To rein in rising specialty drug costs, employers most often use prior authorization, step therapy and cost-sharing strategies, but more are also experimenting with formulary exclusions and value-based pricing models, a new report shows. One of the fastest growing areas of health care costs, specialty drug spending increased 26.5% in 2014 to $124.1 billion and accounted for one-third of total spending on medicine, up from less than a quarter of the total in 2010, according to an April 2015 report by IMS Health Inc. Specialty drug spending is expected to increase further as costly drugs, many of which treat cancer, enter the market, experts say. According to Express Scripts Holding Co., cancer drugs comprise more than a third of the more than 7,000 drugs awaiting U.S. Food and Drug Administration approval. When it comes to prescription drug benefit plan design, employers are most concerned with managing the specialty drug trend, at 84%, and reducing inappropriate utilization, at 52%, according to the report released this week by the Plano, Texas-based Pharmacy Benefit Management Institute and sponsored by Walgreen Co. The report is based on a survey of 341 employers. [Source: Hot Topics in Health Care Pharmacy Benefits, Mercer] The report showed that last year 93% of employers used prior authorization for specialty drugs, down slightly from 97% in 2014; 79% used clinical care management, down from 88%; and 78% used step therapy programs, down from 83%. Additionally, 69% of employers in 2015 limited specialty drug prescriptions to a 30-day supply, down from 72% the previous year. Employers are also experimenting with newer strategies, including formulary exclusions, specialty drug cost-sharing tiers and value-based pricing models. With the introduction of the expensive hepatitis C drugs, such as Sovaldi and Harvoni, formulary exclusions for specialty drugs “have become much more front and center,” Sharon Glave Frazee, Plano-based vice president of research and education with PBMI, said in an interview Tuesday at the organization's 2016 Drug Benefit Conference in Palm Springs, California. Forty-eight percent of employers reported using formulary exclusions, which means certain drugs are excluded from coverage under the benefit plan, according to the survey. Of those that use them, 46% said they are considering increasing the number of excluded medications. Of the 39% of employers who said they do not use formulary exclusions, 32% said they are considering implementing them, the survey showed. Meanwhile, more than half of employers — 57% — reported using a separate cost-sharing tier for specialty drugs, the report showed. That's down from 62% in 2014 and up from 41% in 2013, according to a separate PBMI report. Of the 41% who did not report using a separate tier for specialty medications, 31% planned to do so in the next few years. Interest in value-based pricing models is also increasing, with 82% of surveyed employers somewhat or very interested in such models. “If you pay for a lot of drugs that have very little long-term value, it dilutes what's available for everybody else,” Ms. Frazee said of value-based and…

The same strategy that Martin Shkreli used to get away with a 5,000-percent price increase on an old drug is used by many other drugmakers to maintain sky-high prices on billions of dollars’ worth of medications. Before the price hike that made him infamous, the former CEO of Turing Pharmaceuticals had to ensure that no competitor would be able to launch a cheaper version of Daraprim, the 60-year-old anti-infection pill that is no longer under patent. Shkreli had the perfect weapon: a tightly-controlled distribution system which would make it virtually impossible for a competitor to obtain enough Daraprim to develop their own version. Many larger drugmakers have also turned drug distribution into a powerful tool against competition. The strategy takes advantage of a simple fact: If generic drugmakers can’t get their hands on the original product, they cannot perform the tests needed to develop a generic version. Typically generic drugmakers purchase drugs in bulk from third-party suppliers. But when the original drugmaker controls the drug’s distribution, they can simply refuse to sell. The effect on patients is higher prices for drugs that would otherwise be available as low-cost generics. Doctors say these tactics continue to stand in the way of patients’ access. “The most effective way to improve access and lower prices is to ensure that generic drugs get to market as quickly as possible,” says Dr. Ameet Sarpatwari, of Harvard Medical School, who has studied the issue. At least 40 drugs worth an estimated $5.4 billion are sheltered from competition by distribution hurdles, according to a study commissioned by the Generic Pharmaceutical Association, an industry trade group. The Food and Drug Administration is aware of the misuse of distribution programs. The agency said in a statement it has received 100 letters from companies that say they have been blocked from obtaining drugs for testing purposes. The agency’s own regulations prohibit drugmakers from using certain types of distribution plans to block generic access, but the agency does not penalize companies for the practice. Daraprim is an example of a drug that has no major safety risks and was previously available through various wholesalers and distributors. But last June — three months before its sale to Turing — Daraprim was moved into a closed distribution program, allowing the manufacturer to refuse sales to competitors. The effect for patients was jarring. The drug — which treats an infection mainly found in people with HIV and cancer — had previously been available through local pharmacies. Now it is distributed through a specialty division of Walgreen’s, which sells the drug at Turing’s list price of $750 per pill. In the months after the price hike, some patients faced co-pays as high as $16,000 when trying to fill a prescription. “Mr. Shkreli set up a very complicated system to ensure profits and patients have really suffered,” says Sean Dickson, of the National Alliance of State and Territorial AIDS Directors. Turing says it has improved access to Daraprim, including making it available through a patient assistance…

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform.  The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to "reference pricing." Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders. How to Determine if Your Company [or Client] is Overpaying Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month. Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list. Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It's impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions. Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem. Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month. -- Tip -- Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving. When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Employers that were blindsided in recent years by the cost of new specialty drugs to treat conditions such as arthritis, cancer and hepatitis C are shaking off the sticker shock and getting more aggressive about managing their pharmacy benefits. According to a December 2015 report by Towers Watson & Co., now Willis Towers Watson, 53 percent of employers have added new coverage and usage restrictions for specialty prescription drugs, including prior authorization or limiting quantities based on clinical evidence. And another 32 percent are expected to add restrictions by 2018. Among those companies is 84 Lumber Co. in Eighty Four, Pennsylvania, which launched a prior authorization requirement for compound drugs. Mark Mollico, vice president of human resources said in an email that his company also raised its copayments on specialty drugs and is limiting quantities to a 30-day supply. [Click to Enlarge] 84 Lumber, which employs 4,200 people in 250 stores across 30 states, saw its specialty drug spending skyrocket by 94 percent between 2013 and 2014 because of hepatitis C medications. Mollico said specialty drug spending in 2015 accounted for 26 percent of the company’s prescription drug costs, up from 22 percent the previous year. The 20th annual Towers Watson/National Business Group on Health Best Practices in Health Care Employer Survey also found that more employers plan to exclude certain compound medications from their benefit coverage, with 39 percent having already done so and another 24 percent expected to by 2018. Compounds are drugs that have been mixed or altered, most often by a pharmacist, to customize a medication for a specific patient. The process leads to higher costs, and the U.S. Food and Drug Administration might not approve the resulting medication, according to the report. “In the past five years, you’ve seen almost all employers embrace prior authorization and step therapy, which is a first-line approach,” said Eric Michael, a pharmacy practice leader at Willis Towers Watson in Minneapolis. “Now you are seeing the next evolution with the exclusion of certain compound medications. You can cut costs by 30 percent this way. It’s a much more heavy-handed approach than what you were seeing five years ago, but employers’ bank accounts are only so big.” With specialty drug costs expected to grow by 22.3 percent in 2016 compared with 3.9 percent for traditional medications, employers are finding a variety of ways to manage their specialty drug costs, according to a recent report by the NBGH. In addition to the more common practices of requiring prior authorization under the pharmacy plan, step therapy, which requires patients to try cheaper medications before being approved for costlier options, and limiting quantities based on clinical evidence, employers are also trying other approaches. More than half are using freestanding specialty pharmacies to fill prescriptions and requiring prior authorization under the medical plan in addition to the pharmacy plan, and 35 percent are using price transparency tools for specialty drugs, according to the 2016 NBGH plan design survey report of large employers. More aggressive tactics…