2012 Drug Trend Insights

Transcription

1 2012 Drug Trend Insights

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3 1 Executive Summary pharmacy benefit management

4 Table of Contents Welcome... 1 Executive Summary... 2 Methodology and Definitions Chapter 1: Managing Trend...15 Chapter 2: Traditional Drug Trend Chapter 3: Specialty Drug Trend Chapter 4: Benefit Design Chapter 5: Looking Ahead...51 Appendix 1: Traditional Drugs Appendix 2: Specialty Drugs...61

5 Prime Therapeutics 2012 Drug Trend Insights 1 Welcome Welcome to Prime Therapeutics 2012 Drug Trend Insights report. Each year, Prime takes this opportunity to review our performance and share our vision for the future. In these pages you will see the results achieved through our unique take on pharmacy benefit management. Owned by 13 non-profit health plans, Prime isn t beholden to Wall Street, fixated on next quarter s earnings or on tactics like hiding revenue streams, tinkering with wholesale prices or pursuing operational efficiencies beyond the point of prudence. Instead, we re focused on providing affordable access and fantastic service for customers so that they can get well, stay well and live well. We re also working tirelessly to trim prescription drug costs. In 2011, Prime drove the average ingredient cost per prescription down $2.37 and led the industry with drug trend of just 1.3 percent. Our success proves once again that starting with low costs and working to limit increases gets great results. We want to ensure premium dollars pay for health care, rather than being consumed by administrative costs and profit. That s why in 2011 Prime was the only PBM to encourage full transparency in drug reporting when the Department of Health and Human Services issued updated medical loss ratio regulations. In seeking to maximize the health benefit of every dollar spent on drugs, one of our greatest assets is the ability to assess how medication use affects overall health. Understanding the interplay between medical and pharmacy care is vital to staying ahead of the rising trend in health care costs. Today, even the biggest players seek to replicate the advantages of integrated pharmacy and medical benefits, the foundation on which Prime was built. Our vision for pharmacy benefits remains clear and simple. We are making health care easier and more affordable for those who rely on us to provide access to safe and effective medications. In the process, we are redefining how pharmacy benefit management supports and sustains people. Read on to learn more about how we can support you, too. Eric S. Elliott President and Chief Executive Officer Prime Therapeutics LLC

6 2 Executive Summary re focus I really appreciate the way Prime does business and the service they provide. I value the calls and reminders we receive about our prescriptions. They are always so friendly and helpful. Customer, Kansas 168% Prime s dynamic growth confirms that customers value our transparent business model and people-centric approach. Prime has grown 168 percent more than doubling in size since Today we serve nearly 20 million people across the nation and have partnerships with health plans in 19 states.

7 Prime Therapeutics 2012 Drug Trend Insights 3 Focus on what matters most Over the past two decades, pharmacy benefit management has grown considerably more complicated. PBMs today manage multiple member touch points and coordinate many aspects of care. As part of this evolution, publicly traded PBMs have developed complicated business models, opaque pricing and intricate revenue streams in order to maximize profits. Prime s partnership with not-for-profit health plans allows us to be different. This unique relationship means we are committed to stakeholder not stockholder value. We serve our stakeholders by providing low net cost pharmacy benefit management that is both objective and effective. People are our first priority Our number one priority is people. We are committed to providing affordable and easy-to-use care. We demonstrate this commitment by keeping costs low and staying responsive to customer needs. Prime s job is to help people get the medicine they need to get well, stay well and live well. That s why our work centers on streamlining access to quality medications and providing straightforward tools to help people make informed health care decisions. Delivering exceptional service is an extension of our people-centered approach. Paying attention to people pays off Customers tell us they appreciate our focus on the safety and quality of their care. We consistently receive the highest very satisfied ratings among leading PBMs. 1 What s more, as a result of our attention to quality, access and affordability, drug spending for Prime and its clients increased only 1.3 percent in 2011, our ninth consecutive year of single-digit trend. What motivates us is making a difference in people s health, not paying out dividends to investors. This drives us to be open and honest with our clients and customers. Some might consider Prime s approach shocking, but isn t focusing on people the only logical way to help people really benefit from their pharmacy benefits?

8 4 Executive Summary connect There was some confusion between me and my doctor s staff about what was to be ordered and when. To my surprise, Prime gladly took over and played advocate for me. It really took away the stress of doing it myself. Customer, Texas $4.73 : $1 Through industry partnerships, we are linking customers with local pharmacists for face-to-face counseling to address key therapy gaps, enhance quality and reduce costs. Connecting with pharmacists doesn t just reduce pharmacy costs; it also saves $4.73 in overall health care costs for every dollar invested. 2

9 Prime Therapeutics 2012 Drug Trend Insights 5 Deepening our connections with people, providers and pharmacists Big changes are taking place in health care. Right now, our nation is working to roll out reforms that will change how health care is delivered and funded. How the market will respond to health care reform is still taking shape. What is already clear, however, is that there is a tremendous need for more connected care. Integration is more relevant than ever Connectedness is the defining feature of Prime s integrated PBM model. By connecting medical and pharmacy information about costs and outcomes, we ve been able to improve drug therapy and show how targeted improvements in adherence can help to avert or reduce medical expenses. 3 We scour through combined data to identify gaps in care that would be invisible through medical or pharmacy data alone, and actively work to close those gaps. Prime also works to connect care. We share insights with the health plan to positively affect health outcomes and reduce overall health care costs. We unify care through a powerful engine that serves up actionable cost information and clinical intelligence when and where it is most useful. Our connections are expanding Day to day, Prime is expanding our relationships with people, providers and pharmacists. We are using our partnership with health plans to strengthen our clinical and cost management expertise. Together with our partners, Prime is redefining pharmacy benefit management. Not only does a connected model deliver better care, we believe it is the only rational path to achieving better health.

10 6 Executive Summary calculate In 2011, Prime s low net cost approach held our clients pharmacy trend to just 1.3 percent less than last year s 2.9 percent trend and that of other PBMs. Even better, while most PBMs have seen ingredient costs per prescription increase over time, Prime s total ingredient costs decreased from $61.81 in 2009 to $60.87 in Fig. 1 Total Ingredient Cost Per Prescription PBM C $71.88 PBM B $68.11 PBM A $63.17 Prime Therapeutics $

11 Prime Therapeutics 2012 Drug Trend Insights 7 Start at the lowest cost. Increase at the lowest rate. Any way you calculate it, these numbers add up to success. $72.99 PBM B $72.43 $69.92 PBM C $70.87 PBM A $66.63 $64.84 $62.39 Prime Therapeutics $

12 With Prime, it turns out less really is more: less expensive copays, more generic options, and more ways to save money. Customer, Texas 74.7% By the end of 2011, nearly three-quarters of all prescriptions filled by Prime were for generic drugs. In this proportion, generic discounts hold the key to cost control. Independent research conducted in 2011 found that Prime consistently offers more aggressive generic discounts than competitors. 4

13 Prime Therapeutics 2012 Drug Trend Insights 9 Providing quality care at a lower cost Smart car buyers know that the actual cost of a car does not always align with the price on the window; the same is true for pharmacy benefits. Yet plan sponsors continually focus on sticker price measures such as brand-name discounts or manufacturer rebates metrics that can be manipulated to make a deal look more attractive. We think the approach to pharmacy benefit management needs recalibration The price of pharmacy benefit management should be tied to the actual cost of drugs and services. We believe this so strongly that we offer average prescription price guarantees to clients who adopt best-practice benefit designs and formularies. We are the only PBM that does. Clients enjoy clear contract terms and competitive rates that include the full contracted discount from our national pharmacy network. Prime uses just one broad, aggressive maximum allowable cost (MAC) list no games or hidden agendas. We pass generic savings through right away so customers see real savings in real time. Saving money doesn t mean sacrificing quality Prime offers a full range of programs to make sure customers have access to needed medications while reining in health care cost increases. Our pharmacy programs reflect the collective clinical knowledge and expertise of Prime and its health plan partners. Decisions are data-driven, backed by rigorous and unbiased scientific research. Prime starts with the lowest ingredient cost per prescription in the industry. 4 We use the best benefit-management thinking around to keep these costs low. Finally, we fold in flexible contract terms to allow for adjustment as market changes occur. Plan sponsors who think beyond sticker price will find it pays to follow our blueprint for high-quality care at the lowest net cost.

14 10 Executive Summary envision 20.1% Prime s specialty drug expenditures increased 20.1 percent in At this rate, specialty spending will push overall drug trend into double digits within the next five years. The shift to specialty-driven health care is likely to accelerate, bringing increased costs and complications. Moving specialty drugs to the pharmacy benefit is a shortterm solution. Long term, plan sponsors need a partner who can handle the moving parts and cross-benefit challenges posed by specialty drugs. 15.4% 15.4 percent of clients pharmacy spend is consumed by specialty drugs. By 2016, specialty drugs could exceed 30 percent of total pharmacy benefit expenditures % Despite a 20 percent increase in spend from 2010 to 2011, specialty drugs still represent less than one percent of total prescription volume. $2,654 On average, a specialty medication costs 50 times more than a traditional drug prescription.

15 Prime Therapeutics 2012 Drug Trend Insights 11 Heather S. My prescriptions are very expensive. If it were not for the pharmacy benefit, I would not be able to pay for this medication. Teacher, mother of three and specialty customer, Minnesota Prime s specialty program offers aggressive discounts, effective cost-management tools, consultation on benefit design and comprehensive care management. We manage the entire spectrum of specialty conditions, supporting both pharmacy- and medical-based delivery of medications. More than 99 percent of the people we serve have an integrated health plan offering. As a result, Prime s specialty program was built specifically for the holistic management of specialty drugs across all benefits, channels and classes. With decades of experience collaborating with health plans, Prime is well-positioned to provide superior specialty pharmacy management. Envision an integrated program where people come first. Then, work with Prime to make that vision a reality. As we unite to meet the challenge of specialty-driven care, Prime and its partners are focused on what matters most: simple access, affordable benefits and quality outcomes.

16 12 Executive Summary them Decisions are driven by the need to generate revenues and deliver quarterly profit increases. Opaque pricing, ambiguous definitions and hard-to-understand contract terms hide true program costs and inflate overall spend. Focus is on driving down the time and money spent on customer calls. Offerings may reflect outside influences, such as manufacturer rebates, exclusive distribution arrangements or special pricing deals. Misaligned incentives fuel narrow focus on pharmacy; better adherence is simply a route to bigger revenues.

17 Prime Therapeutics 2012 Drug Trend Insights 13 us People are our first priority. Access, quality and cost-saving objectives are front and center in every decision. Collaboration, alignment and clarity are hallmarks of our client relationships and agreements. Focus is on solving problems and simplifying service; Prime rated significantly higher for courtesy, friendliness and ease of filling prescriptions. 1 Smart benefit management delivers uncompromising quality of care while keeping drug trend consistently low. Programs are backed by evidence-based research. Pharmacy benefits with a total health perspective because the target of better adherence should be better health outcomes and lower total health care costs.

18 14 Chapter 1: Managing Trend Methodology This report examines changes in drug costs, utilization and other key measures that have an impact on total pharmacy spend. Data between January 1 and December 31, 2011 were compared with the same period in Pharmacy trend data represents our commercial book of business across all full service clients. Integrated medical and pharmacy data represent analysis of approximately 7 million lives. Other important considerations for interpreting data: Analysis reflects approximately 110 million commercial claims processed in 2011 Drug spend is defined as the total amount paid (including pharmacy network discounts, dispensing fees and taxes) per member per month (PMPM) Manufacturer rebates are included only when noted 90-day prescriptions have been weighted (converted to carry the same weight as retail 30-day fills) Unless otherwise noted, case studies and insights presented throughout the report are derived from Prime internal analyses Terminology Definitions for terms used frequently in this report: Specialty the list of drugs managed through our specialty pharmacy program Traditional all non-specialty drugs Total all drugs combined Ingredient Cost Per Prescription the total amount paid for drugs, less dispensing fees and taxes; claim counts are assigned according to the days supply > Average ingredient cost per prescription reflects pharmacy discounts > Net ingredient cost per prescription includes manufacturer rebates and administrative fees

19 Prime Therapeutics 2012 Drug Trend Insights 15 1 Managing Trend A look back at 2011 pharmacy trends Health care is multifaceted and dynamic. Health care trends reflect the everyday decisions of millions of individuals. By consistently keeping drug spending growth low, Prime demonstrates its ability to influence drug spending across a large and varied population. Keeping drug spend in check is important. Government analysts predict annual health care expenses will grow $4.6 trillion and consume nearly 20 percent of GDP by During that same period, drug expenditures are expected to double. Prime has consistently delivered a drug trend that is a fraction of CMS s annual forecast. Drug spending for our clients increased only 1.3 percent in 2011, appreciably less than 2010 s increase of 2.9 percent. This is our ninth year of single-digit trend and our second consecutive year of decrease. Fig. 2 Total Cost PMPM 2.1% Number of drugs used (utilization) 4.6% Cost of drugs (inflation) -5.0% High-cost vs low-cost drugs used (mix) = 1.3% Change in total cost PMPM Mix is the main reason for slower spending growth in Less-expensive alternatives to several top-selling brand-name drugs hit the market, driving the generic rate to an all-time high. Generic use is expected to grow throughout 2012, offsetting inflation and increased use of prescription drugs. A future of rising costs requires a clear understanding of the factors that drive drug trend: utilization, inflation and mix. Prime continually adjusts management of these factors to address the evolving cost challenges of our industry.

20 16 Chapter 1: Managing Trend Utilization measures change in the number of prescriptions used by customers. Prescription drug use has experienced slow but steady growth over the past five years. This makes sense given our nation s aging population and increasing rates of chronic disease. 7, 8 Echoing national trends, utilization at Prime increased 2.1 percent in On average, Prime customers now fill 12.4 prescriptions per year (Figure 3). Fig. 3 Prescriptions Per Member Per Year (PMPY), Drug utilization grew 2.1% in Number of Prescriptions While it does add to pharmacy costs, increased utilization is not always a negative. For certain targeted conditions, consistent medication use can keep symptoms at bay or prevent serious symptoms from becoming worse. That s why for Prime, utilization management is about encouraging responsible, cost-conscious choices not creating barriers to care. We use our total health perspective to refine individual drug use in a personalized way, striving for optimal therapy for each member. Drug use will continue to grow. People aged are the fastestgrowing segment of the adult population and use prescription drugs at twice the rate of younger people. 9, 10 Prescription drug coverage is an increasingly important health insurance benefit for these employees, many of whom will remain in the workforce beyond the traditional retirement age.

21 Prime Therapeutics 2012 Drug Trend Insights 17 Inflation corresponds to changes in the cost of drugs. Inflation is the largest contributor to drug trend, increasing total costs by 4.6 percent across Prime s book of business in Unit cost inflation was driven almost exclusively by brand-name drugs; generic prices fell steadily as new alternatives flooded the market. 11 Inflation increased the total cost PMPM 4.6% in 2011 Prices for best-selling drugs are rising faster than ever. Because the health care reform bill signed in 2010 failed to put a cap on drug prices, manufacturers have posted double-digit price hikes on top-selling medicines. 12 Such dramatic price increases suggest drug makers are looking to wring as much profit as possible from blockbuster drugs before their patents expire. Last year, about $26.1 billion in sales 9 percent of the $300 billion market lost patent protection (Figure 4). 13 By 2016, an estimated $93 billion in additional sales will face generic competition. 14 Fig. 4 Top Brand-name Drugs Losing Patent Protection Year Drug 2010 U.S. Sales (billions) % of Spend (Prime BoB) 2011 Lipitor $ % Zyprexa $ % Levaquin $ % Concerta $ % 2012 Plavix $ % Seroquel $ % Singulair $ % Actos $ % One way Prime shields clients from inflation is through priceprotection contracts with manufacturers. After 2015, generic-driven offsets to inflation will dry up. Inflation will remain a key trend driver as the market shifts toward high-cost specialty drugs (where generic alternatives are rare). Alerting customers to the most affordable drugs and delivery channels will become increasingly critical to fight drug price inflation.

22 18 Chapter 1: Managing Trend Drug mix reveals the effect of drug selection on total costs. Every penny counts in pharmacy benefit management. Each time a customer chooses a less expensive treatment option, savings are achieved. These cost-conscious choices are measured in the drug mix effect. In 2011, Prime s drug mix effect was -5.0 percent. This is the strongest mix effect Prime has seen in the past five years, reflecting a surge in expiring drug patents. Prime s book-of-business generic rate averaged 73.1 percent in 2011, and reached 74.7 percent by December 2011 (Figure 5). -5.0% drug mix effect was the highest on record The generic pipeline remains strong throughout 2012 and Prime will capitalize on coming generic opportunities by keeping customers informed and making it as easy as possible to move to the generic. Fig. 5 Generic Rate, (projected) 80 Cymbalta Percentage Lipitor Diovan HCT Singulair and Actos Plavix Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Because the average generic drug costs about 90 percent less than its brand-name equivalent, a high generic rate reduces total pharmacy costs. 15 Independent research conducted in 2011 found that Prime had the highest generic dispensing rate among competitive PBMs studied. 4 What s more, Prime s average generic discount was more than one percentage point higher than the nearest competitor. 4

23 Prime Therapeutics 2012 Drug Trend Insights 19 define Translating low trend into tangible value Drug trend is frequently used to measure and track success in holding down pharmacy costs. But how does low trend create value for customers? Without Prime s efforts, total drug spend would have increased 8.6 percent in It helps to think about Prime and its partners as competitors in a tug-of-war (Figure 6). On one side are manufacturers, who regularly raise drug prices in order to stay profitable, and pharmacies, who want to maximize dispensing fees and reimbursement; these market forces add to pharmacy costs. On the other side is Prime, working to offset market forces and moderate cost increases. Fig. 6 PMPM Cost Comparison Market forces Cost driver Prime $0.90 Expired patents on rebated drugs; inflation Manufacturer rebates Contracting improvements; market share movement; price-protection rebates $0.12 $4.03 Inflation in dispensing fees; drug price inflation; tax changes Networks (all combined) Dispensing fee improvements; network improvements $3.25 $1.41 Higher drug use; increased prescribing Programs to impact medication use Optimal/appropriate use; reduced waste $0.56 $1.59 Patent expirations; drug mix Generic drugs PBM-driven generic use; drug mix $2.88 $4.75 Total $1.05 PMPM PMPM $ 3.70 In this ongoing struggle, Prime s goal is to keep added costs down while ensuring customers have access to needed medications. Through hard work and smart management, Prime and its partners exert opposing pressure to prevent market forces from taking over. Without these efforts, clients and customers would have paid $3.70 PMPM more on drugs in 2011 a drug trend of 8.6 percent, rather than just 1.3 percent. By mitigating market forces, Prime cut these costs by nearly 80 percent.

24 20 Chapter 1: Managing Trend Net ingredient cost per prescription By removing the factor of utilization, ingredient cost per prescription focuses attention on how drug spending can be reduced through contract negotiation and network management. Over the past five years, Prime has steadily increased the average generic discount rate and reduced generic ingredient costs per prescription, even as wholesale prices increased (Figure 7). Fig. 7 Prime Generic Ingredient Cost vs. Average Wholesale Price, Our net ingredient cost per prescription decreased 1.6% $110 Cost Per Prescription $90 $70 $50 $30 $10 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q %* AWP/Rx -1.9%* Ingr/Rx *Compound annual growth rate In 2011, improved generic rates drove Prime s net ingredient cost per prescription down 1.6 percent, despite brand-drug price increases (Figure 8). Fig. 8 Net Ingredient Cost Per Prescription, 2011 $ Net Cost/Rx Change from 2010 Brand $ % Generic $ % Total $ % Most PBMs do not publish their net costs. Prime does, because it demonstrates our expertise and reflects our honest, straightforward approach. Because it includes all network discounts, manufacturer rebates and administrative fees, net cost per prescription distinguishes actual costs from PBM margins. This makes it an ideal way to compare the actual performance of a PBM at offsetting inflation and managing drug mix as opposed to their effectiveness at limiting access or denying coverage (utilization).

25 Prime Therapeutics 2012 Drug Trend Insights 21 success story Collaborative partnership pays dividends Florida Blue stands out as a good example of how health plan and PBM collaboration is bringing greater value to customers. Over the past several years, Florida Blue and Prime have been working together to increase generic adoption, optimize drug use and bring down customers drug costs. These efforts have been successful: Between 2009 and 2011, Florida Blue s net ingredient cost per prescription decreased $6.15 The Florida Blue generic rate averaged 75.7 percent in 2011, 2.6 points better than Prime s book of business Compared with leading competitors (and Prime s overall book of business) Florida Blue has the highest generic discount To make this possible, Florida Blue and Prime worked to implement several new programs. Even in the midst of change, our joint focus was on keeping customers well informed and well cared for. It paid off: Florida customers satisfaction with Prime has remained above 90 percent over the past three years. Affordability has been a major focus over the past several years. We believe we can offer affordable products without sacrificing quality of care. Our success is attributed to the hard work, dedication and collaboration of the Florida Blue and Prime teams, who have remained focused on reducing our overall medical cost for the benefit of our customers. Scott McClelland, PharmD, RPh, CPHIT, Senior Director, Commercial and Specialty Pharmacy Operations, Florida Blue

26 22 Chapter 1: Managing Trend Specialty drugs in the mix As the pharmaceutical industry shifts its focus from traditional to specialty drugs, use of these costly medications is growing. In 2011, specialty drug utilization increased 6 percent three times faster than traditional drugs. While specialty drugs still represent less than 0.5 percent of Prime s overall prescriptions, they now account for 15.4 percent of total expenditures. 15.4% of Prime s 2011 drug spend was for specialty drugs As shown in Figure 9, without specialty drugs, Prime s traditional pharmacy costs declined 1.5 percent. Clearly, these high-cost medications are already a major contributor to overall pharmacy trend. Fig. 9 PMPM Trend by Drug Type Specialty Traditional (non-specialty) All Drugs Change in total cost PMPM (drug trend) 20.1% -1.5% 1.3% Number of drugs used (utilization) 6.0% 2.1% 2.1% Cost of drugs (inflation) 9.2% 4.0% 4.6% High-cost vs. low-cost drugs used (mix) 3.7% -7.1% -5.0% Opportunities to trim specialty drug expenditures exist, but they can be challenging to identify and tricky to execute. A comprehensive and multi-faceted pharmacy management approach is vital to the successful management of specialty drugs. Turn to Chapter 3 for details on specialty trends and management.

27 Prime Therapeutics 2012 Drug Trend Insights 23 Trends in Medicare Part D Our Medicare clients achieved generic rates of more than 80% in 2011 Total pharmacy costs increased 1.7 percent for our Medicare book of business in Specialty drugs were the primary trend driver, with a 25 percent increase in total costs. Traditional drug costs decreased 0.2 percent, aided by outstanding generic use. The Medicare generic rate averaged 80.1 percent for the year (vs percent commercial), a 2.4 point increase over Despite higher drug utilization (50 prescriptions per year versus 12), the 2011 net ingredient cost per prescription in Medicare Part D was $40.93, nearly $17 dollars less than our commercial book of business (Figure 10). Fig. 10 Net Ingredient Cost Per Prescription, Medicare, 2011 $ Net Cost/Rx Change from 2010 Brand $ % Generic $ % Total $ % The Medicare benefit includes strong incentives to encourage use of the lowest-cost treatments. It is based on a highly structured, generics-centric formulary and employs a variety of programs to direct seniors toward generic and lower-cost drugs. For years Prime has pointed to our Medicare plans as examples of bestpractice pharmacy benefit management. The Medicare Part D benefit is unique, but the components themselves are not exclusive. The same tools are available to plan sponsors to build the ideal pharmacy benefit for their business.

28 24 Chapter 1: Managing Trend Drug trend drivers and moderators An effective pharmacy management strategy must address the unique market factors that affect each individual drug category. The amount of PMPM contribution (or reduction) is determined by the same factors that drive overall trend: inflation, utilization and drug mix. Among the top 10 categories driving trend, half are specialty drugs (Figure 11). This is consistent with the increased use and very high inflation for specialty drugs noted previously. Nearly all of the traditional drug categories contributing most to pharmacy trend experienced significant unit cost inflation. ADHD was the strongest trend driver in 2011; double-digit increases in utilization and inflation were the cause. Fig. 11 Top 10 Trend Drivers by Category, 2011 Group Category % of Rxs % of Spend PMPM Change $ PMPM Increase ADHD* 1.8% 4.4% 19.7% $0.48 Autoimmune 0.2% 5.5% 14.3% $0.44 Diabetes 5.6% 8.3% 8.1% $0.41 Multiple sclerosis* 0.1% 3.6% 20.6% $0.39 Hepatitis C 0.0% 0.7% 149.1% $0.28 Oral oncology 0.1% 2.3% 18.6% $0.24 Respiratory* 3.1% 6.1% 5.1% $0.20 Blood thinners* 1.0% 1.8% 17.6% $0.18 Psychosis* 0.5% 2.5% 11.3% $0.17 Hemophilia 0.0% 0.5% 21.5% $0.05 Traditional Specialty * Classes with inflation >10 percent.

29 Prime Therapeutics 2012 Drug Trend Insights 25 Categories with negative trend help to contain or reduce pharmacy costs (Figure 12). In 2011, the majority of trend-moderating classes joined the list because of significant improvements in generic use. The remaining categories experienced decreased utilization or only slight price inflation, which reduced their contribution to total PMPM costs. Note that few specialty drugs saw a reduction in PMPM in Fig. 12 Top 10 Trend Moderators by Category, 2011 Group Category % of Rxs % of Spend PMPM Change $ PMPM (Reduction) Gastrointestinal* 3.2% 4.0% -23.4% ($0.79) Allergy* 0.6% 0.5% -53.4% ($0.38) High blood pressure* 17.1% 5.8% -8.6% ($0.37) Depression* 7.3% 5.4% -7.7% ($0.30) Insomnia* 1.6% 1.0% -9.3% ($0.07) Women s health* 6.3% 4.3% -2.4% ($0.07) Pain 7.9% 5.1% -1.7% ($0.06) Blood modifiers 0.0% 0.3% -10.0% ($0.02) Lifestyle 0.6% 1.0% -0.9% ($0.01) Seizure 2.4% 2.1% -0.6% ($0.01) Traditional Specialty *Categories with generic rate increase >3 percent.

30 26 Chapter 1: Managing Trend A majority of the top 20 drugs (Figure 13) used by Prime customers already have or will soon have generic alternatives available for use. Encouraging customers to make the leap to lower-cost drugs is the easiest way to reduce plan costs. For drugs lacking a generic alternative, working with Prime to promote use of lower-cost or preferred formulary agents can also yield significant savings. Fig. 13 Top 20 Drugs by Percent of Spend, 2011 Impact Group Drug Category PMPM PMPM Change % of Spend Generic Alternatives Humira Autoimmune $ % 2.3% N/A Nexium Gastrointestinal $ % 2.2% omeprazole, pantoprazole, lansoprazole Enbrel Autoimmune $ % 2.2% N/A Singulair Respiratory $ % 2.0% zafirlukast Lipitor High cholesterol $ % 1.9% Crestor High cholesterol $ % 1.9% simvastatin, pravastatin, atorvastatin simvastatin, pravastatin, atorvastatin Plavix Blood thinner $ % 1.5% ticlopidine Lexapro Depression $ % 1.4% sertraline, citalopram, fluoxetine Advair diskus Respiratory $ % 1.4% N/A Copaxone Multiple sclerosis $ % 1.3% N/A Cymbalta Depression $ % 1.3% sertraline, citalopram, fluoxetine Lantus Diabetes $ % 1.1% N/A Abilify Psychosis $ % 1.1% risperidone, olanzapine Actos Diabetes $ % 1.0% metformin, glipizide er, glimepiride Assure Diabetes $ % 1.0% N/A Adderall XR ADHD $ % 0.8% amphetamine/dextroamphetamine Vyvanse ADHD $ % 0.8% dextroamphetamine er, methamphetamine valacyclovir hcl tabs* Herpes $ % 0.8% generic product Avonex Multiple sclerosis $ % 0.8% N/A Testim Low testosterone $ % 0.7% testosterone cypionate, testosterone enanthate, danazol Traditional Specialty *Generic

31 Prime Therapeutics 2012 Drug Trend Insights 27 2 Traditional Drug Trend Reshape traditional drug trend with smart pharmacy management Fig. 14 Traditional Drug Categories Percent of Total Spend, % Blood thinners 2.1% Seizure 2.5% Psychosis 4.0% Gastrointestinal 4.3% Women s health 4.4% ADHD 5.1% Pain 5.4% Depression 5.8% High blood pressure More than 99 percent of the prescriptions filled today are for non-specialty medications. 16 These are the bottles we are all used to seeing in our medicine cabinets. With the introduction and growing prevalence of specialty medications, non-specialty medications have become known as traditional drugs. Despite the ho-hum label, traditional drugs are far from trivial. Traditional drugs treat a wide variety of health conditions and account for nearly 85 percent of all pharmacy expenditures at Prime (Figure 14). When used appropriately, these medications provide important health benefits and improve quality of life. Smart management of traditional drugs can promote safety and optimize use to help keep costs low. Within traditional drugs there are five drug classes that merit special attention. These are medications used to treat high blood pressure, high cholesterol, diabetes, respiratory disorders and depression. Together these medications account for 40 percent of all prescriptions and more than a third of all pharmacy dollars. Prime calls these focus drugs because research has shown that appropriate drug therapy can dramatically improve the management of these conditions. Prime s approach to these drugs includes a strong focus on promoting adherence, which has proven to result in better health outcomes and lower medical costs. By engaging people in their health and partnering with providers to improve the management of chronic illness, smart pharmacy management can help reduce overall health care costs. 6.1% Respiratory 7.9% High cholesterol 8.3% Diabetes 26.9% Other traditional drugs 84.6% of total spend For traditional drugs, pharmacy management that consistently engages people in making informed, cost-conscious health care decisions is the profile of success. Prime offers a wide assortment of proactive, targeted learning formats and management tools to help customers understand their options, make full use of our services and better manage their health.

32 28 Chapter 2: Traditional Drug Trend Traditional drug trends The average ingredient cost of a traditional drug obtained through Prime was $2.37 less in 2011 than in In the health care industry, where costs typically increase each year, this is remarkable. Even more extraordinary, this reduction took place despite a 10 percent increase in brand-name drug ingredient costs. Average ingredient costs decreased $ 2.37 in 2011 This is the power of drug mix. Joint planning and promotion with our health plan partners helped customers take full advantage of new generic opportunities in Together, we drove the traditional drug generic rate up four percentage points, helping to reduce total costs (Figure 15). Fig. 15 Traditional Drugs: Key Data, 2011 vs % of Rxs 99.6% 99.6% % of spend 84.6% 86.9% % generic 73.4% 69.4% Average cost/rx $52.88 $55.25 For the third year, ADHD medications, blood thinners and drugs used to treat psychosis (everything from bipolar disorders and schizophrenia to aggressive behavior in the elderly), logged the highest cost increases among traditional drugs. ADHD also saw a noteworthy increase in utilization, making it the highest-trend traditional drug category. At the other end of the spectrum, allergy and gastrointestinal medications had the lowest drug trend. Prices decreased as more over-the-counter (OTC) alternatives became available. Of the focus drugs high blood pressure, high cholesterol, diabetes, respiratory and depression only diabetes and respiratory saw increased spending in Refer to Appendix 1 for a review of traditional drug trends by category.

33 Prime Therapeutics 2012 Drug Trend Insights 29 Tools to manage traditional drugs Traditional drugs are relatively affordable: per prescription costs for traditional drugs average $53 in Prime s book of business. Yet customers still have opportunities to save on traditional drugs. Lowest-cost drugs Increasing the generic rate 1% can shave 2.5% from total pharmacy spend Consistent use of generics and preferred formulary drugs over more expensive options delivers the maximum benefit at the lowest possible cost. And because they carry the lowest out-of-pocket costs, generics are truly a win-win for customers and plan sponsors. As brand-name drug prices increase, the value of generics savings go up. Based on today s prices, every one-percent increase in the generic rate is estimated to shave 2.5 percent off plan sponsors total pharmacy spend. Lowest-cost pharmacy Prim nets average annual savings of $ 74 per prescription Using the lowest-cost pharmacy also helps to drive down per prescription costs. With no dispensing fees and better discounts, mail service for maintenance medications has been shown to reduce per-prescription drug costs. Pharmacy spend per member is approximately $16 lower for a 90-day drug supply than a 30-day supply at retail. 17 Limited retail networks are an increasingly popular way to promote use of the lowest-cost retail pharmacy. Lower copays draw customers to preferred pharmacies. In exchange for increased foot traffic, pharmacies commit to reduced drug prices that can save plan sponsors 1.5 to 2.5 percent over broad network prices. 18

34 30 Chapter 2: Traditional Drug Trend success story Pharmacists: A vital link to better care and lower costs More than $100 billion is spent each year in the United States on avoidable hospitalizations. 19 Often these events can be traced back to poor medication adherence or other gaps in drug therapy. Evidence shows as many as half of all patients do not adhere fully to their drug regimens, and medication errors complicate the lives of 19, 20 approximately 1.3 million people every year. Meanwhile, millions of dollars are wasted on unnecessary therapy or high-cost drugs prescribed even though lower-cost alternatives are available. Prime has found a solution to these problems in a unique place local pharmacies. Through retail pharmacy medication therapy management, Prime is connecting customers with neighborhood pharmacists to address key therapy gaps, enhance quality and reduce costs. Pharmacists are drug experts. They know how similar drugs may differ with regard to safety, effectiveness, compatibility and cost. In addition, they are among the most accessible health care providers and have earned public trust as a source of health information and advice. A nationwide network of more than 50,000 participating pharmacists use clinical guidelines and best practices to identify gaps in care. They connect with providers to close those gaps and deliver individualized counseling to help customers make informed decisions. Available on a limited basis in 2012, this program is being evaluated for future inclusion among Prime s core clinical services. Retail-based therapy management connects customers to expert pharmacists nationwide, with a special emphasis on closing gaps in diabetes care. Better management of diabetes has tremendous potential to improve health outcomes and reduce medical costs, which is why Prime is highly focused on this condition. By strengthening the connection among pharmacists, physicians and customers, this program is reducing wasteful spending and, more importantly, revitalizing care.

35 Prime Therapeutics 2012 Drug Trend Insights 31 Preventing waste and improving consistent, cost-effective drug use pays off: A typical medication therapy management program saves $1.87 in drug spend for every $1 in program fees. 2 Even better, improved care results in an annual overall return on investment of $4.73 per $1 invested. 2 Pharmacy care with a personal touch Filling a gap. When pharmacist Wendy Myren received a targeted intervention program TIP about a critical gap in cholesterol-lowering therapy for a customer with diabetes, she urged his physician to prescribe additional medication. Her action ultimately decreased the customer s risk of a future cardiovascular complication. The customer comes first. A customer at Deb Magstadt s pharmacy regularly skipped taking her cardiovascular medication. This behavior created a serious health risk, so Deb scheduled a face-to-face meeting to discuss the importance of consistently taking the medication. Upon follow-up, the customer reported taking her medication daily, as directed. Better health. Simplified. A once-a-day prescription looked odd to pharmacist Allison Ternes, who typically saw this medication used twice daily. She contacted the prescriber for clarification. Together they found an option suitable for once-a-day dosing, making adherence easy for the customer while ensuring a good health outcome.

36 32 Chapter 2: Traditional Drug Trend Lowest total cost of care Prime s unique take on traditional drug management goes beyond lowestcost drug, channel or pharmacy, to consider lowest total cost of care. For example, drugs to treat diabetes account for more than 8 percent of all pharmacy expenses. People with diabetes often also have related conditions, such as hypertension and heart disease. Identifying these customers for outreach, education and support can reduce medical costs. By ensuring that medications are used appropriately to keep symptoms under control, we can help avert complications that might require hospitalization or extensive medical care. Curing illness, controlling symptoms and preventing unnecessary medical expense are all part of pharmacy s role in health care. Sometimes the way to reduce overall health care costs is to invest in pharmacy. And sometimes it isn t. Prime uses insight, knowledge and experience to help plan sponsors think through and make these tough benefit decisions. Prime recently worked with a health plan partner to complete a diabetes study using medical and pharmacy data. Analysis of 1.2 million customers showed that 13.5 percent of people with diabetes had a history of diabetes-related complications. Yet nearly 20 percent (1,074) of these people were not taking any anti-diabetic medications. If all untreated customers started anti-diabetic therapy and remained adherent for at least one year, potential medical costs avoided are projected to be approximately $765,

37 Prime Therapeutics 2012 Drug Trend Insights 33 3 Specialty Drug Trend Answering the challenge of specialty pharmacy Fig. 16 Specialty Drug Categories Fewer than one percent of the people we serve use specialty drugs. Yet Prime and its partners spend a lot of money $1.3 billion in 2011 on specialty medications to treat complex or chronic conditions. These costs are growing quickly. Prime projects that specialty drugs will account for 30 percent of pharmacy benefit expenditures by 2016; it has been predicted that specialty drugs will be more than 40 percent of drug costs by Figure 17 illustrates just how quickly specialty drug spend is growing especially when compared with expenditures for traditional brand-name and generic drugs. 5 Percent of Total Spend, % Anticoagulants 0.7% Hepatitis C 0.9% Growth hormone The high cost of specialty drugs is a concern for the entire health care industry. All told, the United States spent $80 billion on specialty pharmaceuticals in Combine that with more than 600 specialty drugs in Phase II or higher clinical trials, and conditions are ripe for a perfect storm when it comes to pharmacy spending trends % Other specialty 2.3% Oral oncology 3.6% Multiple sclerosis Fig. 17 Pharmacy Benefit Spend, by Drug Type (projected) % Autoimmune 64 Brand 15.4% of total spend Percent of Spend Generic Specialty A 2011 survey of employers found that despite the rising cost of specialty drugs, more than a third did not know the percent of their overall drug spend attributed to specialty medications. 25 The majority (58 percent) used the same benefit design and cost-sharing for specialty drugs as for other prescription drugs. Prime believes the first step in managing specialty is helping plan sponsors see the full scope of costs and unique benefit challenges these drugs represent.

38 34 Chapter 3: Specialty Drug Trend Specialty drug trends Within Prime s book of business, specialty drug spending accelerated in 2011, increasing 20 percent in just one year. The increase was primarily the result of unit cost inflation (9.2 percent), but utilization also grew 6 percent. Nearly 100,000 more claims for specialty drugs were submitted under the pharmacy benefit in 2011 than in 2010, the result of an increasing number of people served and drugs used. Specialty drug spending increased 20.1% in 2011 Specialty drugs still represent a small number of prescriptions (0.4 percent), but grew to more than 15 percent of overall pharmacy benefit spending (Figure 18). Fig. 18 Specialty Drugs: Key Data, 2011 vs % of Rxs 0.4% 0.4% % of spend 15.4% 13.1% % generic 3.7% 4.2% Average cost/rx $2,654 $2,336 Almost every specialty drug class saw both use and prices increase. But six drug classes continue to consume the lion s share of specialty spend: autoimmune, multiple sclerosis, oral oncology, growth hormone, hepatitis C and anticoagulants. Price increases drove category trends; multiple sclerosis (MS) topped the list, with unit cost inflation of 14.7 percent, followed by oral oncology (8.6 percent). As health care continues to shift toward specialty medications, these drugs will become the main drivers of trend and the chief focus of pharmacy benefit management. Given the already high cost of specialty drugs, rapidly increasing prices are a critical concern. One of Prime s top initiatives is to contract with drug manufacturers who provide protection from high inflation trends. These contracts protect both customers and plan sponsors from higher-than-expected increases in specialty drug prices and allow for more accurate forecasting of future drug costs.

39 Prime Therapeutics 2012 Drug Trend Insights 35 Because specialty drugs are used by such small populations, their trend profiles can be very unique. For example, consider how MS trends compare with those of hepatitis C (Figure 19). Fig. 19 Comparison of Trend Factors for MS and Hepatitis C, 2011 MS Hepatitis C % of spend 3.6% 0.7% Inflation 14.7% 4.9% Utilization (change) 4.7% 13.2% Drug mix 0.3% 109.7% Total PMPM 20.6% 149.1% Total $ spend $290 million $59 million Deep clinical knowledge and expertise is needed to manage specialty drugs. Much of the trend in MS was driven by higher prices for existing drugs (inflation). Unit costs of commonly used treatments such as Tysabri, Avonex and Rebif increased 7 to 18 percent. Increased prescribing of Ampyra, approved in 2010 as an add-on therapy for MS, also contributed to higher costs. Hepatitis C trend resulted from the introduction of two new drugs in Not only were these new drugs expensive, they also represented a new method of treating hepatitis C. People who had been unsuccessful with other treatments quickly lined up to try these new drugs. This example illustrates how important it is for pharmacy benefit managers to understand the specialty landscape in comprehensive detail. Having the ability to look across benefit boundaries is critical to effective specialty management. So is a shared focus on outcomes. Deep clinical knowledge and expertise is needed. If part of the story is missing, efforts to manage the drugs will be thwarted. And while driving competitive pricing and accurate distribution are important, truly successful specialty drug management requires so much more. Refer to Appendix 2 for a review of specialty drug trends by category.

40 36 Chapter 3: Specialty Drug Trend Medical-side specialty spending A big part of the specialty story lies hidden in the medical benefit. When total specialty spend is considered across both medical and pharmacy benefits, a slightly different picture emerges (Figure 20). Fig. 20 Total Specialty Drug Spend, by Benefit Type, 2Q2010 2Q % Autoimmune 3.3% Injectable cancer $1.8 billion total spent on specialty in 2011 across both medical and pharmacy benefit 3.0% Multiple sclerosis 1.8% Oral oncology 1.4% Blood modifiers 0.7% Anticoagulants 0.7% Growth hormone 0.7% Hemophilia 0.5% IVIG and serums 0.4% Pulmonary hypertension 0.4% Lung disorders 0.3% Hepatitis C 0.2% Enzyme deficiencies 0.04% Macular degeneration $0 $200 $400 (millions) Pharmacy benefit Medical benefit (percent of spend) This picture reveals categories of treatment that are administered almost entirely under the medical benefit expenses that are invisible to most standalone PBMs. Among these, injected cancer medications are a top cost center, consuming more than a quarter of all medical-side drug spending and accounting for 3.3 percent of total combined drug expenditures. A big part of the specialty story lies hidden in the medical benefit.