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Lee Vermeulen, R.Ph., M.S.

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Percent Growth in Prescription Drug Spending, 1990-2003 ... Both in public policy (Medicare prescription drug benefit) and in private sector, ... – PowerPoint PPT presentation

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Title: Lee Vermeulen, R.Ph., M.S.


1
Forecasting and ManagingMedication Expenditures
  • Lee Vermeulen, R.Ph., M.S.
  • Center for Drug Policy
  • University of Wisconsin Hospital and Clinics

2
Overview
  • Healthcare trends and forecasts
  • Hospital trends and forecasts
  • Medication expenditure trends, drivers and
    forecasts
  • Discuss drivers of pharmaceutical expense and
    inflation
  • The 2005 pharmaceutical expenditures forecast
  • Recommended model for pharmaceutical budgeting
    and financial management

3
Healthcare Trends and Forecasts
4
US Health Expenditures(US, Billions)
Source CMS Heffler et al, Health Affairs, 2005.
5
Percent Growth in US Healthcare Spending,
1990-2003
Source Centers for Medicare Medicaid Services,
Office of the Actuary
6
Forecast of Healthcare Spending
  • Continued decline in growth of healthcare
    spending
  • Public insurance expected to pay for almost half
    of the national healthcare expenditures by 2014
  • Hospital expenditures are expected to continue
    growing
  • Prescription drug spending expected to continue
    rapid growth

7
Hospital Trends and Forecasts
8
Percent Growth in US Hospital Spending, 1990-2003
Source Centers for Medicare Medicaid Services,
Office of the Actuary
9
Trends in Hospital Utilization
Inpatient Days
Inpatient Admissions
Millions of Days
Millions of Admissions
Source AHA Annual Survey
10
Medication Expenditure Trends, Drivers and
Forecasts
11
Percent Growth in Prescription Drug Spending,
1990-2003
Source Centers for Medicare Medicaid Services,
Office of the Actuary
12
Percent Growth in Hospital Drug Spending,
2000-2004
Hoffman JM, Shah ND, Vermeulen LC, et al.
Forecasting future drug expenditures 2005. Am J
Health-Syst Pharm. In press (IMSHealth data)
13
Percent Growth in Clinic Spending, 2000-2004
2004 Data based on first 6 months of 2004
Hoffman JM, Shah ND, Vermeulen LC, et al.
Forecasting future drug expenditures 2005. Am J
Health-Syst Pharm. In press (IMSHealth data)
14
Health System Pharmacy Expenditures, 2000-2010
Percent of Hospital Expenditures
Source Institutional Provider Systems, June 2004
15
Distribution of Hospital Drug Expenditures by
Therapeutic Class, 2004
Source IMS Health based on 6-month data
16
Trends in Drug Expenditure Growth by Drug
17
Factors Driving Pharmaceutical Costs
  • Price
  • Increasing cost of existing agents
  • Utilization
  • Largest driver of inflation
  • As life expectancy increases, total treatment
    costs follow
  • New innovation in pharmaceutical technology
  • New technology preferred despite availability of
    older, proven technology
  • Marginal enhancements, providing significant
    benefit to few, at hugely increased cost

18
Price Inflation
  • Pharmaceutical manufacturers raising prices of
    existing medications
  • Previously a smaller component of overall
    inflation, increasingly a concern
  • Factors driving price inflation currently
  • Shortages
  • Diminished innovation
  • Regulatory changes on pricing limits
  • Manufacturer consolidation

19
Utilization Changes
  • Increasing per capita use of medications
  • Consumer driven factors
  • Increasing age of population more chronic
    illness
  • Increasing patient demand DTC advertising
  • Changes in third-party coverage
  • Hospital utilization factors
  • Patient acuity mix
  • Prescriber habits

20
New Technology
  • Technology advancement, increasing intensity of
    medication therapy
  • Use of very expensive medications for disorders
    previously treated with less expensive
    medications
  • Development of medications with marginal efficacy
    or safety advantages
  • Despite significant patent expirations, limited
    use of generics and older agents

21
Generic-Limiting Phenomenon
  • Me too agents and crowded drug classes
  • Stereoisomer strategy
  • Legal manipulations and lawsuits
  • Direct-to-consumer advertising
  • Sample medications
  • Perverse policy response by PBMs and managed care

22
Technology Impact on Health Care
  • Technology as a driver of cost
  • Imperfect measurement (residual of other
    measurable drivers vs technology specific)
  • Best estimates, approx. 50 of HC inflation is
    technology driven (Cutler, 2000 Chernew, 1998)
  • With demographics, the top driver of HC inflation
    in the US
  • Technology as a driver of outcome (quality)
  • Return-on-investment potentially substantial
  • Value equation clouded by gross inefficiency and
    confusion in understanding technology adoption
  • Marginal vs substantial advancement
  • Access to technology
  • Both in public policy (Medicare prescription drug
    benefit) and in private sector, insatiable
    consumer demand for technology
  • Increasing out-of-pocket response rationing!

23
Diffusion of Innovation

New behaviors or technologies are adopted in
stages depicted by an S shaped curve.
24
Diffusion of New Drugs Infliximab (Remicade,
Centocor)
Source IMS Health Retail/Provider Perspective
25
Diffusion of New Drugs Drotrecogin Alfa
(Xigris, Lilly)
Approved November 2001
Source IMS Health Retail/Provider Perspective
26
Diffusion of New Drugs Nesiritide
(Natrecor, Scios)
Approved August 2001
Source IMS Health Retail/Provider Perspective
27
Colorectal Cancer Therapies
28
Phenomenon Affecting Inflationary Growth in
Medications
18.3
17.0
16.0
14.2
13.9
11.9
11.1
9.7
10.1
Source IMS HEALTH
29
Guide to Successful Financial Planning
  • Step-wise, systematic approach to financial plan
    (budget) development
  • Detailed description to appear in January 15,
    2005 AJHP Projecting Future Drug Expenditures
    2005
  • Acknowledgement to Nilay Shah and James Hoffman
  • Nine-step process

30
Step 1 Obtain Data (1)
  • Review and understand financial statements and
    all other relevant data
  • Review previous full fiscal year, current year to
    date and annualized current fiscal year
  • Purchasing data vs utilization data
  • Distinguish between issues related to price
    issues related to volume of use
  • Contract price forecast from various sources

31
Step 1 Obtain Data (2)
  • Utilization forecasts
  • Interviews with clinical leadership
  • Discussions with other key department heads
  • Administration forecasts
  • New programs
  • Strategic expansion of existing programs
  • Annual forecast from AJHP
  • Patent expirations
  • New elements
  • Overall forecast picture

32
Step 2 Review Past Performance
  • Last full fiscal year vs budget
  • Annualized current fiscal year vs current budget
  • Current fiscal year vs actual last fiscal year
  • Performance on current cost-containment
    initiatives
  • Identify causes of variance

33
Distribution of Inpatient Drug Expenditures
34
Inpatient Drug Expenditures by Clinical Service
35
Inpatient Drug Expenditures by DRG
36
Case Mix and Drug Expenditures
DRG Weights and Drug Specific DRG Weights are
Standardized to a highest weigh100
37
Step 3 Build High-Priority Budget
  • Identify products with highest total cost
  • Top 60 to 70 PRODUCTS (not line-items) often
    represent 80-90 of total budget
  • Focus detailed planning efforts on that list
  • Plot historical spending patterns
  • Identify utilization by prescriber or service
  • Cost trend by class and agent from AJHP paper
  • Identify impact of price, expected utilization
    changes, potential brand to generic conversion
  • Develop product specific budget
  • Watch for diffusion of new agents
  • Consider adding uncertainty factor, but document
    carefully

38
Potential Future Patent Expirations
  • Ceftriaxone (Rocephin, Roche), 2005
  • Citalopram (Celexa, Forest), 2005
  • Ondansetron (Zofran, GSK), 2005
  • Transdermal fentanyl (Duragesic, Janssen), 2005
  • Azithromycin (Zithromax, Pfizer), 2006
  • Pravastatin (Pravachol, BMS), 2006
  • Simvastatin (Zocor, Merck), 2006

39
Step 4 Build New Product Budget
  • Pipeline information from various sources
  • AJHP forecast
  • GPO
  • Other sources
  • Identify those that will affect your facility
  • Identify price cautiously
  • Volume estimate
  • Estimate of release date

40
Step 5 Build Non-Formulary Budget
  • Separate out non-formulary drug use and budget
    separately
  • Key agents as line items remainder as fixed cost
  • Critical for financial performance monitoring
  • Report on performance vs budget to PT
  • Track by prescriber for intervention

41
Step 6 Build Low-Priority Budget
  • Remainder of products not included in
    high-priority budget
  • Residual budget
  • Appropriate to apply standard inflationary figure
    BUT apply on a volume-specific basis (cost per
    discharge)
  • Use estimates of contract price available from
    various sources, particularly GPO (often only
    2-3)

42
Step 7 Establish Cost Containment Plan
  • Calculate a preliminary total budget and compare
    vs expected target
  • Identify variance
  • Identify cost containment opportunities
    (generally in high-priority budget) to make up
    variance
  • Use benchmarks with caution (compass vs
    thermometer)
  • Document well
  • Target amount
  • Expected tactics to be used to achieve target
  • Time frame for project
  • Cost reduction vs inflation trend moderation

43
UWHC Drug Cost Savings TargetsFY05 (total IP
drug cost 16 million)
44
Step 8 Finalize Budget
  • Total budget sum of
  • High-priority product
  • New elements
  • Non-formulary budget
  • Low-priority budget
  • Less value of cost containment initiatives
  • Reality check
  • Respond to requests for additional cuts after
    submission

45
2005 Forecast Inflation by Setting
  • Use with caution not a multiplier
  • Clinics include prescriber offices and hospital
    outpatient clinics where meds are administered

46
UWHC vs. US Drug Expenditure Trends 2000-2006
1 Novo-Seven Patient 1.5
million
Last Revised 3/16/05
Source Hoffman JM, Shah ND, Vermeulen LC et
al. Projecting Future Drug Expenditures -2005. Am
J Health-Syst Pharm. 2005 62149-167
47
UWHC Drug Cost Per Admission 2000-2006
1 Novo-Seven Patient 1.5
million
48
Step 9 Vigilance
  • Tracking of performance
  • Variance identification and resolution
  • Focus attention on high-priority budget at
    line-item level
  • Overall picture of financial performance
  • Cost per day vs cost per discharge
  • Watch volume of cost-driving service elements
  • Continuous process makes subsequent budgeting
    efforts easier!

49
Data Sources
  • Data Mart if hospital provides
  • Source of utilization data by service, MD, unit,
    dx, etc. at patient encounter level
  • Links between drug data and all other data
  • Purchase data from GPO, wholesaler, etc.
  • Watch direct purchases
  • Populates general ledger
  • Benchmarking services from GPO, commercial
    providers
  • Other sources
  • Cereplex
  • Patient, employee satisfaction surveys (Press
    Gayney)

50
Questions??
51
Appendix
52
Emerging Drug Therapies (1)
  • In 2003, FDA approved 21 New Molecular Entities
    (NMEs) a slight increase from the 17 approved in
    2002
  • Average approval time for all NMEs was 16.1
    months (16 months in 2002, 15.2 months in 2001)
  • Ximelagatran (Exanta, AstraZeneca)
  • Oral direct thrombin inhibitor
  • Recommendation against approval by FDA Advisory
    Panel, September 2004 application formally
    denied, October 2004
  • Risks of liver, cardiovascular toxicity
  • Future uncertain

53
Emerging Drug Therapies (2)
  • Alvimopan (Entereg, Adolor/GlaxoSmithKline)
  • Opioid antagonist with specificity for the GI
    tract
  • Indication treatment of postoperative ileus
  • Approval expected in early 2005
  • Palifermin (rHuKGF, Amgen)
  • Recombinant keratinocyte growth factor
  • Indication treatment of oral mucositis in
    patients undergoing peripheral blood cell
    transplants
  • Approved early 2005

54
Other Emerging Therapies (1)
55
Other Emerging Therapies (2)
56
Other Emerging Therapies (2)
57
Other Emerging Therapies (2)
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