Drug Cost Containment Strategies - ISCEBS...cost drives shift Medical costs decreasing Medical costs for: Rheumatoid Arthritis Cystic Fibrosis Cancer Resistant high cholesterol Prescription

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Drug Cost Containment Strategies

May 18, 2017

© 2017 Willis Towers Watson. All rights reserved.


Agenda

2© 2017 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Introductions1

Developments Impacting Pharmacy Costs2

Specialty Pharmacy and Biosimilars3

Marketplace Dynamics4

Closing Remarks5


Key Points

Prescription drugs comprise the fastest-growing component of the

health care cost trend in the U.S.

Over the next several years, cost increases for prescription drugs are

expected to outpace those of inpatient hospital stays

The price, use and delivery of specialty prescription drugs — many of

which require special handling or delivery — combine to create a

major pain point for employers of all sizes

While no single pharmacy strategy can completely eliminate trend

year over year, formulating a strategy to address the rising cost of

prescription drugs is critical



Today’s Speakers


Rhea Lopez, PharmD, RPh

Pharmacy Consultant

Phone: 248.296.4521

Email: [email protected]

Sarah Mazur, MHA, CPhT

Pharmacy Consultant

Phone: 724.382.4472

Email: [email protected]


Developments Impacting Pharmacy

Costs



Pharmacy Cost is a Primary Contributor to Employer Health Care Cost

Trends

The majority of inpatient and pharmacy trend is due to increased severity of claims, while all other components is primarily driven by increased frequency.

15%

28%

11%

2%4%

41%

Health care cost trend continues to

rise, with annual increases of 5% –

6%

Employers must have a strong

understanding of the drivers of

their health care costs

Today, pharmacy costs comprise

around 20% of total plan costs,

and could grow to nearly 25% by

2020

— Specialty medication costs are

accelerating at approximately 20%

annually

Sources: Total 2016 claims, splits by health care component, and historical trend rates from Truven Health Analytics MarketScan semi-annual employer norms reports;

calibrated to median costs in Towers Watson 2016 Financial Benchmark Survey

Health Care

Cost Component(historical 3-year annualized trend)

PEPY Net Paid Plan Costs Breakdown

of Annual

Trend2016 Proj. 2020 Difference

Inpatient (3.4%) $2,835 $3,235 $400 0.8%

Outpatient (5.3%) $3,223 $3,956 $733 1.4%

Professional Procedures (3.2%) $2,076 $2,355 $279 0.5%

Diagnostic Services (3.2%) $438 $497 $59 0.1%

Other (3.2%) $771 $875 $104 0.2%

Pharmacy (9.7%) $2,396 $3,472 $1,076 2.1%

Grand Total (5.2%) $11,740 $14,390 $2,650 5.2%

Pharmacy cost increases account for

over 40% of projected 5.2% annual trend

PEPY Net Paid Plan Costs

Percentage

of Plan Cost

Projected 2020

23%

$2,835

$3,223

$2,076

$438

$771

$2,396

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2016

$3,235

$3,956

$2,355

$497

$875

$3,472

24% 27% 18% 4% 7% 20% 23% 27% 16% 4% 6% 24%

© 2017 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.6


Rx Headlines


Over 200 specialty

drugs in the pipeline

Biosimilars begin to enter the market

60 Million Americans have either Diabetes, Asthma or

Osteoporosis

$19.5 Billion in Annual Sales of

Drugs will lose patent in

2017

Drug Shortages contribute

to significant

price increases

Orphan Drugs

increase in availability

but at a cost

Opioid Addiction in the US

skyrockets

Employers ask for more

Transparency and

Disclosure in contracts


Emerging Trends in Rx

Looking ahead: Focus areas for 2017 and beyond


Vendor

Consolidation

OptumRx, Aetna, Rite Aid, Cigna

Vendor consolidation can dramatically impact pricing, formulary and

network options to remain competitive

Value Networks

and Formularies

Providing broad access may come at a cost

Heightened interest in value of restricted or limited retail networks and

generic-driven formularies

Specialty Pharmacy

Specialty expected to be 50% of total drug spend by 2018

Emphasis on managing these drugs from a financial and

clinical perspective within the pharmacy and medical benefits

Impact of Health

Care Reform

Biosimilars approval could result in additional specialty savings

including new plan design options

PCSK9 inhibitors for high cholesterol – preventive, treatment or both?


Event Potential Impact

DOJ Antitrust Trials:

- Aetna/Humana

- Anthem/Cigna

Mergers may have led to more aggressive pricing and broader product offerings in the

pharmacy space

Concerns are based on the reduction in the number of competitors in the market for

private Medicare Advantage plans

Walgreens to acquire

Rite Aid(likely to close early 2017)

Walgreens will become the largest U.S. retail pharmacy

Rite Aid has 4,600 stores predominantly focused in the East and West compared to

7,600 for CVS

Leverage increased scale to negotiate more favorable drug prices, driving lower costs for

plan sponsors and members

Envision Rx (Rite Aid’s recently acquired PBM) is also acquired through this transaction;

potential competition for CVS Health Maintenance Choice, CVS Health retail model

including onsite clinics, and other similar programs

Walgreens/Prime

Therapeutics

partnership

Combines specialty and mail assets, with Walgreens as the core preferred pharmacy in

Prime’s national pharmacy network

Combined entity will become the 3rd largest specialty provider, with an estimated 12% of

market share

OptumRx 90-day

Solution expansion

OptumRx currently offers mail order rates for 90-day supplies at Walgreens; new

partnership with CVS Health to offer the same program at CVS/pharmacy

Competes with ESI Smart90 and CVS Health Maintenance Choice programs

Vendor Landscape Overview



Specialty Pharmacy and Biosimilars



Shifting Trend for Catastrophic Claims


Pharmacy cost drives

shift

Medical costs decreasing

Medical costs for:

Rheumatoid

Arthritis

Cystic Fibrosis

Cancer

Resistant high

cholesterol

Prescription drug

costs for:

Diabetes

Cancer

Hepatitis C

PCSK9 Inhibitors


Current Specialty Pharmacy Landscape


Source: 2015 Willis Towers Watson/NBGH Best Practices in Health Care Employer Survey and internal data

40-50%

Specialty already

accounts for half

of all pharmacy

costs

200%

Specialty spend is

expected to

double in the next

5 years

1-2%

of prescriptions

are for Specialty

Drugs, yet this

often accounts for

40-50% of Rx

Spend

1-3%

Member cost

share ranges from

1-3% for Specialty

and 15-20% for

traditional Rx

90%

Most Specialty

claims are

approved due to

medical necessity

Incremental approaches to address rising payer and member costs will have little to no impact on managing

the significant cost impact of specialty pharmacy


Specialty Pipeline


Pipeline Drug Manufacturer Formulation Estimated Cost Anticipated Approval

Rheumatoid Arthritis

baricitinib Lilly / Incyte Oral $30K/yr. 1/19/2017

Psoriasis

brodalumab Amgen SC $55K/yr. 2/16/2017

Duchenne Muscular Dystrophy (DMD)

deflazacort Marathon Pharmaceuticals Oral $100K/yr. 2/19/2017

Multiple Sclerosis

Ocrevus™ (ocrelizumab) Genentech IV $40K/yr. 3/28/2017

Atopic Dermatitis

Dupixent® (dupilumab) Regeneron / Sanofi SC $30K/yr. 3/29/2017

Postmenopausal Osteoporosis

abaloparatide Radius Health SC $17K/yr. 3/30/2017

Tardive Dyskinesia

Ingrezza™ (valbenazine) Neurocrine Biosciences Oral $50K/yr. 4/11/2017

Non-Small Cell Lung Cancer (NSCLC)

brigatinib Ariad Pharmaceuticals Oral $144K/yr. 4/29/2017

Acute Myeloid Leukemia (AML)

midostaurin Novartis Oral $120K/yr. 5/14/2017

Breast Cancer

ribociclib Novartis Oral $120K/yr. 5/30/2017

Amyotrophic Lateral Sclerosis (ALS)

Radicava™ (edaravone) Mitsubishi Tanabe Pharma IV $200K/yr. 6/16/2017

Melanoma

binimetinib Array Biopharma Oral $110K/yr. 6/30/2017

Source: Willis Towers Watson 2017.


New Specialty Drug: Spinraza™

Spinraza (nusinersen)

A new treatment for spinal muscular atrophy

Unique as it is only administered intrathecally, or injected into the cerebrospinal fluid surrounding the

spinal cord by healthcare professionals trained to perform lumbar punctures

Drug must be administered under sedation, with ultrasound or other imaging techniques

Specifically indicated for infants and toddlers

Annual cost for Spinraza is $750,000 during the first year of treatment and thereafter could total

$375,000 annually under maintenance dosing

Accredo is the exclusive distributor of Spinraza

Carriers are generating criteria to review and approve this medication. How do they contract with

Accredo? At what price?

The diagnosis is rare and impacts less than 25,000 in the U.S.

Given the intrathecal route of administration and the recommendation for

administration under sedation, this drug will most commonly be administered in a

hospital or surgical center.


Under which benefit should a plan sponsor cover this drug?


Medical Benefit Management (MBM)


There are 4 key components to MBM:

Utilization management

Site of care management

transitions members receiving infusions at a high cost setting to a lower cost site of care

Claim prepayment

validates that submitted medical claims have a prior authorization approval prior to payment

Potential for medical rebates

Ability to maximize the rebate in select classes

Key attributes associated with MBM include:

Improved visibility of Rx claims under medical

Reduction in use of miscellaneous J codes

Ability to apply utilization management techniques

Including quantity limitations and dosing accuracy checks

Program Description and Goals

Considerations


Specialty Medications Can Be Administered in a Variety of Channels

and Settings


Crohn’s Disease

Cancer

Hepatitis C

Multiple Sclerosis

Hemophilia

Hereditary Angioedema

Pulmonary Hypertension

Immune Disorders (IVIG)

Infused Oncology (Non-Oral)

IV Antibiotics

Total Parenteral Nutrition

Pharmacy Benefit/Specialty Pharmacy (MCM)

Drugs that are oral or self-injected by patient or caregiver with support at home

Either Pharmacy Benefit or Medical Benefit (MCM)

Drugs that can be self-injected by patient or may require physician administration

and oversight

Medical Benefit (MBM)

Drugs that are administered exclusively in a medical setting

(e.g., physician’s offices or hospital)

ExamplesBenefit Channel

Relative

Dollars

by Site


Comparison of Medical Channel versus Medical Benefit

ManagementSample evaluation


Medical Channel Medical Benefit

Definition

Example

Where is the

Rx Dispensed?

Moves specialty medication from the

medical benefit to the pharmacy benefit for

processing and clinical oversight

Specialty medications remain covered by

the medical benefit; however, a vendor

manages the claim processing and clinical

oversight as compared to the medical

vendor

Avonex, a self-administered injectable for

Multiple Sclerosis, is no longer covered

under the Medical Benefit but transitioned to

a PBM and covered under the pharmacy

benefit

Remicade, an infusion that must be administered by a health care professional, remains covered under the medical benefit but the drug is distributed and adjudicated by another vendor

Pharmacy or Specialty Vendor

Home setting

Doctor’s office

Outpatient setting/Infusion Suite

Home setting


Biological, Biosimilar, and Interchangeable Drugs


http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/ucm241718.htm

Manufactured through biotechnology, derived from natural sources or, in some cases,

produced synthetically

Many (but not all) specialty drugs are biologics

Sources for biological products made from living organisms include humans, animals

and microorganisms such as bacteria or yeast

Highly similar to the FDA-approved biological “reference product”

There are no meaningful clinical differences between the biosimilar and reference

product

Example: Zarxio (filgrastim-sndz)

In addition to meeting the biosimilar standard, an interchangeable drug is expected to

produce the same clinical results

Biological Products

Biosimilars

Interchangeable Drugs


$43.8 Billion Biosimilar Opportunity

56 Biotech Products With Patent Expirations Through 2020


$1.9$0.07

$11.7

$26.2

$0.1

Overall U.S. Market Opportunity (in $ Billions)

$5.5

$8.0

$3.9

2013 2014 2015 2016 2017 2018 2019 2020

Neupogen®

NovoSeven®

Benefix®

Leukine®

TNKase®

Bexxar®

Synagis® Humira®

Remicade®

Neulasta®

Epogen ®

Procrit®

Lemtrada®

Amevive®Rituxan®

Xolair ®

Erbitux®

Avastin®

Herceptin®

Orencia®

Actemra®

Source: U.S. drug spend estimates are based on IMS Health data for 2015. The patent expiration dates of the biologic products is current as of April 2016. The availability of biosimilars is highly variable due to litigation, patent challenges, FDA’s establishment of 351(k) pathway or other factors.

Tysabri®

Lucentis®

Vectibix®

Simulect®


Approved Biosimilar Products


Biosimilar Innovator Approval Launch

Zarxio (filgrastim-sndz)

Manufacturer: SandozNeupogen (Amgen) Mar. 6, 2015 Sep. 2, 2015

Inflectra (infliximab-dyyb)

Manufacturer: Pfizer/CelltrionRemicade (Janssen) Apr. 5, 2016

TBD

(2017 or later)

Erelzi (etanercept-szzs)

Manufacturer: SandozEnbrel (Amgen) Aug. 30, 2016

TBD

(litigation ongoing)

Amjevita (adalimumab-atto)

Manufacturer: AmgenHumira (AbbVie) Sep. 23, 2016

TBD

(litigation ongoing)


Marketplace Dynamics



Rx Design with a Focus on Performance


High-Performing Pharmacy

Benefit

Use of a high

performing formulary

Incentivized mail order

Specialty drug

management

Utilization management techniques

Program design that supports

low net cost

Incentives for use of preventive

drugs


New Generics Helped Mitigate Trend in 2016


Crestor for cholesterol

Zetia for cholesterol

Gleevec for cancer

Concerta for ADHD

Nuvigil for Narcolepsy

Nasonex for Allergies

Tamiflu

For Flu

Goal Generic

Dispensing Rate

> 90%


Market Trends — Upcoming Generics

Brand Drug Name

Indication or

Primary Use

Estimated Generic

Launch Year

Advair Diskus Asthma 2017

Betimol Glaucoma 2017

Daytrana ADHD 2017

Pataday Allergic Conjunctivitis 2017

Pristiq Depression 2017

Lialda Inflammatory Conditions 2017

Gilenya Multiple Sclerosis 2019

Copaxone Multiple Sclerosis 2019

Tarceva Cancer 2019

Orencia Inflammatory Conditions 2019

Lyrica Atypical Pain 2019

Xyrem Sleep Disorders 2020

Truvada HIV 2021

Androgel Testosterone Replacement 2021



Significant Price Increases


600% price increase

Pharma leadership in

question

Epi-Pen

62-year old medication

Price increase of 5,000%

Daraprim

Generic forms of diabetes

staple drug, Metformin

Price increased 500%

Glumetza


What are High Performing Companies Doing to Promote Generics?


High Performing Formularies

PBMProduced Member

communications

$0 Cost Sharingfor SelectGenerics

High Performing

Retail Network

Member Pays the

DifferencePenalties

Significant Coinsurance

or Copay Difference

Generics PromotionStrategies


Thank You


Documents

Drug Cost Containment Strategies - ISCEBS...cost drives shift Medical costs decreasing Medical costs for: Rheumatoid Arthritis Cystic Fibrosis Cancer Resistant high cholesterol Prescription