Blog Post: Will Specialty Drug Pricing Be The Straw? by Carolyn Pare and Brian Klepper

Over the next few years, drug manufacturers will unleash an unprecedented raft of new drugs into the marketplace. The good news is, there will be better “precision therapy” solutions for common problems, and products for problems that have never before had solutions. The bad news is that the price tags in the U.S. are breathtaking — even scandalous — and are often a high multiple of conventional drugs.

Drug companies argue that these new products are harder to develop and manufacture and worth the additional cost. But U.S. pricing is often three to 10 times that in other developed nations, and it’s safe to assume those sales are profitable. It’s tempting to conclude that drug makers charge exorbitant prices because few U.S. businesses apply the same rigor to buying health care that they do to everything else.

Concerned, engaged HR and benefits leaders from 17 Minnesota Health Action Group member organizations are mobilizing, having joined our exclusive Specialty Pharmacy Care Delivery Learning Network. Each participant has already committed hundreds of hours to becoming better educated so we can effect change in the marketplace in an informed, united way. The goal is to ensure that Minnesotans are receiving the right therapies, in the right place, at the right price, and at the right time.

As many people know, the Hepatitis C drug, Sovaldi® made headlines last year when a course of treatment was pegged at $84,000 in the U.S., crushing previous cost and use records. The same drug is priced at $900 in Egypt and $51,000 in France. U.S. costs for a powerful new cholesterol management drug, PCSK9, are expected to be $7,000-$12,000 per patient per year, compared with about $1,000 on average for conventional drug therapies. Given the number of patients who might benefit, the market for this one drug could easily reach $100 billion/year, or about 1/33 of what we currently spend on all U.S. health care. And, of course, this is not a cure but a maintenance drug, with annual, lifelong, recurring costs.

Hundreds of specialty drugs are in the pipeline, and, by 2018, their costs are expected to account for more than half of total U.S. drug spend, up from 25 percent in 2006. Spending on this category is currently growing almost 20 times as fast as non-specialty drug spending. Unless something changes, in a few years, we’ll spend more on specialty than on non-specialty drugs or, for that matter, on doctors. The likelihood that this trend could financially overwhelm health care purchasers is real.

It’s hard to know how employers and unions will cope with the new pricing. Purchasers might ask a couple questions. First, what additional measurable value will each new drug bring? This is hardly cynical; one recent study found that cancer drugs approved by the Federal Drug Administration over the past decade only lengthened life by 2.1 months, on average. Courses of many of these drugs cost in excess of $100,000. When most of us buy anything, drugs included, we want to know what tangible value we can expect. In health care, that value has proven elusive.

Second, what is the pricing based on? What cost components, exactly, make it more expensive to buy these drugs in the U.S.? What justifies Gilenya®, a multiple sclerosis drug, costing almost six times here what it does in Spain?

The battle over specialty drug pricing could come down to a standoff between drug manufacturers and purchasers. In the past, drug companies have had every reason to believe that employers and unions were too pre-occupied with other matters to mobilize around a problem like specialty drug costs.

Minnesota Health Action Group Members are here to say enough is enough…and we invite Minnesota employers of all types and sizes to join us as we strive to hold drug manufacturers and sellers accountable for rational pricing practices. The rest of the nation has always looked to us to lead the way in health care innovation, and it’s time for us to step up again.

But in every business, union and governmental agency, chief financial officers and benefits managers have been watching their specialty drug spending…and calculating. To their minds, excessive specialty drug costs could capsize their plans, making it untenable to maintain good health coverage without severely compromising some other important health plan benefit. Just as worrisome, these costs are substantially increasing their already heavy health care cost burden, cannibalizing profits.

It is possible that, in their zeal for ever greater profits, specialty drug manufacturers could finally lay on the straw that breaks the tolerance of the nation’s health care purchasers for excessive health costs. If that happens, almost certainly, health care will finally change.

Carolyn Pare is the President and CEO of the Minnesota Health Action Group. Brian Klepper is CEO of the National Business Coalition on Health.