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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 contractingManufacturer 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 contractingManufacturer Considerations when developing ContractingStrategy● 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 tiersCommercial● 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 tiersGovernment● 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 Payers with a Payers with a Copay 3 Tier Benefit 4 Tier Benefit 5 Tier Benefit Ranges (5) (12) (6)Tier 1 Generic Generic Preferred Generic $0 - $12 Non-Preferred $5 - $43Tier 2 Preferred Brand Preferred Brand Generic 16% & 20% Non-preferred Non-preferred $24 - $98Tier 3 Preferred Brand Brand Brand 18% - 50% Specialty or Non-Preferred $70 - $91Tier 4 Injectable Brand 25% - 75% Specialty orTier 5 25% - 33% InjectableNotes: 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 contractingFor a launch of a new product, perform a Payer Assessment todetermine 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
Example: payer assessment Payer A Payer B 40+ Payer C Payer D Strong 20 Payer E 12HMO Lives (millions) Payer F 10 “Size Matters” “Must Have’s” Payer S 8 Payer G 6 Payer R Payer H 4 Payer I Payer Q Payer J Weak Payer P Payer K “Make or 2 “Keep the Payer O Payer L Payer N Door Open” Break a Payer M Region” 0 0 1 2 3 4 5 Weak Formulary/Contract Enforcement Strong Ability to Influence Market
Contracting trends Price Protection Rise in Steeper discounts contracts contracting for for specialty tier-3 to avoid categories exclusion
ACA ImplicationsPayers Manufacturers● Increased cost for mandatory ● Plans to seek greater requirements discounts● Increased competition ● Plans likely to increase use● Ability to compete in of limited or closed exchanges 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