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The Coming Debate Over Specialty Drugs

Screen Shot 2014-06-24 at 6.09.38 AMThe debate over the price of specialty drugs is intensifying and could well be the next major healthcare issue to dominate the national, even international, agenda. In a nutshell, how will society pay for breakthrough scientific innovation?

Specialty drugs, complex therapies used to treat severe illnesses such as cancer, multiple sclerosis and Hepatitis C, are coming in with price tags that have purchasers sounding alarm bells. At $1,000 per pill, the newest Hep C medication runs about $86,000 for a course of treatment.  Two major insurers have publicly cited the price of this single new drug as contributing to next year’s rise in premiums.

In fact, analysis by our team at PwC’s Health Research Institute shows that this one new therapy will impact overall U.S. health costs by .5% this year and .2% next year. Considering the nation’s total healthcare budget is $2.8 trillion, that is a remarkable budgetary impact for one product.

But the story doesn’t end there. Drug costs represent just 15% of total health spending, compared to nearly one-third spent on inpatient care. Short-term budget spikes could become long-term savers from both a cost and health standpoint. For the most severe patients, the price of Hep C medication – that is nearly 90% effective – is three to six times less than treating a lifetime of cirrhosis ($270,000) or providing a liver transplant ($580,000.) Patients essentially “cured” of Hepatitis C can go on to have productive, long lives.

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Is Health Insurance Too Cheap?

Researchers at USC recently published a study designed to find out how much people are willing to pay for better drug coverage from their health insurance plan.  The question they posed to the general public was straightforward: How much extra money would you pay per month for a health insurance plan that would pay for “specialty drugs” if you need them?

Specialty drugs are expensive new treatments for diseases like leukemia, multiple sclerosis and rheumatoid arthritis.  These drugs often cost tens of thousands of dollars, and in some cases even run into six figures per patient.  But these high costs can be accompanied by significant benefit.  Gleevec for example can dramatically increase life expectancy for people with otherwise fatal leukemia.

Keep in mind that not only are specialty drugs expensive but they are being used with increasing frequency.  According to the USC team, 3 out of 100 people in the United States will use at least one specialty drug in the following year.

How much would you pay to make sure you aren’t responsible to pay for these drugs out of pocket?  Would you be willing to give your insurance company an extra $5 per month? $10?  Maybe even $20?

The USC team found that, on average, people were willing to spend around $13 extra per month to make sure their health insurance plans cover such specialty drugs. (The study was published in the April issue of Health Affairs, and was led by John Romney.)  To put that into perspective, the actuarial cost of such coverage—how much insurance companies would expect to spend per person if everyone obtained such coverage—is around $5 per month.

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