What Happens When 6 Per Cent of the Population Needs Specialty Drugs?

Mar 07, 2018

pill-shadows-1200049You may have read news stories lately about the debate over who should cover increasingly stratospheric orphan drug costs. ‘Extraordinary’ circumstances are often cited. But are they really? Maybe―on a granular level. Certainly, by any measure there aren’t many people who suffer from rare diseases. But let’s pull back for a broader look and see how, in the pharmaceutical industry, the extraordinary could become alarmingly commonplace. We’ll also look at how this trend’s effect can be grievous to employee benefit plans, both to plan sponsors and ultimately to members.

It’s true that the ‘circumstance’ or incidence of patients suffering from rare diseases is well, rare and even extraordinary. In fact, in Canada the number of those with rare diseases is miniscule and places many zeros to the right of the decimal point as a percentage of the population.

Orphan drugs treat these patients’ conditions, so-called because the number of potential patients is too small to attract pharmaceutical investment. Although these days that term may be something of a misnomer because increasingly, the label is ‘specialty medication,’ perhaps better reflecting the now significant and highly profitable place in the industry. The question is why and how did this come about? Not surprisingly, it’s complicated.

In an astonishing flip, interest and investment in these medicines has gone from a lackluster ‘meh’ with a waif-like moniker to blockbuster status representing the highest proportion of all new drugs brought to market. In the last year alone, specialty drugs in the United States comprised close to 70 per cent of FDA approvals and there’s no slow-down to that trend in sight.

Through a mishmash of tech innovation, patent issues, government incentives and regulations, along with the nature and interests of for-profit companies, these medications are now shockingly expensive and enormously profitable. What happened? In fact, it’s not a far trickle-down journey from catastrophic drug development to public plans and insurer carriers looking to take a pass on the high cost risk, to downstream where the fallout hits your benefit plan. Consider a few things.

First, this is a new world where the risk is unlike any seen before. For instance, in Long Term Disability (LTD), the risk in pricing pressures, driven predominantly by sustained low interest rates and complex claims with an underlying mental health component, is manageable. This is because claims are ‘reserved and contained’ and plan sponsors can easily press reset.

In contrast, this is not the case on a recurring catastrophic drug claim. There is no similarly effective containment strategy for runaway drug costs, which leaves sponsors and members increasingly vulnerable. 

Given this, it’s fair to wonder about the scope of the risk. In one, maybe two, words: wildly significant. The most recent Canadian Life and Health Insurance Association (CLHIA) Facts reports that while specialty drugs make up only 2 per cent of the total number of drug claims, the percentage of costs is now 30 per cent and predicted to rise to 40 per cent within three years. 

If this is the case, the numbers of patients and per cent of specialty drug claims is relatively low and seemingly stable, so isn’t the risk to any one plan similarly minimal? And why is the percentage of costs climbing so dramatically? In part, the number of rare diseases is growing, hence more specialty drugs, but it’s more complicated than that, which brings us to the second point: the increasing trend to off label use.

‘Off label’ refers to the expanded indication use of drugs whose initial entry to market is usually for one specific treatment or indication. This practice quickly and dramatically widens the scope, reach and costs of each approved drug over its patent life. The problem of ballooning costs arises when these scripts, estimated as high as one third of all prescriptions, are for specialty drugs with sky-high prices that don’t deviate from the originally approved pricing for rare diseases.

One example that highlights the risks from increasing off label use and illustrates the CLHIA’s statistics is the new specialty drug Ocaliva, recently approved for use in treating a rare liver disease. Its manufacturer is also seeking approval from Health Canada for off label use in a far broader scope of patients (close to 6 per cent of the population) with a more common liver disease. If the application is successful it will take an annual spend from just under $500 million to best case projections of many billions. Who will pay? The public plans don’t want to and neither do insurance carriers.

Some plan sponsors seem unaware of the context in the steep incline in drug costs. Others who see the change are slow in adapting and are reluctant to introduce mitigating changes to their plans. Although there is no direct containment strategy as with LTD, there are some tools which you may have read about previously in this space.  Making some of these adjustments may help to protect your plan against a sudden decrease in pressure.

Don’t be caught off guard or lulled by semantics—a back off in pressure sounds like a good thing until you realize it means there’s been an explosion. For these and many other reasons, trusted advice is more important than ever in managing highly complex and costly drug benefits. Protect your plan because increasingly, the rare and the extraordinary is starting to look very ordinary. And these days that means exploding drug costs.

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