designing physician financial incentives for appropriate...

CONFIDENTIAL: Property of MattsonJack Group MattsonJack DaVinci, Oncology Marketing Strategies, Marketing Channels and National Accounts US 2008, Sixth Edition

Designing Physician Financial Incentives for Appropriate Care

Lee BlansettOctober 2008

1

Key Questions

What alternative approaches to physician reimbursement may mitigate potential conflicts?

Do “Buy and Bill” drugs create conflict between physicians’ financial interests and patients needs?

2

Do “Buy and Bill” drugs create conflict between physicians’ financial interests and patients needs?

iDoes the potential for conflict exist?

iWhat sort of conflict might arise?– Physician chooses more profitable of two equal alternatives?– Physician chooses more profitable but less effective alternative?– Physician over treats?

iAre there scenarios in which both patients and physicians’economic interests conflict with payers?

3

Potential for Conflict: Office-administered drugs deliver positive margins

Taxotere Monotherapy, mBCSingle Treatment, Q1 2007

Source: MattsonJack DaVinci, 2007

Additional Anecdotes:

Procrit and Aranesp/Neulastamargins averaged $90-150,000 per oncologist in 2006


Remicade litigation documents indicate that rheumatologists earned from $1,590 to $2.350 per treatment

Source: SCDrecipe.com

3,0152,459Total revenue

26.2%9.4%Net Margin$789$232Net profit168168Overhead

31.7%16.3%Gross margin957400Gross profit

$2,765$2,147Drug revenue251312Admin revenue

1,9871,987Drug cost

2,05971

Medicare

2,059Total cost71Labor cost

Commercial

4

Evidence of Conflicts? Little systematic evidence of a preference for highest profit alternative (Remicade) in RA

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2003 2004 2005 2006 2007

HumiraCAGR =671%

Remicade5-yr growth =171%

Enbrel5-yr growth =243%

Source: EvaluatePharma

Growth in TNF-alpha Class Rheumatoid Arthritis ProductsUS Sales, 2003-2007

5

Evidence of Conflicts? Little systematic evidence of using lower efficacy, higher profit alternatives in cancer

Utilization Among Oral, Generic, and Brands Relatively EvenMetastatic Breast, HER-2 Negative, Second Line

22%

14%

13%10%

7%

6%

5%

4%

4%

15%

Avastin + paclitaxel

Taxotere

paclitaxel

Gemzar + TaxotereXeloda (oral)

vinorelbine

Avastin + AbraxaneGemzar

Abraxane

Other

Source: MattsonJack DaVinci, CancerImpact, 2007

6

Conflict with Payers: Medicare patient and provider interests more likely to conflict than commercial

Cost to patient

Physicians Deciding to Not Prescribe a Cancer Drug Due Solely to Cost(n = 104 Community Oncologists and 30 Hospital-based Oncologists)

44%

56%No

Yes

Reasons for Not Prescribing100 Points Allocated (n = 59)

8

6

10

12

64

Cost to providers

Risk of non-payment

Payer requirement

Other

Source: Oncology Marketing Strategies US 2007 Oncologist Study, April 2007.

7

Double Doughnut Holes: Mid-year starts cross 2 coverage gaps in 12 months

$0$500

$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500$5,000

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Humana Part D Cost Share for Nexavar (RCC)

Plan Drug Costs

Humana Complete

Humana StandardHumana Enhanced

$46,920.14 $46,920.14 $46,920.14 12-Month Drug Costs to Plan

$11,202.70 $10,521.10 $10,435.90 Total 12-Month Beneficiary Costs

$76.60$19.80$12.70Monthly Premium*

Humana CompleteHumana EnhancedHumana Standard

25% Coinsurance

Doughnut Holeand 5%

Coinsurance

5%Coinsurance

25% Coinsurance

Doughnut Holeand 5%

Coinsurance

5%Coinsurance

* Texas Zip Code 77030. Monthly patient cost share = $238.35 w/5% coinsuranceSource: Medicare.gov March 27, 2007

8

Conclusions

i In-office IV treatment does generate positive margins for many drugs

i Little or no evidence that physicians are allowing profit motive to conflict with patients’ best interest

iPart D oral coverage encourages oncologists and Medicare patients to seek treatments covered under Part B

9

Alternative Reimbursement Schemes

10

Worth the Worry? Part B drugs accounted for only 2.6% of total Medicare spend in 2006 - below 2004’s level

192

47

169 Part B

Part D

Part A

10.6 158.4169.0

Total Part B Part B Rx Other Part B

Medicare Expenditures, 2006$ Billions

Source: 2007 CMS Trustees Report

$408 Billion

Source: MedPAC 2008 Data Book

11

The Trend: Concern based upon forward expectations? Equity forecasts probably overstate clinical development successes.

0

20

40

60

80

100

120

140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

$46 billion

$122 billion

+ 165 % + 165 %

* Includes all injectable classes; subcutaneous, intramuscular, intravenousSource: Evaluate Pharma

Injectable Drugs Sales (Projected)*US only, All Drugs, All Payers; $ Billions

12

Some proposed goals for a new approach

iAvoid perverse incentives– Right patient, right drug, right time– Care in community medical office/cancer center – Support, followup and care coordination provided to patients

iRender decision makers “formulation agnostic”

i Implementation practical: via existing IT and organizational structures

sRestrain growth trend in costs

Caveat: reimbursement only, no benefit changes addressed

13

Alternative One: Maintain the Status Quo

Continue reimbursing physician-administered drugs via “buy and bill”

Continue reimbursing physician-administered drugs via “buy and bill”

14

Considerations

i Easy operational implementationi Good physician acceptance (or at

least well-understood)i Growth trend already faces

downward pressure– Pipeline orals – Generics– Follow on biologics– Commercial plans switching

away from AWP-based contracts

AdvantagesAdvantages

i Growth trend continuesi Current approach already driving

consolidation and likely shift in site of care

i Access for orals remains weak for many Part D patients

i Physician carries most risk of non-reimbursement

DisadvantagesDisadvantages

15

Riding the Wave: Orals may account for 35% of pipeline

Oral Cancer Drug Launches by Year, 1996-2013 (Projected)

1 1 1 1 2

5

2 1 13 3 2

0 00

311

2 3

6 6 7 8 9 10

1719 20

24

27 2729

12

1

21

0

5

10

15

20

25

30

35

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Oral Drug PricesUSD per month of Rx

ProductStreet price –30-day supply

Gleevec ® (400 mg)Sutent ®

Tarceva ®

Targretin ®

Tykerb ®

$3,388$7,612$3,965$5,629$3,604

Number of approvals

Cumulative totals

Source: Drugstore.com; MattsonJack DaVinci, Cancer!MPact, Emerging Technologies, July 2008

16

$1,485$786

$460 $428

$205

$205$185 $185

$700

$700

$435 $435

$1,485

$335

$86

-$59

Unintended Consequences: Medicare’s ASP-based IV drug reimbursement plunges MDs below break even on chemo

$1,165$989

$2,026

$3,903

Physician Net Income

* Overhead expenses exclude physician salary

2006 20072005 Q12004

Overhead Expenses

Direct Labor Cost

Direct drug (Rx) Cost


Revenue and Expenses for Carbo-Taxol Treatments 2004-2007Per Medicare Patient

17

47%

18%

29%

6%

24%

6%

23%

31%

5%

35%

28%

33%

4%

40%

32%

7%

27%

44% 41%

21%

No Extra Payment Separate Flat Copay Separate Coinsurance No IV Coverage

Unintended Consequences: Rising hospital shares no longer limited to patients with “Grade 4 Financial Toxicity”Commercially-Insured Patient Cost Sharing for IV Drugs, 2006 through 2008Community and Hospital Oncologists (2007 and 2008), Percent Patients Treated N=77 for 2006; N=71 Community and 15 Hospital for 2007; N=66 Community and 16 Hospital for 2008

Community 2006Community 2007Community 2008

Hospital 2007Hospital 2008

Source: MattsonJack DaVinci, Oncology Marketing Strategies™, Oncologist Studies, October 2006, April 2007, and April 2008

18

Alternative Two: “Get Docs Out of the Drug Business”

Move to zero or low margin on drugs; Increase administration feesMove to zero or low margin on drugs; Increase administration fees

19

Considerations

i Eliminates profit as a physician selection criterion for “buy and bill” drugs

i Re-establishes equality of access for Medicare and commercial patients


i Operationally complex for commercial payers to implement– Contracting structure

(IPAs, etc.)– Confirming “cost” of Rx

i Magnitude of pro fee shift politically challenging

i Reduces $ margin/treatment, may lead to rising treatment volumes

i Physicians’ inaccurate view of true Rx costs may limit gains

i Physician retains risk of non-payment for Rx, but loses margin


20

Physician Payment Politics: Pro fees need to rise 200% to maintain oncologist income levels at ASP +6%

Percent Increase in Professional Fees Required to Offset Declining Rx Margin

-200%

-150%

-100%

-50%

0%

50%

100%

150%

200%

ASP +40% ASP +20% ASP +15% ASP +10% ASP 6%

% Change

Rx Reimbursement

Professional Fees

Source: MattsonJack DaVinci; OMS 2008; pro bono client analysis

21

MD Cost Awareness: Significant variation in knowledge of drug costs per treatment

0%

10%

20%

30%

40%

50%

60%

<=50% 51 to95%

96 to105%

106 to125%

126 to300%

>301%

0%

10%

20%

30%

40%

50%

60%

<=50% 51 to95%

96 to105%

106 to125%

126 to300%

> 301%

Oncologists’ Estimates, 2008Estimated Cost per Administration; n = 110

Rituxan Erbitux

Source: MattsonJack DaVinci, Oncology Marketing Strategies™, Oncologist Studies, April 2008

22

Incentives Lower but Remain: German IV admin payments are sufficient to maintain physician preference for IV cancer drugs

24%

61%

10% 3% 7%

97%90%

39%

76%93%

France (n=34) Germany(n=31)

Italy (n=31) Spain (n=30) UK (n=30)

Oral

IV

Oncologists’ preference for orals vs. IVs

Source: MattsonJack DaVinci survey of ~30 oncologists in each country shown. Oncology Marketing Strategies, Western Europe, MattsonJack DaVinci, The Mattson Jack Group, Inc., 2008.

23

What does zero margin accomplish? Oral vs. IV regimen preference by cancer type

32%

65%

19% 20% 13%

68%

35%

81% 80% 87%

Fran

ce (n

=34)

Germ

any (

n=31

)

Italy

(n=3

1)

Spain

(n=3

0)

UK (n

=30)

Adjuvant/first-line metastatic CRC

Small cell lung cancer (with cisplatin) Renal cell cancer

Second-line non-small cell lung cancer

Relapsed refractory multiple myeloma

Xeloda

5-FU infusion

56%

84%68%

47% 43%

44%

16%32%

53% 57%Fr

ance

(n=3

4)

Germ

any (

n=31

)

Italy

(n=3

1)

Spain

(n=3

0)

UK (n

=30)

Etoposide capsules

Etoposide injectables

24% 19%3% 7% 7%

76% 81%97% 93% 93%

Fran

ce (n

=34)

Germ

any (

n=31

)

Italy

(n=3

1)

Spain

(n=3

0)

UK (n

=30)

Sutent

Avastin with Interferon Alpha

44%55%

39% 37%47%

56%45%

61% 63%53%

Fran

ce (n

=34)

Germ

any (

n=31

)

Italy

(n=3

1)

Spain

(n=3

0)

UK (n

=30)

Tarceva

Alimta/ Taxotere

47%

71%

45% 43% 50%

53%

29%

55% 57% 50%

Fran

ce (n

=34)

Germ

any (

n=31

)

Italy

(n=3

1)

Spain

(n=3

0)

UK (n

=30)

Revlimid/Thalidomide

Velcade

i There is a strong preference in Germany for IV therapies; 61% indicated a preference for IV therapies even at a price premium (slide 18)i The fact that German oncologists collect a fee for IV administration likely plays into their preference.

Source: MattsonJack DaVinci survey of ~30 oncologists in each country shown. Oncology Marketing Strategies, Western Europe, MattsonJack DaVinci, The Mattson Jack Group, Inc., 2008.

24

Alternative Three: Management/Episode Fees

Provide margin through episode feesiMaintain viability of community-based IV

infusion through ASP +4-6%iAdd monthly patient management fee for each

cycle or line of therapy

Provide margin through episode feesiMaintain viability of community-based IV

infusion through ASP +4-6%iAdd monthly patient management fee for each

cycle or line of therapy

25

Considerations

i Eliminates profit as a physician selection criterion for drug therapies

i Pays physician office for managing and overseeing care delivered by multiple providers

i Reduces attraction of “conglomerate” strategies, reducing potential for new utilization conflicts


i Operationally complex for commercial payers to implement– Contracting structure

(IPAs, etc.)– Confirming “cost” of Rx

i Determining terms and size of episode payments will be challenging

i Some risk for encouraging undertreatment; requires QA and UM systems to change focus of monitoring


26

Incentive Arises from Patient Management: Office-administered drugs deliver positive margins

Taxotere Monotherapy, mBCSingle Treatment, Q1 2007

Source: MattsonJack DaVinci, pro bono client, 2007

$790778

12

168180

2,05871

1,9872,238

251$1,987

IV w/ Mgmt

$694778

840000000

Oral w/Mgt

3,016Total revenue

$790Final Net Profit0Episode payment

790Net profit before episode payment

168Overhead958Gross profit

$2,765Drug revenue251Admin revenue

1,987Drug cost

2,05871

Commercial IV Status Quo

Total costLabor cost

27

Wrapping Up

Alternative

ssRestrains expenditure growth

aaaPractical implementationaFormulation agnosticaaaFunds support, follow up

aaaMaintains community setting

aaaAvoids perverse incentives

Management FeePro FeesStatus Quo

28CONFIDENTIAL

393 Vintage Park Dr., Suite 250Foster City, California 94404U.S.A.Tel: (650) 212-7010Fax: (650) 212-7011 E-mail: [email protected]: http://www.mattsonjack.com

Please contact us if you have any questions.

US:

Lee Blansett

[email protected]

EU :

Pierre [email protected]

designing physician financial incentives for appropriate...

Documents