Microsoft word - biotechnology pharmaceuticals and their implications.doc
Medical Director Illumination Medical, Inc.
It is imperative that health plans today identify and quantify their existing and projected future liability for the biotechnology derived pharmaceuticals. These agents are becoming the standard for care
in most organ system diseases. Not to understand
this looming liability could prove fatal for unprepared health plans.
Within health care, the epicenter for new drug development is in the biotechnology sector of the industry. The current trend for office and home injectables, including infusions, has been inflating at a rate of almost 30% annually. Five new biotech drugs were approved for the market by the FDA
during 2001 and 2002. In 2003 the number of approvals rose to 21. The projected growth rate of market entrées is exponential into the future. The above market dynamics are playing out in an accelerating era of fundamental change in medical science. Increasing knowledge of the human
cellular system - thanks in large part to the mapping of the human genome two years ago - promises new cures and ways to prevent diseases. Coincidentally, the aging population in the U.S. and other industrial countries, plus the plague of diseases such as AIDS and SARS, cry out for the introduction of new medicines. The following data summarizes the evolving trend in the market toward higher
cost biotechnology derived pharmaceuticals:
Spending on biotech and specialty drugs rose 40% in 2002.1
Biotech drugs are very costly, ranging from $10,000 to $1 million per year per patient.
Patients utilizing specialty medications typically comprise only 1 to 5 percent of a health plan's population, yet account for 25 to 50 percent of the plan's total medical and pharmaceutical costs.
There are over 90 biotech drugs that are approved by the FDA (over 50 approved in last 3 years)
Over 350 drugs are currently in human clinical trials, hundreds more in nonhuman trials (almost ½ are for cancer)
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Over $26 billion is currently committed to biotechnology R&D
The following table illustrates just how much more expensive these new agents are in comparison to the pharmaceutical therapies they are replacing:
To further illustrate this point, the following table demonstrates the costs associate with the “top twenty” biotechnology drugs that are in use in the market today.
Biotechnology and Specialty Pharmaceuticals Page 3 of 9 Biotech drugs are life-saving, necessary, disease-changing compounds that produce an insatiable demand in the market. Targeted diseases for specialty pharmacy drugs that are currently in the development pipeline include:
The issue of injectable and infusion drugs as they relates
The infusion of biologically derived agents that target specific areas in the immune/inflammatory process are now deployed throughout the health care
delivery system. The use of these agents is most advanced in the specialties of Rheumatology, Gastroenterology and Oncology. In the very near future, all disease processes that incorporate inflammation will soon be targeted with these agents. This article will describe in detail the current therapies for Rheumatoid Arthritis as
a descriptive framework for the evolving use of infusion drugs in the future. There are three drugs on the market that have been deployed. These include:
(infliximab) - Centocor has exclusive marketing rights to
REMICADE in the United States. Schering-Plough Corporation (NYSE: SGP) has rights to market REMICADE in all other countries throughout the world, except in Japan and parts of the Far East where Tanabe Seiyaku, Ltd. will market the product.
(etanercept) – Amgen-Wyeth
(adalimumab) - Abbot Immunology
Remicade (infliximab) is a chimeric monoclonal antibody that binds to tumor
necrosis factor alpha (TNF), which is believed to be a central causative factor in the inflammatory process in humans. Remicade is biologically derived and is approved for treating rheumatoid arthritis and Crohn’s disease (an inflammatory
Biotechnology and Specialty Pharmaceuticals Page 4 of 9 bowel condition). It is being studied for the treatment of psoriasis and psoriatic arthritis, and some doctors are already prescribing it for these diseases. Remicade blocks tumor necrosis factor-alpha (TNF-alpha), a chemical “messenger” in the immune system that signals other cells to cause inflammation.
There is too much TNF-alpha in the skin of people with psoriasis and the joints of people with certain types of arthritis. This causes inflammation and can lead to tissue and joint damage. TNF-alpha can also lead to increased immune system activity through the activation of T cells. T cells are a type of white blood cell in the body; in psoriasis,
once T cells are mistakenly activated, they can trigger inflammation and other immune responses and fuel the development of psoriasis lesions. Remicade helps lower the amount of TNF-alpha to more normal levels, thus interrupting the inflammatory cycle of psoriasis and psoriatic arthritis and leading
to improvement in symptoms for many people who take it.
DOSAGE AND ADMINISTRATION
The recommended dose of REMICADE is 3 mg/kg given as an intravenous
infusion followed with additional similar doses at 2 and 6 weeks after the first
infusion then every 8 weeks thereafter. REMICADE should be given in
combination with methotrexate. For patients who have an incomplete response,
consideration may be given to adjusting the dose up to 10 mg/kg or treating as often as every 4 weeks.
Quantization the cost for anti-TNF agents within a representative health
Centecore, the pharma company distributing REMICADE in the United States,
has been providing classes for physicians and their offices in techniques for bill
third party payers for both product cost and technical fees. If the physicians are not reimbursed for the infusion, using the techniques provided by Centecore, the company will hold the physician harmless and provide a replacement product unit, without cost, to the physician.
The usual dosage is 3mg/Kg so that for a 70 Kg male patient, the dosage
It is common to have “dosage creep” for patients taking REMICADE® (infliximab). Thus, the maintenance dosage can increase to double or even triple the above starting infusion level.
The product is billed by 10 mg units so that 10 units are within a 100 mg vile
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The rate for billing by unit is now $102 per unit. This generates a billing rate of $1,020 per vile ($102 x 10 units). Thus the markup for a $490 acquisition cost for the physician by a factor of 2.08 ($1,020 / $490).
o The per session product charge for a 70 kg patient at the starting
dose of 3 mg/kg is therefore $2,142 while the acquisition cost is $1,029.
While the above billing factors are attention grabbing, it should be kept in mind that the same product and service cost in the hospital ER is billed at a rate in excess of $23,000 per event.
The following table summarizes the methodology whereby a physician’s office
wil calculate the bill for infusing REMICADE in the office setting:
Calculating the fee for a 70 kg patient with “dosage creep” at a dose of 6
Saline per 250cc (_250
_ / 250)
Remicade, per 10 mg (420
_ / 10)
TOTAL THIS TREATEMENT
Biotechnology and Specialty Pharmaceuticals Page 6 of 9
Physician income from infusion therapy per year:
Assume that a busy Rheumatologist has, on average, 100 patients receiving REMICADE® (infliximab) throughout the year. For the sake of this
exercise, I will reduce this assumption by 3/4 so that the number of patients on therapy will be 25.
Furthermore, assume that the average dose per patient will be 6 mg / kg given the reality that it is not uncommon for the dosage creep to increase
And assume that the facility fees are fully loaded (i.e. there is no profit after all expenses are paid).
The following represents his net from the in-office business unit per year:
REMICADE® (infliximab) acquisition cost
Charge per episode of service
Net profit per episode of service
Number of treatment events per year (52 weeks / 2)
Net profit per year per Rheumatologist
Effect of all of the above on the beneficiary
Patients are now facing increasing co-payment and co-insurance costs for these
agents. Many patients, even in affluent markets, can not pay a co-payment cost of $24,320 per year or a co-insurance cost of $60,801. See below:
Biotechnology and Specialty Pharmaceuticals Page 7 of 9
Problem: The data base is not capturing the “J Codes” Armed with the above information, Illumination Medical examined the paid claims data base for the actual cost of infusion products paid for by the Health Plan during the study period. We identified the patients who carried the diagnosis of Rheumatoid Arthritis by ICD-9 classification within the health plan’s
medical paid claims data base. We further identified that they were on an unspecified anti-TNF agent. In addition, we determined that these patients had no record of having first and/or second line disease-modifying anti-rheumatic drugs DMAR therapy (plaquinil, gold, or MTX), as per protocol, before being
placed on an anti-TNF agent. The problem of data capture appears to be an anomaly associated with J Codes. These are not billing codes that are used for medical professional or technical fees. These fees are identified by ICD-9 codes and billed with modifies as CPT codes. Nor are they part of the pharmacy billing code system - NDC
(National Drug Code) Numbers. R•J Health Systems has developed its own "NDC/AWP database file" with information supplied by First Data Bank, Facts and Comparisons (Medi-Span) and Red Book. This information is validated and supplemented with information supplied by wholesalers and drug manufacturers. These "J-codes" were originally established by CMS to identify certain drugs and other items (e.g. disposables used in injections). These codes aren't unique for product size, packaging or dose, so it's impossible to tell from the claim how much of the medication was administered. Secondly, there are many injectable
products for which no J-code exists, so claims are submitted using a miscellaneous J-code instead. Thus J codes provide an environment whereby it is difficult to quantitate the utilization or the cost for goods and services billed with these numbers. These codes will frequently produce duplicate claims through both the medical and
the pharmacy benefits. Because of the lack of detail in J-codes, health plans are placed at the mercy of the provider to get a fair price for a given drug. Centicor is teaching physicians to bill using these codes thus providing an opportunity to maximize coverage for pharmacy services by leveraging whether
claims were processed through the pharmacy or medical benefit. Thus the protocol for billing, detailed above, includes CPT codes for the facility fee but J-codes for product fees. This bil ing format is now widely used not only in Rheumatology, but in the practice of Oncology, Gastroenterology and Endocrinology as well. The implications for the Health Plan are significant. The actual cost for a years worth of infusion therapy can easily total over $100,000 without having the system ascribe the cost to either medical or pharmacy categories. In addition,
Biotechnology and Specialty Pharmaceuticals Page 8 of 9 the ability to track cost by patient and provider are not within the systems capability.
Quality indicator targeted members within a sample health plan
The following table indicates the criteria evaluated within the beneficiary
population during the study period:
# of Members
With the Issue
The following table indicates the beneficiaries not meeting the above criteria for management of Rheumatoid Arthritis with stepped therapy before using anti-TNF agents:
Indv_ID Not Met
Illumination Medical Analysis
The relevance for all of the above for the typical privately funded health plan is multifaceted. Most health plans today are paying far above their typical contracted discount rates for pharmaceutical products within their pharmacy benefit. These discounts generally are negotiated in the range of average
wholesale price (AWP) minus 12 to 15 percent. In addition, the health plans are
Biotechnology and Specialty Pharmaceuticals Page 9 of 9 not receiving rebate reimbursement in most instances from these expensive pharmaceutical agents. By teaching physicians to bill using J codes, pharmaceutical manufacturers are generating an end run around the health plan’s pharmaceutical benefit
manager and having the claim adjudicated and paid for by the plan’s third party administrator (TPA). TPAs have none of the infrastructure to handle pharmaceutical claims. They do not have the data base to receive and interpret pharmaceutical manufacturers National Drug Code NDC data and therefore typically do not require this
information when the claim is submitted. TPAs do not typically have discount contract with health care providers (hospitals, physicians, infusion centers, etc.) to enforce industry accepted discounts that key off these NDC codes. In addition, there is no TPA in-place on-line adjudication process established to
review and set payment discounts in advance and check for drug protocol and interactions. This entire infrastructure exists within the pharmaceutical benefit management (PBM) market but is unavailable within the TPA market. The above explains the rational for using J Codes and sending the claim through the TPA adjudication process. In many instances, the TPA, lacking the ability to
capture NDC codes, wil pay the bill fees and file the payment under an “unknown” file. The result can be catastrophic for the health plan. Rather than accurately tracking the cost for the pharmacy benefit, the health plan carries the most rapidly inflating component of its pharmaceutical benefit under non-
specific general health care costs. It is imperative that health plans today identify and quantify their existing and projected future liability for the newer biologic derived pharmaceuticals. As discussed above, these agents are becoming the standard for care in most organ system diseases. Not to understand this looming liability could prove fatal
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