insights to managed care contracting

11.12.12

Managed Care Strategy

Contracting

Managed Markets contracting

Manufacturers and Payers Share the desire to provide value

The objective is to provide optimal access to drugs that

meet a patient’s clinical needs and are cost effective

Managed Markets contracting

Manufacturer specific objectives

● Limit barriers from commercial and government payers to insure

patient access to appropriate care

● Establish Company as a respected and valuable source for

Payers in the treatment of Disease State

● Support with

– Proper place of therapy

– Cost-effective treatment

– Distribution management

Managed Markets contracting

Manufacturer Considerations when developing Contracting

Strategy

● What is your tier target? Tier 2, 3, or 4?

● Short term and long term impact of contracting (effect discounts

will have on best price, net price, etc.)

● Current Market dynamics

– New Class?

– Where are your competitors on formularies, what they are doing currently?

● Other considerations

– Other contracts and discounts (Specialty Pharmacy, wholesaler, GPO,

Specialty Distributor) have pricing implications

– Potential step edits, prior authorizations

Formulary tiers

Commercial

● Tier 3 (Non-Preferred Brand) access– will require no or low

discounts/rebates depending on position in therapeutic class

– First in therapeutic class with significant clinical advantage = little or no

discount in commercial payer market

– Third in class “me-too” = more aggressive discount for inclusion

● Tier 2 (Preferred Brand) access – will require higher

discounts/rebates

– First in therapeutic class with significant clinical advantage = little discount in

commercial payer market

– Third in class “me-too” = more aggressive discount and will likely require “1 of

1”, “1 of 2” or “1 of 3” rebate tiers (“1 of 1” = highest discount and unlikely to

achieve until you have significant market share…making it a “chicken or egg”

scenario

● Tier 4 (Specialty) if plan has a 4 tier formulary can have similar

attributes and considerations to tier 2 depending on plan.

– Tier 4 has higher co-pays and most have co-insurance

Managed Markets contracting

● Determine government contracting strategies

– Is there a significant potential patient population in Medicare Part D, Medicaid

and other Government (VA, DOD, PHS, FSS)?

– What is your target coverage? Tier 2, 3, 4, 5?

Formulary tiers

Government

● Tier 3 for 3 and 4 tier plans (Non-Preferred Brand) access – will

require lower discounts/rebates depending on position in

therapeutic class

– First in therapeutic class with significant clinical advantage = little or no

discount in commercial payer market

– Third in class “me-too” = aggressive discount

● Tier 2 for 3 and 4 tier plans (Preferred Brand) access – will

require higher discounts/rebates

● Tier 4 or 5(Specialty) if plan has a 4 or 5 tier formulary can have

similar attributes and considerations to tier 2 depending on plan.

– Tier 4/5 has higher co-pays and most have co-insurance

Medicare tier structure

Payers with a

3 Tier Benefit

(5)

Payers with a

4 Tier Benefit

(12)

Payers with a

5 Tier Benefit

(6)

Copay

Ranges

Tier 1 Generic Generic Preferred Generic $0 - $12

Tier 2 Preferred Brand Preferred BrandNon-Preferred

Generic

$5 - $43

16% & 20%

Tier 3Non-preferred

Brand

Non-preferred

BrandPreferred Brand

$24 - $98

18% - 50%

Tier 4Specialty or

Injectable

Non-Preferred

Brand

$70 - $91

25% - 75%

Tier 5Specialty or

Injectable25% - 33%

Notes: 14 National and 9 Regional Payers

• National Payers – 50% = 4 Tier; 35% = 5 Tier

• 52% have 4 Tier Structure, most have multiple formularies

• Tier 3 Copay – majority are $60 - $83; Tier 4 copays are 25 - 35%

Need a source for this info

Managed Markets contracting

For a launch of a new product, perform a Payer Assessment to

determine the Key Targeted National Payers ranked by priority

(typically number of lives) and the alignment of the regional

payer sales team in order to effectively reach regional plans

Payer D

Payer E

Payer GPayer S

Payer H

Payer F

Payer N

Payer J

Payer M

Payer O

0

2

4

6

8

10

12

20

40+

0 1 2 3 4 5

Payer I

Formulary/Contract Enforcement

Ability to Influence Market

HM

O L

ive

s (

mil

lio

ns

)

We

ak

Str

on

g

Weak Strong

“Size Matters” “Must Have’s”

“Keep the

Door Open”

“Make or

Break a

Region”

Payer L

Payer A

Payer P

Payer BPayer C

Payer Q

Payer R

Payer K

Example: payer assessment

Contracting trends

Price Protection

contracts

Steeper discounts

for specialty

categories

Rise in

contracting for

tier-3 to avoid

exclusion

ACA Implications

Payers

● Increased cost for mandatory

requirements

● Increased competition

● Ability to compete in

exchanges

Manufacturers

● Plans to seek greater

discounts

● Plans likely to increase use

of limited or closed

formularies

● Increased Step edits

(especially through generics)

Finally

● Contracting for access only provides you the “Ticket” to play in

the game

● Well planned Pull-Through strategies are imperative for Brand

Share Growth, which will dictate payers’ views on the Drug, which

will drive future contracting considerations and relationships