Published in Health Care

Analysis finds escalating specialty drug costs more than offset savings from generics

BY Sunday, June 11, 2017 08:00pm

The heightened use of cheaper generic drugs has not been enough to stem the rising costs of prescription medication for Americans. 

While more than eight out of 10 prescriptions today are filled with generic drugs, the increased costs for brand-name and specialty drugs have risen significantly, more than offsetting any savings from 2010 to 2016, according to an analysis by the Blue Cross Blue Shield Association.

The cost of drugs protected by patents with no generic competitor increased more than 25 percent per year over the period, more than double the rate for all medications, and now account for 63 percent of all drug spending in the U.S. That’s more than double the 29 percent of all spending that patent-protected drugs accounted for in 2010, “and this rise shows no sign of leveling off,” according to the report’s authors.

The analysis from the BCBS Association, the umbrella group for Blues plans nationwide, provides further data on how rising drug costs and spending is becoming a larger part of the nation’s health care bill, quickly adding to the cost burden for employers that provide health benefits.

Without the price controls in the U.S. that other nations have, employers and health insurers that pay the bills are limited in what they can do to ease the growing burden.


However, employers should embed care management into their pharmacy benefits for high-cost drugs to assure they’re used in the proper situations, experts say. Benefits packages should also encourage the further use of generics and drive a greater awareness on the part of physicians and consumers about the costs of certain drugs.

Many employers have already moved to multi-tiered prescription drug benefits with higher copays for brand-name and specialty drugs and lower copays for generics. The challenge for employers is how to manage the escalating cost of pharmacy benefits while still enabling employees who need a high-cost drug for a medical condition to get it.

According to Shannon Enders, a partner at Lakeshore Employee Benefits in Norton Shores, employers need to consider a key question in designing their benefits: “If I make that change, am I’m sticking it to this particular person?” 

Blue Cross Blue Shield of Michigan has a mobile app that members can use to look up the cost of a drug when a doctor is writing a prescription. If they want, patients can then ask for a lower-cost alternative that works for their particular medical conditions, said Jim Lang, vice president of pharmacy services at Blue Cross Blue Shield of Michigan.

“Our overriding goal is to make sure that we give members access to drugs and access at an affordable price,” Lang said. “It’s going to be a struggle to get back to affordability, but that’s our goal.”

Blue Cross Blue Shield of Michigan spent about $3 billion last year on member prescriptions filled at the retail level. That figure does not include the pharmacy cost for self-insured employers, or the cost of drugs administered to patients receiving medical care in a hospital.


On the horizon, Blue Cross Blue Shield of Michigan hopes to enable a “real-time benefit inquiry” for physician electronic health records systems, Lang said. For doctors ordering a prescription in an exam room with their patients, it would provide them with data on patients’ drug copays, the cheapest local pharmacy for them to buy the drug, and recommendations for alternative medications.

Technologies offering those capabilities continue to be tested around the U.S. and are probably a year or two away from the market as vendors work out interoperability issues with electronic health records, Lang said. The capability would better prompt conversations with patients on whether they can afford the drugs their doctor is prescribing and tell them when a lower-cost alternative will work just as well.

“It’s something I want to do. The industry wants to do it, but the technology is pretty new,” Lang said.

In an era of high-deductible health plans and tiered drug benefits under which consumers pay more out of pocket for their care, patients today need to educate themselves about costs. They also need to ask their doctors questions when they’re prescribed a medication, said Dr. James Forshee, chief medical officer at Grand Rapids-based insurer Priority Health.

Forshee believes patients are much more willing now to engage in that kind of conversation with their physicians.

“Those discussions are becoming more and more the reality as the costs of the care the patients receive starts to become more of the patients’ responsibility instead of just laying their insurance card down and everything’s covered,” Forshee said. “Now they recognize they have copays and deductibles. The patients are asking for that and the providers are becoming more aware of it.”


The Blue Cross Blue Shield Association survey shows that while the utilization rate for brand-name drugs declined from 34 percent in 2010 to 18 percent in 2016, their share of the total spend nudged up from 77 percent to 78 percent. That’s because of increased unit prices for brand-name drugs.

During the same time, the generic dispensing rate nationally grew from 66 percent to 82 percent. However, generics accounted for 22 percent of total drug spending in 2016, down just a single percentage point from 2010.

The Blue Cross Blue Shield Association report shows that drugs for skin conditions — psoriasis, eczema and acne — had an average unit cost increase of 30 percent annually from 2010 to 2016, the largest of any drug group. The unit cost for antiviral drugs grew 19 percent annually during the same period, and therapies for high cholesterol increased an average of 18 percent each year.

Of the top 25 drugs that lack a generic alternative, half are considered specialty medications that are years away from having competition, according to the association. Many more specialty drugs are under development and will come to market in the years ahead.

The growth in the overall spending on drugs in the U.S. to more than $300 billion annually is driven primarily by rising unit costs, according to Forshee.

“This increased rate of expense is not being driven by people using more drugs. It’s being driven, the majority of it, by the cost of the medications people are using going up significantly,” Forshee said. “We certainly have to get a better line of sight into why the costs of medicine are what they are and get in front of the unexplained costs and escalations that are going on.”


Priority Health spent a little more than $620 million in 2016 on pharmacy benefits for members who had prescriptions filled at the retail level, an increase of 5.6 percent over the prior year. Costs for specialty drugs alone rose 8.7 percent, Forshee said.

In a cost-saving measure, Priority Health has worked with pharmaceutical companies and third-party pharmacy benefits managers to negotiate rebates when a high-cost drug is ineffective for patients or causes them side effects that force them to stop taking it.

Using a value-based contracting approach, Priority Health in some instances has been able to negotiate up to a 50-percent rebate, Forshee said. 

“We’re really looking hard right now with a couple manufacturers to get into value-based contracts where if, after a period of time on a medication, a patient doesn’t respond and doesn’t get the results touted, we’ll have a rebate process or refund process on those,” he said.

Across the U.S., large employers answering an annual survey by Mercer reported a 7.9-percent increase in the drug benefit cost for 2017. That was on top of 7.4 percent last year and 8 percent in 2015.

Spending on specialty drugs increased 21.5 percent in 2015, according to Mercer. The firm projects spending on specialty drugs at the retail level by large employers to increase to $744 per member per year in 2020, up from $480 per member per year in 2017.

“This is not going to moderate soon,” said Lang of BCBS. 

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