Pharmaceutical Pricing:
The Iceberg in Your Benefits
8th Annual
Employer Leadership Summit
Edina, MN
April 17, 2015
Stephen W. Schondelmeyer
Professor and Director
PRIME Institute
University of Minnesota
Overview
What Should You Know About
Drug Spend & Trend?
• What Role Do Drugs Play in Health Costs?
• The Specialty Drug Iceberg
• Drug Pricing Limits—Are There Any?
• Spend?
How Do You Track & Manage Total Drug
• Making Value-Based Drug Choices
• What Are Future Issues & Actions?
Tracking Drug
Trend & Spend
Drug Claims Per Member Per Year for
Self-Insured Employer Plan (UPlan): 2004-2013
# of Claims
PMPY
11
10
9
8
7
6
5
4
3
2
0
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
Jan…
Apr…
Jul…
Oct…
1
Based on data from Univ. of Minnesota self-insured drug benefit (UPlan) 2004 to 2012 & compiled by PRIME Institute, University of Minnesota.
Avg Cost per Drug Claim in Self-Insured
Employer Plan (UPlan): 2004-2013
$ / Claim
Patented Brand $468
(SS-Rx)
Brand Prices Increased
> 13% in 2014
Off-Patent Brand
(IMS-Rx)
$314
Average Drug Claim$122
Generic (Gen-Rx)
$ 30
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
$480
$450
$420
$390
$360
$330
$300
$270
$240
$210
$180
$150
$120
$90
$60
$30
$0
Based on data from Univ. of Minnesota self-insured drug benefit (UPlan) 2004 to 2013 & compiled by PRIME Institute, University of Minnesota.
50%
20%
10%
-10%
Jan 1, 2006
Apr 1, 2006
Jul 1, 2006
Oct 1, 2006
Jan 1, 2007
Apr 1, 2007
Jul 1, 2007
Oct 1, 2007
Jan 1, 2008
Apr 1, 2008
Jul 1, 2008
Oct 1, 2008
Jan 1, 2009
Apr 1, 2009
Jul 1, 2009
Oct 1, 2009
Jan 1, 2010
Apr 1, 2010
Jul 1, 2010
Oct 1, 2010
Jan 1, 2011
Apr 1, 2011
Jul 1, 2011
Oct 1, 2011
Jan 1, 2012
Apr 1, 2012
Jul 1, 2012
Oct 1, 2012
Jan 1, 2013
Apr 1, 2013
Jul 1, 2013
Oct 1, 2013
Jan 1, 2014
Annual
% Change
Price Change for Humulin U-500:
2006-2013
80%
73.0%
70%
Humulin U-500
60%
50.3%
40%
30%
Brand 14.0%
CPI – All Items 1.5%
0%
Prepared by AARP Public Policy Institute and PRIME Institute, Univ of Minnesota based on data from Truven Health MarketScan® Research Databases.
When your insulin has a
50% increase in price
does your diabetes
get 50% better?
NO ! ! !
Are We Getting Our Money’s Worth
When Drug Prices Go Up 50%?
Share of Drug Claims Filled with Generics in
Self-Insured Employer Plan (UPlan): 2004-2013
% of Rxs Claims
100%
90%
80%
Brands as a
% of Drug Claims
70%
60%
50%
40%
43.1%
Generics as a
% of Drug Claims
80.2%
Generics Rate Will
Level Off Around
85% to 90% of All
Prescriptions
30%
20%
10%
Reaching Patent Cliff in 2016 & Beyond:
Current Generic Savings Continue,
But New Savings Will Be Minimal
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
0%
Based on data from Univ. of Minnesota self-insured drug benefit (UPlan) 2004 to 2013 & compiled by PRIME Institute, University of Minnesota.
Avg. Cost per Specialty Claim in Self-Insured
Employer Plan: 2006-2014 (Aug)
$ / Claim
$4,000
$3,500
$3,541
Specialty Drug Claims
$3,000
$2,500
$2,000
$1,500
$1,000
$0
Jan-…
Apr-…
Jul-06
Oct-…
Jan-…
Apr-…
Jul-07
Oct-…
Jan-…
Apr-…
Jul-08
Oct-…
Jan-…
Apr-…
Jul-09
Oct-…
Jan-…
Apr-…
Jul-10
Oct-…
Jan-…
Apr-…
Jul-11
Oct-…
Jan-…
Apr-…
Jul-12
Oct-…
Jan-…
Apr-…
Jul-13
Oct-…
Jan-…
Apr-…
Jul-14
Oct-…
$500
Based on data from self-insured drug benefit 2004 to 2013 & compiled by PRIME Institute, University of Minnesota.
What Will Cost More Than
Physician Services &
Will Account for >20% of
Health Care Costs by 2023?
Prescription Drugs
The Nation’s Health Dollar: 2015
(FY 2015, $ 3.21 trillion)
Where Did It Go?
*
Research, 1.4%
*
Capital Costs 5%
Public
Health, 2.6%
*
Govt. Admin.,
1.2%
Durable Med
Equip, 1.4%
* Other,
10.0%
Are Drugs Used
Care, in Other Sectors?
* Hospital
31.4%
YES!
Health Insur.
Admin., 6.6%
sectors that
* Other
include Rx drugs.
Prescription
Drugs, 9.6%
(Outpatient Rxs Only)
Nursing
Homes
5.5% Dental
* * *
Services
Home Health Care
2.8%
Physician
Services,
20.0%
*
4.0%
What Role Did Drugs Play?
Rx Drugs in All Settings
* 17.5% in 2016
* 20.0% by 2023
Drug Spend Trend as % of NHE:
% of NHE
2013-2023 * (estimates)
20%
10.3%
10.0%
9.9%
8.7%
7.9%
7.2%
12%
6.3%
14%
5.4%
16%
9.4%
Specialty Drugs
10.7%
18%
10.5%
Physician Services
10%
8%
2020
2021
9.4%
2017
9.4%
2016
9.4%
9.6%
2015
9.4%
9.6%
2014
9.4%
9.6%
2013
9.5%
9.5%
4%
9.4%
6%
Outpatient Prescription Drugs
2%
0%
2018 2019
Source: CMS, Office of the Actuary, National Health Estimates, 9/3/2014.
2022 2023
Specialty Drug Spend Estimate for
Major Self-Insured Employer: 2013
$ in Millions
$50
$46.8 million
$45
$40
$35
$30
$38.5
million
$8.3
$8.3
Specialty: Pharmacy Benefit
$25
$20
$15
$10
$5
$0
$10.8
Generics: Pharmacy Benefit
$19.4
Brand: Pharmacy Benefit
Specialty: Medical Benefit (est.)
Total Specialty Drug Spend = 35%
Total Drug Spend
Source: Data provided by self-insured employer with ~40,000 covered lives in 2013.
Does You Track Your Specialty Drug
Spend Under the Medical Benefit?
2012
Yes
Yes
No
66%
Not Sure
Not Sure
15%
No
Source: 2012 Specialty Drug Benefit Report, Pharmacy Benefit Management Institute, p. 3
Traditional Prescription Drugs
(>85% of Rxs Are Generic)
Specialty Prescription Drugs
(About 1% of Rxs &
>50% of Rx $ by 2018)
Specialty Prescription Drugs
in Your Medical Benefit
Account for 20% to 40% of
Your Total Drug Spend
Specialty Drugs
What are other labels (aliases) for specialty drugs?
Specialty Drugs
Specialty Pharmaceuticals are
drugs that treat complex, chronic
conditions and which often
require special administration,
handling, and care management.
New Specialty Drugs: 2009-2014
(New Biotechnology Drugs, Vaccines, & Indications)
FDA Approvals
160
140
New Molecular Entities: 145
120
100
80
Specialty Drugs
96
60
40
20
Traditional Drugs
49
0
2009-2014
Source: IMS Health & Express Scripts
Specialty Drugs & Costs
What is the cost of specialty drugs?
Annual Cost of Therapy

Oncology
Xelodda, Afinitor, Gleevec, Tasigna, Nexavar
$40,000 to $130,000

Hepatitis C
Sovaldi, Olysio, Harvoni, Infergen
$84,000 to $150,000

Growth Hormone
Norditropin, somatropin

Transplant Drugs
Cellcept, Rapamune, Prograf, Myfortic
$ 1,000 to $25,000

Arthritis Drugs
Enbrel, Humira, Remicade, Kineret
$25,000 to $85,000

Hemophiliac Drugs
Kogenate FS, Benefix, Recombinate

Antiretrovirals (HIV)
Truvada, Atripla, Reyataz, Emtriva

Multiple Sclerosis
Avonex, Copaxone, Rebif, Tysarbi

Coagulation Drugs

Gaucher’s Disease

Anemia Drugs
$30,000 to $75,000
Lovenox, Arixtra, Innohep, Fragmin
$15,000 to $60,000
Ceredase, Cerezyme
$80,000 to $150,000
Procrit, Neupogen, Epogen, Neulasta, Aranesp $15,000 to $100,000

Other Specialty
Soliris
(generic),
Omnitrope $10,000 to $120,000
$100,000 to $250,000
$ 6,000 to $30,000
$40,000 to $500,000
Specialty Drugs: Utilization
Hepatitis C (Sovaldi & Olysio) & Plan Cost: 2013
Covered Population
of
15 with Hep C
Will Seek
Treatment (1.5%)
40,093
Cost of
Drug Therapy
$102,000
Per Person
Annual Plan
Cost of
Drug Therapy
$38.16 PMPY
1,000 persons
With
Hepatitis C
(2.5%)
Annual
Plan Cost
$1.53 million
4.0% of
Total PMPY
Specialty Drugs: Utilization
Multiple Sclerosis & Plan Cost: 2013
Covered Population
of
40 with MS
Will Seek
Treatment (67%)
40,093
Cost of
Drug Therapy
$52,000
Per Person
Annual Plan
Cost of
Drug Therapy
$51.88 PMPY
60 persons
With
Multiple Sclerosis
(0.18%)
Annual
Plan Cost
$2.08 million
5.4% of
Total PMPY
Targeting of Drug Therapy
PCSK9: Anti-Cholesterol Agent
Due for
FDA Approval
in Mid-2015
$6.2 billion or $20 PMPY
$10.0 billion or $30 PMPY
$20.0 billion or $60 PMPY
$150.0 billion or $450 PMPY
How Much is Your Life Worth?
How Much Do You Have
in the Bank?
That
Is How
Can You
Afford
Yourself ?
Economic Markets Work !
Is That How Access to
Health Care Should Work ?
Value of a Life
Economic Value of Life for Cost-Benefit
 Value for Life Saved
• EPA:
$5.5- $6.9 million
• Dept. of Transportation:
$6.0 million
• FDA:
$7.9 million
 Value of a Year of Life (QALY in Clinical Trials)
• 1990s:
$ 50,000/year
• 2000s:
$100,000/year
• 2012:
$129,000/year
When It Is Your Life: It’s Priceless
“Value of a Life” vs “Value of a Drug”
Ethical & Policy Issues
 What does it mean when the cost of a drug is
more than the economic value of a life?
 When there are limited resources who do you treat?
•
1 patient with a drug that costs $500,000
• 1,000 patients with a drug that costs $500
How Do You Know
Value of
Specialty Drugs?
Who Makes the
Value Decision for
Care & Drug Therapy?
Patient ?
Physician, Pharmacist
Pharmacist, or Nurse ?
Payer, Plan, or Employer ?
HMO or Pharmacy Benefit Manager ?
Pharmaceutical Firm ?
CMS or the FDA ?
No Clear Value Decision-Maker !
Who Should Decide on Value ?
Discounts That May
Cost You More !
Patient Copay Coupons
Patient Assistance Programs
Rx Discount Cards
Rebates
Mail Order Rx
Medication Auto-Ship Program
These Are Not Always a Benefit
Watch Your Wallet
Focus on Value of
Drug Spending
Not All Increases in Drug Spending Are Beneficial !


Increased Spending With Little Value
• Increase in price for the same drug
• Switch to new patented dosage form when generic enters
• Drug use when drug is ineffective for condition treated
• Possession of needed medication without compliance
Increased Spending With Greater Value
• Coverage expansion with financial access to needed meds
• Use of effective med for previously untreated patient
• Targeted use of effective therapies based on evidence
• Appropriate use of more cost-effective med (even if higher price)
• Continued use & compliance with needed & effective med
Value is Essential
PRICE is not the ONLY issue,
but price is always
an important issue in VALUE.
-- Stephen W. Schondelmeyer
Innovation & Value
Computers & Electronics
Price of the fastest supercomputer in 1975:
$ 5 million
Price of an iPhone4 with
↓ 12,500 : 1
equal performance today:
$ 400
Pharmaceuticals
Price of Rx in 1975: ~ $ 5 / Rx ↑ 1: 80
Price of Rx in 2015: ~ $ 400 / Rx
Price of Specialty Rx in 2015:~ $ 3,000 / Rx
↑ 1 : 600
So What Does This
Mean for the Payer?
Drug Pricing: Whack-A-Mole
Coupons
Biosimilars
(filgristim)
Sovaldi
Insulin
Concerta
Specialty
Drugs
Cancer
Drugs
Specialty Drug Tourism
Global Differences in Cost of Sovaldi
$84,000
$25,000
$900
What Does the Future Hold?
Future Health Environment
 Society
Values Health & Health Care
 Society
Has Limited Resources
 NHE
Has Impact on Health Outcomes
 Appropriate
Drug Therapy Improves
Health Outcomes
 More
Efficient Resource Use ---->
More People Can Be Treated
Specialty Future

Most Specialty Drugs Are Essential

Cost of Specialty Drugs Is A Problem

Manage Specialty Drug Expend.
Target Only True Sources of Growth (Price, Waste, etc.)
 Specialty Drugs Must Deliver Better Value

Use Medication Therapy Management
Improve Patient Health & Reduce Drug-Related Problems
The Drug Market is Broken !

Lack of Price Transparency

Information Asymmetry

Inelastic Demand

Lack of Negotiation

High Barriers to Entry

Excessive IP Expansion
Specialty Drug Action
What action can you take on specialty drugs?
 Individual Firm

 Track & Coordinate Specialty Drug Trends
 Coordinate Specialty Claims Through Pharmacy Benefit
 Adjust Benefit Coverage & Design
 Consider a Carve-Out Specialty Drug Program
Collectively With Other MHAG Firms
 Adopt a Standardized Approach to Data Analysis &


Specialty Claims Processing on Medical Side
Coordinated Approach Across Multiple Payers & Providers
Collectively Negotiate with a Carve-Out Specialty Provider
in Minnesota Market
 Collective at National Level
 Weigh in with Others on High Prices of Specialty Drugs
 Encourage Technology Assessment of Specialty Drugs
 Support Policies to Increase Transparency & Negotiation
“You may be on the right track
and moving in the right direction,
but if you are not moving fast enough
the train will still run over you.”
Will Rogers
Keep Swimming: Upstream & Fast
PRIME Institute
P harmaceutical
Research
In
Management &
E conomics
University of Minnesota
PRIME Institute
University of Minnesota
308 Harvard Street, SE
Weaver-Densford Hall 7-159
Minneapolis, MN 55455
FAX:
Phone: 612-624-9931
612-625-9931