What keeps you awake at night? For a couple years now, we’ve written about the number of mega-expensive new cell and gene therapies in the development pipeline. By “mega,” we generally mean therapies costing more than a million dollars.

These medications usually initially target rare diseases and come on the market through accelerated reviews. Since the target medical conditions are severe, the FDA seems to ease the burden of proof that the medications are efficacious and safe. For example, clinical trials often involve a small number of patients, run for short periods of time, and measure impact via surrogate end points ― a measure of effect of a specific treatment that may correlate with a real clinical endpoint but does not necessarily have a guaranteed relationship.

Please keep in mind, the FDA approves drugs it determines to generate more good than harm. The drugs do not need to be better than existing therapies. It’s also important to note, the FDA does not consider the cost of the drug as part of its approval process.

It’s one thing to approve a modestly more expensive drug even when it isn’t as effective as the current, low-cost drugs on the market, but quite another when a drug costs a million dollars or more (even a thousand dollars would be tough to swallow).

If a medical provider is going to recommend an employer’s health plan spend $1M, $2M, $3M, or more to treat a plan member, it is reasonable and appropriate for a plan sponsor to get involved in assessing the efficacy of treatment, patient suitability, alternatives, and best approach to sourcing and pricing the drug.

On the pricing issue, just because a manufacturer wants to charge more than a million dollars for its medication, doesn’t mean it is a reasonable or fair price. Also, just because a health network allows a hospital to mark up medications two, three, or even four times the cost, doesn’t mean a plan sponsor must agree to that price. There are often alternatives to get patients the same drug much less expensively.

Prior to the ACA’s removal of coverage limits on corporate health plans, pharmaceutical manufacturers would have never considered coming to market with drugs at this cost level. And now that they are, it can seem a bit like ransomware ― especially when your third-party administrator has already given its approval to the provider and family.

So, what does a plan fiduciary do to protect themselves from these situations? As we have recommended in the past:

  • Educate your executive team. Executives hate surprises!
  • Draft a management/mitigation strategy. Just like companies do for data security beaches, have a plan. Be ready to execute it.
  • Establish an advance warning system: You don’t want to know after it’s too late to manage. For example, one of our clients just purchased a new company. The acquired company has three plan members that are being treated for a form of hemophilia that may lead to the use of Roctavian, a medication that may be approved within the next 12 months and is expected to cost over $3 million (Good thing we’re ready).
  • Have an early intervention strategy. Don’t leave it up to your TPA to approve the medication and its cost without your (or your consultant’s) direct involvement. There are choices and decisions that you won’t want to just cede to your TPA.

One more thing to consider: stop loss insurance (if you buy it). The stop loss industry is still adjusting to this risk. You may think you have it covered, but you should know that many of these conditions (like in the hemophilia example above) can be spotted in advance and candidates can be lasered.

We also find it interesting that one insurance company recently sent out sales collateral offering “peace of mind with the gene therapy plus rider.” Upon closer inspection, the material explains that the insurance company removed coverage for certain drugs over $500,000 ― including gene therapies. Clients can now buy back the coverage via this new rider. In other words, the insurance company has raised its premiums in anticipation of this high-cost drug pipeline. How is that for peace of mind?!