How employers and TPAs can ease the rising cost of specialty drugs with medical rebates

By Greg Sanderson

The pharmaceutical industry is in the middle of a dynamic shift that shows no signs of slowing down. Traditional drug pipelines are now increasingly dominated by specialty drugs, many of which carry a six-figure annual per-patient cost.

These drugs have become a driving force behind pharmaceutical expenditure for employer groups and present a challenge for containing costs. In addition to the substantial expense of these drugs, they often fall under the medical benefit where rebates are not as easily realized by payers, rather than the pharmacy benefit.

But plan sponsors who know where to look and what questions to ask their medical carrier or third-party administrator still have opportunities to save money. As the Food and Drug Administration's approval pipeline becomes increasingly populated by specialty drugs, it's critical for all employers to explore medical rebate opportunities, where they can, to mitigate costs.

A flood of specialty drug approvals

FDA approvals of specialty New Molecular Entities have surged in recent years. In 2023, nearly 80% of the 2023 pipeline for FDA approvals consisted of these specialty medications.

Advancements in specialty drugs hold promise for patients with certain diseases but can cause difficulties for plan sponsors. The higher cost of incoming specialty drugs, and their markups, will continue to strain budgets. This will lead to increased premiums, deductibles and out-of-pocket expenses for employees or members.

Medical benefit versus pharmacy benefit

Adding to the financial strain of specialty drugs is the fact that many are covered under the medical benefit, rather than the pharmacy benefit. There are multiple strategies to control specialty drug costs under pharmacy benefits, but rebates for those billed under medical benefits are often overlooked or hidden.

The distinction between drugs covered under these two types of benefit typically boils down to how and where a drug is administered or distributed.

Drugs that require administration by a health care professional, often in a facility setting — as is the case with many specialty drugs — are typically covered under the medical benefit. These may include injectable or infusible medications, such as chemotherapy drugs, certain biologics or other complex treatments.

Self-administered medications that can be taken at home, on the other hand, are generally covered under the pharmacy benefit. These are medications that you would obtain at a retail or mail-order pharmacy.

What can payers do to control costs

As payers grapple with the rising costs and increasing dominance of specialty drugs, it is critical to dig deeper into how specialty drug claims are managed. Ensuring you or your clients are receiving all available medical rebates is one such strategy.

Many pharmaceutical manufacturers offer a variety of rebate scenarios, whether the drug is administered by a pharmacy or a physician. Rebates associated with drugs covered under the medical benefit may not reach the levels frequently seen with pharmacy benefit drugs, but every bit counts when it comes to cost savings.

The perspective held by some plan sponsors — that they may not qualify for rebates due to a lack of drug management or perceived barriers to coverage —must be re-examined.

One way to assure that plan sponsors are realizing the benefits of these medical benefit rebates is for them to simply ask their medical carrier, TPA or broker about them. Many smaller carriers do not know that these drug rebates exist, because they have grown accustomed to accessing rebates through their pharmacy benefit manager. If this is the case, plan sponsors should press the carrier to do more.

Other carriers may know about these rebates, and apply for them, but are not passing the savings directly to the plan sponsor. When asked, these carriers may state that those savings are baked into the premiums. If this happens, it may be worth renegotiating with the carrier.

TPAs, brokers and self-funded employers may choose to take on the rebate process themselves, including submission, tracking and collection of rebates. This provides the most control over rebate capture, but it does require a significant investment to develop, maintain and upgrade in-house software, along with the technical challenges that may come with it.

All these approaches can also be handled by a rebate management partner. A partner focused on rebate capture can negotiate on behalf of an employer, TPA or broker, or manage the entire rebate process themselves.

Whatever your approach, know that there are many rebates available from a wide range of sources. When brokers and TPAs guide clients to maximizing medical rebates rather than ignoring them, it makes a meaningful difference amid a shifting health benefit landscape.

Greg Sanderson is the chief operating officer at AlignRx Consulting. Contact him at [email protected].