Site of Care Matters: The Value of Community Oncology

1. Site of Care Matters: The Value of Community Oncology The Payer Value Proposition September 2012 Prepared for ION Solutions

2. Outline Current State of Oncology Management Community vs Hospital-based Oncology Care Changing Oncology Landscape

3. The Value of Community Oncology • Patients managed in an office-based setting are less costly than those managed in hospital outpatient settings Care provided in a community office-based setting is more accessible and less costly for patients • Patients in community settings utilize more generics and less brand therapies, which results in savings for payers Community practices are more willing to participate in pay-for-quality pathway programs, which will translate into improved outcomes and savings for payers

4. Current State of Oncology Management

5. Consolidation in the cancer care landscape continues as larger hospital groups acquire, purchase, or merge with private, community-based practices Changing Business Structure of 1,254 Oncology Clinics/Practices From 2008–20121 241 Clinics Closed 442 Practices Struggling Financially 47 Practices Sending Patients Elsewhere 392 Hospital Agreement/Purchase 132 Merged/Acquired by Another Entity • Practice Impact Report. Community Oncology Alliance. April 4, 2012. http://www.communityoncology.org/pdfs/community-oncology-practice-impact-report.pdf Accessed August 23, 2012

6. In 2011, nearly 1 in 4 practices (24%) indicated that they are currently changing their business structure or may only remain viable for another year or so How long to you expect this business structure will remain unchanged and viable? 24% • Barr TR, Towle EL. National Oncology Practice Benchmark, 2011 Report on 2010 Data. J Onc Pract. 2011;7(6S):67S-82S.

7. Payers’ Understanding of the Issue • Payers understand that oncology is unique and must be approached differently than other specialties • Payers often consider 2 opposing goals when managing oncology1 • Find ways to more aggressively control oncology spending • Craft management policies that are politically and clinically defensible • Payers focus their management attention on the most prevalent and high-cost cancer types to generate the largest return for their efforts in developing and implementing management programs • These cancer types are: Breast Lung Colon • McConnell K, Wu J, Dautel N. Payers Must Create Defensible Oncology Management Strategies. Oncology Business Review. 2010

8. Payers prioritize costs before other relevant oncology issues, like site of care • Although the provider landscape in oncology is rapidly changing, payers prioritize other aspects of oncology care before the movement of community-based care to hospital-affiliated practices • Priorities remain cost drivers such as the cost of hospitalizations or the cost of high-priced products Payer Priorities in Oncology1 High-priced new products Cost of hospitalizations Ability to compare and analyze pharmacy and medical benefit Need to increase use of generics Appropriate use of biomarkers Pathway implementation Appropriate use of hospice Compliance and persistency with oncology drugs Cost of emergency room visits Movement of community-based care to hospital-affiliated practices Role of 340B • Xcenda. Managed Care Network. PayerPulse June 2012.

9. There also appears to be a disconnect between payer and provider preferences for acquiring infused therapies; payers prefer SPP, while providers demonstrate a preference for buy-and-bill Providers’ Primary Infused Therapy Acquisition Channel1 • >70% of infused therapies for oncology are distributed via buy-and-bill1 • Average sales price (ASP) used as the primary method of reimbursement by payers • Snyder M, Goldberg L, Ryan T. Payer Management of Oncology Gets Serious. Pharmacy Times. http://www.pharmacytimes.com/publications/specialty-pt/2011/May2011/Payer-Management-of-Oncology-Gets-Serious. Accessed August 17, 2012.

10. The Challenge of Establishing the Site of Oncology Care Payer Value Proposition • There is somewhat of a disconnect between payers and oncology providers • Payers have other priorities in oncology that supersede site of care, despite the recent market changes • Payers lack awareness of the value that community oncology practices bring to the market • Preferences for product acquisition vary and create an additional point of discussion and negotiation between the 2 groups • Payers are seeking additional payment models that make oncology practices’ income independent of drug selection and reward physicians for improving outcomes and reducing costs • As heard in a recent payer focus group, smaller regional payers may have different views, needs, and opinions than larger national payers1 • National payers may have more lucrative contracts with hospitals, particularly larger hospital systems, than with smaller community practices, and therefore, may see comparable costs in patients treated in the hospital outpatient department (HOPD) setting • The opposite being true for smaller payers • Mid-size plans are more undecided and potentially able to be persuaded either way • Payers are also looking for a demonstration of quality as part of the value equation1 • ie: Value = Quality / Cost • Xcenda, data on file. Oncology Site of Care Virtual Payer Council. September 2012.

11. Community vs Hospital-based Oncology Care

12. While HOPDs often profess to care for sicker patients to justify their higher costs, recent claims analyses show similarities in the demographics of office-managed vs HOPD-managed breast, lung, and colorectal cancer patients1 • Slightly more females than males are treated in the HOPD compared to community practices • The mean age of patients in the community practice setting is slightly higher than in the HOPD setting (58.7 years vs 56.9 years, respectively) • Patient illness severity is roughly the same in the community practice setting as the HOPD setting across these 3 tumor types • Xcenda, data on file. Site of Care Claims Analysis Report. September 2012.

13. The Value of Community Oncology • Three separate analyses of managed care claims in commercial and Medicare populations demonstrate that patients managed in a community office setting cost less than patients managed in a hospital-based outpatient setting1-3 • The difference in cost varies for individual tumor types; however, the data suggest that this applies to breast, lung, and colorectal cancer3 • Evidence suggests that patients managed in a community office setting have lower hospitalization rates than patients managed in a hospital-based outpatient setting • The majority of common breast, colorectal, and lung cancer chemotherapy-specific costs are lower for patients managed in a community setting Patients managed in an office-based setting are less costly than those managed in hospital outpatient settings • Avalere Health Analysis Report of National Association of Managed Care Physicians member data. Total cost of cancer care by site of service: physician office vs outpatient hospital. March 2012. • Fitch K, Pyenson B. Site of service cost differences for Medicare patients receiving chemotherapy. Milliman Client Report. 2011. • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

14. Analysis of 4 large commercial health plans reveals that patients who are managed in an office setting are 24% less costly than hospital-managed patients for common cancer types1 • Avalere Health Analysis Report of National Association of Managed Care Physicians member data. Total cost of cancer care by site of service: physician office vs outpatient hospital. March 2012.

15. There was a 114% difference in the average cost of episodes for office-managed patients ($26,800) vs HOPD-managed patients ($57,400) over 9 months1 • Avalere Health Analysis Report of National Association of Managed Care Physicians member data. Total cost of cancer care by site of service: physician office vs outpatient hospital. March 2012.

16. In a Medicare population, office-managed patients cost $6,500 less per year than hospital-managed patients • Fitch K, Pyenson B. Site of service cost differences for Medicare patients receiving chemotherapy. Milliman Client Report. 2011.

17. Hospital-managed patients with breast, colorectal, and lung cancer were more costly than community-managed patients1 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

18. Breast cancer patients managed in a hospital-based setting are more costly in all treatment categories1 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

19. Colorectal cancer patients managed in a hospital-based setting are more costly in all treatment categories except bone metastasis agents1 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

20. Lung cancer patients managed in a hospital-based setting are more costly in most treatment categories1 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

21. In the same analysis, office-managed patients also had fewer hospitalizations during chemotherapy • An analysis of 3 years of commercial health plan data reveals that oncology patients treated in an HOPD have higher hospitalization rates • Office-managed • 11 out of every 100 patients had at least 1 hospitalization during the chemotherapy episode • HOPD-managed • 14 out of every 100 patients had at least 1 hospitalization during the chemotherapy episode • Avalere Health Analysis Report of National Association of Managed Care Physicians member data. Total cost of cancer care by site of service: physician office vs outpatient hospital. March 2012.

22. The majority of common breast, colorectal, and lung cancer chemotherapy-specific costs are lower for patients managed in a community setting1 Key: CPL – carboplatin, CTX – cyclophosphamide, DOXO – doxorubicin, DTX – docetaxel, ZA – zoledronic acid Key: CPL – 5-FU – fluorouracil, BEV- bevacizumab, LV – leucovorin, OX - oxaliplatin Key: BEV- bevacizumab, DTX – docetaxel, ETO – etoposide, GC – gemcitabine, PL – platinum, PTX – paclitaxel, TPT – topotecan, VNR - vinorelbine • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

23. HOPD costs are 40% to 54% higher than community practices for patients receiving non-targeted chemotherapy in breast, lung and colorectal cancers. This is primarily driven by physician costs being 89% to 1242% higher in HOPD vs community1 $15,902 $13,632 $13,149 $10,345 $9,580 $9,403 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

24. HOPD costs are 30% to 97% higher than community practices for patients receiving targeted chemotherapy in breast and colorectal cancers; however, lung cancer costs are comparable1 $32,010 $20,236 $15,050 $14,891 $15,545 $16,214 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

25. The Value of Community Oncology Care provided in community office-based settings is more accessible and less costly for patients • Patient out-of-pocket amounts are higher for patients managed in an HOPD setting • Most common chemotherapy regimens for breast, colorectal, and lung cancers are associated with lower patient out-of-pocket payments in a community office setting • When patients receive care in an HOPD setting, they are more likely to wait longer for their first chemotherapy treatment • Patients in rural areas are more likely to visit community office practices, indicating that community care is more accessible to these populations

26. In a Medicare population, patient out-of-pocket amounts are 10% higher for patients receiving chemotherapy in hospital outpatient settings1 84% of oncologists say that patients’ out-of-pocket spending influences treatment recommendations2 • Fitch K, Pyenson B. Site of service cost differences for Medicare patients receiving chemotherapy. Milliman Client Report. 2011. • Neumann P, Palmer J, Nadler E, et al. Cancer therapy costs influence treatment: a national survey of oncologists. Health Affairs. 2010;29(1):196-202.

27. With respect to common breast, colorectal, and lung chemotherapy regimens, most patient out-of-pocket costs are higher for hospital outpatient-managed patients1 Key: CPL – carboplatin, CTX – cyclophosphamide, DOXO – doxorubicin, DTX – docetaxel, ZA – zoledronic acid Key: CPL – 5-FU – fluorouracil, BEV- bevacizumab, LV – leucovorin, OX - oxaliplatin Key: BEV- bevacizumab, DTX – docetaxel, ETO – etoposide, GC – gemcitabine, PL – platinum, PTX – paclitaxel, TPT – topotecan, VNR - vinorelbine • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

28. Access to community clinics is vital for patients in rural areas and Medicare beneficiaries without supplemental insurance1 • Shea AM, Curtis LH, Hammill BG, et al. Association between the Medicare Modernization Act of 2003 and patient wait times and travel distance for chemotherapy. JAMA. 2008;300(2):189-196.

29. Changing Oncology Market Landscape

30. The Value of Community Oncology • Patients in community settings utilize more generics and less brand therapies, which result in savings for payers • Breast, colorectal, and lung patients managed in a community setting are prescribed generic chemotherapy more frequently • The maturing oncology portfolio will bring savings through competition and higher generic utilization in a community setting • Breast, colorectal, and lung patients managed in a hospital setting are prescribed brand treatments more frequently • An active pipeline creates more opportunity for payers to adopt aggressive management policies for hospital-based providers with high brand utilization

31. Breast, colorectal, and lung patients managed in a community setting are prescribed generic chemotherapy more frequently1 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

32. The maturing oncology portfolio will bring savings through competition and higher generic utilization in a community setting 2017 Neulasta Sandostatin Velcade Tysabri Iressa Velcade Xolair 2014 Remicade Leukine Rapamune Evista Xeloda 2016 Enbrel Erbitux Zevalin Elitek Humira Prialt 2021 Sutent Soliris 2023 Thalomid 2013 Neupogen Zometa Xeloda Taxotere Temodar Dacogen Epogen Procrit Remicade 2020 Nexavar Tykerb Revlimid Vectibix Sprycel 2012 Eloxatin Enbrel Vidaza 2018 Tarceva Avastin Herceptin Clolar 2011 Etopophos Xeloda Aromasin Femara Anzemet Istodax Plavix Avonex Neumega 2019 Revlimid Zytiga Exjade Boniva Orencia 2015 Epogen Aranesp Rituxan Epogen Procrit Gleevec Aloxi Neulasta Peg-Intron Emend oral Alimta 2008 Femara Camptosar Fosamax 185% increase in available generics/biosimilars 2007 Kytril Gemzar By 2020, there will be a robust portfolio of generic and biosimilar treatments 2006 Zofran 2005 Duragesic Transdermal Sandostatin Patent Expiration Generic Introduced

33. Breast, colorectal, and lung patients managed in a hospital setting are prescribed brand treatments more frequently1 • Xcenda, data on file. Site of Care Claims Analysis. September 2012.

34. An active pipeline creates more opportunity for payers to adopt aggressive management policies for hospital-based providers with high brand utilization • The presence of numerous treatment options gives payers the opportunity to adopt more aggressive management policies by leveraging competitive market dynamics

35. The Value of Community Oncology Community practices are more willing to participate in pay-for-quality pathway programs, which will translate into improved outcomes and savings for payers • Evidence demonstrates community oncology practices are more likely to participate in pathways or pay-for-quality programs • Pathway programs result in reduced costs of cancer care by reducing the rate of both drug and nondrug expenses • High community practice participation rates in pathways programs creates an opportunity for payers to improve care and reduce costs

36. An opportunity exists for payers to leverage community oncology practices’ willingness to participate in pay-for-quality pathway programs • Evidence demonstrates community oncology practices are more likely to participate in pathways or pay-for-quality programs1 • In a study where 362 oncology practices were eligible for participation, the highest participation rate was observed in community oncology practices1 • In a related study, the pathway program resulted in reduced costs of cancer care by reducing the rate of both drug and nondrug expenses2 • Total savings, factoring out the increased fee schedule for participating practices, was estimated at $8,585,1482 • Furthermore, pilot pathways programs suggest that the saliency of pay-for-quality incentives in academic and hospital settings should be further studied1 • Fortner BV, Wong W, Olson T, et al. Year one evaluation of participation and compliance in regional pay for quality (P4Q) oncology program. Poster presented at: International Society for Pharmacoeconomics and Outcomes Research; Atlanta, GA: May 15–19, 2010. • Scott JA, Wong W, Olson T, et al. Year one evaluation of regional pay for quality (P4Q) oncology program. J Clin Oncology. 2010;28(Supl 15):6013.

37. Summary

38. The Value of Community Oncology • Three separate analyses of managed care claims in commercial and Medicare populations demonstrate that patients managed in a community office setting cost less than patients managed in a hospital-based outpatient setting • Patients managed in a community office setting have lower hospitalization rates than patients managed in a hospital-based outpatient setting • The majority of common breast, colorectal, and lung cancer chemotherapy-specific costs are lower for patients managed in a community setting Patients managed in an office-based setting are less costly than those managed in hospital outpatient settings Care provided in a community office-based setting is more accessible and less costly for patients • Patient out-of-pocket amounts are higher for patients managed in an HOPD setting • Most common chemotherapy regimens for breast, colorectal, and lung cancer are associated with lower patient out-of-pocket payments in a community office setting • When patients receive care in an HOPD setting, they are more likely to wait longer for their first chemotherapy treatment • Patients in rural areas and Medicare patients without supplemental insurance are more likely to visit community office practices, indicating that community care is more accessible to these populations • Breast, colorectal, and lung patients managed in a community setting are prescribed generic chemotherapy more frequently • The maturing oncology portfolio will bring savings through competition and higher generic utilization in a community setting • Breast, colorectal, and lung patients managed in a hospital setting are prescribed brand treatments more frequently • An active pipeline creates more opportunity for payers to adopt aggressive management policies for hospital-based providers with high brand utilization Patients in community settings utilize more generics and less brand therapies, which results in savings for payers • Evidence demonstrates community oncology practices are more likely to participate in pathways or pay-for-quality programs • Pathway programs result in reduced costs of cancer care by reducing the rate of both drug and nondrug expenses • High community practice participation rates in pathways programs creates an opportunity for payers to improve care and reduce costs Community practices are more willing to participate in pay-for-quality pathway programs, which will translate into improve outcomes and savings for payers

39. Recommendations • Know your audience: • The value messages (as described on the previous slide) are likely to resonate best with small to mid-size payers • Educate on cost and quality outcomes in the community setting compared to the HOPD setting • Smaller payers are likely more in touch with the local providers already, and therefore likely need less convincing; mid-size payers are likely to need the most education and persuading • Understand the hospital contracts and other drivers for large plans before approaching with these messages and tailor them accordingly • Generate and publish outcomes data to complete the value equation: • While it has been demonstrated that community practices are more likely to follow and participate in pay-for-quality programs, the outcomes of those initiatives have not been widely analyzed and published – more data generation and publication on outcomes are needed

40. Thank you!