In the past decade, the number of specialty medications has seen exponential growth and use in treating complex diseases. While only a small portion of people use specialty medications, these medications account for a significant cost in employers’ health benefits.
Specialty drugs are often biologics, medications that are produced from living organisms or contain living entities. They are large complex molecules and are more expensive to create due to their manufacturing process, but are designed with unique targets. The U.S spending on biologics is increasing - net spending totaled $125.5 million in 2018 and is expected to reach $625.6 million by the year 2026.[1] There is a shift away from a “one size fits all” treatment to a more targeted approach for treating different groups of patients.
Employers recognize the need to reduce their spending on specialty pharmacy while needing to ensure that their employees are getting the appropriate care. Employer medical costs are set to increase by a 6% average over 2020, especially as more specialty drugs become available.[2] A major challenge for employers is controlling drug costs in their pharmacy benefit plans. An upward trend in specialty drug costs is not a new fact, but the strain of paying for these treatments has become harder. However, there are not many answers to getting these costs under control. This pressure is only set to increase as the availability of specialty drugs grows. While there were only 10 specialty drugs available in 1990, there are more than 300 on the market with an additional 700 in the pipeline and it is the largest proportion of new medications launched in the past five years. [3]
While there are benefits of specialty medications, self-insured employers are struggling to find a solution for how they possibly cover for the increasing cost of specialty drugs which account for less than 2% of prescriptions, but make up 40% of total employer drug costs and predicted to increase to half by 2020.[4] There is no surprise that employers say that managing the costs for specialty drugs is their first priority when looking at benefits. The percentage that is being spent on expensive drugs is growing substantially, and with that, the price tags. Furthermore, the top 10 drugs by gross cost was 20% of employers’ overall pharmacy spend in 2018.
[1] “Medicine Use and Spending in the U.S. - A Review of 2018 and Outlook to 2023.” IQVIA Institute, May 2019.
[2] “PwC says US companies are expected to spend 6% more on employee health care next year as drug prices rise.” CNBC, 20 Jun 2019, https://www.cnbc.com/2019/06/19/pwc-says-us-companies-expected-to-spend-6percent-more-on-health-care-next-year.html.
[3] “How to Get a Handle on Specialty-Drug Costs.” Human Resource Executive, 24 Jul 2019, https://hrexecutive.com/how-to-get-a-handle-on-specialty-drug-costs/.
[4] “The pharmacy crunch: Leading employers spend 40% of costs on less than 1% of prescriptions.” Willis Towers Watson, 20 Aug 2019.