How specialty drugs are remaking healthcare and driving up costs

This article has been updated with news of additional policies announced by the Trump administration.

Accelerating healthcare costs have less to do with traditional hospital and physician services than with surging drug spending, an industry expert says.

“When we can’t really see any trends in healthcare utilization increasing, the only thing that consistently shows up as increasing — and increasing materially — is specialty pharmacy,” said Hal Andrews, CEO of the healthcare strategy company Trilliant Health.

Amid a pattern (login required) of flat or declining hospital admissions and surgeries that Andrews has seen over more than 15 years, Trilliant’s data show that overall healthcare volumes were down by 8% in 2024 relative to 2019. Meanwhile, the market for specialty drugs — products used to treat complex or rare medical conditions — exceeded $129 billion in 2024 and is projected (registration required) to grow at a compound annual growth rate of nearly 40% through 2030.

A consequence of the drug cost trend is the growing impact on affordability. Employee healthcare premiums are set to rise by 6.5% on average in 2026 due to both price and utilization factors, according to one projection. That would be the highest increase since 2010 and could trigger employer responses such as implementing prior authorization for additional drugs.

Where the healthcare spending spikes are

The data speak to a shift that long-term strategies should account for in the hospital sector, Andrews said. Although actuarial data show big recent increases in spending on hospital services, the nature of that utilization is changing.

“There are an increasing number of specialty pharmacy drugs that can substitute for the traditional hands-on intervention, whether it’s colonoscopy or cardiac procedures or bariatric surgery or other things,” Andrews said.

In its report, Trilliant posted data that suggest advanced therapies increasingly are taking the place of procedure-based care. For example, whereas GLP-1 use increased by more than 700% during a recent five-year period, bariatric surgery rates were flat to declining. Similarly, SGLT2 inhibitor patients more than tripled, while cardiac catheterization volumes declined slightly.

The report noted that advanced medications may be complementing traditional care in some areas rather than replacing it. Still, the potential ramifications for hospital operations are evident.

“The ultimate question for the hospitals is how much of the things they do today will be replaced by a therapy [where] maybe a patient can take a pill,” Andrews said. “But even if you can’t take a pill, can you hang a bag and get the therapy through an IV instead of going under anesthesia and [being] in the OR?”

Specialty drugs grow in prominence

The more prevalent that specialty drugs become in the healthcare ecosystem, the more the associated costs become a policy and operational issue even as their efficacy is widely recognized.

Keytruda, an immunotherapy drug that has allowed for notable progress in the treatment of certain types of cancer, costs roughly $12,000 per dose given every three weeks. The product’s manufacturer, Merck, has said it expects Keytruda to soon be subject to the Medicare price negotiation authority established by the Inflation Reduction Act (IRA).

But that drug’s price tag falls well short next to the cost of CAR-T cellular therapies for diseases such as certain blood cancers. The price per dose of those products can run between $350,000 and $600,000, said Carina Dolan, PharmD, associate vice president for market intelligence with Vizient.

Utilization of those drugs “is increasing on the oncology service line front,” Dolan said. “So as far as spend goes for cell therapy, we anticipate that that spend will go up globally just due to utilization and [providers] becoming more familiar with these products and using more of the products.”

When looking across distribution channels, states a Vizient supply chain report (registration required), “High-cost biologics and specialty therapies — particularly CAR-T cellular therapies like Carvykti, Yescarta and Breyanzi — emerge as dominant drivers of inpatient drug spend.”

The company found that specialty drug prices rose by an annual average of 4.8% between 2020 and 2023, paced by advanced treatments such as cellular and gene therapies, which rose by 6.2%.

Where drug spending skyrockets

In terms of costs, even cellular therapies can pale in comparison to gene-based therapies. A product to treat a rare disease called metachromatic leukodystrophy runs $4.25 million for a single dose. Several others carry a price of more than $2 million.

“While they present a different type of treatment where there may not be treatment in some of these diseases beforehand, they are very costly,” Dolan said. “So access is definitely one of the things that healthcare providers are the most concerned about for these gene therapies.”

The pricing issue could soon become even more of a factor. Cell and gene therapies that are in the investigational pipeline, with a prospective launch date within the next several years, increasingly are for relatively common diseases.

“When we get to that point, then I think that will present a challenge that our healthcare providers are starting to think about [regarding] the scope of cell and gene therapy products,” Dolan said.

Drug spending policies in the works

Trends in drug pricing have captured the attention of federal policymakers in recent years.

“Only when a biosimilar comes into the market can you see any pricing adjustments downward on the pharmaceutical side,” Andrews said. “If you look at where all the pressure in Washington is, it’s on specialty pharmaceuticals and it’s on PBMs [pharmacy benefit managers], because that’s where utilization is clearly up.”

On Wednesday, the Trump administration released draft guidance from the Food and Drug Administration that is intended to fast-track the development of biosimilars for serious and chronic diseases. Per the guidance, developers in many instances could avoid the requirement to conduct comparative human clinical studies as part of efficacy testing.

In a news release accompanying the guidance, HHS cited a report showing that biosimilars have generated $56 billion in savings over the past decade.

The administration also is seeking to incorporate a policy of most-favored-nation drug pricing, meaning manufacturers would have to lower the price of brand-name drugs to match the lowest price available from among other high-income countries. The policy represents an effort to address a disparity in U.S. brand-name drug prices relative to other nations, with domestic prices more than 400% the average of 33 comparable countries as of 2022.

Other initiatives to address specialty drug costs include the price-negotiating authority granted to Medicare under the IRA. And a few state Medicaid programs have capped out-of-pocket costs for specialty drugs, according to a report by the National Conference of State Legislatures.

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Update: More policies to tackle drug costs

The Trump administration recently announced additional policies to bring down the price of high-cost drugs.

One was an announcement that two prominent manufacturers had agreed to lower the price of GLP-1 drugs in the U.S. under most-favored-nation guidelines. Prices of Eli Lilly and Novo Nordisk GLP-1s will fall from more than $1,000 to roughly $350 per month when purchased through a government-run website recently announced by President Donald Trump. If the Food and Drug Administration approves a pill form of GLP-1s, the initial cost will be $150 through the website.

The price reductions will allow Medicare and Medicaid to cover the drugs for obesity and comorbidities, with a copay amount of $50 per month in Medicare, according to the announcement. The Biden administration had proposed expanding Medicare coverage of the drugs, but the Trump administration canceled those plans in early 2025, citing the high cost to the program at standard prices.

New drug payment model for Medicaid

The administration also announced a voluntary model that aims to bring most-favored-nation pricing to Medicaid through a pilot model coordinated by the Center for Medicare & Medicaid Innovation.

State Medicaid programs that choose to participate in the model will have access to some drugs at prices negotiated with manufacturers to reflect lower prices seen in comparable countries. The states will be required to implement “uniform, transparent coverage criteria” to improve utilization management and give patients and providers “predictable access across participating states,” according to the announcement.

Manufacturers can choose whether to participate in the model, although Trump has said those that do not agree to most-favored-nation pricing in general could face a 100% tariff on their brand-name products.

Three companies, including AstraZeneca and Pfizer, with which the administration already announced most-favored-nation deals will take part in the new model after terms are finalized, according to the announcement. The companies would negotiate Medicaid coverage terms with CMS and sign a supplemental rebate agreement with each state.

An FAQ states that the new model will not affect discounted prices available through the Medicaid Drug Rebate Program or ceiling prices in the 340B Drug Pricing Program.