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Biotech drugs beneficial but confound cost containment

May 11, 2004
Roberto Ceniceros
Crain's Business Insurance

Rapid growth in the price and availability of new specialty drug treatments is posing new challenges for employers’ cost-management efforts.

The medications, which typically are known as biotechnology — or biotech — drugs, are used to treat a variety of serious and complex medical conditions, such as multiple sclerosis, certain cancers, growth hormone disorders, hemophilia and infertility.

The new, expensive drugs are derived from biological processes and are considered specialty drugs. Biotech drugs are generally single-source medications, meaning that generic substitutes for them or other brand medications producing similar effects do not exist, and many must be injected, rather than taken orally. In addition, many of the biotech drugs are administered in physicians’ offices or medical centers, which can complicate the billing of drug benefits.

Such factors, coupled with the rapid emergence of biotech drugs, have made it difficult for employers and drug benefit managers to get a clear picture of how much health plan members are spending on specialty drugs, observers say. As a result, employers are having trouble determining how to manage their costs and to ensure they are optimizing employee health.

“It is a growing issue,” said Cynthia Kirman, director of pharmacy for General Motors Corp. of Detroit. “We are really struggling to figure out how to get more value for the dollars we are spending.”

The cost of specialty drugs has increased 40 percent per year over the past five years, according to the “2003 Drug Trend Report” from Medco Health Solutions Inc. The average annual cost of such drugs is $18,000 per prescription, but treatments can cost up to $250,000 per year, according to Medco’s report.

By comparison, the cost of nonspecialty drugs has increased 15 percent annually over the same period, said a spokesman for the Franklin Lakes, N.J.-based prescription benefit management company.

Biotech drugs accounted for about 8 percent of employers’ overall drug spending in 2003, said Eric Michael, co-leader for Mercer Human Resource Consulting’s national pharmacy group in Minneapolis. That percentage is increasing rapidly, though, and is expected to approach 15 percent by the end of 2005, he said.

One factor fueling that growth is the rapid increase in the number of biotech drugs on the market.

Nine biotech drugs received approval for distribution last year, while eight hit the market in 2002, Michael said. And more than 300 are awaiting approval from the Food and Drug Administration, he noted.

Also rising dramatically is the number of consumers who can benefit from new biotech drugs, according to Medco. While many such drugs currently treat conditions affecting tens of thousands of people, new drugs are emerging for diseases such as asthma and arthritis, creating millions of potential customers.

Playing catch-up

The good news is that the drugs often prove effective in treating severe medical conditions, said Michael Taylor, a principal for Towers Perrin in Boston. Consequently, they should help prevent some costly medical procedures and lengthy hospital stays, he said.

The bad news for employers is that, given the rapid growth of biotech drugs, cost management practices are playing catch-up, he said.

One significant problem is that, because biotech drugs in many cases are administered in physicians’ offices, such treatments often are billed to medical, rather than drug, plans. As a result, there often is no utilization management scrutiny of such treatments at the drugstore cash register, explained Taylor.

Furthermore, employers don’t always know exactly how much their employees spend for specialty drugs, he said.

Typically, when employees tap prescription drug benefits through a drugstore purchase, a point-of-service system relays data to the PBM or insurer within seconds. Claims managers can then determine whether the charge is appropriate for a specific drug, explained Steve Russek, vice president-product development, specialty pharmacy services, for Medco.

The POS system also relays safety information in “real time,” such as the possibility of adverse interactions with other drugs, Russek added.

But when doctors and other medical professionals bill health plans for dispensing biotech drugs, it can take weeks for the plan to receive the claim, he said. In addition, the claim coding often provides only vague billing information and may not specify the drug provided, Russek noted.

“A lot of times, it’s hard to tell what is being charged and what is being paid for,” he said. “Very few clients — both health plans as well as employers — really have a handle on what they are spending on the medical side. It’s very hard to get to.”

To help its health plan clients, Medco now operates an “integrated health care data warehouse,” which accepts and processes information from both network medical providers and pharmacies, Russek said.

The Web-based system helps the PBM analyze specialty drug charges, apply utilization and case management techniques, and evaluate plan members’ coverage for the pharmaceuticals, he said. It also allows for health and safety monitoring and intervention.

For self-insured employers, Medco helps identify whether a medical plan or a pharmacy plan should pay for the drugs as well as identifying their cost. In some cases, employers can save money by ensuring the drugs are provided through a PBM, if the specialty drug is available that way, rather than administered by a provider and paid for by a health plan, Russek said.

PBMs also are offering more biotech drug care management services to ensure patients understand how to properly use the new drugs.

For example, a PBM can help hepatitis C patients complete a costly 28-week pharmacy regimen, Mercer’s Michael explained. Because the medication makes some patients feel ill, they may be tempted to stop taking it, he said. But if a patient stops midway through the treatment and later decides to begin again, he or she must start the entire 28-week process anew, increasing costs. Through care management services, the PBM can intervene to ensure the patient completes the regimen.

PBMs also are helping employers coordinate payment of pharmacy and medical services for specialty drugs, noted GM’s Kirman.

But, “how do you optimize the medical side and pharmacy side so you optimize the care of that patient? That is really the question we are asking,” Kirman said.

Additionally, with medical providers playing a greater role in administering new pharmaceutical therapies, GM is questioning whether carving out drug benefits remains a viable strategy.

“Employers have been carving out pharmacy benefits for the last 10 years, so the question is, is that still a good model? … We are still trying to formulate that,” Kirman said.

Copyright © 2004, Crain Communications, Inc.