ONxxxxxx 07/2013 PRINTED IN USA © 2013, Lilly USA, LLC. ALL RIGHTS RESERVED. Communicating Current Trends in Oncology Management Excerpts from the 5 th, 6 th, and 7 th Edition ON /2014 © Lilly USA, LLC ALL RIGHTS RESERVED. This Communicating Current Trends in Oncology Management report was derived from an independent study undertaken by Zitter Health Insights, a healthcare research firm that provides insights to life science companies and managed care organizations related to product access, reimbursement, and managed markets.

ONxxxxxx 07/2013 PRINTED IN USA © 2013, Lilly USA, LLC. ALL RIGHTS RESERVED. Disclaimer While Lilly USA, LLC (Lilly), commissioned this slide deck, the views shared are those of Zitter Health Insights only and are based on its market research findings; they are not intended to reflect the opinion of any other party.

3 7th EDITION Overview Objectives and Methodology Physician Practice Organization and Consolidation Payer Control Tools Physician Reimbursement Patient Cost-Sharing

Objectives and Methodology

5 7th EDITION Research Objectives Understand the changes underway in the oncology environment and in payer management Examine the possible implications for payers, oncologists, and practice managers Track and understand key events in the market and provide a detailed portrait of the managed care and oncology practice environments

6 7th EDITION Research Methodology An independent study undertaken semiannually by Zitter Health Insights, a healthcare research firm that provides insights to life science companies and managed care organizations related to product access, reimbursement, and managed markets The study asked survey participants to respond to questions specifically regarding their commercial business The research described in this presentation entails concurrent web-based quantitative surveys with 3 arms from the Winter 2014 edition: *Consisted of feedback from managed care decision makers. † Consisted of feedback from oncologists from a variety of practice groups. ‡ Consisted of feedback from practice managers from a variety of practice groups. Winter 2014 Edition Managed Care sample*103 Oncologist sample † 103 Practice Manager sample ‡ 103 Research was fielded betweenDecember 24, 2013, and February 10, 2014

Practice Organization Payers anticipated a decrease in the percentage of oncologists within their network who would practice in non-ACO/non-PCMH community practices over the next 12 months. More payers than oncologists (69% vs 39%) felt that payers had an interest in keeping community practices viable to maintain competition in the marketplace.

8 6th EDITION Practice Configuration Within the given time frame and practice structure, approximately what percentage of oncologists within your commercial network are currently practicing? Will they 12 months from now? Payers n=100. No significant changes anticipated. Percentage of Payers (n=61) Unsure (n=39) Percentage of Payers (n=61) Unsure (n=39) Key Finding Over the next 12 months, payers anticipated a decrease in the percentage of oncologists within their network who would practice in non-ACO/non-PCMH community practices.

9 6th EDITION Community Practices: Payer Perspectives Do you feel payers have an interest in keeping community practices viable to maintain competition in the marketplace? How much of an influence does your organization’s interest in keeping community practices viable to maintain competition in the marketplace have on its stance in negotiations with physicians regarding drug reimbursement rates? No impact at all (1) or limited impact (2) Some impact (3) Meaningful impact (4) or significant impact (5) Unsure Percentage of Payers † Yes 69% No 16% Unsure 15% Percentage of Payers* *Payers n=100. † Payers n=69; Mean=3.40. Key Finding Sixty-nine percent of payers felt that they had an interest in keeping community practices viable in order to maintain competition; payers generally believed this interest has an impact on their negotiating position.

10 6th EDITION Community Practices: Oncologist Perspectives Do you feel payers have an interest in keeping community practices viable to maintain competition in the marketplace? How much of an influence does this belief by commercial insurers’ impact their stance in negotiations with physicians regarding drug reimbursement rates? Percentage of Oncologists † Yes 38% No 39% Unsure 23% Percentage of Oncologists* *Oncologists n=103. † Oncologists n=39; Mean=3.06. No impact at all (1) or limited impact (2) Some impact (3) Meaningful impact (4) or significant impact (5) Unsure Key Finding Oncologists were split on whether they believed payers had an interest in keeping community practices viable, as well as what impact this interest could have on payers’ negotiating position.

11 5th EDITION Practice Consolidation Efforts Within the past 12 months, has your organization been approached by, or has itself actively approached, any of the following parties regarding consolidation? Asked of oncologists and practice managers whose practices are independent Oncologists n=71; Practice Managers n=67. No significant differences between stakeholders. Not applicable, we have not engaged in any conversations about consolidation Hospital/hospital system Larger community oncology practices (10 or more physicians) (independent of national/regional oncology practice associations) National/regional oncology practice associations (such as US Oncology) Smaller community oncology practices (fewer than 10 physicians) (independent of national/regional oncology practice associations) Other OncologistsPractice Managers Percentage of Respondents

12 5th EDITION Yes 24% No 61% Unsure 15% Percentage of Oncologists* Likelihood of Practice Consolidation: Oncologist Reported With which party did your practice/does your practice plan to consolidate? Did this conversation result in the consolidation of (or definitive plans to consolidate) your practice with another party? Asked of oncologists whose practices have been approached by, or have themselves actively approached, any of the studied parties regarding consolidation Hospital/hospital system National/regional oncology practice associations (such as US Oncology) Larger community oncology practices (10 or more physicians) Smaller community oncology practices (fewer than 10 physicians) Other Percentage of Oncologists † *Oncologists n=41. † Oncologists n=10.

13 5th EDITION Yes 24% No 61% Unsure 15% Likelihood of Practice Consolidation: Oncologist Reported (Cont’d) How likely is your practice to consolidate into a larger one? Within the next 3 years Within the next 5 years *Oncologists n=41. † Oncologists n=25. “May or may not consolidate” responses are not shown. Did this conversation result in the consolidation of (or definitive plans to consolidate) your practice with another party? Asked of oncologists whose practices are independent, and have been approached by, or have themselves actively approached, any of the studied parties regarding consolidation Will not consolidate or Unlikely to consolidate Likely to consolidate or Will definitely consolidate Percentage of Oncologists † Percentage of Oncologists*

14 6th EDITION Summary of Findings: Practice Organization Over the next 12 months, payers anticipated a decrease in the percentage of oncologists within their network who would practice in non-ACO/non-PCMH community settings Sixty-nine percent of payers felt that they had an interest in keeping community practices viable in order to maintain competition; payers generally believed this interest could impact their negotiating position Oncologists were split on whether they believed payers had an interest in keeping community practices viable, as well as what impact this interest could have on payers’ negotiating position

Payer Control Tools Prior authorization remains the most common utilization management tool implemented by payers. Clinical pathway utilization continues to increase, and although oncologists are generally less supportive of the tool, participants view outcomes as increasingly positive.

16 6th EDITION Prior Authorization Frequency How frequently do commercial payers require prior authorization for oncology therapies? *Significant difference between stakeholders. † Significant decrease from previous edition. ‡ Significant increase from previous edition. Percentage of Oncologists 10% or fewer treatment requests 11%-30% of treatment requests 31%-50% of treatment requests 51%-70% of treatment requests 71%-90% of treatment requests More than 90% of treatment requests Unsure Percentage of Practice Managers Key Finding Compared to oncologists, significantly more practice managers reported at the time of the survey that payers require prior authorizations for 71%-90% of treatment requests.

17 6th EDITION Impact of Pathway Adoption on Patient Outcomes Summer 2013 Oncologists n=42; Mean=3.62. Winter 2013 Oncologists n=48; Mean=3.57. Note: No significant increase between editions. How has the adoption of pathways impacted patient outcomes in the applicable cancer subtypes? Asked only of those oncologists who note that a party has adopted clinical pathways Percentage of Oncologists Summer 2013 Winter 2013 Significantly worse (1) or somewhat worse (2) Neither better nor worse (3) Somewhat better (4) or significantly better (5) Unsure Key Finding Sixty percent of oncologists reported that clinical pathway adoption had positively impacted patient outcomes, an increase from the previous 6 months.

18 6th EDITION Summary of Findings: Payer Control Tools Compared to oncologists, significantly more practice managers reported that payers required prior authorizations for 71%-90% of treatment requests Sixty percent of oncologists reported that clinical pathway adoption had positively impacted patient outcomes, an increase from the previous 6 months

Physician Reimbursement Payers continued to anticipate increases in specialty pharmacy distribution for both oral oncology therapies and office-administered therapies. More than 60% of oncologist contracts were based on average sales price (ASP), with one-third of payers continuing to reimburse at the former Medicare rate (ASP+6%). Payers expected shared savings and pay-for-performance to be the most prevalent alternative reimbursement contracts in the future.

20 7th EDITION Infusible Therapy Distribution Channels: Payer Perspective What percentage of your organization’s office-administered/infusible oncology therapy volume goes through each of the following distribution channels? No significant changes from previous edition. Key Findings Payers noted a decrease in buy-and-bill distribution for office-administered therapies over the past 2 years, coupled with an increase in specialty pharmacy distribution. Payers anticipated that office-administered/infusible therapy volume would shift away from buy-and-bill in favor of specialty pharmacies, with more than 50% of payers preferring the latter distribution channel. Share of Total Office-Administered/ Infusible Therapy Distribution

21 7th EDITION Payer-Reported ASP Rates for Oncology Reimbursement: Brands When reimbursing oncologists treating patients in your commercial population, which methodology does your organization use most frequently? *AWP=average wholesale price. Payers n=103; Covered lives n=179.1 million. Key Finding Payers noted over 60% of contracts were based on ASP; over 30% of this group most frequently reimbursed branded agents at ASP+6%, the former Medicare rate. Less than ASP+4.3% ASP+4.3% (the effective Medicare rate under sequestration, as of 4/1/2013) ASP+4.4% to ASP+5% ASP+6% (the former Medicare rate) ASP+7% to ASP+10% ASP+11% to ASP+15% ASP+16% to ASP+20% Higher than ASP+20% Unsure At what rate does your organization most frequently reimburse branded agents relative to ASP? ASP 58.8% of sample (-3.7% from Winter 2010) 66.2% of covered lives (-4.5% from Winter 2010) ASP 61% of sample 63% of covered lives Other 7% of sample 3% of covered lives AWP* 32% of sample 35% of covered lives Percentage of Payers/Commercial Lives

22 7th EDITION Alternative Physician Reimbursement (1 of 2) What is the likelihood your organization/commercial insurers will adopt each of the following alternative physician reimbursement arrangements with oncologists in your commercial network? Key Finding Twenty-one percent of payers already had pay-for-performance (P4P) programs in place, and another 26% thought they either would be likely to implement or will implement P4P in the next 12 to 18 months. *Significant difference between stakeholders. Payers n=103; Oncologists n=103; Practice Managers n=103. Percentage of Respondents Shared savings program Payer Oncologist Practice Manager Pay-for-performance Payer Oncologist Practice Manager Case management fees Payer Oncologist Practice Manager Expanded payments for advanced care planning Payer Oncologist Practice Manager * *

23 7th EDITION Alternative Physician Reimbursement (2 of 2) What is the likelihood your organization/commercial insurers will adopt each of the following alternative physician reimbursement arrangements with oncologists in your commercial network? Key Finding A majority of payers stated that they would not or were unlikely to implement capitation/global payments, but oncologists and practice managers believed the likelihood was higher. *^Significant difference between stakeholders. Payers n=103; Oncologists n=103; Practice Managers n=103. Episode-of-care payments Payer Oncologist Practice Manager At-cost drug reimbursement Payer Oncologist Practice Manager Capitation/global payments Payer Oncologist Practice Manager Percentage of Respondents Mean ^ 2.50* 3.09*^ 2.14*^ 2.75* 3.04^

24 5th EDITION Excessive end-of-life treatment Winter * Winter * Inappropriate drug utilization, as defined by my organization Winter † Winter Suboptimal distribution of prescription drugs (such as buy-and-bill versus specialty pharmacy) Winter Winter Suboptimal selection of sites of care Winter Winter Drivers of Excess Cost: 1 of 2 How significantly does each of the following drive excess cost in oncology care? Asked of payers who stated excess cost could be eliminated from cancer treatment without negatively impacting health outcomes Winter 2013 payers n=82. Winter 2011 payers n=103. *Significantly greater than all other cost drivers. † Significant increase from Winter 2011 edition. Does not drive (1) or Minimal driver of excess cost (2) Mid-range driver (3)Above-average driver (4) or Significant driver of excess cost (5) Percentage of Payers Mean:

25 5th EDITION Excessive diagnostic testing, such as radiology Utilization management administrative requirements (eg, those for prior authorization) Excessive physician payments (for professional services only, independent of drug reimbursement) Drivers of Excess Cost: 2 of 2 Winter 2013 payers n=82. How significantly does each of the following drive excess cost in oncology care? Asked of payers who stated excess cost could be eliminated from cancer treatment without negatively impacting health outcomes Does not drive or Minimal driver of excess cost Mid-range driverAbove-average driver or Significant driver of excess cost Percentage of Payers

26 5th EDITION Alternative Physician Reimbursement What is the likelihood your organization will adopt each of the following alternative physician reimbursement arrangements with oncologists in your commercial network? Payers n=103. “Neutral” responses are not shown. Will not or Unlikely to be implemented in the next months Will be implemented in the next months or Already implemented Percentage of Payers Pay-for-performance Shared savings program Episode-of-care payments Capitation/global payments Expanded payments for advanced-care planning At-cost drug reimbursement Case management fees

27 5th EDITION Alternative Physician Reimbursement (Cont’d) Which of the following alternative physician reimbursement arrangements do commercial insurers employ for cancer therapies? Please select all that apply. Pay-for-performance Shared savings program Episode-of-care payments Capitation/global payments Expanded payments for advanced-care planning At-cost drug reimbursement Case management fees OncologistsPractice Managers Percentage of Stakeholders Oncologists n=103; Practice Managers n=101.

28 7th EDITION Summary of Findings: Physician Reimbursement Payers estimated office-administered/infusible oncology therapy volume would decrease from buy-and-bill in favor of specialty pharmacy distribution over the next 12 months For branded oncology agent reimbursement a majority of payers (61%) utilized ASP reimbursement while 32% reported utilizing AWP reimbursement methodology Of oncologists with ASP contracts, 35% reported reimbursement for branded agents at ASP+6% (former Medicare rate) while 31% reported reimbursement for branded agents at ASP+4.3% (effective Medicare rate under sequestration, as of 4/1/2013) Twenty-one percent of payers already had pay-for-performance programs implemented, while another 26% noted that such programs either were likely to be implemented or will be implemented in the next 12 to 18 months

Patient Cost-Sharing Structures Patients faced an average copayment of $31 for second-tier drugs, and more than half of payers implemented coinsurance at tier 4. Forty-three percent of payers required cost-sharing for prescription therapies managed under medical benefit and 43% did not, while 60% required cost-sharing for site-visits. State mandates in place across the country dictated mandatory coverage requirements in oncology for payers.

30 7th EDITION Cost-Sharing Burdens by Reported Tier Position Please indicate the cost-sharing for each of the tiers of your most popular benefit offering. Key Finding Patients faced an average $31 copayment for second tier drugs; more than half of payers implemented coinsurance at tier 4. Payers n=103; Covered Lives n=179.1 million. Tier 1Tier 2Tier 3Tier 4 Winter 2013 Winter 2014 Winter 2013 Winter 2014 Winter 2013 Winter 2014 Winter 2013 Winter 2014 Copayment % with Copay96%99%90%94%86%92%42%43% Average Copay$11.13$11.25$30.49$31.06$57.21$57.80$111.92$ Median Copay$10 $30 $50 $75$100 Coinsurance % with Coinsurance4%1%10%6%14%8%58%57% Average Coinsurance16%5%27% 45%43%23%21% Median Coinsurance18%5%28% 50%45%20% Median Maximum Coinsurance -- $200--$200 $213 (n=11) $200 (n=15)

31 7th EDITION Patient Cost-Sharing: Medical Benefit Therapies Does your most representative commercial benefit design require patient cost-sharing for prescription therapies managed under the medical benefit? Key Finding Compared with winter 2013, a nominally larger group of payers required cost-sharing for therapies managed under the medical benefit. Payers n=44. Winter 2013 (n=103) Winter 2014 (n=103) Percentage of Payers Mean CopayMedian Copay Coinsurance % Mean Preferred therapies $90.00 (n=3) $70.00 (n=3) 15% (n=12) Non-preferred therapies $ (n=3) $ (n=3) 37% (n=12) All therapies $35.71 (n=7) $30.00 (n=7) 20% (n=22) Does your most representative commercial benefit design distinguish between preferred and non-preferred prescription therapies managed under the medical benefit? Asked of payers that require patient cost-sharing for prescription therapies managed under the medical benefit.

32 7th EDITION Patient Cost-Sharing: Site-of-Care Does your most representative commercial benefit design require patient cost-sharing for the site visit (office visit, visit to infusion center) for therapy administration? Key Finding A majority of payers required patient cost-sharing for site visits; more than one-third of this group differentiated cost-sharing between preferred and non-preferred sites. *Payers n=103. † Payers n=62. Does your most representative commercial benefit design provide for a lower patient cost-share at preferred sites-of-care for professionally administered therapies, or a higher patient cost-share at non-preferred sites-of-care? Percentage of Payers † Percentage of Payers* Yes, we differentiate cost-sharing between preferred and non-preferred sites We have preferred sites-of-care, but we do not differentiate cost-sharing Not applicable, we do not maintain preferred sites-of-care Unsure MeanMedian All sites$31.62$25.00 Preferred sites $25.38$20.00 Non-preferred sites $77.50$67.50

33 7th EDITION Summary of Findings: Patient Cost-Sharing Structures More than half of payers (57%) implemented coinsurance at tier 4 with an average coinsurance of 21% Of the 43% of payers that required cost-sharing under medical benefit, 34% distinguished between preferred and non-preferred prescription therapies, with a mean coinsurance of 15% for preferred therapies and 37% for non-preferred Of the 60% of payers that required patient cost-sharing for site visits for therapy administration, 34% differentiated between preferred and non-preferred sites, with average patient costs of around $25 and $77, respectively