complex drugs can come at an astronomical price. According to an exclusive Forbes’ survey of the most expensive medications, four biopharmaceuticals approved in 2012 cost more than $200,000 per year, per patient.
That’s because it costs on average, $1.2 billion dollars to bring a new drug to market — from the time it is a twinkle in a scientist’s eye, through a decade or more of lab research, to clinical trials and finally FDA approval. To put this in perspective, the entire cost of one of the greatest physics experiments of all time, the search for the Higgs boson — including building a super collider — would produce no more than 10 drugs.
The beauty of our system is that it encourages companies to make the massive investments of time and money required to bring a new drug to market. The biopharmaceutical industry’s legacy of risk-taking research has led to a world in which eight of every 10 medicines dispensed is generic.
And study after study proves these investments are paying off. Innovative therapies, though costly, are far more effective. By treating patients faster and keeping them well, advanced pharmaceuticals lower health care costs elsewhere.
For example, researchers are working to develop a medicine to delay the onset of Alzheimer’s — the sixth leading cause of death in the United States. Such a breakthrough therapy could reduce the cost of care for Alzheimer’s patients in 2050 by $447 billion.
Our children and grandchildren will grow up to marvel at the biologic revolution, just as an earlier generation marveled at the space race. But that can only happen if we accept the reality that innovation comes at a high price.
Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.

Are Employers the Culprits Behind High U.S. Health Care Prices?

Elizabeth Rosenthal’s eye-opening article about health care costs in The New York Times on Sunday was a reminder of how much more Americans pay for given procedures than citizens in health systems abroad. What was probably more surprising to most readers was the huge price differentials for identical procedures — not only across the United States, but even within American cities, where prices for a given procedure can vary tenfold.

These price differentials, it should be noted, have never been shown to be related either to the cost of producing health care procedures or to their quality. The question, not addressed in the article, is who bears the blame for this chaotic, private-sector price system. The only fair answer is: American employers. Who else could it be?

I have been critical of employment-based health insurance in this country for more than two decades. In the early 1990s, for example, at the annual gathering of the Business Council, I bluntly told the top chief executives assembled there, “If you want to find the culprit behind the health care cost explosion in the U.S., go to the bathroom and look in the mirror.” After years of further study, I stand by that remark.

I can imagine that some would look instead to the usual suspects – Medicare, Medicaid and possibly even the Tricare program for the military – but that would be a stretch. The argument would be that the public programs shift costs to the private sector, causing the chaos there. Few economists buy that theory.

Most health-policy analysts I know regret that employers appointed themselves their employees’ agents in the markets for health insurance and health care, developing in the process the ephemeral insurance coverage that is lost to the family when its breadwinner loses his or her job.

Employers were able to capture that agency role during World War II when they successfully walked around the prevailing wage controls simply by having Congress exempt fringe benefits from the wage cap. Employers were able to retain their agency even after the wage controls ended by having Congress exempt employer-paid fringe benefits from the taxable income of employees, a tax preference not granted Americans who purchased health insurance on their own. Retaining their tax-preferred agency role has been of great help to employers in the labor market.

Alas, in their self-appointed role as purchasing agents in health care, American employers have arguably become the sloppiest purchasers of health care anywhere in the world. The chaotic price system for health care is one manifestation of that sloppiness.

For more than half a century, employers have passively paid just about every health care bill that has been put before them, with few questions asked. And all along they have been party to a deal to keep the chaotic price system they helped create opaque from the public and even from their own employees. Only very recently and very timidly have a few of them dared to lift the veil a little.

Employers may protest that they rarely purchase health care for their employees directly. The actual purchases are made by the employers’ agents, private health insurance carriers. But the latter are merely the conduits for the employers’ wishes. When agents perform poorly, one should look first for the root cause at the principals’ instructions.

One reason for the employers’ passivity in paying health care bills may be that they know, or should know, that the fringe benefits they purchase for their employees ultimately come out of the employees’ total pay package. In a sense, employers behave like pickpockets who take from their employees’ wallets and with the money lifted purchase goodies for their employees. Far too many employees have been seduced into believing that their benevolent employer pays for most of their health care.

The result of this untoward pas de deux is the system Ms. Rosenthal describes.

One consequence of this opaque pricing system has been that, according to the 2013 Milliman Medical Index, the average cost of health care of a typical American family of four under age 65, and insured through an employer-sponsored preferred provider plan, is now $22,000, up from about $10,000 a decade earlier. It is a staggering amount, not only by international comparison, but also when compared with the distribution of family income in the United States, with a median income of $50,000 to $60,000.

Another result has been that, according to a recent analysis published in the policy journal Health Affairs, a decade of health care cost growth under employment-based health insurance has wiped out the real income gains for an average family with employment-based health insurance. One must wonder how any employer as agent for employees can take pride in that outcome.

Yet a third consequence of the rampant price discrimination baked into this pricing system is that uninsured Americans with some financial means are often charged the highest prices for health care when they fall ill, exposing them to the prospect of financial bankruptcy.

How long must the opaque and chaotic health care pricing system of employment-based health insurance in the United States persist? I can envisage two alternatives.

The first would be an all-payer system on the German or Swiss model, perhaps on a statewide basis, with some adjustments for smaller regional cost differentials (urban versus rural, for example), as is now the practice in the Medicare price schedules. In those systems, multiple insurance carriers negotiate jointly with counter-associations of the relevant health care providers over common price schedules, which thereafter are binding on every payer and every health care provider in the region (an analysis in Health Affairs offered more details). One can easily link such a system to the growth of gross domestic product.

The second alternative would be a marriage in which the financial risks of ill health are shared up to a point and raw, transparent price competition for the remainder. In such a system, called “reference pricing,” a private insurer, as agent for an employer or for a government program, would cover only the price charged for a medical procedure by a low-cost provider in the insured’s market area, forcing the insured to pay out of pocket the full difference between that low-cost “reference price” and whatever a higher-cost provider in the area charges for the same procedure.

Such a system, of course, presupposes full transparency of the prices charged by alternative providers in the relevant market area.

Because an all-payer system is highly regulatory, I predict the private health care market in the United States will sooner or later lapse into full-fledged reference pricing. It would entail ever more pronounced rationing of quality, real or imagined, by income class.

But such tiering has long been the American way in other important human services – notably justice and education. Why would health care remain the exception?

By: UWE E. REINHARDT

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Spending on Specialty Medications Will Rise 67%: Report

Spending in the U.S. on specialty drugs used to treat serious diseases is projected to increase 67 percent by the end of 2015, according to a forecast  by pharmacy benefit management firm Express Scripts.

Specialty medicines are those used to treat chronic, complex diseases such as cancer, multiple sclerosis and rheumatoid arthritis. They are prescription drugs that require special handling, distribution and administration. Many specialty medicines are biologics that are delivered via an injection or an infusion and are used to treat chronic, complex diseases.

Prescription drug spending on eight of the top 10 specialty therapy classes will continue to increase over the next three years, according to the report. This is due to both the introduction of new biologics and physicians delaying treatment of patients until the new drugs are on the market.

According to the forecast, overall spending on traditional prescription drugs – mostly pills used to treat common conditions such as high cholesterol and depression – will decline four percent by the end of 2015, largely because of the availability of generic medications. Only two of the top 10 traditional drugs — for diabetes and attention disorders — are likely to have spending increases over the next three years, but those increases will be significant.

Express Scripts said it expects that cancer, multiple sclerosis and inflammatory conditions such as rheumatoid arthritis — all specialty conditions — each will command higher drug spending than any other therapy class except diabetes by the end of 2015.

Hepatitis C drug spending likely will quadruple over the next three years, the largest percentage increase by far among therapy classes.  This increase will be caused in part by new interferon-free medications expected to gain FDA-approval in 2014.

“As we see what’s on the horizon, it’s time for employers and health plans to act so they can continue to offer an affordable pharmacy benefit for their members,” said Glen Stettin, M.D., senior vice president, Clinical, Research and New Solutions at Express Scripts. “New specialty treatments are making a real difference in the lives of patients, but the very high cost of these drugs creates difficult decisions for plan sponsors on which medicines to cover.”

Biosimilars, which are  less-costly alternatives to biologics, could become available once the patents expire on currently marketed biologics, a development that could help mitigate the rising cost of specialty medications.. Express Scripts recently projected that the country would save $250 billion between 2014 and 2024 if the 11 most likely biosimilar candidates were launched in the U.S.

Diabetes became the costliest prescription drug therapy class in 2011, and according to the new projections, it will continue to hold that distinction at least through 2015. Over the next three years, Express Scripts expects spending on diabetes medications to rise an additional 24 percent because of high prevalence and a robust pipeline of new therapies.

Despite the availability of generic equivalents for many attention disorder therapies, the data projects spending in the category to increase approximately 25 percent over the next three years, driven by increased utilization among middle-aged adults and wide geographic variation in diagnosis.

Express Scripts said its research shows that prevalence, medication use and associated medical and pharmacy costs for attention disorders is highest in the South. However, the Northeast region of the U.S. experienced rapid growth in attention disorder diagnosis, and that region’s associated costs grew nearly 60 percent from 2008 to 2010.

“In the absence of new therapies, to see such an increase in a traditional drug category suggests there is significant opportunity to better manage attention disorders,” said Dr. Stettin.

As part of its analysis, Express Scripts incorporates historical prescription drug cost and utilization trends from its own pharmacy claims data, the pipeline for emerging therapies, anticipated patent expirations, and other clinical and demographic factors.

Source | Insurance Journal