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Specialty Drug Spend: Cost Savings for Self-Funded Portfolio Companies

Mergers & Acquisitions Insurance | 5/26/2023

Written By: Thomas Rosenbaum

Employer-sponsored health plans continue to face increasing costs due to the rising price of medical procedures, prescription drugs, and administrative services in the broader health insurance industry. However, employers with self-funded health plans can reduce costs by influencing how and where their plan members consume healthcare goods and services.

A growing cost burden for employer-sponsored health plans is specialty medications. These high-cost drugs are often used to treat chronic conditions such as cancer, multiple sclerosis, and rheumatoid arthritis. Cost variance is also high, depending on where these drugs are procured and administered. Hospitals that administer specialty medications charge 118% more than specialty pharmacies for the same medication.

Exhibit 1: The variance in cost is extreme in the outpatient hospital setting for Ocrevus (and many similar infusible drugs). 1200mg of Ocrevus ranged from $70,600 to $196,500 for the 10th and 90th percentiles.

This cost variance presents self-funded employers with an opportunity. Employers can drastically reduce the cost of their healthcare claims by ensuring they pay the lowest possible price for these drugs through “white bagging.” White bagging is a practice in which a specialty pharmacy ships a patient's prescription directly to the provider, such as a hospital or a physician's office. The specialty pharmacy bills the health plan at a much lower cost than the hospital would have billed if it had purchased the medication directly from the drug manufacturer.

The above table shows actual claims from an AP client who had an employee receiving an Ocrevus infusion at the hospital for ~$250,000 every six months. White bagging this drug reduced the cost paid by the employer to $35,000. This strategy led to an annualized cost reduction of $430,000 per year.