Specialty Drugs and Pharmacies

Policy Reports | Health

No. 355
Thursday, May 22, 2014
by Devon M. Herrick

Patients benefit enormously from safe and effective drug therapies. Highly advanced specialty drugs and biological agents are increasingly used to treat rare diseases and disorders for which there were no treatments only a few years ago. Advanced drug therapies are very expensive, and often require special handling and extensive patient monitoring.

Executive Summary

Yet, many states have enacted regulations and ill-conceived public policies that force health plans to utilize drug providers who are unqualified to administer these exacting therapies. Not only do such policies boost patients’ costs, they also compromise safety and invite fraudulent providers who jeopardize the effectiveness of specialty drug therapies.

The Importance of Specialty Drugs. Specialty drugs are not a therapeutic class or an official designation of the U.S. Food and Drug Administration (FDA). Rather, the term describes some of the latest high-tech, costly drugs, which may require careful handling within the supply chain.

The cost of specialty drug therapies ranges from tens of thousands of dollars to hundreds of thousands annually. Specialty drugs comprise only about 1 percent of prescriptions. Yet spending on these drugs is about one-fourth of prescription drug spending. Up to 40 percent of the drugs currently under development are specialty drugs.

Where Do Patients Get Their Specialty Drugs? Specialty drugs require a level of experience and expertise that most drugstores simply do not possess. Stocking and dispensing specialty drugs often involves handling biological agents that are very fragile — often requiring complex distribution channels. For instance, many biological agents require sophisticated logistical planning — including climate-controlled shipping and meticulous storage — with specific protocols and documentation.

Specialty pharmacies are more highly involved in patient care than drugstores that merely dispense drugs. Patients who receive specialty drugs and biological agents require extensive monitoring, risk evaluation, mitigation strategies for side effectsand diagnostic support by a physician.

Physicians are in a position to evaluate the expertise and capabilities of the specialty pharmacy providers their patients patronize. In a recent survey, two-thirds of the physicians agreed that “some” traditional pharmacies are competent to handle and dispense specialty medications, but three-fourths also agreed that “most” pharmacies do not possess the expertise and capability to manage complex drugs.

Building Efficient Specialty Networks. Many specialty drugs have no close substitutes, rendering efforts to control costs by encouraging generic substitution largely ineffective. Plan sponsors also carefully manage distribution options, which may include weighing the merits of group purchasing organizations and special pharmacy outlets. As more health plans gain new members due to Affordable Care Act mandates, and more specialty drug therapies enter the market, plan sponsors are increasingly relying on narrow networks and formulary management. Due to these specialty medications’ high cost, health plans must carefully manage the procurement and dispensing of these drugs.

Overregulation of Health and Drug Plans. As preferred networks and exclusive pharmacy providers have become more common, so too have the calls for lawmakers to enact laws that restrict the ability of drug plans to partner with exclusive specialty networks. As a result, the losing bidders and firms who are locked out of the preferred networks argue for the increased regulation of drug plans in order to gain access to patients on specialty drugs. In other words, special interests want Congress and state legislatures to reduce the ability of drug plans to effectively negotiate for lower prices. Opponents of this practice argue that “open” pharmacy networks offer enrollees more choices and more convenience, and promote competition.

Although these regulations supposedly benefit consumers and promote competition, they actually weaken health plans’ ability to safely and efficiently manage prescription drug benefits. Tightly controlled pharmacy networks also allow better tracking by manufacturers of drugs that require specific or complex dosing and lab monitoring, which the FDA sometimes requires as a condition of drug approval. FDA monitoring requirements favor tightly controlled networks for safety reasons. Moreover, the Federal Trade Commission (FTC) agrees narrow networks are an effective means of cost control, where as any willing provider laws could raise cost for consumers.

State and federal laws can interfere with negotiations between drug plans, drug makers and pharmacies. Such consumer protection laws are actually costly to taxpayers, employers and patients. Nearly two-thirds of the states have some type of any willing provider or freedom-of- choice regulations that apply to drug plans. Nearly one-fourth of states have regulations specific to drug plans.

These regulations can inhibit drug plans from establishing the most efficient preferred network for specialty drugs and make it more difficult to ensure the integrity of their networks.The larger the universe of entities that drug plans are legally required to reimburse for specialty drugs, the greater the likelihood one of these firms could cut corners with drugs that have been mishandled, mislabeled — or are counterfeit.

Because specialty drugs are extremely costly, unethical medical (and drug) providers trying to boost their profit margins have a financial incentive to ignore warning signs that a product is suspect. Counterfeit versions of the cancer drug Avastin were able to enter the U.S. drug supply chain in 2012 mostly due to greed. According to an analysis by the Wall Street Journal, 400-milligram vials of Avastin were sold by an unknown (unauthorized) supplier for a $500 discount. This discount was enough to entice numerous providers to purchase the drugs, which later turned out to be counterfeit.

Restricting the ability of health plans to ensure safety, verify quality and hold down costs threatens patients’ safety and consumers’ wallets. Congress and state legislatures should avoid the well-meaning, but ill-conceived regulations intended to protect consumers, which often have the opposite result. A better way to ensure desirable outcomes is to promote a competitive environment free of market distortions that favor one party over another.

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