Current trends in specialty drug utilization and management Payer interventions in the shadow of a burgeoning pipeline

July 4, 2013

ICORE Healthcare-a subsidiary of Magellan Pharmacy Solutions-released the latest installment of its annual Medical Pharmacy & Oncology Trend Report.1 This report is unique in that it is the only trend and spend report that looks specifically at the medical benefit, under which almost half of all specialty pharmaceutical costs are currently managed and paid. Now in its third year, the report’s findings indicate that specialty pharmaceuticals are continuing to play an increasingly large role in managed care plan budgets and are certainly deserving of the increased payer attention they are receiving.

Specialty pharmaceuticals are continuing to play an increasingly large role in managed care plan budgets and are certainly deserving of the increased payer attention they are receiving, according to a recent trend report. 

 

The report, Medical Pharmacy & Oncology Trend Report, from ICORE Healthcare-a subsidiary of Magellan Pharmacy Solutions, looks specifically at the medical benefit, under which almost half of all specialty pharmaceutical costs are currently managed and paid.1

It showed that costs for the top 25 specialty medications increased by 16% compared to the previous year. In addition to increasing price and utilization, this significant increase in trend was likely due to the fact that none of these high-cost, top-25 specialty drugs lost patent protection. Quantitatively, the annual spend for these drugs, which includes key therapeutic classes such as oncology and rheumatology across all sites of service, was approximately $255 million per 1 million lives. And while a lack of specialty medications coming off patent is a driver of this recent trend, a robust pipeline of promising specialty agents is expected to continue the annual trend of ~15%.

Cost drivers

A number of cost drivers that contribute to the rising specialty drug spend have been identified within the managed care infrastructure. Among these cost drivers are drug mix, the degree of provider reimbursement, member benefit design, distribution channel, the extent of utilization management, and the degree of operational effectiveness in paying claims correctly. Because these drivers are inter-related and are often overlapping components of specialty trend, they each serve as targets for payer-led management interventions.

Drug Mix. In the recent past, the impact of drug mix on medical benefit specialty trend was improving because numerous unbranded or generic alternatives were available. Such opportunities for optimizing the use of lower-cost alternatives, while still real and valuable, have been complicated by unique, first-in-class therapies entering the market on an ongoing basis. Payer response to this phenomenon has been several-fold, with prior authorization (PA) and strategic reimbursement frequently used to drive favorable drug mix. For example, the number of plans reimbursing by a variable-fee schedule (ie, arranging a greater margin for providers on lower-cost alternatives) nearly doubled according to the report. And, more therapies are offering rebates or upfront discounts today than ever before, providing another incentive to optimize drug mix.

Reimbursement. Although reimbursement is a seemingly easy target for payer cost-management initiatives, managed care decision-makers are becoming savvier regarding the impact of narrowing providers’ margins on the administration of specialty injectables paid under the medical benefit. By tightening reimbursement and making it unprofitable for physicians to administer specialty drugs in their offices, members are often directed to receive these services in facilities where costs are ultimately higher for all parties involved; in fact, they are often more than twice the cost of office-administered infusions. Furthermore, when members receive drug administration services in facilities other than their physicians’ offices, it can fragment their care and create a potential for reduced quality. There was a year-over-year increase in plans using an average sales price (ASP)-based reimbursement logic, which tends to ensure that physicians receive an adequate margin on specialty drugs administered in their offices. We presume that this trend is reflective of an effort to keep drug administration services in the low-cost, high-quality physician’s office setting through more favorable reimbursement for providers.

Benefit Design. In terms of benefit design, the report found an increase in the proportion of plans using coinsurance instead of copays for specialty drugs covered under the medical benefit. Coinsurance was more prevalent among larger health plans (≥500,000 lives), which employ it for more than half of their members versus approximately one-third for smaller health plans. Considering the high cost of these specialty medications-with an average claim cost of approximately $2,500-this trend represents payers’ desire to increase cost contribution from the member. Furthermore, the percentage of drug cost for which the member is responsible via coinsurance has also risen, from an average of 20% in the previous report to the current average of 26%. Copays, although becoming less prevalent overall for specialty pharmaceuticals covered under the medical benefit, also increased from an average of $46 to an average of $75 in the most recent report. While these actions demonstrate payers’ willingness to shift more financial responsibility to the patient, they must be ever mindful of the impact of cost-sharing on therapeutic adherence; studies demonstrate that annual out-of-pocket expenses exceeding $2,500 can have a distinctly adverse effect on compliance.2

In conjunction with the increased cost-sharing imposed on specialty medications, payers are demonstrating more willingness to manage the once-sacrosanct realm of oncology, and this increased willingness to manage extends beyond traditional UM practices.

For example, the most recent report indicated that the overwhelming majority of health plans (74%) today recognize palliative care programs as being critical for high-quality end-of-life care and for mitigating ineffective and often detrimental end-line therapy.

Distribution Channel. As described previously, the physician’s office is the single most economical site of care for the administration of infusible specialty drugs. Recent findings from the report show that payers generally embrace this assertion, because the physician’s office is the most common (~50%) distribution channel for specialty drugs covered under the medical benefit. Conversely, the hospital inpatient setting-widely recognized as one of the least economical settings for the administration of specialty injectables-was the least common (13%) distribution channel used for these drug administrations.

Looking specifically at chemotherapies infused in the physician’s office, 60% of the volume is billed via a buy-and-bill process. Specialty pharmacies have also been challenged to serve as a distribution channel for the provider’s office and currently provide approximately one-third of the chemotherapeutic drugs infused in this setting. However, specialty pharmacy acquisition costs for these drugs are 17% higher on a weighted average basis than in the physician’s office, and approximately 20% of drugs shipped to a physician’s office remain unused due to changes in dosing, duration of therapy, or insurance coverage.3 When the drug is unused, the drug is still billed to the payer because it has been shipped by the specialty pharmacy and cannot be sent back. This leads to waste and unnecessary cost. As such, traditional provider buy-and-bill administration remains the most cost-effective channel, according to currently available data.

Despite these findings, one-third of respondents surveyed in the report state that they are seeing oncology practices in their service area being purchased by hospital systems. However, drugs infused in practices under these circumstances are no longer submitted as physician’s office claims, which more than doubles the cost of these drugs for employers and payers. Furthermore, as health systems around the country proceed to purchase large provider practices, the viability of these arrangements from a legal standpoint has come into question. Thus, a shift in distribution channel, or site of service, is a looming threat to the cost structure of current and future infused drugs.

Utilization. In an effort to curb specialty drug costs and improve the quality of care, health plans increased their use of utilization management programs for provider-administered injectables from approximately 70% in our last report to 92% of covered lives in the most recent report. Again demonstrating payers’ willingness to more aggressively manage cancer care, more than 4 out of 5 plans currently require PA on chemotherapies, presumably due to their high cost and potential for misuse. FDA indication and compendia listing remained as the most common criteria for this PA in the latest report. Other predominant forms of utilization management for cancer therapies include National Comprehensive Cancer Network (NCCN) guideline adherence,genetic tests prior to initial therapy, claims edits for appropriate diagnosis, and retrospective drug utilization review.4

Operational Costs. Operational inefficiencies account for a noteworthy portion of the cost of specialty pharmaceuticals, with billing errors alone contributing 3% to 5% of the cost of provider-administered infusions. As such, post-claim edits were conducted for the majority of covered lives (61%) in the report. Eighty-eight percent of the time, these edits were conducted via internal health plan staff, while only 12% of the time they were conducted by an outside vendor, indicating that additional recovery opportunity may be possible. Regardless of the administration, these post-claim edits are advisable as a means of mitigating billing errors, fraud, waste, and off-standard-of-care use.

Pipeline impact

Reiterating a previous concept, the introduction of innovative new therapies from the drug pipeline-for which no therapeutic equivalents exist-has impacted drug mix and has driven costs upward in the absence of lower-cost alternatives. These first-in-class agents for previously unaddressed conditions, such as melanoma, offer significant therapeutic promise but often also give payers no other recourse than to offer liberal coverage of the high-cost entries.

Because of this pipeline, a significant increase in the number of specialty products billed under unclassified Healthcare Common Procedure Coding System (HCPCS) codes (eg, J3490, J3590, J9999, etc) can be used as a surrogate marker of the number of pipeline therapies entering the market. The report found that 2.5% of specialty medications are currently billed under such “dump codes,” an 8-fold increase over the previous year.

Moreover, in 2012, nearly 600 agents were being evaluated in phase 2 or 3 clinical trials for 10 leading cancer types. The tandem of non-small cell lung cancer and breast cancer alone accounted for 227 of these investigational therapies. Furthermore, these study agents represent only the cancer specialty drug pipeline, with hundreds more injectables in development across other therapeutic classes. Despite this abundance of potential new therapies, some believe relief to the specialty trend may come from biosimilars also in the pipeline. The near-term impact of the introduction of biosimilars on specialty drug trend is likely to be minimal, because many biosimilar manufacturers have deemed soon to be off-patent biologics to be unreplicable and modest biosimilar discounts are expected due to market dominance of the innovator products. In addition, FDA guidance for the approval of these agents is still in its fledgling stages, leading to uncertain impact of these biosimilars on the market.

Considerations on managing costs, improving quality of care

As outlined herein, numerous factors have contributed to the rapidly escalating trend and costs of specialty medications in recent years, centering upon the cost-drivers outlined above. Drug mix and specifically the introduction of new therapies from the pipeline continue to shape expenditures, with the research-laden chemotherapeutics accounting for more than one-third of the overall spend. In addition to the economic ramifications of these factors, certain components of the specialty drug dynamic may also adversely impact quality of care. One key cost driver among specialty drugs in particular, distribution channel or site of service, has significant implications on patient quality of care and experience. In addition to increasing costs for all stakeholders with the exception of hospitals, disrupting the continuity of care and introducing inconveniences that may impact therapeutic adherence may cause even greater issues in the long-term. Meanwhile, operational cost drivers, such as fraud, waste, and billing errors, simply constitute an avoidable and indisputable drain on financial resources.

Managed care decision-makers are faced with myriad different options to combat this trend in specialty spending, many of which also serve to improve quality of care. For example, a recent analysis demonstrated that 14% of oncologists were not conforming to NCCN guidelines in the treatment of their patients, leading to a divergence from evidence-based medicine and potentially resulting in ineffective therapy and undesirable and unnecessary adverse events.5 In response to scenarios such as these, utilization management is virtually ubiquitous in managed care oncology, with 82% of plans using PA. Regardless of the specific approach, it is reasonable to assume that all of the aforementioned cost drivers should be addressed to some extent when developing a comprehensive, integrated approach to managing specialty drug costs. If the pipeline is any indication, the clinical and financial issues surrounding specialty pharmaceuticals will only continue to expand into the foreseeable future. In fact, our expectations are that these drug costs will eclipse traditional drug costs within the next several years. ■

References

1. Magellan Pharmacy Solutions. ICORE Healthcare. Medical Pharmacy & Oncology Trend Report. 3rd Ed., 2012. Available at: http://www.icorehealthcare.com/media/329731/2012_trend_report.pdf. Accessed May 20, 2013. 

2. Johnson KA. The impact of member contribution...are we improving costs or reducing quality of care? Manag Care Oncol. 2012; 4. Available at: http://www.managedcareoncology.com/media/475188/final%20layout_mco-correspondence_q1-12.pdf. Accessed May 20, 2013.

3. Johnson KA. Back to the future. Manag Care Oncol. 2011; 5−6. Available at: http://www.managedcareoncology.com/media/358916/final%20layout_mco%20correspondence_q2_jun11.pdf. Accessed May 20, 2013.

4. National Comprehensive Cancer Network. NCCN Clinical Practice Guidelines. Available at: http://www.nccn.org/professionals/physician_gls/f_guidelines.asp. 

5. Conti RM, Bernstein AC, Villajlor VM, et al. Bach. Prevalence of off-label use and spending in 2010 among patent-protected chemotherapies in a population-based cohort of medical oncologists. J Clin Oncol. 2013. Mar 20;31 (9);1134–1139. Epub ahead of print 2013 Feb 19. Doi: 10.1200/JCO.2012.42.7252.