The pharmaceutical industry's recent shift in focus from "small molecule" medications to specialty drugs — such as Gilead Sciences' hepatitis C drug Sovaldi — will likely have a significant effect on overall healthcare costs during the next decade, according to a Health Affairs study conducted by Duke University researchers.
Here are six things to know about specialty pharmaceuticals and their potential impact on healthcare spending, according to the study.
1. Specialty pharmaceuticals are novel drugs and biologic agents administered by injection or infusion. They require special handling and ongoing monitoring, and they are commonly identified as costing payers and patients $600 or more per treatment, according to the study. Specialty drugs treat a range of conditions, such as cancer, HIV, multiple sclerosis and rheumatoid arthritis.
2. Specialty drug spending in the U.S. reached approximately $87 billion in 2012, and that amount is increasing at 8.8 percent each year, which is double the growth rate of overall prescription drug spending. At its current growth rate, specialty drug spending could account for half of all drug spending by 2019.
3. The pharmaceutical industry could see specialty drugs as a way to offset the loss of revenue from brand-name small-molecule agents (such as beta-blockers and statins) losing patent protection, according to the study. Eight-six percent of U.S. prescriptions for small-molecule agents are now for generic medications, up from just 40 percent in 1995.
4. Although specialty drugs will likely improve quality of life and life expectancy for patients, they could also drive up healthcare costs, possibly leading to higher insurance premiums and out-of-pocket costs. For example, in a hypothetical scenario where every person covered by a particular health plan had a yearly out-of-pocket expense of $3,500 to cover premiums, the introduction of a specialty drug that costs $100,000 per treated patient would increase overall healthcare costs by $250 for every 0.25 percent of the population using the drug, according to the study.
5. The 340B drug discount program — which has stirred up considerable controversy in certain years — could provide hospitals with an incentive to acquire physician practices with high rates of specialty drug use, given that the hospitals and physicians could generate a significant profit by acquiring the expensive drugs at a discount and then charging patients and insurers the full price, according to the study (although groups like the American Hospital Association have vehemently denied 340B hospitals abuse the discount program for monetary gain). The acquisition of physician practices and shift to hospital-based care settings also means higher facility costs for patients and higher costs per treatment episode, according to the study.
6. Cost control mechanisms such as cost sharing for patients and the approval of biosimilar products to create price competition aren't substantial enough to adequately contain drug spending, according to the study. Other approaches are necessary, such as using preclinical biomarkers to identify target populations for clinical trials to cut drug development costs, according to the study.