PHARMACY INDUSTRY TRENDS
HUMANA’S STRATEGY
For Addressing
Pharmacy Industry Trends
University of Kentucky
October 3, 2001
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Humana Inc.
Pharmacy Management Department
Who we are...

Part of Humana’s Clinical Leadership and Innovation Center

16 pharmacists in Louisville

14 additional pharmacists throughout Humana’s markets

Corporate operations, support, and analysis has 18 associates

Clinical Call team includes 28 associates
Pharmacy Customer Service is supported by 135 associates
company wide

CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
University of Kentucky
Humana PPO Pharmacy Plan
Three-Tier Pharmacy Benefit

Tier 1 $8


Tier 2 $20


Generic medications on the drug list
Brand name medications on the drug list
Tier 3 $40

Other covered drugs that are not on the drug list
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Take Home Message
Important Trends

Pharmaceutical explosion
continues







Benefit Design

Empowerment tools
expect to see underlying trend of
18-20%
manufacturer pipelines
direct-to-consumer
Consumers want choice

Humana Strategy
direct-to-consumer works
doctors are faced with consumers
requesting specific drug products
consumers are more informed



internet
paper
other
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Where has the industry been?
Double Digit Drug Budget Increases
1998
1999
2000
Unit Cost Inflation
3 - 4%
3 - 4%
3-4%
Utilization
4 - 6%
5 - 8%
6-9%
Intensity
6 - 8%
6 - 9%
6-9%
Overall trend
13-18%
14-21%
15-22%
CLINICAL STRATEGIES & INNOVATION
Source: Humana Data; Milliman and Robertson; SG Cowen, September 2000
PHARMACY INDUSTRY TRENDS
Rise in Direct-to-Consumer Advertising Expenditures
$3,500
Predict nearly $3.5
Billion in 2001
$3,000
M illions of
Dollars
$2,500
$2,000
$1,500
$1,000
$500
$0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001 est
CLINICAL STRATEGIES & INNOVATION
Source: Competitive Media Reporting and IMS America Ltd.
PHARMACY INDUSTRY TRENDS
US Prevalence of Selected Conditions
50
45
40
35
30
25
20
15
10
5
0
Asymptomatic
Symptomatic
Asthma
Migraine
Arthritis
Osteoporosis
Total Treated
Cholesterol
Hypertension
Prevalence
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Manufacturer Sales Force
Increased 34% from 1998 to 2000
Company
Pfizer
Glaxo/SKB
Aventis
Novartis
Merck
BMS
Schering
Pharmacia
Am. Home Product
Lilly
Other
TOTALS
# Reps
8,300
8,000
8,000
8,000
5,000
4,800
4,500
4,000
4,000
3,500
17,000
75,100
Total Promotion Expense > $7 Billion
CLINICAL STRATEGIES & INNOVATION
Source: SG Cowen, September 2000
PHARMACY INDUSTRY TRENDS
Generic Drug Pricing Outlook
Over past 2 years, generic manufacturers have enjoyed a rise in
competitive power via industry consolidation
15%
10%
5%
0%
-5%
-10%
-15%
-20%
1999
1998
1997
1996
1995
1994
% chg in price (weighted avg)
CLINICAL STRATEGIES & INNOVATION
Source: SG Cowen, September 2000
PHARMACY INDUSTRY TRENDS
Flurry of Upcoming Patent Expirations
10

# of patent expirations
9
High blood pressure

8

7
GI

6

5

3

1

Buspar, Prozac
Cholesterol

0
Glucophage
Behavioral health

2
Prilosec, Pepcid, Axid
Diabetes

4
Vasotec
Mevacor
Allergy
200
200
3
4
5
1
200
200
0
2
200
9
200
199

Claritin
Year
CLINICAL STRATEGIES & INNOVATION
Source: SG Cowen, September 2000
PHARMACY INDUSTRY TRENDS
Humana’s Approach
to Managing Pharmacy Trends
Positive effects of Rx3
30.00%
25.00%
20.00%
Large Group
15.00%
Small Group
Total Commercial
10.00%
5.00%
0.00%
1Q99
2Q99
3Q99
4Q99
1Q00
2Q00
3Q00
4Q00
2001
YTD
CLINICAL STRATEGIES & INNOVATION
Source: Finance department - earnings call process
All data is net of rebates.
PHARMACY INDUSTRY TRENDS
Clinical Hotline
6
Implemented P&T decisions
Calls/1000 Members
5.5
Implemented Step Therapy
5
4.5
2000
2001
4
3.5
3
2.5
2
c
De
t
v
No
Oc
p
Se
t
ly
g
Au
Ju
ne
ay
Ju
M
ar
r
Ap
M
b
n
Fe
Ja
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Calls/1000 Members
40
Calls to Pharmacy Team
Customer Service
35
30
2000
2001
25
20
15
10
c
De
t
v
No
Oc
p
Se
t
ly
g
Au
Ju
ne
ay
Ju
M
ar
r
Ap
M
b
n
Fe
Ja
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Key Metric - Generic Dispensing
Rx3 provides copay incentives to use generic drugs
Large Group
Large Group Rx3
Small Group
Small Group Rx3
Medicare
2Q99
2Q00
2Q01
42.3%
40.2%
40.3%
---
41.4%
41.0%
37.3%
35.6%
35.6%
---
38.0%
37.5%
51.9%
51.5%
59.0%
Important Notes:
•Generic dispensing is the percent of prescriptions that are written as generic.
•Rx3 plans have a higher generic dispensing rate because of incentives and/or requirements to
use generic drugs.
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Key Metric - Drug List Usage
Rx3 provides copay incentives to use drugs on the Drug List
Large Group
Large Group Rx3
1Q00
2Q00
3Q00
4Q00
1Q01
2Q01
95.7% 95.7% 96.1% 97.2% 96.8% 96.2%
94.0% 93.4% 93.2% 93.3% 92.5% 92.1%
Small Group
Small Group Rx3
78.8%
89.6%
78.1%
89.1%
77.8%
89.1%
78.5%
89.8%
77.9%
89.2%
77.6%
88.7%
Medicare
94.1%
94.0%
94.1%
94.2%
93.8%
93.8%
Important Notes:
•This news is compelling data which shows that members are willing to choose between brand recognition in exchange for lower
cost shares. In Small Group, Drug List compliance increased between non-Rx3 (open Drug Lists) and Rx3 plans. In Large
Group, Drug List compliance only decreased slightly between non-Rx3 (primarily closed Drug List plans) and Rx3 plans.
•It is this data that Humana’s pharmacy contracting area can share with pharmaceutical
manufacturers to leverage our proactive benefit designs for discounts.
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Lessons Learned from Rx3

Members do Not like the unpredictable nature of Rx3

Members do Not like Prior Authorization with Rx3

In Rx3 Generics are assigned to Level One with no regard to cost and
movement to other levels is impossible

Rx3 does not effectively control underlying Pharmacy trends
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
The Time is Right for Rx4

No benefit is used more by members than their prescription drug benefit.





Pharmaceutical companies increase their direct-to-consumer advertising
Technology continues to develop
Drug utilization continues to rise
Prescription drug benefits become more costly to provide
Rx4 addresses the higher price of drugs, their growing use and provides a
benefit with greater choice for prescription drugs.



Simple
Convenient to use
Makes coverage for some prescription medications more accessible
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
High Level Overview of Rx4




Level 1 -generic and brand-name drugs which are low cost
• approximately 45-50% of the scripts
Level 2 -generic and brand-name drugs which are higher cost
• approximately 40-45% of the scripts
Level 3 - higher cost, mostly brand-name name drugs that may
have generic or therapeutic alternatives within level one or
level two, some injectables
• approximately 10-15% of the scripts
Level 4 -most self-administered injectable drugs, biotechnology
drugs and gene therapy
• approximately 1% of the scripts
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Humana’s Top 15 drugs by volume with Level
Comparisons
Drug Name
ZOCOR (Chloresterol)
PREMARIN (Hormone Replacement)
ATENOLOL (Blood Pressure)
Generic Vicodin or Lotrab (Pain)
FUROSEMIDE (Blood Pressure)
SYNTHROID (Thyroid)
ZESTRIL (Blood Pressure)
GLUCOPHAGE (Diabetes)
Generic Dyazide (Blood Pressure)
LOTENSIN (Blood Pressure)
RANITIDINE HCL (Heartburn/Ulcers)
NORVASC (Blood Pressure)
ALPRAZOLAM (Anxiety)
CEPHALEXIN (Antibiotic)
GLYBURIDE
Humana
Level
2
1
1
1
1
1
2
2
1
2
1
2
1
1
1
United
Level
2
2
1
1
1
2
3
2
1
3
1
2
1
1
1
Aetna
Level
2
2
1
1
1
2
3
2
1
3
1
2
1
1
1
Pacificare Anthem
Level
Level
3
3
2
2
1
1
1
1
1
1
3
2
2
3
2
2
1
1
2
2
1
1
3
2
1
1
1
1
1
1
CLINICAL STRATEGIES & INNOVATION
Jan 2001
PHARMACY INDUSTRY TRENDS
Examples of Options with Rx4
Rx 4 level
Drug Name
Copayment
Amount*
Level 1
Ranitidine
(Generic Zantac)
$10
Level 2
Protonix or Prevacid
$25
Level 3
Prilosec, Aciphex or
$45
Zantac
* copayments depend on benefit option
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Value of Rx4 in Managing Trend

Rx4 manages trend through flexibility in copayment levels and
the copayment design structure

Allowed benefit enhancement without significantly raising
premiums

Engages the customer - Aligns member choice with member
responsibility
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Levers that impact pharmacy premium
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Not covered
PA
Rebates
Covered
Mbr Copay
(not drawn to scale)
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Lessons Learned from Rx3

Members do not like the unpredictable nature of Rx3


Members do not like prior authorization with Rx3


Rx4 reduces level of prior authorization from 5% to less than 1%
In Rx3 generics are assigned to Level One with no regard to cost and
movement to other tiers is impossible


The member will no longer be responsible for the cost differential between the
generic and the brand name medication. The most a member will ever pay is
the Level Three copay.
Rx4 applies the appropriate cost share for low cost brands and high cost
generics
Rx3 does not effectively control underlying Pharmacy trends

Rx4 offers protection against inflated costs of new technology
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Rx4



Positive, innovative consumer-focused, approach to addressing Rx benefits
and medical costs
Rx4 offers "enhanced" benefits to members

favorable placement of drugs compared to competitors

flexible design of levels allows lower cost in lower tiers (vs. generics
only in lowest levels)

Several brand drugs available in Level 1 (e.g. Premarin)

Reduction of prior authorization
Rx4 also manages trend


through flexible definitions of copay levels and of course the copay design
without Rx4, the enhanced benefits would not have occurred without premium
increases
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Impact of physician knowledge of costs
Is cost of medicine an important consideration w hen prescribing?
Is cost of medicine an important consideration w hen prescribing?
88%
Yes
88%
Yes
Is cost of medicine
an important consideration w hen prescribing?
Yes
No
No
No
88%
12%
12%
12%
Under w hat circumstance do you consider patients’ cost w hen prescribing?
Under w hat circumstance do you consider patients’ cost w hen prescribing?
P ays for ow n pres c ription
P ays for ow n pres c ription
94%
Under w hat circumstance do you consider patients’ cost w hen prescribing?
P ays for ow n pres c ription
C overed by Medic are
C overed by Medic are
94%
94%
68%
68%
C overed
by or
Medic
are
C overed by
Medic aid
HMO
C overed by Medic aid or HMO
30%
30%
C overed by Medic aid or HMO
68%
30%
Are you aw are of actual drug costs?
Are you aw are
of actual drug
costs?
Yes
20%
Yes
20%
Are you aw are of actual drug costs?
Yes
No
No
No
20%
80%
80%
80%
Source: Physicians’ Attitudes About Prescribing and Knowledge of Costs of Common Medications, Archives of Internal Medicine, Oct. 9, 2000
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Maximize Your Benefit…helping
consumers make informed decisions

Takes a page out of the drug manufacturer’s playbook…

It’s all about Direct-To-Consumer strategies…

Impact to date shows that nearly 1,000 members acting on letter…
Push Technology:

Send letters weekly to inform consumers…began April/May 2001



Have a benefit design that gives them choice
Let them know we believe they purchased a higher cost drug for which there may be choices they can discuss with
their doctor
Send daily emails (some day on the hour)…begins in 4Q01
Pull Technology:

ePharmacy portal…available on Humana.com
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Maximize Your Benefit
VAT Application
Address member by name and confirm identity
Determine interest in lowering drug copayment
Offer member short list of prescription drugs and
alternative information
Offer member letter to take to physician
Remind member to review their drug
coverage, claims history, copayment
amounts, and more on www.humana.com
CLINICAL STRATEGIES & INNOVATION
Engaging the consumer
Rx
Rx filled
“Ask Your
Doctor”
Tier
Rx claim
information
Tier
Tier
Use the Internet to
notify that an
alternative Rx of
comparable quality
is available which
costs the consumer
less
Tier
Corporate
Information
Factory
PHARMACY INDUSTRY TRENDS
Pharmacy Internet
www.humana.com

Robust ePharmacy Functionality for commercial members (Medicare coming soon)





Plan benefit information
Claims history - 13 months--REAL TIME!
Drug query cost share tool…with alternatives
Drug list capabilities
Drug information
• basic clinical information
• drug interactions--interactive
• natural health encyclopedia


Pharmacy locator
Mail order
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Prescription Drug Benefits and Services
Unsecured Menu
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Drug Search Function/Status of a Drug
The status of the
specified drug is
displayed. The
information includes:
Type of drug
Generic available?
Is the drug on the
formulary?
Is prior auth
required?
Are there dispensing
limits?
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Drug Search Function/Printable Lists
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Clinical Drug Information
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Drug Interaction Tool
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
The Natural Health Encyclopedia
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Prescription Drug Benefits and Services
Secured Functions
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
View Possible Alternatives
When the
alternatives
transaction is
complete, the
member will
be presented
with the
therapeutic
class
alternatives,
along with
the copay
and coverage
information
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Member Claims History
CLINICAL STRATEGIES & INNOVATION
PHARMACY INDUSTRY TRENDS
Humana Value…Pharmacy

Price




Benefit Design…connecting pharmacy with medical



Rx4…industry leading
Generation Next…
Technology



Networks…5-6% better than PBMs…3-4% better than most insurers
Rebates…better than most PBMs…most likely even with insurers
Claims adjudication fees…significantly better
ePharmacy
Maximize Your Benefit
Programs

Ask The Pharmacist
CLINICAL STRATEGIES & INNOVATION