CBI 4th Reimbursement and Contracting Conference: Key Challenges Related to Specialty Drug Pricing and Contracting

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1 CBI 4th Reimbursement and Contracting Conference: Key Challenges Related to Specialty Drug Pricing and Contracting Avalere Health An Inovalon Company February 28, 2017

2 Growth in Drug Costs Relative to Overall Health Expenditures 14% NHE and Rx Spend Annual Growth 12% 10% 8% 6% 4% 2% 0% National Health Expenditure Rx Drug Spend Source: Table 03 National Health Expenditures, by Source of Funds **Includes Children's Health Insurance Program (Titles XIX and XXI), Department of Defense, and Department of Veterans Affairs. ***Includes worksite healthcare, other private revenues, Indian Health Service, workers' compensation, general assistance, maternal and child health, vocational rehabilitation, other federal programs, Substance Abuse and Mental Health Services Administration, other state and local programs, and school health. ****Includes co-payments, deductibles, and any amounts not covered by health insurance. Martin, A.B., et.al. National health spending: Faster growth in 2015 as coverage expands and utilization increases. January Health Affairs 36 (1). 2

3 High Specialty Drug Spend Fuels Ongoing Interest in Identifying Management Strategies for Specialty Drugs Specialty drugs, including orphan drugs, make up one quarter of total drug spend 35.0% PHARMACY DRUG SPEND GROWTH, COMMERCIAL BOOK OF BUSINESS*, % 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% ** 2016** 2017** SPECIALTY DRUG TREND TRADITIONAL DRUG TREND OVERALL DRUG TREND *Represents the pharmacy benefit only. **Projected drug spend data. Source: Express Scripts. The 2014 Drug Trend Report. March

4 Specialty Products Will Dominate the Market Pharmacy Industry Revenues, Traditional vs. Specialty Drugs, $600 Specialty Drugs Traditional Drugs $500 $400 $300 $270 B $200 $100 $0 Specialty as % of Pharmacy Industry Revenues $233 B $41 B $266 B $98 B $212 B % 27% 44% As specialty drugs play an increasing role in care delivery, manufacturers will continue to rely on high-touch specialty services to support their products Source: Fein, Adam. The 2016 Retail on Retail, Mail, and Specialty Pharmacies, Drug Channels Institute, January Available at: 4

5 Drug Pricing Transparency Is Rising With Manufacturers and Likely Will Affect Contracting Dynamics At Janssen, we generally limit our annual aggregate list price increase to single digit percentages...in 2016, after taking into account discounts and rebates to insurers, pharmacy benefit managers and others a total of approximately $11 billion in the U.S., or a discount rate of 35.2 percent the aggregate net impact of price on our U.S. business was 3.5 percent Janssen U.S. Transparency Report In 2016, our gross US sales were reduced by 40.9% as a result of rebates, discounts and returns. -Merck - Pricing Action Transparency Report 2016 Sources: Janssen U.S. Transparency Report. Released and accessed on February 27, Merck - Pricing Action Transparency Report Accessed on February 27,

6 Price Minding the Value Gap Through Outcomes Based Contracts Perceived Value Patient Value Societal Value Outcomes based contracts can help address the gap Pharmaceutical Company- the Promise Value based on product potential Evidence Based Value Economic Value Clinical Value Baseline Value Payers- the Reality Value based on the evidence available 6

7 Underlying Causes of Concern about Drug Prices Will Continue to Drive Policy Focus *Kaiser Health Tracking Poll, September

8 Common Themes in Proposals to Address Drug Prices Transparency R&D Spending Minimums Promote Competition Medicare Price Controls Require manufacturers to disclose drug-specific R&D costs, sales and marketing budgets, cost of production, and profit Require manufacturers to invest a minimum percentage of revenue on R&D Antitrust waiver to allow PBMs to collectively negotiate rebates Modify FDA policies to accelerate secondto-market drugs Permit government price negotiations in Part D Extend Medicaid rebate to Part D lowincome subsidy (LIS) Drug Importation Value-based Payments Reduce Exclusivity Limit Consumer OOP Costs Permit importation of drugs from Canada or other countries Create value frameworks and CER to assess relative product benefit Tie contracts and/or Medicaid rebates to product value and outcomes Reduce biologic exclusivity from 12 to 7 years Cap cost-sharing for drugs in commercial and exchange plans CER: Comparative Effectiveness Research PBMs: Pharmacy Benefit Managers OOP: Out-of-pocket 8

9 High Cost Drugs Impact Many Key Areas of Health Law & Policy Fraud & Abuse Marketing & Promotion Price Reporting Privacy State Laws Anti-Trust Strategic Contracting Enforcement False Claims Medicare & Medicaid Policy More 9

10 Best in Class Vendors are Able to Provide Comprehensive Specialty Support Services Case Managers Reimbursement Support Specialty Pharmacies In-Take Education Enrollment Field Teams Compliance Coverage Authorizations Cost Share Data Aggregation Script Triage Drop Ship Pharmacy Fill Administration Dispense Data Clinical Dispense Data Coordination & Analytics Unified Case Management and Communications Platform & Tools 10

11 PBM Expansion Towards Greater Impact on Access and Pricing of Drugs Rebates have doubled in the last four years to reach $130 Billion* Claims Processing Fees Pharmacy Network Spread Utilization Management Fees Rebates & Fees Mail Order & Retail Pharmacy Specialty Pharmacy & Services * Source: Avalere Health; ZS Associates 11

12 Commercial Payers in the US Are Addressing Growing Cost Pressures THREE MAJOR TRENDS CAN BE SEEN ACROSS US COMMERCIAL PAYERS 1 Benefit Design Integration of medical and pharmacy benefit Tiered in-network providers 2 Utilization Management Site of care prior authorization/edits Restriction of copay assistance programs 3 Competition in Contracting Crowded therapy areas raising the bar Movement from % rebate to outcomes based contracts Source: Avalere Analysis of the Payer Marketplace. June

13 Site of Care Optimization Encourages Use of Lower- Cost Settings for High-Cost Drugs Physician Administered Drugs May Be Administered in a Variety of Settings of Care HOPD Physician Office Infusion Centers Retail Clinics Home Patient shifted to lower cost setting SOC optimization may reduce payer and patient expenses by shifting where a patient receives a physician administered drug to a lower cost setting of care when clinically appropriate. 13

14 Payments Vary Across Sites of Care Based on Reimbursement Methods 100% 4% 9% 11% 7% 12% 0% 90% 7% 2% 5% 0% 7% 9% 80% 9% 9% 11% 70% 14% 12% 5% 5% 9% 60% 50% 40% 58% 49% 47% 30% 30% 61% 20% 18% 37% 10% 0% Specialty Pharmacy 18% Nononcologist Physician Office 21% 14% Oncologist Office Outpatient Hospital Home AWP ASP % of Billed Charges Capitation WAC More Than 1 Method AWP: Average Wholesale Price ASP: Average Sales Price WAC: Wholesale Acquisition Cost Source: EMD Serono Specialty Digest: Managed Care Strategies for Specialty Pharmaceuticals, 12 th Edition,

15 Converging Market Forces Encourage Plans to Optimize Site of Care Delivery System Changes Physician Consolidation SOC Optimization Patient Cost-Sharing Rising Costs Physician Preferences Site of care (SOC) programs provide the opportunity leverage the intersection of these market forces to shape behavior across stakeholders 2

16 Payers Have Used a Variety Approaches To Direct Site of Service 85% Plan to Utilize Prior Authorization Within 12 Months (29% current, 56% future) 79% Plan to Recommend Alternative Site After First Infusion Within 12 Months (29% current, 50% future) 73% Plan to Incentivize With Lower Cost Share Within 12 Months (17% current, 56% future) OptumRx Specialty Pharmacy, OptumRx and United Health Group When a new specialty drug is approved, all three organizations examine which distribution channel is most appropriate For self-administered specialty drugs, SPP is the default channel and OptumRx Specialty Pharmacy is the preferred partner Medical benefit specialty drugs are administered across several locations To determine appropriate settings of care, UHC and OptumRx developed evidence based guidelines through a clinical review, and then incorporated them into UHC s Medical Necessity review criteria Source: EMD Serono Specialty Digest, 11th Edition, Managed Care Strategies for Specialty Pharmaceuticals,

17 Payers Continue to Use a Variety of Strategies to Promote Lower-Cost Settings of Care Coverage Restrictions Require administration of certain drugs at lowcost sites through PA PA requirements at higher cost settings of care may push utilization to other lower cost sites Site Normalization Encourage administration of certain drugs at low-cost sites through lower patient cost-sharing Eliminate site-of-care cost differences by aligning payment for the same service at different sites Patient Engagement Educate patients and create rewards for preferred settings Requires patient understating of potential for savings and plan communication Implementation of site-of-care initiatives has the potential to save plans between 12% and 34%, up to $1.7 billion nationally per year. Currently, 44% of payers use at least 1 site-of-care redirection program. Source: spcma, The Management of Specialty Drugs. Available at: EMD Serono Specialty Digest: Managed Care Strategies for Specialty Pharmaceuticals, 12 th Edition,

18 Growing Interest in Innovative Contracting U.S. PAYER INTEREST BY SPECIALTY THERAPY AREA Hepatitis C 10% 13% 15% 40% 23% n=40 Oncology 13% 18% 18% 33% 20% n=40 Multiple sclerosis 18% 20% 28% 20% 15% n=40 Rheumatoid arthritis 20% 13% 28% 28% 13% n=40 Hemophilia 41% 22% 24% 5% 7% n=41 IBD 21% 28% 28% 18% 5% n=39 HIV 25% 28% 28% 15% 5% n=40 Growth deficiency 49% 27% 20% 5% n=41 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Very low Low Moderate High Very high Source: Avalere Payer Research and Analysis. Q: In your opinion, what would be your organization's interest in entering into a performance-based risk-sharing agreement with manufacturers in any of the following disease areas? 18

19 What are Some Potential Benefits of Implementing an OBC in Today s Market Environment? Manufacturers Payers & Providers All Stakeholders Real-world value demonstration, including differentiation within a crowded market Facilitate patient access to beneficial treatments through more favorable coverage/tier placement Improve efficacy of postmarket surveillance, as a result of improved data infrastructure, standards, and monitoring and analysis Additional payments and/or discounts from manufacturers tied to product value Improve provider performance and quality of patient care by aligning payment with performance/ value metrics specified in pilots Stimulate adoption of consumer tools to increase compliance and adherence to treatment plans Encourage collaboration between stakeholders, which may increase the predictability of coverage and reimbursement processes Identify patient populations that will benefit most from treatment Enhance understanding and predictability of key value metrics in real-world settings 19

20 Stakeholders Exploring Outcomes-Based Contracting Cigna, Aetna enter outcomesbased contract with Novartis for heart drug Contract includes a base rebate that will go up or go down if patients on Entresto see reduced hospitalization due to heart failure Harvard Pilgrim cements riskbased contract for cholesterol drug Repatha Amgen will have to provide larger rebates if patients' cholesterol levels are not lowered to what was observed during clinical trials Cigna signs agreement with Gilead to improve affordability of Hepatitis C Treatment for customers and clients Gilead anticipates that Harvoni 's clinical effectiveness, safety, and convenience will deliver material health and financial outcomes to patients through innovative customer contracts 20

21 Key Factors That Facilitate Success of OBCs PRODUCT RELATED Clearly defined and measurable outcomes and simple methods to ascertain effect Treats easily identifiable patient populations via customer data High-budget impact from high costs and/or high volume Addresses unmet need, variable treatment duration, and uncertain long-term benefits CONTRACT RELATED Partner agreement on appropriate outcome measures, patient population, timelines, and funding Transparent contract processes to foster trust and predictability Clear and well-communicated data collection and analysis protocols Feasibility of generating sufficient evidence within specified timeframe Contract linked to disease and/or treatment costs, not price IMPLEMENTATION RELATED Adequate data infrastructure to collect data Reasonable administrative burden Provider incentives to recruit patients, use product, monitor data collection, and facilitate and assess patient compliance Availability of patient education and compliance tools Monitor progress regularly to address challenges and ensure timely completion ROI visible within 1 year for payer ROI: Return on Investment 21

22 New Platforms Can Drive Specialty Care Coordination Through Population Health Data Payers & ACOs Data Sources Big Data Analytics Communication Platforms Retail-based Clinics MORE 2 Registry Design, Research & Proprietary Functionality Patients & Providers Research, Pharma & Life Sciences 22

23 SPPs Have the Potential To Capture Data Insights and Data-Driven Interventions SPP Opportunity for Robust Data Coordination & Analytics Customer Care Intake Patient Education Program Enrollment Product Coordination Pharmacies Dispense Rx Product Administration Reimbursement Support Coverage Authorizations Cost Share 23

24 CBI 4th Reimbursement and Contracting Conference: Key Challenges Related to Specialty Drug Pricing and Contracting Avalere Health An Inovalon Company February 28, 2017