Factoring Reimbursement Into the Deal

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Factoring Reimbursement Into the Deal
May 2, 2005
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Agenda

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

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

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Tag Client Mix
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Who Pays for Health Care
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Payment Sources forPhysician and Clinical
Services
(Billions)
_____________________________ Source Health
Affairs Volume 23, Number 1 January 2004
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Payment Sources for Prescription Drugs
(Billions)
_____________________________ Source Health
Affairs Volume 23, Number 1 January 2004
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Reimbursement andHow It Affects Deals Value
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Know Whether Reimbursement Means Coverage or
Payment

• Coverage
• Is the product or related service an insured
  benefit?
• Under what circumstances?

• Payment
• How much will the insurer reimburse?
• To whom?

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Many Factors Affect Reimbursement

• 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

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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

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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

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Take Away

• Great medicine (tPA) will trump poor
  reimbursement
• But not every good technology is great medicine

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Case Study Same Technology, Different
Reimbursement

• QLTs Photofrin (porfimer sodium) photodynamic
  therapy
• Sanofi-Winthrop esophageal and lung cancer
• Novartis macular degeneration

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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

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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

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Developments and Trends
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Overview

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

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Overview contd

• Elimination of provider profit on drugs
• Power shift Provider gt Distributor
• Coverage policy linked to outcomes data
• Health econ and off-label requirements changing
  scope of registration studies

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Evolving Payer Objectives

• 1980s Cost avoidance (managed care)
• 1990s Cost benefit (outcomes analysis)
• 2000s 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

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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.

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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.
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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

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Elimination of Provider Profit on
Clinician-Administered Drugs

• Medicare AWP gt ASP CAP
• Medicaid National reform on the horizon

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Elimination of Provider Profit on
Clinician-Administered Drugs contd.

• 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

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Power Shift to Distributors

• CAP, direct supply shifts power to distributor
• Ability to control access via formulary
• Reflected in MA activity
• Medco/Accredo
• AmeriSource Bergen/US BioServices
• Caremark/Advance PCS

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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

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Coverage Policy Linked to Outcomes Data contd.

• Since late 1990s Private tech evaluators become
  more influential each year
• BC/BS TEC
• Wilkerson Group
• Globalization UK NICE influence spreads across
  EU

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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

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How Medicare Is Changing the Biotech Market
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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

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Clinician-Administered Drugs contd.

• Coverage of new tech will require 1 of the
  following
• Lower price
• Impressive safety or efficacy
• Favorable outcomes data
• Widespread socio-political demand

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Self-Administered Drugs

• Part D establishes a de facto national baseline
  formulary of 250 drugs
• Beneficiaries have strong incentive to keep
  total Rx spending lt2,250
• Between 2,250 and 5,100, patient pays 100

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Building Reimbursement Into Deal Process
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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 cant be fixed, how will it impact the
  value of the technology?

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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?

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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 .

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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

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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

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