Payers Know Little About Specialty Drug Spending

If you're interested in the specialty market, then you should download the 2012 Specialty Drug Benefit Report, a new report from the Pharmacy Benefit Management Institute (PBMI). (The report is free with registration.)

The report adds new insights into specialty drug management. Most noteworthy: Payers apparently know surprisingly little about their own specialty spending:

• 2 out of 3 employers and health plans lack visibility to specialty spend covered by a medical benefit.
• Almost 9 out of 10 don't know the medical benefit specialty drug trend for their own beneficiaries.

These survey data help explain why specialty pharmacy providers are increasing their role in managing and distributing specialty pharmaceuticals covered under a patient’s medical benefit. Payers’ ignorance is seen as a big business opportunity by Pharmacy Benefit Managers (PBMs), but could be a big risk for specialty distributors.

THE DATA

The 2012 Specialty Drug Benefit Report is based on self-reported survey responses from 122 employers and 60 health plans, TPAs, or insurance companies. There were 59 responses classified as “Other” (employer coalitions, consultants, PBMs, and others) and 50 respondents who (oddly) didn’t provide demographic information.

Given the results below, I asked PBMI for additional data on individual respondents’ knowledge level and job titles. Based on what they shared with me, the vast majority of survey respondents are in an organizational role where they (theoretically) should know about plan design and specialty spending.

THE PLAN WHO KNEW TOO LITTLE

As Figure 19 shows, about two-thirds of employers and health plans lack visibility to specialty spend covered by a medical benefit.

Here’s another more unexpectedly large area of ignorance: 85% of health plans and 88% of employers do not know the specialty drug trend under the medical benefit. (See Figures 31 and 32.) In contrast, specialty trend under the pharmacy benefit are readily available, both for individual plans and as industry-wide averages. See Is Caremark really better at managing drug trend?

The report doesn’t explain this sad state of affairs, so here’s my brief summary of medical benefit visibility challenges:

• Unlike highly automated, relatively standardized pharmacy adjudication systems, medical claims are submitted in multiple formats (paper or electronic), using multiple technology platforms.
• It is difficult to administer utilization management programs, because claims are submitted after a service has been administered, not in real-time electronic format. Plus, physicians are not big fans of insurance company oversight.
• Drug information is typically recorded using a Healthcare Common Procedure Coding System (HCPCS) J code, which can include multiple drugs of different package sizes. Newly launched drugs may lack a J-code for 12 months or more and be billed using a “not otherwise classified” (NOC) miscellaneous code, which lacks specific information about the product utilized.

THE BATTLE FOR CONTROL OF SPECIALTY DRUGS

The payers’ ignorance translates into a business opportunity for PBMs, and a business risk for specialty distributors.

Specialty pharmaceutical spending today is split nearly equally between a pharmacy benefit and a medical benefit, although the proportion varies dramatically based on drug and therapeutic condition. Here's Exhibit 56 from the 2011-12 Economic Report on Retail and Specialty Pharmacies:

In response to this knowledge and management gap, PBMs are promoting services to accelerate the shift from medical to pharmacy management of specialty drugs. Three examples:

• Express Scripts (NASDAQ: ESRX) launched Specialty Benefit Services to combine PBM and specialty pharmacy services with the management of specialty drugs covered under the medical benefit.
• Medco Health Solutions (NYSE: MHS) offers a service called Medical Channel Management to plan sponsors.
• CVS Caremark (NYSE: CVS) offers a Medical Benefit Management service aimed at oncology products paid via buy-and-bill under a patient’s medical benefit.

If the PBMs are successful, a shift from medical to pharmacy benefit coverage will minimize buy-and-bill and diminish the role of specialty distributors. As I note in New Data on Specialty Pharmacy’s Challenge to Buy-and-Bill, white bagging corresponds to the substitution of the specialty distributor-to-provider distribution channel for a specialty pharmacy-to-provider distribution channel.

This trend, which is encouraged by the lack of visibility into medical benefit spending, is bad news for companies such as AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK) See the 2011-12 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors for more details on specialty distribution.

Do payers really know this little about their own spending? As Cher Horowitz would say: Whatever.