Approach to Financial Planning for Pharmaceuticals
11th Annual Pharmacy Purchasing Networking Conference
August 14, 2007
James M. Hoffman, PharmD, MS, BCPS
Medication Outcomes Coordinator St. Jude Children’s Research Hospital Assistant Professor University of Tennessee College of Pharmacy Memphis, TN
Objectives
Discuss recent trends in overall, hospital, and clinic prescription drug expenditures and understand factors that will influence pharmaceutical expenditure patterns. Describe the drug pipeline for and evaluate the influence of these new agents on prescription drug expenditures for health systems. Discuss the diffusion patterns of recently approved drugs that influence health system drug expenditures and trends in the availability and pricing of generic drugs. Devise an approach to financial planning for pharmaceuticals.
2005 US Health Care Expenditures by Category
7.4% Total HC Growth
Other Medical Svcs 10.1% Public Health Activity Program 3.1% Admin 7.1% Research 2.1% Structures & Equipment 4.6% Medical Equipment 2.8% Hospital Care 30.1%
8% Rx Growth
Pharmaceuticals 10.1%
Nursing Home/ Home Health 8.5%
Source: CMS, Office of the Actuary from Borger et al, Health Affairs, 2006; W61– W73; Numbers Projected
Physician Services 21.3%
2004 US Health Care Expenditures by Category
7.5% Total HC Growth
Program Admin 7.1% Public Health Activity 3.2% Research & Construction Medical 3.8% Equipment 3.0%
11.9% Rx Growth
Other Medical Svcs 10.2%
Pharmaceuticals 11.1%
Hospital Care 30.6% Nursing Home/ Home Health 8.9%
Source: CMS, Office of the Actuary from Heffler et al, Health Affairs, 2005; W5-74 – W5-85
Physician Services 22.0%
Growth in Health Care Expenditures by Type, 1995-2004
20
% G ro w th
15 10 5 0 1970 1980 1993 1997 2000 2003 2004 2005
National Health Expenditures Physician and Clinical Services
Hospital Care Prescription Drugs
Caitlin et al, Health Affairs 26, no. 1 (2007): 142–153 (CMS data)
Trends in Overall Drug Expenditures: 2000 to 2006
Since 2001, the growth in overall drug expenditures has moderated
20%
18% 15%
15%
12.3%
11.4% 8.3% 5.5% 7.5%
10%
5%
0%
2000
Sources:
Hoffman JM, Shah ND, Vermeulen LC, et al. Hoffman JM, Shah ND, Vermeulen LC, et al. Hoffman JM, Shah ND, Vermeulen LC, et al. Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2004. Forecasting future drug expenditures 2005. Forecasting future drug expenditures 2006. Forecasting future drug expenditures 2007. Am J Health-Syst Pharm. Am J Health-Syst Pharm. Am J Health-Syst Pharm. Am J Health-Syst Pharm. 2004; 61:145-58. (IMSHealth data) 2005; 62:149-67. (IMSHealth data) 2006; 63:123-38 (IMSHealth data) IN PRESS (IMSHealth data)
2001
2002
2003
2004
2005
2006 (9mos)
Trends in Drug Expenditures for Non-Federal Hospitals: 2000-2006*
30% 25% 20% 15% 10% 5% 0%
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006*
* 2006 Data based on 9 months of 2006
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2005. Am J Health-Syst Pharm. 2005; 62:149-67. (IMSHealth data) Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2006. Am J Health-Syst Pharm. 2006; 63:123-38 (IMSHealth data) Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2007. Am J Health-Syst Pharm. IN PRESS (IMSHealth data)
26.8%
9.7% 4.9% 6.2% 6.4% 5.7% 2.5%
Trends in Drug Expenditures for Clinics: 2000-2006*
30%
24.6%
25% 20% 15% 10% 5% 0%
23.0%
21.4% 22.5% 18.2% 13.5% 12.4%
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006*
* 2006 Data based on 9 months of 2006
Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2005. Am J Health-Syst Pharm. 2005; 62:149-67. (IMSHealth data) Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2006. Am J Health-Syst Pharm. 2006; 63:123-38 (IMSHealth data) Hoffman JM, Shah ND, Vermeulen LC, et al. Forecasting future drug expenditures 2007. Am J Health-Syst Pharm. IN PRESS (IMSHealth data)
Trends in Overall Drug Expenditures: 2000 to 2006*
20% 15.3% 15% 12.4% 12.6% 9.2% 7.5% 5.5% 5% 18.1%
10%
0%
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006*
* 2006 Data based on 9 months of 2006
Reasons for Moderation in Growth of Drug Expenditures
Increased cost sharing for consumers
•
Decrease in number of new agents, especially new “blockbusters”
•
For example, 21 NMEs in 2003 and 17 NMEs in 2002 vs. a high of 53 NMEs in 1996
Sources: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2000-2005. http://www.fda.gov/cder/rdmt/default.htm
Reasons for Moderation in Growth of Drug Expenditures
Safety concerns
• • •
Hormone replacement therapy COX 2 Inhibitors SSRIs in children and adolescents Nonsedating antihistamines Proton pump inhibitors
Rx to OTC conversions
• •
Generic Drugs
Examples of Recent Significant New Generics
Fluoxetine Lisinopril Milrinone Loratadine Metformin Omeprazole Paroxetine Ciprofloxacin Gabapentin Fluconazole Carboplatin Amoxicillin-clavulanate Glimepride Azithromycin
Fluoxetine: Rapid Switch to Generic
Source: Benjamin G. Druss, Steven C. Marcus, Mark Olfson, and Harold Alan Pincus, Listening To Generic Prozac: Winners, Losers, And Sideliners, Health Affairs, Vol 23, Issue 5,2004: 210-216
Monitoring and Evaluating Drugs in Development
Gather information on drugs in development Determine which drugs are relevant to your institution
•
Talk to key prescribers!!! Therapeutic breakthrough
•
If relevant to your setting, discern if the drug is a:
•
Will change practice and/or improve outcomes Marginal advantages over existing drugs in class Improve quality of life but do not increase life expectancy Not used in most hospitals (but important influence if used)
•
“Me too” drug
•
•
Lifestyle drug
•
•
Orphan/Military Use
•
Evaluating the Cost of Drugs in Development
Based on knowledge of new drug and existing drugs, preliminary cost analysis can be conducted Global assessment of cost impact
• • •
Will the new drug replace an existing drug? (+, -, or =) Will the new agent be added to existing therapy? (+) Will the new agent shift costs between settings of care? (e.g. from inpatient to clinic) Aggressive pricing can sometimes lead to therapeutic interchange opportunities and cost savings
Remember not to overlook “me too” drugs
•
Broad Pipeline Indicators
FDA Approvals New Drug Applications (NDAs) and Investigational New Drug Applications (INDs) FDA Approval Time
Broad Indicators of the Pipeline Size: FDA Approvals
20 novel drugs approved by FDA in 2005
•
18 New Molecular Entities (NMEs) and 2 Biologics 31 NMEs and 5 Biologics 21 NMEs approved in 2003 17 NMEs approved in 2002
36 novel drugs approved by FDA in 2004
•
Compared to:
• •
Recent approvals not expected to result in widespread increase in drug costs
• •
2005: approvals not truly new (e.g. 2 Hyaluronidase products) or for small populations Many orphan drugs approved (7 in 2005; 9 in 2004)
Sources: http://www.fda.gov/cder/rdmt/default.htm
Number of Novel Drugs Approved by FDA:
2000 to 2006
40 35 30 25 20 15 10 5 0
2000 2001 2002 2003 2004 2005 2006
Sources: http://www.fda.gov/cder/rdmt/default.htm
36 32 27 23 17 21 20
Broad Indicators of the Pipeline Size: NDAs and INDs
Late Stage Pipeline
•
Early Stage Pipeline
•
Number of NDA filings consistent
• • •
Commercial INDs received by FDA
• • •
2005* = 116 2004* = 115 2003 = 109
2005* = 637 2004* = 621 2003 = 391
•
Number of Active Commercial INDs at FDA by end of CY
• • •
2005* 2004* 2003*
= 5,023 = 4,827 = 4,544
* Numbers include therapeutic biologics
http://www.fda.gov/cder/rdmt/
Broad Indicators of the Pipeline Size: Approval Time
Approval time expected to increase
• •
Lack of permanent FDA leadership Greater caution due to safety concerns (from both FDA and manufacturers)
Mean approval time for all application types actually decreased
• • •
However, decrease due to mix of priority vs. standard applications
•
75% of 2005 approvals were priority applications
Broad Indicators of the Pipeline Size: Approval Time
Approval times have remained consistent
•
Priority NMEs/Biologics: Median approval
• • •
6.0 months in 2005 6.0 months in 2004 6.7 months in 2003 23.0 months in 2005 24.7 months in 2004 23.1 months in 2003
•
Standard NMEs/Biologics: Median approval
• • •
Drugs in Development: Alvimopan (Entereg)
Opioid antagonist with specificity for the GI tract Indication: treatment of postoperative illeus
•
Also being studied for opioid-induced bowel dysfunction in patients with chronic pain not due to cancer
In a randomized placebo controlled study of patients undergoing abdominal surgery:
•
•
Median time to first bowel movement was faster in the alvimopan group (70 hrs vs. 111 hrs, p=0.01) 23 hour difference in median time until hospital discharge (68 hrs vs. 91 hrs (p=0.03)
Taguchi A, et al.. N Engl J Med. 2001; 345:935-940.
Drugs in Development: Alvimopan (Entereg)
FDA deemed alvimopan “approvable” in 2005- but requested additional data from an ongoing trial Approval was expected in 2006 FDA issued another approvable letter issued Nov 2006; FDA requested:
•
•
12 month safety data from ongoing study, including analysis of cardiovascular events Risk management plan
Data expected to be available 2nd Quarter 2007
See: http://phx.corporate-ir.net/phoenix.zhtml?c=120919&p=irol-newsArticle&t=Regular&id=926785
Anti-infectives in Development: Dalbavancin (Zeven)
Second generation lipoglycopeptide that acts by inhibiting cell wall synthesis Intravenous antibiotic with activity against a variety of Gram positive bacteria
•
Including methicillin-resistant Staphylococcus aureus (MRSA)
Being evaluated for complicated skin and soft tissue infections and catheter related blood stream infections
Bosso JA. Pharmacotherapy. 2005; 25(10 Pt 2):55S-62S Seltzer E, Dorr MB, Goldstein BP et al. Clin Infec Dis. 2003; 37:1298-1303.
Anti-infectives in Development: Dalbavancin (Zeven)
Drug has long ~7.5 day half life, which leads to unique once weekly dosing regimen
•
Expected to be key marketing point, but may also present challenges
Adverse events similar to various comparator regimens FDA issued approvable letter June 2006; approval and launch expected in 2007
Bosso JA. Pharmacotherapy. 2005; 25(10 Pt 2):55S-62S Seltzer E, Dorr MB, Goldstein BP et al. Clin Infec Dis. 2003; 37:1298-1303. Pfizer Form 10-Q on 3-Nov-2006 available at http://biz.yahoo.com/e/061103/pfe10-q.html
Anti-infectives in Development: Doripenem
New carbapenem with activity similar to currently available antipseudomonal carbapenems Initial development focused on ventilator associated pneumonia Also, being evaluated for complicated urinary tract infections, pyelonephritis, complicated intraabdominal infections Approval possible in late 2007
Bosso JA. Pharmacotherapy. 2005; 25(10 Pt 2):55S-62S
Quarterly Expenditures for Erythropoietin Products
(Darbepoetin = Yellow Squares, Epoetin alfa = green diamonds; Total = Orange circles)
2,750
2,536
Continuous Erythropoietin Receptor Activator (CERA)
Pegylated epoetin product Initial development focused on Chronic Kidney Disease (CKD) population Application for CERA filed in 2006 Patent challenges but approval possible in 2007 Other anemia therapies in development – dynamic class over next 3 – 5 years
Summary of Emerging Therapies (1)
Drug
Rufinamide (Xilep) Garenoxacin Sitaxsentan (Thelin)
New class of antihyperlipidemic therapies that dramatically increases HDL Safety concerns – development ended New injectable osteoporosis therapy; administered only 2 times per year New class of HIV therapies
Denosumab
•
Maraviroc and other CCR5 Inhibitors
•
Brousseau ME, et al. Effects of an Inhibitor of Cholesteryl EsterTransfer Protein on HDL CholesterolN Engl J Med 2004;350:1505-15.
Summary of Drugs in Development
Approvals
• •
Numbers are modest and flat Specialized
Early stage pipeline appears to be growing at slow rate Relatively small number of drugs in pipeline important to health systems Trends in drugs in development have helped moderate drug expenditures
Diffusion of Innovation
New behaviors or technologies are adopted in stages depicted by an “S” shaped curve.
Rogers EM. Diffusion of innovations. 4th ed. New York: Free Press; 1995.
“Typical” Drug Diffusion Pattern
Initial use may slow But as familiarity with drug increases, use increases rapidly until drug is widely in use and use stabilizes Therefore, economic impact may not become important until several years after approval However, typical pattern has been less common recently
New Drug Diffusion Pattern
Slower drug diffusion due to safety concerns, which moderates drug expenditures Examples
• • •
COX 2 Inhibitors Natalizumab Nesiritide
Safety Concerns and Diffusion: 2006
Safety concerns going away in 2006? No just lower profile Examples
•
Gatifloxacin and dysglycemias Telithromycin and hepatatoxicity
Safety concerns still moderate expenditures
Data on Nesiritide
Meta analysis of 3 studies showed that the risk of death within 30 days after nesiritide therapy was higher compared to controls Meta analysis of 5 studies showed that nesiritide treated patients had an increased risk of worsening renal function compared to control patients
Sackner-Bernstein JD, Kowalski M, Fox M, Aaronson K. Short-term risk of death after treatment with nesiritide for decompensated heart failure: a pooled analysis of randomized controlled trials. JAMA. 2005; 293:1900-1905. Sackner-Bernstein JD, Skopicik HA, Aaronson KD. Risk of worsening renal function with nesiritide in patients with acutely decompensated heart failure. Circulation. 2005; 111:1487-1491.
Quarterly Expenditures for Nesiritde
(4th Quarter 2002 to 2nd Quarter 2006)
140
$124
120 100 $ in Millions 80 60
$39 $58 $56 $49 $75 $98 $99 $89
Typical Drug Diffusion Pattern Still Exists
Recombinant Factor VIIa (NovoSeven)
•
Use continues to increase
•
1st quarter 2005 expenditures for hospitals and clinics were more than double that of 1st quarter 2002
•
New indications – for example recent data on use for intracerebral hemorrhage
Mayer SA, Brun NC, Berftrup K, et al. for the Recombinant Factor VII Intracerebral Hemorrhage Trial Investigators. Recombinant Activated Factor VII for acute intracerebral hemorrhage. N Engl J Med. 2005; 352:777-785.
Quarterly Non Federal Hospital and Clinic Sales of Recombinant Factor VIIa from 1st Quarter 2002 to 2nd Quarter 2005 (NovoSeven, Novo Nordisk)
$50 $41.8 $41.9 $40 $34.1 $31.8 $31.7
$ Millions
Typical Drug Diffusion Pattern Still Exists
Colony Stimulating Factors (CSFs) (pegfilgrastim, filgrastim, sargramostim)
•
•
•
Pegfilgrastim drives overall increase in CSF expenditures Particularly growth in CSF expenditures for clinic setting Further increase in use expected from:
• •
Updated NCCN guidelines recommend broader use FDA indication for pegfilgrastim expanded to include use in less myelosuppressive chemotherapy regimens
Quarterly Hospital and Clinic Sales of CSFs from 1st Quarter 2002 to 2nd Quarter 2005
(Total CSFs include pegfilgrastim, filgrastim, and sargramostim)
Total Hospital and Clinics CSFs Total CSFs for Clinics Total Hospital and Clinics Pegfilgrastim Total Hospital and Clinics Filgrastim $680.2 $599.9 $624.2
Pricing/Availability Trends:
More “at risk” launches (e.g. clopidogrel) Legislation to address citizen petitions Patent Reform • Patent Act of 2005 • Medicare Modernization Act
• •
More likely to immediately influence generic access Only one 30 month stay during legal challenges
Pricing/Availability Trends: Industry Consolidation
Recent examples
• • •
Sandoz (Novartis) acquired Eon Teva acquired IVAX (completed Jan 26) Various Indian generic firms acquiring firms in US, Canada, and Europe less competition = higher generic prices No data to suggest this has occurred across generics market But remains trend to monitor
Theory: Fewer generic firms =
•
•
Generic drug industry ability to broadly raise prices may be limited, but monitor niche products
Calendar year
*Submissions = workload in subsequent years
Applications received (workload in future years)
Source: 2004 FDA CDER Report to the Nation
Pricing/Availability Trends: FDA Approval
Median ANDA approval time increasing, projected to be:
• •
16.9 months in FY06 17.5 months in FY07 800 to 850 pending applications at FDA FDA received record number of generic applications in Dec 05 (129)
Substantial backlog of generic applications
• •
FDA Office of Generic Drugs funding has remained level over last 3 years
Sources:
Kaufman M New generics delayed: FDA sees backlog of 800 applicants, an all time high. The Boston Globe Feb 5 06 Generic drug reviews take a hit in FDA 2007 budget request. FDC Reports The Pink Sheet. Feb 13 06
“Generic” Biologics - Biosimilars
Biologics are among top expenditures for hospitals and clinics Some patents expired or nearing expiration, but “generic” biologics not yet marketed Presents unique challenges and questions
• • • •
Legal/regulatory Production Safety Savings
Top 15 Drug Expenditures for Hospitals
Drug Epoetin Alfa
Enoxaparin
External Phenomenon (Largely Uncontrollable) Internal Phenomenon (Somewhat Controllable)
N. Shah, L. Vermeulen, University of Wisconsin
V I G I L A N C E
Financial Planning (Budgeting)
Pareto Principal (80/20 rule)
•
•
In nearly all cases, a few vital factors (20%) are important and many (80%) are trivial Applies to preparing a drug budget
• •
60 to 70 drugs will make up 80% of a drug budget Focus for budgeting and cost containment should be on these top drugs
Extraordinary situations can occur which can be nearly impossible to anticipate
•
Example: Million dollar patients
Distribution of Inpatient Drug Expenditures
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
0% 10% 21% 31% 42% 52% 63% 73% 83% 94%
% of Inpt Rx Expenditures
% of Patients
An Approach Pharmaceutical Financial Management
Step-wise, systematic approach to financial plan (budget) development Detailed description appeared in January 15, 2005 AJHP “Projecting Future Drug Expenditures – 2005” Acknowledgement to Lee Vermeulen and Nilay Shah Nine-step process
Step 1: Obtain Data (1)
Review and understand financial statements and all other relevant data Review previous full fiscal year, current year to date and annualized current fiscal year Purchasing data vs. utilization data Distinguish between issues related to price issues related to volume of use Contract price forecast from various sources
Step 1: Obtain Data (2)
Utilization forecasts
• • •
Interviews with clinical leadership Discussions with other key department heads Administration forecasts
New programs Strategic expansion of existing programs Data on external factors, e.g.
• • •
Patent expirations New elements Overall forecast picture
Step 2: Review Past Performance
Last full fiscal year vs budget Annualized current fiscal year vs current budget Current fiscal year vs actual last fiscal year Performance on current costcontainment initiatives Identify causes of variance
Key Aspects of Steps 1 and 2 – Data Acquisition
Key to success – acquisition of purchasing data AND utilization data Distinguish between issues related to price issues related to volume of use Utilization forecasts
• • • • •
Discussions with clinical leadership Discussions with other key department heads Use administrative forecasts with caution! New programs Strategic expansion of existing programs
Step 3: Build High-Priority Budget
Identify products with highest total cost Top 60 to 70 PRODUCTS (not line-items) often represent 80-90% of total budget Focus detailed planning efforts on that list
• • • •
Plot historical spending patterns Identify utilization by prescriber or service Cost trend by class and agent from AJHP paper Identify impact of price, expected utilization changes, potential brand to generic conversion
Develop product specific budget Watch for diffusion of new agents Consider adding uncertainty factor, but document carefully
Step 4: Build New Product Budget
Pipeline information from various sources
• • •
AJHP forecast GPO Other sources
Identify those that will affect your facility Identify price cautiously Volume estimate Estimate of release date Pipeline list as discussed previously
Step 5: Build Non-Formulary Budget
Separate out non-formulary drug use and budget separately Key agents as line items; remainder as fixed cost Critical for financial performance monitoring Report on performance vs budget to P&T Track by prescriber for intervention
Step 6: Build Low-Priority Budget
Remainder of products not included in highpriority budget “Residual” budget Appropriate to apply standard inflationary figure BUT apply on a volume-specific basis (cost per discharge) Use estimates of contract price available from various sources, particularly GPO (often only 2-3%)
Step 7: Establish Cost Containment Plan
Calculate a preliminary total budget and compare vs. expected target Identify variance Identify cost containment opportunities (generally in highpriority budget) to make up variance Use benchmarks with caution (compass vs. thermometer) Document well
• • •
Target amount Expected tactics to be used to achieve target Time frame for project
Cost reduction vs. inflation trend moderation
Step 8: Finalize Budget
Total budget sum of:
• • • •
High-priority product New elements Non-formulary budget Low-priority budget
Less value of cost containment initiatives “Reality check” Respond to requests for additional cuts after submission
Step 9: Vigilance
Tracking of performance Variance identification and resolution Focus attention on high-priority budget at line-item level Overall picture of financial performance
• •
Cost per day vs cost per discharge Watch volume of cost-driving service elements
Continuous process makes subsequent budgeting efforts easier!
2007 Drug Expenditures Forecast by Setting
Use with caution… not a “multiplier” Clinics include prescriber offices and hospital outpatient clinics where meds are administered
Setting
Outpatient Clinics Non-federal hospitals
Inflation Rate Forecast
5 to 7% 14 to 16% 4 to 6%
Hoffman et al. Projecting Future Drug Expenditures – 2007. Am J Health-Syst Pharm. 2007; 64:298-314
Conclusions
Growth in drug expenditures is moderating across all settings (overall, hospital, and clinic) Pipeline growth limited and recent approvals are specialized Drugs in development highlighted included alvimopan and CERA Mixed diffusion trend for 2007
•
Moderation due to safety concerns (e.g. nesiritide) but also “typical” diffusion pattern
Conclusions
Diffusion of recent approvals will be important to manage (e.g. panitumumab, inhaled insulin) Generic biologics will not be available in 2007, but their availability remains important to monitor (coming challenge?) Mixed picture for generic pricing and availability, but negatives do not overshadow dominant pattern which is unprecedented generic drug availability Financial planning for drugs requires data and constant vigilance
Acknowledgments
Lee Vermeulen (U of Wisconsin - Madison) Nilay Shay (Mayo Clinic) Glen Schumock (U of Illinois –Chicago) Collaborators at IMS HEALTH, especially Bob Hunkler