Cell and Gene Therapy: Understanding and Managing the Costs

Employers continue to face challenges in managing rising healthcare costs while trying to provide employees with affordable, high-quality care options. A key concern for employers is the high expense of specialty drugs. The specialty drug industry has expanded from just a few options in the 1990s to over 300 drugs today. For most employer-sponsored health plans, specialty drug costs are their fastest-growing expense. As these treatments become more accessible, employers will likely have to confront a constantly growing cost for these drugs.

While prices are increasing across the board, cell and gene therapy (CGT) is raising the most red flags for employers. These treatments usually cost between $250,000 and $3.5 million per person. Although CGT is now limited to a few orphan drugs and very rare conditions, this is expected to change in the coming years.

Currently, investment in regenerative medicine has grown 16% over three years, reaching a record $23.1 billion in 2021. The Business Research Company predicts it will reach $34.31 billion by 2030 as investment in this sector continues to increase. Therefore, without effective solutions in place, employers will face extreme and potentially unsustainable medical costs.

What is cell and gene therapy (CGT)?

Cell and gene therapy (CGT) is a treatment that modifies a patient’s genetic code to treat or cure specific diseases. This is accomplished by replacing a disease-causing gene or introducing a new or modified gene to treat the disease. Patients generally receive CGT through injection or infusion in a specialty setting. These treatments have the potential to enhance patient care and outcomes, but they come at a high cost. Currently, there’s an urgency to bring CGT to an even wider market because the treatments offer hope to individuals suffering from rare and debilitating diseases. However, they also create massive affordability challenges for employers. Employers need to examine their coverage decisions when dealing with the high costs associated with cell and gene therapy.

Why is CGT so expensive?

Developing and manufacturing CGT treatment takes a significant amount of time and resources. Developing CGTs can cost more than $5 billion, which is more than five times the average cost of developing traditional drugs.

Additionally, these treatments are manufactured using manual processes and are typically produced in small quantities. This limits the production capability, and as a result, the current demand for CGT is outpacing manufacturing capacity.

As of 2022, approximately 75,000 patients were eligible for CGT, which could cost more than $15 billion. That number was expected to grow to 100,000 patients in 2025 and cost more than $25 billion. The increased demand for CGT is forcing therapy developers to outsource treatment production and manufacturing, which is often very complex, resulting in increased production time and costs.

Cell and gene therapy treatments are not mass-produced like traditional biologics since only a small patient population relies on them, making them more costly. Additionally, since this is a relatively new industry, there is a shortage of skilled workers to produce and manufacture the treatments, driving up manufacturers’ labor costs. To address these issues, the CGT industry is working towards automation of the production and manufacturing processes to improve efficiency, leading to faster, safer, and more cost-effective CGT production. Regulatory considerations, longer inpatient stays, and the use of specialty pharmacies are additional reasons CGT costs more than traditional treatments.

What can employers do to manage CGT costs?

Employers are already struggling to control the rising costs of specialty drugs such as cell and gene therapy, which is why strategic planning and proactive cost-control measures are essential.

While the number of available CGTs is currently modest, the U.S. Food and Drug Administration estimates it could be approving between 30 and 50 annually by 2030. So, even if employers are not dealing with the costs of CGT now, they likely will in the near future.

The best strategies for managing CGT costs will likely vary depending on the organization’s needs, size, and demographics. However, embracing a combination of strategies will be the most effective approach.

The following are some strategies employers can consider for managing CGT costs:

• Managed access—Some employers utilize independent third parties when prior authorization is required for expensive specialty drugs and treatment. This helps mitigate against pharmacy benefit managers’ use of rebates and prior authorization, which can result in increased approval for CGT, creating more savings for employers.
• Exclusions—Some employers have limited or outright excluded plan coverage of certain specialty drugs, including CGT. However, limiting or excluding CGT from health plan coverage may result in compliance risks.
• Nontraditional payment models—CGT treatments are generally administered once or twice over a patient’s lifetime, and payment occurs upfront, with the patient experiencing health benefits over time. However, in traditional treatments, a drug is administered and paid for over time as the prescription is filled, and patients receive the health benefits incrementally. As a result, employers can explore nontraditional payment models offered by insurance and pharmaceutical companies to help offset treatment costs.

Final thoughts

CGT shows immense potential for improving patient outcomes. As the number of available CGTs continues to grow, employers will need to consider creative solutions to manage the costs of these therapies. Understanding CGT and its potential impact on healthcare costs allows employers to better prepare and implement effective cost-mitigating strategies.

At The Miller Group, we specialize in helping employers design benefit programs that strike the right balance between cost control and company culture. Whether you’re fully insured, self-funded, or somewhere in between, we’ll guide you through evaluating your options to create a plan that fits your needs.