NCPA - National Center for Policy Analysis

Specialty Drugs and Pharmacies

May 22, 2014

Many states have enacted drug regulations that force health plans to allow unqualified drug providers to administer specialty drug therapies, according to a new report from Devon Herrick, senior fellow at the National Center for Policy Analysis.

Americans spend $300 billion on prescription drug therapies annually. That is a large expenditure, but it is only 10 percent of total medical expenditures. Advanced drug therapies, or specialty drugs, are very important. They are high-tech, costly drugs that often require special handling, and stocking them requires a full set of protocols and documentation. Generally, these drugs treat life-threatening diseases, and they typically require monitoring. Often, they are administered in a clinical setting, rather than taken at home.

  • Cancer-treating drugs are the most common type of specialty drugs, making up one-third of total specialty drug spending in 2011.
  • Drugs for autoimmune disorders, rheumatoid arthritis, and Crohn's disease constitute 15 percent of specialty drug spending, medications for HIV account for 12 percent of specialty spending, and drugs for multiple sclerosis are responsible for 8 percent of specialty drug spending.
  • The costs of these drugs can be enormous, and a $15,000 annual drug cost is not unusual. In 2012, specialty drugs constituted just 1 percent of prescriptions but were responsible for one-fourth of prescription drug spending.

Specialty pharmacies that dispense these drugs are not at all like traditional pharmacies.

  • Because specialty drugs are often fragile, stocking and dispensing them requires sophisticated planning and complex distribution channels, and patients who take the drugs must often be monitored.
  • According to a recent survey, two-thirds of physicians agreed that "some" traditional pharmacies are competent to handle and dispense specialty medications, while three-fourths agreed that "most" pharmacies do not possess the expertise to manage complex drugs.

Drug plans reduce their costs by contracting with preferred pharmacy networks that agree to offer drugs at the lowest prices. But some state and federal lawmakers have called for new laws that would restrict the ability of drug plans to partner with these exclusive networks. 

  • While supporters claim these regulations would benefit consumers, not only do they weaken the ability of drug plans to negotiate for lower prices, but they impede their ability to manage prescription drug benefits safely and efficiently.
  • Without the ability to establish preferred networks, it is difficult for drug plans to ensure the integrity of their networks. Currently, specialty drug makers track shipments very carefully to prevent counterfeit drugs from entering the market. But having a larger number of entities to reimburse raises the likelihood that some of those firms might cut corners or issue counterfeit drugs without detection.
  • Because specialty drugs are so costly, unethical medical and drug providers might ignore warning signs that a discounted product is suspect, in order to boost their profit margin. Counterfeit drugs are a growing problem, and half of all drug expenditures worldwide are on American patients, making the U.S. a lucrative market for counterfeiters.

Source: Devon M. Herrick, "Specialty Drugs and Pharmacies," National Center for Policy Analysis, May 22, 2014.


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