Predictive Acquisition

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Tracy Stevenson
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1 Predictive Acquisition Cost q Introduction to PAC Aprili 2013

2 Agenda Five key criteria for new price type Five key criteria for new price type What is PAC? Key milestones since launch Use cases across the industry 2

3 Five Key Criteria for a New Price Type Transparency benchmark bears a genuine relationship to the actual acquisition cost of the l i hi h l iii f h drug. (In addition to this relevance definition, transparency also sometimes refers to being understandable.) Accessibility benchmark readily accessible and can be readily adopted by the pharmacy industry. Comprehensiveness benchmark available for all branded + generic drug groups. Timeliness benchmark updated with a frequency appropriate to the quickly changing frequency appropriate to the quickly changing actual acquisition costs, especially for generic products. p benchmark safe Immune to Manipulation from manipulation. 3 Led by key NCPDP stakeholders/committees: industry found fundamental short comings in each of the existing pricing benchmarks, consensus was reached on what criteria any suitable price type must satisfy

Comprehensiveness benchmark available for all branded + generic drug groups.

4 What is PAC? Pharmacy Distribution System Pharmacy Distribution System 4 PAC estimates drug Acquisition Costs in a transparent and defensible way PAC is more closely aligned with true drug acquisition cost than any other available drug price type available drug price type PAC supports both Pricing Analytics and Contractual Requirements Use of PAC Use of PAC (with PAC (with PAClow and PAChigh and PAC range) l hi h range) to determine performance of contracts, guide reimbursement rates, improve negotiating position Use of PAC as formal reference in cost plus contracts or PAC Retail plus contracts or PAC Retail as formal as formal reference in discount based contracts

true drug acquisition cost than any other available drug price type available drug price type PAC supports both Pricing Analytics and Contractual Requirements Use of

5 The PAC Offering g The PAC output file delivers PAC (and a range PAClow to PAChigh) for each drug on a daily basis. PAC tracks acquisition cost far better than any of the traditional pricing benchmarks (e.g. AWP). The PAC Dashboard is a convenient browser based tool that allows you to look up the PAC value for any particular drug. Other information about the drug, including some of the items that inform the PAC output, are also displayed. 5

The PAC Dashboard is a convenient browser based tool that allows you to look up the PAC value for any

6 Key y Milestones Since Launch First LTC First PBM Launch First Retail Chain 2012Q1 Q Go Live! First Health Plan 2012Q2 Q PAC Dashboard 2012Q3 Q Model Update (data design) (data, design) Q4 Q First First Wholesaler 2013Q1 Q Model Update (NADAC) Model Update (codes)

First Health Plan 2012Q2 Q PAC Dashboard 2012Q3 Q Model Update

7 Expanding p g Set of Use Cases State Medicaids: Replace or validate AAC Tune SMACs Employer / Plan Sponsor: PBM PBM proposal evaluation l l ti /contract performance (consultants) Operational Grade out PBMs, challenge/negotiation research h Wholesaler RFP and contract pricing consistency U&C/cash pricing Loss File analysis Proxy for actual AC; P f t l AC acceptable alternative to submitting invoices to CMS, states, others? Defend pricing when challenged by payer/pbm + challenge aggressive payer/pbm MACs Proxy for actual acquisition cost; acceptable alternative to submitting invoices to CMS, states, others? Pharmacy MAC optimization: balanced; spread Identify opportunities to create savings for clients Improve GER predictability Justify pricing (PBM vs wholesaler) 7

submitting invoices to CMS, states, others?

8 PAC Addresses Two Fundamental Drug Pricing Activities Establishing or assessing specific drug prices Measuring the overall quality of a price list Measuring the overall quality of a price list 8

9 Use Case Maximum Allowable Cost (PBM/Payer) MAC Optimization Value Proposition Balanced and Fair Pricing *Reduce drug spend Identify situations where reimbursement is high *Pharmacy relations Identify situations where reimbursement is low Explainable methodology Drug amlodipine besylate tab 10 mg gabapentin cap 300 mg glimepiride tab 4 mg glyburide tab 5 mg loratadine tab 10 mg l lorazepam tab 1 mg t b1 zolpidem tartrate tab 10 mg Current MAC Assumptions: Min $ profit/rx (NOT including dispensing fee): Min % profit/rx (NOT including dispensing fee): PAC PAC range can translate into a range within which the MAC should lie: which the MAC should lie: Factor: pharmacy per script profit target PAClow PAClow PAChigh PAChigh MAC Low MAClow MAC High Proposed Unchanged Reduce Reduce Reduce Raise U h Unchanged d Raise MAChigh Target Price Impact Potential $ $ 13, $ 31, $ 5, $ (25,653.50) $ $ $ (6,436.90) $ % 9

lorazepam tab 1 mg t b1 zolpidem tartrate tab 10 mg Current MAC 0.0915 0.1235 0.3981 0.2741 0.0925 0 0812 0.

10 Use Case Loss-File Analysis (Retail Pharmacy) Purchasing and Reimbursement For any specific claims, a pharmacy can use PAC and ranges (PAC use PAC and ranges (PAClow and PAC and PAChigh) to ) to identify which party it should direct its attention towards: Value Proposition Quickly identify if loss file issues Quickly identify if loss file issues are due to: (a) Payer/PBM reimbursement OR (b) Procurement AClow i. Identify claims where the Payer/PBM is paying less than PAClow ii. Identify claims where the Wholesaler/Manufacturer is charging more than PAC h i th PAChigh AChigh 58% of claims had a reimbursement price lower than AC Claims which satisfied one of the criteria above (i) Reimburse < PAC low (ii)acquisition > PAC high 20% 21% 10

reimbursement OR (b) Procurement AClow i. Identify claims where the Payer/PBM is paying less than PAClow ii.

11 Use Case Generic Effective Rate (GER) GER Relevance and Stability GER to measure Price list quality GER approach is an effective measurement of a price list s performance if using an underlying reference that tracks acquisition cost AWP PBM case study for a Medicaid book of business target 74% GER for MAC performance measurement for MAC performance measurement AC vs AWP (zoomed in) $2.0 AWP $1.8 $1.6 $1.4 AWP Because AWP is so disconnected from acquisition cost, and hence from the i iti t dh f th PBM s MAC, the GER varies dramatically across GCNs when based on AWP 53 GCNs actually have a negative GER 53 GCN t ll h ti GER $1 2 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $0 0 $0.0 $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 AC 11

measurement AC vs AWP (zoomed in) $2.0 AWP $1.8 $1.6 $1.

12 Use Case Generic Effective Rate (GER) (cont d) GER Relevance and Stability (cont d) GER to measure Price list quality GER approach is an effective measurement of a price list s performance if using an underlying reference that tracks acquisition cost AWP PBM case study for a Medicaid book of business target 74% GER for MAC performance measurement for MAC performance measurement AWP based GER measure sensitive to utilization mix movement E.g. ~68% for Acute meds, while ~%85 for Maintenance Meds 12

cost AWP PBM case study for a Medicaid book of business target 74% GER for MAC performance measurement for MAC performance

13 Use Case Generic Effective Rate (GER) (cont d) GER Relevance and Stability (cont d) GER to measure Price list quality GER approach is an effective measurement of a price list s performance if using an underlying reference that tracks acquisition cost AWP PBM case study for a Medicaid book of business target 74% GER for MAC performance measurement for MAC performance measurement PAC Retail Basing GER on an PAC Retail (i.e. AC MSRP ) reference Looking across GCNs, a PAC Retail based GER is tightly centered around the overall average 13

study for a Medicaid book of business target 74% GER for MAC performance measurement for MAC performance measurement PAC Retail Basing

14 Use Case Generic Effective Rate (GER) GER Predictability Beyond AWP s disconnect with true acquisition cost, another issue exists when measuring MAC performance based on GER: g p When looking across NDC s within a GCN, the AWP often varies even though PBM s MAC is fixed at the GCN level Outcome: Resulting GER depends in part on which manufacturers a pharmacy g p p f p y purchases from (i.e. which NDCs within a GCN are utilized), adding a degree of uncertainty for PBM when targeting GER based performance metrics Drug Label TRETINOIN 0 05% CREAM TRETINOIN 0.05% CREAM TRETINOIN 0.05% CREAM HYDROCODON ACETAMINOPHEN HYDROCODON ACETAMINOPHEN PBM MAC NDC AWP GER 43% 53% 80% 92% PAC Retail exhibits little to no variance across NDCs within a GCN Therefore, while the PAC Retail based GER is fixed at 74%, the same GCN utilization could result in an AWP based GER of anywhere from 68% to 77% (depending on which NDCs are actually involved) 14

05% CREAM TRETINOIN 0.05% CREAM HYDROCODON ACETAMINOPHEN 5 500 HYDROCODON ACETAMINOPHEN 5 500 PBM MAC 1 1860 1.1860 1.1860 NDC 45802036142 43478024220 AWP 2 09511 2.09511 2.51100 0.0440 0.

15 Use Case Retail Pharmacy Grading out Payers/PBMs Value Proposition Rank Payers/PBMs based on y / reimbursement Quickly identify opportunities to seek improvement Compare each PBM s reimbursement to some common, independent measure Difficult to use AWP because resulting GER is so sensitive to drug mix, and even to manufacturer from whom drug is purchased. For each plan, an overall GER based on PAC For each plan an overall GER based on PAC Retail was calculated 15 Plan Plan 1 Plan 2 Plan 3 Plan 4 Plan 5 Plan 6 Plan 7 Plan 8 Plan 8 Plan 9 Plan 10 Plan 11 Plan 12 Plan 13 Plan 14 Plan 15 Plan 16 Plan 17 Plan 18 Plan 19 9 Plan 20 Plan 21 Plan 22 Plan 23 Plan 24 Plan 25 Plan 25 Plan 26 Plan 27 GER (PAC) 55.6% 57.4% 60.6% 59.2% 59.8% 57.6% 58.7% 59 3% 59.3% 66.6% 63.0% 67.4% 51.0% 24.9% 43.1% 60.1% 58.7% 58.4% 53.9% 66. % 66.2% 41.2% 66.3% 69.2% 72.8% 44.6% 49 6% 49.6% 62.9% 49.6%

For each plan, an overall GER based on PAC For each plan an overall GER based on PAC Retail was calculated 15 Plan Plan 1 Plan 2 Plan 3 Plan 4 Plan 5 Plan 6 Plan 7 Plan 8 Plan 8 Plan 9 Plan 10 Plan

16 PAC is published exclusively by Elsevier/Gold Standard. If you have questions about PAC, please also feel free to contact Glass Box Analytics directly: 16

Drug Price Types and Options for a Future Standard

whitepaper Elsevier / Gold Standard: Drug Price Types and Options for a Future Standard Standardized price information is a vital part of the drug purchasing and reimbursement system. This white paper