Drug Cost Management and Pharmacy Consulting Possibilities

1. Drug Cost Managementand Pharmacy Consulting Possibilities Michael E Thomas Pharm.D President Thomas Rx Consulting

3. Drug Cost ManagementGoals and Objectives Understand why drug costs are managed Understand the cost trends in pharmacy Formularies � What are they and why are they used and how they are used Learn contracting processes Learning Rebate processes Understand how PBM�s make their money

4. The Managed Pharmacy Paradox Why all the fuss about drugs? If drugs represent only 5% 10% 15% 25%? of total expenses, why focus on them? If drugs are cost-effective, why not use more? If new drugs offer therapeutic advantages, why limit their use?

5. The Problem: Rising Costs Health care at 14.2% of GDP Rx program costs have more than quadrupled in past 15 years to about 25% of total costs Faster growth than other delivery sectors Rx costs $18.00 - $37.49 PMPM Annual Rx cost growth rate of 12 % - 20%

6. Healthcare Percent of USA GDP

7. Overview of Trends Overall costs increase �uncontrollably� 2% lower trend with management Trend driven by utilization, mix, and Rx cost Trend dissection allows customized management Payers squeezed by increasing premiums and rising costs Carve-out maintains focus on pharmacy program costs

8. Payer Response to Rx Trends Dissatisfaction of cost containment efforts Increased focus on Rx cost vs. value Share Rx risk with physicians Share Rx costs with members Higher, tiered co-payments Aggressively manage Rx benefits Customize benefit design Reduce or eliminate of Rx benefits

9. Pharmacy Management Strategies

10. If �Outcomes� are the answer, what are the questions? Should we add a new drug to the formulary? How will drugs impact medical and hospital costs? How do physician treatment patterns effect outcomes? What is the �best� drug for a specific patient? How will drugs effect quality of life?

11. Linking Drug Use to Outcomes

12. The move to managed healthcare has put drug therapy in a state of continuous change. On one hand, drug prices are increasing, placing pressure on pharmacy budgets. On the other hand, more effective drugs offer opportunities to reduce other healthcare costs, such as hospital stays, surgical procedures, lab costs, additional testing, and other ancillary services. One way managed care companies limit pharmacy costs is by the use of formularies. Managed Care Organization (MCO) formularies may dictate whether or not the physicians are restricted from prescribing your products. It is important to know: 1.) The type of formulary in place. 2.) How your products fit into the formulary. 3.) Whether or not the MCO enforces its formulary. 4.) If your physicians and other prescribers follow/pay attention to the formulary. Your National and Regional Account Manager works with MCOs to provide product information that can be presented to P & T committees, usually by pharmacy directors within the MCO. If you discover that one or more of your physicians are on a P & T committee of an MCO, forward the information to your area manager and/or the National or Regional Account Manager responsible for the MCO. These individuals can be the key to getting your products on a health plan�s formulary. The move to managed healthcare has put drug therapy in a state of continuous change. On one hand, drug prices are increasing, placing pressure on pharmacy budgets. On the other hand, more effective drugs offer opportunities to reduce other healthcare costs, such as hospital stays, surgical procedures, lab costs, additional testing, and other ancillary services. One way managed care companies limit pharmacy costs is by the use of formularies. Managed Care Organization (MCO) formularies may dictate whether or not the physicians are restricted from prescribing your products. It is important to know: 1.) The type of formulary in place. 2.) How your products fit into the formulary. 3.) Whether or not the MCO enforces its formulary. 4.) If your physicians and other prescribers follow/pay attention to the formulary. Your National and Regional Account Manager works with MCOs to provide product information that can be presented to P & T committees, usually by pharmacy directors within the MCO. If you discover that one or more of your physicians are on a P & T committee of an MCO, forward the information to your area manager and/or the National or Regional Account Manager responsible for the MCO. These individuals can be the key to getting your products on a health plan�s formulary.

13. Managed care has lead to the development of a more complex customer type than that of previous years. In addition, your previous sales responsibility has been focused primarily on the clinical attributes (features and benefits) of your products. Your role as an Galderma Sales Representative must change to meet the needs of today�s healthcare business environment. (Click to next slide) Managed care has lead to the development of a more complex customer type than that of previous years. In addition, your previous sales responsibility has been focused primarily on the clinical attributes (features and benefits) of your products. Your role as an Galderma Sales Representative must change to meet the needs of today�s healthcare business environment. (Click to next slide)

15. Delivering the Economic Message Advantaged Neutral Disadvantaged Basically, there are three positions your products can attain on managed care formularies as compared to other competitive products, Advantaged, Neutral, and Disadvantaged. As you will see this is not really rocket science however this is a very important first step to delivering an economic message. Basically, there are three positions your products can attain on managed care formularies as compared to other competitive products, Advantaged, Neutral, and Disadvantaged. As you will see this is not really rocket science however this is a very important first step to delivering an economic message.

16. Developing common understanding around economic selling strategies will benefit Galderma in that it will help to coordinate a team approach with clear direction and action. No longer will there be a negative selling situation but we will know what needs to be accomplished based on a market determined strategy. The first step to developing an economic message is to understand the formulary position of your products. Let�s see how this positioning would be used to define a Pull or Push through strategy.Developing common understanding around economic selling strategies will benefit Galderma in that it will help to coordinate a team approach with clear direction and action. No longer will there be a negative selling situation but we will know what needs to be accomplished based on a market determined strategy. The first step to developing an economic message is to understand the formulary position of your products. Let�s see how this positioning would be used to define a Pull or Push through strategy.

17. Under managed care, the focus of your promotional concerns has now shifted to both the clinical and the economic factors impacting your territory physicians� practices. The economic factors can be addressed with the physician and practice by developing and delivering an Economic selling message in addition to a Clinical selling message. This message is comprised of two factors, the formulary placement of a Galderma product and the needs or goals of the physician / practice. But before we investigate the development of this message let�s be very clear what is the first and primary objective in our districts and territories. Under managed care, the focus of your promotional concerns has now shifted to both the clinical and the economic factors impacting your territory physicians� practices. The economic factors can be addressed with the physician and practice by developing and delivering an Economic selling message in addition to a Clinical selling message. This message is comprised of two factors, the formulary placement of a Galderma product and the needs or goals of the physician / practice. But before we investigate the development of this message let�s be very clear what is the first and primary objective in our districts and territories.

18. Type of formulary in place. Product status on the formulary, advantaged / disadvantaged? Push or Pull through strategy? Whether or not the Managed Care Organization (MCO) enforces the formulary. What methods are used to enforce the formulary? How closely do prescribers follow the formulary? Delivering the Economic Message The move to managed healthcare has put drug therapy in a state of continuous change. On one hand, drug prices are increasing, placing pressure on pharmacy budgets. On the other hand, more effective drugs offer opportunities to reduce other healthcare costs, such as hospital stays, surgical procedures, lab costs, additional testing, and other ancillary services. One way managed care companies limit pharmacy costs is by the use of formularies. Managed Care Organization (MCO) formularies may dictate whether or not the physicians are restricted from prescribing your products. It is important to know: 1.) The type of formulary in place. 2.) How your products fit into the formulary. 3.) Whether or not the MCO enforces its formulary. 4.) If your physicians and other prescribers follow/pay attention to the formulary. Your National and Regional Account Manager works with MCOs to provide product information that can be presented to P & T committees, usually by pharmacy directors within the MCO. If you discover that one or more of your physicians are on a P & T committee of an MCO, forward the information to your area manager and/or the National or Regional Account Manager responsible for the MCO. These individuals can be the key to getting your products on a health plan�s formulary. The move to managed healthcare has put drug therapy in a state of continuous change. On one hand, drug prices are increasing, placing pressure on pharmacy budgets. On the other hand, more effective drugs offer opportunities to reduce other healthcare costs, such as hospital stays, surgical procedures, lab costs, additional testing, and other ancillary services. One way managed care companies limit pharmacy costs is by the use of formularies. Managed Care Organization (MCO) formularies may dictate whether or not the physicians are restricted from prescribing your products. It is important to know: 1.) The type of formulary in place. 2.) How your products fit into the formulary. 3.) Whether or not the MCO enforces its formulary. 4.) If your physicians and other prescribers follow/pay attention to the formulary. Your National and Regional Account Manager works with MCOs to provide product information that can be presented to P & T committees, usually by pharmacy directors within the MCO. If you discover that one or more of your physicians are on a P & T committee of an MCO, forward the information to your area manager and/or the National or Regional Account Manager responsible for the MCO. These individuals can be the key to getting your products on a health plan�s formulary.

19. Under managed care, the focus of your promotional concerns has now shifted to both the clinical and the economic factors impacting your territory physicians� practices. Under managed care, the focus of your promotional concerns has now shifted to both the clinical and the economic factors impacting your territory physicians� practices.

20. Introduction Drugs account for 8-12% of healthcare expenditures and 85-90% of outcomes. The marketplace is demanding cost containment measures consistent with quality of care. MCO�s must foster safe, appropriate, effective, economical use of drugs. A properly designed formulary is a basic piece of Drug Benefit Management & DSM.

21. Identifying Issues Manufacturer Gain or Maintain Market Share Gain Access to Physicians Gain Access to Formularies Pharmacy Benefit Manager Substantiate Therapeutic Efficacy Determine and Manage Appropriate Utilization Manage Costs- Drugs Vs Total Costs

22. Identifying Issues (Cont�) Managed Care Organization Manage Outcomes Minimize Per Member per Month Costs Maintain Service Maintain Membership

23. Defining Goals Manufacturer Improve and Hold Market Share Pharmacy Benefit Management Company Maximize Cost Benefit Managed Care Organization Maintain Competitive Advantage

24. Developing Rebate Contracts Definition and Administration Types

25. Definitions and Administration Retrospective Discounts Paid on Access or Performance Shared with Clients

26. Types Access Listed in Formulary Fixed Price per Unit Performance Payment Based on Market Share Levels Payment Based on ability to Move Market

27. Formulary Development Formulary Development Pre Approval Activities Post-Approval Activities Types

28. Formulary Development Pre-Approval Activities Key Decision Makers Information Review Decision Making Criteria Decision Process

29. Pre-Approval Activities Key Decision Makers Therapeutic Assessment Committee Pharmacy and Therapeutics Committee Value Assessment Committee Plan Sub-Committee Groups Formulary Management Commitee

30. Pre-Approval Activities Information / Data Review Clinical Trial Data Literature Review

31. Pre-Approval Activities Decision Making Criteria Product Status within therapy class Indications (new or same as others in class) Product characteristics Dosage Form, Route of Administration, Dosage Regimen Therapeutic Advantage/Efficacy Safety Cost/Benefit/Value

32. Pre-Approval Activities Decision Making Process Internal Review Recommend to P&T Committee Accept and/or Reject

34. Post Approval Activity Co-Marketing/ Co-Promotional Strategies Formulary Compliance Provider Education Measuring Results

35. Post Approval Activity Co-Marketing/Co-Promotional Strategies Letters to Primary care Physicians Physician Intervention Programs Phone Interactions Face to Face Interactions One on One Group

36. Textbook Types of Formularies An open formulary is a comprehensive list of 1,000 to 3,000 drugs with few restrictions. A closed formulary is a limited list of 300 to 1,000 drugs. It is a more objective approach to drug therapy. This type of formulary increases compliance and market share for greater economic advantages.

37. Formulary variations... 3-tier, open open with incentive paid to physicians based on formulary compliance. closed list of brand name drugs with all generics allowed. Open or closed, but with NDC blocks applied to a small list of non-preferred drugs. Special Medicare, Medicaid,Worker�s Comp, Hospice, Mental Health formularies

38. Formulary Development... Clinical services and products are designed to meet the needs of individual clients. Drug Use Evaluation Therapeutic Class Reviews Medical and Pharmacy Review Boards P&T Recommendations Manufacturer Contracting

39. Formulary Developement... Determine product positioning, formulary structure, and long-term plan to enhance formulary compliance and market share rewards. Implementation

40. Costs to Implement a Formulary Clinical reviews Contracting Updating of systems and various databases Printing and distribution costs Pharmacist incentives at the retail level.

41. Communication Links Create, print, and distribute a formulary document for physician or pharmacist reference. Incorporate prescription processing changes that will communicate and enforce the formulary at the pharmacy. Provide assistance to clients in educating their plan members.

42. Communication Links: The Formulary Document The document must be designed, typed, reviewed, and incorporated into desktop publishing software. The document is printed and distributed to physicians and pharmacies. Updates are communicated through a newsletter to providers. Internet

43. Communications Link: Systems Formularies are defined and built using data elements from First Data Bank/Medi-Span�s drug classification system. It takes approximately 4 weeks to research and construct. Main formulary file is created; sub-files are created for individual group differences. Copays, Caps, Quantity limits, etc., are incorporated.

49. Communications Link: Systems Special pharmacy messaging is created and attached to specific NDCs to identify preferred and non-preferred products. QA testing is performed and file printouts are reviewed to assure accuracy. Ongoing updates to files require routine review by clinical staff. for completeness and accuracy.

50. Communications Link: Plan Members Identify patients and physicians for notification of non-formulary items. Distribution of pocket formularies. Educational materials for therapeutic interchange. Messaging via the pharmacy on-line system. Website programs with member access

51. Continuous Improvement Periodic reviews of therapeutic classes Assess necessary additions and deletions. Review of medical literature: unusual or unexpected drug expenditures or increased adverse reactions among members. New drugs on the market. Review formulary as membership changes. Review communication links.

52. The Future of Formularies Physician connectivity at point of care. Formularies will become a management tool using medical claims data along with pharmacy claims data to develop outcome measurements and the most appropriate, cost-effective pharmacotherapy.

53. The Future of Formularies The formulary will become patient- and diagnosis-driven with value given to a drug based on the outcome it creates. ?????

54. Follow the MoneyDrug Management for Hire Administrative Fees from Clients Administrative Fees from Pharma Rebates Non-rebate funds from pharma Educational Grants

55. Administrative Fees From Clients Network Pricing AWP-13% + $2.25 (open) AWP-15% + $2.00 (closed) Pharmacy Contract AWP-14% + $2.00 (open) AWP-16% + $1.75 (closed)

56. Administrative Fee Can be Free to $�s per Rx Depends of Clients size and volume Depends on Services provided Therapeutic interchange Mail order Formulary management Clinical programs Disease Management Compliance Call Center Retro DUR Depends on Rebate Share

57. Rebates Who negotiates with with Pharma? Can be shared with Client PBM Share Client Share 100% Disclosure Fact Fiction Paid by PBM to Client Received by PBM from Pharma

58. Rebate Administrative Fee Fee charged to Pharma For special reports For contacting patients For contacting physicians Ranges in amount 1% to 3% typical Paid to PBM Can share with client Most keep 100%

59. Non-Rebate Charges Paid by Pharma to PBMs for Special Projects Compliance Programs Disease Management Programs Adherence Programs Specialty Distribution Special reports Physician contact reports Competitive product reports

60. Educational Grants Paid to PBMs for Educational Programs CME for MD�s CE for Pharmacists Health Fair Participation Educational Programs for Employees Leadership Management

62. The Pharmacist Consultant

63. The Pharmacist ConsultantGoals and Objectives Learn what you need to be a consultant Learn what opportunities are available Learn how to make it happen Discuss what the future will hold for consulting pharmacists.

64. What do you need Degree BS Pharm Pharm.D MBA Experience PBM HMO Pharma

65. What are the Opportunities Training and Education Formulary Mngmt Mail Order Disease Mngmt Therapy Interventions Rebate Contracting HIPAA rules New Drug Review Biotech and Specialty Rx�s Clinical presentations Consulting Services Drug Contracting Disease Mngmt Rx Utilization Patient communications Physician communications Rx Claims audits Rx Benefit Design Strategies Clinical Program Strategies PBM selection assistance

66. How do You Make it Happen Understand the Healthcare Environment What are the needs HMO�s PBM�s Pharma Marketing Yourself Use you network Know your value Explain your value

67. Know you client Needs Wants How you can bring value to them Leave room for tomorrow Watch for Opportunities Happen when you least expect Be prepared How do You Make it Happen

68. What Does the Future Hold Carve out�s continue to happen Specialty Pharmacy Biotech High Cost meds The Internet Education and Training on all the above The sky is the limit!

69. Drug Cost Managementand Pharmacy Consulting Possibilities Michael E Thomas Pharm.D President Thomas Rx Consulting