How self-insured employers can mitigate risk in the face of a strong specialty drug pipeline

Consider this: a self-insured business owner employs a person that is diagnosed with cystic fibrosis. The employee is then prescribed a high-cost specialty medication to help manage the chronic condition. While the treatment is necessary to the employee’s health and well-being, the self-insured plan sponsor will likely need to cover the costs in perpetuity, which may cause a financial burden.

Specialty drug utilization is not expected to slow any time soon, as the volume of specialty claims continues to grow year after year. In fact, according to the 2021 State of Specialty Spend and Trend Report, there was an 8.3% increase in the average number of claims per specialty utilizer. What’s more, many newly approved drugs were developed to treat small populations or orphan indications and are thus very expensive, leading to growing concerns on the part of plan sponsors that they may be unexpectedly hit with a significantly high-cost claim.

When seeking a job, empowered consumers are challenging employers to supply competitive benefit packages, including pharmacy benefits plans. For instance, more than 4% of the population is already utilizing at least one specialty medication. We are currently in a highly competitive market for talent acquisition and meeting employee needs is imperative, especially knowing 19% of Americans ages 18-44 would seek a new job if their employer-provided benefits did not cover the cost of their specialty medications.

To attract and retain talent, employers do need to make sure they are providing a rich benefits package. However, given the increase in specialty drug utilization, it’s important for plan sponsors to make sure they are protected. This starts with understanding the financial landscape of the specialty drug market and the factors associated with over-utilization and developing key strategies to mitigate the risks of high-cost claims and the rising cost of specialty drugs.

Evolution of the specialty drug pipeline & increased utilization

Specialty medication development is growing rapidly. An average of 50-55 total new drugs are set to hit the market over the coming years, and according to a recent IQVIA report, specialty medications encompassed up to 80% of FDA approvals in recent years. Additionally, nearly 60% of novel drugs approved by FDA in 2020 were high-cost drugs to treat orphan diseases. With increased availability comes the potential for specialty pharmacy to lead in overall utilization and drug costs, ultimately impacting spend. In fact, in the last ten years, the total specialty-drug market spend has approximately doubled and is expected to hit $310 billion by 2023, and specialty prescription costs now account for 50% or more of plan’s total drug spending — up from 27% in 2010.

This growth in utilization has health plans and pharmacy benefits managers bracing for continued skyrocketing spend. While brokers and their self-insured clients still have to account for the use of generic drug costs in employer-sponsored plans, specialty drug options are dominating spend. In fact, just 1% of members drive 40% or more of most pharmacy plan costs, and one high-cost drug claim can have a dramatic impact on an employer’s budget.

Plan sponsors taking on the financial burden of specialty Rx

Managing costs and risks associated with specialty medication utilization can be a complex process. Specialty pharmacy can fall under medical or pharmacy benefits, but in some instances, there can be a dual approach with specialty factored under both benefits plans. Whether categorized under medical, pharmacy benefits or both, the cost of such treatments – particularly when unexpected – can take a significant financial toll on self-insured small to midsized businesses.

Such a burden can sometimes result in costs that are unmanageable for employers, leading them to seek alternative options to control costs. What can plan sponsors do to mitigate financial risks associated with specialty medications, without employees feeling the effects?

One option is to identify wasteful practices such as inappropriate utilization. Inappropriate utilization of specialty drugs has become more common place and even tops the list of concerns identified by plan sponsors. With this in mind, brokers can help their clients understand the biggest drivers of cost in their pharmacy plan by reviewing their pharmacy claims files and applying data analytics. This provides full visibility into what’s driving spend and helps identify potential risk areas, such as a high-cost specialty medication claim or high pharmacy utilization of unnecessary drugs. Employers also need to implement clinical oversight to ensure members start and remain on clinically appropriate treatments at the lowest cost available.

Additionally, self-insured employers need to ensure they have fair and transparent pricing. Prices for protected pharmacy brands are expected to decline 0-3% in the coming years. This, paired with the pressure biosimilars are putting on pricing, are helping to drive greater competition between manufacturers and payers. This can result in savings for plan sponsors if contracts are effectively negotiated.

Take action to mitigate financial risks before they happen

Implementing transparent contracts and clinical programs are key to proactively managing specialty spend. However, there will be times when a large claim still hits the plan. Thus, in addition, self-insured employers have an opportunity to further protect their business so a large claim doesn’t become catastrophic.

With stop-loss or excess insurance, self-insured businesses are equipped with a barrier of protection in the event of an unforeseen catastrophic claim. For example, an employee is diagnosed with hemophilia and needs a costly specialty medication to treat conditions. Instead of paying the full price of an expensive treatment, stop-loss insurance provides monetary reimbursement for costly drug claims after a predetermined amount is exceeded.

However, there are limitations to traditional stop-loss insurance, so it’s important for self-insured employers to consider supplementing with specialty-specific stop-loss.

While stop-loss insurance is designed with employer protection in mind, plan participants still receive the quality treatment needed. Pharmacy benefits experts are well aware of the growing concerns around specialty drug utilization, rising costs and how they can impact spend. That’s why it’s imperative brokers and consultants help their self-insured clients get in front of issues before they arise and protect themselves from the unknown by layering on specialty stop-loss insurance.

Paul Fortunato is the Senior Director, Clinical Initiatives, RxBenefits, and Product Owner, RxPharmacy Assurance. Paul has more than 25 years of experience in account management, having worked with middle market and national accounts employers and health plans in designing strategies to manage their pharmacy and medical pharmacy benefit.