Specialty Pharmacy (SP) Landscape

1. Midwest Business Group on HealthBiologics and Specialty Pharmacy:Employer Challenges &OpportunitiesNational Business Coalition on Health 11/13/12

2. Specialty Pharmacy (SP) Landscape • Generics do not exist today • One exception – a generic for Hemophilia • Biosimilarsare a copy of a biologic drug… • But they are not identical • FDA approval pathway still under development • Only a few biosimilars are likely to be available with cost savings at about 20% less • Biobetters represent improvements to the original product • Typically offering an easier route of administration or less frequent dosing

3. Economic Impacts to Employers • Specialty drugs are the fastest growing segment of overall pharmacy benefits spend • Costs are growing at 2x the rate of traditional drugs with cost drivers including: • Aging population with chronic conditions • High cost per unit – $6,000 to $1M per year • Increasing number of FDA approved drugs • Fast growing pipeline – over 800 drugs • Special storage, handling and administration requirements • Role of diagnostics and related tests and services • Three drugs account for more than half of all SP spending • Cancer – Arthritis – Multiple Sclerosis

4. Economic Impacts to Employers • Specialty drugs that work for one person may not work for another • Resulting in the potential of multiple Rx fills • Need for related diagnostics/devices/testing • Costs account for about 17% of the average employer’s overall pharmacy costs and this number is rising fast • By 2020 it’s anticipated that 40% of the pharmacy drug spend will be attributed to biologics/specialty pharmacy • Approximately 50% of specialty drug spend occurs in the medical benefit making it difficult to track and manage

5. Midwest Business Group on HealthNationalEmployer Initiative onSpecialty Pharmacy Benefits2012

6. Establishing an Employer ViewMBGH Project Background • MBGH board of directors cites biologic/specialty pharmacy as #1 priority since 2010 • Coalition sees significant growth in SP products and related cost impacts to employers • Partner with Randy Vogenberg, PhD, Institute for Integrated Healthcare to develop multi-year employer research project • Conduct national employer surveys; multiple, national educational programs and seek out feedback from employers across the country

7. Addressing Employer NeedsWork Stream 1 – 2011 to 2012 2011 • Established Employer Advisory Councils – Chicago & Baltimore • Conducted National Employer Baseline Survey • Conducted Educational Outreach with employer group testing 2012 • Developing Employer Toolkit • Conducting 2nd National Employer Survey with expansion of survey research • Next steps…..implementing Future Work Streams through 2013

8. National Employer Initiativeon Specialty Pharmacy2012 Employer Survey

9. 2012 Employer Survey • MBGH partners with 15 NBCH sister coalitions from across the country • More than 100 employers participate in the survey • Population Size: • 40% - 1,000-5,000 • 20% - Over 25,000 • 15% - 10,000-15,000 • Industry Sector: • 40% Manufacturing; 15% Education; 15% Government • 90% of respondents are self-insured

10. Employer – HR/BenefitsLevel of understanding of SP 2012: 54% - Above Average 2011: 78% - Low to Moderate

11. Employer – Executive Leadership’sLevel of understanding of SP

12. Medical & pharmacy claims costs paid in 2011 (or most recent plan year) Per employee medical & pharmacy claims costs paid in 2011 Total combined medical & pharmacy claims costs paid in 2011

13. Percentage of medical costs paid for SP drugs and related services 2011 Survey: 70% of Employers indicated “Don’t know”

14. Percentage of prescription drug costs paidfor SP drugs and related services 2011 Survey: 40% of Employers indicated “Don’t know”

15. Increase of SP Costs Over Past 3 Years 2011 Survey: 29% of Employers indicated “Don’t know”

16. Three top disease states incurring the greatest SP costs

17. Employer level of involvement in working with SP benefits

18. Description of SP plan design

19. Description of SP plan design

20. Types of incentives used to encourage… (waived co-pays; co-insurance) Yes No Don’t know

21. Type of reports employer receives

22. 2012 Employer SurveyStrategies & Tactics for SPManagement

23. Top three for tactics for managing SP • Case management • Prior authorization • Drug utilization Effectiveness of top outcomes for disease/case management support • Treatment compliance • Medication adherence • Management of chronic conditions

24. Primary service providers for SP benefits and services

25. Most importance factors when contracting with SP service provider • 83% Cost of services • 77% Overall importance • 64% Medication adherence • 55% Care management support • 52% Cost transparency model • 52% Trend management • 48% Step therapy edits for claims approval • 46% Prior authorization for claims approval

26. Working with SP service provider Top outcomes used to evaluate SP service providers • Cost management • Overall performance • Patient management Types of performance guarantees included in SP contracts • 68% Guaranteed rebates • 53% Accurate processing • 47% Cost management

27. Providers of targeted communications to increase awareness of SP programs

28. Targeted communications Types of communication vehicles Effectiveness of strategies to improve use of SP for past few years 52% Pharmacy networks 54% Benefits coverage options 52% Utilization management

29. Employer lessons learned – design, management, vendor partnering • Work closely with PBM to identify trends early … develop appropriate action plan to manage cost and utilization • Specialty is an ever increasing cost and component of total medical spend … there’s a need for strict guidelines, protocol and prior authorizations is very important • Need high quality vendor to coordinate with regular drug program • Make certain that the provider has robust reporting tools to drill down into the data

30. Employer lessons learned –management of at-risk population • Step therapy and prior authorization • Communicate the cost and special needs around specialty drugs • Get and use as much data as possible • Consistency is important • Communication is key; provide incentive in wellness program for active disease management program participation

31. Biologics & Specialty Pharmacy National Employer Initiative2012 Employer Toolkit

32. Employer Specialty Pharmacy Toolkit • Launch Winter 2012 • Developed with input from employer advisors, feedback from educational program participants and staff expertise • Toolkit includes resources, best practices and employer case studies • Key areas include: • Understanding Specialty Pharmacy Benefits and tools for the C-Suite • Innovation in Benefit Plan Design and Service Partner Contracting • Managing At-Risk Populations; Communications and Resources

33. Section 1: Specialty Pharmacy 101www.specialtyrxtoolkit.com • Understanding the Basics • Specialty pharmacy landscape • No single definition for specialty drugs • Market view: Who are the key stakeholders? • Delivery, distribution & dispensing • Generics & other biologic drugs • The Employer as Key Stakeholder • From the research: the employers’ perspective • The value proposition • Future Trends & Impacts on Employers • List of Recommendations Insert home page here

34. Section 1: Specialty Pharmacy 101www.specialtyrxtoolkit.com • Edit Economics of specialty pharmacy • Shifting Rx marketplace • Current trends & cost drivers • Future growth trends • Dose forms & Diagnostics  • Education for C-Suite Insert inside page here

35. Sections 2 & 3 Planning & Contracting • Innovation in Benefit Plan Design and Service Partner Contracting • Employer as the plan sponsor • Vendor contract language • Plan design best practices • PBM RFP Checklist Managing At-Risk Populations; Communications and Resources • Employer health care management priorities • Employee satisfaction • Benefit design and its management • Communicating with covered population

36. Biologics & Specialty Pharmacy National Employer InitiativeFuture Work Streams

37. Address market need to understand employer perspective and claims experience in the use of specialty pharmacy drugs and services. Research and develop innovative value-based benefit design coverage approaches. Work Stream 1 2011 to 2012 Work Stream 2 2012 to 2013 Deliver education on outcomes to all key stakeholders, including reporting, presentations and publications. Conduct employer pilot programs to test value-based benefit design concepts and measure their effectiveness. Work Stream 3 2012 to 2014 Work Stream 4 2012-2014 Project Work Streams

38. Biologics & Specialty Pharmacy National Employer InitiativeStakeholder MeetingJuly 2012

39. Stakeholder Representation

40. What did the employers say? • Health Care Reform: • Government may put controls in place if prices stay where they are or go up • Need to look at what other environmental changes they need to work through • Not dropping coverage but need to look at benefit design for SP • Don’t assume that employers know what they’re doing –we need to trust the vendors– but not sure we can • So many variables…..Co-insurance; max out-of-pocket-hit after two doses; physician mark-up; can’t track via j-codes

41. Top trends in the next 2 to 5 years • Specialty meds becoming the main driver of overall cost trend • Required use of specialty pharmacies with intensive case management • Mandatory specialty pharmacy utilization driven by benefit design • More dosage forms (e.g. oral and IV) within therapeutic categories • More Biogenerics; Biosimilars • Continued mergers and acquisitions of specialty pharmacies and PBM’s

42. Top trends in the next 2 to 5 years • Continued increase in power and influence of employer groups/ coalitions • Vendors going at risk to drive outcomes, clinical utility and quality of life measures • Incremental increase in treatment populations as oral dosage forms replace injectables in some therapeutic classes • Increase in state level regulatory mandates for specialty benefit designs that are at parity with non-specialty benefits.   • Greater interoperability of systems to improve communications across transitions of care 

43. MBGH Initiative Summary • Critically important to address knowledge gaps currently among most stakeholders in marketplace • Innovation and performance is desired but lacking in market today—an important area to inspire action • Market change or shifts will continue into 2015 while technology growth escalates over next 2-5 years • Doing nothing is no longer an option • Employer resources to empower all stakeholders is essential • Ongoing stakeholder collaboration is critical to success

44. Project Contacts Cheryl Larson, Vice President Midwest Business Group on Health clarson@mbgh.org www.mbgh.org MBGH is one of the nation's leading not-for-profit business coalitions of private and public employers. Members are represented by human resources/health benefits professions for approximately 110 large self-insured public and private employers, who represent over 3 million lives and spend more than $3 billion on health care benefits annually. F. Randy Vogenberg, PhD, Principal Institute for Integrated Healthcare, Sharon, MA Strategic Pharmaceutical Advisor, Business Group Pharmaceutical Collaborative randy@vogenberg.com The Institute for Integrated Healthcare, an organization that provides integrated pharmaceutical benefits consulting and education to self-insured employers and business coalitions.