Specialty Drug Costs: Who Do They Hurt Most?

About eight out of ten adults in the U.S. claim that prescription drugs prices are unreasonable.  And there’s a good reason why. According to a 2021 RAND study, the U.S. spends more on prescription drugs per capita than most countries. In fact, U.S. prescription prices are 256 times higher than 32 countries combined. 

Specialty drugs are a primary driver of these rising prescription costs. According to AARP, the “average specialty drug price reached $84,442 annually in 2020, rising more than three times faster than the prices of other goods and services.” With “the cost for one specialty medication used on a chronic basis [now being] three times the average annual income for someone on Medicare,” states AARP’s executive vice-president and chief public policy officer, “[t]hese enormous price tags are driving prescription medications out of reach for many older adults, forcing them to choose between the medicines they need and other essentials like rent and food.”

Experts project that drug prices will continue to rise over the next decade at staggering rates, especially with the continued development of new specialty drugs. Currently, specialty drugs account for 53 percent of all prescription spending, driven by oncology and autoimmune drug therapies.

Looking ahead, drug prices are projected to “reach $380-400 billion in 2025, up from $359 billion in 2020.” Further, “[n]ew brand launches are expected to continue at record levels, and the 50-55 new active substances to be launched per year will contribute to about $133 billion in spending growth through 2025, slightly higher than the past five years.”

As a self-insured employer, a third-party administrator (TPA), or a pharmacy benefits manager (PBM), limiting costs is challenging, especially with such huge price increases. In this article, we’re going to explore specialty drug costs – the fastest-growing segment of pharmacy spend – and who these high costs hurt the most.

What Is Considered a Specialty Drug?

Drug formularies are segmented into tiers. For example, tier 1 includes generic drugs, typically the lowest cost. Tier 2 includes preferred named brand drugs, while Tier 3 includes non-preferred named brand drugs. It’s when we get to the top tier – and the most expensive tier – that specialty drug formularies appear. 

Although there’s no standard definition of specialty drugs (or specialty tier drugs), IQVIA and the Congressional Budget Office (CBO), specialty medications must treat a complex, chronic, or rare disease. Additionally, the drug must have at least four of the following seven characteristics:

  • Be high cost 
  • Be prescribed by a specialist
  • Be administered by a healthcare professional
  • Require special handling, such as refrigeration
  • Be paid for in part by a patient payment-assistance program
  • Be distributed a specialty pharmacy
  • Require monitoring or counseling 

The Centers for Medicare & Medicaid Services places medicines on the specialty tier if they cost more than $670 for a 30-day fill

Why Are Specialty Drugs So Expensive?

Numerous reasons exist for specialty drugs’ high prices. For example, manufacturing them is typically a complicated process. Additionally, they often require special handling, monitoring, and administration.

Let’s look at three specific reasons why specialty drugs are so expensive:

  • The research and development (R&D) costs of complex drugs are high, causing manufacturers to price these drugs to recoup part of their R&D investment. For example, according to the Congressional Budget Office (CBO), the pharmaceutical industry spent $83 billion in 2019, about 10 times that in the 1980s. These R&D costs are further magnified by the small population taking specialty drugs, causing R&D costs to stretch across fewer patients instead of R&D for more common drugs, stretching across larger patient populations.
  • Rarely do specialty drugs have a generic option available. Not only does this limit patients’ choices, but it limits market competition for that drug, keeping the specialty drug exclusive. According to a 2019 study, many brand-named specialty drugs will lose their exclusivity over the next few years as more generics and biosimilars are created.
  • Finally, plan sponsors are trying to reduce their pharmacy spend in their group health plans, often transferring much of specialty drug costs to the employee through coinsurance, making these drugs more costly in the hands of the patient.

How Do Specialty Drug Costs Impact Utilization?

The continuing development of innovative yet high-priced drugs “has intensified efforts by payers to manage use and spending and by pharmaceutical manufacturers to support patient access and sales. Payers are restricting drug formularies, requiring more stringent prior authorizations, and raising patient cost-sharing requirements,” as reflected in a 2021 study.

For example, as specialty drug costs increase, payers have restricted access to these drugs through prior authorizations and shifts in cost-sharing. These utilization management trends have cost the healthcare industry “approximately $93.3 billion in costs annually on implementing, contesting, and navigating utilization management.” Today, approximately one-third of large commercial payers impose restrictions for access to specialty drugs.”

And patients? They spend approximately $35.8 billion per year in cost-sharing caused by these increased utilization management trends.

Additionally, because of the shifts in cost-sharing and the high price of specialty drugs, not all patients take their prescriptions as prescribed. According to a 2021 study, 20 percent of prescriptions are abandoned and never filled, causing delays in treatment and potentially causing adverse health outcomes. According to the FDA, failure to take medications as prescribed can lead to increased health issues, hospitalization, or death. In fact, medication non-adherence can “account for up to 50% of treatment failures, around 125,000 deaths, and up to 25% of hospitalizations each year in the United States.”

Of course, that’s not to say that specialty medicines can’t positively contribute to utilization and outcomes. Specialty drugs reduce medical costs overall even if they are shifting costs to other players, such as patients. For example, if it would cost the insurer $500,000 over a patient’s lifetime to treat a disease that can be cured with a specialty drug, totaling $150,000 in lifetime costs, then everyone wins.

But things aren’t so clear-cut – especially in the healthcare industry.

Who Do Specialty Drug Costs Hurt?

High specialty drug costs can include a vast array of people, including those with lower household incomes, the disabled, employers, senior citizens, insurers, minorities, children, and the Medicaid and Medicare programs – to name a few. Let’s delve into three of these specific groups, seeing how high specialty drug costs impact them.

The Disabled

According to the advocacy group Protect Our Care, high prescription drug costs disproportionately hurt the more than 60 million Americans living with disabilities. With approximately 85 percent of disabled Medicaid recipients making less than $25,760, the high cost of specialty drugs is often out of reach. And, as we mentioned above, when drugs aren’t taken as prescribed, disabled individuals can see significant health impacts.

For example, for those individuals taking Humira for their rheumatoid arthritis, they’ve seen 27 price increases over the drug’s existence, making the drug one of the top ten most expensive popular name-brand drugs coming in at just over $9,000 monthly.

Senior Citizens

Senior citizens are also disproportionately impacted by the high cost of specialty drugs. Today, “[n]early 9 in 10 Americans over the age 65 take prescription medications, with many struggling with serious conditions such as diabetes, arthritis, and cancer.” Additionally, as many as 25 percent of seniors (or more than 10 million) struggle to afford their medications.

For example, the Kaiser Family Foundation recently found that half of all Medicare Part D drugs had average price increases of 3.5x the annual inflation rate for 2018 and 2019. Further, in January 2021, manufacturers increased prices on more than 830 drugs by an average of 4.6 percent, including 175 specialty medications.

Small Business Employers

Small business employers are another sector of the economy adversely affected by the high cost of specialty drugs. According to a 2021 national survey of over 1,000 small businesses, 89 percent of respondents stated healthcare is too expensive. Because of the high costs, nearly one in three small business owners providing health coverage have considered dropping it.

Moreover, more than 33 percent of small businesses providing health insurance have “changed or reduced their healthcare coverage as a result of their rising health costs,” and 15 percent “have reduced their workforce or laid off an employee as a result of their rising healthcare costs.”

When it comes to prescription drugs, “66% of small business owners surveyed say the current prescription drug market is not working and is in need of a major overhaul and 93% overall think the market needs changes.” Further, “82% say it’s time for the government to limit unjustified price increases to no more than inflation and 79% say lower drug prices will not hurt industry’s ability to develop new treatments and cures.”

How Can We Combat Specialty Drugs’ Rising Prices?

So, how can we address – and combat – these rising prices for specialty drugs? It will definitely take a concerted effort. However, it’s not an impossible task if you have the right tools.

One effective tool? Healthcare data analytics. For employers, for example, they can ensure that their employees are adhering to the prescription as written while avoiding prescription overfills through reviews of timely and actionable data.

Additionally, healthcare data analytics can help TPAs, PBMs, and employers find cost drivers and make drug formularies adjustments while helping to keep drugs accessible and affordable. By having the tools to track, measure, and address costly prescription spending, employers, TPAs, and PBMs can effectively minimize inefficient spending.

To help curb healthcare costs and increase adherence, make sure you have detailed, actionable data to help manage your pharmacy spend. With Xevant, you can identify trends in pricing and utilization, intervening with patient management solutions while saving you money. Whether you’re a PBM, TPA, or benefits manager, Xevant provides the data you need before you need it.

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Ashwin Patel

SVP, Data

Ashwin (Ash) has more than 20 years leadership experience in data warehousing and business intelligence practices within the healthcare sector. At Xevant, Ash leads the data and business intelligence teams and is responsible for future state expansion of Xevant data technology platforms and processes, partnering with the organization’s product teams to develop best-in-class products and solutions. Prior to Xevant, Ash was VP Business Intelligence for HealthSmart Benefit Solutions based in Irving, TX, a third-party administrator (TPA) of medical, pharmacy, and clinical data. Ash earned a Bachelor of Science degree in computer science and operations research from Leeds Becketts University in Leeds, England.

Sahily Paoline

Chief Pharmacy Officer

Sahily is a licensed pharmacist and expert business leader with more than 20 years of experience delivering high-quality clinical care, building and leading organizations, and staffing and motivating teams in the pharmaceutical and digital health industries. Sahily specializes in Clinical Program Management, Pharmacy Practice and Operations, and building and growing business. She is passionate about the use of data and technology in patient care and believes in a holistic approach to healthcare.

Megan Foster

Manager, People Operations

Todd Rode

VP, Revenue Operations

Todd served as an Artillery officer in the U.S. Army before a disability turned his focus to the business world. He’s carried a bag, led multiple sales operations and sales development efforts, and run a sales team in complex selling environments. The son of small business owners, Todd enjoys helping business leaders grow by using proven, repeatable processes. He holds a BS from the United States Military Academy at West Point and an MBA from the Kellogg School of Management at Northwestern University. Todd lives in Nashville with his wife. He spends as much time outside as possible and co-founded a brewery in 2019.  He’d love to tell you the full story over a pint sometime.

Marvin Roi Elvambuena

Software Development Manager

Marvin is responsible for all aspects of software development efforts at Xevant, including architecting and managing software solutions from the ground up. He brings with him a performance history of leading loosely defined enterprise software projects in rapid changing environments. He has previously worked in several industries such as HR solutions, insurance, shared services, and payroll and holds a BS in Information Technology with specialization in Web Development.

Greg Abram

VP Sales

Greg is a results-driven sales professional with more than 12 years of experience in the PBM and healthcare markets. As VP of Sales, Greg leads the Xevant sales team focused on growing revenue and expanding market reach. Prior to Xevant, Greg served in multiple leadership and growth positions with Myriad Genetics, Navitus Health Solutions, Catamaran, and CVS Caremark Corporation. Greg’s passion to create long-lasting, aligned partnerships has delivered tremendous value for PBMs, health plans, large purchasing groups, and fortune 500 organizations throughout the country.

Jaylyn Palmer

Chief of Staff

Jaylyn is a dynamic Chief of Staff who thrives on helping create workplaces that go beyond the ordinary to achieve a culture of belonging, empowerment, and improvement. Proving to be a culture ambassador, strategic advisor, and relationship builder, Jaylyn supports the organization with versatility and innovation. When she’s not wearing one of her many Xevant hats, you can find Jaylyn planning a party, attending live music and theater, or playing Dungeons and Dragons.

Jeff Weber

Chief People Officer

Jeff has extensive experience building and growing positive organizational culture that supports high performance, transparency, learning and growth. Jeff has implemented comprehensive talent strategy including talent acquisition, engagement, rewards, and recognition programs. Prior to Xevant, Jeff was the EVP People and Places at Instructure, a rapidly growing provider of the Canvas and Bridge learning management platforms focused on transforming online learning and employee development.Jeff also led the growth of the people function for Ancestry.com. Jeff holds an MBA with an emphasis in Organizational Behavior from Brigham Young University.

Scott Sorenson

Chief Technology Officer

Scott is an expert business leader with extensive experience scaling technology organizations. His experience includes technology leadership roles at Cedar Health Payment Solutions, Human Longevity, Inc., and 16 years at Ancestry where he was the Chief Technology Officer and played an integral role scaling the Ancestry family history business that hosts billions of historical records and serves millions of customers. He also led their technology organization as they transformed the business to include a world class consumer genomics product line. At Ancestry, Scott prepared the technology organization for an IPO and multiple PE transactions.

Daniel Telford

Director, Corporate Treasurer

Daniel is a financial professional with more than 15 years of financial and management experience. Having worked in multiple demanding roles including Business Banker, Licensed Investment Professional and Financial Center Manager, Daniel uses his experience to guide and inform his current role as Corporate Treasurer for Xevant. Daniel has led multiple complex cross-functional teams to sustained success in the financial services industry.

Griff McGee

Corporate Controller

Griffin is CPA and finance and accounting professional with more than 10 years’ experience in public accounting, internal audit, and consulting. Throughout his career Griffin has worked with clients to solve complex problems, improve and implement new processes and achieve public company readiness. Prior to joining Xevant, Griffin served in several audit and consulting roles with Protiviti, Change Healthcare, Genesco and Decosimo, CPAs.
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Gerrit Lemmen

VP, Rebates

Gerrit is an experienced leader in the PBM, Specialty and Formulary rebate markets. As VP of Rebates at Xevant, Gerrit is responsible for managing drug rebates through Xevant’s revolutionary pharmacy benefits platform. In his previous roles at Magellan Rx Management, Gerrit led highly respected commercial rebate operations teams and focused on increasing efficiency that enabled scalability and growth.

Mike Simmons

VP, Product Management

Mike is a true product champion & ambassador with 18+ years of experience in critical product launch, strategic branding, and delivering profitable campaigns that capture market share and create growth. His vision and skills for implementing integrated, high-impact, go-to-market strategies have proven to drive increased sales and an overall improvement of marketing programs. Mike’s ability to leverage business savvy in order to align management, data intelligence, and content management generate more informed business decisions resulting in enhanced revenue for progressive, enterprise organizations.

Laura Phillipson

VP, Client Experience

Laura Phillipson is a client management expert with experience managing client services teams. Her past roles include Sr. Client Services Executive for Navitus and over a decade of experience as a Certified Pharmacy Technician. Laura’s career in client relations spans nearly two decades. An avid sports fan, Laura excels in helping clients create a strong strategy with a competitive edge. Laura’s extensive background in both customer service and the medical field provides an ideal blend to lead client management for Xevant.

Chad Davis

Director, Compliance

Chad is a credentialed and strategic audit and compliance professional with more than 10 years’ experience assisting companies with achieving their business objectives through adept governance, compliance, and risk management. Prior to Xevant, Chad served in several auditing and accountant roles for Protiviti, Intermountain Healthcare, and First Data Corporation. He is a credentialed CISM and CISA and holds a BS in Accounting.

Erin Glenn

Director, Data Warehouse

Erin is 20-year data warehousing and business intelligence technology leader who has conceptualized, designed, and implemented ground-breaking data-centric technology solutions. She has solved big problems, delivered operational efficiencies, and increased productivity and cost savings throughout her career by delivering enterprise class data warehouses and business intelligence solutions.  Prior to Xevant, Erin served in multiple technology leadership positions with Hampton Roads Transit, MSN, The Port of Virginia, and Innova Systems. She holds a bachelor’s degree from the University of Hawaii.

Greg Heaps

Chief Marketing Officer

Greg is an expert marketer and innovative business builder specializing in launching and building high growth companies. As a founding member and on the leadership team of multiple venture backed tech startups, Greg has extensive experience in numerous markets including software services, health and medicine, commercial real estate, and consumer focused products. His primary motivation is driving demand and growth through an omni channel, go-to-market strategy. When Greg is not neck deep building an exhilarating business, he can often be found mountain biking, fly fishing, or carving deep powder on remote mountains.

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Jace Garfield

Chief Analytics Officer

Jason (Jace) Garfield, MSW has thrived in many industries ranging from data and information technology to foster care and mental health management. In his role with the Utah State Justice Commission, he helped publish medical research on drug effectiveness. Jason’s passion for technology and data automation paved the way towards innovations in identifying new to market drugs, tracking systems to identify clinical interventions, and data automations, resulting in millions in operational cost reductions. At Xevant, Jace leads every aspect of product operations and is responsible for a diverse team of technology experts.

Jason Hardin

Chief Revenue Officer

With 20+ years of sales and sales management experience in SaaS sales and professional services, Jason is a dynamic, performance driven leader with an exceptional record of achievement in motivating sales teams to exceed quotas, while ensuring client success.  Having led many organizations in the start-up, high growth, and emerging phases, Jason brings an entrepreneurial hunger to the sales, client success, and business development organizations with the ability to penetrate new markets, produce high growth sales results, achieve adoption and retention goals, and grow market share and revenue quickly.  

Jeff Lininger

President & COO

Jeff is the Chief Operating Officer at Xevant and is accountable for operational excellence at the company. Prior to joining Xevant, Jeff successfully applied his extensive, multidisciplinary expertise in building and scaling growth and service infrastructures within start-up, mid-market, and Fortune 500 technology and services companies. He has recruited and built new leadership and functional teams within operations, sales, marketing, product development, client success, finance, and HR. The success of these business transformations also contributed to a culture of increased accountability and empowerment, contributing to significant improvement in employee engagement and overall enhanced business performance. Jeff holds an MBA from Duke University’s Fuqua School of Business in North Carolina and a Bachelor’s Degree in Finance and Economics from Grove City College in Pennsylvania.

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Lindsay Jones

Chief Financial Officer

Lindsay Jones, CPA, is a financial executive with experience in start-up companies & mature enterprises. He has a proven track record of helping, leading, and enhancing executive management teams. He has worked with private equity groups and private investors to identify, analyze, and close acquisitions and divestitures of companies. He has founded two startup companies, owned his own business, and closed over $500 million in private and public equity and debt financing, in his twenty-year career. 

Brandon Newman

Chief Executive Officer

Brandon has a dynamic, 25-year leadership career spearheading several businesses with emphasis on growth, revenue, and sales performance. He has run many high-growth environments, including start-ups, turnarounds, and $1B+ dollar businesses. As a serial entrepreneur, he has a proven record of founding new businesses and advancing them through growth and acquisition, merger, or roll-up including ScripPoint, Veridian, and AviaraMD. He is the driving force for vision, new market strategy, revenue growth, technology development, and partner alliances.