In 2016, spending on prescription drugs is expected to reach $500 billion. So, how high will they really go? That is a common question asked with drug prices as recent headlines have exploited drug pricing schemes and how the pharmaceutical industry is handling rising prices. This webinar discusses how hospitals and health systems can prepare for and manage rising drug costs, ensure patient care and positively impact the bottom line.

1. How High Will They Go?
Managing Rising Drug Prices in a Changing
Healthcare Environment
Julie Rubin, PharmD, BCPS
Director, Clinical Services
June 22, 2016

2. Speaker
2
Julie Rubin, PharmD, BCPS
Director, Clinical Services

3. 3
Today's Objectives
• Explain key drivers behind increased spending on pharmaceuticals
• Explore current and future impacts on patients, hospitals and healthcare systems
and proposed regulations to control prices
• Understand how hospitals can combat rising prices

4. 4
Poll Question
What is the primary driver behind
rising drug costs?
A. Lack of price control
B. Lengthy patents
C. Mergers and acquisitions
D. Research and development
E. Consumer advertising

5. Key Drivers Behind Increased Spending
on Pharmaceuticals

6. Annual U.S. Drug Spend (in billions)
0
100
200
300
400
500
600
DHHS/CMS Projections
1980 1990 2000 2005 2016
6

7. Pharmacy Industry Revenue
Traditional vs. Specialty
0
50
100
150
200
250
300
350
400
450
500
2010 2015 2020
Specialty Traditional
7

8. 8
Prescription Drug Cost Increases
• Double digit price increases over
the last three years
 Generic medications account for
80% of all U.S. prescriptions
Drug prices in
the last three
years
+10%
Branded drug prices,
those still on patent
14.77%
Branded items
that treat rare
diseases
9%
Generic drug prices
2.93%

9. Key Drivers
Polypharmacy Lack of price control Lengthy patents
Market conditions Mergers and acquisitions Research and development
Consumer advertising
9

10. Polypharmacy
• Nearly 40% of adults aged 65+ use five or
more prescription medications and more than
80% reported using at least one prescription
medication (JAMA, 2012).
• Increases the risk of drug-drug interactions
and adverse drug events (ADEs)
• ADEs account for more than 3.5 million
physician office visits and an estimated 1
million emergency department visits annually.
(Healthaffairs.org, 2015)
• Quality medication management needs to
focus on managing ALL medications – and
DISCONTINUING medications that are
ineffective or no longer needed.
10

11. Lack of Price Control
U.S. government doesn’t regulate prices
• It would hinder innovation, stifle
competition, and stall investment.
• 11 countries already have set pricing
controls and their patent medications are
approximately 18-67% below U.S. prices.
• Cutting prices by 40-50% will lead to a 30-60%
reduction for medications in development.
Solution: Financial incentives for development of new
medicines
11

12. Lengthy Patents
• Prevents competition for 20 years
• Puts new drugs in a monopoly
• Increases prices every year by 5%
Solution: Look to other countries to supply
medications at cheaper costs during patent
window
12

13. Market Conditions - Limited Competition
• Older generics were priced too low, forcing drug makers
to stop making them.
• Older brand products that treat rare diseases do not
attract many manufacturers.
• Monopolies are being created.
Isuprel Nitroprusside Daraprim
500% 200% 5,000%
13

14. Drug Efficacy Study Implementation (DESI)
• Classifies all pre-1962 drugs
that were already in market
• 3,000 separate products and
more than 16,000 claims
• ANDA
14

15. Mergers and Acquisitions
0
5
10
15
20
25
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NumberofDealsover$1Billion
15

16. 16
Research and Development
• Academic researchers spearhead the
development of new drugs with
federal funding from the National
Institutes of Health, but discoveries
are increasingly sold to private
industry for development and profit.
• However, the largest portion of the
pharmaceutical industry’s budget
goes toward advertising and
marketing, rather than R&D.
Average cost of bringing
one new drug to market
12-15 years
$500 MM
Average time this
process takes

17. Consumer Advertising
The drug industry spends $3 billion/year in DTC ads.
The industry says it:
• Educates patients about medical conditions, treatment options,
side effects, etc.
• Prompts dialogue between providers and patients
• Improves appropriateness of prescribing
• Improves compliance
Opponents say it:
• Increases cost by prompting requests for brand name drugs
• Promotes newer, more expensive prescriptions, often with higher profit
margin
17

18. Impact on Patients

19. The Effects of Drug Increases
• Higher patient co-pays
• Physicians having to find alternative therapy
Higher rates of
non-compliance
8% of prescriptions are
not filled due to cost
Angry patients
19

20. Rare Diseases
• Supply vs. demand: The
fewer with the disease, the
more the drug may cost.
Orphan drugs can set their prices on a case-by-case basis centered
on three different models:
“Value-added” pricing “Cost plus” pricing “Comparable value” pricing
20
• Health insurers continue to pay
since it is medically necessary.

21. Monthly and Median Costs of Cancer Drugs at the Time of FDA Approval
1965-2015
Year of FDA Approval
1970 1980 1990 2000 2010
MonthlyCostofTreatment(2014Dollars)
$0
$10000
$20000
$30000
$40000
$50000
$60000
$70000
Individual Drugs
Median Monthly Price (per 5 year period)
Source: Peter B. Bach, MD, Memorial Sloan-Kettering Cancer Center
Oncology Drugs
Yerovoy
21

22. 22
Poll Question
How have drug prices affected your
hospital or health system?
A. Implemented formulary changes
B. Increased clinical pharmacy practice
C. Sought competitive pricing
D. Experienced reduced reimbursement from
years prior

23. What Your Hospital Can Do To Combat
Rising Drug Prices

24. 24
Consider Biosimilars
• Generics of the future
• Same effect in the body as the original drug
• Drugs may sell from 30-50% less than the brand-name price
• Examples:
• Zarxio and Granix
• Infliximab was recently approved
• Neulasta will be approved within the next year

25. 25
Inventory and Formulary Management
• Hospitals negotiate pricing with
manufacturers and GPO
• Therapeutic interchanges for more cost-
effective therapies
• Preventive care and prevent readmissions
• Proactively reduce charges for outpatient
infusions
• Assess for reimbursement prior to services
for high-cost specialty medications

26. 26
Maximize Hospital Reimbursement
✓ CDM audits and maintenance
✓ Jcode modifiers
✓ 340B
✓ Patient assistance programs
✓ Collecting co-pays and co-insurance upfront
✓ Pharmacy and nursing coordination/communication
✓ HCAHPS initiatives
✓ Patient education to reduce re-admits

27. 27
Implement a 340B Program
• Program established for discounts on outpatient medications.
• Estimated savings in 2013 was approximately $3 billion.
• Eligible accounts include
• Disproportionate share hospitals (DSH)
• Critical access hospitals
• Rural referral centers
• Sole community hospitals
• Children’s hospitals
• Freestanding cancer hospitals

28. 28
Enroll in Patient Assistance/Indigent Programs
• Prescription Assistance Programs (PAPs) are designed to help
patients who lack health insurance or prescription drug
coverage obtain the medications they need.
• PAPs are offered by pharmaceutical companies to provide free
or low cost prescription drugs to qualifying individuals.
• Most programs require the applicant have:
– Limited or no prescription drug coverage from private or public sources;
– A demonstrated financial need based on set income and asset limitations;
and,
– Proof of U.S. residence or citizenship.

29. Explore Helpful Resources for Patient
Assistance/Indigent Programs
• TogetherRxAccess.com
• NeedyMeds.com
• rxassist.org
• pparx.org
29

30. Engage in Value-Based Purchasing
VBP was established by the
Affordable Care Act of 2010 (ACA)
Budget neutral payment changes began
October 1, 2012
Physician payment changes began
January 1, 2015
Rewards for achievement or improvement
30

31. 0%
1%
2%
3%
4%
5%
6%
7%
2013 2014 2015 2016 2017
Reimbursement at Risk from CMS VBP, Excess Readmissions,
Healthcare Acquired Conditions Reduction Program
VBP Holdback Excess Readmissions HAC Reduction
Hospital Reimbursement
31

32. 32
What’s New for VBP in FY 2015-2017?
Readmission Reduction Program
 2013 - AMI, pneumonia, heart failure
 2015 - COPD, total hip replacement, total knee replacement
Hospital Acquired Condition (HAC) Reduction Program
 In tandem with the Value-Based Purchasing Program (VBP)
 Top 25% for HAC rates will receive a 1% reduction in their
overall Medicare reimbursement rate

33. Imperative for Hospitals’ Future Success
• Manage costs to reimbursement
Educating providers about margin
Educating providers about reimbursement
schemes
• Align incentives for hospital, physicians and
non-acute providers (preparation for ACO)
• Migrate from fee-for-volume to fee-for-quality
Value-Based Purchasing
• Focus on chronic disease management
• Bundled payments
• Episodes of care
33

34. Regulations
Proposed – California (November 2016 ballot)
• Companies are required to report any move to increase
the list price of a medicine by more than 10% during a
12-month period.
• Drug makers would need to justify price hikes for
medicines with a list price of more than $10,000 within
30 days of posting.
Passed – Massachusetts
• Drug makers to disclose cost and general pricing data.
• States could impose certain price controls.
• New York governor included similar language in a bill.
34

35. 35
Opportunities for Advocacy
• Ensure access and advocate for standardization of pharmacy
benefit programs
• Promote quality medication management
• Advocate for comprehensive health information through better
health IT and HealthInfoNet
• Integrate broad program to support academic detailing to
combat promotion of brand name drugs and off-label use
• Educate hospital staff - pharmacists, nurses and physicians

36. Questions?
completerx.com
Knowledgeseries@completerx.com