Is Your Specialty Drug Management Program Addressing 100% of Your Specialty Spend?

As an employer, complex prescription drug and pharmacy benefits language isn’t a part of your everyday vocabulary, making it harder to assess your plan’s true performance, especially when it comes to specialty drug management. We know you want the best for your employees, and that includes delivering a competitive pharmacy benefit. That’s why it’s important to understand how medical innovation is impacting your prescription drug management and spend.

We’re fortunate to live in a time of remarkable development and innovations in medical treatment and therapies. Advances in the understanding of the human genome, medical science, and pharmaceutical research innovation has led to:

  • Doubling of the hepatitis C cure rate to greater than 90% in less than half the time via oral therapy.1
  • Quadrupling response duration (the length of time a tumor continues to respond to treatment without starting to grow again) from 6 to 24 months in select patients with metastatic non-small cell lung cancer when treated with a combination of Opdivo® (nivolumab) and Yervoy® (ipilimumab), compared to standard therapy.2
  • Hope for retaining and restoring some vision via a one-time gene therapy injection in each eye with Luxturna® (voretigene neparvovec-rzyl) for individuals with a rare congenital retinal degenerative disorder.
  • A gene therapy treatment option for infants and toddlers with spinal muscular atrophy (SMA), which, if left untreated, generally leads to death before age 2. This treatment, Zolgensma® (onasemnogene abeparvovec-xioi), requires just one infusion.

These breakthrough medications are considered “specialty drugs,” which are high-cost medications used to treat complex, chronic, or rare conditions. Because of their complexity and hefty price tag, these medications often need special handling and close oversight by specialist health care providers. Specialty drugs may be covered under the pharmacy benefit, as is the case for the hepatitis C therapies, or the medical benefit, as is often the case for Opdivo®, Yervoy®, Luxturna®, and Zolgensma®.

With medical advances come high costs

The average cost of an 8-week course to treat hepatitis C is $34,000 or more in cases requiring 12 weeks of therapy, the annual cost for combination Opdivo® and Yervoy® therapy is more than $150,000, and Luxturna® therapy cost exceeds $850,000. Furthermore, the cost for a Zolgensma® infusion is a record-breaking $2.1 million.

The drug pipeline is full of specialty drugs that can provide hope for cures to those who previously had none. Globally, specialty drugs are expected to represent nearly two-thirds of newly launched medicines over the five years spanning 2019 – 2023, with oncology products representing 30% of newly launched medicines.It is expected that the median annual price for newly launched oncology products in the United States will be well above $100,000 by 2023.3

We know you work hard to find solutions to curb rising specialty drug costs and maximize the value of your pharmacy benefits plan for your employees. Especially if you’ve implemented the following programs:

  • Instituted formulary management with preferred products, prior authorization, and step therapy.
  • Deployed exclusive specialty pharmacy distribution channel arrangements with known product discounts and high-touch, disease-focused patient care programs.
  • Leveraged pharmaceutical company assistance programs via copayment maximizers and obtained specialty drug rebates.

So, your plan is in place, and you feel confident that you’ve covered all the bases to address rising specialty drug spend. But have you? Specialty drugs may be covered under the pharmacy benefit or the medical benefit. In fact, up to 50% of specialty drug spend may be through your medical benefit, meaning your current specialty Rx management program might only be addressing half of your specialty spend.

There are significant variations to know between pharmacy and medical benefit drug claims to ensure your current specialty management strategy addresses 100% of your specialty drug spend. Moving medical benefit specialty drugs to the pharmacy benefit may reduce spending but is not a viable solution for all medications and may result in lower care efficiencies.  Therefore, it’s important to understand the controls your medical carrier has in place to manage the cost of specialty drugs before making changes in benefit coverage.

Key differences between pharmacy benefit and medical benefit drug claims

Pharmacy Benefit Claims

Material differences in how medications are processed and billed under the pharmacy and medical benefits influence the approach and efficiency of managing specialty drugs under each benefit. For example, pharmacy benefit claims use consistent, standard processes for drug identification via the 11-digit National Drug Code (NDC-11). They are processed in real-time with pre-service (before dispensing) editing to enforce pricing accuracy at the specific pharmacy-negotiated discount and patient cost share/deductible status.

Specialty pharmacy fee schedules are negotiated as part of the pharmacy benefit management contract and defined at the drug and specific specialty pharmacy level. The rates are typically negotiated as a percentage of the average wholesale price (AWP) for brand drugs or a maximum allowable cost (MAC) for generic drugs.

Medical Benefit Claims

On the other hand, medical benefit claims are typically submitted electronically, days to weeks after the drug was administered to the member. Depending on your medical carrier, post-service editing to assure pricing accuracy may be used selectively depending on claim cost. There are also wide variances in how medical carriers enforce claim-based utilization management controls. The Healthcare Common Procedure Coding System (HCPCS) identifies medications billed under the medical benefit.

Unlike the NDC-11, HCPCS codes are not specific to manufacturer, strength, or package size. It takes months to years for newly launched products to receive a unique drug class-specific HCPCS code. Until unique codes are assigned, products are grouped under the “not otherwise classified” codes (NOC) of J3490, J3590, and J9999.

This lack of HCPCS specificity creates data barriers for efficient claims pricing, formulary controls, utilization management programs, and medical claim rebate administration. To address this, government programs such as Medicare and Medicaid require physicians and facilities to submit HCPCS, NDC-11, and associated billing units/unit quantities on medical claims for drugs.

Pharmacy vs. Medical Drug Claims

Unlike the pharmacy benefit, where there is consistency in the drug pricing reference (AWP) and updates, medical plans typically do not have a uniform drug pricing reference for drugs across all providers, facilities, and other service sites. Contract rates for medical benefit drug costs may be based on:

  • A markup or discount off the average sales price (ASP) published by CMS.
  • A markup or discount off the wholesale acquisition cost (WAC).
  • A markup or discount off AWP.
  • A percent of “billed charges” in which the provider or facility establishes their own drug reference price, or a bundled rate which combines medical services and the cost of the specialty drug.

This wide variation in drug reference pricing is one of the factors that motivated the development of site of care programs under the medical benefit. One survey reported an average savings of 23% for site of care programs focused on moving services away from hospital outpatient facilities (typically the highest cost site of care) to home infusion, ambulatory infusions suites, or independent physician offices.4

What to Ask of Your Medical Carrier?

Understanding the differences between pharmacy and medical benefit drug claims is the first step in determining whether your specialty management program only addresses a portion of your specialty spend. Now that you better understand the controls your medical carrier has over managing specialty drug costs, it’s time to assess the robustness of your medical benefit specialty drug program.

Here are 10 questions to ask of your medical carrier to ensure your current Rx management program addresses 100% of your specialty drug spend:

  1. What utilization management and claims edits are in place to ensure the accuracy of medical benefit drug claims pricing?
  2. How are specialty medications processed under the medical benefit? For example, are HCPCS or NDC-11 drug identifiers and quantities required on all medical benefit drug claims?
  3. Does the formulary under the medical benefit include biosimilars in its product preferencing?
  4. Is prior authorization or step therapy in place for medical benefit drugs? Is this coordinated with the prescription drug plan?
  5. Is there a process in place to use the least restrictive, most cost-effective site of care? Is this part of the initial prior authorization review process?
  6. Are programs in place to leverage copayment maximizers, pharmaceutical manufacturers, or other foundation assistance programs to help offset member and plan costs?
  7. Are rebates collected based on my plan’s utilization, and how are these rebates passed back to my plan?
  8. What other targeted strategies are in place to manage utilization and address waste?
  9. What care and case management programs are in place for members utilizing specialty drugs under the medical benefit? How do these programs impact quality, outcomes, and total cost of care?
  10. What is my plan’s medical specialty drug cost and trend, and how have your programs helped to manage the trend?

What’s Next?

Are you more confident in your ability to assess the robustness of your medical benefit specialty drug management program? Don’t compromise on a specialty management program that only addresses half of your specialty drug costs. Now is a great time to talk with your trusted benefit consultant to ensure that your specialty drug management program addresses 100% of your specialty spend, regardless of pharmacy or medical benefit coverage.


Reference List

  1. What is Hepatitis C – FAQ. Centers for Disease Control and Prevention. Published July 28, 2020. Accessed December 6, 2020.
  2. Center for Drug Evaluation and Research. FDA approves nivolumab plus ipilimumab for first-line mNSCLC (PD-L1 tu. U.S. Food and Drug Administration. Accessed December 6, 2020.
  3. The Global Use of Medicine in 2019 and Outlook to 2023. IQVIA. Published January 2019. Accessed December 6, 2020.
  4. Medical Pharmacy Trend Report. Magellan Rx Management. Published 2019. Accessed December 6, 2020.

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