2018 Public Sector HealthCare Roundtable Specialty Drug Survey Assessing the impact of Specialty Drugs on Public Sector health plans June 12, 2018 © 2018 Willis Towers Watson. All rights reserved.

Agenda The impact of Specialty Pharmacy Specialty drug pipeline Public Sector overview The Public Sector HealthCare Roundtable survey Specialty Pharmacy framework – Action steps © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

The impact of Specialty Pharmacy Specialty Pharmacy is the fastest growing trend in health care Gene therapy treatments can cost $300,000-$850,000, and 4,000 diseases are linked to genetic disorders Recent approval of a self-injectable migraine product that costs 10 times more than available oral products Specialty Pharmacy spend will exceed what employers pay for inpatient hospitalizations Specialty spend can account for 10% of total health care benefit costs, and will likely double in 3 years Biosimilars are approved, but are not available due to patent litigation Traditional utilization management approaches alone will not manage 20 - 30% inflation year over year Specialty will account for 50% ‒ 60% of Pharmacy Benefit costs 90+% of Specialty claims are approved due to medical necessity © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Gene therapies Kymriah Yescarta Luxturna Emerging approach to treat cancer and other life-threatening conditions Treatment is customized to each patient through genetic modification of their own cells Typically one-dose treatments, administered by only select medical centers Kymriah Yescarta Luxturna Acute Lymphoblastic Leukemia $475,000 / treatment B-Cell Non-Hodgkin’s Lymphoma $373,000 / treatment Specific variation of retinal dystrophy $850,000 / treatment © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Specialty drug pipeline, first half 2018 Drug Name Condition Approval Date Medical/Pharmacy Estimated Annual Cost Fostamatinib ITP 4/17/18 Pharmacy (oral) $300,000 Entinostat Breast cancer 6/30/18 $120,000 Binimetinib/Encorafenib Melanoma $110,000 Tildrakizumab Plaque Psoriasis 3/24/18 Pharmacy (injectable) $55,000 Baricitinib Rheumatoid arthritis Erenumab (Aimovig) Migraine 5/17/18 $10,000 - $20,000 Elagolix Endometriosis 4/28/18 $7,000 Andexanet alfa Factor Xa inhibitor antidote 5/4/18 Medical (IV infusion) $3,500 © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Public sector overview 22.3 million Public Sector workers are employed at the Federal, State and Local level Over 15% of the American workforce is employed by the public sector Offer health care coverage to employees and retirees at a higher rate than other domestic industries © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

2015-2018 Public Sector HealthCare Roundtable Surveys Conducted in partnership with the Michigan Office of Retirement Services, Willis Towers Watson, and the Public Sector HealthCare Roundtable Formally conducted twice over the last three years Plan Sponsors health insurance plans Over 95 in pharmacy drug spend 19 $6.7 billion lives in Specialty drug spend 5,000,000 $2 billion © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Reasons for conducting these surveys Quantify the impact of Specialty Drugs Share results and experiences with similar plans Collaborate on innovative strategies to address the challenge Convey the scope of the environment to those in a position to make a change © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Most recent survey results 2015 to 2016 trends Total Drug trend averaged 7.9% Traditional Drug trend averaged 2.4% Less than 2.0% of claims were for Specialty Drugs Specialty Drug trend averaged 17.1%, but a quarter of plans exceeded 24% Three year average for Specialty Drug trend exceeded 26% annually This Specialty Drug trend adds more than $210 million in additional costs for 11 plan sponsors © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Specialty Drug trends for 2018 Survey 3 year average exceeds 26.7% annually © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Most recent survey results Plan Sponsor Concerns of plans are concerned about increased financial hardship of members due to higher cost sharing of plans are worried about the uncertainty of their organization’s ability to continue providing a high-quality health plan of plans are concerned about medical complications due to decreased medication adherence 91% 82% 82% © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Most recent survey results Controlling costs Respondents already using targeted strategies to control Specialty drug costs 100% Use Prior Authorization across all, or some, Specialty Categories 100% Use exclusive or carve-out Specialty Distribution 82% Use a separate copay or coinsurance tier for Specialty Medications 63% © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Specialty Pharmacy framework — Action steps Managing the high cost of Specialty pharmaceuticals requires Plan sponsors take a multi-prong approach in addressing all of the levers influencing the price of these products, what products patients take, and where they access them Negotiate Price Tighten Formulary Optimize Site of Care Negotiate aggressive exclusive discount guarantees All inclusive rebate guarantees with disclosed inflation caps Trend and savings guarantees Performance guarantees Exclude “me too” products in high-cost therapy categories (e.g., rheumatoid arthritis, multiple sclerosis, anemia) Cover all generics and biosimilars with limited brand coverage Step therapy protocols requiring use of generics or biosimilars Route prescriptions to the lowest net cost site of care across major infusible therapy classes (e.g., IVIG) Specialty Pharmacy Narrow Retail Network Physician Office Home Infusion Restrict access to high-cost sites of care to pre-certification approved exceptions Ensuring that patients are receiving the right drug at the right time at the right dose is essential to managing total health care costs associated with these products and conditions Ensure Quality Care Manage Utilization Narrow Physician Network Leverage outreach to members who are filling prescriptions for the first time Establish regular follow ups to ensure members are leveraging low-cost drug options Review co-morbidities and route patients to wellness and disease management programs, as appropriate Require prior authorization for all specialty drugs Develop consistent criteria and pre-certification protocols across medical and pharmacy benefits Introduce split fill protocols across oral products Reduce self injectable days supply to 30 – 60 days Develop low-cost physician network with aggressive fee schedule to dispense select specialty medications Members are routed through plan design and health plan protocols to Preferred Physician Specialty Network Monitor regular physician benchmarking © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Policy Considerations Fast-tracking of biosimilar or generic alternative drugs to market to promote further competition at a lower cost. Reduce the market exclusivity period for brand biologic products to allow for increased competition (Improving Access to Affordable Prescription Drugs Act, S. 771). Increase funding for private and public research efforts on comparative effectiveness Bring greater transparency to prescription drug pricing to encourage pharmaceutical manufacturers to publicly disclose production costs, including research and development investments, and discounts to various payers for specific high-cost drugs. Ensure public programs can take advantage of recent developments in value-based purchasing to ensure all parts of the U.S. health care system can benefit from market-based negotiating efforts to lower drug prices.  Address spending on direct-to-consumer advertising by pharmaceutical companies to eliminate unnecessary and inappropriate utilization. Encourage contingent pricing for drugs, tying cost to effectiveness and focusing on reimbursing based on efficacy where it truly exists. © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Disclaimer Willis Towers Watson and members of the Public Sector HealthCare Roundtable have prepared this document for the Public Sector HealthCare Roundtable. This document contains proprietary material and should not be reproduced, either in total or in part, circulated, or quoted from without the express permission of Willis Towers Watson. © 2018 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.