Palio's Jon Haas shares insights and strategy on Managed Care Contracting.

1. Managed Care Strategy
Contracting
11.12.12

2. Managed Markets contracting
Manufacturers and Payers Share the desire to provide value
The objective is to provide optimal access to drugs that
meet a patient’s clinical needs and are cost effective

3. Managed Markets contracting
Manufacturer specific objectives
● Limit barriers from commercial and government payers to insure
patient access to appropriate care
● Establish Company as a respected and valuable source for
Payers in the treatment of Disease State
● Support with
– Proper place of therapy
– Cost-effective treatment
– Distribution management

4. Managed Markets contracting
Manufacturer Considerations when developing Contracting
Strategy
● What is your tier target? Tier 2, 3, or 4?
● Short term and long term impact of contracting (effect discounts
will have on best price, net price, etc.)
● Current Market dynamics
– New Class?
– Where are your competitors on formularies, what they are doing currently?
● Other considerations
– Other contracts and discounts (Specialty Pharmacy, wholesaler, GPO,
Specialty Distributor) have pricing implications
– Potential step edits, prior authorizations

5. Formulary tiers
Commercial
● Tier 3 (Non-Preferred Brand) access– will require no or low
discounts/rebates depending on position in therapeutic class
– First in therapeutic class with significant clinical advantage = little or no
discount in commercial payer market
– Third in class “me-too” = more aggressive discount for inclusion
● Tier 2 (Preferred Brand) access – will require higher
discounts/rebates
– First in therapeutic class with significant clinical advantage = little discount in
commercial payer market
– Third in class “me-too” = more aggressive discount and will likely require “1 of
1”, “1 of 2” or “1 of 3” rebate tiers (“1 of 1” = highest discount and unlikely to
achieve until you have significant market share…making it a “chicken or egg”
scenario
● Tier 4 (Specialty) if plan has a 4 tier formulary can have similar
attributes and considerations to tier 2 depending on plan.
– Tier 4 has higher co-pays and most have co-insurance

6. Managed Markets contracting
● Determine government contracting strategies
– Is there a significant potential patient population in Medicare Part D, Medicaid
and other Government (VA, DOD, PHS, FSS)?
– What is your target coverage? Tier 2, 3, 4, 5?

7. Formulary tiers
Government
● Tier 3 for 3 and 4 tier plans (Non-Preferred Brand) access – will
require lower discounts/rebates depending on position in
therapeutic class
– First in therapeutic class with significant clinical advantage = little or no
discount in commercial payer market
– Third in class “me-too” = aggressive discount
● Tier 2 for 3 and 4 tier plans (Preferred Brand) access – will
require higher discounts/rebates
● Tier 4 or 5(Specialty) if plan has a 4 or 5 tier formulary can have
similar attributes and considerations to tier 2 depending on plan.
– Tier 4/5 has higher co-pays and most have co-insurance

8. Medicare tier structure
Payers with a Payers with a Payers with a
Copay
3 Tier Benefit 4 Tier Benefit 5 Tier Benefit
Ranges
(5) (12) (6)
Tier 1 Generic Generic Preferred Generic $0 - $12
Non-Preferred $5 - $43
Tier 2 Preferred Brand Preferred Brand
Generic 16% & 20%
Non-preferred Non-preferred $24 - $98
Tier 3 Preferred Brand
Brand Brand 18% - 50%
Specialty or Non-Preferred $70 - $91
Tier 4
Injectable Brand 25% - 75%
Specialty or
Tier 5 25% - 33%
Injectable
Notes: 14 National and 9 Regional Payers
• National Payers – 50% = 4 Tier; 35% = 5 Tier
• 52% have 4 Tier Structure, most have multiple formularies
• Tier 3 Copay – majority are $60 - $83; Tier 4 copays are 25 - 35%
Need a source for this info

9. Managed Markets contracting
For a launch of a new product, perform a Payer Assessment to
determine the Key Targeted National Payers ranked by priority
(typically number of lives) and the alignment of the regional
payer sales team in order to effectively reach regional plans

10. Example: payer assessment
Payer A Payer B
40+ Payer C
Payer D
Strong
20
Payer E
12
HMO Lives (millions)
Payer F
10
“Size Matters” “Must Have’s”
Payer S
8 Payer G
6 Payer R
Payer H
4 Payer I
Payer Q Payer J
Weak
Payer P Payer K “Make or
2 “Keep the Payer O Payer L Payer N
Door Open” Break a
Payer M
Region”
0
0 1 2 3 4 5
Weak Formulary/Contract Enforcement Strong
Ability to Influence Market

11. Contracting trends
Price Protection Rise in Steeper discounts
contracts contracting for for specialty
tier-3 to avoid categories
exclusion

12. ACA Implications
Payers Manufacturers
● Increased cost for mandatory ● Plans to seek greater
requirements discounts
● Increased competition ● Plans likely to increase use
● Ability to compete in of limited or closed
exchanges formularies
● Increased Step edits
(especially through generics)

13. Finally
● Contracting for access only provides you the “Ticket” to play in
the game
● Well planned Pull-Through strategies are imperative for Brand
Share Growth, which will dictate payers’ views on the Drug, which
will drive future contracting considerations and relationships