The Changing Landscape of Specialty Pharma Reimbursement in 2024

Shifts in legislation, market dynamics and innovation in drug development mean reimbursement in specialty pharma has changed significantly in the last 10 years.

The most profound change has been the growth in the number of specialty medicines. In the mid-1990s there were fewer than 30, this number has increased by 280% in the last 20 years alone and last year they accounted for over 80% of the 55 drugs the FDA approved.
Specialty treatments have also shifted beyond cancer and orphan disease indications, targeting more common chronic conditions like eczema and rheumatism (e.g.Dupixent (dupilumab) and Skyrizi (risankizumab)). They now also encompass cell and gene therapies, which often come with multi-million dollar list prices.

This expansion of the market, and the move into higher priced therapies, has created a complex challenge for healthcare payers who are trying to control costs, while embracing innovative treatments.

Here we look at some of the ways payers are trying to navigate this tightrope and the headwinds that could impact specialty pharmaceutical reimbursement in 2024.

1. Increased interest in value-based payments for specialty pharmaceuticals

One potential way of keeping reimbursement costs down is the use of value based pharmaceutical contracts (VBPCs), where manufacturers are asked to share the risks of the cost of treatment with insurers. Payment is usually dependent on achieving a defined set of efficacy measures, or strict patient selection.
However, despite the rising cost of specialty pharma drugs, few healthcare payers are using VBPCs. PSG consulting reported earlier this year that only 6% of payers used VBPCs. But this could be set to change. The report noted almost 40% of responders were either moderately or very interested in participating in VBPCs in the next two to three years.

Interest is being driven by not only oncology products - and some of the new Alzheimer’s treatments - but also the increasing number of expensive cell and gene therapies entering the market. Last year saw nine gene therapy approvals including hemophilia treatments Roctavian and Hemgenix, which carried list prices of $2.9 million and $3.5 million respectively.

Notwithstanding the interest in VBPCs, there are hurdles around their adoption, notably a lack of agreement around setting and measuring improvements in patient outcomes. But with specialty pharma drug cost forecast to hit $1.5 trillion by 2033, according to Market.us, healthcare payers will be very incentivised to clear those hurdles.
It is here telemedicine might come into its own, with payers able to track and report patient outcomes and tie them to reimbursement.

2. The scaling back of alternative funding programs for specialty pharma reimbursement

Conversely, one specialty pharma reimbursement trend that might not survive much beyond 2024 is alternative funding programs (APFs), also known as specialty carve out programs.

When they first emerged, AFPs were seen as a potential way of saving both patients and payers money on the cost of specialty drugs. According to PSG’s 2023 Trends in Specialty Drug Benefits report they were used by 14% of employers in 2023, up from 7% in 2022. Despite their rise they have been mired in ethical and legal controversy, leading many to question their continued use.

AFPs work by contracting with self-insured employer health plans to lower costs. This is usually achieved by asking the plan to remove certain high-cost specialty drugs from pharmacy benefit coverage or label them non-essential.

Underinsured members are then directed to work with AFP administrators to access those drugs through pharma sponsored patient assistance programs (PAPs), which are usually reserved for low-income and uninsured patients, who otherwise would not be able to afford new or innovative medicines. In return for lowering spend, the plan pays the AFP vendor a ‘cost avoidance fee’ for its services.

Given the criteria for PAPs, it is unsurprising that AFPs have come under fire for diverting funding from patients in need to reduce employer costs. Industry organisation BIO has described AFPs as an emerging business model that ‘threatens to dismantle the promise of comprehensive drug coverage for many Americans’.

Pharma companies have also responded to their growing use by scaling back their PAPs and some have begun litigation. The previously mentioned considerations alongside the potential reputational risk of using AFPs suggest they may have had their heyday.

3. Make or break for biosimilars

Much has been made of the ability of biosimilars to drive down reimbursement costs. In 2022 Cardinal Health predicted biosimilars could reduce US drug expenditure by $133 billion by 2025, a forecast that has so far failed to materialize, making 2024 a potentially pivotal year for this class of drugs.

Rather than a runaway success, the reality of biosimilars has been one of pharma innovators’ highly successful efforts in slowing adoption, usually through offering generous rebates to price match.

The most obvious sign of lack of progress is that at the end of 2023 the nine US approved Humira (adalimumab) biosimilars only had a combined market share of 3%, despite some offering 85% discounts to Humira’s list price.

With nine competitors fighting over a very small slice of the pie, it is expected that those who do not see a significant uplift in sales during 2024 might withdraw their products. While attrition in a competitive market is normal, the bigger danger is that if health plans continue to favour heavily discounted originator products, biosimilar manufacturers will reconsider developing new drugs.
One thing that might move the needle is action by policymakers. Sen. Mike Lee (R-UT) reintroduced his “Biosimilar Red Tape Elimination Act” in 2023, and there are hopes it could be enacted by the end of this year. As such biosimilar developers will be watching closely to see how the current crop of biosimilars perform financially and how they are impacted politically in 2024.

4. Grappling with the weight of obesity drug costs

Even though GLP-1s might not be considered traditional specialty pharma drugs, their growing use for weight loss management mean that employers and healthcare payers need to plan how to cover and manage these medicines.

Morgan Stanley is forecasting the global market for obesity drugs could reach $105 billion in 2030, up from an earlier estimate of $77 billion. This figure, however, does not take into account the number of obesity-related illnesses the drugs could eventually cover.

In March the FDA approved a new indication for Wegovy (semaglutide) relating to reduced risk of cardiovascular death, heart attack or stroke in obese or overweight people. With independent research already underway into other indications including hypertension and kidney failure, it is reasonable to expect future label extensions.

As such, it is no surprise some are estimating weight loss drugs could add 50% to current healthcare spending. These eye watering sums and growing coverage are already leading to some healthcare payers to look at reining in costs, despite the potential benefits of lower aggregated medical expenses associated with the use of GLP-1s.
According to the International Foundation of Employee Benefit Plan’s 2024 Pulse Survey 85% of employees were using utilisation management to control GLP-1 costs, including prior authorization, alongside adhering to BMI and comorbidity requirements.

However, given the forecast growth for GLP-1s as they expand into other chronic diseases, payers are going to have find even more innovative ways to keep costs down.

5. IRA pricing reveal on specialty drugs and policy uncertainty

The 10 drugs selected for price negotiations with Medicare as part of the Inflation Reduction Act are already known, and September will see the prices of those drugs revealed. Beyond that there is little clarity on exactly how the IRA will change the market.

Some are expecting the restructuring of the Medicare Part D standard benefit and the $2,000 Part D out-of-pocket spending cap could lead to increased use of specialty drugs, as well as reducing affordability-related non-adherence.

What is even less clear in 2024 is how the political climate could impact the IRA. The Biden administration wants to expand the number of drugs involved in price negotiations from 10 per year to 50. The Trump administration on the other hand could go back to looking at either a most favored nation policy or an international pricing index.
With so much to play for as it stands, 2024 is set to be an interesting year in more ways than one for specialty pharma reimbursement.