1. Medicare Part B CAP Dead ?… GTCbio September 10, 2007

2. Or On Life Support?

3. CAP Overview Medicare’s direct supply program for physician office drugs and biologicals (“drugs”) Alternative to physician buy and bill Began operating July 1, 2006 Optional; physician annual election >180 drugs/biologicals

4. Operated by BioScrip Only vendor to accept CMS terms Payment to BioScrip = ASP + 4.4% (Testimony of Richard Friedman, Exec Chairman of BioScrip, to Subcommittee on Health of the House Committee on Ways and Means. July 13, 2006) Anecdotal info that CAP program is not adding much leverage to BioScrip negotiations with manufacturers Revenue for 2Q 2007 = $9.2 mil

5. Little or No Savings to CMS Potential savings = 1.6% [ASP + 6% minus ASP + 4.4%] minus operating costs CAP volume in 2007 ($37 mil. est) represents ~0.4% of the total 2005 Part B drug spend ($10 bil reported)

6. Little or No Savings - 2 The $37 mil in CAP spending would be ~$37.5 mil if reimbursed under buy and bill – actual savings of $0.5 mil before accounting for program operating costs

7. Incentives to Enroll For some medical practices, reduction in Medicare reimbursement from 85% AWP (2004) to 106% ASP (2005) makes drugs an expense rather than a profit center Some practices are refocusing attention away from drug treatment to more profitable procedures

8. Incentives - 2 Quarterly adjustment of ASP and 6 month “lag” make drug margin hard to predict Anecdotal info that an increasing number of patients cannot/do not pay coinsurance, become bad debts

9. Why Is CAP Unattractive to Most Physicians? Oncologists still profit from office administered drugs June ‘07 OIG study found that 9/12 sampled oncology practices could purchase drugs at or below ASP+6%

10. Why Is CAP Unattractive? - 2 Private payers typically reimburse at 80% AWP, although that is changing –Some smaller, regional payers moving toward ASP + and requiring direct supply for non-chemotherapy drugs Medicare volume often needed to lower net acquisition cost Volume-based price reductions

11. Why Is CAP Unattractive? - 3 As drugs become more expensive, profit increases –2% of $500 is higher than 2% of $300 Physician GPOs growing in popularity CAP costs $ to administer but there is no payment for it

12. Why Is CAP Unattractive? - 4 CAP vendor may refuse to supply drug to physician if patient has unpaid past due coinsurance Physician must cooperate with CMS post- payment review

13. Minimal Market Impact 2,450 physicians elected CAP as of 2 Q 2007 (Aug 2 2007 BioScrip press release) –Fewer than 10% are oncologists –Most popular specialties are allergy, rheumatology, ophthalmology –Average size of physician practice = 3.5 (Medicare’s Competitive Acquisition Program – Stats Reveal Who’s In/Who’s Out and Why. Oncology Business Review www.oncbiz.com; no date)www.oncbiz.com New election period began Aug 1 –Final numbers not yet released –BioScrip projects 35% increase

14. Alternatives to CAP Physicians refer patients to hospitals Hospitals joint venture with physicians to expand infusion services

15. CAP in 2008 - 2009 BioScrip contract expires in ’08 CMS report to Congress due July ‘08 With 4.4% gross margin in a market of ~3,000 physicians, how much room exists for a second vendor?

16. CAP in 2008 – 2009 cont’d If private insurance chemotherapy reimbursement holds near current level, not much incentive for oncologists to elect CAP … Unless payment drops to ASP+5% for 2009

17. CAP Expansion CAP for certain DME, prosthetics, orthotics and supplies –CMS to announce winning bidders in December –Program scheduled to begin April 2008

18. Summary CAP has had minimal impact on the Part B drug market and generated little or no savings for Medicare There are few incentives for physicians to elect CAP and several significant disincentives

19. Summary - 2 Volume discounts coupled with private insurance reimbursement create disincentives for some physicians to choose CAP CAP will grow in scope only if Medicare or private insurance payments fall

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