1. 1 How To Dramatically Decrease Your Rx Coverage Costs Presented By: Linda Cahn, Esq. Pharmacy Benefit Consultants (973) 975-0900 www.PharmacyBenefitConsultants.com 2009 Benefits Health Care New York March 9, 2009

2. 2 If You Think About It -- Everything About Your Prescription Coverage -- Is Controlled By Your Prescription Coverage Contract Relying on PBMs’ PROMISES and PROJECTIONS To Obtain Lower Costs and Better Services Obviously Makes No Sense ! Agreeing to a PBM’s Boilerplate Contract (That’s Stuffed With Ambiguous Contract Terms and Loopholes) Also Makes No Sense! The Terms of Your PBM/Client Contract Will Determine Whether Your Plan Will Get Good Services - and Decrease Its Costs. Therefore, You Have To Obtain An “Airtight” PBM Contract.

3. 3 To Understand Why Your Rx Coverage Costs So Much -- and How to Lower Your Costs -- You Need To Work Backwards And ASK 3 CRITICAL QUESTIONS: How Do PBMs Make Money? Which Contract Terms Allow PBMs To Do So? How Can You Change Those Contract Terms To Increase Your Savings?

4. 4 PBMs Make Money By Writing Contracts That Allow Them To Create:  Unknown (and unknowable) “profit spreads” between what PBMs pay for drugs, and what PBMs invoice their clients -- on each retail, mail and specialty drug dispensed  Unknown (and unknowable) “rebates” and other monies and drug discounts - paid to the PBMs by drug manufacturers and other third parties  Poorly written “Guarantees” that PBMs know can’t be enforced, and therefore know they can fail to satisfy  Ambiguously defined “Programs”, in which PBMs purport to be creating client savings, but are actually focused on increasing PBM profits  Numerous additional “Fees” (some of which have been itemized in the contract, and others that arise after implementation)

5. 5 The First Critical Contract Term You Need To Change Transform -- “Traditional Pricing” -- or FAKE “Pass Through Pricing” -- Into -- REAL “Pass Through Pricing”

6. 6 What’s The Difference? “Traditional” Contracts - and FAKE “Pass Through” Pricing Contracts - allow PBMs to retain profit “spreads”! “Traditional” Pricing No Pass-Through Pricing for Any of 3 Drug Categ’s “REAL” Pass Through Pricing Pass Through on: Retail Drugs Mail Order Drugs Specialty Drugs Stop the Hidden Profit “Spreads”! REAL “Pass Through” Pricing requires your PBM to invoice you using the SAME price it paid - for ALL 3 types of drugs “FAKE” Pass-Through Pricing Pass Through on: Retail Drugs only

7. 7 You Must Write - and Demand - Real Pass-Through Pricing, for each Retail Mail and Specialty Drug dispensed … and specifically limit your PBM’s profits to a flat, “Per Employee Per Month” fee (a/k/a a PEPM fee)

8. 8 Note: Pass-Through Pricing Is Critical To Ensure Your Plan Obtains All Generic Drug Savings: Unbeknownst to Plans --  PBMs Reimburse Retail Pharmacies For Generic Drugs Using Average Discounts of About “AWP-60%” But Typically Invoice Plans With Average Discounts Of About “AWP-40%” ! (Thus Retaining Profit “Spreads” Of About 20%)  PBMs Purchase Generic Drugs For Mail Pharmacies Obtaining Average Discounts of About “AWP-80%” But Typically Invoice Plans With Average Discounts Of About “AWP-50%” ! (Thus Retaining Profit “Spreads” Of About 30%)

9. 9 The 2d Critical Group of Contract Terms Your Plan Must Change Require the PBM To -- Pass-Through ALL Manufacturer & Other Third Party “Financial Benefits” (not just “rebates”)

10. 10 Why’s This Matter? PBMs Execute Two Types of Contracts: With Clients (Plans Like Yours) With Manufacturers (& Other Third Parties) Rebates Prompt Payment Discounts Purchase Discounts Other Discounts Administrative Fees Health Mgt Fees Data Sales Fees Other Fees Grants etc, etc, etc….. I Want ALL Fin’l Benefits!

11. 11 You Must Write - and Demand - A Contract That Requires Your PBM To -- Pass Through All “Financial Benefits” from All Third Parties … and also include a “per script” Financial Benefit Guarantee - for each type of script - and ensure your “Financial Benefit Guarantees” are as good as are available in the marketplace…

12. 12 The 3rd Critical Group of Contract Terms Your Plan Must Change TRANSFORM -- FAKE Financial Guarantees Into -- REAL Financial Guarantees

13. 13 What’s The Difference? Virtually all PBM Contract Guarantees Are “Fake” Guarantees. If PBMs MAC Only 500 Drugs -- Only 500 Drugs Will Be Covered Under the Guarantee…. If PBMs MAC 1000 Generic Drugs -- 1,000 Drugs Will Be Covered Under the Guarantee…. EG: PBMs’ Generic Drug Guarantees almost always state: “We guarantee that our PBM’s average discount for all generic drugs that we MAC will be AWP-___%” I want REAL G’ees ! But PBMs’ Definitions of “MAC” Allow PBMs To “MAC” As Many (Or As Few) Generic Drugs As PBMs WANT!!!

14. 14 “Airtight” (It means what you intend) (For Generics: Cover ALL Generics & Eliminate “MAC”!) Can Be Renegotiated & Improved Is Auditable & Enforceable (it specifies how damages are to be calculated - and paid - if the PBM breaches the guarantee) You Must Write - and Demand - A Contract with Numerous Guarantees, & Make Sure EVERY Guarantee Is --

15. 15 Another Example of “Fake” Financial Guarantees PBMs’ Specialty Drug “Guarantees”

16. 16 Specialty Drugs Specialty Drugs are Hi-Cost Drugs (averaging $1,700 per/rx), such as injectables and chemotherapy drugs But PBM/Client Contracts Almost NEVER Contain Meaningful Specialty Drug Guarantees Some Contracts say absolutely nothing about Specialty Drugs Some Contracts have a short list of some Specialty Drugs, with a “minimum discount guarantee” on each drug (but say nothing about all drugs that aren’t on the list) Some Contracts have a longer list of Specialty Drugs, with a “minimum discount guarantee” on each drug (but still don’t cover all specialty drugs, and in any event, allow the PBM to change the discounts within the PBM’s discretion)

17. 17 Why Specialty Drug “Guarantees” Are Meaningless For Guarantees to Be Useful -- ALL Specialty Drugs Must Be Covered The Minimum Guaranteed Discounts Must All Be Competitive The Client Must Have A Right To Update The List (Because New Drugs Are Continuously Hitting the Market) The Client Must Have A Right to Renegotiate the Minimum Discount Guarantees (Because Competitive Pricing Is Constantly Changing)

18. 18 Here’s How To Write “Airtight” Specialty Drug Contract Terms: Require the PBM to Provide “Pass Through Pricing” for Every Specialty Drug Dispensed Generate A List Of All (500+) Specialty Drugs As A Contract Exhibit, and Require Each PBM Contestant To Guarantee Its Specialty Pricing Will Be At Least As Good As Its “Minimum Discount Guarantee” for Each Drug Listed Include A Quarterly Right to Renegotiate the List -- and the Guaranteed Discounts -- Coupled with a 90 Day, w/ or wo/ Cause Termination Right (Which Ensures the PBM will Take Its Re-Negotiation Oblig’s Seriously)

19. 19 The 4th Group of Contract Terms Your Plan Must Change Write Contract Terms for ALL “PROGRAMS” To Ensure They Will Be Operated In YOUR PLAN’s Interests (Not Your PBM’s) !

20. 20 Examples of “Programs” Prior Authorization Program Step Therapy Program Mandatory Generic Program Mandatory Mail Program Mandatory Specialty Drug Pharmacy Program

21. 21 Example of Problems That Arise When Contracts Don’t Adequately Detail How PBMs Will Implement “Programs” Mandatory Generic Program: Requires Plan Beneficiaries (Who Insist On Using A “Brand Drug” When A “Generic Drug” Is Available) To Pay The Difference Between The Generic Drug Cost & Brand Drug Cost What Plans Think Will Happen: Brand Drug$100 Generic Drug$20, $28, $32, $35 Plan invoiced by PBM for $20 Plan Benef Pays $80 (incl copay) Total Invoiced by PBM $100 What May Actually Happen: Brand Drug$100 Generic Drugs$20, $28, $32, $35 Plan invoiced for $35 Plan Benef Pays $80 (plus copay) Total Invoiced by PBM $115+

22. 22 Other Contract Changes You Must Make To Dramatically DECREASE Your Costs Your Plan’s Termination Rights Formulary Issues PBM’s Oblig. To Pay Interest on Contract Breaches “Net Cost” Report (And Lots More….) Definition of the Word “Claim” Your PBM’s Termination Rights Definition of “AWP”

23. 23 “Transparency” & Ensuring Full Audit Rights Are Also Determined By Your Contract: Notwithstanding Every PBM’s Claims of “Transparency”, Almost All PBM/Client Contracts Preclude Effective Audits:  Certain Docs & Data Are Identified As “Proprietary” (Including “Rebate” Docs)  PBMs Have A Right To “Mutually Approve” Auditors  Contracts Require Auditors To Sign “Confid Agts” Before Beginning An Audit  Unbeknownst To Plans: The “Confid Agts” Restrict What Auditors Can See AND Limit What Auditors Can Tell Their Clients

24. 24 Demand Different Audit Terms In Your Next RFP and Contract: State the PBM Must Produce All Docs & Data To Verify All Contract Terms Have Been Satisfied “including but not limited to….” (and then create a long laundry list of all docs and data that must be produced!) State Your Plan Has Sole Right To Determine Who Will Audit Draft Your Own Form of “Confidentiality Agt” For Auditor & You To Sign, Attach It To Your Contract, and Further State PBM Cannot Require Your Auditor To Sign Any Other Confidentiality Agt….

25. 25  PBMs will NOT give you the contract terms you need in 1-on-1 Negotiations  You must EXTRACT YOUR desired contract terms by conducting a RFP  But conducting a “typical” RFP - where PBMs are asked if they’ll provide certain contract terms - and Plans rely on PBMs’ promises to provide those terms - will NOT get you the contract terms you need Can You Actually Get An “Airtight” Contract From A PBM ? If So, How???

26. 26 Draft An Entirely Different Form of Contract Before the RFP Begins Attach the Contract To Your RFP Require Every PBM Contestant To Markup - and Execute - The Contract It Will Accept Make Sure Your Consulting Firm Has Lawyers - Who Are Familiar With All PBM “Games” - Who Can Use the RFP To Negotiate Each Contestant’s Contract Markup To EXTRACT the Contract You Want and Need ! [And By the Way: Make Sure You Get Your Consulting Firm To Execute A “Conflict of Interest” Disclosure Form!] You Must Conduct An Entirely New Type of PBM RFP

27. 27 Why You Must Focus Your RFP On the Contract 1. It’s the only way you will ensure that you decrease your prescription costs 2.You’ll never get the contract terms you need if you don’t extract them during the RFP. (In fact, you’ll swap contract drafts with your PBM endlessly after the RFP is over and do nothing but waste a lot of resources) 3. It won’t cost you much, and you won’t have to waste addt’l time & money negotiating a PBM contract when you are done. (Given your total drug “spend”, your total RFP - and contracting - costs will likely equal less than 1 day of your total “drug spend”) 4.It won’t take that much time. (Our RFPs - which include the negotiation and finalization of a contract - typically take 3 to 4 months from start to finish) 5. The RFP’s leverage and competition will make YOU the 800 lb gorilla, and give YOU the ability to get exactly the contract terms you need to dramatically decrease your costs

28. 28 Conclusions To Decrease Your RX Coverage Costs, You Need An Entirely Different Form of PBM Contract, with: Pass Through Pricing for ALL 3 types of drugs (retail, mail and specialty), for EACH drug dispensed A Pass Through of ALL FINANCIAL BENEFITS (not just “rebates”) - from ALL third parties (not just manuf’s) REAL GUARANTEES covering ALL Drugs “PROGRAMs” That Will Be Operated Entirely In Your Interests A Single PEPM Fee (That’s Competitive)

29. 29 Additional Conclusions Don’t Waste Your Time and Money Conducting A Typical PBM RFP You’ll End Up With the Same Boilerplate PBM Contract - and the Same Ever-Increasing Costs - As You Would Have Gotten Had You Never Conducted The RFP Conduct An Entirely Different Type of RFP -- Focusing On Your Next PBM Contract -- And Insisting That All PBM Contestants Give You Entirely Different Contract Terms You’ll End Up With Dramatically Lower Costs - and You’ll Ensure Far Better Services

30. 30 Presented by: Linda Cahn, Esq. Pharmacy Benefit Consultants (office) 973 975-0900 (cell) 973 885-3664 www.PharmacyBenefitConsultants.com