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What Makes Specialty Drugs Special?


Specialty drugs can produce miraculous outcomes for patients, providers, and health benefits leaders alike.

Specialty drugs are a challenge, a source of frustration for patients, providers, and health benefits leaders alike.

That’s the interesting thing about specialty drugs. The relatively new class of therapies has, in many cases, kept workers alive and productive in the face of dread diseases. But the improvement in productivity and quality of life has come at a sometimes jaw-dropping cost.

Further compounding the challenge, specialty drugs are proliferating and their use is growing. That makes benefits leaders’ budget-managing responsibilities increasingly more complex.

The Explosion of Specialty Drugs

Specialty drugs are prescribed to treat relatively small groups of patients, approximately two percent of the population with managed healthcare services. Examples include subsets of the population with certain cancers and auto-immune diseases. But their more limited use packs a financial wallop, and as more specialty drugs account for an increasing share of total prescription drug use, they consume a larger piece of the total health care dollar.

According to AARP’s 2021 Rx Price Watch Report, retail prices for 180 of the more commonly used specialty drugs jumped 4.8 percent in 2020, with the average annual cost for a single drug reaching $84,442.  That price was $20,000 higher than the median US household income of $65,712.

According to Nature Reviews Drug Discovery, the US FDA approval rate for new drugs is, on average, 51 per year.  Fifty-five percent of the FDA’s approved drugs in 2019 were specialty drugs, according to a Pharmacy Times report, and the percentage is growing.

In 2021, Milliman’s Medical Index revealed that the cost of prescription drugs increased 7.2 percent in 2020, the only segment of healthcare spending to show an increase over 2019.  Specialty drugs are the fastest growing cost segment in healthcare. According to the CVS Caremark annual Drug Trend Report, specialty medications accounted for 52 percent of total drug spend in 2020, with 98 percent of the increased specialty drug use driven by conditions with new specialty drug therapies and indications.

What makes specialty drugs “special”? There are several dimensions besides their cost.

Complex composition: Specialty drugs are medications featuring advanced technologies. As Jay Weaver explained, traditional medications are typically small-molecule drugs that can be made in a test tube to treat hypertension or diabetes, for example. Specialty drugs are more complex, as in biologics, which are large-molecule therapies made of proteins. The specialty drug treatments can mimic things our body makes itself and can rewrite body chemistry, which is a reason the medications are able to address previously untreatable conditions. The manufacturing process for biologics and other specialty drugs, however, is much more complex and time consuming, which contributes to the drugs’ higher cost.

A more comprehensive review of the differences between small-molecule and large-molecule drugs is presented by PharmaNewsIntelligence.

Administration by physicians: Due in part to their complexity, many specialty drugs are administered by physicians, either in the hospital, in a physician’s office or in a special outpatient drug infusion site. For example, Remicade is a specialty drug given intravenously to treat rheumatoid arthritis, Crohn’s disease and other conditions. Some specialty medications, however, can be self-administered as a capsule taken orally or as an injectable administered under the skin.

The variation in how specialty drugs are administered adds to their complexity and is a source of confusion for benefits managers. Assessments of the drugs’ full cost can be difficult when there are questions about how and where administration of the drug occurred and whether it should be covered as an inpatient, outpatient, or prescription drug benefit.

Reasons for the explosion of new specialty drugs.

Both scientific and economic factors are fueling the rapid growth of specialty drugs, according to Weaver.

  • From a scientific standpoint, advances in pharma technology have made it easier to create new medications, which has lowered the barrier to enter the specialty drug market. It is easier, for example, in working with biologics to insert genes into a fungus or bacterium to engineer different molecules. We now have the ability to use segments of RNA or DNA to create different proteins that will impact body chemistry and function.
  • On the economic side, the FDA has incentivized drug developers to bring to market products for previously untreatable conditions affecting small segments of the population. The manufacturers are able to charge higher prices to recover their investments. A high percentage of the specialty drugs in the FDA pipeline (upwards of 70 percent) are for very rare conditions. This creates massive spending for the sake of a small population.

Further, as new drugs come into the market, the number of drug classes for specific conditions grows. For example, roughly 100 years ago, insulin became the first drug used to treat diabetes. Today, we have nearly a dozen drugs to treat either Type 1 or Type 2 diabetes, and dozens of treatment regimens. And as the treatment options grow, competition grows. Having more drug classes gives manufacturers more opportunities to add even incremental value to any single class, and spending increases.

Where can benefits leaders turn?

The complexity, high cost and proliferation of new specialty drugs is a lot for purchasers to handle. To help manage this rapidly growing segment of healthcare spending, many payers have turned to pharmacy benefit managers (PBMs) and specialty pharmacies, in particular, to handle purchasing and distribution.

Additionally, benefits leaders, insurers, providers and other stakeholders are adopting other strategies to increase the cost-effectiveness of using specialty drugs. In our second blog on this topic (coming soon), Curally explores the growing efforts to improve the quality and cost of pharmaceutical care in the era of specialty drugs.