Another commentary from the National Blue Cross Consortium. As I mentioned in prior posts, large claims are on the rise. Last year, Blue Cross paid their first individual claim for more than $15M, and the frequency of claims over $1M tripled from 2010 to 2015.
Specialty medications are a real focus area. There is a soon-to-be-released new drug which addresses genetic optical defects at a cost of more than $1M for a single course of treatment. The average oncologist accounted for $6M to $10M in specialty spending in 2015. Setting of care is critical. By 2018, 50% of drug spending will be for specialty medications, and much of this will shift from the retail pharmacy to the medical side of the ledger. It is much less expensive to deliver medication at retail – and out-of-network provider-administered medication is far less costly at home than in the hospital. Yet, with hospital and other provider consolidation, up-charging for medications is an important profit center.
CMS, who administers the government’s programs, just took a whack at cost controls, limiting reimbursement in selected zip codes from the old formula of Average Sales Price (ASP) plus 6% to ASP plus 2.5% plus $16.50. In addition CMS proposed to pay 100% for cost-effective medications and 80% if CMS designates the drug as not cost-effective. CMS pays for about 50% of chemotherapy pharmaceutical cost and 40% of all other specialty medications. And foreign sales aren’t going to help much to defray manufacturers’ costs either. Harvoni, the nearly $100,000 Hepatitis C blockbuster treatment, can be had for about $900 in Egypt.
So, U.S. plan sponsors are going to be feeling the impact of these rising costs and have to put on their battle gear. Prior authorization for suitability and dosage has become relatively standard. Formularies and rebates steer to the most effective drugs. Many plans are turning to exclusive specialty networks to ensure consistent approval and dispensing protocols. With network design and steerage to in-network only providers, care coordination is facilitated and the pharmacy benefits manager is better able to control site of service.
80-85% of total medical spending is driven by physicians. So, the shift from fee-for-service to fee-for-value needs to start at the physician’s doorstep. Drug provider contracting is shifting to a flat profit percentage, and plans are incorporating specialty medication costs into performance based contracting for physicians. Pathways for best practices are facilitated with incentive payments. In one study, incentives increase pathway adherence from 60% to 80%, saving 8% of overall specialty spend.
Staying ahead of cost trends requires vigilance. These lifesaving and health improving advances are fantastic, so is our ability to keep paying for them.