Specialty Drug Spending Growth Unsustainable, Report Says

Double-digit annual spending increases for specialty drugs are forecast through 2015, reports America’s Health Insurance Plans.

A spike in the unit cost of specialty drugs helped the pharmaceutical market avoid negative overall growth in 2012, but the current level of projected annual spending increases in the specialty market could be unsustainable in the future, according to a report released in February by America’s Health Insurance Plans (AHIP).

While domestic spending on prescription drugs reached a total of $263.3 billion in 2012, the specialty market saw a 19% spending jump on a unit cost level and comprised 25% of the total pharmaceutical market, according to AHIP, a trade association for the country’s health insurers. Prescription drug spending accounted for 9.4% of all health care spending in 2012, representing a minimal increase from 2011, according to the Centers for Medicare & Medicaid Services (CMS).

The limited annual growth in overall drug spending was attributed to an increase in the adoption of generic drugs, combined with several blockbuster drugs losing their exclusive patents. Yet due to increases in the cost and rate of use of specialty drugs, CMS projects sustained growth in drug spending from 2015 through 2022 of 6% or more per year.

“Specialty drugs account for a disproportionate share of overall drug spending because of their extremely high cost,” the report states. “The average annual retail cost for a specialty medication to treat a chronic condition was almost $29,000 in 2009, with some drugs costing as much as $750,000.”

With an increasing portion of the drugs approved by the FDA expected to be specialty drugs, combined with an increase in the rate of chronic illnesses, the specialty drug market is expected to see dramatic growth moving forward.

Insurers are concerned that the projected double-digit annual growth in the specialty market will be unsustainable, and in part blame the current law granting brand-name biologic drugs a 12-year exclusivity period after FDA approval, as opposed to 5-year exclusivity protections for traditional drugs. According to AHIP, this constitutes a government-approved monopoly.

“Although these exclusivity periods give pharmaceutical manufacturers the incentive to take on the risk of developing groundbreaking drugs, they also precipitate a number of negative policy consequences,” the report states. “Granting exclusivity to specialty drugs removes the economic benefits of price competition, resulting in higher prices relative to what they would be in a perfectly competitive market.”

AHIP proposes a number of policy options that it argues would mitigate sustained spending growth while improving access to specialty drugs. These include encouraging alternative payments and incentive structures for new drugs and technologies; shortening the exclusivity time period for generic biologics; removing state level barriers restricting the use of biosimilars; promoting policies to encourage value-based benefit structures for both public and private payers; adoption of a least costly alternative standard for some drugs covered under Medicare Part B; and prohibition of patent settlements between drug companies.

“These recommendations represent actionable steps that could be implemented to ensure the efficient and effective use of these high-cost treatments while—at the same time—promoting continued medical advances and innovations that offer promise and benefit patients and consumers,” the report states.