Value of Pharmaceuticals in Managed Care Pharmacy Presentation Developed for the Academy of Managed Care Pharmacy Updated: February 2016

What is Managed Care Pharmacy? The practice of designing and implementing drug benefits for the more than 270 million Americans covered by public or private health insurance Managed care pharmacy focuses on: Developing drug benefits and utilization programs that promote medication use that improves patient wellbeing while reducing total cost of care

The Value Equation in Pharmaceuticals Evidence-based treatments that increase the likelihood of achieving desired health outcomes Usually defined as drug cost, and as applicable administration and adverse effect costs Quality Cost VALUE = If quality increases, and cost decreases, value of the pharmaceutical is increased substantially If quality remains constant, and cost increases, the value decreases If quality increases, and cost remains constant, the value increases How do we put a value on pharmaceuticals? What are the variables to be considered? The two variables are quality and cost. The dynamic between these two variables is what determines value.

Pharmaceuticals in the Total Healthcare Process The value of pharmaceuticals is also taken into consideration for the total healthcare delivery process Three options for treatment of disease Lifestyle changes Pharmaceuticals Surgical /Invasive intervention Least invasive, usually considered first, when appropriate Considering a choice between a pharmaceutical regimen or surgical /invasive procedure, most will choose a pharmaceutical regimen

Value of Pharmaceuticals Pharmaceuticals help people to manage their illnesses and live full, productive lives Pharmaceuticals may save money by preventing expensive hospital treatments and other therapies Today’s medicines fund research and development for tomorrow’s prescription drug innovations The FDA approved 39 novel drugs in 2014 So, we’ve talked about how medicines can help people manage their illness and lead longer lives, but now let’s look at how medicines can save money by preventing the need for other more expensive services like hospital stays and emergency room visits. Now I know that many people believe that medicines cost too much, but let’s look at what you get for your money in addition to improved health and wellness or treating your illness. NOV-800268 10/5/07

Value of Pharmaceuticals New Medicines Account for 40% of Increase in Life Expectancy – 1988-2000 NCE = New Chemical Entity = new drugs The gold bar on this chart shows the increase in longevity in our life spans from 1988 to 2000. In just 12 years, our life expectancy has increased approximately two years!! There are lots of reasons we are living longer – we eat healthier, drive safer cars, and other things. But new medications account for almost a year of the two years we’ve added. Medicines, simply put, often allow us to live longer by treating serious, life-threatening illnesses such as cancer, and allow us to better manage chronic conditions such as heart disease and diabetes. NOV-800268 10/5/07 Source: FR Lichtenberg, “The Impact of New Drug Launches on Longevity: Evidence from Longitudinal, Disease-Level Data from 52 Countries, 1982-2001,” (Cambridge, Mass., National Bureau of Economic Research: June 2003).

Value of Pharmaceuticals Medical innovation (i.e., newer drugs) accounted for a greater portion (60%) of the increase in life expectancy between 1991-2004 Of the 3.88-year increase in life expectancy at birth, use of newer drugs accounted for 2.43 years (63%) Of the 2.15-year increase in life expectancy at age 65, use of newer drugs accounted for 1.19 years (55%) Analysis was based on drug vintage, or year that the drug was approved by the FDA. The author found that, some obvious suspects—obesity, smoking, and the incidence of HIV/AIDS—played a role, but the most important factor was access to newer drugs, as measured by mean “vintage” (FDA approval year). Study was conducted using Medicare & Medicaid data. Lictenberg F. “Why Has Longevity Increased More in Some States than in Others? The Role of Medical Innovation and Other Factors,” Manhattan Institute for Policy Research. Medical Progress Report No 4, July 2007.

Value of Pharmaceuticals Reductions in Disease Attributed Deaths Diseases that were once fatal can now be treated with medication, which has resulted in dramatic decreases in death rates. When you look at this list, you probably know people who have or have had these problems. Without medication, their lives may be very different. NOV-800268 10/5/07 EFPIA 1999-2002.

Value of Pharmaceuticals Diabetes Costs Reduced Through Improved Glycemic Control No single illness results in as many direct and indirect costs to the healthcare system as diabetes. This study shows the impact on these costs through use of medicines to improve glycemic control. The results show a nearly 30% reduction in costs after three years of treatment. The savings are even greater after four years. And most importantly, the reduction in complications improves the quality of life. NOV-800268 10/5/07 Source: E.H. Wagner, et al., “Effect of Improved Glycemic Control on Health Care Costs and Utilization,” Journal of the American Medical Association, 285 (2001): 2, 182-189.

Value of Pharmaceuticals Summary : The managed care pharmacist is well equipped to help purchasers, payers, providers and patients understand the overall value of pharmaceuticals

Thank you to AMCP member Carrie McAdam-Marx for updating this presentation for 2016.