Specialty Therapies Lose Special Status

Survey results say managed care is revamping the way it handles biologics
Sep 01, 2004

A burgeoning pipeline of expensive biologic products, many of which target prevalent, chronic conditions, has set off alarm bells in health plans across the country. Payers face great pressure from employers to rein in double-digit annual growth in healthcare premiums, and specialty drugs (infusions and injectables), which represent the fastest growing and fifth largest drug category, offer an attractive target for cost cutting.

To identify and track the key strategies that payers are using to gain greater control over their specialty pharmacy costs, The Zitter Group conducts a semiannual quantitative survey of 100 medical and pharmacy decision makers in managed care organizations (MCOs) about their use and management of biologic and injectable products. This article high-lights the survey's recent findings.

Rise of Specialty Pharmacies Until recently, health plans relied on physicians to manage specialty pharmaceuticals. Under a buy-and-bill arrangement, physicians managed drug selection, purchasing, inventory, and administration, leading to costs much greater than those for oral therapies. Physicians could bill at a premium well above their acquisition costs—and often above average wholesale price (AWP)—resulting in a steady and substantial revenue stream. In many cases, MD practices enjoyed greater purchasing power through manufacturers than did the health plans. For pharma companies, the physician represented the primary sales target.

For several relatively rare conditions (such as hemophilia) payers have long relied on specialty pharmacy providers (SPPs). These organizations have generally combined direct-to-patient drug shipments with home nursing services in order to ensure optimal care for the least prevalent conditions. Increasingly, payers have turned to their SPPs for more common conditions, such as rheumatoid arthritis and multiple sclerosis.

Purchasing products through an SPP represents a considerable and easy cost savings for payers. Not surprisingly, 78 percent of payers now use an SPP for some or all of their injectables, biologics, or oncology products. In the majority of these cases (70 percent), the specialty pharmacy arrangement applies to both medical and pharmacy benefits. More than 95 percent of MCO respondents indicated that they now expect to pay below AWP for drugs purchased through an SPP. Just under a third of plans (31 percent) report requiring their affiliated or network physicians to obtain products through their designated SPP—or accept a reduced payment.

Specialty Pharmacies This graphic highlights the estimated costs, benefits, and oversight levels of various specialty pharmacy providers compared with the traditional physician-reimbursement model.
The survey research suggests that through a combination of greater purchasing power, just-in-time delivery, and strong oversight, in the last twelve months, specialty pharmacy providers have reduced overall acquisition costs to a level that is 5-15 percent below AWP. For health plans that were previously reimbursing at rates above AWP, this translates into savings of up to 30 percent, with comparatively little required of them in return.

Indeed, the data show that the average reimbursement for physicians in the buy-and-bill environment has fallen to 14.21 percent below AWP, effectively equivalent to the Medicare rate for 2004. The use of SPPs, com-bined with the changes to Medicare reimbursement, create a very different environment for pharma, one in which a physician's product selection becomes increasingly revenue driven. More important, the significant savings captured by payers have come predominantly at the expense of physicians, through lower payments and mandatory vendor imposition. Future savings will increasingly come at the expense of manufacturers.

In Transition In addition, many SPPs offer highly specialized, condition-specific services, including case management, compliance monitoring, and disease management. Yet even with these offerings, SPPs still represent a savings for payers compared with the buy-and-bill model. (See "Specialty Pharmacies.") As might be expected, specialist physicians have complained, particularly when drug reimbursement represented a major revenue stream for them, as it does in oncology and rheumatology. Some plans (34 percent) have provided more generous nondrug payments to such physician groups to help ease the transition.

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