NCPA - National Center for Policy Analysis

Turf War over Who Can Fill Prescriptions

June 10, 2014

Drug therapies are becoming more complex and costly, as specialty drugs replace traditional drugs as the main component of drug spending, explains Devon Herrick, senior fellow at the National Center for Policy Analysis.

Specialty drugs are a term used to describe expensive drugs that treat life-threatening medical conditions. Cancer treatments are the most common type of specialty drug, making up one-third of the total. Another third of specialty drug spending goes towards drugs to treat rheumatoid arthritis, Crohn's disease, HIV and multiple sclerosis.

Specialty drugs have grown in importance in recent decades:

  • Twenty years ago, there were only about 10 specialty drugs available. Today, there are more than 300.
  • Specialty drugs comprise only 1 percent of all drugs prescribed, yet they are responsible for more than a quarter of prescription drug spending. By 2020, that figure is expected to grow to 50 percent.

The costs of these drugs range from $15,000 per year to $750,000 per year, and it is difficult to control costs because most of the drugs do not have substitutes. Because of the significant expense, health plans rely on exclusive preferred pharmacy networks to reduce costs and ensure the quality of these drug therapies. Preferred pharmacy networks allow drug plans to negotiate for the lowest possible prices, granting business to the firms that offer drugs at the lowest cost.

These arrangements also allow drug plans to demand quality-enhancing safeguards, which is important, because administering specialty drugs requires a high level of expertise that many traditional pharmacies lack. Many of these high-tech therapies require meticulous handling, stocking and storage, and the patients receiving the drugs require extensive monitoring.

Unfortunately, lawmakers have moved to restrict the ability of health plans to make these exclusive network arrangements. Many states have imposed "any-willing-provider" laws, which make it difficult for drug plans to exclude high-cost or low-quality pharmacies from their networks, reducing their bargaining power and hurting consumers.

The Centers for Medicare and Medicaid Services recently proposed to ban preferred networks, but it has backed away from that proposal for the time being. Lawmakers should avoid these protectionist policies, which raise patient and taxpayer costs while threatening drug quality.

Source:  Devon Herrick, "The Growing Turf War over Who Can Fill Prescriptions,", June 8, 2014.


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