Payer Mix in Oncology

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1 Emerging Markets Market Access & Health Outcomes Oncology Payer Mix in Oncology Understanding cancer payer mix is critical to understanding patient affordability as a component of launch planning Digital Epidemiology & Forecasting Kantar Health explores why payer mix is important in oncology. We identify how payer mix and benefit design are changing in cancer. Lastly, we discuss what manufacturers should monitor regarding shifts in payer mixes. Marketing Insights Risk Management, Safety & Surveillance Stakeholder Reach These market analyses are part of Kantar Health s Oncology Market Access (O) U.S. subscription. O U.S. provides cutting-edge information and analysis on critical reimbursement, coverage and competitive issues in the U.S. oncology landscape. This subscription helps pharmaceutical marketing and sales professionals more successfully position cancer drugs in an increasingly scrutinized and regulated oncology marketplace. The analyses are based on industry experience augmented by in-depth research with key stakeholders, including oncologists, payers, practice managers, patients and subject matter experts. Stakeholder Satisfaction Measurement

2 About the Expert Gordon Gochenauer Director, Planning Mr. Gochenauer brings extensive experience in current treatment trends and assessments of the future treatment evolution for 30+ cancer types. His in-depth understanding of numerous clinical development programs combined with lessons learned from pricing, coverage and reimbursement and patient assistance programs help him to be uniquely qualified to help clients make important commercial development decisions. Mr. Gochenauer has authored a variety of oncology reports and is recognized as a market expert for both the U.S. and Japanese markets. Question 1: Why is understanding payer mix within oncology important? Several reasons stand out as particularly important: 1. Understanding patient out-of-pocket cost A basic understanding of out-of-pocket (OOP) cost for patient therapy starts at understanding the percentage of patients eligible for and those patients who are not yet eligible for. It is also important to realize that the age distribution of the drug-treated populations of most cancers could have a different payer mix than the disease epidemiology alone might suggest. Additionally, the mix of drug-treated patients will have varying levels of pharmacy benefit (coverage for oral therapies and other self-administered drugs) versus medical benefit (coverage for physician-administered drugs, mainly including intravenous oncology therapies). For example, understanding the percentage of commercially insured patients with a coinsurance rather than a copay for oral therapies is important as patient cost-shifting is increasing for different health insurance benefit designs. It also is important to understand the type of insurance patients have: whether a patient has supplemental insurance, perhaps has enrolled into a Advantage plan, or perhaps has enrolled in a prescription drug plan. 2. Development of a patient assistance program and charitable foundation funding strategy ly insured and uninsured patients are eligible for manufacturer-designed patient assistance programs (PAP) and charitable foundations whereas foundations represent the only assistance option for patients. Understanding the simple breakdown between these groups is important, though it is also important to understand the level of cost sharing for those with prescription drug copays or coinsurance. This information can inform how to design a PAP and which charitable foundation contributions to make. Figure 1: Payer Mix: covers 60% of chemotherapy-eligible patients Medical 8% 3 Pharmacy 13% 31% 55% 49% 55% 3 49% 31% Medigap % 14.8% None FFS 6.8% 2.5% % 8.7% 9.3% 1.7% 6.0% 9.7% Source: Kantar Health s Payer Mix Module, August PDP % PDP- No 2.1% PDP- 24.5%

3 3. Each cancer and drug has a unique payer mix Cancer is generally considered a disease of the elderly with as the primary payer; however, certain cancers can have an equivalent mix of more commercially insured patients. For example, is the predominant payer for non-small cell lung cancer. In contrast, chronic myelogenous leukemia has a nearly equal mix of commercial and lives. Figure 2: Detailed Payer Mix: Non-Small Cell Lung Cancer Stages IIIb-IV Active Disease Medical 6% Pharmacy 1 3% 3% 6 58% 6 58% 10.3% Medigap 13.5% FFS None 1.8% 0.3% 19.5% 4.9% 13.5% 8.1% 6.7% 11.5% 1.3% 12.8% 8.0% 18.8% PDP- 10.9% 10.8% 2.8% PDP- 17.6% Figure 3: Detailed Payer Mix: Chronic Myeloid Leukemia 10-Year Prevalence Medical Pharmacy 10% 15% 43% 5% 5% 43% 6.9% Medigap 9.1% FFS None 2.7% % 5.5% 10.1% 7.8% 1.9% 8.6% % PDP- 7.3% 7.3% 1.9% PDP- 26.6%

4 Question 2: How are payer mix and benefit design changing in cancer? Two issues that should be monitored will drive shifts in payer mix: 1. Introduction of state exchanges The biggest change to a payer mix in the near future is coverage expansion under the Affordable Care Act (ACA) implemented through the state health insurance exchanges and the expansion of. Figure 4 projects that change in payer mix for the U.S. population through While insurance coverage as a result of the ACA is helping patients gain access to healthcare, challenges of affordability are likely to remain. OOP costs are not necessarily alleviated as a part of the ACA as these costs continue to trend upward. State exchanges are expected to put limits on OOP costs, although costs will remain significant and patients will continue to need financial assistance. OOP costs are expected to vary for the newly insured, adding to the complexity of their benefit design. Varying levels of coverage by the ACA further complicate these issues. The underinsured and low- to moderate-income populations covered by the state exchanges are most likely to be affected, as OOP costs may range from slightly less than $2,000 to approximately $6,000 per year. Recent estimates indicate deductibles in bronze and silver plans would be high enough to qualify as high-deductible plans and could be paired with a health savings account. Major questions about affordability of cancer care for patients enrolled in such plans are being raised. Figure 4: Expanded Coverage under the Affordable Care Act: Expanded access to health insurance coverage could lead to an increase in covered lives by 2014 Projected change in payer mix with full ACA implementation Selected Years ; millions of people Exchange * & CHIP Employer Payer % To bridge expanded and non-group coverage, available in 2014, more than 100,000 adults enrolled in government-sponsored high-risk pool. Employer M caid & CHIP M care * Exchange % 6.3% 0.0% 14.1% % 17.1% % Source: National Health Expenditures 2013, Centers of and Services, Office of the Actuary.

5 % 3% 5% Distribution of Health Plan Enrollment for Covered Workers (n=1,865 firms offering health benefits in 2013) 10% 1 16% 19% 27% 46% Conventional HMO PPO POS HDHP/SO 27% 21% Figure 5: HDHP Market Share on the Rise: 19% of all enrollees in 2012 had HDHP coverage, an annual growth rate of about 30% since % 57% 56% 31% HMO = Health Maintenance Organization; PPO=Preferred Provider Organization; POS=Point of Service Plan; HDHP/SO=High Deductible Health Plan/ Savings Option Source: Kaiser Family Foundation/Health Research and Educational Trust Employer Health Benefits 2013 Annual Survey 58% 58% 0% 10% 30% 40% 50% 60% 70% 80% 90% 100% 60% 55% 5 9% 9% 70% 16% 8% 1 13% 2 19% 15% 18% 13% 1 8% 11% 2. Increase in patients having high-deductible health plans and coinsurance rather than copays for specialty oral drugs High-deductible health plans (HDHPs) are appealing to payers and employers, since greater patient exposure to cost through high deductibles presumably lowers expenditures on nonessential care. In 2013, there was a similar level of enrollment in HDHPs as in 2012 ( vs. 19%). Enrollees in this type of plan may be less at risk for certain types of cancer; studies have shown these patients to be healthier. 1 Although enrollment percentages have increased for HDHPs, it is important to note that plan enrollment patterns vary by firm size. Workers in large firms (200 or more workers) are more likely than workers in small firms (3-199 workers) to enroll in PPOs (6 vs. 47%). Workers in small firms are more likely than workers in large firms to enroll in point of service (POS) plans (16% vs. 5%). Among Covered Workers with Three, Four or More Tiers of Prescription Cost Sharing, Average Co-payments and Average by Type, Average Co-payments $8 $8 $9 $9 $15 $16 $18 $20 $29 $28 $32 $ $10 $22 $38 $ $10 $23 $40 $ $11 $25 $43 $ $11 $25 $43 $ $10 $ $10 $ $11 $ $10 $ $10 $29 $46 $46 $49 $49 $51 $75 $85 $89 $91 $79 0% 40% 60% 80% 100% Figure 6: Ongoing Affordability Crisis 2013: 2012 average specialty drug co-pays of $79 and coinsurance of 3 Average Co-insurance % % 23% 33% % 2 40% 1st -Tier drugs, often called generic % 23% % 3 30% 2nd -Tier drugs, % 27% 38% 43% often called preferred % 21% 21% 17% 18% 38% 40% 38% 37% 38% 4 36% 31% 36% 29% 3 3 rd -Tier drugs, often called nonpreferred 4 th -Tier drugs 0% 40% 60% 80% 100% Most oral cancer drugs are managed and placed on specialty tiers, which are traditionally Tier 4 or higher. The specialty tiers strain patients ability to afford treatment, as an average copay of $79 is 17 higher than the most common tier (Tier 2) for commercial payers. Interestingly, since 2007 the average specialty tier coinsurance was lower than the third tier, most often known as non-preferred. Cancer patients can be on multiple drugs, for numerous conditions, resulting in significant OOP costs. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, ERBI Characteristics of the CDHP Population,

6 Question 3: What should manufacturers monitor in regard to shifts in payer mixes? As healthcare reform evolves, HDHPs may continue to increase in plan share, as employer groups look to reduce costs and shift more of the liability to the employee. Additionally, the health exchanges in the case of bronze and silver plans will likely resemble HDHPs. Manufacturers should monitor this increase in lower-quality plans through the exchanges and other HDHP plans. Why Kantar Health? Kantar Health is a leading global healthcare consulting firm and trusted advisor to many of the world s leading pharmaceutical, biotech, and medical device and diagnostic companies. It combines evidence-based research capabilities with deep scientific, therapeutic and clinical knowledge, commercial development know-how, and brand and marketing expertise to help clients evaluate opportunities, launch products and maintain brand and market leadership. Our advisory services span three areas critical to bringing new medicines and pharmaceutical products to market commercial development, clinical strategies and marketing effectiveness. Additionally, while the Office of Inspector General (OIG) has determined that the health insurance exchanges (HIX) are not considered a government entitlement program and therefore HIX patients are eligible to receive manufacturer-sponsored financial support, this ruling has met with resistance from the payer community. Therefore, manufacturers will need to continue to monitor the OIG s ruling as well as payer strategies to block manufacturer financial assistance. For more information, please us at: info@kantarhealth.com Kantar Health, Oncology Market Access U.S., Oncology Payer Mix Simulation module. Available at