1. Paying for Pills
or Paying for Outcomes?
Joel White
May 22, 2018

2. About CAHC
Vision
A vibrant and competitive health system where every person has access to coverage they can afford
Mission
Enact policies that lower health costs and expands access to affordable coverage
Principles
Promote competitive, efficient and transparent markets
Expand choices for consumers and employers
Support value-based delivery and payment reforms
Support incentives for wellness and prevention
Promote entitlement reforms that improve long-term program stability, strong safety nets, patient choice, efficiency and value

3. CAHC’s Members Employer Payer/Provider Patient Biopharmaceutical
Tech/Broker
Views are my own. Members across issue campaigns.

4. Health Costs
What is driving health costs and premiums, and what impact is it having on affordability?

5. Quick Overview of Health Costs
US Spends more than $3.3. trillion on health care
About 1/3rd or almost $1 trillion of spending is waste
People are paying more and getting less
Prices are main culprit in driving health spending (costs)
Prices are directly correlated to market concentration
Even so, we have worse outcomes than most developed countries
Because medical costs are rising, premiums and costs are increasing. About 80 percent of the total are medical costs
$3 trillion spent on health care. $910 billion may be wasted on care that is unnecessary or even harmful to consumers.
U.S. prices for common tests and procedures typically are 3-5 times higher than in other developed countries.

6. Medical Cost Growth Relative to Wages
Since 2010, the medical cost trend (MCT) has grown by 73%
Since 2010, the MCT has grown four times faster than the average wage and five times faster than the Consumer Price Index
MCT is cost of prescription drug and health services paid by employer health plans.

7. Spending grew 0.6% net of off-invoice discounts and
rebates, as invoice-level growth slowed to 1.4%.
• Discounts, rebates and other price concessions on
brands reduced absolute invoice spending by an
estimated 28% to $324.4 billion.
• Spending growth slowed in 2017 due to lower price
increases for protected branded products, price
declines for generics and less growth from new
products despite a large increase in the number of new
product launches.
• On an invoice basis, spending has risen 60% since
2007, but rose just 36% on a net basis, with more than
two-thirds of net growth occurring since 2013.
• After the historically high growth in 2014 and 2015,
driven predominately by innovative new medicines,
2017 growth was slower on a net basis than all but two
of the last ten years.
Total market invoice spending on medicine was nearly
$130 billion higher than manufacturer net realized
revenues in 2017, a significant increase from 2013 when
the difference was only an estimated $74 billion.
• Manufacturer off-invoice discounts and rebates
to intermediaries, and other costs that reduce net
revenues, have all increased substantially over the past
five years.
• Of particular note, invoice-level spending for retail
pharmacy and mail-order delivery of medicines
declined by 0.3% in 2017, but declined by 2.1% on a
net basis.
• Non-retail medicine spending, including the
administration of drugs in outpatient and inpatient
settings, are a significant portion of the overall medicine
spend. It represents 35% of 2017 net revenues but only
30% on an invoice basis, as discounts and rebates are
larger in the retail pharmacy market.
• Total net spending increased by only 0.6% in 2017.
This is the slowest rate of growth since 2012 when the
largest period of concentrated patent expiries took
place, and is also much less than in 2014 and 2015.
• These estimates differ from the CMS prescription drug
spending in the National Health Expenditure Accounts,
which estimates net retail spending but also includes
intermediary margins and patient copays.

8. Real net per capita spending declined by 2.2% from
$896 per person in 2016 to $876 in 2017.
• Specialty share of net spending across institutional and
retail settings rose from 24.7% in 2008 to 46.5% in 2017.
• Specialty medicines are rapidly approaching half of
medicine spending, driven by innovation.
• Real net per capita spending for specialty medicines
peaked in 2014, when it grew by 22.4%.
• The largest proportion of new medicines launched
in the last five years have been specialty drugs, and
specialty share of spending has risen, while traditional
net medicine spending has declined by more than
$133 per person over the past decade.
• Across all settings, specialty medicines treat relatively
few patients, and have costs far higher per patient than
traditional medicines.
• In terms of prescription volume, specialty represents
just 1.9% of prescriptions and 37.4% of spending in the
same retail and mail-order distribution channels.
• In non-retail settings, specialty drugs represent 60% of
invoice spending and 2.3% of standard unit volumes.
• Spending on traditional medicines has declined
primarily due to patent expiries, and associated brand
losses of exclusivity, as well as a general shift in the
focus of innovation.

10. Value Based Payment Arrangements
How do we involve all participants – like pharmacists, prescribers and patients - in the value equation most effectively?
If most spending is on hospitals, how do we lower hospital costs through drug policy?
How do we ensure the right drug is delivered to the right patient at the right time with maximum clinical effect?
How do we pay for new, high cost products while guaranteeing access?
What are VBAs and what has been the federal take up?

11. What Are VBAs?
A value-based payment arrangement is an agreement in which the payment terms for medication(s) or other health care technologies are tied to agreed-upon clinical circumstances, patient outcomes, or adherence to a care plan
Prevention of hospital admission or readmission
Reduction in A1C
Completion of anti-biotic or Hep C medication

12. VBAs in Commercial Contracts, not Federal or State programs
Why?
Anti-kickback statute (AKS)
Medicaid “best price”
Pre- and Post-market communications between plans and manufacturers are restricted by FDA
Others: ASP, AMP, Stark
prohibits anything of value to induce the purchase of items or services reimbursed by Federal health programs. The lack of clarity from HHS on how the AKS might apply to modern value-based systems has impeded adoption of VBAs in Medicare and Medicaid.
requires manufacturers to include the lowest price made available to any other entity to the Medicaid program. This creates economic disincentives to provide rebates or discounts that trigger additional Medicaid rebate liability.

13. CAHC Rx Value Approach
Build a consensus-based approach that engages the wide range of affected stakeholders in a concerted effort to address drug costs and overall health care spending.

14. VBA outline
Pre- and post-market communication between payers and manufacturers
Stark/Anti-Kickback – allow care coordination
Allow for donated technology and reporting systems
Exceptions for Medicaid Best Price and AMP

15. Impact of Value Based Payments
Savings
% of Drugs in a Value Based Payment Arrangement
Volume of Drugs and Prices
$71 billion
10%
39%
Annual total health savings when fully implemented
$3 to 6 billion in 10 year taxpayer savings
Prices decline by 10 percent, but volume increases by 10 percent.
No change in Rx Spend
+5% Rx Volume  -1% Associated Hospital and Physician Spending
Three-Month Speedup of Time to Formulary/VBA
39% by 2026, up from 4% today

16. White Papers

17. Federal Response to Date
American Patients First – “we need more negotiations to drive down costs”
CMS – Use CMMI to tie new, expensive products to a VBA
Kimrya (pediatric cancer)
Luxturna (blindness)
Congress is working on legislation

18. THANK YOU Council for Affordable Health Coverage
440 First Street, NW, Suite 430
Washington, D.C
(202)
Cahc.net
@C4AHC
 Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.
That’s your job. Get to work.