What a word! Mentioning that something is, “special,” immediately conjures up excitement and implies that it is an enhanced version of the original. In many cases this is true! For example, the Special Edition Lion King DVD release ran two minutes longer and had a well integrated new music sequence. I am an avid Disney fan and any amount of extra Lion King time qualifies as special to me!
However, there are some cases where calling something special may not be 100% warranted. This old 2013 Nissan Rogue Special Edition is a prime example:
A dashing new car you might say! And SPECIAL edition?! This surely must be a super-car disguised as a moving refrigerator!
In the automotive industry, “special editions,” are anything but special. They are a way to sell the remaining inventory of old models by repackaging them, but not really changing them. In this case, Nissan stuck two extra speakers in the thing, put new wheels on it and called it a day.
In the past few years we’ve heard a lot about specialty medicines and specialty pharmacy. Is specialty pharmacy a Lion King or a Nissan Rogue?
To find out, lets start from the top!
What are specialty drugs and specialty pharmacy?
Specialty pharmacy is the service of dispensing and providing care for patients with complex diseases taking high-cost, high-touch medications. UnitedHealth Group concisely highlights specialty medicines’ characteristics in a 2012 specialty drug analysis:
- Complex to manufacture, requiring special handling and administration
- Injectable or oral, self-administered or administered by a health care provider
- Costly, both in total and on a per-patient basis; taken by a relatively small share of the population who have complex medical conditions
- Difficult for patients to take without ongoing clinical support; also challenging for providers to manage
For these kinds of drugs a lot of support is required from the pharmacy to ensure that the drugs are taken according to the best practices. These drugs generally treat a specific state in a disease or an orphan disease.
Just like a fighter jet can assail a small target with incredible precision, specialty drugs are made to target intensely specific biomarkers. These drugs are true precision medicine.
What’s the big hoopla about?!
These drugs make a lot of people a LOT of money.
One of the indications of just how big of an impact specialty medicines can make becomes evident in the 2014 National Health Expenditure Projections, authored by the Center for Medicare and Medicaid Services (CMS). In the report we see a HUGE spike in 2014 prescription drug expenditure that far exceeded the predictions made in the previous year. In 2013 CMS predicted that the national drug expenditure would increase 6.8% in the next year. For 2014, national drug expenditure actually increased by 12.6%.
To put that in perspective, between CMS’s prediction and the actual increase, there is 46% error. In organic chemistry lab, that kind of error was usually followed by, “I did the wrong experiment.”
So what happened?
Well just like a big movie opening night can boost annual movie ticket sales, specialty drugs like Sovaldi had their opening in 2013 and made an absolute killing in 2014. The financial data behind these drugs are simply mind-boggling.
“A 12-week course of Sovaldi, a hepatitis C treatment approved in 2013, costs more than $84,000” – Prime therapeutics
Full Disclosure – Financial data on specialty medications is ridiculously hard to find. As I scoured through various sources, I got the feeling that the companies getting involved in specialty medicines didn’t want people to have easy access to these numbers!
Prime Therapeutics, a private PBM covering around 25 million lives, revealed their specialty “net ingredient cost” to be $3,149.25 (Prime Therapeutics Report). Net ingredient cost includes all rebates and network discounts, meaning that this number is highly accurate and representative of the real number they pay. A newly instituted oral chemotherapy clinic’s specialty drug financials, printed in the January 2012 issue of Oncology Issues, estimated average specialty drug prices of $3,127 and accounted an average markup of an additional $1,823!
For reference: according to Investors Business Daily, non-specialty drugs on average cost less than $200.
What led to these drugs becoming so explosively expensive?!
Powder – Keg.
Through my super-scientific (not really) processes, I’ve identified three driving factors in this highway-robbery:
- High Manufacturing and Distribution Costs
- Along with the huge capital investment just to discover these drugs, the cost to produce them in mass amounts is high as well
- A UnitedHealth Group report identifies supply chain complexities as another cost-adding catch
- These drugs require special care in handling and dispensing…thus tacking on more money on their way to the consumer
- Many “Breakthrough” and Novel Drugs
- These drugs treat previously incurable or orphan diseases, so there’s no competition
when they are marketed.
- Lack of competition perpetuates monopolies
- These drugs treat previously incurable or orphan diseases, so there’s no competition
- Smaller/Captive Patient Populations
- Patient populations who need specialty drugs are, as harsh as it sounds, going to die if they don’t take these medications soon…..so they don’t have much choice in the matter
- The patient/consumer pool for each of these ailments is also much smaller than, for example, a drug that treats high blood pressure – the manufacturers have less income channels to cover their costs, leading to higher unit prices
Imagine you’re the ONLY person in the world who supplied food. To get the food though, you need to travel up 45 flights of stairs and then physically jump through a hoop, all while being shocked by electric eels…
You’d likely feel entitled to raise prices to get the profit you feel you deserve right?
The entire industry is learning to adapt to these new parameters. Companies are forming teams to help pharmacies fight insurance companies for reimbursement on specialty drugs; support networks for patients taking these drugs are thriving, and everyone is making a pretty penny in the chaos that these drugs have created.
Lets switch gears now. What about the other side? The patients actually taking the medicines.
The finances of specialty medicines have become a huge burden on the patients who need them so badly. These prices have never been experienced before in the market, and because of a lack of flexibility, the system hasn’t developed a creative and affordable solution.
Depending on the disease, disease progression, drugs prescribed, dispenser (specialty pharmacy, physician, clinic etc.) and insurance company, patients needing specialty medicines could be paying steep out of pocket costs and are almost guaranteed to become the worlds best hoop-jumpers.
As your trusty data-dumpster-diver I’ve listed some of the main patient issues below
- Complex reimbursement
- High costs of medications and different dispensing venues have created weird reimbursement ratios where some of the reimbursement comes from pharmacy benefit and some comes from medical insurance
- As you can imagine, this creates a convoluted reimbursement process which means that the time to reimbursement goes up and causes headaches for dispensers and patients alike
- Limited supply programs
- As if having a life-threatening chronic disease isn’t terrifying and anxiety-inducing enough….health plans may require you to get your life-saving medications twice a month
- Companies state this is a necessity because of “waste”
- Waste includes things like people not taking drugs for side-effect intolerability along with…people dying and not being able to use the remaining drugs
- I’m not making this up (seriously check it out)
- Required dispensing channels
- Because the plans haven’t developed a scalable model for providing mass reimbursements, plans have only negotiated with a few channels for dispensing the specialty medicines to control their reimbursement costs
- What this really causes is additional stress, as highlighted by this well written New York Times article: “Specialty Pharmacies Proliferate, Along With Questions”
Overall, its not an easy process. But that’s sort of expected right?
It seems to me that everyone in the market is looking at specialty medicine through the same filter they look at regular pharmaceuticals. I can’t really blame them either. With these hugely improved drugs coming out, the consumers would be outraged if insurance companies took too long to properly develop the infrastructure for paying for them even if their out of pocket costs might have looked different. Despite this initial rush to force specialty drugs into our current healthcare infrastructure, I believe that the true solution is in complete restructuring.
Specialty drugs require more R&D investment, more manufacturing investment, more distribution investment and more investment in patient support services. As I pointed out in the financial analysis earlier, the average drug costs for specialty drugs are more than ten times the non-specialty drug costs. This is an order of magnitude greater demand on a payment structure that was struggling to keep up before specialty medicines came out. With more patients requiring prescription coverage as a result of the Affordable Care Act, and predictions of specialty medicine comprising up to 50% of drug revenue as early as 2018 (Investor’s Business Daily); an entirely different perspective is required.
In the U.S. drug prices reflect not only the cost of the drug, but a portion of the R&D costs of new drugs as well. R&D activities are further subsidized directly by the U.S. government. As pointed out by Clayton Christensen in “The Innovator’s Prescription,” generic drug manufacturers in countries that don’t subsidize R&D have found a way to run viable clinical trials at costs up to 40% less than the big US brand names. Our brand name manufacturers have gotten lazy. With few constraints on research budgets, they aren’t concerned with running at their highest efficiency.
Drug manufacturers should start playing their long-term game
- Work on reducing costs in manufacturing, develop smooth channels for distribution.
- Developing a super-efficient supply chain will help them avoid falling off the patent cliff when their new specialty drugs go off patent
- Focus should be kept on developing a competitive advantage in drug discovery and clinical trials
- Another key to keeping generic drug manufacturers at bay is to have another ace in the pocket.
- Even if sales of off-patent drugs were cannibalized by generic manufacturers, another drug would provide a new revenue stream
The world of specialty medicine is a young and developing one, but it’s looking more and more like this world is the whole new world for the pharmaceutical field. It’s important to understand the trends developing and prepare oneself in any pharmacy setting to deal with the issues these drugs will introduce. For now it may be scary, but my advice to everyone is:
Go boldly into this new world. Armed with data, you can achieve anything.
- Thomas Walters – Xcenda
- Caroline Quinn – PharmD Candidate University of Michigan
Thank you all for reading! Please check out these resources for further reading on Specialty Medicines:
- UnitedHealth Specialty Trends Report – great analysis of trends from a large PBM perspective
- EMD Serono Specialty Drug Digest 2015 – more general trend analysis – they have great visuals in there also!
- Managed Care Article – managed care perspective on specialty medicine
- ASHP National Drug Trends – overall prescription drug spending trends
- IMS Health Specialty Trends Analysis – does a better job of explaining their analysis IMO