Pharma Industry Can Help With Employer Challenges in Covering Specialty Drugs

As more high-cost drugs, including one-time gene therapies, come onto the market, employers are considering implementing a variety of contracting models to make sure their employees have access to these agents. However, even as innovative new approaches are being explored, employers have experienced challenges in executing them. Manufacturers can ensure their products are being covered when they understand employers’ concerns and help address those issues, suggest industry experts.

“The emerging financial models for employers stemming from these new ultra-high-cost gene therapies include various reinsurance products from organizations like Cigna, CVS/Aetna, Prime Therapeutics and others,” explains Jorge Font, MPH, senior vice president of the access experience team at PRECISIONvalue. “These products involve a regular per-member-per-month premium paid to cover the risk of these low-frequency, high-cost claims.”

This approach, he says, is similar conceptually to regular reinsurance, also known as stop-loss coverage, for high-cost claims. “Jumbo-sized self-insured employers (like insurance companies) may not require reinsurance since they have sufficient enrollment to spread the risk. Provided a decision is made to cover gene therapy, employers can decide how best to handle the risk. Employers must typically opt in to coverage, much like an optional rider. These programs may also feature value-based contract terms, with the manufacturer sharing all or part of the risk of failed treatment. At this time, there does not appear to be significant uptake in these commercial reinsurance programs given the lack of clarity on gene therapy cost/benefit and the more immediate focus by employers on the COVID-19 pandemic.”

Erin Lopata, Pharm.D., MPH, senior director of the access experience team at PRECISIONvalue, points out that employers may sign value-based or outcomes-based contracts directly with manufacturers “to reduce potential cost exposure to high-cost gene therapies and other one-time treatments. These contracts have the potential to decrease employer risk by tying full payment for a product to achievement of specific goals in a predetermined patient population. In addition to limiting some of the financial exposure for employers, these contracts provide visibility into the clinical value that these treatments provide for their employees and their dependents.” When agreed-upon outcomes are not met, manufacturers may provide a refund of part of an agent’s cost.

Employers have a variety of additional options, both financially and clinically focused, maintains Katie Asch, Pharm.D., senior director and U.S. consulting pharmacy practice lead at Willis Towers Watson. They can put out requests for proposals in order to negotiate contracts, implement pass-through rebate models for both pharmacy and medical claim rebates and have an “installment payment plan, which mitigates the budget impact to payers in any given year.” A “public/private risk pooling fund where payers pay into a risk-pooling fund dedicated to pay for gene therapies” and “clinical performance guarantees including improved medication adherence, early discontinuation credits, decreased ER visits and hospitalizations, etc.” also may be effective.

But while other stakeholders such as pharma manufacturers, PBMs and health plans have created models focused on improving access to therapy and making that therapy affordable, “we have yet to see widespread adoption from employers,” says Jennifer Wagner, director of the Business Group on Health. “From the employer perspective, these clinical and financial risk management models may provide a temporary respite with respect to price absorption; however, they are not true cost-containment measures and ultimately do not solve for the underlying issue of disproportionately high list prices.”

In addition, the models may pose potential challenges for implementation. Asch points out that it can be “challenging to get full transparency and insight into rebate value, especially under the medical benefit. The definitions, reconciliation methodology and audit rights are critical to ensuring the full rebate value is shared with plan sponsors.”

Value-based contracts require “long-term patient monitoring and engagement, which is further complicated if the patient changes carriers over time,” she says. These arrangements also may not be available “if the therapy is provided through certain distributors (e.g., a self-insured PBM arrangement).” With installment plans, the original payer is responsible for the full price even if it is not covering the member through the entire payment period.

Clinical performance guarantees may be offered only to “large plan sponsors like government payers, health plans and potentially very large employers” since only a very small percentage of a population is taking specialty drugs, adds Asch. And these models typically require “participation in specific plan design and clinical programs offered by the vendor, which may incur additional fees.”

Because “an extremely low number of patients” are impacted by high-cost drugs, “the benefit to employers may not outweigh the effort to develop one-off [value-based] contracts,” states Lopata. “There can also be difficulty in gaining alignment on the clinical metrics and thresholds to include in the contract terms, as well as logistical challenges in accessing and analyzing the required patient data.”

According to Wagner, “for the majority of employers, workforce size and the sheer number of drugs in the mix make it difficult to scale direct-to-manufacturer contracting. It is very difficult for an employer to acquire a critical mass of patients and thus appropriate leverage to engage in such a contract.” In addition, she tells AIS Health, a division of MMIT, “definitions of value vary by stakeholder, and stakeholder measurements are exceedingly complex.”

Font notes that “because gene therapy typically involves a mix of medical as well as pharmaceutical costs, it requires an in-depth knowledge of the full range of costs involved with a therapy and establishing total cost of a therapy for coverage, as well as risk-sharing purposes. These therapies are new, and actuaries typically rely on historical cost data to establish budget impact; therefore, initial targets will be difficult. Because insurance company products typically build in underwriting profit and/or administrative costs and/or margin/rebate benefits, employers are urged to consult with actuarial advisors to review and assess these products in great detail.”

Employers that want to implement one of these models often can “tie into arrangements that their health plan/PBM partners already have in place,” says Wagner. “Implementation largely depends on whether we’re talking about clinical or financial risk management models. In general, clinical risk may be shared with the manufacturer or through a center of excellence (COE) arrangement directly with the provider. Employers may pool financial risk with the help of their PBM or health plan. Some smaller employers may seek to reduce overall financial risk by purchasing stop-loss insurance.”

In addition to having PBMs and/or plan sponsors negotiate arrangements, new-to-the-market specialty carve-out vendors “offer clinical, financial and administrative oversight of specialty drugs as a distinct benefit from retail or non-specialty drug benefits,” Asch says.

“Several important issues need to be addressed before addressing logistics, namely the decision to cover,” contends Font. “For some employers, the moral/ethical question of coverage has been, ‘Why should our medical plan, whose purpose is to cover treatment of injury and illness, be obliged to change an employee’s genetic makeup after birth?’ Many of the same employers believe these extraordinary cost events should be covered by government, much like kidney dialysis is covered today under a government plan.

“The second issue is cost and value,” he continues. “At this time, there does not appear to be traction with employers buying insurance products to cover these services. Some large self-insured employers are covering these services with extensive prior authorization. Until there is more actuarial insight on the costs of these procedures, both on the product and medical professional/facility charges, employers may continue to hold off or implement extensive prior authorization processes. Employers in high-turnover industries are most unlikely to offer rich benefit features such as this.”

Whether a therapy is adjudicated under the pharmacy benefit vs. the medical benefit also can impact these payment models. Asch notes that while some of the approaches are new concepts for both benefits, others, including rebate contracting, have long been used in the pharmacy benefit and are just starting to be applied to the medical benefit.

“If anything, we’ve heard that challenges may exist on the medical side to a sometimes-greater degree, given less comprehensive reporting and lack of a singular focus on drug therapies by health plans,” Wagner explains. “Also, value-based arrangements often leverage manufacturer rebates as a form of payer repayment. But the majority of newer gene therapies may be adjudicated through the medical benefit, where rebates are less prevalent. If implementing these models for drugs under the pharmacy benefit, the PBM is more likely to have direct relationships with manufacturers and more experience with creative risk management arrangements.”

With one-time therapies under the medical benefit, “depending on the granularity of the coding available for both the drug and the associated services, visibility into all services and costs can be a challenge,” states Lopata. “Collecting outcomes data for value-based contracts from medical claims data can also be a challenge based on the [available] coding and the metrics of interest.”

The gene therapies are administered in a small number of centers around the country, and there may be additional costs beyond that of the drug, including hospitalizations and ICU care, which may require the use of additional treatments to combat side effects.

“The cost of the individual drug being administered may be the most predictable to manage as employers can work with their medical carriers to ensure the carriers limit payment to the actual cost as opposed to paying some high multiplier of the drug cost after any mark-up,” observes Asch. “Employers can ensure pharmacy and medical carrier policies steer patients receiving one-time treatments to centers of excellence that provide optimal outcomes.”

Wagner agrees. “Employers can talk to their partners about what considerations can be made relative to centers of excellence and bundled payments for the administration and follow-up of these complex and costly therapies. These centers are more likely to make accurate diagnoses, employ companion diagnostic testing and appropriately handle the complex administration of these therapies. The cost of drug administration is a consideration for all sites of care, as these drugs largely require infusion and patient monitoring. COE models may offer better quality control and allow for more concentrated employer efforts to manage consistency of cost and quality.”

According to Lopata, “there may be opportunities for employers to work with their health plans to optimize contracting and reimbursement for the associated costs. For example, some payers have developed specific or bundled code sets for the services and treatments that may be needed in conjunction with the one-time therapy to support accurate billing and payment. Additionally, wrap-around care coordination programs can ensure patients receiving one-time treatments also receive the appropriate supportive services, which may decrease costs. Employers will generally need to work with their health plan partners who manage the medical network and rates, as opposed to their pharmacy benefit managers whose scope will generally be limited to the drug component.”

Patients May Have Direct, Indirect Costs

A variety of steps may be taken to help employers truly understand these drugs and their value proposition. While much of their focus, understandably, is around the products’ increasing spend and trend, it’s important for employers “to understand that many patients with specialty conditions also incur significant direct and indirect medical costs related to their conditions,” declares Lopata. “Direct costs can include symptomatic treatments, procedures, hospitalizations and use of durable medical equipment. Indirect costs may include impacts to the employee’s productivity as they manage their own condition or serve as a caregiver to a dependent. Understanding the complete picture of disease burden and cost will be critical to effectively implementing models that minimize risk and improve predictability, while providing access to the appropriate patients. This is particularly important for value-based contracts, which also serve to describe the long-term value these treatments may bring.”

Over the past three years, specialty drugs have made up almost two-third of all new drug approvals, points out Asch. And as these drugs make up the bulk of the pharma pipeline, employers should expect their utilization to continue to rise, she says. “Furthermore, specialty drugs are becoming more widely used in disease states like asthma or eczema that have historically been treated with less expensive inhalers or topical creams,” which also will result in increased utilization.

Employers need to know about new specialty therapies before they launch, asserts Warner. Because the drugs are “disproportionately expensive in the context of overall spend,…there is a pressing need to tie price to drug efficacy,” she says. Employers should closely monitor spend in the medical benefit and “should request full transparency on price, discount and/or rebate negotiations that may occur with respect to these specialty drugs,” as well as integrated medical and pharmacy data.

Font maintains that “employers and many of the generalist brokers/consultants typically don’t understand the diseases in question, their frequency, the full economic burden and the process, efficacy and cost of the new therapies. The last thing they want is to pay a million dollars for a procedure that doesn’t work, so having guarantees and risk sharing in these agreements will go a long way to overcoming misperceptions, as it did with recent hepatitis C virus value-based contracting.”

However, asserts Asch, while the drugs’ prices seem to garner a lot of the attention around them, “many plan sponsors see the value these drug therapies bring to prevent disease exacerbations or progression, preventing high-cost ER visits and hospital admissions. These therapies help people to live better-quality lives and help to keep them productive and at work and in school and, in certain cases, significantly increase their life expectancy. Many plan sponsors have implemented high-touch case management programs providing nursing support to guide and direct patients struggling with rare conditions in how to get the care and support they and their loved ones need to manage their conditions and overall well-being holistically.”

Contact Asch through Ed Emerman at, Font and Lopata through Tess Rollano at and Wagner via Alissa Kaplan Michaels at

© 2024 MMIT
Angela Maas

Angela Maas

Angela has an extensive background of editing, reporting and writing for trade and consumer publications. She has written Radar on Specialty Pharmacy since she joined AIS Health in 2005 and has broad knowledge of the various issues at play within the space. She also has written for Spotlight on Market Access since its 2017 launch. Before joining AIS Health, she was managing editor at Employee Benefit News and Employee Benefit News Canada and managing editor at Hem Aware (a hemophilia publication), Lupus Living and Momentum (a multiple sclerosis publication). She has a B.A. in English and an M.A. in British literature from Arizona State University.

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