The cost of specialty medications is one of the biggest challenges in healthcare. These drugs are highly profitable and since exact copies cannot be produced, patents are not as important. The profit stream to the manufacturer is essentially unlimited until a better or more disease-specific drug is created. Also, there are no real price controls – under present law, there is no price cap on these drugs and manufacturers have looked to the cost of alternative treatments for guidance (such as surgery or transplants) and priced these drugs based upon the potential savings for not undergoing the alternative treatment.

There has been a great deal of press about using “biosimilar” medications, which mimic the efficacy of biologically engineered drugs as closely as possible but at a lower price point.

When a conventional medication reaches the end of its protected patent life it is very straightforward – generic manufacturers create chemically-identical drugs at a lower cost, which gets even lower when multiple manufacturers use the same formulation and compete on price alone. Unfortunately, drugs that are biologically engineered cannot be precisely replicated and in fact, there are only 23 biosimilar drugs approved for sale in the United States with only 9 actually on the market. And even when a biosimilar is produced, the cost saving is not nearly as dramatic as those associated with true generic medications. So, while biosimilars have promise in reducing costs, payers need to have a lot of patience.

An even newer issue in the specialty medication category is gene therapy drugs.

These drugs are designed to treat conditions that may arise by altering DNA and RNA molecules to prevent the diseases from occurring. There are only a few of these available today, targeting diseases such as cystic fibrosis, HIV and hemophilia. No doubt, the cost offset associated with avoiding these illnesses will justify the high price tags – but the question of how and whether these drugs will be covered by health plans is yet to be resolved.

Viewpoints from Craig Hasday

Clearly, manufacturers are focusing on the tremendous revenue opportunities associated with specialty medications.

And plan sponsors are focusing on how to control these costs. Setting administration and quantity limits are two effective cost-containment measures, but more effective strategies are needed. One of my big concerns with government-provided healthcare is rationing these drugs; the easiest way to control these costs is to not cover the drugs at all. However, the life-altering and lifesaving implications are too important. As I have pointed out in the past, establishing government-led price controls might be a good compromise; however, care should be taken so that these controls don’t mitigate too greatly the profit potential that fosters innovation.

Health insurance costs continue to spiral, but with good reason – we are living longer and better lives. Hopefully, in the healthcare debate, we don’t lose sight of this reality.

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Craig Hasday

President, National Employee Benefits Practice