State of the pharmacy market Vrinda Rio, PharmD Principal, Mercer March 15, 2019

Mercer today MAKING A DIFFERENCE for 70+ years HEALTH — CAREER — MERCER WEALTH — 28,000 CLIENTS +21,000colleagues 140 countries 110 million lives touched

Top DRUG spenders per capita ($US), 2016 Source: Organisation for Economic Co-operation and Development

US HealthCare Expenses by state, 2014

Macro trends SHAPING pharmacy TODAY Market consolidation and expensive new drugs and treatments are driving cost As plan designs shift cost to employees, some struggle to afford the healthcare they need New solutions are flooding onto the market – but employee engagement remains elusive The line between medical and pharmacy is blurring, making it imperative to manage care holistically across both benefits Greater focus on the current rebate structure could lead to a change and may shift contract dynamics Today’s on demand consumer may shift health trends towards connected care technology

STATE OF THE MARKET key MARKET trend: capitalizing on change Understand the carrier landscape, prepare to capitalize and take action accordingly TODAY’S REALITY TOMORROW’S POSSIBILITIES How will those with more market leverage pass savings onto Plan Sponsors? How will the vertical integration promise result in better care delivery and outcomes? How will new entrants and solutions focused on technology lead to a better member experience? What will be the next deal?

STATE OF THE MARKET key MARKET trend: focusing on PHARMACY Actively manage today’s programs, and understand the near and long-term impacts of the evolving market TODAY’S REALITY TOMORROW’S POSSIBILITIES What if rebates cease to exist – how will this impact Plan Sponsors and the pharmacy financial equation? Specialty drugs impact less than 2% of people, but are expected to be half of all pharmacy spend by 2020 – how can these costs be managed? Life-saving/changing drugs – are there limits to how much a Plan Sponsor should be obligated to pay for a cure? Traditional rebate model is being challenged by the government and new delivery models Specialty medications accounted for 70% of pharmacy cost growth in the US over the past five years Specialty pipeline continues to grow – with 40-50 new specialty medications expected to be approved each year

KEY EMPLOYER CHALLENGES EMERGING TRENDS & ACTION OPPORTUNITIES The prescription drug landscape managing drug costs in a dynamic marketplace KEY EMPLOYER CHALLENGES PBM Market Consolidation Rising Drug Costs Specialty Pharmacy/ High Cost Claims Rebates Behavioral Health EMERGING TRENDS & ACTION OPPORTUNITIES Pharmacy Governance Formulary, Utilization Management, Network Site of Care Evolving Payment Models Condition Management