Specialty Drugs and the Health Care Cost Crisis

Abstract

Specialty drugs, often dispensed by specialty pharmacies, are among the most expensive drugs on the market. They are significant contributors to the American health care cost problem, but in many ways they escape public and regulatory scrutiny. Surprisingly, medications are designated as specialty drugs by pharmacy benefit managers (PBMs), entities that are part of the insurance industry, rather than by the Food and Drug Administration or medical authorities.

Specialty drugs have thus far received little attention in the legal literature. Yet, they raise important legal and regulatory questions. For example, there are no federal government rules (and only a handful of state laws) concerning what “specialty drug” means. As a result, PBMs could be motivated to designate drugs as specialty medications because they own many of the large specialty pharmacies and stand to profit by directing consumers to them. PBMs’ ownership of specialty pharmacies raises troubling questions about conflicts of interest and patient choice. In addition, the lack of regulatory pricing constraints in the United States disproportionately affects specialty drug consumers because of these items’ very high prices. The activites of specialty drug manufacturers, PBMs, and pharmacies raise antitrust concerns as well. This Article is the first to analyze specialty drugs from a legal and policy perspective and to formulate recommendations for regulatory interventions that are necessary to safeguard the welfare of specialty drug consumers.

Keywords: Specialty drugs, specialty pharmacies, health care costs, drug pricing, antitrust, conflict of interest, patient choice, pharmacy benefit managers, Employee Retirement Income Security Act (ERISA)

JEL Classification: K32