“Pharmacy Benefit Management Fundamentals” Greg Rucinski RPh.

Session Objectives Provide you with an understanding of: (1) Where a Pharmacy Benefit Manager makes $$$. (2) PBM Contracts (3) Emerging Ideas in Plan Design, Utilization, and Cost Management.

KEY CONTRACT QUESTIONS Does the contract create a fair deal for all parties? Have I clearly defined the deal and can I explain it to all stakeholders? Does the contract create accountability for all entities involved? Does the contract match the RFP? 5. Is the claims processing in compliance with the contract?

HOW DOES A PBM MAKE MONEY? The Four Glasses Administrative Fees & Value Added Services - Nickels & Dimes - DUR, PA’s & DM - Pricing Guarantees Pricing Differentials - Dispensing Fees - Package Size - MAC Programs Manufacturer Revenue - Rebates - Other Revenue Forms Mail Order - Traditional - Specialty Rx

The “A.D.D.” PBM Contract Evaluation Method “A” = Accountability “D” = Definition “D” = Disclosure Definition and Disclosure create Accountability …

Example- Definition of AWP Contract Offered Definition “AWP” means the Average Wholesale Price for a “standard package size” of a prescription drug as established by First Data Bank or other mutually agreed upon nationally available “reporting service” and is the “list price” as reported by drug wholesalers. Broken Down by Components a) “Standard Package Size” – 4 standard package sizes b) “Reporting Service” – First Data Bank, MediSpan, Red Book c) “List Price” – repackaging license qualifies PBM as a Drug Wholesaler AWP Questions Q#1. How can I define which “Package Size”, “Reporting Service” and “List Price” are going to be used in the adjudication (pricing logic) of my claim?

AWP EXAMPLE- continued Q#2. How will defining each of these affect my overall pricing and claims cost? Package Size- .3 to .5% AWP Reporting Source- .2% List Price (Repackaging)- $$$ Pricing Lag- .1 to .3% Q#3. What is the preferred definition of “AWP”? “AWP” is the price defined and distributed by First Data Bank for each drug in the database. If other pricing sources are used, at no time will pricing algorithms be used between pricing sources. All AWP’s are based on the 11digit NDC number of the container from which the medication was dispensed on the day it was dispensed to the plan member and billed to the plan. AWP prices will be updated weekly to reflect current AWP pricing. Re-packaging NDC’s are allowed as long as the AWP of the original package is used for pricing purposes.”

What Can I Negotiate? The Right to Participate in the: PBM Selection Process PBM Contracting Process Benefit Delivery Process Plan Design Process

Request for Proposal- RFP PBM Selection Process Request for Proposal- RFP Weighting What weight is given to each category? Pricing, client service, member service, analytics, etc. Number of Candidates Have we gotten a good view of the industry? Stability Are they a candidate for acquisition? Labor History What references can they provide?

Benefit Delivery Process Rx Claims Audits Up to 2 Years Retrospectively Full File Audit Reversal & Rejections Prior Authorizations Formulary Flags Contract Compliance Claims Paid Outside of Plan Design Eligibility? Rebates?

Modeling Tools Plan Design Process On line Access Benchmarks Net Cost Impact Step Therapy Impact OTC Strategy Impact Patent Impact Brand to Generic New Brands

PBM Contract- Must Have Provisions The inclusion of 11 digit originator NDC language in calculating retail AWP. An overall annual net effective rate for generics at both retail and mail order. The right to implement identical MAC pricing at mail and retail. Keeping the manufacturer’s administrative fee within the “safe harbor” limit of 3% of AWP. Specific protocols for auditing retail pharmacies on behalf of plan sponsors. Specific protocols for auditing mail order pharmacies on behalf of plan sponsors. Performance guarantees on critical service requirements. PBM revenue disclosure language. Specialty Pharmacy pricing and definition.

LAGNAIPPE “ A little something extra” Annual Market Price Reviews Liability Limits- annual admin. fees Eligibility Rule Sets- exact matches Compounds- definition & adjudication method Admin Fee- “per paid and processed claim” Refill Parameters- Mail vs. Retail Retail Pharmacy Hard Edit Overrides? Exit Strategies- “without cause”- 180 days

SPECIALTY PHARMACY Why is it important? Future overall cost driver 23% trend 600 drugs in pipeline What can you do? Find & negotiate a solid contract Individual Line Item Pricing Account for Generics & Rebates Utilization Management Hemophilia Units CMS anemia guidelines- Aranesp, Epogen & Procrit What can’t you do? Oncologists Profit driver- 60%

Plan Design Stuff Rand Institute- generics study ESI- co-pay Study United Health Care- pill splitting BCBS- zero dollar generics Value based co-pays Reference based co-pays Towers Perrin- reference based formularies OTC Strategies- GERD & NSA Clinical PA’s- Tora, Tora, Tora

Industry Stuff 2009 Trend- the perfect storm of PBM profits, retail pharmacies & AMP, and blockbuster generics Oh Canada- Dandy Don Meredith Your government- your tax dollars at work buying drugs Authorized Generics- hanky panky Johnson & Johnson- Justin Wilson- “I gaerauntee”!!! PBM’s- “We ain’t got no stinkin’ docs!” Federal Diabetes- Keith Wilkinson- “Whoa Nelly!”

EMERGING UTILIZATOIN MANAGEMENT STEP THERAPIES Physician Education & Involvement Antibiotics/GERD/NSA’s GENERIC SAMPLING Counteract Brand Sampling MEDICAL CASE MANAGEMENT Wellness Early Intervention

EMERGING COST MANAGEMENT CARVE OUTS Carrier Premium Cheating TPA Revenue Claimed loss of medical case management RETAIL/MAIL IDENTICAL MAC’S Net Unit Cost Alignment Mail/Retail BRAND MAC’S Multi-source Brands SPECIALTY RX Principal Driver of Future Cost

PBM SELECTION CRITERIA “Lowest Price” “Highest Quality” “Best Service” PICK ANY TWO

CVS- Caremark Acquisition First Data Bank Lawsuit Ted Kennedy, Congress, and the FDA PBM Specialty Rx Vendors Acquisitions Purdue Pharmaceuticals- FDA Fine Caremark- Florida Medicaid Judgment