Bending the Cost Curve on Soaring Specialty Drug Costs

According to a recent Mercer study, the total health benefit cost per employee is projected to rise 6.5% in 2026. This is the highest increase since 2010 even after accounting for cost-reduction measures. The two leading concerns for benefit sponsors are 1) managing high-cost claimants, and 2) containing the cost of specialty medications.

Specialty medicines are treatments for chronic, complex, or rare diseases that require special handling. These drugs represent 54% of net manufacturer revenue (a 50% increase since 2019). And, while sometimes life-changing for managing serious conditions, they come with hefty price tags.

The growing affordability gap of specialty drugs

In 2024, patient out-of-pocket costs reached $98 billion, a $6 billion jump largely driven by specialty medications. While the advancement of these drugs brings enormous medical benefits, both patients and plan sponsors face an urgent affordability challenge.

Traditional cost-containment measures such as step therapy, shifting premiums to patients, or using biosimilars can help, but they don’t fully solve the affordability crisis. More aggressive methods — including formulary exclusions and increased use of prescription discount cards — have gained traction, yet they risk disrupting patient care. A new strategy in cost containment is emerging: alternate sourcing of specialty medications from abroad.

The case for alternate sourcing

Alternate sourcing from reputable providers is gaining acceptance in the United States. When done through tier-one healthcare countries (about 23 nations with advanced infrastructure, high life expectancy, and strong access to care) this approach can safely reduce costs without disrupting patient treatment.

The key difference? Government negotiation power. Unlike the U.S. system, where the market largely dictates drug pricing, tier-one countries cap costs through direct negotiation with manufacturers. As a result, the same medications from the same manufacturers can cost up to 70% less abroad.

What are some common misconceptions of alternate sourcing

Despite growing adoption, international sourcing faces some common misconceptions. We lay out these misconception alongside the facts that counter them:

• Misconception: It’s not legal. Under Section 804(j) of the FDA Act, individuals may import prescription medications for personal use. The FDA allows limited discretionary enforcement for non-controlled drugs imported for personal use in 90-day supplies or less.
• Misconception: Only self-insured plans can do it. While self-insured employer groups do have greater flexibility, even fully insured or level-funded plans can explore this option with careful coordination and plan design.
• Misconception: Stop-loss carriers won’t approve it. If international sourcing isn’t mentioned in the Summary Plan Description (SPD), updating plan documents and engaging the stop-loss carrier early ensures smoother implementation.
• Misconception: Tariffs make it costly. The Harmonized Tariff Schedule of the United States identifies personal importation of medications (90-day supply or less) as duty-free.
• Misconception: We’ll lose rebate income. Rebates may be affected, but international savings typically outweigh rebates. Working with a skilled alternate sourcing provider can ensure accurate financial forecasting and integration with existing benefit structures.

Alternate sourcing  best practices to consider

When employers and brokers collaborate, international sourcing can yield substantial and immediate savings — often with just a few patients enrolled. Key best practices include:

• Comprehensive savings analysis: Evaluate potential savings using actual specialty drug utilization data.
• Gross-to-net savings summaries: Include all discounts, fees, copays, and rebates to present a full financial picture.
• Due diligence: Understand existing vendor contracts and benefit agreements before adding new providers.
• Patient incentives: Because international sourcing can’t be mandated, offer incentives for participation.
• Leadership engagement: Ongoing sponsor support ensures long-term success.
• SPD acknowledgment: Update plan documents to include international sourcing as an option.
• Continuous education: Communicate frequently with members to build confidence and awareness.

Fiduciary responsibility in focus

Plan fiduciaries — including brokers, HR leaders, and benefit managers — carry an obligation to pursue cost-effective, high-quality solutions. With health costs rising faster than inflation and specialty drug prices surging, exploring alternate sourcing is not just innovative — it’s responsible stewardship of healthcare dollars.

Partner with NASH

The Network of Advanced Specialty Healthcare (NASH) serves as a strategic partner for employers seeking to manage specialty drug costs. NASH’s platform can be incorporated at any time during a benefit year. Our focus is patient safety, regulatory compliance, and seamless integration. With a team of industry leaders in specialty management, benefit design, and data exchange, NASH helps plan sponsors balance affordability, quality, and patient experience — while achieving significant, sustainable savings.