Innovative Reimbursement - IPASA Conference Dr Jonathan Broomberg – CEO Discovery Health September 2016

AGENDA

Discovery Health’s initiatives to manage medicine expenditure 3

Key trends in the SA pharmacy and medicine industry 2

1 Current operating environment for schemes

2

AGENDA

Discovery Health’s initiatives to manage medicine expenditure 3

Key trends in the SA pharmacy and medicine industry 2

1 Current operating environment for schemes

3

4

Claims inflation is high and increasing - driven mainly by increasing utilisation of healthcare services

6.3% 0.5%

2.9%

1.7% 11.4%

CPI Tariffs Demand side utilisation Supply side utilisation Claims inflation

If utilisation was constant since 2008: Contributions would be 27% lower

If tariff differential was 0% since 2008: Contributions would be 2.8% lower

Average annualised inflation rates (2008 – 2015)

CPI Tariffs Demand side utilisation Supply side utilisation Claims inflation

DEMAND SIDE | Increasing lifestyle diseases and adverse selection are driving claims costs

5

75%

5

5

5 lifestyle behaviours

5 chronic conditions

75% of deaths worldwide

Physical inactivity Poor nutrition Smoking Alcohol Medicine non-adherence

Diabetes Heart & lung diseases Cancer Mental diseases

Epidemic of lifestyle diseases

2008 2015

31.51

33.68

13.90%

22.10%

60.10% 49.80%

6.9%

59%

21%

% Chronic

Age

% Non-claimants

Evidence of adverse selection in DHMS

DEMAND SIDE | Serious illness should be randomly distributed by duration

6

17%

11% 10%

6%

9%

6% 7%

9%

5% 5% 6%

5%

2% 1%

0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 >15Years on Scheme

[VALUE]

4% 5%

6% 5%

8%

6% 7%

9% 9% 9%

5% 4%

3% 2% 2%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 > 15

Years on Scheme

14% who claimed biologics for RA and related conditions had been on the Scheme for <1 year

17% who claimed biologics for multiple sclerosis had been on the Scheme for <1 year

Multiple Sclerosis Rheumatoid Arthritis and related conditions requiring biologic medicines

R120 000 PER PATIENT PER

ANNUM

R97 000 PER PATIENT PER ANNUM

14%

7

SUPPLY SIDE | New hospitals have led to R1.1bn excess expenditure

Regional Analysis: Durban

Regional admission rate vs national average

Impact of new hospitals (2008-2015)

*12 of 18 regional case studies show significantly increased utilisation levels, with total excess cost of R1.1 billion

25 NEW FACILITIES

2,653 NEW BEDS

R1.1bn EXCESS COST*

2010

14% higher

National Average

2011

19.8% higher

2014

29.7% higher

AGENDA

Discovery Health’s initiatives to manage medicine expenditure 3

Key trends in the SA pharmacy and medicine industry 2

1 Current operating environment for schemes

8

DHMS medicine expenditure trends

9

161

183 192

204 206 220

234 250

291

2008 2009 2010 2011 2012 2013 2014 2015 YTD Jun2016

Real medicine expenditure PLPM (2008-2016) Steeply increasing trend in chronic scripts per 1000 lives

R’billion

81% growth in 7 years

120.00

125.00

130.00

135.00

140.00

145.00

150.00

155.00

160.00

165.00

2010 2011 2012 2013 2014 2015

Increasing generic usage, but SA remains slightly behind international benchmarks

10 1. Basket excludes non-substitutable; 2. International substitution rate = 80%

Chronics medicines

Acute medicines

49% 52% 55% 60% 66% 71% 75% 78%

51% 48% 45% 40% 34% 29% 25% 22%

2008 2009 2010 2011 2012 2013 2014 2015

58% 59% 61% 64% 65% 68% 71% 74%

42% 41% 39% 36% 35% 32% 29% 26%

2008 2009 2010 2011 2012 2013 2014 2015

Generic Brand

In Hospital Out of Hospital1

80%2

80%2

46% 49% 52% 55% 59% 64%

69% 71%

54% 51% 48% 45% 41% 36%

31% 29%

2008 2009 2010 2011 2012 2013 2014 2015

Generic Brand

Growing impact of high cost medicines and new technologies

Treatment for Lymphoma

R2.2m (7 month course)

Treatment for melanoma or lung cancer

R1.4m (6 month course)

High cost medicines entering the market

13 ULTRA-HIGH COST

CLAIMANTS 89 ULTRA-HIGH

COST CLAIMANTS

Increasing incidence of ultra high-cost medicine

2008 2015

R1,22 million

R4 030

PER ULTRA-HIGH COST CLAIMANT

AVERAGE COST PER CLAIMANT

11

Oncology medicine prices on a steep upward curve

12

-

500,000.00

1,000,000.00

1,500,000.00

2,000,000.00

2,500,000.00

2005 - 2010 2011 - 2014 2015 - 2016

*Some product prices have since been negotiated down

Oncology products submitted for funding consideration

By 2020, high cost medicine spend is predicted to cost R2.57 billion per year

13

Real increase in spend on high cost drugs – PLPM

18.02

21.62

27.50

31.10 31.75 33.53

36.83

42.09

45.17

2008 2009 2010 2011 2012 2013 2014 2015 2016

150% growth in 8 years FORECAST

417

1,554

2,574

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

ACTUAL

HCM spend - Actual and predicted by 2020

Disparity in pricing between public and private sectors leads to funding challenges for medical schemes

14

R 1,062

R 41

R 24,291

R[VALUE]

12x

R 16,822

R 7,950

Note: *State bid price for 2014

Trastuzumab* Private Sector Public Sector

2x Rituximab

Imatinib 24x

AGENDA

Discovery Health’s initiatives to manage medicine expenditure 3

Key trends in the SA pharmacy and medicine industry 2

1 Current operating environment for schemes

15

16

Discovery Health’s strategic approach to managing medicine expenditure: maximise efficiency and create headroom to fund innovative medicines

Benefit design to ensure alignment of incentives 1

Continue to drive uptake of affordable generics 2

Increase supply chain efficiencies, reduce waste and fraud where possible 3

Bundled payments and innovative reimbursement strategies 4

17

Benefit design to align incentives

In 2015, 96.4% of members were funded in full from the Oncology Benefit

In 2015 98.9% of members were funded in full from the Specialised Medicine Technology Benefit (SMTB)

96.4%

2.8% 0.8%

Funded in full from benefit

Exceeded Core benefit (R200k limit)

Exceeded Comprehensive benefit (R400k limit)

98.9%

1.1%

Funded in full from benefit Exceeded R200k limit

Biosimilars are made available at prices of around 30% to 50% lower than their comparable biologic comparators

18

Estimated savings from EMA-approved biosimilars if available in SA

Product name Active ingredient

Eprex Epoeitin Alpha

Gentropin Somatropin

Humatrope Somatropin

Neupogen Filgrastim

R16 254 000 DHMS saving per

year out of total spend of

R54,18 million

Total Estimated

30% saving impact

Partnership approach across the medicine value chain

19

Price Negotiation Innovative Funding

• Expanded indication pricing • Pharmaceutical access programmes • Supply chain innovation

– Wholesaler fees – Parallel Importation – Designated Service Provider – Vial sizes – waste reduction – Reduce fraud

• Regulatory change – Maximum allowable SEP with flexibility

below this – Narrow public private price differentials – Single price for key medicine categories

• Outcomes based risk sharing models – Failed treatments – Incomplete courses

• Capped risk models – Patients – Dose per weight – Per ml billing

• Patient management programmes – Registries / Data – Services (monitoring)

• Cost off-set funding models

Innovative Reimbursement - IPASA Conference Dr Jonathan Broomberg – CEO Discovery Health September 2016