Prepared for: PMRG Meeting

1
The Employer Payer PerspectiveWhy Employers are
Important and How to Understand Them

• Prepared for PMRG Meeting
• September 10, 2006
• Prepared by Susan Carney Fahey
• Lauren Bolen

Custom Research Solutions Health Industries
Research Companies
2
Custom Research Solutions (CRS)

• Serving the pharmaceutical industry with custom
  primary market research
• Specializing in Employer and Managed Markets
  information
• Timely and cost-effective research conducted by
  professionals with years of pharmaceutical
  market research experience.
• Spend your research dollars finding out what YOU
  want to know

3
Health Industries Research Co. (HIRC)

• Founded in 1990 to examine the trends and
  implications of managed care and national
  accounts via syndicated market research
• Serving the pharmaceutical industry for over 15
  years with syndicated multi-client research
• Health Industries Research Companies services
  include
• Health and Disease Management (1995)
• Employer and Coalition Service (1997)
• Best Programs and Best People Service (1999)
• High Cost Injectable Service (2004)

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PMRG Employer Payer Perspective
Introduction Overview
Introduction Overview
The What Employer Trends and Perspectives
The So What Future Trends and Implications
The Do What Next Steps
Conclusions Recommendations
5
Employer Payer Perspective Introduction
Overview

• Employers are more than a passive player in the
  health care arena, and have evolved into a
  leading participant in key health care decision
  making
• Large employers with on-site medical facilities
  or personnel are initiating and managing both
  benefit design as well as health, wellness and
  prevention programs
• While Benefits Managers are always critical,
  companies with Corporate Medical Directors are
  excellent conduits to a more integrated decision
  making process
• Employer Coalitions are increasingly targeting
  their efforts toward Rx and health benefit design
  initiatives, as well as purchasing assistance for
  their members
• Benefits Consultants friend vs. foe
• Information and training resource
• Program development partner
• Potential obstacle to product access as benefits
  advisors to employers

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Employer Payer Perspective Introduction
Overview

• Why Employers are now a key payer segment
• They have the data to identify high utilizers of
  health care services
• Budget constraints necessitate better cost
  management
• Despite downward trends, employer-based benefits
  still exceed 50 of the market
• Increased focus on enhancing the health status of
  their employees, including changing behaviors and
  fostering prevention

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Employer Payer Perspective Introduction
Overview

• Reality Check not all employer organizations
  are receptive to pharmaceutical company direct
  relationships
• Many still perceive the industry as pill
  pushing
• DTC ads do not help the situation
• Success breeds Success true with this segment
• Critical Success Factors for Employer
  Relationships
• Common platform for alliance a must
• Mutual business objectives foundation for long
  term relationships
• Must research and understand employer issues

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Employer Payer Perspective Introduction
Overview

• Know the market
• Secondary research
• Primary research
• Account Management training
• Integration with product/brand goals and
  strategies
• Like almost all market constituents less than
  linear decision making
• Know the players and understand
  interrelationships HPs, PBMs, Benefits
  Consultants, Coalitions
• Determine most effective strategy for interaction
  based on your own strategy and resources
• Be prepared to remain flexible as market
  continuously evolves

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PMRG Employer Payer Perspective

• Health Benefit Trends
• Rx Benefit Structures
• Health, Wellness, Disease Management
• Perceptions of CDHC Health Conditions
• Contracting Initiatives
• Value of Rx Spend

Introduction Overview
Introduction Overview
The What Employer Trends and Perspectives
The So What Future Trends and Implications
The Do What Next Steps
Conclusions Recommendations
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Employer Payer Perspective Evolution in Health
Benefit Trends
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Employer Payer Perspective Health Insurance
Drug Costs

• Employers are the principal provider of health
  insurance in the U.S.
• Close to 60 of Americans
• Nearly all covered workers have an Rx drug
  benefit
• Share of Rx drugs paid for by private health
  insurance rose dramatically from 1990 (24) to
  early 2000s (46)
• Employer-sponsored health plan have adopted
  various cost-sharing approaches to curb rising
  drug cost

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Employer Payer Perspective Pharmacy Benefit
Structures 06 07
Three-tier copays remain the standard in pharmacy
benefits within the employer market but appear to
have peaked in 2004 as they are replaced by
percentage (or mixed) copay structures.

• Close to one-half of all employees are currently
  covered by a three-tier fixed dollar copay but a
  continued decline in the use of dollar copays is
  projected for the future.
• Use of percentage copays is growing as employers
  attempt to increase their employees
  cost-sensitivity.
• A significant increase in mixed copay structures
  is predicted as employers experiment with more
  creative approaches to drug benefit structures.

Employees Covered by Pharmacy Benefit Design
Structures Employer Market Aggregate Results
NoteResults reflect survey responses from all
four employer panels. Projected estimate by
HIRC panelists.No Pharmacy Coverage and
Other (most often a CDHC offering) each had
0.4 reported for both years. Weighted
percentages b active employees. Source HIRC
Employer and Coalition Service, Spring 2006, N181
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Employer Payer Perspective Health Benefit Trends
More employers are focusing on employee health
initiatives as they work to slow rising health
care expenses while nearing the limits of
cost-shifting opportunities.
Cost-shifting

• Rising health care costs
• Increasing drug utilization
• Heightened focus on employee productivity/presente
  eism

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Employer Payer Perspective Employee Health,
Wellness Disease Management
Employers are embracing disease management
programs as a critical component to health
strategies that support their financial
objectives as well as their employees health and
productivity.
Disease management as part of a total health
management program. The philosophy is to try to
identify the segment of the population that is
driving high health care costs. If you can make
some changes in that population you might be
able to make some good health outcome changes, as
well as decrease some costs. (CMD)
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Employer Payer Perspective Perceptions of
Consumer- Driven Health Care

• A growing number of employers believe that CDHC
  provides potential benefits for both employers
  and employees
• Many employers expect to offer a HDHP/HSA option
  as a first step toward creating a more
  consumer-driven health care culture although
  their adoption of consumer-driven health plans to
  date appears to be less rapid than projected
• Concerns about selection bias and the risk of
  employees poor health care choices remain
• Negative impact on utilization of prescription
  drugs is anticipated
• Reduced utilization of prescription drugs
• Increased use of generics
• Patient compliance at risk with specific customer
  segments

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Employer Payer Perspective Perceptions of Health
Conditions
Cardiovascular conditions are of highest concern
to employers because of their cost implications
and long term impact on the overall health and
productivity of their employees.

• Employers attribute their concerns to the high
  claims costs these conditions generate as well as
  their prevalence within their employee population
  
• Diabetes ranked second in terms of overall level
  of concern as employers became more aware of the
  conditions co-morbidity issues
• Cancer and obesity also cause significant
  concerns for most segments of the employer market
  because of their impact on costs, employee
  productivity and the overall health status of
  employees

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Employer Payer Perspective Employers
Contracting Initiatives
Although a number of employers contract with PBMs
as a group through a Benefit Consultant or
Coalition, few are prepared to contract directly
with pharmaceutical companies.

• Key issues limiting their interest include
• The belief that the purchasing power of PBMs will
  result in the best prices
• The logistics of contracting with multiple
  pharmaceutical companies are too burdensome
• Employers do not have the expertise to perform
  the myriad tasks required for contracting
• Representative comments from employer panelists
  include
• We dont have expertise in that sort of role so
  I cant see contracting directly with
  pharmaceutical companies. Well stick with our
  business and let the PBM experts handle the
  negotiations. (EBM)
• We havent looked at directly contracting with
  pharmaceutical companies because I dont know how
  an individual company who is volume-based can
  compete with the volume of a Medco or a Caremark.
  That would be my only drawback. I just couldnt
  believe that wed be able to purchase drugs with
  our volumes at the same price that these huge
  PBMs can get them for. (EBM)
• I dont see us doing direct contracting with
  pharma. I welcome and am interested in doing it
  but I dont see pharma doing it. A Wall Street
  Journal article indicated that Pfizer was going
  to some of the mega-large employers directly. I
  called them to ask them when that will be
  extended to our groupThe bottom-line is Pfizer
  told me that they are not contracting directly
  with employers, they are contracting directly
  with managed care plans, but theyre not
  contracting directly with employers. (EHC)

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Employer Payer Perspective Perceived Value of
Drug-Spend

• Pharmaceuticals are generally cost-effective but
  employers admit they lack the information
  necessary to assess the relative value of
  specific brands or therapeutic classes
• I dont know if most of our employers know the
  answer to what value is. I think that very few
  if any are able to really look at things like,
  Has my productivity increased, is my
  presenteeism better, my days absent, is that
  going down? (EHC)
• Availability of an alternative generic therapy
  (or therapeutic equivalent) significantly dilutes
  value proposition for branded pharmaceuticals due
  to the substantial price disparity
• It is the cost, in combination with the efficacy
  that determines value. There may be a lower cost
  alternative that would provide 95 of the
  benefit. We need to do a better job of steering
  people to try the lower cost alternatives first
  for cardiac drugs. Lipitor is a great drug,
  but does everybody need Lipitor? They might be
  fine with the generic to start with unless
  (cholesterol) is really high, etc. There are
  some great depression drugs out there but I would
  prefer people to start with less expensive drugs
  first. (CMD)

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Employer Payer Perspective Perceived Value of
Drug-Spend (contd)

• Limited patient compliance and lifestyle issues
  diminish the overall value of drug therapies
• If its the right drug for the right patient at
  the right dose and the patient is taking it as
  theyre supposed to, then its got great value.
  But if the patient doesnt cooperate, or the drug
  is not the right one for that patient, then they
  dont get the full value. Theres a huge issue
  in this country with compliance and adherence to
  treatment. People dont fill scrips they dont
  comply with the right treatment. Regardless of
  what the employer does or how wonderful the
  medication is, its not effective if its not
  being taken. (EHC)
• DTC advertising and promotion to physicians drive
  over-utilization of newer, more expensive,
  prescription products
• For the ulcer drugs, I dont think we are
  getting good value because a lot of people are
  using PPIs and they are very expensive compared
  to generic products or the over-the-counter H2s
  that would probably also be effective. Most
  people should be on over-the-counter stuff, the
  Tagamet or the Pepcid or the Zantac...The over
  utilization is caused by the advertising on TV
  and doctors to a certain extent because doctors
  dont want to say, You dont need me. You can
  go to Walgreens so they prescribe something.
  (EBM)
• Drugs providing longer term benefits face more
  significant challenges in demonstrating value for
  employers facing high employee turnover
• I think there are still some categories we need
  to work on. For example, we are having everybody
  in the world take the hyperlipidemics and they
  havent had a heart attack, they are 32 years old
  and they are trying to keep their cholesterol
  down. We may be buying those drugs for 25 or 30
  years before they have a heart attack when they
  really need to start taking them. (EBM)

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PMRG Employer Payer Perspective
Introduction Overview
Introduction Overview

• Employer Health Care Priorities
• Future Drug Benefit Strategies
• Rx Company Program Opportunities
• Impact on Rx Sales
• Rx Value Proposition

The What Employer Trends and Perspectives
The So What Future Trends and Implications
The Do What Next Steps
Conclusions Recommendations
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Employer Payer Perspective Health Care
Priorities
Three key factors influence which health
conditions employers decide to focus on for
employee-focused initiatives

• Prevalence in employee population
• Generate employee interest and participation
• Company kudos for service to employees
• Greatest potential impact on employee population
• Overall cost to employer
• Health and drug costs
• Productivity/presenteeism
• Disability/workers comp.
• ER visits/hospitalizations
• Ability to impact condition/treatment
• Influence likelihood of employee developing
  condition (e.g., high cholesterol)
• Wide flexibility in treatment options (e.g.,
  allergy)
• Concerns about compliance

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Employer Payer Perspective Future Drug Benefit
Strategies
Projected Evolution of Employers Drug Benefit
Strategies

• Generic vs. Brand Copays (2-tier)
• Closed Formularies via PBM/MCO

• 3-Tier Copays
• Increased copays and differential between tiers
• Experimentation with 4- and 5-Tiers

• Percentage copays (flat and tiered)
• Rx Utilization Mgt. and spending limits for
  high-cost categories
• Defined contribution
• Coverage for discretionary vs.
  non-discretionary drugs

• 4-tier and mixed (/) copay structures
• Mandatory mail order and specialty pharmacies
• Value-based copays
• Collective purchasing

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Employer Payer Perspective Rx Company Program
Opportunities

• Pharmaceutical companies can distinguish
  themselves by developing programs that
  demonstrate the productivity and cost/benefits of
  their products in terms that are meaningful to
  the employer
• Thats something from a drug company
  standpoint, if they can put an return-on-investmen
  t onto some of their drugs rather than just
  pushing the advertising, thats going to resonate
  with plan sponsors.
• Employers also express significant interest in
  receiving disease- and medication-specific
  information from pharmaceutical companies because
  of their recognized expertise and access to
  important clinical data
• I would work with a pharmaceutical company on
  disease-specific materials because they have the
  information. A health plan is more about claim
  processing and dealing with providers. I think
  physician education should link with the
  pharmaceutical companies because they know what
  the drugs do and physicians need to keep on top
  of that information as it changes by the minute.

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Employer Payer Perspective Rx Company Program
Opportunities

• Partnering with coalitions can provide
  significant benefits for pharmaceutical companies
  as coalitions value their programs broad
  applicability across multiple employers
• Its easier for me to work with pharmaceutical
  companies because Im not perceived as playing
  favorites. We have three major health plans that
  operate within our region, and I feel like I
  always have to be much more sensitive about who I
  do things with. I dont have that pressure or
  obligation when I work with the pharmaceutical
  companies.
• Pharma has more information available and they
  seem to make, for example, patient education or
  disease-specific materialstheyre very
  well-researched, well-thought out, and
  well-presented.
• By working with CMDs, pharmaceutical companies
  can leverage opportunities to increase disease
  awareness and support market expansion objectives
  through employers health fairs and wellness
  programs
• We have health fairs at least once a year and
  sometimes twice a year. It is effective to
  have a health and wellness-sponsored program
  with demonstration projects on lifestyle changes.
  We really like the handouts pharma gives.

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Employer Payer Perspective Employers Impact on
Rx Sales
As employers implement initiatives that directly
impact pharmaceutical utilization, pharmaceutical
companies can benefit by identifying specific
product situations that are favorably aligned
with the employers areas of interest.
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Employer Payer Perspective Rx Value Proposition

• Like any customer segment, Employers are looking
  for value.
• Historically, Pharma value propositions focus on
• Physicians
• Intermediaries (PBMs, HPs, distribution channels)
• Patients
• Rarely do we see Employer value propositions
• Metrics most likely different from historical
  venues
• Productivity key, but hard to measure save for a
  few therapeutic areas (e.g., smoking cessation,
  asthma)
• Selling proposition different, so why not value
  proposition!

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PMRG Employer Payer Perspective
Introduction Overview
Introduction Overview
The What Employer Trends and Perspectives
The So What Future Trends and Implications

• Understand Impact of Benefit Designs
• Expand Knowledge of Market
• Program Development
• Five Easy Steps

The Do What Next Steps
Conclusions Recommendations
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Employer Payer Perspective The Do What

• Expand knowledge of employers role in Rx benefit
  design and selection process, and the impact
  employers initiatives have on employees
  behavior
• Current metrics and data enable employer to know
  who is using what and how much it costs
• Data advertising perceptions
• Productivity a key area of focus
• Direct and indirect health care costs on the
  radar screen

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Employer Payer Perspective The Do What

• Develop employer-based initiatives that are
  aligned with targeted employers interests and
  capabilities
• I am most interested in programs targeting
  cardiovascular conditions, depression and
  diabetes, because they are chronic conditions
  that require employees active and ongoing
  management and people have difficulty staying
  adherent with their treatment regimens.
• Costs are an issue, and productivity, which also
  drives costs. I think some of the disease
  management issues are important smokers, heart
  cases and cancers. Diabetes is another thing
  that we are really trying to attack.
• We have disease management programs through
  Aetna and we do a fair amount of education with
  our work force.
• Source HIRC Employer Service 2006

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Targeting Employers for Collaborations
Step 1 Identify potential employer partners
based on key quantifiable data.

• Target companies with employee demographics
  consistent with product profile
• Focus on employers with a critical mass of
  employees in accessible location
• Verify that employers health and drug benefits
  support utilization of promoted product

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Targeting Employers for Collaborations
Step 2 Assess employers attitudes toward DM
initiatives and cost-containment strategies.

• Carrots or sticks
• Positive incentives for participation in DM
  programs (carrot)
• Increased cost-sharing for Rx products (stick)
• Friends or foes
• Recognize value and expertise provided by
  pharmaceutical companies (friend)
• Perceive pharmaceutical companies as biased and
  profit-motivated (foe)

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Employer Payer Perspective The Do What

• Five easy steps for understanding the Employer
  as a Payer
• Research the segmenttrends, issues, competitors
  initiatives, etc.
• Assess and quantify (if possible) employers
  impact on existing and future products and
  therapeutic categories
• Disseminate findings internally - product
  marketing, market research, sales account
  management
• Gain support from corporate leadership and
  product/brand teams
• Integrate employer strategies with brand
  strategies and operationalize employer strategies
  via marketing, sales and recognition metrics

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PMRG Employer Payer Perspective
Introduction Overview
Introduction Overview
The What Employer Trends and Perspectives
The So What Future Trends and Implications
The Do What Next Steps
Conclusions Recommendations
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CRS and HIRC Recommendations

• Ensure organization recognizes critical role
  employers play in determining patients access
  to, and utilization of, pharmaceutical Rx
  products
• Know the marketplace both players and
  competitors
• Capitalize on employers growing desire to
  actively manage healthcare costs
• Growing health, wellness, prevention platform
• Establish compelling value proposition for
  employers and employees
• Productivity metrics
• Cost/benefit versus alternative treatment options
• Patient tolerability, compliance, etc.

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CRS and HIRC Recommendations

• Expand knowledge of employees role in Rx
  selection process and impact employers
  initiatives have on employees behavior
• Price sensitivity
• Impact of health condition on selection process
  and priorities
• Relative importance of key information sources
• Understand impact of drug benefit structure on
  utilization of specific product categories and
  financial implications for employee
• Asymptomatic vs. symptomatic
• Chronic vs. acute
• Branded Rx vs. OTC/generic
• Physician- or self-administered injectables
• Develop employer-based programs and resources
  that are aligned with targeted employers
  interests and capabilities

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Custom Research Solutions Health Industries
Research Companies

• Thank You