Specialty drugs are known to be restricted, targeted, and capable of significantly improving the health or even curing individuals with serious diseases. However, these pharmaceuticals are also universally associated with restrictions and high costs.
Most estimates find specialty spend under the pharmacy benefit to represent more than half of total specialty spend. According to an annual Drug Trend Report, CVS Caremark found that specialty medications accounted for 52 percent of drug spend in 2020.
Specialty drugs are so costly because they are designed to treat chronic, complex, or rare conditions. They often require close oversight and special handling, including supervision by specialists.
Unfortunately, the growing number of conditions treated by specialty drugs, coupled with tighter regulations, pose certain challenges for payers. Before implementing changes in benefit coverage, it is important to understand the controls that medical carriers have in place to manage the cost of specialty drugs under the medical benefit. Learn more about pharmacy benefit and medical benefit drug claims and the key differences between them.
Key Differences Between Pharmacy Benefit And Medical Benefit Drug Claims
Pharmacy benefits and medical benefits are two common terms that refer to health coverage benefits. Medical benefits, also known as “Major Medical,” is what most people simply refer to as their “insurance” or the coverage they have to pay their health care costs. Specialty drugs can sometimes be covered by this benefit depending on how a provider chooses to acquire the medication and administer it to patients.
Pharmacy benefits typically refer to medications that patients can self-administer at home or have administered at a health facility or provider’s office. Medications that are covered under a pharmacy benefit may be injectable, oral, infusible, or topical drugs like lotions or creams.
The many complexities involved in medical benefit drug claims make billing for clinical care difficult for most pharmacies. Hospitals and physician offices often have full-time staff dedicated solely to medical billing and coding. Most pharmacies do not have the staff required to complete these tasks efficiently.
Billing the medical benefit for clinical health care can be a time-consuming endeavor and most pharmacies do not have these resources. Expanding into clinical care is an opportunity for pharmacies to provide more health care options to their community.
Pharmacy Benefit Claims
Medications are processed and billed differently under pharmacy benefits compared to medical benefits. These differences affect the efficiency and approach used when managing specialty drugs under each benefit type. For example, most pharmacy benefit claims use standard, consistent processes for identifying drugs using an 11-digit National Drug Code, or NDC-11. Claims are typically processed in real time using pre-service editing to ensure pricing accuracy at the pharmacy-negotiated discount.
Pharmacy benefit management contracts involve the negotiation of specialty pharmacy fee schedules and are defined at the drug and specialty pharmacy level. Rates are generally negotiated based on a percentage of the average wholesale price (AWP) for brand medications or a maximum allowed cost (MAC) for generic medications. On a weekly basis, drug reference pricing databases are updated to ensure that AWP unit costs accurately reflect current drug market rates.
The cost of medications via pharmacy benefit can differ significantly from medical benefit. Medical drug rebates are typically seen as pennies on the dollar compared to medications dispensed under pharmacy benefits which have stronger access to rebates via formulary management. Infusion drugs are dispensed using medical benefit due to supplies needed for infusion which are not typically dispensed through retail pharmacies.
Currently, most specialty drugs are being processed through medical benefit; however, it can be difficult to accurately track drug spend as many employers outsource this task to pharmacy benefit managers (PBMs). Costs are expected to shift more towards the pharmacy benefit side as more self-administered specialty medications are approved. This has already been a trend in respiratory disease, rheumatoid arthritis, and hemophilia.
Medical Benefit Claims
Medical benefit claims are generally submitted electronically in the days or weeks following the administration of a drug to a patient. Post-service editing for accurate pricing may be used selectively based on claim cost, depending on the medical carrier. The way in which medical carriers enforce claim-based utilization management controls can vary considerably. The Healthcare Common Procedure Coding System (HCPCS) identifies drugs billed under a medical benefit.
HCPCS codes are not specific to package size, manufacturer, or strength, unlike the NDC-11. A recently launched product can take many months or even years to receive a unique medication class-specific HCPCS code. Until a code has been assigned, a product is grouped under a “not otherwise classified” (NOC) code, such as J3490, J3590, or J9999. The lack of an HCPCS code can result in problems like data barriers for effective claims pricing, utilization management programs, formulary controls, and medical claim rebate administration.
Certain steps have been made to address this issue. For example, government programs like Medicaid and Medicare require facilities and physicians to submit NDC-11, HCPCS, and other billing units or unit quantities on medical claims for drugs. Some medical carriers have taken the cue from Medicaid and Medicare and now have the same requirements for their commercial plans.
Today, many specialty drugs are processed through the medical benefit, meaning there is often a lag between administration and billing. In comparison, specialty drugs that are processed via the pharmacy benefit are generally billed in real time.
With Medical Advancements Come High Costs
Specialty drugs continue to grow both in percentage and number of drugs dispensed, and this growth is not expected to slow anytime soon. As plan sponsors continue to struggle with soaring specialty pharmacy costs, PBMs and health plans are always on the lookout for new ways to manage costs. Over a five-year period, the total U.S. expenditures for specialty drugs almost doubled from $83 billion to $157 billion, according to a Growth Trends in Rare Disease Treatments Institute Report.
Ongoing advancements in biotechnology have resulted in the development of new specialty drugs. These medications act at a cellular level to alter the course of disease instead of simply treating symptoms. Specialty drugs are often the most effective, and sometimes the only, treatment for certain conditions and illnesses. Due to their complexity, these medications often require considerable patient education, active clinical management, strict monitoring requirements, and sophisticated logistical support.
Due to increased use and higher prices, spending on specialty drugs represents a growing share of total health care costs. These medications are also often limited in distribution, adding to their steep cost. There are several driving factors when calculating specialty drug costs, including the following:
- Complicated dosing regimens
- Smaller patient populations, meaning greater cost among fewer patients
- Difficulty in manufacturing, distribution, and administration
- Resource-intensive handling and dispensing procedures
- Limited generic substitutions available
- Requires mitigation and risk evaluation strategies
- Limited distribution networks
- Complex billing with an increase in prior authorizations
- Requires monitoring, diagnostics, and additional services
- Adherence issues may affect outcomes
The economics of specialty drugs continue to limit their distribution and use in the healthcare industry. In response, many stakeholders are searching for ways to better manage costs to allow these critical drugs to reach the people that need them while maintaining financial viability.
Questions You Should Ask To Assess the Robustness Of Your Medical Benefit Specialty Drug Management Program
Contract rates for medical benefit drug costs can vary based on a wide range of factors, such as discounts or markups on the wholesale acquisition cost (WAC), the average sales price (ASP), and AWP. Medical benefit drug costs can also depend on bundled rates that combine medical services and the cost of specialty drugs.
After gaining a solid understanding of the differences between pharmacy and medical benefit drug claims, it is important to assess the strength of the medical benefit specialty drug management program. There are several questions that should be asked to make this determination, including the following:
- How are specially drugs processed under the medical benefit? Do all medical benefit drug claims require NDC-11 or HCPCS drug identifiers and quantities?
- Are there adequate utilization management and claims edits established to ensure that medical benefit drug claim pricing is accurate?
- Is step therapy or prior authorization established for medical benefit drugs? Are these elements coordinated with a prescription drug plan?
- Are there programs in place to take advantage of copayment maximizers, foundation assistance programs, or pharmaceutical manufacturers that could help offset plan and patient costs?
- Is there a formulary with drug product preferencing that is inclusive of biosimilars with the medical benefit?
- Is there an established process for using the least restrictive and most cost-effective site for health care needs? Is this element a component of the prior authorization review process?
- Are there any other strategies in place to address waste and manage utilization?
- Are rebates received based on a health plan’s utilization? How are rebates passed back to the plan?
- What is the health plan’s medical specialty drug cost? How have programs helped manage this trend?
- What case management and care programs have been established for patients that use specialty drugs under the medical benefit? How do the programs affect outcomes, quality, and the total cost of care?
Work With New City To Get More Information
Managing specialty drugs is much more complex than managing traditional pharmaceuticals. Medical benefit management has several added challenges, such as limited visibility into drug spend, lack of automation, fewer checks and balances, and the timeliness of claims.
When approaching specialty drug management, it is important to work with a professional who is knowledgeable in this area. For more information about addressing a specialty drug management program, reach out to the experienced business consultants at New City Insurance.