High-Impact Events and Realignment within the Specialty ... · High-Impact Events and Realignment within the Specialty Marketplace Specialty pharmacy stays in the spotlight as healthcare

High-Impact Events and Realignment

within the Specialty MarketplaceSpecialty pharmacy stays in the spotlight as healthcare stakeholders look

for opportunities to improve quality and better manage costs

October 2016

National Specialty Pharmacy licensed

in all 50 states; 2 Central Fill; 9 Retail;

2 503(b) Compounding Sites; Infusion;

1 503(a) Compounding Site

50+ limited distribution medications

Patient-centric disease focused teams

• Clinical expert access

• Creative adherence

• Patient assistance programs

Integrated medical and pharmacy

benefits program

URAC & ACHC Accredited;

39 Medicaid states, with 70M covered

lives across country

Confidential and proprietary | 3

Key MilestonesMarket shifts that will continue to drive change in the industry

Specialty drug

approvals by the

FDA have exceeded

traditional drug

approvals for the

first time since 2010

- in large part

because of oncology

and orphan drugs /

rare diseases

Drug pricing

pressure builds

from negative media

coverage,

legislators,

presidential

candidates and

consumers.

Expansion of 340B

an opportunity for

both hospitals &

pharmacies.

Increased scrutiny

on specialty

pharmacy/pharma

relationships due

to Valeant, Novartis

cases.

Continued emphasis

on M&A as well as

strategic partnerships

including those

between specialty

pharmacies and

hospitals/payers.

New technologies

continue to be put

into the hands of

providers and

patients.

Specialty

pharmacies get in

on the value-based

care game.


State of the IndustrySpecialty drug costs by therapeutic class

Projected Specialty Medication Spending PMPM

Medical vs. Pharmacy Benefit

Top 10 Specialty Therapeutic Classes 2016

Therapeutic

Class

Specialty

Medical PMPM

Specialty Pharmacy

PMPM

Total

Specialty PMPM

Inflammatory Conditions $ 3.95 $ 12.30 $ 16.25

Oncology $ 7.56 $ 4.66 $ 12.23

Multiple Sclerosis $ 0.97 $ 5.91 $ 6.88

Immune Deficiency $ 1.87 $ 3.92 $ 5.79

Hepatitis Agents $ 0.00 $ 4.50 $ 4.50

Growth Hormone $ 0.00 $ 1.26 $ 1.26

Cystic Fibrosis $ 0.00 $ 1.15 $ 1.15

Hemophilia $ 0.33 $ 0.79 $ 1.12

Fertility Regulatory $ 0.01 $ 1.11 $ 1.12

Hematopoietic Growth Factors $ 0.37 $ 0.43 $ 0.81

All Other $ 6.41 $ 2.89 $ 9.30

Total $ 21.48 $ 38.93 $ 60.41

% of Total 36% 64% 100%

Milliman Research Report. December 28, 2015. Commercial Specialty Medication Research: 2016 Benchmark Projections.


Pharmacy Industry RevenuesTraditional vs. Specialty Drugs, 2010-2020

$41 $98

$212

$233

$266

$270

$0

$100

$200

$300

$400

$500

$600

2010 2015 2020

Specialty Drugs Traditional Drugs

$274

$364

$483

(billions)

Figures in billions

Source: Pembroke Consulting estimates

This table appears as Exhibit 34 in: Fein, Adam J., The 2016 Economic Report on Retail, Mail, and

Specialty Pharmacies, Drug Channels Institute, January 2016. Available at

http://drugchannelsinstitute.co/products/industry_report/pharmacy/


Medication PipelineContinuing to Target High Cost Diseases

The vast majority of the technical development pipeline

Is focused on expensive specialty medications*

*2015 ARMADA Specialty Pharmacy Summit, Clinical Pipeline Presentation

221

2 10 5

343

33

2

55

2

32

7

405

114

213

1 6 4

131

51

2 6 1 5 60

50

100

150

200

250

300

350

400

450

CF CID GH Hep C MS Oncology Orphan

Phase I Phase II


Late Stage R&D Pipeline by Therapy Areas2,320 novel products

A quarter of the pipeline is comprised of

oncology medicines, of which 25% are indicated

for blood cancers.

Of the over 630 distinct research programs in

Phase II or later research, 37% are for

medicines in the specialty market.

Source: IMS Health, LifeCycle R&D Focus, Dec 2015; IMS Institute for Healthcare Informatics, March 2016

25%

15%

5%4%

51%

0 300 600 900 1200

Phase 2 Phase 3 Pre-Reg / Registered

591

350

115

89

1,175

43-49 NAS/Year Expected by 2020

Oncology

Neurological

Dermatology

Vaccines

All Others


Oncology Represents the Largest and Fastest-Growing Segment

Oncology

Key Facts and Trends U.S. Specialty Pharma Sales Growth

U.S. Oncology Specialty Pharma Sales Growth U.S. Oncology Specialty Pharma Sales Growth

• Oncology is the largest and fastest growing (10.7% annually

through 2019) segment of the specialty pharma market

• Oncology primed to capitalize on trend towards oral delivery

options as well as higher portion of new therapies focused on

niche patient populations

• Oncology also set to benefit from trend towards smaller LDNs

which results in higher margins and returns

• Oncology represent the largest component (32%) of drugs under

development with over 2,120 drugs currently in clinical trials

• Within Oncology, worldwide sales of the new PD-1 products are

estimated to account for 23% of the segment's overall growth

• 17 new drugs were launched to treat orphan diseases in 2013: 8

of which were oncology

31%

40%

34%

28%

19%

Phase and Total Number

of Drugs

Preclinical (3,229 total drugs)

Phase I (1,007 total drugs)

Phase II (1,487 total drugs)

Phase III (621 total drugs)

Pre-Reg / Registered (203 total drugs)

Other Specialty, 73%

Oncology, 27%

Other Specialty, 67%

Oncology, 33%

2014 ($133 Billion) 2019 ($181 Billion)

Oncology

10.7%

5-year CAGR

Total SP

6.4%

5-year CAGR

Injectable, 63%

Oral, 37%

2014 ($36 Billion) 2019 ($60 Billion)

Oral

12.9%

5-year CAGR

Injectable

7.4%

5-year CAGR

Injectable, 54%

Oral, 46%

Source: SunTrust Robinson Humphrey


Healthcare’s M&A Boom ContinuesM&A in the specialty pharmacy and healthcare sectors 2016

Strategic Acquisitions Mergers of Equals “MOE”

$13.0B

$15.0B$54.2B

$37.8B

$14.1B

$13.9B

Over past 2 years,

strategic acquisitions have

dominated the healthcare

M&A space


Specialty Pharma is no ExceptionSpecialty pharmacy continues to be a prime environment for M&A

The entire healthcare

industry is moving

toward great size,

specialty and

consumerism—key

drivers of increased

M&A in specialty

pharmacy.

1 The Braff Group. 2016. Outlook 2016: Broad View Clarifies Specialty Pharmacy, Infusion M&A Activity (with Chart: Specialty Pharmacy Deal

Trends, 2001 Through Third-Quarter 2015).

Other drivers include

reimbursement

pressure and a move

toward greater

integration/reduced

fragmentation across

the continuum.

As a result of all

these factors,

pharmacy sector

remains primed for

horizontal and

vertical integration.

High valuation for

specialty

pharmacies shows

that organizations are

willing to pay more for

the value these

companies can

bring.1

01 02 03 04


2016: Year of Change for Specialty PharmaM&A as well as strategic partnerships with health plans, hospitals dominate the landscape

In late August, Walgreens Boots Alliance and Prime Therapeutics

rolled out a long-term strategic partnership. It aligns a pharmacy

benefit manager (PBM), retail pharmacy chain, and health plans via

joint ownership of a new mail and specialty pharmacy company.

1 The Braff Group. 2016. Outlook 2016: Broad View Clarifies Specialty Pharmacy, Infusion M&A Activity (with Chart: Specialty Pharmacy Deal

Trends, 2001 Through Third-Quarter 2015).

Thanks to its acquisition of two specialty pharmacies from Lincare

Holdings, GPO Premier will make these pharmacies’ services

available directly to its hospital and health system customers.

Infusion therapy companies remain prime targets for private

equity and specialty pharmacies. Through the first three quarters of

2015, the most recent data available, there were already more deals

in the infusion therapy sector than there were for all of 2014 — 11

vs. eight.1


Specialty Pharma Deal TrendsSource: The Braff Group

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Specialty Rx Deals 9 Months 2015 Annualized

Source: The Braff Group. Visit www.thebraffgroup.com


Hospital / Pharmacy AlignmentHospitals and specialty pharmacy partnerships show potential to improve quality of care alongside revenue.

› Alongside the M&A boom, greater collaboration is also

happening across the healthcare continuum, including

partnerships between hospitals and specialty pharma.

› Hospitals aiming to provide high-quality, comprehensive care for

patients with complex, chronic conditions that are typically

treated with specialty medications.

› Drug-related issues are a leading cause of hospital

readmission1, meaning that hospitals have an opportunity to

reduce penalties for readmission through close collaboration with

specialty pharma.

› These partnerships can also drive profits through the

acquisition of discounted specialty drugs under the 340B Drug

Pricing Program (for qualified entities/contracted pharmacies).

› Hospitals are either pursuing partnerships with leading

specialty pharmacies for 340B, including Avella, or forming in-

house specialty pharmacies to dispense these drugs directly.

1 Davies EC, Green CF, Mottram DR, Rowe PH, Pirohamed M. Emergency re-admissions to hospital due to adverse drug reactions within 1 year

of the index admission. Br J Clin Pharmacol. 2010;70(5):749-755.


The Trend toward Hospital DispensingHealth systems make a move to develop in-house specialty pharmacies

› Approximately 1 in 5 hospital systems now

have some form of specialty pharmacy

program.

› Others are seeking services through the

GPO sector. Through its M&A activity,

Premier is positioned to offer specialty

pharmacy services to 3,600 hospitals.

› Examples of large systems with URAC-

accredited pharmacies include:

› Carolinas HealthCare System - the 2nd

largest not-for-profit public healthcare

system in the nation

› Fairview Health System - Minneapolis-

based integrated health system

› Vanderbilt University Medical Center -

48 hospital locations, with 26 pharmacists

embedded in 20 different clinics

› Other notable entrants into this market are

Cleveland Clinic, Rush University Medical

Center, St. Jude Children’s Research

Hospital, the University of Illinois Hospital

and Health Sciences System, and Duke

University Hospital


The trend toward Hospital Dispensing, cont.Challenges with the in-house pharmacy approach for hospitals and health systems

› No access to many limited distribution

drugs - health systems’ specialty

pharmacies have struggled to penetrate

manufacturer- and payer-defined limited

specialty pharmacy networks.

› Specialization required optimizing health for

patients with certain conditions may not be

possessed by in-house team and it is

extremely difficult to manage competing

priorities across the hospital pharmacy

environment.

› Specialty pharmacies are much more than

just dispensing: many hospitals lack the

organizational focus needed to manage

and administer everything from adherence

programs to prior authorizations.

› Leading specialty pharmacies maintain

advanced analytics and technologies

designed specifically for this sector—aiming

to improve adherence, analyze gaps in care

and promote improved outcomes.


340B Opportunity, Challenges & OutlookComplex challenge, but with potential opportunity

TPA

Health Plan / PBM

Covered

Entity

Total paid net of disp fee

and admin fee

Pharmacy WAC net of

$X dispense fee XX/Rx

Contract

Pharmacy

Patient Paid

Plan Paid

Replenished Product Wholesaler 340B Cost

Invoice

Data FeedsClaims


340B Pharmacy ServicesBenefits & Burdens of 340B outsourcing

› Partnering with a 340B pharmacy can

generate significant revenue and increase

access to LDDs. Active pull through

messaging will minimize leakage and

improve member adherence

› 340B is incredibly complex -involving

designated 340B pharmacies, third-party

administrators & data analytics.

› 340B is new to hospital pharmacy, third party

administrators of 340B and patient

coordinators. Steep learning curve.

› Third Party Administrator (TPAs) systems

were built for retail, do not accommodate

SRx well, resulting in low capture rates.

› Replenishment of high value LDD/drop ship

drugs is a challenge.

› The use of 340B contract pharmacies

allows covered entities (including an

expanded list of hospitals and clinics thanks

to the ACA) to benefit from drug discounts

designed to help them better serve needy

populations.

› 8,000 pharmacy locations contract with

340B-eligible covered entities; more than one

in four U.S. retail, mail, and specialty

pharmacy locations. There are ~1,300 unique

DSH parent covered entities generating

70% of SRx.

› According to the American Hospital

Association, hospitals save $1.6 billion to

$3.8 billion per year in COGs through this

program.


Payers and ACOs Seek Specialty Pharma PartnershipsOther trends keeping SP in the spotlight among at-risk organizations

Nearly half of all specialty drug

spending occurs under patients’

medical benefit coverage, enabling

payers to look for new ways to

promote affordable therapies while

also improving care coordination

and population health.

Contributions from this sector can

include medication adherence

programs, outcomes programs,

data sharing, coordination at the

point of care (in “the white space”

between physician office visits) and

a focus on holistic patient health.

Untapped opportunities exist

within more formalized value-

based care models (including

ACOs) and outcomes-based

contracting.

Specialty pharma is ideally-

positioned to help at-risk entities

meet the “triple aim” (improved

quality, reduced costs, greater

patient satisfaction).

Specialized ACOs focusing on

conditions like oncology have a

natural alignment with the goals of

specialty pharma. In addition, new

oral oncolytics are shifting cost

that used to originate from

providers to specialty

pharmacies—and payers are

optimizing cost control efforts

accordingly.


The Financial Implications of Cancer

*Source: Milliman, 2010; study of total PMPM costs for ~14mm commercially-insured lives; assumes 11 member months per member

** Source: Yabroff, 2011; 2020 figures depicted in 2010 $’s

*** Adjusted for recent trends in dx incidence, survival, and cost

Cancer represents less than 1% of the population, yet drives over 8% of the total cost of care

Cost of Care – Cancer v. Non-Cancer (PMPM) ($)*

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Cancer Dx + ActiveChemo Tx

Cancer Dx w/oActive Chemo Tx

All Non-Cancer

$0

$10

$20

$30

$40

$50

$60

Bra

in

Bre

ast

Colo

recta

l

Kid

ne

y

Leukem

ia

Lung

Lym

phom

a

Ovarian

Pro

sta

te

Oth

er

2010A

2020E

Total Expenditures (2010A): $124.5

Total Expenditures (2020E): $157.7

Total Expenditures (Adjusted) (2020E): $172.8***

National Health Expenditures – Oncology (US) ($ in bn)**


ACO Oncology Cost Management

AETNA'S TOP COST DRIVERS

IN CANCER CARE

TRADITIONAL PAYER MANAGEMENT

TECHNIQUES AIMED AT ADDRESSING

SPECIFIC COST CATEGORIES HAVE NOT

WORKED IN ONCOLOGY:

Physician Reimbursement:

Pay Less for Services and Drugs

Prior Authorization:

Increase Management on Drugs and Diagnostics

Altern4ate Channel:

PBM / Specialty Pharmacy / Mail Order Pharmacy

Benefit Design:

Shift Responsibility to Patients by increasing copay /

deductible

Source: IOM (Institute of Medicine). 2014. Ensuring patient access to affordable cancer drugs: Workshop summary.

Washington, DC: The National Academies Press. Kolodziej presentation, June 9, 2014; 2010 CY claims; commercial and Medicare;

all funding; www.cancer.gov/newscenter/newsfromnci/2011/CostCancer2020 (accessed August 20, 2014).

ACO’s and Hospital Systems must implement an integrated approach to effectively

manage the quality and cost of cancer patients

Growth Spend

Medical Rx 30.8% $1.5B

Inpatient 23.3% $1.1B

Radiology 22.4% $1.1B

Specialist

Physician9.4% $483M


Oncology Payment ReformEngaging physicians to shift from volume to value

Current Models

To

tal C

ost

of

Ca

nce

r C

are

Future Models

FFS Payments

to Physicians

All Other Cancer Care

Spending Elements

Waste and inefficiency

FFS Payments to Physicians

All Other Cancer Care

Spending Elements

Waste and inefficiency

New Physician

Services Payments

Source: Brookings Institution, Transforming Oncology Care: Payment and delivery reform for person centered care, May 19, 2015

o Reimbursement focused on clinical quality and outcomes (Not on volume and drug margins)

o All care must exceed minimum clinical and quality measures (Pathways / Guidelines)

o Comprehensive patient performance and quality reporting

o Transition performance risk to providers (upside / downside)


Oncology Payment Reform

• Launched in 2015 / 2016

• Pilot Sites / Diseases• MD Anderson – Head / Neck Cancer

• Moffit – Early Stage Lung Cancer

• Three Year Pilot Program

• Objectives: • Identify a small sub-group of cancer patients

• Establish a contract (bundle payment) to provide

all necessary care for those patients

• Preliminary Observations • Initial pilot sites are large academic medical

centers have the necessary clinical,

management, financial and information systems

resources necessary for implementation.

• The initial disease categories have well establish

treatment guidelines with limited variability

• Likely developed a clear approach for the

utilization and reimbursement of drug therapy

CMMI

Oncology Care Model (OCM) Pilot

United Healthcare

Bundle Payment Pilot

• Launched in July 2016

• 199 Participating Organizations (Mostly

community based oncology practices)

• Objectives:• Adherence to evidence based guidelines

• Enhanced patient management & care

coordination

• Eliminate redundant / low value care

• Reduce avoidable complications and hospital

admissions

• Model Summary:• FFS payments (E/M & Drugs)

• Modified FFS payment (MIOS)

• Phase 1: Meet minimum clinical, operational,

and technological standards

• Phase 2: Financial Gain Share based on a

reduction to total cost of care

• Preliminary Observations: • Primary focus on reducing hospital costs

• Requires significant operational and IT system

changes

• Difficult to deal with Total cost of care

• Timely Patient data & information is lacking

Cost management vs. risk transfer


Direct and Indirect Remuneration (DIR) Fees

› Final 2014 Part D rule established a new

definition of “negotiated price” effective in

2016 to include all pharmacy price

concessions which can be reasonably

determined at point of sale.

› Similar types of pharmacy fees are starting to

be reported even in commercial markets.

This means more patients may face higher

drug costs (especially those with high

deductible plans) than if they were paying

cash prices.

› Plans / PBMs restructured programs for 2016 to

make it more difficult for their DIRs to be

“reasonably determined” in anticipation of

this legislation

› Term coined by CMS related to Medicare

Part D benefit to address price concessions

that would ultimately impact the gross

prescription drug costs of Medicare Part D

plans that were not captured at the point

of sale.

› Used as a “catch-all” term to encompass a

number of different types of fees including

“pay-to-play” fees for network participation

› Term “DIR fee” may be used by PBM so they

can make assertion that these fees cannot be

determined at the point of sale


InnovationNew SP technologies support existing efforts to promote adherence, clinical decision support

1 Siwicki, B. 21 September 2016. Waning mHealth security fears are opening doors to app and device innovation. Healthcare IT News. 2 Global Telemedicine Market – Growth, Trends and Forecasts (2016-2021). August 2016. Mordor Intelligence.

Mobile adherence apps for patients

are an easy, non-intrusive way to

help patients remember to refill, take

drugs appropriately. 50% of

consumes are already using a

healthcare app of some kind.1

Mobile and web-based apps for

providers to empower informed

prescribing decisions, especially in

areas where these decisions are

increasingly complex (oncology,

hepatitis C).

Web-based provider portals enable

tracking of patient adherence and

prescribing activity, encouraging

greater collaboration between

pharmacist and physician.

Data analytics and advanced

reporting to drive population health

at the payer level, or care

coordination at the provider level.

Greater connectivity between SP

systems and provider EMRs may

be the final frontier in data sharing

between these entities.

Some pharmacies exploring the use

of telemedicine to improve care

coordination and patient

education/outreach. (The global

telemedicine market is expected to

expand at a compound annual

growth rate of 14.3% over the next

five years, eventually reaching $36.2

billion.)2


› Novartis and Valeant cases have had widespread

implications for specialty pharmacy contracts.

(Manufacturers want to avoid even the hint of

inappropriate relationships in copay programs, etc.)

› Concerns about the opioid epidemic will drive

development of innovative pain medications and

increased caution around pain management in

oncology and other specialties.

› Negative media and consumer focus on drug

pricing, traditionally focused on manufacturers, could

spread to specialty pharmacies in spite of the fact that

pharmacies have no control and limited margins within

existing pricing structures.

• This trend reached another peak in 2016 with the coverage

around EpiPen profits and pricing structure as well as the

company’s recent Medicaid settlement.

• Scrutiny of 503c copay foundations and the role of

manufacturers

Other trends

that made

2016 a year of

change

Increased scrutiny on

pricing and partnerships:

negative attention from

media puts pressures on

manufactures, impacts

pharmacy contracts.


› Medicare Part B demonstration project may see the

light of day in spite of controversy and push back from

providers—but most experts say it’s unlikely to succeed

in a meaningful way.

› States including VA and CA have sought regulation

seeking the authority to approve large price hikes

from drug manufactures. In CA, manufacturers must

justify raising prices by more than 10 percent. In VA,

lawmakers have voted to delay consideration of a bill

that would require justification for drugs costing more

than $10k.

• 10 other states are considering the development of similar

legislation.

› The presidential race could also impact regulatory

environment and pricing as it has become a talking

point during many speeches.

• Hillary Clinton has promised to create aggressive new

enforcement tools to levy fines and impose penalties on

manufacturers for “unjustified” price hikes.

Other 2016

trends and

hot topics for

media

Increased scrutiny on

pricing and partnerships:

negative attention from

media puts pressures on

manufactures, impacts

pharmacy contracts.


Ongoing TrendsWhat to watch for in 2017 and beyond

• Outcomes-based contracting and

specialty pharmacy’s role in ACOs

and other value-based care models

will continue to grow.

• The structure of

manufacturer/specialty pharmacy

agreements will change based on the

high-profile events like the Novartis

case and its settlement.

• Tight formulary management and

increased emphasis on prior

authorizations from payers to control

HCV, oncology costs.

• M&A activity will continue at the

same unprecedented rate across all

of healthcare—from health systems to

payers and pharma.

• Biosimilars will continue to be

among the proposed fixes for pricing.

• Concerns over drug pricing,

sensitivity around SP/manufacturer-

sponsored provider programs.

• Specialty pharmacies will continue

to increase penetration in the

oncology space.

Example: ESI limiting physician dispensing

of Celegene products


Stay Connected

Rebecca M. Shanahan, JD

CEO

[email protected]

mailto:[email protected]

Documents

High-Impact Events and Realignment within the Specialty ... · High-Impact Events and Realignment within the Specialty Marketplace Specialty pharmacy stays in the spotlight as healthcare