Managing Your Drug Spend. Discussion Topics 8/10/2016. Robert P. Navarro, PharmD Clinical Professor Department of Pharmaceutical Outcomes & Policy

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1 Managing Your Drug Spend Robert P. Navarro, PharmD Clinical Professor Department of Pharmaceutical Outcomes & Policy 2 Discussion Topics Introduction and overview Market conditions, expense centers, and driving forces Drug distribution channels and controls Managed care prescription drug program management principles Drug price, costs, and value Role of PBMs Management of specialty pharmaceuticals Patient care impact and challenges Future trends 3 Introduction and Overview

2 Spend vs Value Is drug spend the problem? Or, lack of understanding drug value? Should any cost-effective drug be covered and preferred? HCV drug costs may bankrupt Medicaid HCV Drug Costs Nightmare for Prisons Harvoni shows 99% HCV genotype cure rate Hep C drugs can prevent $ million liver transplants 5 Market Conditions, Expense Centers, and Driving Forces 6 Why is Drug Spend an Issue? Stagnant economic growth Rising health care costs and utilization Greater percent of health care costs passed to employee Employee wages rising slower than costs 7 2

3 What the Public and Politicians See Health care policy and decision makers often respond to headlines without understanding deeper issues. 8 Where is the Spend Problem? Source: 9 Contributors to Drug Spend Demand for health care expands faster than delivery system. Growing Medicare population presents with comorbidities and polypharmacy, increasing costs, utilization, and safety risks. 26% ~0,000 US citizens turn 65 today, and about 0,000 more will cross that threshold every day for the next 9 years. Source: White Paper: Formulary Development at Express Scripts,

4 Insurers scrutinize drug costs after $8,000 Sovaldi surprise Are 99% Cure Rates Affordable? Is an $8,000 Hepatitis Drug Too Expensive? Gilead defended the price. We believe the price of Harvoni reflects the value of the medicine, it said in a statement. Unlike long-term or indefinite treatments for other chronic diseases, Harvoni offers a cure at a price that will significantly reduce hepatitis C treatment costs now and deliver significant health care savings to the health care system over the long term. Express Scripts drops Gilead hep C drugs for cheaper AbbVie rival Reuters 22 Dec 20 Gilead shares dropped 3 percent, or about $.5, in Monday trading to $93.88, though it was still far above the $65 level reached in April, when insurers launched a major outcry over its multibillion-dollar hepatitis C business. Source: White Paper: Formulary Development at Express Scripts, 205. Drug Prices, Controls, and Value 2 If Drug Spend is a Problem, What are Causes and Solutions? Drug spend has many contributing components, including drug ingredient cost, utilization rate, administration cost, patient cost. 3

5 Total US Drug Spend Overall spending increased 8.5% net (26.2% invoice) 2.2% 8.5% Identifying the Spend Targets $92 bn specialty spend projected to $00 Bn by 2020, or 0% of national health expenditures Specialty almost 0% of total drug spend. Specialty cost trend 8%. 50% on each medical and pharmacy benefit 50% of total specialty expenses on oncology, multiple sclerosis, and inflammatory conditions (e.g., RA, IBD, psoriasis), with trend rates as high as 25%. Cystic fibrosis trend was 5%, with average Rx cost of over $6,000. Sources: ESI, OptumRx, Magellan, and PBMI specialty reports, Identifying the Spend Targets $92 Bn specialty spend projected to $00 Bn by 2020, or

6 Top Ten Specialty Trend Classes Class PMPY Spend Utilization Trend Unit Cost Trend Total Trend Anti-inflammatory $ %.7% 25.0% Multiple sclerosis $ % 6.2% 9.7% Oncology $ %.% 23.7% Hepatitis C $ % 9.2% 7.0% HIV $3.53.6% 2.0% 6.6% Growth deficiency $ % 2.8% 5.6% Cystic fibrosis $ % 0.9% 53.% Pulmonary hyperten. $ %.8% 8.% Hemophilia $ % 8.% 2.% 0 Sleep disorders $ %.0% 7.8% Source: Adapted from ESI Commercial Drug Trend Report The Specialty Drug Conundrum Specialty drugs account for 36% of spending and 67% of new brand spend growth. New Brand Spending $Bn 8 Specialty Drug Targets Specialty drug spending doubled in the past 5 years, contributing 70% of all spending growth between 200 and 205. US Specialty Drug Spending $Bn HIV HCV Onc 9 6

7 Oncology Spend Oncology present special considerations. OS, PFS, QoL, and costs must be considered oncology Contributors to Drug Spend d Source: 2 Managing the Cause of Spend Prescription benefits consume about 0% of total expenses. Majority of health care resources are consumed by a minority of patients. Manage these patients to manage the spend. Rx 0% Outpatient medical 2 2 7

8 Managed Care Prescription Drug Program Management and PBMs 2 3 Pharmacy Benefit Management Strategies Strategies Tactics Objectives Defined benefits by contract Contracted pharmacy provider network Included and excluded benefits; access Manage cost and use rules Discounted reimbursement; limited networks Manage cost and use Online, real time POS claims adjudication Drug formulary (mandatory generics) Enforce eligibility and formulary limitations Select and incentive use of costeffective drugs Manage cost and use Manage cost and use of best clinical drug options Pharmaceutical Reduce net drug cost manufacturer contracting Manage drug cost Clinical and quality programs Improve adherence and manage use Improve outcomes; reduce total direct costs 2 HMO and PPO Benefit Designs PPO Who should purchase each of these benefits? What is the practical impact on patient benefits and costs? 25 8

9 Patient Impact on Cost Share Source: PBMI Prescription Drug Benefit Cost and Plan Design Report Payers pass on higher percent of rising health care costs on to members. Source: PBMI Prescription Drug Benefit Cost and Plan Design Report Carve Out Pharmacy Program All individuals and entities share risk Control drug cost and demand (use) of all covered products and services are managed Defined covered benefits 27 PBMs PBMs offer comprehensive prescription drug benefit management programs to self-funded groups, and sell management components to health plans. Benefit design Formulary management Pharmacy network* Specialty distribution* Research* Adherence* Reports (DUR, custom)* ID cards, enrollment* Claims processing, drug pricing* Mail service* Clinical services, MTM* Product switching* Pharma contracting* Member services* * PBM services commonly purchased by health plans 28 9

10 Role of PBMs Pharmacy benefit managers (PBMs) specialize in developing and managing prescription drug benefits Provide comprehensive carve-out pharmacy benefits to self-funded plan sponsors Sell custom pharmacy benefit programs designed to meet customer cost and benefit benefit richness objectives Sell a la carte services to supplement health plan pharmacy department programs PBMs develop a national formulary, but also customize formularies for customers Most health plans develop and manage their own formulary with consideration of PBM contracts and recommendations PBMs leverage total customer membership to obtain desirable contracts with pharma companies on brand drugs 29 Managing the Specialty Spend Trend 3 0 Specialty Benefit Challenges Plans and payers share challenges of managing specialty pharmaceuticals. Oncology presents unique challenges due to high drug cost, variable outcomes, safety concerns, and the nature of cancer. Source: EMD Serono Specialty Digest, th Ed,

11 Specialty Pharmacy Benefit Source: RP Navarro. 32 Specialty Drug Spend Categories 33 Opportunities to Reduce Spend Medicare 205 Overall Drug Cost Trend Identify trend contributions Cost Utilization Reduce waste Manage Site of service - impatient faculty to outpatient Select CE drug - formulary management Manage patient exposure - prior authorization Optimize patient experience - patient education Minimize adverse events - patient monitoring Optimize drug inventory, dispensing, and delivery Optimize medical benefit reimbursement Maximize patient outcomes - monitor, measure, manage 3

12 Special Pharmacy Goals EMD Serono Specialty Digest, th Ed. 35 Reimbursement Methods Source: EMD Serono Specialty Digest, 2th Ed, Specialty Pharmacy Services EMD Serono Specialty Digest, th Ed. 37 2

13 Price vs Value Value has different meanings to various stakeholders. Often value to decision-makers receives top priority. Economic Clinical Humanistic 3 8 Value is Variable Pharmaceutical companies What is drug market potential? What is value-based price? National Health Systems Pay for new HCV drug or free pediatric vaccines? If HCV drug, which is best drug? Health care systems Which new drug offers clinical and economic value? Does efficacy translate to effectiveness in the real-world? Pharmacist and patient What is best drug for THIS patient now? What drug is most tolerable? Offer best adherence? What dose the patient prefer? 3 9 Which Drug Offers Most Value? 0 3

14 Price and Cost Influence Value Source: RP Navarro, Source: RP Navarro,

15 Net Cost Comparisons Identifying true net costs of drug options requires understanding of medical and pharmacy benefit reimbursement. Drug choice decisions have different cost impact on various stakeholders. Example: SQ Enbrel vs IV Remicade for RA maintenance. 8-Week Units ASP Patient MD Calculat Rebate Unit AWP 8 AWP - Unit WAC 8 ASP ASP + Net Rx RA dose Equiv. for 8 0 mg Cost Infusio ed Rx 30% of AWP weeks % WAC weeks 200 mg 3% Cost Dose Weeks J75 Share* n Fee Cost WAC Enbrel 50 mg prefilled week syringes 50 mg q 8 $6 8 $92 $22 $52 $096 $200 $2796 $229 $567 syringe 3 mg/kg q 8 weeks Remicade (0 lb = 00 mg/0 2 vials $286 2 $2572 $82 $66 $860 $0? $200 $ kg x 3 ml vial = 89 mg = 2 vials *Cost share = 20% up $200 max OOP Oncology Management Oncology is a unique challenge due to the high cost, tolerability, variable drug, outcomes and the nature of the disease. Source: EMD Serono Specialty Digest, 2th Ed, The Hope of Biosimilars Payor have great expectations for biosimilars, but FDA approvals have been slow to come. 6 5

16 US Biosimilars The drug, called Zarxio, produced by Sandoz, is used to help prevent infections in cancer patients receiving chemotherapy. It is a close copy of an existing medication called Neupogen, made by Amgen. It was approved in Europe in 2009 as Zarxio but has not been used in the United States, because no regulatory pathway existed to bring biosimilars approximate copies of drugs in a class known as biologics to market. The approval is significant because it opens the door to a new class of potentially cheaper lifesaving drugs for millions of Americans. It involves biologic drugs, which are made using living cells and not synthesized from chemicals like typical drugs. Zarxio has all 5 indications Neupogen 300 mcg/0.5 ml = $32 J-Code = J2 Inj filgrastim excl biosimilar Zarxio 300 mcg/0.5 ml = $275 J-Code = Q50 Inj filgrastim gcsf biosimilar Granix has indication (SN) (J-Code - J7 7 Pipeline Biosimilars Lagging behind the EU, the US FDA has been slow to establish a biosimilar approval pathway, and has approved only 3 in the US. Payers will expect a minimum 2% net cost differential to prefer a biosimilar. Source: IMS Health, Lifecycle R&D Focus, Dec 205; IMS Institute for Healthcare Informatics, Mr Future Trends 9 6

17 Causes of Future Spend Management of net cost and utilization rate are necessary to promote the appropriate use of cost-effective pharmaceuticals. 50 Linking Costs to Programs 5 Performance Outcomes Contracts EMD Serono Specialty Digest, th Ed

18 Indication-Specific Pricing Same drug has different prices for each approved indication based upon clinical value for each indication. Source: ICER Indication Specific Pricing, March Future Specialty Management Primary strategies include site-of-care management and oncology management. Companion diagnostics hold promise to identify best drug candidates to achieve the best, safety outcomes. Source: EMD Serono Specialty Digest, th Ed, Opportunities to Reduce Spend Medicare 205 Overall Drug Cost Trend Identify trend contributions Cost Utilization Reduce waste Manage Site of service - impatient faculty to outpatient Select CE drug - formulary management Manage patient exposure - prior authorization Optimize patient experience - patient education Minimize adverse events - patient monitoring Optimize drug inventory, dispensing, and delivery Optimize medical benefit reimbursement Maximize patient outcomes - monitor, measure, manage 55 8

19 Robert P. Navarro, PharmD Clinical Professor Department of Pharmaceutical Outcomes & Policy University of Florida College of Pharmacy Gainesville, Florida Mobile/Text: Online MS program website: