A Pharmacy Discussion

Ken Dowell – Chairman Lockton Analytics Board

A Pharmacy Discussion

March 21, 2016

2 PROPRIETARY & CONFIDENTIAL – © 2014 PREMIER, INC.

Optum buys Catamaran for $12,800,000,000ESI buys Medco for $29,000,000,000Envision buys Medtrak

• Rite Aid Buys Envision• Walgreens Buys Rite Aid

Generic InflationPBM’s among best performers on the Street$19 Billion in Specialty Drugs in Development (mostly Additive)

Market Forces


Pharmacy Marketplace Issues Affecting Employers

Employers

Increased Costs

Supply Chain

OpticsDirect-to-Consumer

Ads

Specialty Pharmacy

How Do You Plan to Combat These Challenges?

Increased Costs:-Overall drug trend increased 13.1% in 20141

-Traditional medication costs up 6.5% in 2014 and specialty costs up 30.9%1

Optics - Conflicting Goals:-What you see may not be what you’re getting-Increased complexity of pricing techniques

Specialty Pharmacy:-Gilead paid $11.2 billion to purchase the drug formula for Sovaldi. -In 2014, Gilead generated $12.4 billion in sales of Sovaldiand Harvoni3-Projection for specialty spend is 44% increase in next three years1

DTC Ads:- Top 20 pharma companies spent 5.2 billion in

DTC advertising in 20142

- Emerging trend of DTC ads for diagnostic testing

- Pharma wants to increase their patient pool

Supply Chain – Conflicting Goals:-Suppliers want effective solutions at the highest cost-Payors want effective solutions at the lowest cost-ESI- ABBVIE Contract I ViekeraPak

1The Express Scripts 2014 Drug Trend Report2Pharma Marketing News Vol. 13 No. 53Sachs, Jeffrey, “The Drug that is Bankrupting America” Huffington Post February 16, 2015


Average Wholesale Price (AWP)RebatesOther Manufacturer RevenueMAC ListTraditional (Spread) PricingTransparent (Pass-through/Spread) Pricing

Glossary of Terms


Pharmacy Contract Optics

Claims Fees

Pharma Grants

Admin Fees

Rebates

Network Spread

Data/Other

HOW PBM’S MAKE MONEY

SOLUTION: Clear contract optics, aggressive contract guarantee monitoring, market checks, and RFP/renegotiation.

How A Simple Business Gets Complicated


PBM Math

Assumptions: AWP: $500Client Rate: AWP-16% / DF: $1.00Prov. Rate: AWP-18% / DF: $0.35

Client Pharmacy PBM ProfitAWP $500 $500

IngredientCost

$420.00 $410.00 $10.00

DispensingFee

$1.00 $0.35 $0.65

Total $421.00 $410.35 $10.65


How are drug types defined?

What drug types are included in the calculations?

What drugs are excluded from the calculations?

What is the reconciliation timeline?• Are reconciliations even required at all?

It’s all about the fine print


“Generic Drug” means a prescription drug, whether identified by its chemical, proprietary, or non-proprietary name, that is therapeutically equivalent and interchangeable with drugs having an identical amount of the same active ingredient(s) and approved by the FDA” and that can be produced by a licensed manufacturer

“Brand Drug” a drug that has a trade name and is protected by a patent (can be produced and sold only by the company holding the patent)

Getting PBM’s to these definitions is very difficult• Lockton has identified 23 different variations of these

definitions.

Contractual Definitions - Discounts


Contractual Definitions - Discounts

Drug Type AWP Discount Drugs IncludedBrands 18.75% Single Source Products

Generic 81.5% Multi-Source Products

Drug Type AWP Drug Cost Actual Discount

Brand $175,000 $ 150,898 13.78%Generic $100,000 $72,415 72.41%


“No rebate shall be paid on any drug for which PBM does not receive a rebate”

Assuming only 60% of brand claims are rebate-able, the effective guarantees are:

Contractual Definitions – Rebates1st trick

Channel Rebate GuaranteeRetail $20 per brand paid claim

Mail Order $100 per brand paid claim




“Rebate guarantees are based on a 30 day supply at retail and 90 day supply at mail order”54% of Rx’s are less that this threshold

Contractual Definitions – Rebates 2nd Trick



Channel Actual Rebate achievedRetail $8.76 per brand paid claim

Mail Order $34.67 per brand paid claim


Per Claim vs. Per Paid Claim Administrative FeesAdmin Fee = $1.75

Administrative Fees

Claim Type Total Claims Per Claim Admin Fee Cost

Per Paid Claim Admin Fee Cost

Paid Claims 100,000 $175,000 $175,000

Rejected Claims 10,000 $17,500 $0

Reversed Claims 10,000 $17,500 $0

Total 120,000 $210,000 $175,000

Specialty Pharmacy


The Financial Significance of Specialty Pharmacy

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Specialty

Traditional70%

30%

99%

Specialty spend is split between medical and pharmacy. Understandthe cost implications of both.

Percentage of Drug Spend

Percentage of Membership

Affecting Drug Spend


Key Pipeline Drugs

Drug Name Disease Treated

ExpectedApproval

Route of Admin

Projected Costs

Current Treatments

Financial Impact

Viekira Pack Hepatitis C, genotype 1

Approved12/19/2014 Oral $75 - $90K

per tx course

Sovaldi, Olysio, Harvoni,Victrelis

SIGNIFICANT

Zepatier Hepatitis C, genotype 1

Approved 1/28/2016 Oral $80 - $100K

per tx courseSovaldi, Olysio, Harvoni, Victrelis SIGNIFICANT

The combination of two drugs in one tablet (Harvoni) represents the next evolution of oral treatment in Hepatitis C.

Lumacaftor Cystic Fibrosis June 2015 Oral $300K per year First in class SIGNIFICANT

Lumacaftor is considered to be an orphan drug because it treats a very specific gene mutation in cystic fibrosis. Its use will be rare, but its costs will be material when required. *Screening test under development.

ZinbrytaRelapsing Multiple Sclerosis

2016 Sub Q $40K per yearCopaxone, Avonex, Rebif, etc.

SIGNIFICANT

Zinbryta demonstrated a reduction in frequency and severity of MS relapses better than Avonex. Expect this to replace other therapies.

Evolocumab & Alirocumab

Hypercholester-olemia Aug. 2015 Sub Q $10 - $18K

per year Statins SIGNIFICANT

Currently slated for narrow (and rare disease state) approval. However, if approved for broader treatment (as is likely) could replace or be adjunct therapy with statins for cholesterol treatment. If granted broad approval, expect significant treatment protocol and cost increases for cholesterol therapy. Has potential to redefine clinical management of high cholesterol with significant cost impacts vs. a “mature” (i.e., generic-heavy) statin category


Generic Name: alirocumabBrand Name: PraluentManufacturer: Sanofi & RegeneronDrug Class: “PCSK9 Inhibitor” (NEW, 1st of 2 to launch in Summer 2015)

PCSK9 is an enzyme involved in cholesterol metabolismEffects: 60% reduction in “bad” cholesterol; 50% reduction in risk for

bad outcomes (stroke, heart attack, etc.) Place in Therapy: 1) A rare type of genetic predisposition for high cholesterol

2) (POSSIBLE) patients who haven’t responded to statins; 3) (POSSIBLE) patients who can’t tolerate statins because of side effects

How Administered: Self injection# Potential Patients: Possibly 20% of patients on statinsShort or Long-Term Use: Long-termReplacement or Additive: Likely additive to baseline statin costs;

possibility for some minimal statin cost replacementMost Likely Distribution: Retail pharmacy

High Cholesterol PCSK9: alirocumab

Expected Cost Impact: $1,000 per month; likely additive to statin cost Generic statin - $10 per month; PCSK9 therapy is 100x the cost

Genetic high cholesterol = 0.2% of population;other indications = ~20% of patients on statins

Management Is Critical


Specialty Drug Financial Impact Modeling Tool v1.0

Version 1.0

Analyzes a client’s potential financial exposure to key (not all) specialty/high cost drug categoriesTargets key drugs in the pipeline, recently released drugs, specialty drugs, high cost diseases, and expanded indications for existing therapiesThe tool was developed with FDA guidelines and is piloted with the following disease states:

• Hepatitis C• High cholesterol PCSK9• Multiple Sclerosis• Cystic Fibrosis• Idiopathic Pulmonary Fibrosis

Uses client-specific medical and Rx data from InfoLock along with population disease rates

Version 2.0

Adding disease states (MD, HAE, Gaucher, etc.) Adding Medical early “Alerts” for newly diagnosed high cost medical procedures (Cancer, Renal Failure, Transplant, Trauma, Hemophilia, etc.)

CURRENT MODEL COMING SOON


2016 Budget Impact


How Can Employer Clients Manage Specialty?

SOLUTION: The Excelsior Specialty Pharmacy StrategyGOAL: Ensure the Specialty Pharmacy Program is delivering

Have an Action Plan beyond traditional pharmacy cost management:

PREDICTIVE COST MODELING

QUARTERLY TOP DRUGS PIPELINE

CLEAR, SHAREABLE CLINICAL INFORMATION

CLINICALLY-FOCUSED CONTRACTING AND PERFORMANCE GUARANTEES

VALIDATION/AUDIT OF APPROPRIATE DRUG CONTROL MECHANISMS


Don’t Lose sight of Rx management through the fog of Specialty Fear

Creating Better Economics Trend Management Execution

Full Market Evaluation Assess current contract >

Renegotiate if preferred

RFP that includes top PBMs > Leverage health plan pricing

Transparent contract > Insure terms and conditions drive most favorable results for client

RX Mart: Data Analytics Excelsior’s proprietary data solution

Holds PBM accountable to contract

Provides in depth utilization review

Drill down capabilities for each client's specific needs

Clinical Oversight Pharmacist review of data to

determine most effective PBM programs, i.e. Step Therapy, QL, PA

Narrow network evaluation Specialty Rx consulting

Ongoing Account Management Implementation oversight

Quarterly review meetings

Plan design benchmarking and consulting

Insuring PBM delivers on operational and service commitments


Ongoing Monitoring CriticalHolding your PBM accountable

How is your PBM performing?


Case Study: Pricing Guarantee Reconciliation (PGR)Financial Results: 2013 Reconciliation

$18,696.35

$2,480.54

$13,704.39

$3,954.75

$32,499.73

$118,636.00

$19,947.00

$62,788.16

$7,444.70

$20,425.80

$1,430.60

$81,054.82

+ $1.6M RECOVERED

12 Clients with 48,500 total lives


Mitigating Pharmacy Marketplace Forces – Get Expert Help!

Managed Pharmacy Program

•Address increased costs, & manage supply chain with aggressive contract management & re-negotiation

•Mitigate contracting optics with clear contract terms

•Ongoing monitoring of pricing guarantees

Integrated Specialty Strategy

•Predict impact from robust drug pipeline and expanded treatment indications

•Pharmacy strategies for direct-to-consumer ads

• Implement management strategies for specialty meds

Integrated Pharmacy & Medical Expertise

•Pharmacy + H&W consulting = stronger management

•Combined medical & pharmacy analytics

•Specialized, expert case management


No Benefit Changes

No Vendor Changes

Total Savings: $102M

[EMPLOYER]

GroupE-1

GroupE-2

GroupE-3

GroupE-4

$15.2M

$2.99M

$8.9M

$61.5M

$5.9M

$1.5M$3.8M

$1.4M $860K

GroupT-1

GroupT-2

GroupT-3

GroupH-1

GroupH-2

[TPA/COMMERCIAL]

[HEALTH PLAN]

$11.61AVERAGE SAVINGS PER SCRIPT

Case Study2014 Pharmacy Contract Savings


Ongoing Management is Key to controlling cost

Prescription data analysis Claim extract and data management Quarterly performance report Annual contract compliance review Specialty pharmacy consulting Active formulary management (carve-out) Fraud/abuse detection Mid-term contract improvement Physician outreach (2014 deployment)

Managed Pharmacy Program

Design and develop RFP specificationsSelect marketsAnalyze market responsesNegotiate pricing and contract termsFinalize selection and contractPBM implementationPerformance guarantee review

PBM Selection and Implementation Program

Presenter

Presentation Notes

Managed Pharmacy Program: This is a term we created for the new service offering we plan to offer thru Excelsior. This is not a recognized industry term for this suite of services. The Active Formulary mgmt is for carved out Rx plans and will also be subject to the size of the employer depending on the carve out PBM. We are also not doing prospective Fraud and Abuse detection yet but plan to include in the future, however we will do an analysis on a retroactive basis. Mid Term Contract improvement will depend on the PBM’s willingness to change terms if they are in a 3 year arrangement. We have had a lot of success in doing this in carved out situations but have not tried with the BUCA’s yet. The Physician Outreach is a program where we would outreach to the provider to try and change prescribing habits “real time” and provide an enhanced benefit to the member if the provider would prescribe a less costly alternative. This is under development and is targeted for 2014 deployment.


The Excelsior Solutions Difference

Expert pharmacy benefit management (PBM) consulting team

• In-house pharmacists, PBM and Medicare Part D experts

• Former C-level PBM executives averaging 20+ years industry experience each

• Manage 20 million+ pharmacy lives• Provide unbiased, impartial, expert advice• Recommend solutions rather than products• Acquired by Lockton in 2012

Specialize in working with self-funded employers, health plans, TPAs and other payers to:

• Optimize PBM arrangements• Leverage improved vendor relationships• Identify additional opportunities for cost

savings• Develop strategies in a dynamic

marketplaceProvide full disclosure on all compensation

Mike Moloney

2016: Utopian Scenarios for PBMs

March 22, 2016


Presenter

Presentation Notes

That’s where you come in. As a new employee, you have a unique opportunity to see things from a new perspective. You can offer fresh ideas, and in order to continue to lead an industry that is constantly changing, we need to hear them.


PREMIER MEMBER PHARMACY TASK FORCE RECOMMENDED A STRATEGICPARTNERSHIP STRATEGY:

Selected MedImpact as our pharmacy benefits administrator

MedImpact does not own any pharmacy fulfillment/distribution to better work with health system partners with own fulfillment

PREMIER PBM STRATEGY VALUE TO ALLIANCE MEMBERS

Significant savings through increased purchasing power of alliance (5-20%)

Full transparency and pass-through pricing & rebates

Collaborative strength and knowledge sharing

Best-in-class data analytics and performance benchmarking

Innovative combination of Premier’s pharmacy supply chain expertise and data assets with MedImpact’s agnostic role as a large scale pharmacy benefits administrator


2016: Utopian Scenarios for PBMs

Thank you for participating in today’s webinarThe webinar was recorded and presentation slides will be available to all participants

Ken Dowell Mike MoloneySenior Vice President Vice PresidentExcelsior Solutions Premier, Inc.952.562.5540 [email protected] [email protected]

mailto:[email protected]

mailto:[email protected]

A Pharmacy Discussion

Healthcare

Transcript of A Pharmacy Discussion