A Multidimensional Framework For Specialty Drug Management

An MCO with an integrated medical and pharmacy benefit management system can overcome the challenges associated with this costly category

Gregory K. Bell, PhD
Shannon A. Baumann, MS

Growing challenge of specialty drugs

There is no standard industry definition of specialty drugs, although many characterize these products as simply high-cost pharmaceutical therapies. For example, the federal government deemed that any pharmacy product costing over $600 per month be allowed to be placed on a specialty formulary tier at Medicare Part D plans (Hargrave 2010). According to an AARP Public Policy Institute report, the average annual cost of therapy for the top 25 brand-name traditional products was $2,190 ($183 per month) while the average for the 25 most widely used specialty products was $34,550 ($2,879 per month) (AARP 2010). Another analysis of the top 10 drugs within branded traditional and specialty categories in Medicare Part D plans found average monthly prices of $131 and $2,669, respectively (Hargrave 2010).

The annual trend reports published by the large pharmacy benefit managers (PBMs) point to the increase in specialty drug spending as a primary driver of growing pharmaceutical expenditures.

According to a recent CVS Caremark publication, specialty drugs accounted for only 13 percent of prescription drug spending in 2005, but will increase to 27 percent in 2015 (CVS 2011a). The latest Medco trend report shows that specialty drug spending grew five times faster than spending on traditional drugs between 2005 and 2010 (15 percent versus 3 percent ) (Medco 2011a). Express Scripts estimates that specialty spending will continue to increase at an annual rate of 27 to 28 percent through 2013 while growth in spending on traditional drugs will remain in the low single digits (Express Scripts 2011).

Consistent with the projected increases in spending, the number of specialty drugs is also expected to grow as are their indications for use. Medco recently analyzed 150 pipeline drugs of significant interest to payers, noting that 40 percent of them are likely to be classified as specialty drugs (Medco 2011b).

The increased amount of investment associated with specialty products justifies the use of more costly and complex prior authorization criteria in order to ensure that the appropriate patient is identified for the therapy in question.

Of these, intravenous infusions are expected to constitute 24 percent and subcutaneous injections an additional 14 percent. CVS Caremark estimates that more than 70 percent of FDA applications for new indication approvals are for specialty pharmaceuticals (CVS 2011b).

Managed care objectives

There are three types of intervention or impact points along the treatment continuum where an MCO typically would consider practicing category management for pharmaceuticals: diagnosis of the patient, selection of treatment (and site where treatment will take place, if applicable), and monitoring patient response to therapy.

The initial opportunity for intervention, not counting wellness and preventative measures that an MCO may support, is at diagnosis when an MCO may seek to ensure that the patient’s disease state is appropriate for the type of treatment chosen.

Next, an MCO may attempt to influence product choice and site of care. This is most significant for infusibles and injectables, as both are potentially administered under the supervision of a health care professional. Then, once a patient has begun therapy, an MCO may seek to ensure that the pharmaceutical therapy is being utilized appropriately to optimize outcomes for the patient. Figure 1 summarizes these three points along the treatment continuum and the associated plan management objectives.

FIGURE 1 Treatment continuum and managed care objectives

Evaluating opportunities

Whenever a physician considers a treatment decision, an MCO has the potential to influence that decision in accord with the plan’s objectives. At issue is the expected cost of the intervention and the likelihood and magnitude of the MCO’s impact on the treatment decision. Thus, an optimal strategy for the management of specialty products must consider which intervention points a plan could turn into effective impact points. With respect to the high cost of specialty products, such a strategy will need to explicitly consider whether the investment of management efforts is justified given the expected cost savings.

FIGURE 2 Weighing impact points and intervention points
Return on investment analysis Example MCO interventions
Traditional Specialty
#1: Identify appropriate patients Lower Higher
  • Prior authorization
  • Genotype testing
  • Split-fill programs
#2: Consider product and site-of-care preferences Higher for product
Lower for site
Lower for product
Higher for site
  • Preferred products (tiered formularies, step requirements)
  • Site of care network optimization
# 3: Manage appropriately once on therapy Lower Higher
  • Compliance programs
  • Reauthorization
  • Dose titration guidelines

Impact point 1: Identify appropriate patients

The classic managed care tactic for ensuring that only appropriate patients are prescribed a given therapy is the introduction of prior authorization. The value of investing in a prior authorization process increases with the potential for savings realized by following an appropriate pathway for patient care. In this respect, the existence of specialty pharmacy providers allows plans with increased opportunity to implement authorization processes of greater complexity.

With or without a specialty pharmacy provider’s assistance, determining the appropriate level of effort when implementing prior authorization for specialty pharmaceuticals remains a challenge. In our experience, the execution of prior authorization requires an amount of effort from plan personnel that is about the same for traditional and specialty products.

Consider, for example, two similar prior authorization forms that require manual review, which costs the plan $50 for the work time. In keeping with the average monthly costs noted above, suppose that one of the products at issue is a traditional drug costing $200 per month and the other product is a specialty drug with a cost of $3,000 per month.

The potential return on investment in the prior authorization process is nearly 20 times as large for the specialty product (not counting the likelihood and cost associated with an alternative therapeutic regimen that otherwise would be chosen), but the plan could employ the prior authorization process in both situations.

Now, suppose that the criteria become more complex and require personnel to review previous medical records and laboratory test results such that the prior authorization process is now expected to cost $200. It no longer would be economical for the plan to use the same prior authorization process for the traditional product, but it certainly could still be appropriate to require the prior authorization process for access to the specialty product.

This simple example demonstrates that the increased amount of investment associated with specialty products justifies the use of more costly and complex prior authorization criteria to ensure that the appropriate patient is identified for the therapy in question.

The same logic can be applied to management tactics such as requiring submission of genotype test results to obtain payment for a treatment or for split-fill programs that essentially utilize a one- to two-week trial to assess patient tolerability before authorizing full monthly supplies of the therapy (Khandelwal 2011; Hornberger 2011).

Because of the more detailed expertise a specialty pharmacy provider can employ and the greater potential for cost savings associated with avoiding inappropriate therapy, impact point 1 is a management area that plans should consider for specialty products, even when similar efforts may not be justifiable for traditional therapies.

Impact point 2: Consider product and site-of-care preferences

Financial incentives employed through the use of tiered formularies can be an effective tool for a plan appropriately trying to steer utilization toward a preferred product (Rector 2003).

In categories where substantial rebate savings can be realized, many plans use preferred product strategies to manage their expenditures across a therapeutic category. This is particularly true for therapeutic categories in which the products are considered to be relatively close substitutes for most patients.

Product preference strategies currently are more likely to produce savings for traditional categories compared to specialty drug categories. This is as a result of specialty drug categories tending to have fewer products that may be considered to be sufficiently close substitutes as to enable a product preference strategy. Consequently, manufacturers see less need to offer rebates for a preferred formulary position and MCOs have fewer alternatives to use as threats when negotiating with manufacturers. As a result, one notes significantly lower average rebate percentages for specialty products.

For example, one health plan survey estimates that the average monthly rebate for a traditional retail 30-day prescription is $10 (range $2.64–$21.71) while rebate for a specialty product is $19 (range $7.93–$55.00) (PBMI 2011/2012). Using the average monthly costs noted above ($183 and $2,879 for traditional and specialty products, respectively) yields average rebate percentage ranges of 1.4 to 11.9 percent for traditional products and 0.3 to 1.9 percent for specialty products.

As specialty product categories continue to evolve, more opportunities to practice product preference strategies will emerge. The use of biosimilars is one example of future opportunities for product preference savings, but without interchangeability, the opportunity for savings with biologic specialty products probably won’t be as great as the standard opportunities for generic versions of traditional products.

Although specialty product categories may not always offer sufficient rebate levels to classify this area as a solid point of impact on which plans can rely, the prevalence of provider-administered injectable and infusible therapies does provide an opportunity to seek savings through the use of a preferred site-of-care network.

A recent analysis conducted by Walgreens Specialty Pharmacy found that “moving infusions from high-cost sites of care (typically outpatient hospital) to alternate treatment sites while maintaining the same drug, dose, and dosing frequency can generate savings of 20 to 60 percent per infusion”(Einodshofer 2012).

Such a site-of-care savings opportunity typically does not exist for traditional products, but for some specialty products, specifically those requiring administration by a health care professional, site-of-care savings could be significant and would warrant investment in the development and administration of an efficient site-of-care network for the plan’s members.

Impact point 3: Manage appropriately once on therapy

Once a patient is on therapy, it may be worthwhile for the plan to invest effort in programs aimed at delivering and maintaining positive outcomes for the patient. Both traditional and specialty therapies could benefit from managed care programs that promote continued appropriate use once a therapeutic regimen has commenced, but again the issues of investment, return, and specialized stakeholders emerge.

Returning to the example used for the diagnosis impact point, suppose that the approved labels of both the traditional product and the specialty product suggest that some patients not responding fully to the initially prescribed dose may benefit from doubling the dose.

It is suggested that an antibody test coupled with the patient’s weight could be a strong predictor of whether or not a patient would respond to the doubled dose regimen. Suppose that it would cost the plan $200 to pay for the test, collect the patient weight data, and review the results. Again, simply based on the higher cost of doubling the specialty product dose, one would expect a significantly higher return on implementing a response assessment dose management program for the specialty product than for the traditional product.

Further, not only are the returns on effort greater for specialty products at this impact point, but the ability of plans to successfully implement ongoing therapy management programs probably can be leveraged through the participation of the specialty pharmacy provider and/or the site-of-care provider.

Other examples of management approaches at this impact point are reauthorization criteria for continuing on therapy and compliance and adherence programs.

Perhaps most striking can be the savings realized as a result of monitoring and appropriately discontinuing a high-cost specialty therapy that is no longer producing incrementally positive results for the patient.

From our perspective, the optimal management strategy across the three impact points should not be determined without first engaging in an analysis of specific category dynamics to identify where effort should be invested, by which stakeholders, in which category management tools, and, as a consequence, how much impact should be expected. As a general guide, we believe that the optimal distribution of effort across the three impact points will probably vary in a predictable pattern with the lifecycle of the category.

The categorization scheme, summarized in Figure 3, is based on the degree of product similarity within the category. Targeted therapeutics such as enzymatic drugs indicated for orphan diseases and cancer therapies genetically targeted toward specific tumor types typically have no close substitutes. As a consequence, the opportunity to practice a product preference strategy at the category level may be somewhat limited, but the potential to manage individual patient circumstances at impact points 1 and 3 and exert a preference for lower-cost sites of care, if appropriate, is unaffected by the lack of close substitutes.

FIGURE 3 Typical characteristics of lifecycle phase

At the other end of the spectrum, biologics with close substitutes, such as growth hormone, ESAs, and, eventually, biosimilars, are categories characterized by a high degree of product similarity.

As a result, there are more opportunities for product preference strategies and more opportunities for category management overall.

Between these two extremes lie the therapeutic categories characterized by clinically differentiated products.

In these categories, multiple products may exist but they may offer different mechanisms of action, different routes of administration, and meaningful discrepancies in the overlap of indications. Examples within this category may include the immunological agents indicated to treat conditions such as multiple sclerosis or rheumatoid arthritis.

The group to which a specialty therapeutic category belongs is likely to inform the degree to which plan decision-makers should focus differentially on the three impact points.

As shown in Figure 4, for targeted therapeutics a relatively larger share of the category management effort would be focused on the Identify and Manage impact points because there is little opportunity to realize savings by preferring products.

FIGURE 4 Therapeutic category classification for specialty products

As categories increase in their degree of product similarity, the opportunity for savings realization at the Prefer impact point rises but without diminishing the savings potential at the Identify and Manage impact points.

Nonetheless, as a result, a relatively greater share of the category management effort begins to shift to the Prefer impact point.

Management challenges

This framework for specialty drug management considers the multiple dimensions in which an MCO can affect treatment choices to maximize its objective of appropriate utilization for these high-cost therapies.

The framework, as described, is intended to act as a general guide for managed care decision-makers with the recognition that resources are limited and that management efforts should be steered toward those areas with the greatest opportunity for returns to effort.

Our intentional simplification, however, omits benefit design and data visibility as other potentially significant approaches to and considerations for specialty category management.

Spanning both benefits

Many specialty pharmaceuticals require administration by a health care provider and many of these are covered under the medical benefit. MCOs, regardless of whether or not pharmacy benefit management is outsourced, often tackle the two benefits with different management approaches, both within the benefit design itself and within the insurance organization.

This has created challenges in specialty categories that span both benefits.

Many plans have made important strides at synchronizing therapy management, but a truly integrated benefit design would require such substantial alterations to existing employer contracts that we have excluded such considerations from this discussion.

Perhaps most striking can be the savings realized as a result of monitoring and appropriately discontinuing a high-cost specialty therapy that is no longer producing incrementally positive results for the patient.

Specialty product categories that span both medical and pharmacy benefits also create challenges for the situational assessments often required for many category management approaches. In our experience, pharmacy directors are often blind to the utilization patterns of products covered under the medical benefit.

With life sciences technology trending toward more personalized therapies requiring the use of diagnostic assessments and infusible/injectable treatments continuing to be a large presence in the late-stage pipelines, successful MCOs will need to develop and utilize an integrated medical and pharmacy benefit management system. The multidimensional challenge of managing specialty products cannot be overcome without encompassing all the interactions with the health care system.

Specialty drug management is complex and challenging, but it can be effective if practiced with awareness of all dimensions of the problems and possible solutions. The framework presented in this paper should assist managed care with mapping out effective and efficient management strategies for these high-cost pharmaceuticals.


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Charles River Associates is a leading global consulting firm that offers business and economic consulting services to government and financial clients. The conclusions of this article are based on independent research and publicly available material. The views and opinions are those of the authors and do not represent the views of Charles Rivers Associates, where they are employed.