Optimization of Specialty Drug Costs Under the Medical Benefit Updated December 2018 By: Todd Cooperman, PharmD, MBA, R.Ph Senior Vice President, Clinical Insights, Analytics, and R&D, RJ Health Part 1: Optimization of Specialty Drug Costs Under the Medical Benefit © copyright RJ Health 2018 In 2017, when we first published this white paper, a Google search of the keywords “Optimization of Specialty Drug Claim Pricing Under the Medical Benefit” resulted in 1.3 million results, since then the results have increased to over 4.6 million, which continues to demonstrate the frequency by which various types of publications on this topic are created Many of these publications focus on the intensity by which this topic impacts the provisioning of care to patients, the financial management, and numerous services being offered to address various components of cost control The specialty pipeline is robust; an evaluation of current clinical trials in process for specialty products revealed over 4,400 products in various stages of clinical trials Figure shows the various clinical trial counts by stage for these various products Further evaluationof this pipeline shows that oncology, central nervous system, infectious disease, immunology, and gastrointestinal agents will continue to be areas of growth in the future (Figure 2) An analysis by IMS Health of drugspend between 2010 and 2015 determined that specialty medications accounted for 70% of growth in drug spend and accounted for 36% of total spend on medications In addition, specialty spending has increased by 21.5% between 2014 and 2015, primarily driven by the oncology, autoimmune, and other specialty classes (Figure 3).1 According to a 2015 publication by Milliman, Inc., specialty costs represent 11% of total healthcare costs The same report cited an annual trend in specialty costs of 21.3% between 2013 and 2016, which is in alignment with the IMS reported trend Figure - Clinical trials in various phases for specialty drugs (Source: GlobalData) Optimization of Specialty Drug Costs Under the Medical benefit | Page two © copyright RJ Health 2018 Figure - Clinical Trials by Therapy Area for Specialty Products (Source: GlobalData) Figure - Spending on Specialty Medications US $ billions (Source: IMS Health, National Sales Perspectives, Jan 2016)1 Optimization of Specialty Drug Costs Under the Medical benefit | Page three © copyright RJ Health 2018 Background: The underlying cost implication of specialty drugs is further delineated by its impact on the pharmacy versus medical benefit A report published by UnitedHealth Center for Health Reform & Modernization showed that 53% of specialty costs were covered under the medical benefit within a commercial line of business.3 This represented a decrease compared with prior years due to a shift of traditional medically covered drugs to the pharmacy benefit by health plans to improve the cost management of these products The importance of drug cost containment was further reinforced by the 2018 EMD Serono Specialty Digest survey results that published the top targets for improvement in oncology management - at the top of the list was managing oncology drugs and services.⁴ Further adding to the complexity of specialty pricing management, are the inherent differences in the medical versus pharmacy benefit in regards to how claims are processed For many years, the pharmacy claim adjudication process has included edits and real-time processing, which empowers the plan to implement tight cost control mechanisms Conversely, the medical benefit adjudication process does not occur in real-time and may be delayed for extended periods of time due to claim issues In addition, most medical claim processing engines lack the infrastructure to support robust edits The lack of real-time adjudication and limited choices on edits results in a challenge to implement cost control mechanisms to rein in costs (Figure 4) To determine the correct reimbursement rate for specialty medical products, one must consider the inter-relationships between diagnosis, dose, submitted units, and unit pricing This white paper outlines significant opportunity for the implementation of a more rigorous process that addresses the components of drug, diagnosis, dose, billing unit, and price (Figure 5) Figure - The relationship of drug, diagnosis, dose, billing units, and price Optimization of Specialty Drug Costs Under the Medical benefit | Page four Approaches to the management of claim costs: © copyright RJ Health 2018 In our analysis of health plan claims data, we consistently observe issues with pricing of claims, even when a customer has implemented programs to address potential sources of disparity in the medical claim pricing process or has contracted with external organizations to manage the pricing of claims On average, we typically observe overpayments on medical specialty drugs within the range of to 7% and an additional to 5% associated with off label use and excessive quantities in savings of total specialty drug spend Traditional Health Plan Cost Containment Interventions Prior authorization (PA) is ubiquitous across the health insurance industry under the pharmacy benefit Over the last few years it has gained significant momentum under the medical benefit, to the point that few plans today not have some minimal criteria that ensure that medications are being utilized for an FDA approved indication Plans that are more experienced with PA under the medical benefit will develop criteria that incorporate step therapy, typically requiring utilization of pharmacy benefit covered drug or alternatively preferred medical drugs, with similar efficacy Ideally, once a drug is approved through the PA process, an incoming medical claim is checked to ensure that a valid PA is active for the specific patient, but no further evaluation occurs to ensure the usage aligns with approved criteria For many years, high price limit edits have been utilized by health plans to flag claims that should be further researched to ensure proper payment When these high cost claim edits were initially implemented, the plans applied a single high dollar quantity across incoming claims With the growth within the specialty drug market and their higher costs, these types of edits resulted in a significant number of false positives and significant manual review efforts In response to this, limits were introduced that were more drug specific through the application of dollar limits at the HCPCS level Triggering of these edits usually results in the pushing of the claim processing to a manual process for evaluation and potential repricing During this evaluation process, staff are often challenged in understanding what the proper usage, dose, billing units, and pricing that should be applied to a drug claim, which results in pricing errors The Next Innovation in Claim Cost Optimization To address these issues holistically, health plans, providers, and pharmacies need to evaluate claims or drug regimens from the perspective of the relationship of the drug to the specific indication that is being treated Further, the indication will then impact the dosing regimen to be administered, which further impacts the number of units utilized and billed within the claim In totality, these factors then drive the price of the drug Quantity limits are a relatively newer concept within the medical benefit, primarily due to the complexity in both evaluating the claim for appropriateness and the processes that plans must implement to handle outliers The few plans that have implemented limits typically apply a single limit to a claim and then either adjust the claim to the limit or flag the claim for further clinical review, similar to the prior authorization review process Implementation of a single limit across a drug, results in successful identification of outliers, but also results in false positives, thereby negatively impacting the provider network and internal operational costs Optimization of Specialty Drug Costs Under the Medical benefit | Page five © copyright RJ Health 2018 The implementation of a source of reference that addresses the key factors of drug, diagnosis, dose, billing unit, and unit pricing results in several benefits to health plan, providers, and pharmacist billing drugs under the medical benefit From the health plans’ perspective, processing claims with these factors in mind results in cost savings and improved efficiency From a manual process perspective, having a data source at hand allows for quick evaluation of claims and faster turnaround times The implementation of an automated process can apply the various diagnosis, dose and unit factors to scrutinize the various components in question Rules can then be implemented to determine which items can be systematically adjusted versus which require a potential manual intervention We have found that clients utilizing our automated claim evaluation process have observed a 20 to 30% reduction in claims errors From a provider and pharmacy’s perspective, having this level of detailed information assists in multiple ways The first benefit is to evaluate the proposed regimen against the clinical coding and billing unit guardrails Results of this evaluation can then inform decisions on what can be adjusted and what cannot within the prescribed therapy Having these guardrails then serves as a trigger to work with the plan on coverage of the therapy prior to administration, thereby reducing the fiduciary risk of the provider on high cost specialty drugs These guardrails also empower the pharmacy to identify issues proactively to work with their provider partner on regimen and claim optimization Finally, having data and tools to ensure proper claim submission results in reduced risk of claim processing issues, repricing and/or denials The need for data and tools which facilitate the most cost effective therapy to the specific patient is universal to all stakeholders within the claim process In the second part of this paper we will introduce specific solutions, data, and tools which can facilitate the optimization of medical specialty claim costs and appropriateness of use DOSE PRICE UNIT DIAGNOSIS Optimization of Specialty Drug Costs Under the Medical benefit | Page six Conclusion: The underlying differences between the pharmacy and medical benefit create an opportunity to implement novel approaches that maximizes the optimization of medical claim pricing To achieve these added benefits one must view a claim price as an output of the interrelationships between drug, diagnosis, dosing, unit, and pricing With modest policy adjustments and some straight-forward network engagement tactics, health plans can achieve a $0.03 to $0.05 PMPM savings thanks to tighter medical drug management controls Through the usage of specific data and tools, a claim can be reimbursed accurately and appropriately within specific therapeutic classes In the second part of this white paper we will address the relationships between these factors and how plans can optimize the pricing and appropriateness of use under the medical benefit to achieve to 12 percent in savings off their medical specialty drug spend (Table 1) © copyright RJ Health 2018 Savings Opportunity Range Pricing 3% - 7% Diagnosis 2% - 2% Maximum Limits 1% - 2% Indication Based Limits 1% - 3% Total Savings on Specialty Drug Spend 6% - 12% Table 1- Savings opportunity on medical specialty drugs utilizing drug, diagnosis, dose, unit, and price References QuintilesIMS Medicines Use and Spending in the U.S – A Review of 2015 and Outlook to 2020 http://www.imshealth.com/en/thought-leadership/ quintilesims-institute/reports/medicines-use-and-spending-in-the-us-a-review-of-2015-and-outlook-to-2020 Accessed February 23, 2017 Milliman Commercial Specialty Medication Research: 2016 Benchmark Projections http://www.milliman.com/uploadedFiles/insight/2016/commercialspecialty-medication-research.pdf Accessed February 23, 2017 UnitedHealth Care The Growth of Specialty Pharmacy, Current trends and future opportunities http://www.unitedhealthgroup.com/~/media/uhg/ pdf/2014/unh-the-growth-of-specialty-pharmacy.ashx Accessed February 23, 2017 EMD Serono 2018 EMD Serono Specialy Digest https://www.specialtydigestemdserono.com/ Accessed December 7, 2018 Optimization of Specialty Drug Costs Under the Medical benefit | Page seven About the Author About RJ Health RJ Health offers a proprietary methodology and related solutions for reducing medical drug spend We provide industry standard pricing, coding, dosing, weight, age, and diagnosis information for those drugs administered in professional settings Using our uniform product suite of tools, analyses and data, we help you save time and money Todd Cooperman, PharmD, MBA, R.Ph © copyright RJ Health 2018 Senior Vice President, Clinical Insights, Analytics, and R&D, RJ Health Todd Cooperman joined RJ Health in June 2016 as Vice President, Clinical Analytics As Senior Vice President, Todd has extensive input to the development of data and IT driven solutions to solve drug usage and billing issues Additionally, Todd oversees the development of analytic methodology, implementation, and reporting for our various clients Todd has an extensive background in all aspects of managed care and specialty pharmacy including: utilization review, Pharmacy and Therapeutics Committee oversight, predictive and pharmacoeconomic modeling, rules engine development, formulary management, business operations, benefit design, drug Informational and claim databases, patient education, and clinical practice Todd earned a Bachelor’s in chemistry from Binghamton University, Doctorate in Pharmacy from Northeastern University, and a Masters of Business Administration from the University of Hartford Todd completed a pharmacy practice residency at Saint Francis Hospital in Hartford, Connecticut and University of Connecticut He is a Registered Pharmacist in the State of Connecticut and is an active member of the Academy of Managed Care Pharmacy and the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) Pharmacy We offer solutions that guide our clients’ management of drug trend in the most efficient way : Customizable data that clients can integrate into operational systems for strategic enterprise initiatives : Enterprise software as a Service (SaaS) applications for pharmacy, claims, and finance staff : Provider billing application for clean claim submission Medical Drug Edits library to automate drug claim pricing : Analytics on unit cost (fees/costs/pricing) and clinical utilization to analyze, forecast and manage upward drug spend trends : Services for pharmaceutical manufacturers connecting them to our vast coverage of the payor market which ultimately improves reimbursement accuracy and relationships To learn more visit rjhealth.com/white-papers/ Optimization of Specialty Drug Costs Under the Medical benefit | Page eight