Concern Over Rising Costs of Specialty Drugs

By Kim Smiley

The good news is that more and more specialty drugs that show promise for treating serious medical conditions are becoming available.  The bad news is that some of these drugs are really expensive, both for insurance companies and individuals.

The new issues swirling around specialty drugs are illustrated well by the new drug for treating hepatitis C from Gilead Sciences.  The new drug is a significant improvement over previous treatment with a higher cure rate, a shorter duration and fewer reported side effects, but it carries an equally significant price tag.  The pills cost $1,000 each with a typical course of treatment costing $84,000.  The pills are in high demand and Gilead has reported a record breaking $2.3 billion in sales of their new hepatitis C drug during its first full quarter on the market.  But on the flip side, UnitedHealth Group, one of the largest US insurers, has reported it has spent $100 million to cover the hepatitis C drug and had their stock prices decrease.

An insurance company losing money may not seem like a source of concern, but more of the burden of the cost of specialty drugs is being passed along to patients as insurance companies figure out how to deal with the high price of specialty drugs.  Some insurance plans require patients to cover twenty percent of the cost of specialty drugs and 20 percent of $84,000 is beyond the means of many patients.  And some specialty drugs are even more expensive.  Also, financially healthy insurance companies are also vital if they are going to provide medical insurance at prices people can afford.

So why are these drugs so expensive? There are a number of factors that make specialty drugs so expensive.  One of them is that they generally treat a condition that relatively few people suffer from.  When more people take a particular drug, the development costs of the drug can be spread out and recouped over a larger population making the overall cost less for each individual.  The opposite occurs when there are fewer people who will take a particular medication: the development costs are more concentrated, making drugs for less common conditions more expensive in general.

There is also not usually a generic alternative available for specialty medication.  Many of the expensive specialty medications are newer and still protected by patents so that generics can’t be manufactured.  Most specialty medications are also biologics, meaning they are derived from living organizations, and they can’t be duplicated.  Medications with generic versions available tend to be chemically-based and easier to replicate.

Only time will tell how specialty medications will continue to shape the healthcare system, but their presence is only likely to grow as more drugs are developed.  Solutions will need to be developed to allow patients reasonable, affordable access to specialty medications, but also keep insurance and drug companies in business.

To see a Cause Map, or visual root cause analysis, of this issue, click on “Download PDF” above.