In­sur­ers, providers push back on high-priced spe­cialty drugs

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20% an­nu­ally be­tween 2012 and 2014 with price in­creases driv­ing two-thirds of the growth, the phar­macy ben­e­fit-man­age­ment com­pany Ex­press Scripts es­ti­mates.

Drug­maker Sanofi, which re­cently pur­chased Gen­zyme, the maker of Cerezyme, told the New York Times in Novem­ber it would dis­count its new col­orec­tal can­cer drug Zal­trap by half af­ter doc­tors at Me­mo­rial SloanKet­ter­ing Can­cer Cen­ter in New York de­nounced its $11,063 per month price tag on the news­pa­per’s op-ed page. The on­col­o­gists, not­ing it pro­vided scant im­prove­ment over ex­ist­ing ther­a­pies, said it was “no longer ten­able” to over­look cost.

“Soar­ing spend­ing has pre­sented the med­i­cal com­mu­nity with a new obli­ga­tion,” they wrote. “When choos­ing treat­ments for a pa­tient, we have to con­sider the fi­nan­cial strains they may cause along­side the ben­e­fits they might de­liver.” Sloan-Ket­ter­ing is not alone in re­ject­ing drugs whose value doesn’t jus­tify their cost. In Ari­zona, Ban­ner Health last year added an eco­nomic re­view to its clin­i­cal ap­praisal of for­mu­lary drugs. “As more and more ex­pen­sive drugs come out, you have to look,” said Denise Erick­son, clin­i­cal phar­macy pro­gram di­rec­tor for Ban­ner, which owns and op­er­ates 22 hos­pi­tals across seven states.

Last year, the Utah-based Selec­tHealth in­surance com­pany paid $1 mil­lion to pro­vide just five pa­tients with the crit­i­cal en­zyme-re­place­ment drug Cerezyme, which when used over a life­time pre­vents the en­larged or­gans, frag­ile bones and height­ened can­cer risk of a rare ge­netic dis­or­der known as Gaucher disease.

En­ter the com­pe­ti­tion. Af­ter get­ting ap­proval from the Food and Drug Ad­min­is­tra­tion for an alternative called Elelyso, Pfizer priced its en­try in the tiny mar­ket—only an es­ti­mated 5,000 pa­tients world­wide suf­fer from the disease—at roughly $12,500 a month or $150,000 a year. Selec­tHealth, which has seen costs for such spe­cialty drugs rapidly climb, will now start pa­tients on the less ex­pen­sive op­tion.

But that’s scant con­so­la­tion to ei­ther in­sur­ers or the pa­tients they cover, who in­creas­ingly must pay more of the bill as health plans shift a greater share of the costs onto house­holds.

Elelyso is among a grow­ing num­ber of costly en­trants in the high-priced spe­cialty drug mar­ket, where the drugs to treat life-threat­en­ing, chronic or rare dis­eases can run $300,000 to more than $400,000 a year. An­nual price hikes for ex­ist­ing drugs for th­ese small-pop­u­la­tion dis­eases and other spe­cialty drugs are eas­ily out­pac­ing both in­fla­tion and the price in­creases in other seg­ments of the re­tail drug mar­ket.

For the drug in­dus­try, price in­creases on spe­cialty drugs have largely off­set rev­enue losses from the grow­ing use of gener­ics. And in­dus­try an­a­lysts say the large num­ber of spe­cialty drugs in devel­op­ment will ac­cel­er­ate spend­ing in the sub­sec­tor in the years ahead.

Man­u­fac­tur­ers de­fend the high prices in the niche—com­prised of drugs for dis­eases with at most 200,000 pa­tients or treat­ments for can­cer or other com­plex dis­eases—by say­ing their devel­op­ment de­mands hefty in­vest­ment and in­volves sig­nif­i­cant risk. Drugs are priced ac­cord­ingly.

Yet the strat­egy has its lim­its. Spe­cialty drugs’ rapid price escalation is prompt­ing push­back at some hos­pi­tals and physi­cian of­fices, and has prompted de­bate over whether the man­u­fac­tur­ers’ price points are jus­ti­fied.

“They are coming out priced lit­er­ally at what the mar­ket will bear,” said Anne Jacques, vice pres­i­dent of phar­macy mar­kets for High­mark, a Pitts­burgh-based in­surer with 4.1 mil­lion en­rollees.

Man­u­fac­tur­ers see a lu­cra­tive op­por­tu­nity in the spe­cialty mar­ket, which lacks the pricelow­er­ing ef­fect of com­pe­ti­tion. The com­pa­nies ap­pear to be test­ing “who can be more ridicu­lous with the price,” Jacques said.

Spend­ing for spe­cialty drugs will in­crease

Jus­ti­fy­ing the costs

The sys­tem’s eco­nomic re­view uses drug in­dus­try and other models as well as in­ter­nal data to project the eco­nomic ben­e­fit for a drug, which in­cludes the price and other fac­tors such as po­ten­tial sav­ings from a med­i­ca­tion that pre­vents hos­pi­tal­iza­tion. Ban­ner re­cently agreed to in­clude a $4,000-per-vial scor­pion anti-venom on its for­mu­lary us­ing the model, but re­jected Ofirmev, an in­tra­venous ac­etaminophen, for which the costs and clin­i­cal ben­e­fits did not jus­tify its use.

Blue Shield of Cal­i­for­nia, which spends roughly $200 mil­lion an­nu­ally on spe­cialty drugs, is ex­pected to tar­get spe­cialty drug spend­ing growth in pi­lot projects this year with the in­sur­ers’ ac­count­able care or­ga­ni­za­tions, said spokesman Steve Shivin­sky.

When spe­cialty drugs do com­pete, in­sur­ers say they have in­creas­ingly adopted strate­gies that of­fer in­cen­tives to doc­tors and pa­tients to choose the lower-priced alternative for com­pa­ra­ble med­i­ca­tions.

At Selec­tHealth, the in­surer’s phar­ma­cists

work with physi­cians to see if less-costly com­pet­ing drugs can be sub­sti­tuted for an ex­ist­ing med­i­ca­tion, said Eric Can­non, chief of phar­macy for Selec­tHealth, the in­surance arm of In­ter­moun­tain Health­care. If so, the in­surer may of­fer to waive out-of-pocket costs for pa­tients who switch. The in­surer also des­ig­nates the less-costly drug as the first choice for newly di­ag­nosed pa­tients, as is the case with Gaucher disease. “Our goal is, as more pa­tients come along, we get them on Elelyso and not on more ex­pen­sive Cerezyme,” he said.

In­sur­ers are also look­ing to ne­go­ti­ate price breaks ei­ther when com­peti­tors en­ter the mar­ket or with con­tracts to buy spe­cialty drugs through a sin­gle phar­macy for en­rollees and physi­cians.

But op­por­tu­ni­ties to wrest con­trol—or at least ex­ert in­flu­ence—over spe­cialty drug prices re­main lim­ited by the mar­ket’s unique prod­ucts and in­cen­tives, health pol­icy ex­perts and in­dus­try of­fi­cials said. Many spe­cialty drug man­u­fac­tur­ers face no com­pe­ti­tion, leav­ing in­sur­ers and pa­tients pow­er­less to shop around.

Other spe­cialty drugs, es­pe­cially in on­col­ogy, com­pete for pa­tients by em­pha­siz­ing con­ve­nience—sub­sti­tut­ing a pill for an in­tra­venous in­jec­tion, for in­stance. Or they tout the mi­nor dif­fer­ences in out­comes, such as drugs that only ex­tend life for a few weeks com­pared to the al­ter­na­tives.

Yet those im­prove­ments come at much higher prices, putting in­sur­ers and doc­tors in the dif­fi­cult po­si­tion of de­cid­ing for pa­tients whether the drug is worth the cost.

“It’s al­most like rub­bing salt on the wound,” said Dr. Michael Neuss, chief med­i­cal of­fi­cer at Van­der­bilt-In­gram Can­cer Cen­ter, Nashville. “It’s so un­fair to some­one who is fright­ened be­cause they have a se­ri­ous ill­ness. ... What price is too high to have a chance of liv­ing longer?”

Tak­ing the chance

For many, the hope that a drug could im­prove an out­come is enough. “We al­ways take the chance,” Neuss said.

Erick­son said Ban­ner’s eco­nomic re­view is too lim­ited to ap­ply to such drugs be­cause it can­not ac­count for the value pa­tients place on ad­di­tional time. Those choices are made be­tween a doc­tor and a pa­tient.

And when they opt for the ex­pen­sive new op­tion, pa­tients are more fre­quently fac­ing a huge fi­nan­cial bur­den. Health plans in­creas­ingly re­quire pa­tients to pay higher fees or a greater per­cent­age of the cost for high-priced drugs, a so-called fourth tier in value-based plans that re­quire pa­tients to pay higher co­pays for brand name drugs when gener­ics or cheaper still-on-patent drugs are avail­able.

Dr. Ed Peza­lla, na­tional med­i­cal di­rec­tor for phar­macy pol­icy and strat­egy in Aetna’s of­fice of the chief med­i­cal of­fi­cer, said the model has gained pop­u­lar­ity as in­sur­ers seek to curb pre­mium growth. How­ever, some plans are cap­ping the to­tal amount that pa­tients must spend on spe­cialty drugs.

Half of those with in­surance through an em­ployer that in­cluded fourth-tier drug ben­e­fits saw their spend­ing capped at a max­i­mum amount last year, a Kaiser Fam­ily Foun­da­tion sur­vey found.

The in­surance per­versely gives drug­mak­ers an in­cen­tive to price drugs high and pick up pa­tients’ out-of-pocket costs un­der fi­nan­cial aid pro­grams, elim­i­nat­ing any price sen­si­tiv­ity among pa­tients to con­sider lower-cost op­tions, one health econ­o­mist ar­gued. The caps ap­pro­pri­ately pro­tect pa­tients from cat­a­strophic ex­penses from such high-priced drugs and in­sur­ers con­tinue to cover the bulk of the drugs’ costs, wrote Pa­tri­cia Dan­zon, a pro­fes­sor of health­care man­age­ment with the Whar­ton School at the Univer­sity of Penn­syl­va­nia and a phar­ma­ceu­ti­cal con­sul­tant, in an 2010 ar­ti­cle in the On­col­o­gist, the jour­nal of the So­ci­ety of Trans­la­tional On­col­ogy.

On­col­o­gists also have in­cen­tives to stick with

higher-priced drugs un­der pay­ment models that pay doc­tors the av­er­age sales price plus 6% of that amount when physi­cians pur­chase the drugs. That may change un­der new pay­ment models that tie re­im­burse­ment to the over­all rate of health spend­ing. In­di­vid­ual re­im­burse­ment for drugs has been elim­i­nated un­der some con­tracts.

Pitts­burgh’s High­mark now buys many drugs for on­col­o­gists, which elim­i­nates di­rect re­im­burse­ment to the doc­tors and boosts the in­sur­ers’ buy­ing power with drug man­u­fac­tur­ers, Jacques said.

Dr. Rus­sell Hover­man, an on­col­o­gist and med­i­cal di­rec­tor of man­aged care at the US On­col­ogy Net­work and vice pres­i­dent of qual­ity with Texas On­col­ogy, said US On­col­ogy doc­tors ne­go­ti­ated con­tracts that pre­serve doc­tors’ mar­gins but tied those mar­gins to low-cost drugs, which saves money for in­sur- ers and pa­tients. US On­col­ogy, a di­vi­sion of McKes­son Corp., is the na­tion’s largest net­work of stand-alone can­cer cen­ters.

But a bun­dled-pay­ment ex­per­i­ment be­tween Unit­edHealth­care and one of US On­col­ogy’s med­i­cal prac­tices ex­cluded drug costs from the pay­ment model. Spend­ing for on­col­ogy drugs is un­pre­dictable, and be­cause prices are so high, spend­ing could soar and erode any mar­gin for the pay­ment bun­dle, Hover­man said.

Sky­rock­et­ing prices for spe­cialty drugs are pit­ting in­sur­ers, doc­tors and hos­pi­tals against the phar­ma­ceu­ti­cal in­dus­try.

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