SPECIALTY PHARMA DRIVING THE EMERGENCE OF ACCESS HUBS FOR PRIVATE PAYERS

SPECIALTY PHARMA DRIVING THE EMERGENCE OF ACCESS HUBS FOR PRIVATE PAYERS

SPECIALTY PHARMA DRIVING THE EMERGENCE OF ACCESS HUBS FOR PRIVATE PAYERS The rising cost of drugs, fuelled by the growing specialty drugs segment, is challenging the sustainability of private drug plans and forcing employers and carriers to rethink their benefits programs. Employers, faced with the increasing cost of their drug plan, are looking to their carriers to manage claims costs and are becoming more critical of the value provided by their benefits plans. Carriers, who are having more difficulties passing on the higher cost of drugs to employers, are exploring new ways to contain drug spend. This heightened focus on the cost and effectiveness of drug benefits programs represents a major driver of change in the way carriers will compete in the future, moving from a cost-for-service model to one focused on providing value solutions. This shift will require private payers to offer broader cost containment and member support program in an integrated, comprehensive service offering that Pivot Strategy has coined Access Hubs. THE EVOLVING PRIVATE PAYER DRUG PLAN PARADIGM In Canada, the drug plan is the most important component of private payer benefits programs. Today, specialty drugs account for 2% of claims and represent 26% of the total drug costs. They are expected to reach 50% of the drug bill within 2 years, driven by price, utilization growth and an R&D pipeline dominated by specialty drugs. A growing number of non-specialty treatments targeted at large populations and the many emerging oncology treatments are also contributing to escalating drug budgets. Rising drug plan costs are impacting employers and plan members. Employers are increasingly concerned with the sustainability of their benefits plans and are putting pressure on payers to implement cost containment measures. However, they also want to ensure their employees have access to treatments that promote wellness, increase productivity and reduce absenteeism. For plan members, expensive drugs mean higher co-pays. At the same time, they want the medicines best suited to treat their individual conditions and are increasingly willing to submit to different screening processes to have access to the highcost drugs. Plan members are also more amenable to sharing their data regarding their medical condition, adherence, lifestyle and product choices. Specialty drugs are expected to reach 50% of the drug bill within 2 years, driven by price, utilization and an R&D pipeline dominated by expensive medicines. PRIVATE PAYERS TESTING THE WATERS While access to new drugs has been under scrutiny by public payers for some time, it has been straightforward in the private payer market. Once approved by Health Canada, new medicines were listed on private payer formularies at full price. This was made possible by a business model whereby carriers could transfer drug cost increases directly to employers while providing rapid unfettered access to new drugs and treatments to employees. This unrestricted access stood in contrast to the public side. The pan-canadian Pharmaceutical Alliance (pcpa) has been steadily increasing its clout with manufacturers by negotiating over 100 Product Listing Agreements (PLAs) since its inception in 2010. These negotiations have resulted in formulary exclusions and agreements focused on price rebates and caps which have created price deltas in the range of 20% with private formularies. 1

To date, cost containment approaches deployed by private payers in Canada have been relatively modest compared with the scope and nature of such initiatives in the US or Europe. Most Canadian carriers offer a number of cost containment measures such as generic substitution, preferred provider networks (PPNs), prior authorizations, and managed drug formularies using tiers and co-pays. These cost containment measures have generally been presented as options for employers and employees who have typically preferred to pay the additional cost rather than limit access to medications. Recently major carriers have implemented prior authorization programs for access to high-cost drugs that includes case management and drug delivery via a PPN. These initiatives, which were well received by employers and plan members, are rapidly becoming the new standard within the industry for access to high-cost drugs. The focus of private payers has not been limited to cost. Programs such as AmerisourceBergen s HealthForward have demonstrated that important benefits can be derived through enhanced health case management. The latter, focused on ensuring optimal drug usage, connects health case managers, patients and their physicians to help identify treatment options and provide ongoing support and monitoring while driving greater efficiency of the drug spend. THE EMERGENCE OF ACCESS HUBS As shown in Figure 1, the measures described above are the initial steps that have generally been embraced by the private payer community in Canada. However, payers are broadening cost containment measures targeting drug acquisition costs and enhancing plan member programs focused on member support. For these measures to be most effective, they need to be more closely aligned than what has been the case to date. This greater integration of a more comprehensive suite of services will, we believe, lead to the emergence of Access Hubs. FIGURE 1 THE EVOLUTION OF THE RESPONSE OF PRIVATE PAYERS TO SPECIALTY DRUGS TESTING THE WATERS Cost containment approaches becoming the norm Generic substitution Prior authorization PPNs Managed formularies Compulsory payer access programs for high cost drugs Case management & patient support Focus on cost, appropriate use and member experience DEVELOPMENT OF PAYER ACCESS HUBS More aggressive cost focus Private formularies aligning to pcpa price transparency and/or private PLAs (price-focused) Delays and/or refusals in private formulary listing Biosimilar substitution Increased focus on plan member support Case management, patient support, compliance and effectiveness monitoring Innovative value-based payment approaches Outcomes-based PLAs with manufacturers Benefit-sharing programs with employers VALUE SOLUTION Focus on overall plan effectiveness Integrated programs Targeted prevention 2

Hubs to regulate access are not new. They were pioneered over a decade ago by pharma companies in the US to help patients and providers secure permission and reimbursement for the first-wave of expensive specialty biotech medications. Private payers are well positioned to drive the development of Access Hubs. As shown in Figure 2, these reimbursement hubs will morph into an integrated, extensive set of services, including navigation support, patient assistance programs, case management, logistics services, PPNs and product listing agreements (PLAs). Modeled on US-based PBMs, they would have tremendous clout in negotiating price concessions and dictating patient support requirements with manufacturers. Private payers are targeting drug acquisition cost and enhancing plan member programs to offer a comprehensive, aligned suite of services that will lead to the emergence of Access Hubs. The emergence of Access Hubs will raise a number of questions. One such question is whether carriers will develop Access Hubs in-house or forge collaborations with existing and emerging providers such as distributors, specialty pharmacy providers, adjudicators, manufacturers drug-related service suppliers. Today, major carriers have chosen to outsource case management and PPNs related to specialty drugs. However, given the potential for cost savings and differentiation, carriers may decide to develop those capabilities in-house and to broaden the scope of Access Hubs to cover a greater proportion of the drug portfolio as well as provide their case management services to more plan members. FIGURE 2 PRIVATE PAYER ACCESS HUBS Data Analytics Health Case Management PPNs/Infusion clinics PLAs PRIVATE PAYER ACCESS HUBS Adjudication Distribution Formulary Design A related question is the speed at which private payers in Canada will start acting on the drug acquisition cost. Although to date they have negotiated only a limited number of PLAs, we believe they are poised to more aggressively expand their use. For example, Manulife has introduced its DrugWatch program targeting high-cost drugs, leveraging information made public by the Canadian Agency for Drugs and Technologies (CADTH) to engage in price discussions with pharma companies. Carriers are also looking to align to pcpa to obtain the discounts it has negotiated or use it as a basis for their own negotiations with manufacturers. Further, with the growth of personalized medicine and the promise of new drugs that have the potential to cure certain diseases (e.g. hepatitis C), there is increased interest in rethinking how we pay for medicines, as evidenced by the growing interest in outcomes-based PLAs. (See related article: Rethinking the way drugs are paid: The opportunity for pharma ). 3

CONCLUSION The rising cost of drugs is driving major changes in the private payer market and forcing all players to rethink their business approach and this is only the beginning given the projected increase in the number of new drugs and targeted therapies. For carriers, this signals a change in how they will need to compete in the future. Today, they compete on the breadth of their offer, services to plan members and administrative cost. With the rising cost of drugs, the focus of competition is changing, with greater emphasis on the management of drug cost and eventually that of workforce health and productivity, as seen in the US and Europe. Carriers, who today are focused on choice, service and administrative cost, will need to adopt a strategy based on access, patient support and control of claims cost. The rising cost of drugs is forcing carriers to rethink their business model. Increasingly, they will need to adopt a strategy based on access, patient support and control of claims cost. This pivot in strategy represents a major change in mindset for most carriers today. The development of Access Hubs will be a necessary step towards what we believe is the future of managing specialty drug costs, namely one that is focused on value solutions that cost-effectively deliver on workforce health, productivity and lower absenteeism. CONTACTS For further information on how Pivot Strategy can help develop innovative growth strategies contact: Michel Bernier PhD Managing Partner michel.bernier@pivotstrategy.com Kathy Megyery MA, MBA Partner kathy.megyery@pivotstrategy.com ABOUT PIVOT STRATEGY Pivot Strategy is a strategy boutique specializing in the financial services and healthcare sectors. Pivot s articles explore the impact of important disruptions in the Payer and Pharma sectors. We offer insights regarding early warnings in the industry that may be signaling disruptions on the horizon. Our goal is to help executives focus on the most critical issues and how their organization can seize the opportunities that change presents. 4