Specialty Drug Costs—Strategies to Win the Inflation Battle

How is inflation affecting the healthcare space overall?

Inflation is the silent killer in any economy. An inflated monetary system causes costs to rise on just about everything, and healthcare costs are increasing with the rising tides of inflation. We found some interesting thoughts in a recent article from the global healthcare consultants at McKinsey & Company: 

Consumer prices have rarely risen faster than healthcare inflation, but that’s the situation today. The impact of inflation on the broader economy has driven up input costs in healthcare significantly. Moreover, the likelihood of continued labor shortages in healthcare—even as demand for services continues to rise—means that higher inflation could persist. Our latest analysis estimates that the annual US national health expenditure is likely to be $370 billion higher by 2027 due to the impact of inflation compared with prepandemic projections.

Inflation will be around for a while as new money continues to be injected into the economy through expansionary government monetary and fiscal policies. 

Questions about the future of healthcare costs are rapidly surfacing with self-insured employers and third-party plan administrators. As a provider of risk management solutions, we’re on the front lines of the inflation war alongside our self-insured employer, broker, and TPA partners in the self-insured healthcare space. 

This post will discuss the future of rising specialty drug costs and some recommended solutions to fight the inflation battle. We’ll close with some go-to resources where you can find additional information and solutions.

What is the impact of inflation on specialty drug costs?

As the saying goes, “A rising tide raises all boats,” and rising inflation has had a deleterious effect on specialty drug costs. In general, drug costs have outpaced inflation since 2020, the last year with fully reported data available. And that trend will probably continue for the next several years at least.  

Specialty drug usage has increased significantly over the last five years. These drugs now account for over 50% of the healthcare dollars spent on medications in the U.S. But what exactly are specialty drugs? The health insurance experts at Healthinsurance.org shed some light on specialty drug classification:

Specialty drugs might be covered through either medical or prescription drug insurance. How a specialty drug is covered usually depends on where the patient receives the drug. If the patient takes a pill or self-injects the drug at home, it is more likely to be covered through his or her prescription drug benefit. If the patient receives the drug at a doctor’s office or an outpatient clinic, it’s more likely to be covered through the medical benefits portion of his or her health insurance coverage.

That’s a good high-level overview, but specialty drug classification and payment allocation can get complicated.

Unfortunately, there is no hard and fast rule for what is considered a specialty drug in the healthcare industry. In fact, specialty drug coverage can vary widely from one commercial health plan to the next. The use of specialty drugs also gets more complex because a doctor or clinician often administers them in a medical office or facility. So the administration of the specialty drug can split the plan benefit between medical and pharmaceutical. Unfortunately, both of these benefit costs are rising with inflation.  

So what’s the bottom line? The most obvious impact on beneficiaries, self-insured employers, and plan administrators is the increase in out-of-pocket costs, i.e. premiums, copays, and claims expenses. 

So what does the future hold regarding the long-term effects of inflation on specialty drug costs and self-funded plans? 

The recently passed Inflation Reduction Act recognizes the fact that runaway inflation exists and attempts to mitigate rising specialty drug costs through CMS. Essentially, these measures purport to limit copays and out-of-pocket expenses for Medicare recipients. CMS will accomplish this by negotiating prices with big pharma and limiting their specialty drug price increases to stay under the then-current inflation rate. The measures will start to kick in in 2023.

While that’s probably a good thing for Medicare patients it will almost certainly have a reciprocal negative effect on the commercial insurance world. When CMS squeezes one end of the drug industry, in this case big pharma, the pressure will be relieved by raising prices on the commercial insurance end. And that means increased drug prices on top of inflation.  

Hyperinflation is a stark reality that’s going to be around for a while. So how can professionals in the self-insured health insurance space mitigate their risk and manage costs?

One answer is a trusted partnership with the self-funding and stop-loss insurance experts at ERS. We’ll develop inflation and cost management solutions tailored to your self-funded client’s unique requirements.

Excess Risk Solutions is dedicated to helping our TPA partners and their self-insured clients mitigate financial risks. Our solutions leverage optimized, industry-tested, cost-effective stop-loss insurance plans to reduce risks, like rising specialty drug costs.

We work directly with Third-Party Administrators (TPAs) and Health Plan Brokers &  Consultants to craft the most efficacious risk mitigation strategy based on their client’s unique requirements. 

An optimized stop-loss insurance policy framework is the key to your self-funded risk management infrastructure.

Interested in hearing more?
Call us at 813-565-9055 or get in touch with our team online today!