Get Ready for a Surge in Costly Specialty Drugs

In recent years, spending in just about every area of the nation’s health care system remarkably has slowed. U.S. health care costs rose by just 3.7 percent in 2012, according to a report by the Centers for Medicare and Medicaid Services (CMS), marking the fourth consecutive year of slow growth. 

Even spending on prescription drugs has continued to slow over the past several years, largely because of the rise of cheaper generic drugs – and the expiration of patents of several big-name drugs, including Lipitor and Plavix. That allowed cheaper generics to enter the market.

Related: Hepatitis-C Could Wallop the U.S. in the Coming Decades

The one exception, however, has been spending on new innovative specialty drugs that are being rapidly cranked out by pharmaceutical companies to treat multiple sclerosis, rheumatoid arthritis, leukemia, and osteoporosis – even erectile dysfunction.

Since 2007, the cost of many of the brand names associated with those drugs has skyrocketed, according to a recent Bloomberg News analysis, with prices in many cases doubling and tripling. "While the consumer price index rose just 12 percent in the period,” Bloomberg reported, “one diabetes drug quadrupled in price and another rose by 160 percent."

The analysis was done in conjunction with Los Angeles based DRX, which provides software to compare health care plans. The study highlighted the extraordinary growth in cost of these drugs, both in percentage growth during the past few years and absolute costs.

For example, patients being treated with Cimzia for rheumatoid arthritis must pay $3,322 for two injections. A patient using Copaxone for multiple sclerosis must pay $6,072 for 30 syringes, according to the analysis. A single capsule of Viagra to treat erectile dysfunction costs $34.

For health care industry mavens who fret about long-term costs, the emergence of yet another high-profile specialty drug has many worrying.

Related: Insurers Scrutinize Drug Costs After $84,000 Sovaldi Surprise

Sovaldi, a new specialty drug manufactured by Gilead Sciences Inc. and approved by the Food and Drug Administration six months ago, offers huge advances in the treatment of Hepatitis C and guarantees a cure rate of 90 percent. But the medicine, which is getting a lot of attention, costs $1,000 per pill – or $84,000 for the obligatory 12-week treatment.

As many as 3.2 million Americans are infected by Hepatitis C and could benefit greatly from the new treatment. Still, the total cost of simply covering those people with the new drug would exceed the $300 billion that the U.S. currently spends annually on pharmaceuticals.

Sovaldi is just the leading edge of an extraordinary surge in specialty drugs that threatens to saddle consumers, health insurers, businesses and others with unprecedented and unsustainable costs – even as these drugs offer important advances in treating cancer, multiple sclerosis and other serious illnesses and disease.

“It’s not only unaffordable for the individual, but the system can’t absorb that much,” John Rother, chief executive of the National Coalition on Health Care, said Monday in an interview. “There are something like 200 specialty drugs in the pipeline. And if they’re all priced that way, that’s going to break the bank.”

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Rother and his group of business leaders, health care providers and some drug manufacturers launched a campaign last week to highlight the mounting cost of specialty drugs. Rother has urged pharmaceutical officials to find ways to reduce the cost of breakthrough therapie,s while continuing to cover companies’ research costs and compensate them for innovations that can save lives and reduce medical complications.

“We need to reward the innovation, but they need to keep it affordable,” Rother said. “We need a new model for pricing that better balances rewards for innovation with the need for affordability and accessibility for patients. I think it has gotten out of balance recently and that’s not going to be sustainable.”

For health insurers who must pick up the tab for many of these new drugs, Sovaldi is a cautionary tale of things to come. Karen Ignagni, president of America’s Health Insurance Plans (AHIP), the major health insurance lobby, was even more direct in her criticism of the rapid growth in the cost of specialty drugs. “When you look at the six-figure prices of specialty drugs, you come away with the conclusion that the pricing is anything that pharmaceutical companies and manufacturers can get away with,” she told CNN last week.

The chief spokesperson for U.S. drug manufacturers said recently, “It is penny wise and pound foolish to focus solely on the price of a new medicine while completely ignoring the value it provides to patients and the health care system broadly.”

Related: Has the U.S. Found a Cure for Rising Health Costs?

“Curing Hepatitis C not only dramatically improves patients’ lives, but has the potential to save the U.S. health care system as much as $9 billion per year by preventing expensive hospitalizations and avoiding thousands of liver transplants that routinely cost over $500,000 each,” said John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA).

Castellani took a shot at the insurance industry, saying that the increased attention on the cost of new medicines “is being fueled by the fact that we have an outdated insurance model that is forcing patients to pay an ever-growing share of their prescription drug costs.”

“Insurers are increasingly imposing unprecedented cost-sharing on patients that deters them from utilizing the medicines they need to manage – or even cure – their disease while covering the vast majority of costs of more expensive hospitalizations and services these medicines could prevent.”

Cara Miller, a spokesperson for Gilead Sciences, defended the drug's pricing in an emailed statement: “While Sovaldi greatly enhances the standard of care for Hepatitis C, it was priced such that the total regimen cost is equal to that of prior standard of care regimens.”

Joseph Antos, a health care expert with the American Enterprise Institute, said that both sides are being somewhat disingenuous. Drug manufactures are seeking to justify exorbitant prices on economic grounds when “there’s no exact science here at all,” while insurers, consumers and others resort to public relations postures that “have little to do with price negotiations."

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