1. Does Pharma Threaten the System’s Sustainability? September 14, 2015 Bill Barcellona, Sr. VP

2. What is CAPG? 2 Over 190 organized physician groups located in 39 states

3. Specialty Drug Costs in 2014 U.S. prescription drug spending rose by 13 percent in 2014, driven largely by increased spending on new breakthrough medications, according to a report by the IMS Institute for Healthcare Informatics. A large contributor to the rise was an increase in specialty medication spending, which rose by $54 billion over the previous five years and accounted for one-third of medication spending in 2014, compared with 23 percent in 2009 The study also found that new drugs accounted for more than $20 billion in drug spending growth in 2014, with over half coming from four new hepatitis C therapies. 3 http://stateofreform.com/news/federal/aca/2015/04/new-medicines-drive-a-13-increase-in-drug-spending-in-2014/http://stateofreform.com/news/federal/aca/2015/04/new-medicines-drive-a-13-increase-in-drug-spending-in-2014/.

4. How Capitated Delegated Providers Function Health Plans and Provider Groups negotiate a “DOFR” Division of Financial Responsibility: –Allocates financial risk for cost of a specific drug between the Plan and the Group –Some groups are full risk for all drug costs, but many provider groups are carved out for high cost drugs –Provider Groups are often delegated for utilization management and preauthorization of drugs even when they do not assume financial risk for drugs 4

5. Strategies for Managing Newly-Introduced Specialty Drugs Provider groups focus on tight utilization review and medical management – targeting 85% use of generic medications, for example The Group’s Medical Director and Pharm D’s evaluate new drug therapies, determine group protocols for application by physicians, and track effectiveness as closely as possible Many groups have developed best practices concerning the usage of new drugs High cost specialty drugs create financial issues for groups that have assumed financial risk –In some cases, groups have transferred risk back to health plans –In other cases, groups are trying the best they can to manage application of new therapies –Changing formulary tiers, state laws, health plan policies keep it lively! 5

6. Experience with Sovaldi-Harmoni in 2014 CAPG member groups report that the cost of specialty drugs (in cases where the group takes the financial risk) has risen 300-400 percent in the past twelve months. Hepatitis C medications represent about 70 percent of these costs, But orphan drugs for enzyme replacement, chemotherapy and immunosuppressives contribute a substantial portion of the total recent increase in drug costs as well. 6

7. Balancing the Cost versus Benefit of New Drugs Patient advocates raise significant issues regarding access to life-saving and improved specialty drug therapies that cannot be ignored by payers and providers Legislative activity surrounding cost and development transparency – mixed results State legislation responding to tiered formularies & other utilization management approaches State payers increasingly using purchasing power leverage beyond year 1of introduction 7

8. Thank you Bill Barcellona Sr. VP CAPG 1215 K Street, Suite 1915 Sacramento, CA 95814 (916) 443-4152 wbarcellona@capg.org www.capg.org CAPG offices: Los Angeles, Sacramento, Washington, DC 8