Transcript MedImpact Annual_Conference - T Baker

The Calm Before the Storm: Payer Benefit
Design and the Looming Specialty Wave
Date:
Key Learning Objectives
 The rate of benefit cost growth has slowed –
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how much of this is due to benefit design?
Why haven’t payers and employers been more
aggressive in their benefit designs?
Are we ready for the coming wave of high-cost
entrants?
Insurance Premium Growth, 2002-06
15%
13.9%
12.9%
12%
11.2%
9.2%
9%
7.7%
6%
3%
0%
2002
Source: KKF
2003
2004
2005
2006
Cost-Sharing Today
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Faced with steadily rising costs and demand for cost growth control from
employers – as well as patient and manufacturer demand for “choice” –
commercial payers introduced the tiered formulary in the early 1990s
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Today over 60% of commercial members have a three-tier pharmacy benefit, and an
additional 20% have a four-tier benefit
Payers believe that cost-sharing and tiered differentials have helped to
slow cost growth and to drive more utilization to lower-cost therapies,
particularly generics
Because payers routinely contract for position, the formulary
increasingly resembles a supermarket shelf
For payers, high cost-sharing – because of its demand effects –
represents a constraint on producer prices
Cost-Sharing Burdens by Tier Position
Overall average copay: $44.71
Overall average coinsurance: 23.4%
Percentage of respondents
reporting specific design
80%
Yes
(94.9)
60.6%
60%
40%
20.2%
20%
9.1%
2.0%
2.0%
0%
2 Tiers
3 Tiers
4 Tiers
5 Tiers
6 Tiers
Tier 1
Tier 2
Tier 3
Tier 4
Tier 5
Tier 6
Mean Copay
$10.40
$24.75
$45.12
$87.78
$50.00*
$100.00*
Median Copay
$10.00
$25.00
$40.00
$87.50
$50.00*
$100.00*
1 Tier
*may not be a representative figure due to size of subsample, n=1.
No
(5.1%)
Tiered
Formulary?
1.0%
Source: The Zitter Group
Why Tiered Formularies?
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Payers cite a variety of reasons for implementing tiered formularies with
differential cost-sharing requirements:
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Influence patient choice
Collect revenue
Drive patients to a particular product
Limit utilization for products of uncertain or limited value
Limit access to products
Provide patients with choice
Fulfill contractual obligations/trigger rebates
Constrain producer prices
A cynic might argue that tiered formularies reflect a Faustian bargain
between manufacturers, patients, and payers designed to shield payers
from the negative consequences of UM
Formulary Management of OADs
Actos
Avandia
Yes
Byetta
Lantus
Yes
Yes
14.3%
Sulfonylurea
6.2%
14.2%
Currently use Prior
Authorization?
Generic
metformin
No
36.3%
No
85.7%
No
Yes
63.7%
93.8%
85.8%
Tier 2
Tier 2
(77.7% of
payers)
(81.4% of
payers)
Most likely
copay
$25.00
% Top tier
No
No
No
100.0%
100.0%
Tier 2
Tier 1
Tier 1
(bimodal)
(75.0% of
payers)
(99.1% of
payers)
(94.7% of
payers)
$25.00
$25.00 or
$40.00
$25.00
$10.00
$10.00
19.8%
18.0%
46.8%
20.6%
8.0%
8.0%
% Top tier-1
58.5%
61.3%
45.7%
57.0%
11.6%
14.3%
Preference
index1
1.04
1.05
0.63
1.06
1.97
1.91
Most likely tier
placement
1 Preference
Tier 2 or 3
index is a measure of a product’s absolute accessibility, and represents the mean distance from the top formulary tier across the market. The
higher the number, the further the distance from the top tier, indicating greater accessibility.
Source: The Zitter Group
Key Challenges

Most notably, the use of the tiered formulary has not had a notable effect
on aggregate pharmacy cost growth
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Within category utilization has shifted, and generic utilization continues to grow, but
pharmacy trend marches on
An aging population increasingly reliant on pharmacotherapy faces
multiple copays on a monthly basis, straining household resources
Cost-sharing is inherently regressive, placing a disproportionate burden
on lower income households and vulnerable populations
Higher cost therapies, particularly biologics, increasingly trigger even
greater out-of-pocket burdens (including percentage coinsurance),
raising questions about equity
Ultimately, cost-sharing may create perverse incentives resulting in
outcomes losses
Timeline of Patent Expiration
$15,000
Glucophage
Prilosec
Augmentin
Claritin
Paxil
Wellbutrin
Ambien
Pravachol
Xanax XR
Zocor
Zofran
Zoloft
Allegra
Duragesic
Flovent/nase
Zithromax
$9,000
10%
Depakote
Effexor
Fosamax
Lamictal
Risperdal
Topamax
Toprol-XL
Zyrtec
8%
Advair
Cozaar
Protonix
Norvasc
Prevacid
Valtrex
$6,000
6%
4%
Prozac
$3,000
2%
$0
0%
2001
Source: Credit Suisse
2002
2003
2004
2005
2006
2007
2008
2009
2010
% of Industry Revenues
Pre-Expiration Sales ($m)
$12,000
Celexa
Cipro
Diflucan
Neurontin
Ortho Tri-Cyclen
Oxycontin
Rx Spending Growth Has Slowed
The Limits of Cost-Sharing
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Research documents significant rates of underutilization of medications as a
result of the burden of out-of-pocket cost, especially among vulnerable
populations
Patients faced with reduced prescription drug coverage fill fewer prescriptions,
including those for medications essential for treating cardiovascular disease and
diabetes
Continued ambiguity surrounds the issue of whether patients who take less of
their prescribed medications because of cost experience adverse health outcomes
as a consequence
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Data are limited due to design and method, as well as the length of observation
More importantly, many studies looked at time periods in which average out-of-pocket expenses
were comparatively much lower than today
Impact of Cost-Sharing Across Categories
Source: Goldman, et al JAMA 2004;291(19): 2344-50.
Economic Consequences of Cost-Shifting
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As in any market, demand falls when costs rise
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Comparatively low inflection point ($10-$15)
Within the context of a multi-tier formulary, this generally translates into
a change in the mix of drugs, but in elderly or economically
disadvantaged populations increasingly results in an absolute fall in
utilization
Lower absolute utilization and the shift to a less costly drug mix has
generally benefited health plans
Emerging evidence finds that cost-sharing has a negative downstream
impact on health outcomes, though effect varies by category
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On the other hand, underutilization occurs in categories with near-term AE risk (e.g.
asthma, diabetes) and long-term AE risk (e.g. hypertension)
Copay Levels and Noncompliance: HTN
$30.00
18.00%
Average Co-Pay
14.00%
$20.00
12.00%
10.00%
$15.00
8.00%
$10.00
6.00%
4.00%
$5.00
2.00%
$0.00
0.00%
I
D
J
E
A
All Plans
C
B
L
G
Health Plan
Source: Derived from Avey SG, “Managed Care Co-Payment Study: Understanding Hypertensive Patients’ Attitudes Toward Copayments.” Presented at AMCP Fall Educational Meeting, Baltimore, MD, October 15, 2004.
F
K
H
Percent of Patients Who Skip Doses
16.00%
Average Co-Pay
Non-Compliance by Plan
Linear (Non-Compliance by Plan)
$25.00
U.S. Market Potential, by Category
high
Oncology
Future Trends
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Worsening economics in most
primary care markets will
necessitate that manufacturers
invest in those categories that
offer the greatest growth potential
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The most attractive categories – those
that combine a high level of unmet
need with comparatively weak cost
controls – are predominantly biologic
or specialty categories
HCV
Alzheimer’s
Immunology/RA
HIV
• Limited generics in mid-term
• Significant unmet need
• Pricing likely to hold
Depression
Unmet
need
Neuropathic
pain
COPD
Diabetes
High cholesterol
Hypertension
This is reflected in the drugs
currently in development, with the
majority in cancer, and several
others in other biologic categories
Nociceptive
pain
Anti-ulcer
Asthma
Anti-infectives
low
Source: Adapted from Boston Consulting Group, 2007
“Attractive growth potential”
“Market at risk”
• Significant generics available
• Limited unmet need
• Pricing and access at risk
Burgeoning Biotechnology Pipeline
Cancer/related conditions
Infectious disease
Autoimmune disorders
Cardiovascular disease
Other
AIDS/HIV infection/related conditions
Neurologic disorders
Respiratory disorders
Digestive disorders
Diabetes/related conditions
Genetic disorders
Skin disorders
Eye conditions
Transplantation
Grow th disorders
Blood disorders
0
Source: Credit Suisse, Medco Health, PhRMA
20
40
60
80
100
120
140
160
180
Anticipated Specialty Spend
Anticipated Growth of Specialty Rx Spend
Traditional Rx spend
$210 billion
Specialty Rx
spend $35 billion
Specialty Rx
spend $90 billion
18%
2004
Traditional Rx spend
$155 billion
†
‡
Express Scripts, Drug Benefit Trend Report 2005, June 2006.
Bernstein & Co., Global Pharmaceuticals Launch Report, October 2007
26%
2009
Cost, Prevalence and Priorities
Source: Biotechnol Healthcare.
Category Management Priorities
4.38
4.36
4.24
Rheumatoid arthritis
Human growth hormones
Red blood cell growth factors (ESAs)
4.01
3.95
3.86
3.86
3.85
3.82
3.77
3.76
3.72
Respiratory syncytial virus
Hepatitis C (PEGylated interferons)
Oral cancer therapies
Chronic plaque psoriasis
IV cancer therapies
Crohn’s disease
IVIG agents
Severe asthma (IgE-mediated)
Multiple sclerosis
3.47
3.45
3.45
3.3
3.19
Infertility agents
Hemostatics (Factor VIII agents)
White cell growth factors (GCSFs)
Osteoporosis
Thiazolidinediones (Actos, Avandia)
Hereditary emphysema
Source: The Zitter Group
2.81
Change from Fall
2006 Mean
-0.06
0.05
0.11
0.14
0.17
0.06
-0.01
-0.14
0.10
0.12
0.20
0.33
0.28
0.05
0.72
0.36
N/A
0.54
Formulary Management of hGH
Human Growth Hormone Agent Tier Positioning
Omnitrope Genotropin
Serostim
Saizen
Norditropin TevTropin
Nutropin
(n=55)
(n=57)
(n=70)
(n=62)
(n=57)
(n=60)
(n=57)
Average copay
$41.90
$41.39
$41.24
$40.12
$39.00
$38.39
$37.96
% top tier
56.1%
53.4%
50.9%
52.6%
47.6%
47.4%
36.1%
% top tier -1
12.3%
8.6%
5.5%
7.0%
4.8%
8.8%
13.1%
Preference
index1
0.61
0.64
0.60
0.60
0.68
0.75
0.80
1 Preference
index is a measure of a product’s absolute accessibility, and represents the mean distance from the top formulary tier across the market. The higher the number, the
further the distance from the top tier, indicating greater accessibility.
Source: The Zitter Group
Cost-Sharing Incoherence
100%
% Reporting Cost-sharing
80%
60%
Orals
Unspecified Cost Sharing
% Copayment
% Coinsurance
2.9%
2.9%
5.9%
2.9%
2.9%
2.9%
74.1%
40%
4.7%
23.5%
22.4%
23.5%
23.5%
22.1%
27.1%
25.9%
25.9%
25.9%
26.7%
75.6%
20%
9.4%
11.6%
0%
Gemzar
(gemcitabine)
Abraxane
(albumin-bound
paclitaxel)
Source: The Zitter Group, 2007
Taxol
(paclitaxel)
Taxotere
(docetaxel)
Avastin
(bevacizumab)
Xeloda
(capecitabine)
Sutent
(sunitinib)
Payer Estimates of Patient WTP
$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$566.94
IV cancer
$507.53
Oral cancer
$499.67
Infertility
$466.39
Factor VIII
$351.46
IgE asthma
$337.64
IVIG
$319.95
hGH
$313.39
MS
RBCGF
Hep C
Crohn's
RA
PsO
$600.00
$285.58
$278.84
$274.16
$265.82
$250.78
Q = “At what monthly out-of-pocket cost do you believe that patient demand will begin to fall for pharmaceuticals in
these disease categories?”
Cost-Shifting Remains Most Likely Tool
Increase the amount employees pay for health insurance
Increase the amount employees pay for prescription drugs
Increase the amount employees pay for deductibles
Increase the amount employees pay for office visit copays or coinsurance
Introduce tiered cost-sharing for doctor visits and hospital stays
Restrict employees eligibility for coverage
Drop coverage entirely
Offer HDHP/HRA
Offer HAS qualified HDHP
0%
Not at all likely
Not too likely
Source: Kaiser/HRET Survey of Employer-Sponsored Benefits, 2007
20%
Somewhat likely
Very likely
40%
Don't Know
60%
80%
100%
Conclusions
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Employers and payers continue to benefit from slower
Rx cost growth
The contribution of benefit design and management to
the slower growth rate may matter less than the
magnitude of recent patent expirations and low
manufacturer R&D productivity
Payers and employers increasingly rely on costshifting, which has inherent limits and potentially
severe negative implications
As more and more expensive specialty products enter
the market, conventional benefit design strategies may
be inadequate