Pharmacy Workshop: Specialty Drugs and Where

to Find Value

Michigan Association of Health PlansSummer Conference

July 15, 2015

Presentation Outline

• Medicaid MCOs’ pharmacy benefits management acumen – findings from our recent assessment• Dynamics related to Common or Uniform Formulary “Movement”• Growth in specialty pharmacy prescriptions in Medicaid• Analyses of a few specialty pharmacy medications (including Sovaldi)• Taking action on the value pricing phenomenon

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Summary of Findings, Carve-In Assessment

• This April we prepared a report, “Comparison of Medicaid Pharmacy Costs and Usage in Carve-In Versus Carve-Out States,” sponsored by America’s Health Insurance Plans https://www.ahip.org/Epub/MCOPharmacyCosts/

• Much of the impetus for creating this report was the threat of an Rx carve-out in Michigan’s Medicaid MCO program

• We are particularly excited about the report for two reasons• The quantity and quality of the data available to compare carve-in and carve-out dynamics• The clarity of the findings – net Medicaid pharmacy costs are clearly lower in the carve-in setting (after

factoring in rebates, MCO administration, and ACA Insurer Fee)

• The Rx carve-in approach also best serves the programmatic objectives of implementing a well-integrated, coordinated care model. Prescription drugs are central to health care treatment. Carve-in models provide MCOs with full access to prescription drug information (in real-time and in each MCO’s desired data structure), which supports disease management and other whole-person focused care coordination efforts.

• In terms of objective analytics, this is checkmate. Should help end long debate regarding Rx carve-in versus carve-out. • Politically, however, anything can still happen…..

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Nationwide Medicaid Prescription Volume and Unit Costs -- MCO and FFS• MCOs now pay for a majority of Medicaid prescriptions nationally 55% across all of 2014 and 60%

during Q4 of 2014. This has grown rapidly since 2011, when 27% of Medicaid prescriptions were paid by MCOs. This growth is due to expanded use of the MCO model as well as policy shifts towards a carve-in in several states. • In Michigan during 2014, 63% of Medicaid prescriptions were paid by MCOs.

• In the MCO setting greater use of generics occurs. Also, MCO costs per prescription are lower within brands as well as within generics relative to FFS. Nationwide pre-rebate costs per prescription were 30% lower than FFS during 2014.

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Payer of Medicaid Prescription Drugs

Generic % of All Prescriptions,

FFY2013

Generic % of All Prescriptions,

FFY2014MCO 81.7% 82.8%FFS 77.1% 78.0%Total 79.5% 80.7%

Brand Generic TotalMCO $263.80 $19.02 $60.70FFS $320.21 $22.39 $86.74Total $292.90 $20.54 $72.37MCO % of FFS 82.4% 84.9% 70.0%

Initial (Pre-Rebate) Cost Per Prescription, FFY2014Payer of Medicaid

Prescription Drugs

Comparison of Costs for All Medicaid Prescriptions in Carve-In States Versus FFS States

Initial Amount

Paid to Pharmacy

(pre-rebate) Rebates

Estimated MCO Premium for

Administration and ACA Insurer

Fee

Net Cost (Initial Cost Less Rebate

Plus MCO Premium Add-Ons)

100% FFS States (22) 77.8% 0% $84.50 $41.01 $0.00 $43.49Rx Carve-In States (29) 81.5% 69% $69.29 $33.55 $3.37 $39.10National Total 80.7% 55% $72.40 $35.09 $2.81 $40.12

Cost Per Prescription, FFY2014

Generic % of All

Prescriptions Filled

Percentage of Prescriptions

Paid by MCOs, FFY2014

Medicaid Pharmacy Approach (number of states in parantheses)

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Once all the factors are assessed – initial amounts paid to the pharmacies, rebates, MCOs’ administrative costs and the Health Insurer Fee — net costs per prescription can be assessed as shown in the right-hand column. The carve-in states’ net unit cost differential relative to the FFS states is $4.38 or 10.1%. When these statewide differences are prorated to take into consideration the proportion of overall medications the Medicaid MCOs paid for (69%), the carve-in model shows a net savings of $6.33 per prescription during 2014 – 14.6% below the carve-out states’ post-rebate average cost. Estimates includes the net additional administrative cost investments that MCOs will make in the carve-in setting and a risk margin.

Comparison of Statewide Cost Progression in Recent Rx Carve-In States Versus Remaining Carve-Out States

• If FFY2011 costs per prescription had risen by 20% in the states that switched to the carve-in as of FFY2014 (as occurred in the remaining carve-out states), net post-rebate unit costs would have been $7.47 higher than actually occurred.

• In the carve-in states 71% of FFY2014 prescriptions were paid by MCOs, so the impacts of the switch to a carve-in prorate to a net savings per prescription of $10.56 (dividing $7.47 by 0.71).

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Initial (pre-

rebate) Rebates

Estimated MCO Premium for

Administration and ACA Insurer Fee

Net Post-Rebate Cost (Initial Less Rebate

Plus MCO Increased Premium Allocation)

FFY2011 Baseline DataRecent Carve-In States (IL, NY, OH, TX, UT, WV) $73.50 $35.02 $0.00 $38.47Current Carve-Out States (DE, IN, IA, MO, NE, TN, WI) $66.91 $32.33 $0.00 $34.58FFY2014 DataRecent Carve-In States (IL, NY, OH, TX, UT, WV) $69.21 $33.82 $3.43 $38.83Current Carve-Out States (DE, IN, IA, MO, NE, TN, WI) $81.23 $39.62 $0.00 $41.60Percent Change, 2011-2014Recent Carve-In States (IL, NY, OH, TX, UT, WV) -6% -3% 1%Current Carve-Out States (DE, IN, IA MO, NE, TN, WI) 21% 23% 20%

Cost Per Prescription

State Grouping and Year

Common Formularies

• Michigan is requiring its Medicaid MCOs to develop a common formulary• political compromise outcome in return for maintaining the Rx carve-in

• While some states also require a uniform formulary (Florida and Texas, for example), most states allow MCOs wide latitude to develop and use their own formulary• Some states (e.g., Ohio) require a “mostly uniform” formulary but

allow some percentage variation from the state’s formulary

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Advantages of Uniform Formulary

1. Administrative Ease. An argument in favor of a single Medicaid formulary is that it creates administrative advantages for prescribing physicians and pharmacies, as providers would have an easier time knowing what products are covered without prior authorization and special justification.

2. Consistent Access. When a single formulary is used by all Medicaid MCOs within a state, all Medicaid beneficiaries have comparable access to the same set of medications.

3. Rebate Maximization. A single statewide Medicaid formulary drives more volume to certain brand medications where the percentage rebate is highest. In some instances, these rebates can result in the net (post-rebate) cost for the brand drug being lower than most or all generic alternatives.

4. Minimizing Disenrollment. An MCO noted that some persons will switch plans in order to access the specific pharmaceutical product they desire. While this is a small group, such disruptions would not occur in a consistent formulary situation.

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Advantages of MCO Latitude Regarding Formularies

1. Minimizing Politicization. A uniform formulary at the state level allows drug manufacturers to achieve product placement by succeeding in a political arena in which they are often adept. A uniform state-determined formulary is likely to be overly inclusive of high-cost products that are not delivering adequate marginal clinical value in return for their often large marginal cost difference.

2. Overcoming Absence of Co-Pay Barrier. With the large price differentials and without meaningful copayments or copayment differentials, there simply is no mechanism within a uniform and broad statewide Medicaid formulary to prevent unnecessarily high-cost medications to occur. MCO latitude to enforce use of the lowest-cost, clinically appropriate medication is a critical (and in many cases the only) means of achieving cost-effective prescribing practices.

3. Optimizing Cost Savings. MCOs and in turn the Medicaid program experience unnecessarily high net pharmacy costs due to the loss of the ability to guide evidence-based prescribing. Wide price differentials exist between clinically effective medication options, and an MCO’s ability to steer volume to the lower-cost therapy has significant financial ramifications.

4. Integration of Complex Priorities. The arguments for a single statewide formulary suggest that the Medicaid pharmacy benefit operates in a silo. A single statewide Medicaid formulary does not allow MCOs the flexibility to best balance the wide array of priorities associated with “whole person” care coordination for large and diverse populations.

5. Administrative Ease Counterpoints. Medicaid does not operate in a vacuum, and the program pays for less than 20% of all US prescriptions. The wide array of commercial insurance entities and Medicare Part D plans that serve a given community create dozens of different PDLs that the physician and pharmacy community must navigate – regardless as to what occurs with Medicaid formularies. Also, information technology is greatly improving providers’ ability to ascertain and accommodate different formularies.

6. Rebate Maximization Counterpoints. While there are situations where securing a large rebate on a brand medication will yield the most attractive net (post-rebate) cost among the clinically effective alternative products, the pursuit of rebates has generally been a key reason why the Medicaid FFS setting has not accessed anywhere near the cost efficiencies that Medicaid MCOs have achieved. A further concern with rebates is that supplemental rebates are much smaller than used to be the case (pre-ACA).

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Summary Observations Regarding Formulary Latitude• The advantages of affording MCOs with wide latitude are both more numerous

and more compelling than the arguments for adopting a single statewide Formulary. • MCOs with relatively restrictive formularies do provide access to all Medicaid-

covered, FDA-approved drugs. These health plans do not, however, allow relatively high-cost medications to be accessed equally easily when lower-cost alternatives exist. Techniques such as “generics first,” prior authorization, and step therapy are used by MCOs to steer volume towards relatively low-cost products – where appropriate – while also ensuring access to higher-cost medications where medically necessary. • Managing drug mix effectively yields significant cost savings at no clinical

detriment, and it is important for states to encourage this to occur.

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Specialty Pharmacy’s Growth in Medicaid

• High-cost medications represent a rapidly growing share of Medicaid’s overall pharmacy expenditures. The proportion of Medicaid pharmacy spending for medications with a pre-rebate cost above $1,000 grew from 1.3% in 2005 to 28.4% in 2013 and 32.6% in 2014.• Pre-rebate expenditures for medications with a unit cost above $1,000

were $3.7 billion in the fourth quarter of 2014, a 36% increase over Q4 2013. Prescription volume in this unit cost cohort increased 29%.• The MCO and FFS settings had nearly identical proportions of spending

on medications in the $1,000+ unit cost corridor during 2014. MCOs had a much higher proportion of medications with a unit cost below $20 than Medicaid FFS, however.

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Drugs Costing More than $1,000 Per Prescription Represented 1.3% of Medicaid Rx Spending in

2005; This Grew to 28.4% in 2013 and to 32.6% in 2014

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Rebate data are not available on a drug-specific basis. Rebates represented roughly half of initial Medicaid Rx costs during 2014.

Q3 2005 Q3 2010 Q4 2013 Q4 2014 Q3 2005 Q3 2010 Q4 2013 Q4 2014$10,000+ 0.0002% 0.01% 0.01% 0.02% 0.1% 3.3% 5.1% 7.5%

$1,000-$9,999 0.02% 0.5% 0.8% 1.0% 1.2% 14.6% 23.3% 25.1%$500-$999 0.1% 1.2% 1.3% 1.3% 3.2% 12.1% 13.5% 12.6%$300-$499 0.2% 1.8% 1.4% 2.7% 3.4% 10.6% 7.2% 12.5%$200-$299 0.2% 3.0% 5.0% 4.0% 2.2% 10.3% 17.9% 12.7%$100-$199 2.7% 12.3% 5.7% 5.5% 15.6% 26.4% 12.4% 10.7%

$50-$99 10.7% 6.9% 6.2% 6.4% 29.4% 7.5% 5.8% 5.5%$20-$49 22.5% 16.1% 16.4% 14.8% 32.0% 7.5% 7.0% 6.0%

<$20 63.5% 58.3% 63.3% 64.3% 12.9% 7.7% 7.9% 7.3%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Percent of PrescriptionsPercent of Medicaid Amount Paid (Pre-

Rebate)Cost Per

Prescription Corridor (Pre-

Rebate)

Large Increases in Medicaid Specialty Pharmacy Usage and Spending Occurred from 2013 - 2014

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• Medicaid pharmacy spending, prior to rebates, increased 18% from the fourth quarter of 2013 to the fourth quarter of 2014.

• Expenditures for prescriptions with a pre-rebate unit cost above $1,000 increased 36% in 2014.

• Expenditures for prescriptions with a pre-rebate unit cost below $1,000 increased 10% in 2014 -- a fairly modest increase given the large influx of Medicaid beneficiaries that occurred in the states implementing the ACA coverage expansion.

Fourth Quarter,

2013

Fourth Quarter,

2014 % ChangeFourth

Quarter, 2013Fourth

Quarter, 2014%

Change$10,000+ $492 $967 97% 18,225 39,200 115%

$1,000-$9,999 $2,251 $2,776 23% 1,077,402 1,371,030 27%$500-$999 $1,305 $1,431 10% 1,831,633 1,947,191 6%$300-$499 $697 $1,331 91% 1,918,737 3,713,663 94%$200-$299 $1,727 $1,523 -12% 6,924,925 5,955,587 -14%$100-$199 $1,203 $1,229 2% 7,952,216 7,933,187 0%

$50-$99 $558 $599 7% 8,647,524 8,840,152 2%$20-$49 $676 $663 -2% 22,905,151 21,269,706 -7%

<$20 $763 $879 15% 88,561,740 99,010,116 12%Total $9,671 $11,397 18% 139,837,553 150,079,832 7%

Subtotal, $1,000 + $2,743 $3,743 36% 1,095,627 1,410,230 29%Subtotal, < $1,000 $6,928 $7,654 10% 138,741,926 148,669,602 7%

Medicaid Amount Paid (Pre-Rebate), $ Millions

Cost Per Prescription

Corridor

Volume of Medicaid Prescriptions

Distribution of Prescriptions Between Medicaid MCO and Medicaid FFS Settings, Q4 2014

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In the lowest unit cost corridor (< $20); Medicaid MCOs had a much higher proportion of prescriptions (70%) than the Medicaid FFS setting (62%), due to more extensive use of generics.

In the two highest unit cost corridors, the percentage of prescriptions in the MCO and FFS setting were nearly identical.

FFS MCO Total FFS MCO Total$10,000+ 0.03% 0.02% 0.03% 8.5% 8.6% 8.5%

$1,000-$9,999 1.1% 0.8% 0.9% 24.3% 24.8% 24.4%$500-$999 1.8% 0.8% 1.3% 15.0% 9.5% 12.6%$300-$499 2.7% 2.2% 2.5% 11.1% 12.1% 11.7%$200-$299 5.0% 3.3% 4.0% 14.2% 13.2% 13.4%$100-$199 6.0% 4.7% 5.3% 10.3% 11.0% 10.8%

$50-$99 6.7% 5.6% 5.9% 5.0% 5.8% 5.3%$20-$49 14.6% 12.8% 14.2% 4.9% 6.3% 5.8%

<$20 62.0% 69.7% 66.0% 6.7% 8.7% 7.7%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost Per Prescription

Corridor (Pre-Rebate)

Percent of Prescriptions, Q4 2014

Percent of Medicaid Amount Paid (Pre-Rebate), Q4 2014

Medicaid Prescription Volume and Costs During 2014 – Sovaldi and Harvoni

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Sovaldi’s Medicaid volume appeared to peak during Q2 of 2014, declining by 21% in Q3 and by another 42% in Q4. Even when adding Harvoni to Sovaldi during Q4, the two drugs’ combined prescription volume declined 20% from Sovaldi’s Q3 level.

Drug Name Q1 Q2 Q3 Q4 2014 TotalSovaldi 8,089 18,906 14,811 8,588 50,394 Harvoni - - - 3,220 3,220

Sovaldi was the #3 Medicaid drug in Q4 2014 in terms of pre-rebate Medicaid payments to pharmacies. Harvoni was #20.

Cost Per Prescription During 2014 (pre-rebate):Sovaldi: $27,452Harvoni: $31,324

Cost Per Pill During 2014 (pre-rebate):Sovaldi: $1,012Harvoni: $1,120

Sovaldi/Harvoni Medicaid Prescription Volume by State, October-December of 2014

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State

Sovaldi and Harvoni

Medicaid Scripts, Q4

State Rank

New York 3,006 1Connecticut 871 2New Jersey 573 3Washington 572 4Massachusetts 570 5Kentucky 492 6Georgia 398 7Pennsylvania 395 8Ohio 381 9Florida 374 10California 361 11Indiana 352 12Maryland 351 13Minnesota 310 14North Carolina 283 15Arizona 280 16Nevada 280 16

State

Sovaldi and Harvoni

Medicaid Scripts, Q4

State Rank

Illinois 239 18Oregon 187 19Hawaii 152 20Oklahoma 110 21Tennessee 110 21Louisiana 92 23Alabama 90 24Arkansas 89 25Kansas 82 26Missouri 82 26Michigan 72 28Utah 72 28Virginia 63 30West Virginia 50 31Maine 45 32Colorado 43 33Mississippi 40 34

State

Sovaldi and Harvoni

Medicaid Scripts, Q4

State Rank

Texas 33 35District of Columbia 31 36North Dakota 31 36South Carolina 27 38Iowa 25 39New Hampshire 24 40Vermont 23 41Montana 23 41Nebraska 23 41Rhode Island 20 44Wisconsin 20 44Delaware 17 46Idaho 16 47Wyoming 9 48South Dakota 8 49Alaska 7 50New Mexico 4 51USA Total 11,808

Sovaldi use in Medicaid has varied widely by state in ways that often cannot be explained by the size of each state’s overall or Hepatitis C populations. Connecticut’s volume is more than twice of California’s volume and more than 25 times higher than Texas, for example.

Charting a Rational Course With Specialty Pharmacy

• Pharmaceutical industry’s “value pricing” practices have seemingly given the payer community two options

a) pay an exorbitant amount for certain Rx products; or b) deny optimal care to enrollees/patients

• Public sector payer community needs to take charge of the situation• Move focus away from them (and what they charge) to ourselves (and what we are willing to pay)• Offer manufacturer a “Reasonable Taxpayer Price” at which they can earn a substantial -- but fair -- margin

for their product • Develop specific process for creating each “Reasonable Taxpayer Price” and for determining the drugs for which this

pricing mechanism will be used (e.g., any product that manufacturer prices above $50 per pill or at more than double the cost of existing products).

• Guidelines are also needed around which patients should receive specialty drugs and when, to reduce the tremendous variation currently occurring across the country.

• There are ample precedents for government-determined pricing for health services that do not strongly factor in what the provider elects to charge (DRGs for inpatient care, fee schedules for physician care, etc.) • This approach is needed for specialty pharmacy products, and will be needed much more from now

forward (given the large pipeline of new products)• Make it clear that the manufacturer is responsible for denying care to patients if they choose not to make

their product available at the government’s reasonable established price 16