Pharmacy Trend Management

Transcription

1 Pharmacy Trend Management Strategies for Maximizing the Value of Your Pharmacy Spend Presenter's Name Presentation Date May 1, 2008

2 Today s speakers Bridget Eber, Pharm.D. Principal and National Pharmacy Practice leader at Towers Perrin Diverse background in the pharmacy practice with experience that spans 30 years Bridget is a frequent speaker at seminars and conferences in the U.S. and abroad, frequently writes on pharmacy benefits and serves as an expert resource to the investor community, pharmaceutical manufacturers and government agencies She holds a B.S. and a Pharm. D. from the University of Illinois Trevor Morris Pharmacist and a senior consultant in Towers Perrin s Irvine, CA, office More than 25 years of pharmacy experience in a variety of settings, including retail pharmacy, hospital pharmacy administration, HMOs, military institutions and pharmacy benefit management (PBM) Trevor graduated as a pharmacist in Johannesburg, South Africa, at the Technikon Witwatersrand School of Pharmacy and is a licensed pharmacist in the State of California 1

3 Today s agenda Why transparent and pass-through contract terms matter Strategies for providing easy access to affordable medications What employers can do to improve medication compliance Today s audience Percentage of Companies by Employee Counts <1,000 18% 25% 10,000+ 1,000 4,999 42% 15% 5,000 9,999 2

4 The Towers Perrin Pharmacy Management Framework Desired Outcomes and Understanding of Drivers Provide the Foundation Goal Optimal Pharmacy Management Drivers Utilization (40%) Pricing and Contract (25%) Benefit Plan Design (35%) Levers Program Design Transparent Participant out-of-pocket Formulary Traditional Drug coverage Prior authorization Channel management Performance Metrics Adherence Effective discounts Level of benefit Drug mix Contract compliance Access to affordable drugs 3

5 The current PBM model is dysfunctional, and employers see opportunity for a new direction The PBM industry is at a crossroads Industry has experienced explosive growth, new entrants and consolidation over the past several years Landmark legal actions may prohibit average wholesale price (AWP) from being used as pricing reference point Actual pharmaceutical manufacturing costs, discounts and other aspects of drug pricing remain largely invisible to employers Continued 4

6 The current PBM model is dysfunctional, and employers see opportunity for a new direction Prescription drug costs continue to trend at an unacceptable rate, although increases are at their lowest level in a decade Manufacturers have focused increasingly on new indications and disease states for current products Specialty (less than 10% of spend) is trending in excess of 20% annually Employers need an advocate to design and guarantee effective clinical utilization management programs, especially ROI, trend mitigation, etc. Employers look to establish a long-term strategy for pharmacy management and improvements in service, quality and outcomes 5

7 How the PBM pricing models work: Traditional shadow pricing vs. transparent pass-through pricing Employers Total Price Contract Model Retail and Mail Network Terms + = Formulary Rebates Administrative Fees Result Shadow pricing (traditional) Base discount (AWP-%) + Dispensing fees Base rebates Usually $0 PBM does not disclose profit drivers Common PBM profits from difference between pharmacy and employer discounts PBM profits from excess manufacturer revenue PBM subsidizes administration fees from spread NO incentive for PBM to manage utilization or fully control employer costs Pass-through (transparent) Towers Perrin Rx Group Purchasing Base discount (AWP-%) + Dispensing fees + PBMs' spread between pharmacy and employer discounts Base rebates + PBMs' excess manufacturer revenue Full and fair PBM does not subsidize admin fees PBM discloses profit drivers Aligns PBM incentives to fully support employers cost management goals Towers Perrin Rx Group Purchasing members have seen short-term savings of 2% 10% on their drug spend, with an opportunity to cut cost increases by 25% over the long term *Spread means the difference between what the employer pays and actual acquisition cost. 6

8 Transparent vs. traditional savings opportunities Outcomes Significant savings by taking advantage of actual acquisition pricing and full pass-through on rebates 2005: 5.5% on average up to 10.2% 2006: 4.8% on average up to 8.3% 2007: 5.4% on average up to 11.9% Clinical management with a customized formulary can reduce drug spend over the long term by 8% 20% TP Reference Formulary System Improves financial efficiency of drug mix (e.g., increasing generic utilization and low-cost/high-value brand substitution) Results 3Q 2007 Annual trend rate: 2.8% in covered charges compared to 5% nationally Generic utilization rate: 60% on average 7

9 Transparent and pass-through PBM contracts remove barriers to rebate-driven strategies and drive savings attributable to generics Savings in Six Therapeutic Categories Can Generate $25 Billion by Replacing Brands with Generics for Common Chronic Conditions Savings Opportunity $6.8B $10.3B $1.2B $3.4B $2.1B $0.9B 100% 80% 60% 40% 20% 0% Gastrointestinals Anticholesterol NSAIDs Anti-depressants Antihypertensives* Calcium channel blockers 2006 Current GFR Target GFR Notes: GFR = Generic Fill Rate. Prescription Drug Marketplace last updated 7/06. Source: Express Scripts Press Release, June 6,

10 Plan design dashboards illustrate whether incentives promote the highest value drugs for participants Parameters Total Generics % Preferred Brand % Non-Preferred Brand % Enrollment is 4,500 Retail copays are $15/$25/$35 and mail-order copays are $30/$50/$70 Specialty Brand % Covered Charges $4,663,507 $875,725 19% $2,658,279 57% $1,129,504 24% $547,464 12% Member Paid $1,118,314 $349,989 31% $549,762 49% $218,564 20% $7,988 1% Benefit Level 76% 60% 79% 81% 99% Claims 70,314 37,812 54% 24,438 35% 8,063 11% 394 1% GDR 54% Parameters Total Generics % Overall Preferred Brand % Non-Preferred Brand % Specialty Brand % Covered Charges $2,722,584 $625,652 23% $1,568,610 58% $528,323 19% $87,097 3% Member Paid $778,098 $266,325 34% $356,657 46% $155,116 20% $2,513 0% Benefit Level 71% 57% 77% 71% 97% Claims 47,134 27,717 59% 14,105 30% 5,312 11% 97 0% GDR 59% Parameters Total Generics % Retail Network Preferred Brand % Non-Formulary Brand % Specialty Brand % Covered Charges $1,940,923 $250,073 13% $1,089,669 56% $601,181 31% $460,367 24% Member Paid $340,217 $83,663 25% $193,105 57% $63,448 19% $5,475 2% Benefit Level 82% 67% 82% 89% 99% Claims 23,180 10,095 44% 10,333 45% 2,751 12% 297 1% GDR 44% Mail Order 9

11 Easy access to affordable medications can promote compliance Reasons Participants Do Not Take Medications as Prescribed Medication interfered with other activities Undesirable side effects 11% 10% 26% Forgot Thought they were unnecessary 12% 14% Cost Thought they d be ineffective 13% 14% Symptoms got better or didn t exist Source: Harris Interactive Poll, March

12 Employers should know if their participants are compliant Condition TP Medication Adherence Report Card Covered Charges Benefit Level Participant Cost per Day The best adherence rates for this population are in managing high cholesterol and high blood pressure There is no apparent correlation between participant out-of-pocket cost and MPR There must be reasons other than affordability that affect this population MPR High cholesterol $100,905,585 81% $ % Stomach and ulcer $71,212,887 85% $ % High blood pressure $49,962,310 73% $ % Depression $49,060,286 77% $ % Asthma $39,237,028 84% $ % Diabetes $26,378,259 82% $ % *MPR means medication possession ratio and indicates what portion of medication supply its participants consume. Source: Towers Perrin Rx DataWarehouse. 11

13 Medication adherence is important because it is associated with reduction in medical utilization Drugs for high cholesterol e.g., Lipitor 2006 Results Non-Compliant Compliant Number of Participants 11,674 14,662 Average Risk Score Inpatient Days per 1, Emergency Room Visits per 1, Prescriptions per 1,000 19,736 23,360 Days Rx Supplied PMPY 1,121 1,540 Drugs for diabetes e.g., Actos 2006 Results Non-Compliant Compliant Number of Members 1,436 1,907 Average Risk Score Inpatient Days per 1, Emergency Room Visits per 1, Prescriptions per 1,000 29,808 35,229 Days Rx Supplied PMPY 1,796 2,407 12

14 Generations of value-based benefit designs First Generation Second Generation Third Generation Fourth Generation Broad copay reduction for several medication classes Reduced copays for targeted conditions using data analysis and education Focus on right intervention for the right participant based on risk factors Higher accountability for providers, pharmaceutical companies and participants based on outcomes e.g., Pitney Bowes e.g., Marriott Customized interventions based on the population needs and quality metrics e.g., CMS and British National Health Service payment models e.g., participants pay out of pocket if they choose higher cost, poorer outcome procedures when provided decision support tools 13

15 Summary Employers benefit from transparent and pass-through contracts because they: Have access to PBMs' acquisition pricing Receive a true-up at the end of the year if pricing guarantees are not met Receive all manufacturer rebates Ways to provide easy access to affordable generics include: $0 copay for generics at mail Reducing the copays for generics so the level of benefit is the same for brands and generics Providing individual Medication Adherence Report Cards Value-based designs should increase generic utilization and improve compliance They also reduce medical costs by decreasing hospitalization and emergency room visits 14

16 Next steps Employers should Benchmark their PBM contracts to make sure they have the best available pricing Create dashboards of their plan designs to make sure generics are a high-value component of the pharmacy benefit Offer customized value-based designs to improve medication compliance 15

17 Getting started on strategy development Design Development Week Activity Collect data and begin 2. Define value drivers 3. Assess stakeholders 4. Evaluate potential options 5. Query data and analyze 6. Develop preliminary approaches 7. Complete data analysis 8. Formulate assessment 9. Refine strategy 10. Prioritize objectives 11. Begin design development

18 Questions? Bridget Eber, Towers Perrin Trevor Morris, Towers Perrin Join us for our next Webcast on July 31 Consumerism and Wellness: What Works? Watch your inbox for more details and to register 17