The Declining Value of Payer Access: Defining and improving Rebate Efficiency in the current healthcare landscape

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1 The Declining Value of Payer Access: Defining and improving Rebate Efficiency in the current healthcare landscape Lucas Greenwalt, Senior Principal Amundsen Consulting Prepared for: CBI Gross to Net Boot Camp Date: June 2017 Copyright 2016 QuintilesIMS. All rights reserved.

2 Executive Summary 1. Manufacturer rebates have risen over the past decade directly pressuring gross to net margins NDC blocks, which were first utilized by Medicare Part D payers, are now commonly seen amongst the large Commercial PBMs Price protection clauses have decreased the effectiveness of pricing strategy to offset growing rebates 2. At the same time, patient cost sharing has increased through higher deductibles and higher preferred and non-preferred co-pays Average Commercial preferred co-pay was $20-25 in 2013 vs. $30-$35 in 2015 Average Commercial non-preferred co-pays climbed from $40-50 in 2013 to $50-60 in 2015 Increased utilization of pharmacy deductibles has caused the average patient co-pay to spike in Q1 3. As patients face higher cost sharing, patient abandonment increases while adherence decreases thereby lowering the total days of therapy consumed 4. The average co-pay offset cost increased +55% from Jan 2014 to Jan 2017 further pressuring gross to net margins 5. As the Medicare Part D Coverage Gap closes between now and 2020, manufacturers will see total rebate costs continue to climb as more patients remain in the coverage gap for longer periods of time 6. The combined effect of higher rebates, increased patient cost-sharing and the growing cost of co-pay offset programs have led to a decrease in rebate efficiency Increased variation in benefit design from payer to payer and across geographies must be analyzed in order to determine how to best mitigate decaying margins 2

3 Net prices continued to increase more slowly than invoice prices Protected Brand Invoice and Net Price Growth 15% 13.7% 11.4% 12.0% 10% 9.3% 10.0% 9.2% 8.8% 9.1% 5% 4.8% 4.5% 2.5% 3.5% 0% Estimated Net Price Growth % Brands Invoice Price Growth % Source: QuintilesIMS, National Sales Perspectives, Dec 2016; QuintilesIMS Institute Medicines Use and Spending in the U.S. A Review of 2016 and Outlook to Report by the QuintilesIMS Institute. 3

4 Demand efficiency for newly launched products has declined each of the past 5 years as restrictions grow Source: QuintilesIMS Formulary Impact Analyzer (FIA); Amundsen Consulting Analysis ; 14 day look forward applied 4

5 Manufacturer rebates have increased over time due to more restrictive payer utilization management controls and tighter formularies Average manufacturer rebates continue to climb and have grown +33% since 2010 By 2019, the average manufacturer rebate load is forecasted to be 47% 60 Manufacturer Rebates as a Percentage of Gross US Sales ( ) +33% Average Manufacturer Rebates % Source: 2016 Credit Suisse Rebates Report* 5

6 National and regional payers are shifting more cost onto patients through benefit designs with higher co-pays and pharmacy deductibles Generic Tier Commercial Payer 1 Benefit Design Preferred Brand Tier Non- Preferred Brand Tier 2015 Average Pharmacy Deductible Percent of Claims 2Q13 2Q15 Growth $10.01-$15 $35.01-$40 $60.01-$65 $ % 28% 12.00% $15.01-$20 $ $75.01-$80 $ 550 0% 10% $0-$5 $5.01-$10 $20.01-$25 $ 450 9% 8% % $5.01-$10 $20.01-$25 $35.01-$40 $ % 7% % $10.01-$15 $20.01-$25 $45.01-$50 $ 300 2% 2% 0.00% Generic Tier Commercial Payer 2 Benefit Design Preferred Brand Tier Non- Preferred Brand Tier 2015 Average Pharmacy Deductible Percent of Claims 2Q13 2Q15 Growth $10.01-$15 $35.01-$40 $70.01-$75 $ 450 9% 16% 77.78% $5.01-$10 $30.01-$35 $55.01-$60 $ % 16% 6.67% $5.01-$10 $30.01-$35 $55.01-$60 NA 11% 12% 9.09% $5.01-$10 $25.01-$30 $45.01-$50 NA 8% 9% 12.50% $10.01-$15 $25.01-$30 $55.01-$60 $ % 8% % The second largest benefit design was not even available in 2013 The largest, and fastest growing, benefit design has high co-pays and a pharmacy deductible Sources: IMS RxBD ; IMS Health Formulary Impact Analyzer Jan 2013 Aug 2015; IMS MM Strategy Analysis. 6

7 Average Prescription Cost Sharing (US$) Co-pay card costs are directly pressuring margins as increases in patient cost exposure due to deductibles and coinsurance drive patient cost sharing higher Avg. Patient Cost-Sharing and Buy-Down in Coupon-Adjudicated Claims (Commercial, Brands) $200 Buy Down Initial Cost Exposure Final Out-of-Pocket Cost $150 $127 $152 $165 $100 $106 $50 $0 Note: Averages are calculated among paid claims where a co-pay card is used as the secondary payer and normalized to 30 days; Source: QuintilesIMS Formulary Impact Analyzer; Amundsen Consulting analysis 7

8 The combination of these factors negatively affects the value in days of therapy gained i.e., the rebate efficiency from access contracts Declining Rebate Efficiency: Forces at Play Demand / Utilization Factors Margin Factors Restrictive Formulary Designs Higher Patient Copays and Deductibles Increasing Patient Abandonment Net Sales Declining rebate efficiency is a factor of both demand and margin pressures Higher Rebates Medicare Part D Coverage Gap Liabilities Price Protection Guarantees Declining Patient Adherence Higher Copay Offset Costs Source: IMS MM Strategy Analysis 8

9 In the commercial channel, the value of preferred access contracting declined between 2013 and 2015 as retail co-pay levels increased A preferred access commercial rebate added 30 days of therapy in 2013 but only 14 additional days in 2015 Commercial preferred access rebate efficiency has declined faster than non-preferred access rebate efficiency Most Prevalent Co-pay Benefit Design Commercial Average Patient Days of Therapy Commercial Preferred Access +$15 $ $20 $50-60 $ % % -3% Non Preferred Access $ % Increased Patient Co-pays: Average co-pays increased in both the preferred and non-preferrd tiers between 2013 and The observed co-pay increase was higher in the preferred tier vs. Non-preferred tier (75% vs. 50%) Decreased Days of Patient Therapy: The value of preferred access decreased days of patient therapy declined by 16 days between 2013 and 2015 Sources: IMS RxBD ; IMS Health Formulary Impact Analyzer ; IMS MM Strategy Analysis. 9

10 In contrast, the value of preferred access in part D actually increased between 2013 and 2015 due to the growing gap in co-pay tier cost sharing Unlike in the commercial channel, the value of preferred status actually went up in Part D due to a greater increase in the non-preferred tier co-pays relative to preferred tier co-pays A preferred access Part D rebate added 14 days of therapy in 2013 vs. 37 additional days in 2015 Most Prevalent Co-pay Benefit Design Medicare Part D Average Patient Days of Therapy Medicare Part D $ $35 $ % $ % -11% Preferred Access Non-Preferred Access $35-40 $ % Increased Patient Co-pays: Co-pay increase was lower in the Preferred tier vs. Non-preferred tier (13% vs. 27%). Thus, patient price sensitivity likely increased for non-preferred products Decreased Days of Patient Therapy: Value of preferred access increased days of patient therapy gained with preferred access increased by 23 days between 2013 and 2015 Sources: IMS RxBD ; IMS Health Formulary Impact Analyzer ; IMS MM Strategy Analysis. 10

11 Percentage of Cost Sharing in the Coverage Gap Marketplace Landscape However, Coverage Gap liabilities are set to rise as Baby Boomer s become Medicare eligible and benefit designs change CMS estimates that an additional 18M people will become Medicare eligible between now and 2020 Lower patient spend will mean longer time in the gap at the same time as pressure from payers will increase to offset growing structural liabilities Medicare Part D Standard Prescription Drug Benefit Design in the Coverage Gap ( ) 100% 90% 80% 70% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% Manufacturer Rebate Payer Pay Patient Pay 60% 50% 40% 2.5% 2.5% 5.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30% 20% 10% 50.0% 50.0% 47.5% 47.5% 45.0% 45.0% 40.0% 35.0% 30.0% 25.0% 0% Year Source: Centers for Medicare and Medicaid Services; Kaiser Family Foundation; Amundsen Group 11

12 Strategies required to mitigate declining rebate efficiency are interdependent and must be considered holistically Key Margin Factor Demand/Utilization Factor 1. Patient Cost Share Analysis 2. Plan Design and Patient Cost Sensitivity Analysis 3. Patient Adherence Programs Patient Strategies Gross to Net Strategies 1. Optimal Product Pricing 2. Assessment of Net Patient Value 3. Co-pay offset program evaluation Payer Strategies Will Drive 1. Payer Contracting and Approach 2. Determination of Contract Effectiveness 3. Measurement of Payer Restrictions and Impacts Improved Rebate Efficiency Source: IMS MM Strategy Analysis 12

13 Brand X Case Study - Top and bottom line implications of declining rebate efficiency Commercial Case Study % Change +10% Growth Demand/ Utilization Factors Margin Factors Patients 1,000 1,000 Market Growth -6% (60) -6% Loss to Restriction (%) 1-23% -27% (230) (254) 10% Loss to Abandonment (%) 1-15% -18% (150) (169) 13% Remaining Patients % Annual Days of Therapy % Total Days of Patient Therapy 109,740 65,142-41% WAC Per Day of Therapy ($) $6.90 $ % Gross Sales($) $757,206 $534,164-29% Rebates 2 (%) -54.6% -58.6% 7% Rebate Cost $(413,434) $(313,020) -24% Average Copay Buydown 1 ($) $27 $31 15% Copay Program Cost 3 ($) $(36,288) $(49,848) 37% Net Sales After Rebates 4 $307,484 $171,296-34% Margin 41% 32% -22% +98% +135% -50% IMS Managed Markets Analysis; 2 Credit Suisse 2015 Global Report; 3 Coupon Penetration Rates were 18%(2013) and 26% (2015) ; 4 Other net sales drivers include distribution, discounts, indirect bids and returns 13

14 The impact of this phenomenon ranges nationally due to regional variations in patient cost sharing Average Primary Co-pay Differential for Brand X Patients by State (Commercial Only) 2013 vs % 52% Sources: IMS Health Formulary Impact Analyzer Jan Dec 2013, Jan Dec. 2015; IMS MM Strategy Analysis. 14

15 Where is the market headed? 2019 Rebate Efficiency Demand / Utilization Factors Margin Factors Formulary Restriction: Use of exclusions will increase from 2015 Patient Cost Sharing: Co-pay inflation will continue to rise Patient Abandonment: Abandonment could grow by +40% from 2015 Net Sales Increased pressure on demand/utilization will continue to lower patient value while margin costs grow both in total dollars and as a percent of gross sales Higher Rebates: Forecasted to grow to 47% by 2019 Coverage Gap: Rebates will increase as patients stay in the gap longer Price Protection: Downward price pressure will continue Patient Adherence: Adherence could decline by +20% from 2015 Co-pay Offset: Buy-downs could grow by +50% by 2019 Source: IMS MM Strategy Analysis 15

16 Overall, an integrated approach is needed to mitigate the impact of macro level trends driving declining rebate efficiency Market Analysis Payer Segmentation and Engagement Patient Value Maximization ROI Optimization Market Trends and Product Share Analysis Channel and Geographic Value Analysis Benefit Design Trend & Concentration Analysis Payer UM control Analysis Payer Contracting Strategy Rebating and Access Value Analysis Patient Sensitivity Analysis Patient Assistance Program Design Net Patient Value Analysis Pricing Strategy Optimization Contracting Effectiveness Evaluation Patient Adherence Program Optimization Improved Rebate Efficiency Ongoing Evaluation Key Margin Factor Demand/Utilization Factor Source: IMS MM Strategy Analysis 16

17 Manufacturers must understand the impact of declining rebate efficiency on their brands in order to protect both demand and margin Access is required in order to successfully promote a product, but the shifting value of preferred and nonpreferred tiers is quickly eroding both patient demand and gross to net margin The speed of change is accelerating as more benefit designs with higher cost sharing are being used to offset the growth of health care premiums by both employers and enrollees Traditional pricing and access strategies must be challenged in light of recent cost sharing and access trends Knowing which payers have the most value erosion, and where that erosion is occurring, will both inform contracting strategy and highlight subnational geographies where investment will yield the highest return More focus needs to be placed on how to improve net patient value through patient acquisition and retention strategies Strategic forecasting should include elements of declining patient value and lower rebate efficiency due to rebate inflation, benefit design evolution and growing patient cost burdens throughout a product s lifecycle 17

18 Datasets Utilized IMS Data Assets Data Asset Rx Benefit Design (Rx BD) IMS Rx Benefit Design provides retail claims (TRxs) by benefit design at the plan and channel level (i.e., Medicare Part D, Medicaid [Managed Medicaid plans only], commercial and third party) Applications* Investigating impacts of benefit design on patient behavior through volume and share analysis of products across different benefit designs Geographic analysis of incidence and impact of benefit designs Physician segmentation based on concentration/mix of patient population (e.g., LIS patient volume) Estimating the dollar value of payer contracting at specific benefit tiers Formulary Impact Analyzer (FIA) The FIA dataset longitudinally tracks claims adjudication between retail entities, patient and payer at the point of sale. The data captured provides insights into the impact of utilization-control measures enforced by managed care organizations Measurement of patient cost sensitivity thresholds and behavior Insights into drug substitution trends / behavior of both payers and patients Creation of unique market definitions at both the product and payer levels Assessment impact of payer UM control Investigation of channel specific insights; e.g. co-pay card usage in commercial channel etc. *Not an exhaustive list 18