Population Health, Value Based Benefits and Biologic Technologies

F. Randy Vogenberg, RPh, PhD

Executive Director, BFAC

Setting the Stage—from the Employer View

3

Who Controls the

Product?DistributorDistributor

McKessonMcKesson

Cardinal BergenCardinal Bergen

The Market View

Payer

Medicaid Medicare

Third Part Admin

MCO

PBM w/Specialty Pharm (SPC): APCS(Fed)/Caremark,

Express Scripts/CurascriptMedco/Accredo

Retail w/SPC & PBM (Walgreens, CVS)

“Independent” SPC: Accredo, Chronimed, etc.

MCO with internal PBM/SPC

Dispenser

PatientPatient

Administered byAdministered by

MD Office / Infusion CenterMD Office / Infusion Center

HHC PatientHHC Patient

ManufacturerManufacturer

Copyright 2007, F R Vogenberg.

Sample Snapshot from “BY 2004” U.S. Pharmaceutical Market

Traditional Specialty

Total Market = $215 B($ in Billions)

Specialty Pharmaceutical MarketMultiple Sclerosis 2.5Hemophilia 1.6Hepatitis C 1.6Rheumatoid Arthritis 1.5Pulmonary Hypertension

1.2RSV prophylaxis 0.8Growth Hormone 0.4Infertility 0.7Oncology 12.6HIV/AIDS 3.4Renal 3.2Transplant 1.5Other 1.3Total 32.3

Sources: Extrapolated from IMS Health, JP Morgan Industry Update, “Specialty Pharmacy: Conduit of Growth for Biotechnology,” March 14, 2003, Bear Stearns Health Care Distribution, “Specialty Pharmacy Services: Among the Fastest-Growing Areas of Health Care,” November 2003, Caremark Estimates.

Copyright 2007, F R Vogenberg.

A Sample Snapshot from 2006 U.S. Pharmaceutical Market

Traditional Specialty (+20%)

Total Market = $275 B($ in Billions; +8%)

Specialty Pharmaceutical MarketMultiple SclerosisHemophiliaHepatitis CRheumatoid ArthritisPulmonary Hypertension

RSV prophylaxisGrowth HormoneInfertilityOncologyHIV/AIDSRenalTransplantOtherTotal 40.0

Sources: Extrapolated from IMS Health, JP Morgan Industry Update, “Specialty Pharmacy: Conduit of Growth for Biotechnology,” March 14, 2003, Bear Stearns Health Care Distribution, “Specialty Pharmacy Services: Pharma Voice, 2007.

Copyright 2007, F R Vogenberg.

Trend Impacts in 2006

Acute or Life Saving 0.6 %

Life Style or Cosmetic 0.1%

Chronic preventative, maintenance or symptomatic 3.4 %

“Over Utilization” 1.1 %

Generics: Top 5 = 0.8% savings of gross

Generics: Top 14 overall = ~4 % savings of gross

Top Brands spend result in ~even cost overall.

Source: adapted from Caremark 2006, 2-07 Industry Analytics.

Copyright 2007, F R Vogenberg.

Generics

+13 % in prescription volume

+22 % in pharmacy sales

Copyright 2007, F R Vogenberg.

Health Care Hyper Disruption—Just Like “IT”

Information explosion 100 fold increase in bytes of data by 2010 Consumerism and genome project applications

Device explosion Mobile devices double by 2010 Biotechnology utilization grows 4 fold

Transaction explosion Platform stability for connection to interaction Claims adjudication to value based behavioral

management Mayhem explosion

Security breaches HIPAA compliance

Copyright 2007, F R Vogenberg.

Source: Banc of America Securities LLC

New “Specialty” Drugs Are Escalating Rapidly & Impacting Medication Spend

• U.S. biotech companies had sales of $32.3 billion in 2003.• U.S. biotech companies are predicted to have sales of $91 billion in 2008.

Sources: Ernst & Young LLC, Resurgence: The Americas Perspective Global Biotechnology Report 2004, cited in T. Agres, "US Biotech May Leap into the Black," Drug Discovery and Development, July 1, 2004, p. 16.

Specialty Drug Industry Growth, 1990-2005E

100

240

369

29

92

197

600

100

100

200

300

400

500

600

700

1990 1995 2000 2005E$0

$10

$20

$30

$40

$50

Drugs in Development Drugs on Market Product Revenue ($Billions)

$17B

$46B

Num

ber

of

Spe

cia

lty D

rugs

Pro

duc

t R

even

ues

($ B

illio

ns)

Copyright 2007, F R Vogenberg.

Follow the Dollar: Cross Impacts of Rising Cost Share on the Severely IllTotal Health Care: $1

Hospital, Diagnosis Medical Laboratory, Out Patient

Prescriptions

Total Rx : $.12-.15Typical Rx

Injectables & Biotech ($.02)

Total Spc Rx: $.02Injectables ($.01)

Biotech ($.01)

Source: Aon project data on file, 2004

80% Covered20% Out-of-Pocket

Co-pay: $.002 or 2/10 of $.01Example: Minimal impact of a20% Co-pay on the total health care premium

Total Health Care: $1Hospital, Diagnosis Medical Laboratory, Out Patient

Prescriptions

Total Health Care: $1Hospital, Diagnosis Medical Laboratory, Out Patient

Prescriptions

Hospital, Diagnosis Medical Laboratory, Out Patient

Prescriptions

Total Rx : $.12-.15Typical Rx

Injectables & Biotech ($.02)

Total Rx : $.12-.15Typical Rx

Injectables & Biotech ($.02)

Typical Rx

Injectables & Biotech ($.02)

Total Spc Rx: $.02Injectables ($.01)

Biotech ($.01)

Total Spc Rx: $.02Injectables ($.01)

Biotech ($.01)

Source: Aon project data on file, 2004

80% Covered20% Out-of-Pocket

Co-pay: $.002 or 2/10 of $.01Example: Minimal impact of a20% Co-pay on the total health care premium

80% Covered20% Out-of-Pocket

80% Covered20% Out-of-Pocket

Co-pay: $.002 or 2/10 of $.01Example: Minimal impact of a20% Co-pay on the total health care premium

Copyright 2007, F R Vogenberg.

Tidal Wave Effect—Use & Cost

1%

4%

15%

55%

0%

1%

2%

3%

4%

5%

2004 2010

0%

15%

30%

45%

60%Population %

Spc Drug Spend %

Sources: Managed Care Magazine, August 2004; Specialty Pharmacy News, 2006.

Benefits: Trends are about market challenges and change

Short Term 1-3 years

Today we have Co-pay set on price,

not value

Generic drugs – lowest co-pay

Preferred brand – middle

Nonpreferred brand – highest

Benefit-Design Trends: Increased Cost Sharing at Point of Service

Value-based Health Benefit Plan

Why is it a good concept?

More appropriate strategy to engage “consumers” in their own health management

Creates an alignment between quality improvement initiatives and health plan designs

Misinterpretation of VbBD

Value-based

Benefit Design

Value Based

Insurance Design &

Hybrids

Pay For Performance (P4P)

&

HPN

Value Based

Formularies

Medical Home

&

Gatekeeper

Others

VbBD: A Corporate Strategy

Value-based

Health Plan

Health PlanBenefit Coverage

VbBDs

Value Based

Insurance Design &

Hybrids

Pay For Performance (P4P)

&

HPN

Value Based

Formularies

Medical Home

&

Gatekeeper

Others

Goals, Objectives/Outcomes

& Desired Behaviors resulting from

Health Care Plan(s).

Implementation of Health Plan.

Following ERISA, HIPAA, etc.

Business Goals and Objectives.ER Corporate Business Model

Employers Primary Focus of Health Care

RiskReduction

Prevent the Preventable

Change Incidence Rates

CONFIDENTIAL INFORMATION© 2007 Copyright EPS LLC, All Rights Reserved

Employer’s Health Care Objective

CONFIDENTIAL INFORMATION© 2007 Copyright EPS LLC, All Rights Reserved

Health &

Wellness(Prevention

curtails costs)

No Risk EEs

DiseaseManagement

(After the fact Management)

EEs sufferedCVD Event

Economic Benefit of Healthy Employees…

Find Patients @ RiskPrevent the Preventable (Heart Attack)

RiskReduction

Prevent the Preventable

Change Incidence Rates

Continuum of Service

VbBD How can “Pharmacy” help enhance each stakeholders own “Value Proposition”?

IMPROVEDOUTCOME

Patient:QoL

Care PerceptionLower Co-pays

Payor:Market Share

Member Turnover Utilization & Costs

Employer:Productivity

Employee StabilityPremium Rates

Physician:Reputation

Office EfficiencyImproved Care

Biologic Finance and Access

Council

(BFAC)About the Program at Thomas Jefferson University

Background

• A multi-disciplinary not-for-profit organization addressing:– Patient cost burden– Appropriate access and reimbursement– Role and value of biologics– Future means of financing and managing– Unmet educational and informational needs

of stakeholders

• Information analysis and idea exchange• Need for innovative benefit designs and insurance

solutions

Biologic Finance and Access Council

Membership: An Opportunity to “LEARN”• Leadership

– Members steer the direction by identifying key issues, such as:• Patient cost burden; role and value of biologics; access to,

reimbursement for, and ways to finance and manage biologic products and technologies; and other relevant issues

• Education– Provides, through existing or new collaborations:

• Courses, webinars, and conferences offering in-depth professional development opportunities, designed by and for BFAC members and related professionals

• CME opportunities for licensed professionals

• Action– Develops and disseminates practical solutions:

• Collaborate with stakeholders on the creation of innovative benefit designs

• Publish definitive viewpoints and interpretations of market trends, addressing the unmet educational and informational needs of stakeholders

Membership: An Opportunity to “LEARN”

• Research, Representation, and Resources– Creates opportunities for:

• Original or shared research on innovative benefit designs• Data and information analysis• Exchange of ideas on future financing of biologic technologies• Provision of member mailing lists, conferences, and educational courses

• Networking– Offers a dynamic forum for the exchange of new ideas, bringing

together members to share their experiences, expertise, and friendship

• Through BFAC, there are numerous opportunities for leadership, education, discussion of national or local issues, personal and professional networking, professional development, referrals, and accredited education offerings

Foundation In Place for the Future

Biotechnology Healthcare - Official Journal

• Reports on:– Management and use of biopharmaceuticals and molecular

diagnostics– Value to third-party payers and employer purchasers– Scientific advances affecting healthcare – Financing, utilization, and public policy

• Bimonthly, peer-reviewed journal, introduced 2004, link with BFAC 2006

• Reaches 35,000 healthcare decision makers

• Website – www.biotechnologyhealthcare.com– Weekly e-newsletter (13,000 requestors)

Foundational Initiatives by BFAC

The Need for Value-based Health Benefits Aligning the Value Equation

Distributed to 45,000 stakeholdersHeld on April 7, 2008 with more than 100 attendees

Future Focus for BFAC

• Benefit design innovation• Employer issue exchange on health care coverage• Biologic technologies, biomarkers, and molecular

medicine• Spotlight on disease states• Health data analysis and research• Multidisciplinary opportunities for collaboration• Market focused and action oriented

Summary

• Unique biologic/new technology focus with emphasis on member driven solutions led by an experienced leadership team

• Action oriented around innovation in benefit design for real world biotechnology access and finance solutions

• Established work product and direction, now with the Jefferson School of Population Health and its resources or affinity groups