CIA Annual Meeting LOOKING BACK…focused on the future

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Moderator: Ron Hoskins Speakers: Teresa Negrich Brian Kassner Louis Bernatchez Moderator: Ron Hoskins Speakers: Teresa Negrich Brian Kassner Louis Bernatchez

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Benefit Plan Costs are on the rise! *Includes all benefits Source: Mercer Human Resource Consulting 2005 Plan Design Issues - Drugs Year Percentage of Payroll* % % 2007 (projected)8-12%

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Reasons for Escalating Drug Costs: Aging Population Newer more expensive drugs Promotional spending by drug manufacturers Reduced Hospital Stays Provincial Plan Cutbacks Inflation Plan Design Issues - Drugs 68-70% of Healthcare Premium is Attributable to the Drug Benefit

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Type I “Specialty Pharmaceuticals” characterized as expensive medications that treat rare, chronic diseases inflicting a small proportion of people* Newer More Expensive Drugs Type II Newer more effective medications that cost more than the available alternative but are more therapeutic eg: Celebrex, Vioxx Source: Employee Benefit News Canada - January/February 2005

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Characterized by: Require special handling (refrigeration) Require special administration (injections) May be biologically engineered created in clean environments rather than assembly line of machines Annual cost may be significant These drugs became easier to create as a result of the mapping of the human genome in April 2003 Specialty Pharmaceuticals

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Not many traditional therapies are in the pipeline currently being developed This has prompted a shift among drug companies to specialty drugs Block buster drugs are being developed less frequently Drug manufacturers have shifted their focus to “specialty” drugs Several hundred specialty drugs are in the pipeline to be released in the next few years Increased Focus on Specialty Pharmaceuticals Source: Employee Benefit News Canada - January/February 2005

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs 2003 U.S. Pharmaceutical Market Total Market = $212.8B Specialty Pharmaceutical Market Multiple Sclerosis2.5 Hemophilia1.6 Hepatitis C1.6 Rheumatoid Arthritis1.5 Pulmonary Hypertension1.2 RSV Prophylaxis0.8 Growth Hormone.4 Infertility0.7 Oncology12.6 HIV/AIDS3.4 Renal3.2 Transplant1.5 Other1.3 Total32.3 Source: IMS Health, JP Morgan Industry Update “Specialty Pharmacy: Conduit of Growth for Biotechnology”, March 14, 2003, Bear Streams Health Care Distributions, “Specialty Pharmacy Services: Among the Fastest- Growing Areas of Health Care”, November 2003, Caremark Estimates. $179.9 Traditional $32.3 Specialty

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs How Are They Reacting? Plan sponsors have requested to exclude certain high cost drugs or therapeutic classes of drugs Plan sponsors are asking insurance carriers to prior authorize certain drugs to ensure that certain criteria is met before a drug is approved Some plan sponsors want the drug reviewed after a certain period once initially approved What Does This Mean for Plan Sponsors?

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs How Are They Reacting? Some plan sponsors are asking to develop their own formulary based on the advice of an independent third party Some plan sponsors are seeking contract wording to protect them ie: medically necessary versus reasonable and customary treatment Significant emphasis on co-ordinating with all/any provincial programs shift cost to public plan first

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs How Are They Reacting? Plan sponsors are asking insurance carriers to modify their contract wording to exclude coverage for drugs offered by a provincial program where the program is on a “payor of last resort” basis

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Considerations Discrimination concerns Are you discriminating against a particular illness solely based on cost? Respect Human Rights Act Why is my condition less important than yours? Want to avoid class action lawsuits Some drugs are used for multiple conditions excluding a particular DIN may affect several conditions Which type of client can exclude drug coverage? Insured ASO Excluding Certain Drugs or Classes of Drugs

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Considerations Negative employee perception What medical criteria do you follow? Does your contract wording support this process? Price impact is low, employee impact may be high Administrative challenges to implement What rationale will be followed for the selection of future prior authorized drugs? Administrative cost to prior authorize Prior Authorizing Certain Drugs

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Considerations Contract wording must support your adjudication process Significant administrative challenges to overcome Adjudication is costly to the carrier but worthwhile for plan sponsors in terms of claim dollars saved Risk that provincial governments may change their legislation to a payor of last resort position Co-Ordinating With Provincial Programs

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Dispense fee caps, managed drug formularies, reduced coinsurance, per prescription deductibles, drug maximums, generic substitution, cost shifting to employees Pooling protection against large individual claims Focus on Wellness Increased Focus on Other Cost Controls to Change Behavior

CIA Annual Meeting Session 5207: Plan Design Issues LOOKING BACK…focused on the future Plan Design Issues - Drugs Plan sponsors are seeking multiple solutions to help control their escalating drug costs. Are you up for the Challenge?