IT S WHAT YOU CAN T SEE THAT HURTS YOU IS THE PHARMACEUTICAL INDUSTRY REPLACING EXISTING MEDICATIONS WITH MORE EXPENSIVE MEDICATIONS?

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2 SPECIALTY DRUGS Many plan sponsors have had to make difficult and painful choices about how to spend pharmacy benefit dollars But now payors are once again challenged not just by extremely high costs but also the ethical dilemma posed by specialty pharmaceuticals high-tech, high-dollar, injectable medications

3 IT S WHAT YOU CAN T SEE THAT HURTS YOU IS THE PHARMACEUTICAL INDUSTRY REPLACING EXISTING MEDICATIONS WITH MORE EXPENSIVE MEDICATIONS?

4 SPECIALTY RX ON THE RISE Biotech industry is expanding much more rapidly than traditional pharmaceuticals Pharma is moving toward more biotech because it is a fast growing business safe from generic competition, at least for now

5 WHAT MAKES THEM SPECIAL Made out of living cell cultures instead of simple molecules Typically made of living cells through genetic engineering Almost impossible to make exact generic copies Generic biotech drugs still in the early stages of FDA pathway Although biogenerics could save billions estimates are about $3.5 billion the first year bills paving the way for cheaper biotech drugs are pending in Congress

6 BIOTECH DRUG GROWTH

7 2006 AND PROJECTED 2010 SPEND FOR BIOTECH MEDS

8 SPECIALTY DRUG COSTS Account for $54 Billion in drug spending 20% of the $275 Billion total pharmacy spend Annual cost per patient ranges from $10,000 to $1M 28% annual growth over last 5 years (14% for traditional pharma) Source: Express Scripts 2006 drug trend report

9 MANAGING THE BIOTECH EXPLOSION 90 available today 600 in FDA approval process 276 biotechnology medicines currently in development (2006) Annual cost of biotech drugs growing twice as fast as traditional drugs Average annual cost per utilizing patient can be between $10,000 to $1 million Plan Sponsor spends 10% of drug costs on biotech agents for 0.4% of members

10 LEADING THERAPY CLASSES Rheumatoid Arthritis Multiple Sclerosis Hepatitis C Psoriasis Oncology Pulmonary Arterial Hypertension Source: ExpressScripts

11 COST OF WONDER average prescription for these medicines runs more than $1,500 and top $100,000 a year. By contrast, conventional brand-name pills for problems such as high blood pressure, high cholesterol and depression run roughly $90 to $120 a month. fresh evidence that so-called specialty pharmaceuticals are among the biggest drivers of escalating health costs. Source: Wall Street Journal

12 COST OF WONDER Cancer drug prescriptions rose 15.8% to over $1,800 a month and much more Tykerb, a new drug approved for breast cancer cost $2,900 a month, Cost for an oral drug for multiple mylenoma increased last year by 27.8% to $4,732/month Monthly Treatments for MS rose 12.1% to more than $1,600 Pulmonary-arterial hypertension treatment Letairis now cost $4,060 a month Source: Wall Street Journal

13 IMPACT ON HEALTH PLANS 0.2% to 1% of patients 8% to 30% of medical costs

14 DELIVERY OF DRUGS CAN HAVE MAJOR IMPACT These new biotech drugs can be delivered in a variety of settings which could leave health plans with inadequate catastrophic coverage Inpatient Outpatient At home In Physician s office

15 SPECIALTY DRUG COSTS Working through the impact of trend we recognized unprecedented changes in AWP in the top 3 classes for Specialty Drugs in 2006 and 2007, especially during the last quarter of 2007 Some plans are managing this trend by adopting rules governing drug selection usage and dose Or requiring members to start treatment on the lowest priced drug first, advancing to more expensive drugs only if cheaper versions don t work Source: ING Re

16 PLAN DEVELOPMENT Specialty strategy needs to be aligned with your health plan s mission What is included in your Specialty category? Only self injectables Infused drugs Treatment requiring monitoring Management of the overall case Are they life saving, or do they support lifestyle? Psoriasis Macular Degeneration What drugs belong on the pharmacy side vs. medical benefit side?

17 PHARMACY SERVICE Internal Medical Management Coordinating all care including biologics Partnership with pharmacy which can leverage nursing and infusion center contracts Point of Sale Local infusion center PDL to maximize compliance and pricing discounts

18 PHARMACY SERVICE External Medical Management Well-managed program can realize improved clinical and financial outcomes Guideline management/evidence based program provide for the review of medical necessity

19 CASE STUDY A health plan in the mid-west with 30,000 members looked to us to advise them on ways to control their specialty spend. They had an exclusive agreement with the specialty pharmacy owned by their PBM Yet they had a cloudy understanding of why their costs were escalating We reviewed their contract and utilization and flushed out the following; Generic biologicals were not discounted as generics The PBM was adding new drugs to the formulary without the plan s knowledge and with no default rate, a new brand growth hormone was added to the formulary while the new generic growth hormone was not Drugs that were limited to certain pharmacies by the manufacturer were not being discounted Their benefit design was allowing for 90 day fills, and a one month supply allowed for 34 days

20 CASE STUDY We took them through the steps to craft a strategy We asked them to define what they want included Create their own list Review and edit prior auth criteria Decide how they wanted their members to receive their drugs

21 CASE STUDY Involve their top prescribers Decide what drugs should be paid by pharmacy vs. medical Analyze medical data to flush out drugs and spend Put out an RFP for Specialty Leverage our knowledge of the market 10 Specialty RFPs in 2007 Create a PDL Require rebates Require MAC rates

22 CASE STUDY Set default rates to be negotiated later Create a custom formulary Requiring any new drugs that become available to be presented to the plan s medical director for approval to be added to the formulary

23 CASE STUDY Leverage the deepest discounts that we had for larger plans and pushed for deeper discounts on more utilized, costly drugs Discounts are a start Fabryzyme took from -13% to -17% Remodulin was being paid on a medical claim with no discount First contract moved it to AWP-4% Revised contracting a year later moved it to AWP-10%

24 CASE STUDY Assist the plans with monitoring contract performance Assist the plans with monitoring increases in AWP A health plan in the west with 23,000 members who has an open specialty network is looking at an increase of $115,000 for their top three specialty drugs based on December AWP, an increase representing 17.6% to 26%

25 IS IT TIME TO CRAFT A STRATEGY FOR SURVIVAL? Determine what is considered specialty Get buy in Assess internal capabilities Create a timeline Study the market capabilities Negotiate

26 ON BEHALF OF EVERGREEN RX Thank you Craig Stephens, Senior Vice President Evergreen Rx, Phone: Cell: Carol Ann Folkman, Evergreen Rx Senior Pharmacy Consultant Phone: Cell: