©2003 AdvancePCS

The Solution:

Specialty Benefit Management

Alan Wright, M.D., M.P.H.Senior Vice President and Chief Science Officer

©2003 AdvancePCS

Agenda

Specialty drugs defined

Costs in perspective

Reasons for the focus

Specialty benefit management

Health plan experiences

What’s next for specialty?

©2003 AdvancePCS

Specialty drugs are synthetic or recombinant versions of natural biologic substances, like cells, proteins made by cells (enzymes, or antibodies) or genetic material from cells (DNA or RNA) Large complex molecules

Difficult to produce consistently

Costly

Specialty Drugs:Defined

Source: Mass High Tech, “Lower Costs Pub Generic Biologic Drugs on the Rise” Campbell Evans, P. March 2003

©2003 AdvancePCS

Biotech in nature Injectables

– Requires special monitoring, handling, and delivery

Select orals

– Tracleer, Temodar, Thalomid, Gleevec, Iressa – exceeding $30K per year

Expensive therapies Costs range from $10,000-$1 MM

annually per patient

Requires expert clinical services Limited to few physician specialists

Specialty Drugs:Defined

©2003 AdvancePCS

Costs in Perspective:Specialty Drives One-third of Health Care Costs

Average Annual

Total Cost Per Case

$1,200

$6,600

$71,600

Patients

• Acute• Low-grade chronic• Worried well

• Prevalent chronic (e.g. asthma, diabetes)• Procedures (e.g. surgery, childbirth)

• Rare chronic (e.g. rheumatoid arthritis, hemophilia, pulmonary hypertension, Gaucher disease, multiple sclerosis)

• Multiple comorbidities

Key Distribution

Channels

• Retail

• Retail and mailorder

• Specialty pharmacy

Source: Franklin Health, Chase H & Q

Percent of Patients

Total Costs

90%High

FrequencyCommon

Conditions

9%Chronic

Conditions

1%SevereUnique

Conditions

1/3Of TotalCosts

1/3Of Total

Costs

1/3Of Total

Costs

©2003 AdvancePCS

Specialty Therapy Examples

Avg. Annual Chronic Condition Medications Cost (AWP)

Growth Hormone Deficiency Nutropin, Humatrope, Genotropin, Norditropin $18,000

Hepatitis C Rebetron, Pegasys $24,000

Infertility Fertinex, Lupron, Gonal F $18,000-20,000

Multiple Sclerosis Betaseron, Avonex, Rebif, Copaxone $15,000

Oncology, BMT, HIV/AIDS Neupogen, Procrit, Neulasta, $5,000-20,000Aranesp, Fuzeon

Hemophilia Recombinant Blood Factor Products $150,000 +

Rheumatoid Arthritis Enbrel, Remicade, Humira $15,000 +

Gaucher Disease Cerezyme/Ceredase $250,000

Pulmonary Hypertension Flolan, Tracleer, Remodulin $30,000 -100,000

Lysosomal Storage Disorders Fabrazyme, Aldurazyme $175,000 +

Therapies in “red” approved in last 12 months.071003

©2003 AdvancePCS

Reason for the Focuson Specialty Drugs

Specialty therapies will have a direct impact on drug spend High cost

– Drug expense

– Patients using specialty drugs are driving most of your medical spend

Growing market

– 8% of spend today

– Moving to 20% Difficult to manage medical benefit spend Other issues

©2003 AdvancePCS

Reason for the Focus Specialty is 5th Largest, Fastest Growing Class

$2.90

$2.51$2.17

$1.53 $1.49

$3.27$2.99

$2.61

$1.86$2.03

$0

$1

$2

$3

$4

$5

Misc. GI Drugs Antidepressants Antilipemic Antihistaminedrugs

Unclassifiedtherapeutic

2000 2001

Source: AdvancePCS Claims Analysis

13%19%

20%

22%36%

Specialty pharmaceuticals

©2003 AdvancePCS

 

Indication Phase Budget Impact

Launch Year

Exanta (ximelagatran)

The tx & prevention of venous thromboembolism

Phase III High 2004

Fuzeon (enfuvirtide)

The tx of HIV infection

Pending approval

High 2003

Xolair (omalizumab)

The tx of allergic asthma in adults

Pending approval

High 2003

pregabalin The tx of neuropathic pain, generalized anxiety disorder, and epilepsy

Phase III High

Reasons for the Focus Specialty Drugs Budget Impact Forecast

©2003 AdvancePCS

Specialty Drug Costs

Pharmacy Budget~30%

Medical Budget~70%

Network Rates AWP + ???

Paper Electronic

• Incorrect billing and payment• Missed discounts• Multiple vendors, multiple rates• Confusing J and ICD9 codes

Reasons for the Focus

A Management

Challenge

©2003 AdvancePCS

Specialty Benefit ManagementAddresses the Challenge

Provides an effective integrated solution, bridging both pharmacy and medical benefits Improves patient health Lowers costs Reduces administrative workload

©2003 AdvancePCS

Specialty Benefit ManagementComponents

©2003 AdvancePCS

Specialty Benefit Management Benefit: Improves Member Health

Increases appropriate drug utilization

Improves compliance via utilization and education programs

Lowers the potential for drug interactions with comprehensive screening

Minimizes emergency room, doctor visits, hospital stays and other medical expenses

©2003 AdvancePCS

State Blue Cross Blue Shield plan with 375 members using specialty drugs billed under medical benefit

Recommendations included: Transitioning specialty drug spend from medical benefit

to PBM-based claims processing and reporting Moving from multiple suppliers to a single-source

pharmacy service to lower cost

Reduced annual specialty drug spend from $8.9M to $7.4M

Provided a savings of $1.5M or 17%

Specialty Benefit Management Benefit:Lowers Costs for Health Plans

©2003 AdvancePCS

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

Infliximabinjection

Paclitaxelinjection

Leuprolideacetate

suspension

Rituximabcancer trmt

$1,532/claim

PM

PM

$724/claim$495/claim

$2,334/claim

Lymphoma

Rheumatoid Arthritis

Ovary/breast Cancer

Prostrate Cancer

Specialty Benefit ManagementUncovering Specialty Costs: One Client’s Findings

©2003 AdvancePCS

Large national health plan faced problems providing Flolan therapy to 75 pulmonary hypertension (PH) patients Contracted on patient-by-patient basis and paid 25-50% more

than necessary Faced customer service issues Struggled to identify patients for proper clinical support because

of coding and procedure issues

Recommendations included establishing: One national rate for specialty drug pricing Standard claims processing and coding procedures Case management support and patient education

Reduced annual specialty drug spend from $7.5M to $5.25M

Provided savings of $2.25M or 30%

Specialty Benefit ManagementExample of Lowering Costs

©2003 AdvancePCS

What’s Next for Specialty Drugs? Going Generic

Conventional Drugs Biologic Drugs

Regulated by FDA Regulated by Center for Biologics Evaluation and Research (CBER)

Generics overseen by the Centers for Drug Evaluation and Research (CDER)

Hard to prove bioequivalence of complex biologic molecules

Abbreviated new drug application (ANDA) expedites approval for generics

No expedited process for generics

Generics proven equivalent to brands. If equivalent, generics not required to show safety and efficacy

Generic biologics must conduct full safety and clinical trials

©2003 AdvancePCS

Source: ABN Amro, as cited in The Wall Street Journal, August 26, 2002

Generics Seek To Break into Biotech as Patents Expire

Drug Intron A(interferonalfa 2b)

Epogen(epoetin alfa)

Procrit(epoetinalfa)

Neupogen(filgrastim)

Avonex(interferonbeta 1a)

Company ScheringPlough

Amgen Johnson& Johnson

Amgen Biogen

Conditions Leukemia, Hepatitis B and C

Anemia Anemia Neutropenia MultipleSclerosis

2000 Sales $1.4 Billion

$2.03Billion

$1.72Billion

$1.22Billion

$761Million

PatentExpiration

2002 2004 2004 2006 2011