Strategies For Sustainable Rx Savings

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Strategies For Sustainable Rx Savings

• November 29, 2005
• Scott Streator, Director of Health Care
• Ohio PERS

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• Few aspects of the drug industry are more
  confused or more confusing- that its pricing
  structure.
• We recommend that the Department of Health
  should conduct a continuing survey of drug costs,
  average prescription prices, and drug use.

Final Report. Task Force on Prescription Drugs.
U.S. Department of Health, Education, and
Welfare Washington, 1969
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• Mission Fund and provide quality pension,
  disability, survivor, health care benefits and
  services to Ohio state, county, city and
  miscellaneous government employees

• OPERS covers three quarters of a million Ohioans
  who are state, county, city, university and
  township employees
• 370,000 contributing employees
• 300,000 inactive employees with accounts
• 148,000 benefit recipients
• 3,700 contributing employers
• Annual benefit payments 3.4 billion
• 68 billion in assets
• 9th Largest State Pension System in U.S., 16th
  Largest in world

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Consumer Price Index Prescription Drugs, Health
Care All Items(1980-September 2005)
1980 100
Prescription Drugs
Health Care
All Items
Source U.S. Bureau of Labor Statistics 2005 .
Consumer Price Index-All Urban Consumers. U.S.
city average. Not Seasonally Adjusted. Note
Prescription drugs includes medical supplies.
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Average Cost per Outpatient RxU.S. (1992-2004)
/Rx
Source Estimated from NACDS, 2005. Note Mail
order Rxs adjusted to 30 day supply.
Year
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Outpatient Rx Expenditures.U.S. (1965-2014)
Billions
Private
Private
Public
2014
Source CMS, 2005. 2004-2014 are projections.
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Get Comfortable with Complexity
Prerequisite
BRAND DISCOUNT
AWP VS WAC
AUDITING RIGHTS
RETAIL
MAC
FORMULARY VS NON-FORMULARY
HMG
MARKET SHARE
SSRI
MAIL
MULTI-SOURCE
COX IIs
PDP
ADMINISTRATIVE FEES
ZERO BALANCE BILLING
DAYS SUPPLY
PT COMMITTEE
MEDICARE B, D
PPI
REFERENCE PRICING
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Top therapeutic classes contributing drug trend
(2005-2007)
Source Medco 2005
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OPERS Total Plan Cost
9M
10M
12M
60M
12M
13M
14M
31M
16M
20M
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Obtain Best Discounts Rebates as a Foundation
Strategy 1

• Leverage size with Pharmacy Benefit Administrator
  (PBM) or TPA
• Reduce Administrative Complexity
• Evaluate Network Access, Formulary Options

Members X Cost
Rx Cost
Product Cost
AWP-DiscountFees-Rebates

Product Selection
Units
Unit Cost
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Patented Drugs Price Comparison. Selected
Countries (2003)
US 100
Source Canadian Patented Medicine Prices Review
Board, Annual Report 2003
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OPERS vs. Canadian Pricing
11 Less
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Structure a Transparent Agreement
Strategy 2

• Define all Revenue Streams
• Leverage Auditing Rights
• No Retail Markup CAP Mail Markup on Generics
• Administrative fee for specific services (fee or
  PMPM)
• Shared Savings Methodology Agreement
• Pricing terms of Brand, Generic, and Source
• Beware of Biotech Pricing

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Rebate Results
OPERS Rebate Performance
38.3M
23.2M
14.5M
Rxs 5M 5.1M 5.1M
Through 11/05
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Are there risks of too much transparency?
PBM Transparency
Drug Company A Ex. Actos WAC 10
Mail Pharmacy
Payor/ Plan-Sponsor
PBM
Drug Company B Ex. Avandia WAC 20
Retail Pharmacy
Drug Company C Ex. Prandid No Discount
(Traditional Model)
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Identify Opportunities and Manage Aggressively
Strategy 3

• Affix fair share member contribution/co-pays
• Dont stop at discounts manage utilization and
  product selection
• Monitor the drug pipeline

(AWP-DiscountFees-Rebates)
Members X Cost
Product Cost

Rx Cost a Function of
Product Selection
Units
Unit Cost
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Product Selection Generic Competition Impact

• Celebrex 200mg Daypro Generic
• AWP 325 170
• Discount AWP24 AWP 55
• -Rebates 32 No Rebate
• Net Cost 215 94
• 121 Savings for 3 month Rx
• For illustrative Purposes Only

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Rxs per Person per YearU.S. 1970 to 2004
Source NARD-Lilly Digest, 1971 to 1995.
1995-2004 estimated from NACDS 2005. Note Mail
order pharmacy Rxs for 1995-2004 were adjusted to
30 day supply.
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Identify Opportunities and Manage Aggressively
Co-pay Change
No Co-pay Change
Member Satisfaction 98 98
93 (new survey)
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New Drug Applications Approved by FDA by
Therapeutic Potential (1990-2004)
Number of NDAs
Priority Review (22.1)
Standard Review (77.9)
Source FDA, 2005.
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Drug Manufacturer Strategy
Case Study Digestive Disorders
OTC
OTC

Tagamet (H-2A)
Pepcid Zantac Axid Prilosec (PPI)
Prilosec Prevacid Protonix Aciphex Etc.
Nexium Prevacid Protonix Aciphex
1980s
1990s
2000
Current
Timeline
U.S. Annual Sales
600M
4.0B
6.6B
12.5B
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OPERS Custom PPI Formulary

• Example Retail 2005
• Cost Member Pays 05
  Member Pays 06
• OTC 20 100/ Not
  covered 5
• Generic 56 5
  25
• From Brand 100 10
  50
• Non Form 100 25
  75
•  
• Example Mail
•  
• Cost Member Pays 05
  Member Pays 06
• OTC Not available _at_ Mail
• Generic 168 10
  50
• From Brand 233
  20 100
• Non Form 200
  50 150
•  
• 2005 Strategy Physician Approval required for
  greater than 90 days of therapy.

2006 Change
9
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Communication and Consumerism
Strategy 4

• Plan Design 2,3,4 tiers, on flat co-pays?

Plan Sponsor vs. Member Responsibility

• Prevention
• Quality Safety-Physician Rx Surveillance
• Managing change
• Co-pay confusion
• Communicate early, using multiple channels to
  physician, pharmacy and member.

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Are Consumers engaged?
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Tale of Two Members
Two Patients with Identical Diagnosis-different
costs Member Costs/30 days Member A
Zyrtec 70.00 (Not Covered) Cozaar
53-81 (Covered if ACE I failed) Pravachol
25 (Non-Formulary Co-pay) 176 Member
B Flonase 10 (Co-pay) or Claritin OTC
Lisinopril 5 (Generic Co-pay) Lipitor
10 (Formulary Co-pay) 25 Savings
151/Month! Source Walgreens.com April 2005 of
common strengths
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Are you willing to take the following steps to
help reduce health care costs?
Seminar Survey
On-line Survey
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Communication Consumerism
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Alternatives to Traditional Rx Purchasing
Strategy 5

• Evaluate Traditional vs. Emerging Models

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Emerging PBM Alternatives
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Emerging PBM Alternatives
Network Providers

• In House Pharmacy
• Mail Only
• Limit Retail

Manufacturer
Plan Sponsor
PBM

• Medicare D
• Employer PDP
• Medicare Advantage
• Subsidy

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Emerging PBM Alternatives
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Future Topics

• Managing the Biotech Beast or Inevitable
  Explosion?
• Medicare D Assimilation Results
• FDA Overhaul or Fine Tuning?
• Pharma Marketing
• Drug Safety and Post Marketing Surveilane
• International Models
• Bio-shield and Drug Patent Laws