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Part 3: Protect Your Organization From Catastrophic Claims

By Wes Smith

Certilytics Senior VP for Advisory & Consulting

Specialty pharmacy is a hot topic these daysand for good reason. 

Plan sponsors are seeing more and more of their total pharmacy spend being attributed to specialty. Evernorth’s 2020 Drug Trend Report found that just 2% of their covered population used specialty drugs—but that this accounted for over half of total spend under the pharmacy benefit. 

With a robust pipeline of additional therapies on the way, some with multi-million dollar price tags, it’s unlikely this trend will reverse anytime soon. That’s why it’s crucial for employers to take proactive steps to get a handle on their population’s specialty drug spending. 

This is the third of three blog posts outlining concrete steps you can take to better manage specialty drug utilization. In this post, we’ll look at how best to protect your organization from catastrophic claims related to specialty pharmacy. The previous post discussed how to turn your data into action, and
our first post looked at questions you should be asking your health plan partner and other vendors. 

You can download the full report containing all three parts, here.

Protect Your Organization

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Once you’ve ensured your vendors and partners are taking proactive steps to manage specialty drug
spending, the final step is protecting your organization. 

Prior to the Affordable Care Act’s removal of lifetime limits in 2010, and annual limits in 2014, claims over $1 million were quite rare, as this was the typical plan limit. However, since then claims over $1 million have been on an exponential, near meteoric rise – with no end in sight. The industry is now seeing (and funding) claims in excess of $10 million on an annual basis. What would happen if your plan experienced a $5 million, $8 million, or $10 million claim? What kind of financial strain would this place on your organization? Now, more than ever, it’s imperative to put in place the proper safeguards to make sure a catastrophic claim does not become an operational risk. 

The most expensive drugs currently approved by the FDA are gene therapies, with price tags reaching
into the millions. Zolgensma, a cure for Spinal Muscular Atrophy, costs just over $2 million. That might
be surprising, but it’s a one-time curative treatment that can replace a recurring therapy (Spinraza),
which costs approximately $750,000 for the initial treatment and $350,000-375,000 per year thereafter,
for the life of the patient. 

There are over 1,000 gene, cell, and tissue-based therapies currently in development globally and undergoing clinical trials. The FDA expects to approve 10-20 therapies per year by 2025, and is actively staffing up to support this process. Of note, Valrox (or Roctavian) is expected to come to market soon and is currently estimated to cost between $2 million and $3 million. According to the manufacturer, this is
a bargain over the current regimen, as it can save up to $20 million over a patient’s lifetime. 

So how are these treatments being funded today, and what can you do to protect your plan and
organization?

Stop Loss (Reinsurance) Coverage

An overwhelming majority of self-insured groups carry stop loss coverage, or reinsurance on claims over a defined threshold. 

There are two basic types of stop loss coverage: specific (or individual), and aggregate. The former covers claim costs on an individual basis over a threshold, and the latter covers claim costs in aggregate for the whole plan over a threshold. In most cases, stop loss policies are structured to “mirror” the medical and pharmacy coverage, so there are no gaps in coverage. Generally, this helps to ensure that when claims come through over the limit, there is no concern over whether or not they are covered under the policy. 

There are, however, other types of exclusions to be aware of such as “lasers,” where a stop loss policy
will exclude a whole member, claims tied to a specific condition or therapy for a member, or claims up to a separately defined limit for a specific member. If you don’t carry stop loss insurance, now might be a good time to consider it. If your stop loss policy only covers medical, strongly consider adding pharmacy coverage. If you do have stop loss coverage but are unsure about policy specifics (e.g.,
mirroring, lasers, or other types of exclusions like high cost gene therapies), contact your stop loss
insurer, and, if needed, seek outside expertise for additional support.

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Part 3 of 3: Helping Employers Get a Handle on Rising Specialty Drug Costs

Health Plan Programs

Separate from stop loss coverage, some health plans are creating specific programs for gene therapy
coverage, administration, and member support. 

As of late 2019, at least one large national insurer began covering both Zolgensma and Luxterna (both mentioned above) under such a program. Plan sponsors can participate in the program for an additional fee (per employee or per member), and receive targeted direction and support from the insurer’s participating provider network before, during, and after administration. Both therapies require members to be pre-certified/pre-authorized for coverage. When opting into such a program, the plan
sponsor should coordinate with their stop loss insurer to ensure there is a clear understanding of who is
at risk for such claims, and eliminate any cost of duplicate coverage. Consider talking with your health
plan or PBM about what types of programs they are offering to help fund existing and future gene
therapy treatments.

New Funding Mechanisms

In addition to the options above, some industry experts are thinking completely outside the box. Entirely
new types of organizations are being conceptualized to support member access, care, and funding of
high cost specialty drugs like gene and cell therapies. 

One example is the Orphan Reinsurer Benefit Manager (ORBM) concept proposed in 2018 by a group of researchers at MIT. At the highest level, the ORBM functions as a carve-out entity supporting a predefined list of super rare and expensive treatments. All treatments on the list would be managed by the ORBM, which bundles the funding, administration, and care for the patient pre and post, all under one entity. This structure allows opportunity to serve multiple payers, maximizing negotiating power and economies of scale. It also enables outcomes-based contractual arrangements with manufacturers to hold them financially responsible and places priority on patient care and success – before, during, and
after treatment.

Conclusion

Managing specialty pharmacy is certainly a challenge but you’re not alone. New live-altering and life-
saving therapies have extraordinary benefits for the recipients but come with staggering price tags.
Some in the industry are deeply invested in persisting the status quo, but innovation is occurring everywhere, especially with specialty. Outcomes-based contracting is being piloted more and more.
Manufacturers are expanding need-based and amortization programs. Sourcing requirements are expanding rapidly, and payers are developing niche solutions for payment and care delivery. 

There is no single solution. Instead, the future will see the deployment of a multidimensional approach
which allows you to take back control: 

  • Integration – No more silos. Integrate your data across domains. Embrace new technologies to amplify your analytics, including AI and predictive modeling. Truly understand total cost of care.
    Analyze specialty costs at the claim, member, and provider level – not just in aggregate. 
  • Transparency – Demand clarity. Know precisely what you’re paying for, and what you’re getting,
    from each vendor. 
  • Accountability – From provider coding and billing, to member outcomes, health plan and PBM
    performance, demand more from your partners. Be aware of incentives, and hold each accountable using objective, mutually agreed-to success measures. 
  • Protection – Understand the risk you retain, and the risk you transfer. Evaluate new mechanisms as the marketplace evolves. Protect your plan, protect your organization. 

Armed with the right tools, techniques, planning and expertise, you can effectively manage specialty costs. Specialty pharmacy doesn’t have to be a nightmare. Deploy these tactics and get a better night’s
sleep.


You can download our full specialty spending report, including all three parts, here.

And if you’re interested in more information, check out our solutions for self-insured employers, our news & insights on specialty drugs and other top issues, or reach out at contact@certilytics.com to schedule a free consultation with our team of experts.