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Michigan Purchasers Health Alliance Annual Fall Kickoff

U-M Drug Carve-out – Greater Plan Sponsor Involvement in Drug Benefit Management

September 20, 2007

Keith Bruhnsen, MSW

Assistant Director, Benefits Office

Manager, Prescription Drug Plan

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Presentation Topics

• University of Michigan Facts

• U-M Prescription Drug Carve-Out

• Plan Design

• PBM Selection

• Effective Controls and Innovative Practices

• Focus on Diabetes

• Focus on Medicines

• U-M Results

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As a Employer:• 34,800 employees & 6400 retiree contracts

• 80,00 covered lives

• 7 Unions (25% of actives)

• 2006 health care cost $233M (25% Rx)

As a Provider:

• 4 pharmacy’s (1/2 of drug plan scripts)

• Coordinated effort with prescribers & hospital

committees

U-M Facts

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U-M Prescription Drug History

• Pre-2000 15-30% Rx trend rates

• Inadequate rx data from health vendors

• Minimal rx programming

• Inconsistent coverage

• Study the problem & propose solutions

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2002 Prescription Drug Work Group

Recommended:

• Self-funded & self-administered carve-out

operational structure

• Create an equitable co-pay structure

• Harmonize drug plan coverage

• Utilize campus expertise

• Improve physician and patient education

• 1/1/03 Consolidated Plan Implemented

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U-M Plan Design

• Rich plan design, low member out-of-pocket cost ($7 - $14 - $24)

• Maintain open formulary of available drugs with standard exclusions (cosmetic, experimental)

• Added coverage for psychiatric drugs; oral contraceptives/devices; smoking cessation; $0 co-pay insulin/needles/test strips/lancets, prenatal vitamins; $5,000 fertility lifetime benefit

• Mail-order pharmacy (90-day retail max, 90-day option for mail order supplies at 2x co-pay)

• Annual Out-of-Pocket max “safety net”: $2,500 individual and $5,000 family

• 75% refill limit

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2005 RFP PBM Selection

2006 Selecting Transparent Vendor

• Plan design flexibility• Claims data access• Unbundled services• Improved Pricing

Per transaction basis 100% pass-through 100% rebates Good MAC

• Medicare Part-D Employer Subsidy• Research opportunities• Innovative partner• Ease of doing business (coding )

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Operations

Benefits Office• Administrative, financial and clinical oversight

Pharmacy Benefit Oversight Committee• Broad representation, advisory

• Endorse review of new drugs

• Review financials, customer issues, new programs

• Address member communication and privacy

Pharmacy Benefit Advisory Committee (P&T)• Small monthly work group of MD’s and pharmacist

• Review new drugs, formulary, PDL, programs

• Monitor utilization, design PA criteria

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Key Strategies

• Manage toward lowest net cost based on evidence based medicine

• Adjust plan design to goals, sensitivity to member disruption, and more consumer involvement

• Manage rebate game - rebates diminish with generic releases and increased specialty Rx spending

• Future savings are in managing “appropriate use” - utilization, overuse, waste, abuse, and off-label prescribing

• Demand accountability: audit claims, system set up, and rebates

• Continually educate plan members on plan rationale and individual opportunities

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Plan Design Initiatives

• Benefit Limitations on Supplies and Quantities– Limits on Fertility, ED, Smoking Cessation and Weight

Loss

• Plan Exclusions– Standard (cosmetic, anorexiants, etc)

– Non-coverage of Rx drugs with OTC alt/equivalents

• FDA Approved Dosing Limits (maximum daily doses)

• Manage Out-of-Network & Compound Claims

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Pharmacy Program Intervention Matrix

Patient Based Compliance Programs Disease Management DAW Penalties Patient Education

o Web o Print o Consultation o Personal letters

Drug Based Formulary and PDL Rebate Administration Dose Optimization Tablet Splitting Benefit Based Co-Pays Step Therapy Quantity Limits (MDD) Prior Authorization Generic Incentives Therapeutic Interchange Mail Order Performance Rx

Physician Based Retrospective Drug

Utilization Review Physician Profiling Physician Education E-Prescribing Electronic Support

(ePocrates)

Pharmacy Based Network Administration Concurrent Drug Utilization

Review Electronic Messaging Network Reimbursement MAC Pricing 340B Specialty Drug Pricing Audits

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U-M Rx Plan Cost History

Year Annual Plan Cost

PMPY Plan Share Member Share

2000 $33M 82% 18%

2001 $36M * 78% 22%

2002 $42M 79% 21%

2003 $43.4M ** 81.5% 18.5% ($9.8M)

2004 $49.4M 12.6% 82.1% 17.9% ($10.7M)

2005 $55.7M 11.3% 83% 17% ($11.4M)

2006 $58.3M 3.4% 83.3% 16.7% ($11.7M)

* = Copay changed from $5/$10 to $7/$14

** = Added 3rd Non-Preferred Tier at $24

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U-M Health Plan Rates and Prescription Drug Plan Premiums

Annual Percentage Change in Health Plan Rates:

2004 2005 2006 2007

Health (Medical & Rx): 14.90% 5.00% 5.40% 8.9%

Prescription 18.80% -3.30% -6.40%  0.00%

Medical 13.70% 7.70% 9.00%  11.02%

Monthly Prescription Drug Rates:      

Health Plan Coverage Levels 2004 2005 2006 2007

One Person $71.58 $66.58 $63.92   $63.92

Two Person $136.72 $133.16 $127.84 $127.84

Three or More Person $159.64 $187.76 $180.26 $180.26

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UM RX Trend in Comparison to National Averages

40

45

50

55

60

65

70

2003 2004 2005 2006

(Millio

ns)

If UM had follow ed National Trend Increase in Rx Cost

Actual UM RX Cost

UM Spent $207.3M for Drug Cost 2003-2006If National Trend, would have spent $235.8MNet different of $28.5M

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Avg. Ingredient Cost Paid / Days Supply * 30

$59.00

$60.00

$61.00

$62.00

$63.00

$64.00

$65.00

$66.00

$67.00

$68.00

$69.00

J-05

F-05

M-05

A-05

M-05

J-05

J-05

A-05

S-05

O-05

N-05

D-05

J-06

F-06

M-06

A-06

M-06

J-06

J-06

A-06

S-06

O-06

N-06

D-06

J-07

F-07

M-07

A-07

M-07

J-07

J-07

Moved to SXC

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GENERIC DISPENSING RATES BY PAY CYCLE

0

10

20

30

40

50

60

70

Pay Cycle

%

2003

2004

2005

2006

2007

% DAW Rx's

% Generic Dispensing Rate

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U-M 2006 Financials, 2007 Metrics

FINANCIALS• Transparent vendor =

$4.5M• 4.35% increased GDR =

$2M cost avoidance• Pill Splitting = $195k

Plan, $25k Members• 340B Pricing = $512k• DAW1 = $130K (93

members)• Smart PA’s = 17%

reduction in PA request• Medicare Part-D

Subsidy = $3.5M• Focus on Diabetes cost

$200K (6 mths)

2Q 2007 Metrics• Tier 1 generics = 62%• Tier 2 preferred brands =

25%• Tier 3 non-pref brands =

13%

• Mail Order Utilization = 8.4%• 90 Days @ retail = 8.9%

• Generic sub. rate = 97%• Percent generic adjudicated

at MAC = 87%

• 2006 UM Plan $ inc. = 5.77% (2007 projected = 5.1%)

• 2006 PMPY $ Inc. = 3.64%

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Research and Other Initiatives

• Tablet Splitting – half price financial incentives to patient

• College of Pharmacy: Retail Pharmacy Safety & Customer Satisfaction Survey , Whitepapers

• Injectable Pilot Program using hospital public health service pricing (340B)

• Statin & PPI Switch Program with UMHHC

• MHealthy: Focus on Diabetes

• MHealthy: Focus on Medicines

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MHealthy: Focus on Diabetes

• Substantial medication underutilization and adherence (40-60%)

• 2,227 UM employees with diabetes mellitus• 2,631 members benefiting• Diet controlled may opt-in• Copays: generics $0, brands -50%, non-pref. -25%• Provide copay reduction for:

– Glycemic agents – Antihyperlipemics (statins, fibrates, etc)– All antihypertensives (ACE, ARB, diuretics, etc)– Calcium Channel Blockers– Beta-Blockers– Antidepressants

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Focus on Diabetes – cont.

• Outcome Measures– Adherence – based on pharmacy claims– Medication and total health care spending

• Plan Cost: $400,000/yr• Member Copay Relief: Avg $152.89/yr• Decrease in pill splitting side effect

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MHealthy: Focus on Medicines

• 3000 employee & retirees with 9+ medications in past 120 days (review OTC, supplemental)

• Goals to improve health, identify safety concerns, contain cost, and optimize members therapy

• EOB with history, plan/member cost and savings opportunities: preferred brand, generic, or pill splitting Three study groups:1)EOB suggestion to consult with physicians

2)EOB + offer of pharmacist phone consultation

3)EOB + letter offer for face-to-face consultation with pharmacist and review of medical record

• Identify areas for future expansion

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Summary

• Competing interest in PBM’s profitability & employer cost

• Carve-out can control drug spending

• Employer must invest resources for returns

• Innovative designs can manage use and shape behavior

• There are vendors eager to work in a culture of innovation

UM Benefits Office: www.umich.edu/~benefits/

Questions: keithb@umich.edu