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willistowerswatson.com
Drug Cost Containment Strategies
May 18, 2017
© 2017 Willis Towers Watson. All rights reserved.
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Agenda
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Introductions1
Developments Impacting Pharmacy Costs2
Specialty Pharmacy and Biosimilars3
Marketplace Dynamics4
Closing Remarks5
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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
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Today’s Speakers
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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]
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Developments Impacting Pharmacy
Costs
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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%
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Rx Headlines
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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
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Emerging Trends in Rx
Looking ahead: Focus areas for 2017 and beyond
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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?
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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
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Specialty Pharmacy and Biosimilars
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Shifting Trend for Catastrophic Claims
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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
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Current Specialty Pharmacy Landscape
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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
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Specialty Pipeline
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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.
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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.
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Under which benefit should a plan sponsor cover this drug?
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Medical Benefit Management (MBM)
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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
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Specialty Medications Can Be Administered in a Variety of Channels
and Settings
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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
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Comparison of Medical Channel versus Medical Benefit
ManagementSample evaluation
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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
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Biological, Biosimilar, and Interchangeable Drugs
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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
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$43.8 Billion Biosimilar Opportunity
56 Biotech Products With Patent Expirations Through 2020
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$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®
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Approved Biosimilar Products
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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)
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Marketplace Dynamics
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Rx Design with a Focus on Performance
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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
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New Generics Helped Mitigate Trend in 2016
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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%
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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
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Significant Price Increases
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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
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What are High Performing Companies Doing to Promote Generics?
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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
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Thank You
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