Specialty Drug Costs: An Insider Perspective

Specialty Pharmacy Times spoke to Sajid Syed, BSPharm, MS, RPh, of Acro Pharmaceutical Services, about the high cost of specialty drugs, patient needs, and the ACA.

Specialty Pharmacy Times was interested in gaining industry insider perspective about the cost of specialty medications, effective specialty drug utilization methods, and the impact the Affordable Care Act (ACA) will have on both the specialty market and pharmaceutical innovation.

We spoke to Sajid Syed, BSPharm, MS, RPh, of Acro Pharmaceutical Services about the high cost of specialty drugs, patient needs, and the ACA.

Sajid Syed, BSPharm, MS, RPh, is president of Acro Pharmaceutical Services, a suburban Philadelphia—based specialty pharmacy company that provides distribution and management of specialty pharmaceuticals. Acro Pharmaceuticals Services is a fully-owned subsidiary of Lincare Holdings, Inc, one of the nation’s leading respiratory durable medical equipment distribution and home infusion companies. An industry entrepreneur, Syed has built a career around successfully launching and selling pharmaceutical service companies.

Q: In your opinion, who should be responsible for paying for specialty medications?

A: In general, I think patient insurers and patients should be responsible for the cost of their specialty prescription costs. And for patients who have no insurance, for almost all high-cost specialty medications there are drug manufacture patient assistance programs, as well as drug assistance foundations, that are available to help cover either all or a significant portion of the costs associated with specialty medications.

Q: What is your viewpoint on specialty tiers?

A: It depends on what specialty tiers mean per each individual health plans benefit design and what out-of-pocket costs a patient must spend to cover the prescription. If tiers are just a means to segment specialty prescriptions, and out of-pocket-costs are within reasonable limits (<$200 copay), there are no real issues. However, if specialty medication tiers are going to translate into significantly higher out-of-pocket copays, this can be detrimental to patient compliance, since there is a clear correlation between higher out-of-pocket expenses and greater noncompliance. As one oncology compliance study suggested, when out-of-pocket expenses start to exceed $200 per prescription, compliance starts to significantly decrease.

Q: Why are specialty drugs so expensive? Is it strictly because of R&D, or are there other reasons for such high costs?

A: R&D is a significant factor because of the extraordinary costs for developing and meeting the regulatory approval requirements for a new drug. But the high cost of R&D should not simply be viewed from what it costs to successfully get a medication approved by the FDA. The true cost of R&D is a function of expenditures on drug failures. According to a recent Forbes report, fewer than 1 in 10 drugs started in human clinical trials will succeed in being FDA approved. If you divide the number of approved drugs per manufacturer by all R&D costs, including those for drug failures, R&D drug manufacturer expenditures can range from $4 to $12 billion per successfully approved medication.

Another important factor involves the patent cliff, which is responsible for the big generic drug wave we are experiencing at this time. Many nonspecialty brand medication patents are expiring and are now becoming available as less expensive generics. This, of course, is wreaking havoc on many large drug manufacturers’ revenues. These manufacturers are struggling to replace branded products that are available as generic drugs because they have sparse pipelines. Because of this, we have seen large drug manufacturers buying other drug manufacturers to replenish and expand their pipelines and portfolio of marketable branded products.

The ACA will incentivize pharmaceutical manufacturers to raise their initial pricing for newly marketed drugs, since manufacturers will be penalized in the future under the Medicaid statutory rebate program if they raise their prices at a rate that exceeds the consumer price index. This is a regulatory revenue control factor that will play more of a role in the future for newly marketed approved medications.

Q: In your opinion, what will ensure appropriate utilization of specialty drugs?

A: Clinical prior authorization protocols developed from evidence-based standard of care guidelines is one method that has been around for some time. Also, it is necessary to re-examine how efficient specialty pharmacies are at distributing specialty drugs when a patient does actually need the medication. Patients receiving medication that is not being utilized appropriately is a costly waste of medical resources. This tends to occur when pharmacies automatically ship a medication before verifying if the patient is still receiving it or has temporarily stopped the drug, which can result in an unnecessary refill.

Q: How do utilization methods like step therapy and 30-day limits benefit the patient?

A: Step therapies can help ensure appropriate utilization of certain therapies if they are not considered to be first-line medications for a particular disease state. Such step edits should be derived from evidence-based standard-of-care medicine.

Regarding 30-day limits, if a patient receives more than a 30-day supply, their copays are usually higher than a 30-day limit. This cost may be more difficult to budget compared to paying lower copays for 30- day supply prescription fills. Also, if the patient cannot tolerate the drug, this could result in both a costly waste of medication and higher than necessary copay.

Q: Do these methods ever make it harder for the patient to obtain the medications they need to live?

A: It may add a slight administrative delay, but patients are able to get the medications they need. Insurers typically implement step therapies based on costs when the preferred medication is equally effective and safe compared to other drugs in the same class. With drugs requiring an immediate fill, such as a short course (ie, less than 30 days) of therapy with an injectable anticoagulant, payers allow for automatic fills. However, when they are to be used for a prolonged duration of time (ie, greater than 30 days), payers will auto-approve a temporary fill to allow time for a letter of medical necessity to be submitted and reviewed for a long-term approval.

Q: How will the ACA affect the specialty market specifically?

A: The picture is mixed. On one hand, many are saying that more patients will have access to specialty medications and utilization will increase because now there is a payer to cover the cost of these medications. In my opinion, the number of patients who will receive specialty medications due to ACA will be proportional to those who have had insurance coverage. This is because many patients who don’t have insurance now have been getting access to specialty medications via funding through drug manufacturer patient support programs as well as through non-profit organizations such as the Chronic Disease Fund. Additionally, many states have serious budgetary concerns. The Supreme Court ruled that states cannot be mandated to expand their role in Medicaid at the risk of losing their current level of federal funding. While this may diminish the expected increase in patients receiving insurance coverage, the number of new patients receiving specialty medications will increase, but not to the extent that many have been predicting.

The hardest hit by the ACA are the insurance companies. Managed Medicaid plans can’t negotiate the formulary rebate contracts that they were able to do prior to ACA because the government receives a minimum 23% to 17% statutory rebate for branded products and sometimes much more depending on the price increase formula that is applied for calculating these rebates. This has dramatically reduced managed Medicaid payers ability to control costs. On the commercial side, health plans are required to provide coverage for children until the age of 26, and will be levied a new tax if they provide coverage for individuals and small businesses in 2014.

Because of these and other payer-related provisions in the ACA, a payer’s ability to make a profit and control costs will be limited. Specialty pharmacies are going to have to find innovative ways to operate more effectively and efficiently, and be able to better demonstrate value to their payer customers if they want to be a contracted specialty pharmacy.

Q: What was not addressed by the ACA that you feel still deserves attention?

A: Pharmaceutical innovation is an area that can potentially suffer in the long run because of the ACA. The specialty drugs that are entering the market today have been in development for around 10 years, so the immediate effects of the ACA will not significantly impact new drugs coming to market in the next year or so, but will eventually start to have an impact over time.

The cost of innovation is primarily a function of drug development failures. Add to this the restrictions on how health care dollars are managed via the ACA, and there will come a point that manufacturers are not going to take the same investment risk they once did to develop and research innovative medication technologies because of so much uncertainty regarding any significant return on investment.

The bill lacks effective provisions that are going to monitor and incentivize the development of new medication technologies. If innovation is not going to be a high priority under the ACA, then neither quality nor medical resource efficiency can advance to improve the delivery of health care.