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Factoring Reimbursement Into the Deal

Factoring Reimbursement Into the Deal. May 2, 2005. Agenda. Tag overview Who pays for health care What is reimbursement How reimbursement affects deal’s value Developments and trends How Medicare is changing biotech market Building reimbursement analysis into deal process.

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Factoring Reimbursement Into the Deal

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  1. Factoring Reimbursement Into the Deal May 2, 2005

  2. Agenda • Tag overview • Who pays for health care • What is reimbursement • How reimbursement affects deal’s value • Developments and trends • How Medicare is changing biotech market • Building reimbursement analysis into deal process

  3. U.S. reimbursement planning and problem solving since 1998 • Former owner S&FA; Exec VP PAREXEL • Payer research; strategic planning • Reimbursement forecasting • Competitive analysis • Advocacy with major payers

  4. Tag Client Mix

  5. Who Pays for Health Care

  6. Payment Sources forPhysician and Clinical Services (Billions) _____________________________ Source: Health Affairs – Volume 23, Number 1; January 2004

  7. Payment Sources for Prescription Drugs (Billions) _____________________________ Source: Health Affairs – Volume 23, Number 1; January 2004

  8. Reimbursement andHow It Affects Deal’s Value

  9. Coverage Is the product or related service an insured benefit? Under what circumstances? Payment How much will the insurer reimburse? To whom? Know Whether “Reimbursement” Means Coverage or Payment

  10. Tech category (e.g. Rx, OTC, DME, supply, diagnostic, screen) Payer Tx setting Dosage form Admin method Labeling (on/off) Diagnosis Safety & efficacy Product cost (price) Related costs (e.g. lab) Uniqueness Alternative cost Cost offsets Prescribing Dr. Abuse potential Political/social Evidence-based outcomes Many Factors Affect Reimbursement

  11. Reimbursement Winners • Norplant – Medicaid; not an OC • Lupron depot – Clinician administered • EPO – Cover as sub Q or we do trials as IV only • Drug eluting stents – Showed payers cost impact, good and bad

  12. … And Losers • tPA – Great science, no payment • Lupron daily injection – No coverage for self-admin • Gliadel wafers – Part of DRG, no payment • Rocephin (otitis media) – Pediatricians were capitated

  13. Take Away • Great medicine (tPA) will trump poor reimbursement … • But not every good technology is great medicine

  14. Case Study: Same Technology, Different Reimbursement • QLT’s Photofrin (porfimer sodium) photodynamic therapy • Sanofi-Winthrop: esophageal and lung cancer • Novartis: macular degeneration

  15. Poor Return for Sanofi-Winthrop • Hospital O/P procedure in era of poor hospital reimbursement • Endoscope/bronchoscope procedures under-reimbursed based on simple tech • 2 year wait for drug reimbursement code • Because of reimbursement, procedure viewed as last resort despite good clinical outcomes

  16. Winner For Novartis • Decent reimbursement for physician office single eye procedure • Strategy developed to deal with subpar reimbursement of 2nd eye procedure • Good drug reimbursement year 1 • No therapeutic alternative • Robust uptake, despite mediocre clinical results

  17. Developments and Trends

  18. Overview • Evolving payer objectives: Cost avoidance > Cost benefit > Value > Affordability • Utilization control via patient cost sharing • Federal government becoming largest customer for Rx drugs • Medicare evolving: payer > national heath policy and treatment manager

  19. Overview– cont’d • Elimination of provider profit on drugs • Power shift: Provider > Distributor • Coverage policy linked to outcomes data • Health econ and off-label requirements changing scope of registration studies

  20. Evolving Payer Objectives • 1980’s – Cost avoidance (managed care) • 1990’s – Cost benefit (outcomes analysis) • 2000’s – Value - money for quality (evidence based medicine) • On The Horizon – Affordability - Employers (declining profits) and governments (increasing deficits) not willing to absorb cost of every medical breakthrough

  21. Utilization Control ViaPatient Cost Sharing • “Get more beneficiary skin in the game and better utilization decisions will result” • Co-insurance (30%) for self-administered injectables • “Do I really need Enbrel for my psoriasis?” • $30 difference between 2nd and 3rd tier brands • “Maybe this other drug is just as good as Prozac.”

  22. Federal Government Will Control 40% of Rx Market(White Dots) 2002 Rx Payment Sources (bil) 2008 Projected (bil) Total = $162.4 Total = $260 ___________________________ Source: 2002 data: Health Affairs Volume 23, Number 1; January 2004. 2008 data: Tag & Associates estimate.

  23. Medicare Evolving to Be NationalTreatment Policy Manager • CMS process for evaluating new technology is rigorous and willing to embrace new costs • Implanted automatic defibrillators • Drug eluting stents • Adverse Medicare coverage policy decision is routinely followed by private payers

  24. Elimination of Provider Profit on Clinician-Administered Drugs • Medicare: AWP > ASP; CAP • Medicaid: National “reform” on the horizon

  25. Elimination of Provider Profit on Clinician-Administered Drugs– cont’d. • Private insurers: Feb 2005 interview of 15 medical/pharmacy directors (100 mil. lives) • “How will ASP influence your 2006 reimbursement?” • 4 will convert • 9 are studying • 2 no influence • 10/15 have direct supply program

  26. Power Shift to Distributors • CAP, direct supply shifts power to distributor • Ability to control access via formulary • Reflected in M&A activity • Medco/Accredo • AmeriSource Bergen/US BioServices • Caremark/Advance PCS

  27. Coverage Policy linked to Outcomes Data • New in 2005: Medicare expands coverage for selected technologies only if manufacturer agrees to data collection per CMS spec • Implanted defibrillators • Off label use of 4 new Ca drugs

  28. Coverage Policy Linked to Outcomes Data – cont’d. • Since late 1990s: Private tech evaluators become more influential each year • BC/BS TEC • Wilkerson Group • Globalization: UK NICE influence spreads across EU

  29. Broad Registration Studies Needed to Support Reimbursement • Traditional FDA strategy of “path of least resistance” still OK for FDA but no longer viable for payer success • Payers demanding health econ data for coverage • Clamping down on off label uses not supported by scientifically rigorous data

  30. How Medicare Is Changing the Biotech Market

  31. Clinician-Administered Drugs • Physician office and hospital O/P drugs are a pass-through expense rather than a profit center • First time ever formulary as a result of CAP • Some categories need only 1 drug

  32. Clinician-Administered Drugs – cont’d. • Coverage of new tech will require 1 of the following: • Lower price • Impressive safety or efficacy • Favorable outcomes data • Widespread socio-political demand

  33. Self-Administered Drugs • Part D establishes a de facto national baseline formulary of ~250 drugs • Beneficiaries have strong $ incentive to keep total Rx spending <$2,250 • Between $2,250 and $5,100, patient pays 100%

  34. Building Reimbursement Into Deal Process

  35. Make It Fundamental to the Go/No Go Decision • Immediately identify reimbursement issues • Can development decisions be used to fix problem or gain advantage? • If problem can’t be fixed, how will it impact the value of the technology?

  36. Take the Payers’ Perspective • Which payer has the biggest stake? • To whom are they beholden? • What/who influences their decision making? • How will technology impact them? • What happens if they say “No?”

  37. Do Not Rely On the Downstream Partner • Regardless of size and general competence, they are wrong as often as they are right • They will under-value the technology b/c of easily manageable reimbursement problem • To the person you are dealing with, it always looks “just like this other product we had 2 years ago in this other category ….”

  38. Teach Your Client • Most technology developers are unaware of reimbursement issues or have the wrong information • Help them understand why payers are as much a customer as clinicians

  39. Bring a Reimbursement POA to the Discussion Table • Show prospective partners that you • Expect them to invest at an appropriate level to conquer or capitalize on the reimbursement issues • Will not allow reimbursement to be a red herring that distracts from other more significant issues

  40. 1o1 North Columbus Street Alexandria, Virginia 22314 USA 703.683.5333 howard.tag@taghealthcare.com

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