The Solution: Specialty Benefit Management

1. Alan Wright, M.D., M.P.H. Senior Vice President and Chief Science Officer The Solution:Specialty Benefit Management

2. Agenda • Specialty drugs defined • Costs in perspective • Reasons for the focus • Specialty benefit management • Health plan experiences • What’s next for specialty?

3. Specialty Drugs:Defined • Specialty drugs are synthetic or recombinant versions of natural biologic substances, like cells, proteins made by cells (enzymes, or antibodies) or genetic material from cells (DNA or RNA) • Large complex molecules • Difficult to produce consistently • Costly Source: Mass High Tech, “Lower Costs Pub Generic Biologic Drugs on the Rise” Campbell Evans, P. March 2003

4. Biotech in nature Injectables Requires special monitoring, handling, and delivery Select orals Tracleer, Temodar, Thalomid, Gleevec, Iressa – exceeding $30K per year Expensive therapies Costs range from $10,000-$1 MM annually per patient Requires expert clinical services Limited to few physician specialists Specialty Drugs:Defined

5. Costs in Perspective:Specialty Drives One-third of Health Care Costs Average Annual Total Cost Per Case Key Distribution Channels 90% High Frequency Common Conditions Patients 9% Chronic Conditions $1,200 • Acute • Low-grade chronic • Worried well • Retail 1% Severe Unique Conditions $6,600 • Prevalent chronic (e.g. asthma, diabetes) • Procedures (e.g. surgery, childbirth) • Retail and mailorder 1/3 Of Total Costs • Rare chronic (e.g. rheumatoid arthritis, hemophilia, pulmonary hypertension, Gaucher disease, multiple sclerosis) • Multiple comorbidities $71,600 • Specialty pharmacy 1/3 Of Total Costs 1/3 Of Total Costs Source: Franklin Health, Chase H & Q

6. Specialty Therapy Examples Avg. Annual Chronic Condition Medications Cost (AWP) Growth Hormone Deficiency Nutropin, Humatrope, Genotropin, Norditropin $18,000 Hepatitis C Rebetron,Pegasys $24,000 Infertility Fertinex, Lupron, Gonal F $18,000-20,000 Multiple Sclerosis Betaseron, Avonex,Rebif, Copaxone $15,000 Oncology, BMT, HIV/AIDS Neupogen, Procrit, Neulasta, $5,000-20,000Aranesp,Fuzeon Hemophilia Recombinant Blood Factor Products $150,000 + Rheumatoid Arthritis Enbrel, Remicade, Humira $15,000 + Gaucher Disease Cerezyme/Ceredase $250,000 Pulmonary Hypertension Flolan, Tracleer, Remodulin $30,000 -100,000 Lysosomal Storage Disorders Fabrazyme, Aldurazyme $175,000 + Therapies in “red” approved in last 12 months. 071003

7. Specialty therapies will have a direct impact on drug spend High cost Drug expense Patients using specialty drugs are driving most of your medical spend Growing market 8% of spend today Moving to 20% Difficult to manage medical benefit spend Other issues Reason for the Focuson Specialty Drugs

8. Reason for the Focus Specialty is5th Largest, Fastest Growing Class Specialty pharmaceuticals 13% 19% 20% 36% 22% Source: AdvancePCS Claims Analysis

9. Reasons for the Focus Specialty Drugs Budget Impact Forecast Budget Impact Indication Phase Launch Year Exanta (ximelagatran) The tx & prevention of venous thromboembolism Phase III High 2004 Fuzeon (enfuvirtide) The tx of HIV infection Pending approval High 2003 Xolair (omalizumab) The tx of allergic asthma in adults Pending approval High 2003 pregabalin The tx of neuropathic pain, generalized anxiety disorder, and epilepsy Phase III High

10. Specialty Drug Costs Pharmacy Budget ~30% Medical Budget ~70% Electronic Paper Network Rates AWP + ??? • Incorrect billing and payment • Missed discounts • Multiple vendors, multiple rates • Confusing J and ICD9 codes Reasons for the Focus A Management Challenge

11. Specialty Benefit ManagementAddresses the Challenge • Provides an effective integrated solution, bridging both pharmacy and medical benefits • Improves patient health • Lowers costs • Reduces administrative workload

12. Specialty Benefit ManagementComponents

13. Increases appropriate drug utilization Improves compliance via utilization and education programs Lowers the potential for drug interactions with comprehensive screening Minimizes emergency room, doctor visits, hospital stays and other medical expenses Specialty Benefit Management Benefit: Improves Member Health

14. Specialty Benefit Management Benefit:Lowers Costs for Health Plans • State Blue Cross Blue Shield plan with 375 members using specialty drugs billed under medical benefit • Recommendations included: • Transitioning specialty drug spend from medical benefit to PBM-based claims processing and reporting • Moving from multiple suppliers to a single-source pharmacy service to lower cost • Reduced annual specialty drug spend from $8.9M to $7.4M Provided a savings of $1.5M or 17%

15. Rheumatoid Arthritis Ovary/breast Cancer Prostrate Cancer PMPM Lymphoma $2,334/claim $1,532/claim $724/claim $495/claim Specialty Benefit ManagementUncovering Specialty Costs: One Client’s Findings

16. Specialty Benefit ManagementExample of Lowering Costs • Large national health plan faced problems providing Flolan therapy to 75 pulmonary hypertension (PH) patients • Contracted on patient-by-patient basis and paid 25-50% more than necessary • Faced customer service issues • Struggled to identify patients for proper clinical support because of coding and procedure issues • Recommendations included establishing: • One national rate for specialty drug pricing • Standard claims processing and coding procedures • Case management support and patient education • Reduced annual specialty drug spend from $7.5M to $5.25M Provided savings of $2.25M or 30%

17. What’s Next for Specialty Drugs? Going Generic

18. Generics Seek To Break into Biotech as Patents Expire Source: ABN Amro, as cited in The Wall Street Journal, August 26, 2002