Specialty Drug Spend Soars. Can Formulary Management Bring It Down to Earth?

Utilization management techniques for traditional medicines don’t translate to drugs covered by the medical benefit. Site-of-service programs show some promise, though.

Thomas Reinke
Contributing Editor

Formulary management techniques continue to drive down expenditures for traditional medicines. It’s a different story, though for specialty drugs. In 2018, U.S. spending for traditional medicines fell 3.4% on a per capita basis while spending on specialty medicines trended north by 5.8%, according to IQVIA’s “Medicine Use and Spending in the U.S.” report. Total nondiscounted spending on specialty drugs was $218.6 billion, or 45.4% of total pharmacy spending of $482 billion, according to Doug Long, vice president of industry relations at IQVIA. Nondiscounted spending includes all fees and other costs in the pharmaceutical supply chain, such as rebates and dispensing fees. Some say it is a more accurate figure for drug expenditures than, say, the net revenue of manufacturers, which is more commonly reported. Express Scripts painted a similar picture to IQVIA’s in its 2018 Drug Trend report. In 2018, spending on traditional and specialty medicines seesawed for Express Scripts’ amalgam of commercial, Medicaid, Medicare, and ACA plans; spending on traditional medicines fell by 5.8% while spending on specialty medications rose by 9.4%. Express Scripts reported that specialty medications accounted for 44.7% of its total pharmacy expenditures, a number very close to the proportion reported by IQVIA. The company warned in its report that the specialty medicines could reach 50% of total pharmacy expenditures as soon as next year.

Management of traditional medicines

The divergent ups and downs of traditional and specialty drugs are just one more indication that pharmaceuticals and pharmaceutical spending has become a tale of two different kinds of drugs. Traditional and specialty don’t have official definitions but traditional is usually used to mean small-molecule drugs that are relatively inexpensive per pill, while specialty drugs are expensive biologics that are usually injected or infused. While specialty drugs account for an increasing share of drug expenditures, they make up only a small percentage of prescriptions. Just over 2% of the 5.8 billion scripts written in 2018 were for specialty drugs; the remaining 98% were traditional medications.

No longer neglected

Specialty drugs include the drugs used to treat orphan diseases. Dubbed orphan conditions when they were neglected by drug developers, they are rare diseases that affect relatively few people. But neglected they are no longer: Last year, 34 of the 59 drugs approved by the FDA were orphan medications. The price of the drugs used to treat them are staggeringly high. Earlier this year Zolgensma (onasemnogene abeparvovec-xioi) became the world’s most expensive medication, priced at $2.125 million per patient. The single-dose gene therapy is a potential life-saver for children with spinal muscular atrophy.

Many of the most common diseases, such as hypertension and high cholesterol, are effectively controlled by traditional medicines and, more specifically, low-cost generics. Increasingly, though, drugmakers are focused on unmet needs in orphan diseases that offer the opportunity to launch drugs with high prices and with those prices, larger profits and a quicker return on investment.

Prescriptions for selected specialty therapy areas, 2013 and 2018

Prescriptions for specialty drugs are climbing, with the biggest relative increase in those for autoimmune disease.

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

How specialty drug spending compares

Spending on specialty drugs accounts for almost half (44.7%) of total PMPY spending in commercial plans.

Source: Express Scripts, “2018 Drug Trend Report,” February 2019

Part of the reason for the waning interest in traditional medicines is increasingly sophisticated formulary management. Payers and PBMs continue to refine their tactics, which include tiering, prior authorization, step therapy, formulary exclusions, rebates, and other techniques. Exclusions from the formulary are increasingly common. Data presented by Long, of IQVIA, at a recent conference show that Express Scripts excluded 159 drugs in 2018, close to double the 85 drugs excluded in 2017. The threat of exclusions increases the bargaining power of payers and PBMs for rebates and other concessions from drug manufacturers. Aggressive formulary management tactics helped Express Scripts to reduce its 2018 unit costs for traditional brand medications by 6.5% despite a 7.3% increase in list prices.

As a rule, specialty medicines don’t lend themselves to the same formulary tactics that work with traditional medicines. Specialty drugs are often first-in-class prod-ucts with game-changing profiles for efficacy and safety. Alternatives aren’t available. Making patients and doctors jump through the hoops for formulary management could lead to a medical disaster for the patient, to say nothing of the negative public relations that would follow.

Utilization is the issue

High drug prices are very much in the news and on the political radar. But the Express Scripts report (and a report from Magellan) argue that the 2018 expenditure increase for specialty medicines was driven primarily by utilization and, only secondarily, by price. The Express Scripts report says that for 2018 commercial pharmacy plans, specialty utilization increased 7.3% while unit cost increased just 2.1%.

IQVIA’s report says the 2018 spending growth was highest for three specialty drug classes: oncology drugs, autoimmune drugs, and HIV antivirals, according to IQVIA’s data. Long presented data at a recent specialty medicines conference that show expenditures for oncology increased $9.2 billion, to $60.3 billion annually; autoimmune expenses increased $8.5 billion, to $55.8 billion; and HIV antivirals increased $1.8 billion, to $22.8 billion.

Doug Long

Specialty generics and biosimilars are what’s needed to help control specialty spending, says Doug Long of IQVIA. They would provide competition.

The growth in the cancer specialty drug spend came, in part, from the big increase in the number of patients treated with the PD-1 inhibitors. In 2018, the number of patients being treated with the PD-1 inhibitors reached 212,000, more than double the number treated in 2016. According to research by Fierce Pharma, the 2018 U.S. sales of Opdivo (nivolumab) increased 37%, to $4.24 billion. Sales of a competing PD-1 inhibitor, Keytruda (pembrolizumab), increased by 80% in 2018, reaching $4.15 billion. Keytruda’s 2018 sales were fueled by its rapid uptake for new indications as a treatment for cervical cancer, non-Hodgkin’s lymphoma, and non–small-cell lung cancer.

In the autoimmune disease category, the increasing number of patients is a major factor in climbing utilization rates. Autoimmune diseases can be very difficult to manage. People with Crohn’s disease, ulcerative colitis, and some of the other autoimmune diseases often do well on a drug for a time before its effectiveness seems to wear off. The result from the vantage point of insurers and PBMs is an increasing number of prescriptions for increased utilization of second-line specialty medicines.

The jump in the HIV category is explained, in part, by the rapid uptake of Biktarvy, a three-drug pill that includes a new integrase inhibitor, bictegravir. Biktarvy was approved in February 2018 and racked up $1.18 billion in sales by the end of the year. The HIV antiviral class is loaded with specialty products with remarkable sales figures, including Genvoya, which saw its sales grow to $3.63 billion, a 20% increase over 2017.

Exceptions to the rule

Many of the specialty medicines are paid for through the medical benefit and not the pharmacy benefit managed by PBMs. HHS estimates that in 2016 this “non-retail” channel totaled $128 billion, or about 28%, of the total U.S. drug expenditures. It is difficult for health plans to control the cost of these medications because payment is usually based on the provider charges, not the price of the drug itself. Utilization management runs into obstacles because tools in the formulary management toolkit don’t apply to the medical benefit.

Still, payers and PBMs have had some modest success in controlling the prices of specialty drugs. Formulary utilization management can work for directly competing me-too specialty agents with similar outcomes and clinical profiles. Within the last year, for example, the two competing PCSK9 inhibitors have succumbed to head-to-head competition initiated by PBMs even though they were novel medicines with the power to dramatically lower LDL levels. Praluent (alirocumab) and Repatha (evolocumab) were initially priced around $14,000 annually, far exceeding the price of statins. Because of their high price, PBMs covered them with tiering and step therapy. Sales were disappointing. Late last year, Amgen changed course and cut the price of Repatha to $5,850. Then, earlier this year, Sanofi and Regeneron followed suit and slashed the price of Praluent. The PBMs have kept the pressure up. Express Scripts excluded Repatha from its 2019 national formulary while CVS Caremark excluded Praluent. The tradeoff between the two PBMs allows each to maximize its concessions from the manufacturer of its preferred product.

Nonformulary strategies

Long says payers and PBMs are now turning to non-formulary strategies to rein in specialty drug costs. They are using site-of-service (SOS) programs to direct patients receiving infused or injected drugs to the lowest cost set-tings, including their homes or physician offices. Magellan says 68% of health plans in its medical pharmacy report use of an SOS program to control costs and utilization for medications paid under the medical benefit. Magellan says a similar percentage of commercial health plans using an SOS program for managing medical pharmacy saw a 61% savings from their SOS programs. Increasingly the emphasis is on home infusion, which allows the payer to control drug acquisition and administration costs instead of hospitals or physician offices with buy-and-bill arrangements.

But Long says what formulary management for specialty drugs really needs is competition. “We need specialty generics and a significant biosimilars market to control the cost of specialty drugs,” he says. The Express Scripts report says prices for specialty generics fell by 20% from 2017 to 2018. Still, the biosimilars market in this country is limping along. As of June 2019, only seven of the 21 biosimilars approved by the FDA are actually on the market because of patent challenges and other issues.

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