How ‘Special’ Are Specialty Drugs If They’re Most of Drug Spending?

Timothy Kelley
Senior Contributing Editor

Pricey specialty drugs are no longer so exceptional.

Sometime this year, specialty medicines’ share of the total medication “spend” probably passed the 50% mark. That’s despite the fact that they represent only 2.2% of total prescriptions by number, according to an annual report from IQVIA.

The firm defines specialty drugs as “those that treat chronic, complex or rare diseases, and possess additional distribution, care delivery and/or cost characteristics.” In its May 2019 report, IQVIA noted that the specialty category was “rapidly approaching half of medicine spending, driven by innovation and the declining share for traditional medicines as growth has slowed due to patent expiries.” To add some history, the report pointed out that specialty’s share “across institutional and retail settings” soared from 26.2% in 2009 to 49.5% in 2018.

Sometime this year 50% of the medication spend may be for specialty drugs.

That trend line may not be absolutely straight. Indeed, a PwC report, defining specialty medicines somewhat differently, suggests that the specialty percentage bobbled downward a bit in 2015 before resuming its upward march. But any fourth-grader with a pencil and a ruler could project that the specialty category would likely hit the halfway jackpot sometime in 2019.

“It’s a pretty good bet, yes,” agrees Michael Kleinrock, research director of IQVIA’s Institute for Human Data Science.

What does crossing this threshold mean for American health care?

“It means there are very expensive, complex therapies,” says Steven Johnson, vice president for health outcomes at Prime Therapeutics, the PBM for 22 Blues plans, “and half of the spend represents a very small number of patients and claims.”

That, in turn, is partly a function of where innovation has been focused. “The industry is doing more on autoimmune and cancer and less on another wave of hypertension or cholesterol drugs,” says Kleinrock. In the former categories, of course, prices for recently introduced drugs have tended toward the stratosphere.

Take cancer, for example. “Most cancer drugs launched between 2009 and 2014 were priced at more than $100,000 per patient for one year of treatment,” wrote Barbara K. Rimer, chair of the President’s Cancer Panel, in a 2018 report. “More recently we’ve seen launch prices of more than $400,000 for a year of treatment.”

Specialty drug spend is catching up and may surpass the traditional drug spend

Source: IQVIA, Medicine Use and Spending in the U.S., May 2019

Kleinrock argues that specialty medicines’ crossing the 50% mark—or even the 55% that’s been projected for next year by CVS Health—isn’t necessarily sky-is-falling news about drug spending. Overall, the spending trend is close to flat, he says. Per-capita annual medicine expenditure, adjusted for population growth and shown in current dollars, is up only $44 over the last decade, IQVIA reports. Just 8.8% of Americans last year had out-of-pocket medicine costs exceeding $500, says Kleinrock, and for half of the population those costs were under $50. It’s also true that, as an AARP report points out, brand-name drug prices rose in 2017 at four times the rate of inflation, and 29% of adults in a Kaiser Family Foundation survey released this March reported having not taken medications as prescribed during the past year because of cost.

If it isn’t panic time, specialty drugs’ growing share of total drug spending does suggest that it’s time for some serious thinking about what Kleinrock calls “the collectivism of insurance.” With specialty drugs now about to account for a majority of the drug cost, Winston Churchill might say that perhaps never have so many people had to help pay so much for so few. One worry is that, like the growing wealth disparity that is the talk of politics, a medicine-cost disparity will turn the U.S. health insurance business into a GoFundMe page for the gravely or obscurely ill. On the other hand, there’s the fear that individuals afflicted once with serious illness may be afflicted again with “financial toxicity”—bills that they can’t pay and medication they won’t take because they can’t afford it—even if they’re covered. Coupons and special discounts may help many, but coinsurance requirements are spreading, and a 30% or 40% coinsurance applied to the price of one of the new cancer therapies can be a whopping amount.

“If everything is ‘special,’ it’s tricky,” says Kleinrock. “It’s ultimately a question of benefit design.” And more specialty medicines are on the way, he suggests. “We did a report that there are 7,000 rare diseases, and so far there are drugs for 500 of them. Society still has to decide how much it’s prepared to spend.”

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