The Specialty "Carve Out"
Aug 2020
Why are we talking about how to better manage specialty spend?
Because things are nuts.
In the last two decades, specialty medication’s percentage of total drug spend has skyrocketed. In 2004, specialty accounted for 19% of drug spending in the US. By 2019, it represented 47.7% of employer pharmacy spend, despite serving only 2% of the patient population.
This trend shows no signs of slowing. 69% of the 2020-2022 pharma pipeline will be sold through specialty channels.
A 2020 survey found that the number one concern of large employers is managing high-cost therapies. High-cost therapies are certainly a part of the problem. Between 2014 and 2018, there was a 40% increase in the average cost of specialty drugs. In 2019, the gene therapy Zolgensma, approved for treatment of a rare condition in children called spinal muscular atrophy, became the most expensive drug ever with a list price of $2.1M.
But last year, the major source of growth in employer specialty spend was not drug prices. It was increased utilization.
More specialty medication was prescribed across the same populations. There were two reasons for this. New therapies were approved for rare diseases that previously had no treatment options. And existing therapies were approved for use in new indications, making them relevant to a greater number of members. The result was that more people were prescribed medication, or the same people were prescribed more medication.
How did we get here?
A quick digression, because we think it is interesting:
Specialty’s growth as a category is the result of the shift in pharmaceutical R&D efforts away from small molecules and primary care conditions towards precision medicine, including biologics, and rare diseases.
There were compelling commercial reasons for this pivot. Historically, rare diseases have been unserved or underserved because, by definition, the patient population is small. In 1983, Congress passed the Orphan Drug Act, which guaranteed eligible drugs a seven year market exclusivity, even if not under patent, and tax credits up to 50% for research and development expenses. “Orphan” was defined as diseases with a population less than 200,000 in the US, with some caveats. The aim of the legislation was to encourage development for these indications and it succeeded.
In addition to being underserved therapeutically, rare diseases are also less understood. Therefore treatment objectives, and what constitutes a medication’s efficacy, are not as well-defined. This can be an advantage for a manufacturer seeking FDA approval because, while the treatment must show some therapeutic benefit, it may not need to achieve a preset benchmark. In certain situations, for medications meeting an “unmet need,” the FDA may grant approval based on preliminary data with the requirement that the manufacturer conduct additional confirmatory studies of clinical benefit and outcomes.
Moreover, if first to market, the treatment faces no price competition. In the US, where drug pricing is largely divorced from cost-effectiveness analysis, the only relevant question is what will the market bear? The answer: very high prices. Year after year, this ceiling is reset even higher, now into the millions of dollars.
This results in the dynamics you currently see in the specialty setting: very expensive drugs, many which offer only minor improvements in quality or duration of life for the small group of patients who respond to the treatment.
So, specialty is nuts. What can we do?
The number one question we hear is: Should we “carve out” specialty?
90% of the time, what is really being asked is: Should we hire a specialty-only vendor to manage specialty medications that are currently managed by our PBM? Occasionally, employers are also wondering, should I have my PBM manage the specialty medications currently billed under medical benefits?
The “carve out” is a hot topic because both specialty pharmacy managers and traditional PBMs are promoting it, in slightly different forms.
Specialty pharmacy managers want to take over the management of specialty medications currently managed by traditional PBMs. Traditional PBMs want to take over the management of specialty medications managed by medical benefits. So the “carve out” question is actually two distinct business arguments under one name. Here’s our perspective on each:
1. Speciality pharmacy managers takeover of specialty pharmacy
Specialty pharmacy managers argue that specialty is a channel for complex medications and the 1-2% of members with complex conditions that require intensive, expert management to control the rapidly rising costs. It’s an argument that appeals to human instinct. The more complicated and high-stakes something is, the more often we turn to a specialist over a generalist. In many cases - whether it’s surgery or electrical work - the narrowness of focus is reassuring. They know how to do this, they do it all the time.
We think this argument is half right and half wrong. Specialty does require a system of high-touch utilization management that most PBMs are not equipped to do. This management is critical to preventing waste in this category, by closely managing upfront drug, dose and site selection, as well as monitoring adherence and response.
But we believe it’s a mistake to silo specialty management - that you lose something of real value when you narrow the management scope to only specialty medication. Specialty and non-specialty (retail, mail order) are intertwined channels with interrelated claims. Patients utilize both channels simultaneously, without distinguishing between them. Having one manager across these channels enables a holistic view of member behavior that prevents unsafe or overly complex prescribing. We also believe that for members and employers one vendor relationship is better than two.
2. Traditional PBM management of medical specialty
This carve out is less of a hot topic right now but still one that comes up in many conversations with employers.
The advantage of this carve out, according to PBMs making this pitch, is that it offers a holistic view of medication management by consolidating specialty and pharmacy under one vendor. This is certainly true.
However, these PBMs also claim that they will lower drug prices because of their strong purchasing power and ability to negotiate pharmaceutical rebates. While traditional PBMs are well-positioned in these two respects, whether this translates into savings for the employer depends entirely on the degree to which these savings are passed on. In many cases, employers actually achieve lower rates by purchasing through medical benefits and taking advantage of medical pricing.
Our primary concern with this carve out is the conflict of interest. In recent years, acquisitions and vertical integrations have resulted in many PBMs owning specialty pharmacies. For example, CVS owns CVS Specialty and Express Scripts owns Accredo Specialty. These PBMs disproportionately benefit from any volume through these channels. In fact, Drug Channels estimates that in 2019 one-third of PBM total gross profits came from specialty pharmacy dispensing. Owning your own specialty pharmacy is a structural disincentive to tightly manage utilization.
There are advantages and disadvantages to each of these carve out models. The specialty pharmacy manager is equipped to intensely manage the specialty channel, but lacks visibility into and continuity across non-specialty pharmacy benefits. The PBM has cross-channel integration but also a conflict of interest when it comes to closely managing utilization speciality utilization.
The best of both worlds
(aka: time for self-promotion)
We can do better.
Utilization management is at the heart of our business. We’re intense about it. We can manage specialty utilization as well as any specialty pharmacy manager because we manage all utilization - specialty and non-specialty - as if it is specialty.
Our criteria is evidence-based, leveraging clinical practice guidelines, peer-reviewed publications and real world evidence. It is continuously updated by our team of in-house pharmacists based on the latest evidence. (Read more about our best-in-class utilization management) We translate this robust research into practical criteria that underpins all of WithMe’s programs and interactions.
Criteria - how smart it is and how it’s used - is a major part of the equation. But affecting real behavior change comes down to relationships. You cannot optimize utilization to improve health outcomes without being able to influence human behavior.
What we’re far better at than traditional PBMs and specialty pharmacy managers is building relationships with members. Our engagement model includes a team of experienced pharmacist Guides with the time and training to build relationships that take the full context of a member’s experience into consideration as we help to resolve their problem. This is exactly what high-cost complex care members want and it’s exactly what employers looking to manage utilization need. (We’re excited to share the details of this engagement model with you in next month’s newsletter, so stay tuned.)
At WithMe, we are proud to be conflict-of-interest free. WithMe Health was built with the mission of aligning incentives in the value chain. To this end, we have eliminated relationships that create conflicts of interest. We do not own specialty pharmacies or non-speciality pharmacies. We do not benefit in any way when utilization increases.
Finally, we think integrated management across speciality and non-specialty channels is a real asset to the employer, including those speciality medications managed under the medical benefit. We advocate to manage these claims too, but to leave the purchasing under the TPA / Health Plan.
Let us tell you more.