The Role of Specialty Drugs in Private Sector Healthcare Spending

Published Online: December 04, 2013
Seth A. Seabury, PhD; Dana P. Goldman, PhD; and Darius N. Lakdawalla, PhD
Objective: The use of specialty drugs is controversial because of their comparatively high cost. However, the extent to which containing cost growth in specialty drugs would contribute to aggregate healthcare savings is unclear.

Study Design: Retrospective analysis of medical and pharmacy claims from a large, private sector claims database from 2000 to 2009.

Methods: We estimated the share of medical, pharmacy, and total expenditures attributable to specialty drugs for all patients, and for patients taking specialty drugs. To better understand the patterns of specialty drug use for at-risk patients, we computed the share of spending on specialty drugs for patients in the top 25th, 10th, 5th, and 1st percentiles of spending.

Results: We found that 1.6% of all patients used a specialty drug, accounting for 2.8% of total spending and 9.3% of pharmacy spending from 2000 to 2009. While specialty drug use was more common for patients in the highest cost groups, the share of spending attributed to the specialty drugs remained modest (no more than 5.6%). Spending on specialty drugs grew from 1.0% of total spending in 2000 to 3.7% in 2009. At current growth rates, our estimates suggest that even the complete elimination of specialty drugs would stave off less than a year’s worth of healthcare cost growth over the next decade.

Conclusions: Specialty drugs account for a modest share of total healthcare spending, even among the highest cost patients. Even dramatic reductions in spending on specialty drugs would have only a modest effect on total healthcare costs.

Am J Pharm Benefits. 2013;5(Special Issue):SP23-SP27
Pharmaceutical innovation has led to the development of “specialty drugs,” loosely defined as pharmaceuticals produced using advanced biotechnology methods. These products have enabled physicians to more effectively treat diseases like cancer, multiple sclerosis, rheumatoid arthritis, and other conditions that were previously very difficult to manage. Sometimes also referred to as “large molecule” drugs, specialty therapies have attracted attention because their clinical benefi ts are very often accompanied by  higher financial costs compared with their traditional “small molecule” counterparts. With the pressure to curb spending on healthcare, benefit managers have shown increasing interest in monitoring and containing the utilization of specialty drugs.1-4 For example, some have considered moving coverage of physician-administered injectable products from medical benefit schedules to pharmacy benefits, which can limit benefit generosity and require greater cost sharing by patients.

However, the extent to which containing cost growth in specialty drugs will contribute to aggregate healthcare savings remains unclear. While specialty drugs are often expensive, they are used relatively infrequently except by the sickest of patients. Moreover, even among this very ill population, specialty drug spending remains relatively modest. For example, through 2005, only $1 out of $5 spent on the costliest patients went toward prescription drugs in total, and less than $1 out of $15 went to specialty medicines among this patient group.5 There is also evidence suggesting that patients place a high value on specialty drug therapy and tend to be less responsive to pharmacy benefi t management.1,6 Moreover, recent evidence suggests that in some cases, the higher immediate cost of therapy with specialty drugs could be offset by lower long-term costs.7,8 More insight is needed into the role that specialty drugs play in healthcare spending, in order to better determine appropriate coverage and cost-sharing policies that balance the goals of cost containment and patient access.

This study characterizes the role of specialty drugutilization in aggregate healthcare spending in the private sector. We used a large database of private sector healthcare claims to compute the share of patients receiving specialty drugs, along with the total share of spending and spending growth accounted for by specialty drugs, from 2000 to 2009.



We used data on medical claims from 2000 to 2009 covering 46 Fortune 500 employers. The data captured all healthcare claims for 11.2 million patient-years for patients under age 65 years who were continuously enrolled for at least 1 full year in all plans offered by these employers, including inpatient, emergency, ambulatory services, and pharmacy benefi t claims. These data have been widely used to study healthcare utilization and spending in a variety of settings, both generally and for specialty drugs.1,6,9-12 Specialty drugs were identified differently depending on the method of administration. Physician-administered injectable pharmaceuticals were identified using J-codes on the medical benefit, while those covered under pharmacy benefi t plans were identifi ed using national drug codes (NDCs). A list of the specialty drugs considered is available upon request.

Using these data, we aggregated spending for individual medical claims to create annual spending measures for several different  categories: total spending, medical benefit spending (defi ned as all combined inpatient and outpatient spending), total pharmacy  benefit spending,and spending on specialty drugs. Spending on specialty drugs was broken into pharmacy benefit spending and medical benefit spending. Dollar values were normalized to 2009 dollars using the medical component of the consumer price index (CPI). To evaluate trends, we also computed total spending for each category by year.

Note that in the case of physician-administered injectable products, medical claims did not separate drug spending from the cost of other procedures billed on the same claim. For example, the claim amount might include both the cost of the drug and the amount charged by the physician for administering it. Conservatively, we attributed all spending on any claim with a J-code for a physician-administered specialty drug to the specialty drug itself. As a result, our estimates will overstate spending on specialty drugs themselves and should be interpreted as the total cost of administering them. To understand the clinical utilization of specialty drugs, we identified patients  with chronic disease (eg, cancer) based on the presence of the associated International Classification of Disease, Ninth Revision, Clinical Modification diagnosis code on at least 1 inpatient or 2 outpatient medical claims in a year.

Because specialty drugs are designed to treat patients with serious illnesses, it is unlikely they would have been widely used in the general population. To better understand the patterns of specialty drug use for at-risk patients, we computed the distribution of total healthcare spending across all individuals in the sample in each year and identified patients in the top 25th, 10th, 5th, and 1st percentiles of spending. We then selected these patients and replicated our analysis of spending in each subsample.Because specialty drugs are most often used by patients with serious conditions who have higher average healthcare utilization, we expected specialty drugs to be more widely used in these high-cost subpopulations.

Defining Specialty Drugs

There is no single defining characteristic that identifies a particular drug as a specialty drug.13 To classify specialty drugs for this study we used a definition developed by IMS Health.14 The IMS definition was based upon 8 objectively measured attributes of drugs, such as the type of condition targeted (chronic or acute), the method of delivery, the need for patient oversight, and cost. These conditions were defined at the molecule level and molecules that met 5 of the 8 attributes were identified as specialty drugs.

Using this definition, there were 215 unique molecules identifi ed as specialty drugs in our data. Of these, there were 178 biologic molecules, 20 blood coagulation factors, and 17 non-biologic therapies. Using the product name and molecule name to link to NDC and J-codes, we identified at least 1 claim for all specialty drugs in our data.


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Issue: Specialty Pharmacy
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