1. Preparing for What’s on the Prescription Drug Benefit Horizon Brenda Motheral, PhD Senior Vice President Research & Product Management

2.  2007 Express Scripts, Inc. All Rights Reserved. 2 Topics Three Eras of Pharmacy Benefit Management Learnings From The Market’s 2006 Natural Experiments What’s Ahead in 2008

3.  2007 Express Scripts, Inc. All Rights Reserved. 3 The Market Response Supply Chain 199019952005 PBMs aggregate purchasing power of plan sponsors Mail forces discipline into retail PBMs aggregate purchasing power of plan sponsors Mail forces discipline into retail

4.  2007 Express Scripts, Inc. All Rights Reserved. 4 Low Cost Carrier Market Share 2002 St. Louis City B 25% 0% *Nonstops in May 2002

5.  2007 Express Scripts, Inc. All Rights Reserved. 5 Change in Ticket Price: 1998-2006 St. Louis 2% +25% *Bureau of Transportation Statistics City B

6.  2007 Express Scripts, Inc. All Rights Reserved. 6 Retail brand discount grows for 15 years ‘90 ‘92 ‘95 ‘96 ‘98 ‘00 ‘02 ‘04 Baseline

7.  2007 Express Scripts, Inc. All Rights Reserved. 7 The Market Response Supply Chain Plan Sponsor Directed 199019952005 Plan sponsors begin to adopt plan designs that incent or require cost-effective choices

8.  2007 Express Scripts, Inc. All Rights Reserved. 8 Employers Using Proven Tools (%) 1998 2002 2006

9.  2007 Express Scripts, Inc. All Rights Reserved. 9 Lowest Drug Trend In a Decade Express Scripts Internal Data, 2006 Note: Specialty tracked separately as of 2003 80% 60% 40% 20% 0% Generic Fill Rate Drug Trend

10.  2007 Express Scripts, Inc. All Rights Reserved. 10 Public and private plan sponsors pass responsibility for spend mgt to consumers Partnership The Market Response Supply Chain Plan Sponsor Directed Consumer Directed 199019952005

11.  2007 Express Scripts, Inc. All Rights Reserved. 11 Topics Three Eras of Pharmacy Benefit Management Learnings From The Market’s 2006 Natural Experiments What’s Ahead in 2008

12.  2007 Express Scripts, Inc. All Rights Reserved. 12 Wal-Mart Market Share: Before and After $4 Generics Hypothesis: Low prices on selected generics will result in more volume of other generics and brands as well as increased non- pharmacy store sales Finding: Pricing strategy had minimal market impact on rx drug use. Impact on uninsured & non-pharmacy sales is unknown.

13.  2007 Express Scripts, Inc. All Rights Reserved. 13 Medicare Part D Hypothesis: Part D beneficiaries will take advantage of lower cost generics to avoid hitting the donut hole

14.  2007 Express Scripts, Inc. All Rights Reserved. 14 Medicare Part D Experience 56% 19% 49% 34% 40% 45% Plan A Plan B Plan C * Potential GFR is calculated under the assumption that all target brands switched to the generic alternatives In reality, some target brands could be switched to brand preferred alternatives.

15.  2007 Express Scripts, Inc. All Rights Reserved. 15 Medicare Part D Experience 40% 45% Plan C Savings Potential Of $13.8 Million $2.1 Lipids $2.6 Ulcer $9.1 Other Plan C Opportunity 65% 35% * Potential GFR is calculated under the assumption that all target brands switched to the generic alternatives In reality, some target brands could be switched to brand preferred alternatives.

16.  2007 Express Scripts, Inc. All Rights Reserved. 16 Medicare Part D Hypothesis: Part D beneficiaries will take advantage of lower cost generics to avoid hitting the donut hole Finding: Many beneficiaries are hitting the donut hole unnecessarily and could take advantage of lower cost generics

17.  2007 Express Scripts, Inc. All Rights Reserved. 17 2006 Market Experiments Wal-Mart Medicare Part D Consumer-Driven Health Plans

18.  2007 Express Scripts, Inc. All Rights Reserved. 18 Consumer-Directed Health Plans Hypothesis: Employees enrolled in a high deductible plan will use more generics and OTCs and discontinue unnecessary meds

19.  2007 Express Scripts, Inc. All Rights Reserved. 19 Compared to Traditional Insurance: CDHP Members Reduce Brand Use CDHP Implemented CDS-matched dataset, N = 3,374 each group Jan‘05Jul‘05Jan‘06Jul‘06Dec‘06

20.  2007 Express Scripts, Inc. All Rights Reserved. 20 CDHP Implemented But Generic Use is Lower Too … CDS-matched dataset, N = 3,374 each group Jan‘05Jul‘05Jan‘06Jul‘06Dec‘06

21.  2007 Express Scripts, Inc. All Rights Reserved. 21 Chronic Medication Persistency: CDHP Members May Switch to OTC But …. * p <.05 ** p <.01

22.  2007 Express Scripts, Inc. All Rights Reserved. 22 CDHP Members: Lower Persistency in Some Classes w/o OTC Options * p <.05 ** p <.01

23.  2007 Express Scripts, Inc. All Rights Reserved. 23 Consumer-Directed Health Plans Hypothesis: Employees enrolled in a high deductible plan will use more generics and OTCs and discontinue only unnecessary meds Finding: Without additional educational programs, enrollees did not use more generics. Compliance decreased in many therapy classes

24.  2007 Express Scripts, Inc. All Rights Reserved. 24 Topics Three Eras of Pharmacy Benefit Management Learnings From The Market’s 2006 Natural Experiments What’s Ahead in 2008

25.  2007 Express Scripts, Inc. All Rights Reserved. 25 Other Market Experiments Wellness Incentives Value-Based Insurance Design Care Coordination

26.  2007 Express Scripts, Inc. All Rights Reserved. 26 Conclusions Three Eras of Pharmacy Benefit Management Learnings From The Market’s 2006 Natural Experiments What’s Ahead in 2008

27.  2007 Express Scripts, Inc. All Rights Reserved. 27 Conclusions Three Eras of Pharmacy Benefit Management Learnings From The Market’s 2006 Natural Experiments What’s Ahead in 2008 Supply chain and plan sponsor-directed models will continue to drive value for pharmacy benefit mgt. New hybrid models pose familiar challenges for rx. High liability and web tools alone will not be sufficient. While consumerism will evolve over many years, pharmacy represents a great near-term opportunity.