The Landscape of High Costs: Specialty Pharmacy Larry Boress President and CEO Midwest Business Group on Health

Midwest Business Group on Health (MBGH) MBGH is a Chicago-based, 501 (c)(3) non-profit coalition of employers working together to improve the value of their health care benefits, the health status of their constituents and the quality and cost-effectiveness health system that services them. Founded in 1980, membership includes over 120 large, self- funded, public and private employers such as Abbott Laboratories, The Boeing Company, Chrysler, City of Chicago, Ford Motor Company, Kraft Foods, Northwestern Memorial Hospital and University of Chicago Associate members include pharmaceutical firms, health management vendors, health plans, providers, consultants and others who serve the benefits industry Members cover over 3 million lives and spend over $3.5 billion on health care

MBGH Activities Education and networking on health benefit management, strategies and trends Purchasing services for Chicago HMOs and pharmacy benefits Health Benefit Research & Community Quality Initiatives o “Take Control of Your Health” - Website to help patients be partners with their doctors and to manage various conditions, with information for employers and providerswww.tcyh.org o “Preventing Early Elective Deliveries”- Collaborative to avoid non-medical early elective C-sections and inductions o “Specialty Pharmacy Employer Tool Kit” - Website to help employers understand and effectively manage biologic/specialty drug National Association of Worksite Health Centers – an MBGH affiliate for employer and union sponsors of onsite health, fitness, pharmacy and wellness centers

What are “Specialty Drugs?” Currently, there is no industry standard definition of specialty drugs They are typically large molecule biotech drugs used to treat complex, chronic conditions that either have no current treatment or do not adequately respond to traditional drugs Specialty drugs are high cost, ranging $6,000-$350,000 a year They often require extra care to store, handle and administer them Patients need closer medical oversight, support and greater education to ensure proper use and adherence due to their complexity and side effects Physicians need greater support to ensure appropriateness of patient for a particular specialty drug

The Role and Value of Specialty Drugs Specialty drugs fill treatment gaps by offering new therapies for conditions that were previously untreatable or had very limited treatment options They can slow or stop disease progression, reducing the need for medical and hospital visits and turning many previously terminal illnesses into chronic conditions Use of specialty drugs often enables people with debilitating illness and cancer to again lead productive lives Employers benefit by being able to retain valuable employees, and have lower absenteeism, presenteeism and disability-related costs by increasing return-to-work rates

Specialty Drug Forms Specialty drugs come in different forms: – Oral medications – Inhaled medications – Self-administered injectables – Office-administered injectables, or – Infused medications

Specialty Drug Delivery Channels The drugs may be delivered at: – Physicians’ offices – Infusion centers – Hospitals – Specialty pharmacy provider – Traditional retail or mail-order pharmacies, and – Patients’ homes The delivery channel helps determine: – Whether drugs are covered under the medical or pharmacy benefit – The level of patient cost-sharing required, and – The degree of clinical and disease management available to the patient

Economic Impact of Specialty Drugs on Employers  Fastest growing segment of overall pharmacy benefits spend, with costs growing at 2x rate of traditional drugs, and three conditions (cancer, arthritis and MS) accounting for half of all specialty spend  Approximately 50% of specialty drug spend occurs in the medical benefit, making it difficult to track and manage  Costs account for about 17% of the average employer’s overall pharmacy costs – this number is rising fast  By 2020, 40% of pharmacy drug spend will be for biologics  Noted oncologists recently spoke out on the cost of specialty drugs, stating the prices are astronomical, unsustainable and perhaps even immoral. 8 Copyright 2013 © MBGH & IIH

MBGH Efforts to Identify and Address Employer Challenges with Specialty Drugs  For past three years, MBGH members cited specialty pharmacy as a top priority  To determine level of understanding and assistance needed by purchasers, MBGH conducted national employer surveys  MBGH conducted stakeholder meetings to obtain input of employers, PBMs, consultants and specialty pharmacies on key areas of specialty drug management  An Employer Toolkit on Specialty Drugs is being developed, accessible for all employers–  Next steps –Conducting education programs and demonstration projects on benefit plan design and other strategies 9 Copyright 2013 © MBGH & IIH

2012 National Employer Survey on Special Pharmacy Benefits

Size of respondents’ active population Copyright 2013 © MBGH & IIH 11

Employer level of understanding of specialty pharmacy benefits Copyright 2013 © MBGH & IIH 12

Percentage of Biologics/Specialty Pharmacy Paid Through Medical Plan Legend indicates order based on percentage of respondents Copyright 2013 © MBGH & IIH 13

Percentage of Biologics/Specialty Pharmacy Paid Through Pharmacy Plan Legend indicates order based on percentage of respondents Copyright 2013 © MBGH & IIH 14

Service Provider Used for Specialty Drugs

Increase of specialty pharmacy benefit costs over the past 3 years Copyright 2013 © MBGH & IIH 16

Important areas of specialty drug management

Current specialty pharmacy plan design Copyright 2013 © MBGH & IIH 18

Prioritization of tactics used for managing specialty pharmacy benefits #1 Case management #2 Drug utilization #3 Cost sharing #4 Prior authorization #5 Practice guidelines #6 Combining medical/Rx data #7 Quantity approaches Copyright 2013 © MBGH & IIH 19

Maximum out-of-pocket costs for specialty drugs

Key elements of specialty drug plan design

2012 Employer Toolkit

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Employer Specialty Pharmacy Toolkit Developed with input from employer advisors, feedback from educational program participants and staff expertise Toolkit includes resources, best practices and employer case studies Key areas include: Section I: Address key challenges in managing specialty pharmacy benefits and provide tools for the C-Suite Section II: Identify innovative approaches to benefit plan design and service partner contracting (Under construction) Section III: Support at-risk population through communications and resources (Under construction) 24 Copyright 2013 © MBGH & IIH

For more information on this topic or MBGH, contact: Larry Boress