Specialty Drugs Goals for Today DEVELOP AN REVIEW PAST - - PowerPoint PPT Presentation

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Specialty Drugs Goals for Today DEVELOP AN REVIEW PAST - - PowerPoint PPT Presentation

Oct 24, 2023 355 likes •733 views

Costs, Trends, Concerns and Cost Control Options Specialty Drugs Goals for Today DEVELOP AN REVIEW PAST PREDICTIONS, IDENTIFY ETHICAL AND REVIEW OPTIONS FOR UNDERSTANDING OF THE CURRENT PERFORMANCE, FUNDING ISSUES DRIVING CONTROLLING COST

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Specialty Drugs

Costs, Trends, Concerns and Cost Control Options

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Goals for Today

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DEVELOP AN UNDERSTANDING OF THE SPECIALTY DRUG INDUSTRY AND ITS DIFFERENCE FROM TRADITIONAL PHARMA. REVIEW PAST PREDICTIONS, CURRENT PERFORMANCE, AND IMPORTANT/EVOLVING TRENDS. IDENTIFY ETHICAL AND FUNDING ISSUES DRIVING COST AND INFLUENCING THE MARKET. REVIEW OPTIONS FOR CONTROLLING COST AND TREND AT BOTH THE EMPLOYER GROUP AND NATIONAL LEVELS.

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The Basics

History and Definitions

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Evolution

  • f an

Industry

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late 1970’s

Biologics and cancer drugs requiring special handling and administration techniques first entered clinical trials and limited use in the late 1970’s.

The 1980’s and early 1990’s

were marked by rapid development

  • f bioengineering

technologies. Clinical successes were few.

late 1990’s

First “mainstream biologics” (for example, Remicade) entered the marketplace in the late 1990’s.

2000–2005

Major investments in specialty drug discovery and development began in 2000 – 2005.

2010–2019

marked by an explosion in specialty drug approvals and Orphan Drug designations.

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Specialty Drugs: What are they?

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The Short Answer:

It Depends…

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The Easy Definition: Cost

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CMS: > $670 per month (2019) PBM “A” > $750 per dose

Tends to be used by public sector entities. Use by PBMs decreasing, partly because of formulary and rebate issues. Can cause confusion/misclassification when lower cost therapeutic equivalents or biosimilars enter the market.

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The Better Definition: “Functional”

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Traditional Drug Specialty Drug

Used by most PBMs. Minimizes formulary and rebate issues within a single plan or multiple plan designs from the same carrier, TPA, or PBM. May create issues with cross-vendor comparisons.

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A Special Case: Orphan Drugs

Specialty Drugs or Not? Economic and Clinical Impact?

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Definition

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An orphan drug is a pharmaceutical agent developed to treat medical conditions which, because they are so rare, would not be profitable to produce without government or

  • ther support. These conditions are

referred to as orphan diseases. The assignment of orphan status to a disease and to drugs developed to treat it is a matter of public policy in and has yielded medical breakthroughs that might not

  • therwise have been achieved.
  • 1. About 60% of orphan drugs are

biologics; 30% are cancer drugs.

  • 2. Orphan Drug designation has

yielded more drugs and medical breakthroughs that might not

  • therwise have been achieved.
  • 3. Manufacturers are favoring

development of drugs eligible for “Orphan” status.

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The Orphan Drug Act- Good or Bad?

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The Orphan Drug Act (ODA) of January 1983, was/is meant to encourage pharmaceutical companies to develop drugs for diseases that have a small market. Under the ODA drugs, vaccines, and diagnostic agents qualify for orphan status if intended to treat a disease affecting less than 200,000 American citizens. Under the ODA orphan drug sponsors qualify for seven-year FDA- administered market Orphan Drug Exclusivity (ODE), "tax credits of up to 50% of R&D costs, R&D grants, waived FDA fees, protocol assistance and may get clinical trial tax incentives. Unintended consequences…

  • 1. More drugs eligible as market

evolves.

  • 2. Creates long-term market

monopolies without price controls.

  • 3. Costs tend to shift to private

payors and under or uninsured

  • 4. No provisions for profit-sharing
  • r repayment of grants and

credits.

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The Basics

Costs, Trends, and Forecasts

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The Past

U.S. & Global Trends and Market Dynamics

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Drug Development 1996 - 2015

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Global Cost Comparisons

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Source: D. O. Sarnak, D. Squires, and G. Kuzmak, Paying for Prescription Drugs Around the World: Why Is the U.S. an Outlier? The Commonwealth Fund, October 2017.

$0 $200 $400 $600 $800 $1,000 $1,200 1980 1985 1990 1995 2000 2005 2010 2015 United States Switzerland Germany Canada France United Kingdom Australia Netherlands Norway Sweden

Notes: Final expenditure on pharmaceuticals includes wholesale and retail margins and value-added tax. Total pharmaceutical spending refers in most countries to “net” spending, i.e., adjusted for possible rebates payable by manufacturers, wholesalers, or pharmacies. Data from all countries include only the portion spent on retail prescription medications, except for the Netherlands and the United Kingdom, where spending on pharmaceuticals includes prescribed medicines, over-the-counter medications, and other medical nondurable goods. Pharmaceuticals consumed in hospitals and

  • ther health care settings are excluded.

Data: Organisation for Economic Co-operation and Development, 2017. Data for Australia and Canada from 2014.

National Trends in Per Capita Pharmaceutical Spending, 1980–2015

Exhibit 1

Since 1995, The U.S. has had the highest per capita drug spend and trend.

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Why is the U.S. an Outlier?

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U.S.-based manufacturers fund a disproportionate share (50%) of global drug development costs. These costs are “passed through” to U.S. employers and PBMs largely due to price controls in other countries (see below) Other countries have artificially low per capita costs due to external reference pricing and other cost and price controls. The lower prices in these other countries reflected their more centralized processes for procuring pharmaceuticals and determining coverage.

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50% of Development Costs, But…

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U.S. Brand and Generic Trend

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The Present

U.S. & Global Trends and Market Dynamics

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Bad News: Global U.S. Cost Comparisons

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1. On a drug-by-drug basis, U.S. retail unit drug costs are 5% to 117% higher than in

  • ther countries.

2. Drug utilization rates are similar to those seen in other countries.

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Good News: Recent U.S. Cost Trends

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Contrary to forecasts over the past 5 years, specialty drug trend is now well below 10%.

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FDA Approval: Q3- Q4 2019

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Other Important Issues: Hidden Costs

  • Nearly half of specialty drug costs are

adjudicated through medical claims (“Non-PBM Drugs”). These drugs are administered in an outpatient facility setting and are 2X – 3X more expensive than the same drugs purchased through a PBM and administered in a free-standing infusion center or at home.

  • Some states are passing legislation

prohibiting mark-ups of professional services and supplies in outpatient facility

  • settings. These regulations could also

impact Non-PBM Drug Pricing.

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Other Important Issues: Fixed Costs

  • The overwhelming majority of specialty

drugs are prescribed to control serious chronic conditions. With few exceptions, these drugs do not have curative potential.

  • These drug costs become a fixed
  • perating expense for the plan and have

resulted in increased numbers of Large Claimants.

  • Although these costs are predictable,

their “persistence” is causing issues with stop-loss and fully-insured quotes and renewals.

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Other Important Issues: Value

  • The Health Care industry in the U.S. is

beginning to experiment with value-based pricing for specialty drugs (already in place in Germany).

  • This trend raises important practical and

ethical issues:

  • How will “value” be measured?
  • What will be the “value” threshold

for drug approval or coverage?

  • What financial model will be used?
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Other Important Issues: Black Swans

There are early indications that biologics may:

  • Be used to treat much more common

conditions outside of the current complex disease model. An example is the use of antibodies to treat osteoarthritis pain.

  • Be replaced by genetic re-engineering of the

immune system (Examples: CAR-T treatment for lymphoma/leukemia and Immune system “restart” ,rather than chronic specialty drug treatment, with stem cell transplant in MS).

  • These therapies were not “expected” or

predicted a few years ago.

*A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict.

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The Future

Cost Projections and Drug Development

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Development Pipeline (3 Year Horizon)

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Business as usual.

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Total Retail Pharmacy Spend

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The percent of healthcare costs attributable to drugs will remain unchanged.

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Per Capita drug cost trend will remain in the 5% range.

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Coping with costs

Market Reform- The Big Fix

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The “Big Fix” for Specialty Drug Costs

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This is an international macroeconomic problem that will not be solved by imposing price controls on our domestic manufacturers, nor will it be solved quickly. An effective permanent solution will require international agreements providing for: 1. Fair Distribution of R & D Costs; and, 2. Equitable transparent international drug pricing. An intermediate step could be to set up a national multipayor or single payor risk pool for members with “unusually” high specialty drug costs.

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In the Meantime…

Employer Options

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What won’t Work: Members Pay More

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1. Fortunately, About half of adults taking prescription medications have little or no difficulty paying for them. 2. However, 24% have difficulty affording their drugs at all, and are less compliant. 3. This problem is particularly important for members on specialty drugs.

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Mandatory Specialty Pharmacy

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Mandating that all specialty drugs must be purchased through the PBM (rather than a facility-based provider can result in significant savings. Downsides: 1. Member disruption; 2. Provider complaints; and, 3. Increased administrative costs.

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Preferred Drugs

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The Blues (CareFirst in the Mid-Atlantic is a good example) are developing preferred formularies (CareFirst has two in addition to its base drug list. This is a national initiative. The preferred formularies are created by aggressively negotiating discounts and rebates for therapeutic equivalents and biosimilars. The drugs with the most favorable cost profile are included in the preferred formulary.

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Five Tier Formulary Design

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Five tiers can produce significant savings when blended with a preferred formulary design. Members can avoid higher out of pocket costs by working with their provider to select preferred specialty drugs.

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Summary

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  • 1. U.S. Drug Prices are higher than those in other

industrialized countries. Significant barriers to “unilateral” price reduction exist.

  • 2. Specialty Drug development continues;

Orphan Drugs figure prominently.

  • 3. High drug trend prior to 2016 has abated.

Forecasts for future costs are much more favorable than those released several years ago.

  • 4. Despite the difficulty of implementing the

“big fix”, there are actions that employers can take to mitigate forward cost risk.