Specialty Drug Spending: Five Years Later, Where Are We?

Back in 2017, we wrote about a topic that vexes insurers and self-insured employers: specialty drugs. More specifically, we wondered whether specialty drugs are worth their high cost. Five years later, there aren’t any more conclusive answers about whether these drugs are effective enough to warrant sky-high prices—and in the ensuing five years, those prices have only gotten higher. 

There’s no denying that specialty drugs can be life-saving for some patients. (While “specialty drugs” isn’t a clearly defined category, generally these are medications that are used to treat rare and/or complex conditions such as cancer, multiple sclerosis or hepatitis C. They don’t have generic versions, are often relatively new to the market and are often prescribed by specialists when other medications have failed to control a patient’s condition.) But when insurers and businesses with self-funded health plans are looking at prescription drug claims for medications that cost thousands of dollars per month and aren’t necessarily working, that’s obviously a cause for concern.

Specialty Drug Costs: Then and Now

We have actually written about the high cost of specialty drugs a few times in the last decade. Looking back at those posts really highlights just how dramatically costs have risen in the last handful of years. Back in 2014, specialty drug costs accounted for 20% of prescription drug spending and could account for as much as 40% by 2019. Three years later in 2017, these drugs accounted for 1% of prescriptions but 32% of prescription drug spending. 

How about now? According to one report, specialty drug spending has outpaced the predictions. Using data from its 1,100+ pharmacy benefit management clients (representing more than 23 million covered people), CVS Health found that specialty drugs accounted for a remarkable 52% of pharmacy spending in 2020. 

The sharp rise in specialty drug spending is partly because more of these drugs are being prescribed, but it’s largely due to the rising cost of specialty drugs themselves. According to AARP’s Rx Price Watch Report, the average prices for 180 widely-used specialty drugs rose by 4.8% in 2020 alone. That report concluded that the average annual cost for a specialty drug used to treat a chronic condition was a staggering $84,442 per year. The prices for specialty drugs rose by more than three times the rate of general inflation in 2020. 

As for the question we posed back in 2017—are specialty drugs worth their high cost?—we don’t have any more conclusive answers today. Specialty drugs often fail to resolve a patient’s issues, or don’t have significant health results compared to traditional drugs. In that blog we discussed a 2014 study that concluded that specialty drugs “may still offer reasonable value for money” compared to traditional drugs. Unfortunately, no major research studying the cost-effectiveness of specialty drugs has been released since then. 

What Can Self-Funded Health Plans Do?

Self-insured employers with self-funded health plans need to be proactive about controlling their healthcare spending, lest they deplete their healthcare fund on just a few employees’ high-cost claims. Pairing a self-funded plan with stop-loss insurance is only one strategy for containing healthcare costs as a self-insured employer. Maintaining a stop-loss policy puts a cap on how much you can expect to pay for any one employee’s claims and on your business’s overall claims. 

Self-insured employers can also work with their pharmacy benefit managers and/or third-party administrators to tailor their prescription benefits. Knowing that specialty drug costs are only going to keep climbing, employers may want to revisit their stop-loss deductible levels or consider creating limitations on specialty drug coverage. 

Stop Loss Insurance Brokers, Inc. is here to help business leaders find the self-funding solutions that meet their employees’ needs without sacrificing their business’s financial future. As specialty drug costs continue to rise, self-insured employers have to take advantage of every resource they have to control healthcare spending. What questions do you have about self-funding and stop loss insurance? Contact me today!

Denise Doyle

Stop Loss Insurance Brokers, Inc. is your source for information about all things related to self funding. We are here to answer questions you have about stop-loss provisions, switching from fully-funded to self-funded insurance, or whatever else you may be wondering about around health insurance plans. Contact us today!


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