NCPA Pharmacy Benefit Management Manual

NCPA Pharmacy Benefit Management Manual

ABOUT THIS MANUAL Objective: The purpose of this manual is to quickly and effectively provide up-to-speed information on pharmacy benefit management. The information is organized in a logical sequence and segmented to provide clear and concise information on a specific topic. Each topic can be reviewed as a standalone element to accommodate easy reference or to target specific topics of interest. For each section of this manual there is a Review This First section that provides context for the section and details the content contained in the section. The word review is used in favor of read because we present information largely in snapshot or one-page formats that allows busy users to review information that is presented in graphical or briefing styles versus reading long narratives of text-based information. Audiences: This manual should be of general interest to any stakeholders in the management of the pharmacy benefit. This would include policy-makers, pharmacists, trade associations, health plan sponsors and even consumers, Sources: To ensure that the information presented in this manual is as objective as possible, we sourced the information primarily from third parties that may be stakeholders or generally interested in the provision of the pharmacy benefit and/or the pharmaceutical supply chain, they have no direct connection or linkage to NCPA and the legislative or business objectives of community pharmacies unless otherwise indicated within this manual. Content Presentation: This manual is organized into three (3) primary segments: 1. ABOUT PHARMACY BENEFIT MANAGERS - BUSINESS OVERVIEW 2. ABOUT PHARMACY BENEFIT MANAGERS - MAIL ORDER & GENERICS 3. APPENDIX - ADDITONAL INFORMATION

Pharmacy Benefit Managers (PBM) Why Are PBMs So Important? Read This First 1 Pharmacy Benefit Managers 101 A Primer on PBMs The PBM Business in Brief 2 PBM Revenue Sources 3 PBM Practices PBM Size and Scope 4 PBM Market Share 5 Big 3 PBM Claims Rx Data by Distribution Channel 2010 2007 Historical PBM Contracting 6 Negotiation Guide Health Plan Sponsors Guide to Successful PBM Contracting When Things Go Wrong for PBMs And Health Plans 7 PBM Litigation Settlements 8 PBM Pending Litigation

Pharmacy Benefit Managers 101 A Primer on PBMs Introduction Full-service pharmacy benefit managers (PBMs) are companies that focus on managing the prescription drug benefit on behalf of employers, union groups, third-party administrators, Part D Plans (PDP), managed care organizations (MCO) and other payers (entities that offer and pay for drug benefits for their members). PBMs will typical provide the following services either directly or through outsourcing or contracts with other entities: Adjudicate drug claims Contract with retail and mail pharmacy network Develop formulary or drug list of covered therapies Provide benefit design consultation Manage cost, utilization trends Contract for manufacturer rebates Provide fee-based clinical services to improve member care With roots in insurance, pharma and retail pharmacy industries, PBMs typically refer to their customers as health plan sponsors and the people using the drug benefit as beneficiaries or members. Health plan members and their beneficiaries (immediate family) are collectively referred to as lives by the PBMs. PBMs are typically measured in size by the number of lives covered under their contracts with plan sponsors. Additionally, the total annual prescription count is key growth indicator for PBMs. Full service PBMs such as Express Scripts, Medco Health Solutions and CVS Caremark - collectively known as the Big 3 - provide all of the services described above to design, implement and manage virtually every aspect of a drug benefit plan. On the other hand, a pharmacy benefit administrator (PBA) provides a subset of these services in many cases simply providing a core services such as claims adjudication for a base line price. Smaller PBMs commonly outsource the information technology and claims adjudication services to PBAs such as Argus Health Systems. It s important to understand that all PBMs are not created equal and can have very different core competencies and service capabilities. 1970s The concept of a drug card emerged as an add-on to union medical benefit programs 1980s More and more employers implemented drug benefit plans PBMs began to build mainframe computer infrastructure to automate the submission of drug claims Online, real-time adjudication of drug claims became commonplace 1990s PBMS flourished. A decade of growth with a proliferation of revenue and profit streams for PBMs. There are 70 to 100 full-service, national PBMs operating in the marketplace at any given time. The number fluctuates based on mergers and acquisitions. PBMs come in all shapes, sizes, and organizational structures including publicly traded, private and not for-profit. Many insurance and managed care organizations have their own internal or captive PBMs such as Aetna and CIGNA. Several claims adjudicators and systems companies like Argus Health Systems and SXC Health Solutions, Inc. have PBM divisions. Table1 lists the top 30 PBMs and their relative market share by Total Covered Lives. The table is created from 2011 Q1 data reported by Atlantic Information Service. Several of the PBMs have merged since the reporting period.

PBM Total Ives Express Scripts, Inc. 90,000,000 CVS/Caremark 85,100,000 Health Information Designs, Inc. 69,500,000 Medco Health Solutions, Inc. 65,000,000 ICORE Healthcare, Inc. 60,000,000 NovoLogix 40,000,000 MedImpact Healthcare Systems, Inc. 32,000,000 Argus Health Systems, Inc. 25,000,000 Prime Therapeutics LLC 17,000,000 RESTAT, LLC 16,382,836 HealthTrans 15,100,000 Provider Synergies, LLC 14,000,000 ACS, Inc. 14,000,000 Prescription Solutions 12,407,799 ScriptSave 12,000,000 RxStrategies, Inc. 12,000,000 First Health Services Corporation 10,000,000 Walgreens Health Services Division 9,700,000 Aetna Pharmacy Management (APM) 9,649,125 Catalyst Rx 7,482,981 SXC Health Solutions, Inc./informedRx 7,045,416 Acro Pharmaceutical Services 7,000,000 CIGNA Pharmacy Management 6,500,000 Axium Healthcare Pharmacy, Inc. 6,000,000 WellDyne, Inc. 6,000,000 Diplomat Specialty Pharmacy 5,017,000 The business model used by the majority of PBMs has grown increasingly complex in the last 10 to 15 years. PBMs earn revenue from: Administrative fees from plan sponsors, Drug pricing rebates and other program fees from pharmaceutical manufacturers, Markup on drug pricing (also called network spread) Dispensing fees and markup on drug pricing for scripts dispensed by mail-service and specialty pharmacy. PBMs have become controversial as their annual gross revenues grow into the millions of dollars. Fueled by a lack of understanding of PBM revenue streams, many in the market perceive the PBM business model to be a black box. The global demand for increased transparency in consumer business transactions has placed pressure on PBMs to educate their customers about how they do business and their sources of revenue. PBMs charge between $3 and $5 per prescription for their services. Plan sponsors also must pay for the cost of the prescription less any cost-sharing amounts. One way to compare PBM pricing is to estimate the net cost of a drug claim. Table 2 is a very simple model for this comparison. This traditional pricing analysis should be supplemented by an evaluation of how drug mix the complete basket of brand and generic drugs used by a specific patient population could change under each management model based on each vendor s formulary, clinical program strategy and financial incentives.pbm vendors can help plan sponsors evaluate their current drug mix to identify opportunities for clinical intervention to improve outcomes and reduce cost. Table 2 Basic Approach to Understanding PBM Pricing Comparison Data Supplied by Vendors Cost Elements Vendor A Vendor B Vendor C Gross Average Wholesale Price of Drug Minus Network Discounts Minus Rebates Minus Pharmacy Network Fees Minus Member Cost Share Plus Administrative Fees Plus Dispensing Fees Estimated Net Cost Per Claim Drug Rebates Drug or manufacturer rebates are monies paid to PBMs typically based on the market share of the targeted drug product. PBMs usually keep a percentage or share of the rebate to cover the administrative costs of negotiating, contracting and administering the rebate programs on behalf of the plan sponsor. Rebate programs can increase drug expenditures if PBMs create incentives to drive utilization toward higher cost brand name drugs. As the number of generic drugs Page 2

continues to increase, plan sponsors should pay careful attention to rebate programs to ensure incentives are aligned to increase the use of the lowest cost drugs that are medically appropriate. Working with PBMs The most effective plan sponsor-pbm relationships are built on aligned incentives and open, two-way communication. A plan sponsor should work with its PBM to develop a contract to serve as the detailed work plan, complete with definitions of terms and performance guarantees, for administering the drug benefit program. Ongoing oversight of the drug benefit is best achieved by monitoring management reports, and meeting regularly with the PBM. Average Wholesale Price (AWP) The published or suggested cost of pharmaceuticals charged to a pharmacy by a large group of pharmaceutical wholesalers. The AWP is the basis for most third-party prescription reimbursement. It is analogous to a sticker price on a new automobile. Pharmacies do not pay for their drugs using the AWP. A markup of discount from Wholesale Acquisition Cost (WAC) is the current method. AWP Discount The negotiated amount a drug plan pays to pharmacies for the ingredient cost of a prescription and commonly expressed as a percentage off of Average Wholesale Price. It is expressed verbally as AWP Minus12 percent. AWP Spread The percentage difference between AWP price and WAC price. For brand products, retail pharmacies typically refer to AWP spread as either16% or 20%, referencing a discount off of AWP. Manufacturers view AWP spread as 20% or 25%, using WAC as a basis for a markup to arrive at AWP on branded prescriptions. For generics and multi-source products, there is no standard AWP spread. For non-maximum Allowable Cost generic products and multi-source products, there is no standard AWP spread. For non-mac generic products and multi-source products, the larger the AWP spread the greater the profit opportunity for the pharmacy on third party prescriptions. Copayment A form of cost sharing where a portion of the prescription drug cost is paid by the beneficiary. Copayments often vary based on product classification such as brand vs. generic or preferred vs. non-preferred. The copayment is kept by the pharmacy as part of the negotiated rate with the pharmacy benefit manager (PBM).The copayment is deducted from the total negotiated amount paid to the pharmacy by the PBM. Example: Negotiated Ingredient Cost $20.00 Dispensing Fee + $2.00 Total Due to Pharmacy $22.00 Copayment $10.00 Balance Due to Pharmacy from PBM $12.00 Cost Sharing Cost sharing refers to the amount beneficiaries contribute to the cost of each prescription covered by their drug benefit plan. A cost share amount is established in the plan design for major categories of drugs such as brand, generic, or formulary classification. The amount may be a flat-dollar amount or a percentage of the total cost of the prescription. Disease Management A systematic approach to providing care to a population of patients with a specific disease. Patient and provider education, pharmaceutical care, continuous quality improvement, practice guidelines, patient monitoring, outcomes assessment, and case management all play key roles in disease management. Dispensing Fee Contracted amount in a traditional third party prescription plan, usually in the $2.00 to $3.00 range, that is paid to the pharmacy in addition to the negotiated ingredient cost of the prescription. Drug Utilization Review (DUR) The process of evaluating drug use, physicians prescribing patterns, and/or patient drug utilization to determine the appropriateness of drug therapy. There are three forms of review or evaluation: prospective Page 3

(before or at the time of prescription dispensing), concurrent (during the course of drug therapy) and retrospective (after the drug therapy has been completed). It also can be called drug use evaluation (DUE) or drug utilization management (DUM). The DUM acronym is rarely used. Formulary List of drugs used to treat patients in a drug benefit plan. Products listed on a formulary are covered for reimbursement at varying levels. The most common types of formulary are: Closed formulary: Non-formulary products are not covered. Incented formulary: Formulary products are classified for reimbursement by product type including brand, generic, specialty, lifestyle, preferred, and non-preferred. Incented formularies are increasingly popular because, when aligned with rational cost sharing levels, they help to drive utilization to the lowest net cost drug products. Open formulary: Non-formulary products are covered at a defined level. Generic Drug Chemically equivalent copy designed from a brand-name drug where the patent has expired. Generics are typically less expensive and sold under the chemical name for the drug, not the brand name. PBM Rx Total Medco Health Solutions, Inc. 740,100,000 Express Scripts, Inc. 656,100,000 CVS/Caremark 584,800,000 Argus Health Systems, Inc. 510,000,000 Prescription Solutions 295,140,952 ACS, Inc. 250,000,000 Humana Pharmacy Solutions 201,000,000 MedImpact Healthcare Systems, Inc. 170,400,000 First Health Services Corporation 148,500,000 Aetna Pharmacy Management (APM) 114,558,943 HealthTrans 108,000,000 Prime Therapeutics LLC 86,048,892 Walgreens Health Services Division 84,105,927 Catalyst Rx 76,722,797 CIGNA Pharmacy Management 51,108,000 RESTAT, LLC 25,954,428 SXC Health Solutions, Inc./informedRx 25,004,269 ScriptSave 17,000,000 RegenceRx 15,325,432 Pharmacy Data Management, Inc. (PDMI) 14,251,883 National Pharmaceutical Services 10,600,000 Navitus Health Solutions, LLC 10,500,000 Page 4

PBM Revenue Streams Health Plan Pharmacy Spend PBM Administrative Fees & Mail Revenue Manufacturer Rebates Manufacturer Admin Fees Pharma Funded Programs Margins Network, Repackaging, MAC, & Price File Manufacturer Data Fees $0 $2 per Claim Charged to Payer 10% 15% of AWP 2% 4% of AWP or WAC 2% 3% of AWP or WAC 3% 20% of AWP 2% 3% of AWP or WAC PBM Retains 100% PBM Retains 0% 100% PBM Retains 100% PBM Retains 100% PBM Retains 100% PBM Retains 100% 1

Clarity PBM Practices

PBM Practices 1. Charge client administration fees for drugs that were not dispensed PBMusecontracttermssuchas claims thatarenotclearly defined or defined in ways to allow PBMs to bill clients for duplicate, reversed, and rejected claims Auditors estimate that 20 percent of all claims are for duplicate, reversed, and rejected claims 2. Makes false claims regarding pass through pricing PBMagrees to pass through to health plan its actual drug cost Itmay do this on drugs dispensed at retail However, PBM continues to take a profit spread (pays for drug at one price but invoices the health plan at a far steeper price) on mail and specialty drugs Fake pass through pricing usually adds cost to care since PBMs will recoup any savings afforded in retail through steep profit spreads for mail and specialty drugs 3. Hidden Profit Spreads can be created on virtually any drug related expenditure So called rebate management fees are charged health plans above and beyond the PBM retention of client generated manufacturer rebates Savings generated from generic drugs are pocketed by PBM if health plan overachieves PBM guaranteed generic dispensing rate (GDR)

PBM Practices 4. Restricts or limits disclosure and reporting regarding health plan drug expenditures and PBM profits generated from those expenditures PBM concealment of vital reporting data through broad interpretation of contract terminology such as proprietary This means that PBM will not disclose key information such manufacturer fees paid to PBMs for health plan s aggregated clinical data. 5. PBMs requires mutual approval of any auditor that health plans designates to conduct an audit of the PBM PBM can veto any selected auditor PBM can limit the number and/or frequency of audits PBM require auditors to sign PBM Confidentiality Agreements that typically require auditors not to disclose key information to their own clients, i.e. the health plan that requested the audit

PBM Practices 6. Re Defining Brand and Generic The intentional blurring of the definitions of "brand drugs" and" generic drugs" by PBMs to suit their financial interests. This includes improperly classifying drugs, charging brand prices for generic products, retaining rebates for brand drugs by calling them generics, and misstating a payer's generic drug utilization rate PBMs overcharge health plans by classifying many generic drugs as brands Experts believe that this practice is very widespread and involves dispenses that can account for up to 10% of typical utilization This tactic represents several percentage points in undisclosed PBM revenues, costing payors tens of millions of dollars annually PBM contracts intentionally do not define these terms or are ambiguous, such as "branded generics a brand drug that is so cheap it s considered the generic of itself and equal in cost as either a brand or generic, and "multi sourced brands, another term that is used to provide wiggle room in the miscategorizing of products PBMs miscategorize brand and generic drugs for the purposes of: invoicing a generic drug as a brand drug to charge higher prices (e.g.,awp 17%) rather than the true price (e.g.,awp 65%) Labeling a brand drug a generic to keep the rebate, as almost all contracts require that rebates be passed on only on brand drugs Counting a brand drug as a generic to meet the generic fill level necessary to earn a bonus or meet a guaranty requirement

PBM Practices 7. PBMs can retain a significant or all recoveries from PBM conducted retail pharmacy audits PBM creates a revenue and profit from stream from pharmacy audits that health plans don t always share Clerical errors/typos recoveries can become a focus as opposed to fraud, waste and abuse 8. SpreadPricing ThedifferencebetweenwhatthePBMchargesapayorfor drugs and what it pays a retail pharmacy This amounts to marking up claims! Typical spread:$4 $6/script or $9 $13 PEPM (Per Employee/Per Month) For generics, PBMs use multiple Maximum Allowable Cost (MAC) lists PBMs may charge payors the MediSpan AWP and pay pharmacists the lower Redbook AWP PBMs that own mail order facilities keep the full spread on these drugs Encourages PBMs to push drugs with highest spreads by manipulating the formularies PBMs hide the fact that they create spreads by claiming that their contracted AWP rates with their pharmacies are confidential

PBM Practices 9. Manufacturer Rebate Schemes Drug manufacturers reward PBMs for promoting their brands Offered only for single source drugs for which there are no generics Rebates represent a very significant source of PBM revenues Average rebates are 10% of AWP or $3 $6/script or $6 $12 PEPM Average rebate for the top 25 rebatable drugs is > $20/script Often PBMs promote drugs that yield the highest rebates, not ones that are necessarily in the patient's best interest (most efficacious) PBMs have historically kept rebates, now they re being forced to share Retaining interest on rebates by collecting monthly, remitting quarterly or even less frequently 10. Mail Order Blackbox Schemes Mail order is still very much a blackbox and a component of pharmacy benefit management that is still largely out of control PBM owned captive mail order facilities can create a significant conflict of interest as the pharmacy administrator is also a seller PBMs with captive facilities have been accused of engaging in non transparent mail order practices to increase profits including drug switching, repackagingandfailingtopromotestarterdosages: pushingmail orderscriptsfor90 versus30 day supplies PBMs boast that the discounts for mail order dispenses are always greater than discounts for retail, but in actual practice they are not because of the blackbox profiteering that routinely occurs Mail order is much more profitable than PBM administration; indeed, industry experts report that the average profitability of a mailorder dispense is four times that of a retail prescription Mail order pharmacy audits are largely controlled by their PBM owners

PBM Market Share Top 25 Pharmacy Benefit Management Companies and Market Share By Annual Prescription Volume, as of 3rd Quarter 2010 Atlantic Information Services compiles these data from pharmacy benefit management companies and other publicly available information sources. Company Total Rx/Year Market Share Medco Health Solutions, Inc. 695,000,000 18.20% CVS/Caremark Rx, Inc. 658,500,000 17.25% Argus Health Systems, Inc. 504,000,000 13.20% Express Scripts, Inc. 449,300,000 11.77% Prescription Solutions 274,920,504 7.20% ACS, Inc. 250,000,000 6.55% MedImpact Healthcare Systems, Inc. 170,400,000 4.46% First Health Services Corporation 148,500,000 3.89% Prime Therapeutics LLC 114,000,000 2.99% HealthTrans 90,102,300 2.36% Aetna Pharmacy Management (APM) 89,709,989 2.35% Walgreens Health Services Division 84,105,927 2.20% Catalyst Rx 64,879,964 1.70% CIGNA Pharmacy Management 51,108,000 1.34% RESTAT, LLC 25,046,964 0.66% SXC Health Solutions, Inc./informedRx 22,800,000 0.60% ScriptSave 17,000,000 0.45% FutureScripts 15,503,019 0.41% RegenceRx 15,325,432 0.40% Pharmacy Data Management, Inc. (PDMI) 14,100,000 0.37% Navitus Health Solutions, LLC 10,500,000 0.28% National Pharmaceutical Services 10,000,000 0.26% PerformRx, LLC 9,771,216 0.26% BioScrip 7,735,710 0.20% NovoLogix 4,800,000 0.13% SOURCE: Atlantic Information Services' (AIS) exclusive quarterly survey of pharmacy benefit management companies conducted by Drug Benefit News during the 3rd quarter of 2010. METHODOLOGY: Survey conducted by AIS researchers and supplemented by publicly available information sources. Survey includes companies that describe themselves as PBMs, pharmacy benefit administrators, specialty pharmacy providers and others providing pharmacy benefit services. Prescriptions=Rx filled via all channels offered by each company, including retail, mail order and specialty pharmacy. Market shares calculated as percentage of total

CVS Caremark 2010 2009 2008 2007 Total Claims 584.8 658.5 633.4 607.2 Pharmacy Network Claims 520.6 592.5 572.5 533.3 Mail Choice Claims 64.2 66 60.9 73.9 Adjusted Mail Choice Penetration*** 25.8% 23.8% 22.9% 28.2% Medco 2010 2009 2008 2007 Total Rx 740.1 694.5 586 559.8 Pharmacy Network Rx 630.3 591.4 480.2 465 Generic Rx Mail Order 67.6 59.6 58.2 47.4 Brand Rx Mail Order 42.2 43.5 47.6 47.4 Total Mail Order Rx 109.8 103.1 105.8 94.8 Adjusted Mail Order Penetration 34.1% 34.2% 39.7% 37.9% Express Scripts 2010 2009 2008 2007 Total Claims** 753.9 530.6 506.3 507 Pharmacy Network Claims 602 404.3 379.6 379.9 Total Home Delivery Claims* 54.1 45 45.1 45.5 Adjusted Home Delivery Penetration Not Reported *Includes SPRx and Other Rx **Adjusted for Home Delivery ***Includes SPRx, Retail & Mail for 90-day Rxs

Pharmacy Benefit Managers (PBMs) 101 What do they do? Pharmacy Benefit Managers (PBMs) administer the pharmacy benefit for a variety of health plans (employers, managed care organizations, public sector and union). These complex business entities have multiple, extremely profitable, revenue streams. The Big 3 PBMs * manage drug benefits for approximately 95% of Americans with employer based prescription drug coverage, and each of these companies have annual revenues exceeding $15 billion. In spite of these facts, PBMs are virtually unregulated at the state or federal level even though they manage numerous prescription plans funded by taxpayer dollars. How do PBMs Generate Windfall Profits? PBMs negotiate contracts with many participants in the pharmaceutical supply chain; two of the most important contracts are with pharmacies ( the pharmacy network ) and plan sponsors. PBMs primary profit streams include rebates provided by drug manufacturers for driving brand drug market share; administrative fees charged directly to the health plans; PBM owned mail services pharmacies and the clinical programs sold to health plans. PBM Revenue & Profit Streams Rebates Retail Pharmacy Network PBM owned Mail Service Pharmacies Generics Guarantees Provider Reimbursement Float Source Pharmaceutical manufactures provide rebates on PBM brand drugs purchased on behalf of PBM clients. PBMs retain all or large percentages of these rebates though they are generated by the plans pharmacy spend Reimburses retail pharmacies a lower dollar amount for providing a drug to a plan s member and charges the plan a higher amount for the same drug. Owns and operates mail pharmacies. Black Box environment with practices such as repacking medications into smaller packages and charging the same or more for the drugs under a custom NDC to inflate profits Guarantees a plan generic dispensing rate, but if the guarantee is exceeded, the PBM pockets the dollar savings associated with the overage Interest generated from lag time between provider dispensing drug to plan members and the time reimbursements are paid providers PBM Conflicts of Interest Paid billions to drive/increase brand drug usage including marketing & clinical programs that often conflict with patient and plan interests (for example, higher utilization of generic drugs) Needlessly adds cost for plans and squeezes retail providers. Plans usually unaware of this practice PBMs set reimbursement rates at their mail pharmacy as well as at retail pharmacies (mail competitors), reaping windfall profits. Patient interests require an open network for 90 day fills including any willing provider provision and patient choice of mail service that extends to retail based pharmacies. PBMs usually don t disclose to plans that generic guarantees have been exceeded and dollar savings retained by PBMs Despite prompt pay laws, there will always be a lag time to reimburse providers. Providers should share interest benefit *Medco Health Solutions, Inc., Express Scripts, Inc. and CVS Caremark

What PBM Contracting Solutions Can Address the Most Egregious PBM Practices? Contract Focus Acquisition Cost Basis for all Retail Claim Payments Pass Through of 100% of ALL Pharmaceutical Manufacturer Revenue Negotiating Posture The PBM agrees to bill a Participating Plan not more than the actual amount that the PBM reimburses the dispensing pharmacies that comprise the PBM s retail network for each claim dispensed under their Plan, including all brand and generic drugs. The PBM agrees that all the financial guarantees that the PBM provides to the Participating Group will each function on an independent basis, and that the PBM will not use an overage from one guarantee (i.e. generic retail discounts) to offset a shortfall from another guarantee (i.e. brand retail discounts). The PBM agrees to provide, upon Participating Group request, a complete copy of the then current Maximum Allowable Cost (MAC) list being used to adjudicate the Participating Group s retail claims. If the PBM uses WAC as their acquisition cost basis, the PBM agrees to utilize a MAC list to determine the Participating Group s cost for any drugs that do not have an associated WAC price in the pricing index that the PBM uses. The PBM further agrees that this MAC list will be at least as competitive as the MAC list used for its retail network claims. If the PBM uses AAC as their acquisition cost basis, the PBM confirms that its systems currently enable the PBM to include the claim specific AAC in a client s claims data file. The PBM agrees to pass through to the Participating Group 100% of any and all formulary rebates, market share rebates, and other rebate revenue that the Participating Group s utilization enables the PBM to earn. The PBM agrees to pass through to the Participating Group 100% of any and all rebate administrative fees/credits that the Participating Group s utilization enables the PBM to earn. The PBM agrees to pass through to the Participating Group 100% of any and all data aggregation payments or data sale revenue that the Participating Group s utilization enables the PBM to earn, or to allow clients to opt out of these programs. The PBM agrees to pass through to the Participating Group 100% of any and all pharmaceutical manufacturer revenue associated with compliance and adherence programs that the Participating Group s utilization enables the PBM to earn, or to allow clients to opt out of these programs. The PBM agrees to completely disclose to the Participating Group any other revenue received directly or indirectly from pharmaceutical manufacturers that cannot be attributed to specific client utilization. The PBM agrees that this disclosure will occur at least annually. *Medco Health Solutions, Inc., Express Scripts, Inc. and CVS Caremark

Specialty Pharmacy Transparency Use Precise Generic Drug Definition The PBM agrees to pass through to the Participating Group any and all pharmaceutical manufacturer revenue that the Participating Group s specialty pharmacy utilization enables the PBM to earn. The PBM agrees to charge a Participating Group no more than the acquisition cost of drugs at the specialty mail order pharmacy, plus a dispensing fee. Any retail claims for specialty pharmacy shall be adjudicated under the same logic as the traditional retail pricing agreed upon in the Retail Network certification requirements. This protocol does not include any commitments as it pertains to specialty products dispensed and billed under the medical plan or home infusion benefit. The PBM agrees to provide dose optimization and consolidation programs, where appropriate. The PBM agrees to provide case management for critical disease states (as designated by mutual agreement between the client and the PBM), and will agree not to build the cost of these programs into drug ingredient cost if requested. The PBM agrees to offer a tool to enable cross walk billing (i.e., J Code to NDC conversion) for specialty pharmacy claims which are submitted or coordinated via the medical plan or home infusion pharmacy provider. The term generic drug shall mean the following: The multisource code field in MediSpan contains a Y (generic). An item shall also be concerned a generic drug if the Multisource Code is O and there is a DAW code of 3,4,5,6, or 9 The parties agree that when a drug is identified as a generic, it shall be considered as a generic drug for all purposes under the contract If PBM use First DataBank, be prepared to use a more complex definition since First DataBank used multiple info fields: GI (generic indicator), II (Innovator Indicator), GMI (generic manufacturer indicator) and GNI (generic name indicator) Use a single compendium for generic definition either MediSpan or FDB but never both *Medco Health Solutions, Inc., Express Scripts, Inc. and CVS Caremark

Plan Management & Consumer Engagement The PBM agrees to provide each Participating Group s members with a web based or letter based utilization summary tool that identifies member cost share savings opportunities (i.e. intra class generic therapeutic substitution opportunities). If the PBM cannot currently provide this service, the PBM agrees to develop this service within 6 months of a Participating Group s request. The PBM agrees to offer financial performance guarantees to support effective utilization management. The PBM understand that these performance guarantees must be provided for specific therapeutic classes or disease states (based on the Hewitt VDRC or similar consultant tool). The PBM agrees that the penalties associated with failure to meet the performance guarantees described above will be offered on a dollar for dollar basis, relative to the target cost savings figure for each therapeutic class or disease states. If the PBM cannot currently provide this service, the PBM agrees to develop this service within 6 months of a Participating Group s request. The PBM agrees to allow customization or modification of the Participating Group s formulary or preferred drug list (PDL) at the Participating Group s discretion (with the understanding that such modifications may impact minimum rebate pricing guarantees). The PBM agrees to allow customization or modification of the Participating Group s prior authorization, quantity limit, and step therapy protocols at the Participating Group s discretion (with the understanding that such modifications may impact minimum rebate pricing guarantees). The PBM agrees to provide each Participating Group s members with a web based or letter based utilization summary tool that identifies member cost share savings opportunities (i.e. intra class generic therapeutic substitution opportunities). If the PBM cannot currently provide this service, the PBM agrees to develop this service within 6 months of a Participating Group s request *Medco Health Solutions, Inc., Express Scripts, Inc. and CVS Caremark

Settlements Date Filed Case Name Plaintiff Defendant Alleged Unlawful Conduct Settlement Amount February 14, 2008 States Attorneys General v. Caremark Inc. et al. 29 States Attorneys General (Arizona, Arkansas, California, Connecticut, D.C., Florida, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington) Caremark Inc. Illegal drug switching practices $41 million May 27, 2008 States Attorneys General v. Express Scripts Inc. 30 States Attorney General (Arizona, Arkansas, California, Connecticut, Delaware, D.C., Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington) Express Scripts Inc. Illegal drug switching practices $9.3 million to states, plus up to $200,000 to affected patients May 6, 1999 February 10, 2000 United States ex rel. Hunt, Gauger, Piacentile, et al. v. Merck Medco Managed Care et. al Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia, Washington) Medco Health Solutions Defrauding patients, clients, and the U.S. by cancelling and destroying prescriptions, failing to perform pharmacists services required by law, switching patients to different drugs without their knowledge/consent, shipping medications and billing patients for drugs never ordered, soliciting and receiving inducements from pharmaceutical manufacturers, $29.1 million $155 million ($184.1 million, total) Current as of December 2010

Date Filed Case Name Plaintiff Defendant Alleged Unlawful Conduct Settlement Amount making false and misleading statements to the U.S. July 16, 2007 Southeast Pennsylvania Transportation Authority v. AdvancePCS Health et al. AdvancePCS Breach of contractual and fiduciary duties, including wrongfully creating and retaining pricing spreads, using an inflated reporting source for setting AWP, failing to disclose and pass on rebates received, improperly switching patients to higher cost drugs, and accepting secret rebates, kickbacks and other incentives. Undisclosed December 20, 2002 United States ex rel. Vieux v. AdvancePCS Inc. AdvancePCS Soliciting and receiving kickbacks from pharmaceutical manufacturers under contracts with government programs, including FEHB, MHBP, and Medicare + Choice programs. $137.5 million August 4, 2004 New York v. Express Scripts Inc. et al. New York Express Scripts Enriching itself at the expense of the plan by inflating the cost of generic drugs, diverted millions of dollars in rebates, engaged in fraud by inducing physicians to switch patients prescriptions, sold and licensed data without consent, misrepresented the discounts received for drugs purchases at retail pharmacies. $27 million December 22, 2003 Board of State Teachers Retirement System of Ohio Ohio Medco Health Solutions Breach of contractual and fiduciary duties by engaging in Undisclosed Current as of December 2010

Date Filed Case Name Plaintiff Defendant Alleged Unlawful Conduct Settlement Amount v. Medco Health Solutions Inc. self dealing, as well as undercounting pulls, permitting non pharmacists to dispense and cancel prescriptions, and steering providers and patients to choose higher cost drugs. Current as of December 2010

Pending Litigation Date Filed Case Name States Involved Defendant Alleged Unlawful Conduct Status August 15, 1999 United States ex rel. Caremark Inc. Pending Ramadoss v. Caremark Inc. Arkansas, California, D.C., Hawaii, Illinois, Louisiana, Massachusetts, Nevada, New Hampshire, New Mexico, North Carolina, Texas, Utah, Virginia Fraudulently denied, rejected or reduced thousands of claims from Medicaid agencies. October 3, 2002 April 29, 2005 (consolidated) Local 153 Health Fund v. Express Scripts Inc. Express Scripts Inc. Retained undisclosed rebates, created a spread in discounts, created a spread in dispensing fees, favored specific drugs and engaged in drug switches, circumvented best pricing rules, received undisclosed bulk purchase discounts, and caused accounting errors. Pending December 17, 1997 March 12, 2003 (consolidated) Gruer v. Merck Medco Managed Care LLC Medco Health Solutions Misuse of fiduciary authority to increase the market share of its parent company (Merck) and to divert rebates from drug manufacturers to itself, both at the expense of the plans. $42.5 million awarded 3 cases pending August 15, 2003 August 26, 2006 (consolidated) Bellevue Drug Co. et al. v. Advance PCS Brady Enterprises Inc et al. v. Medco Health Solutions et al. AdvancePCS Medco Health Solutions Engaging in anticompetitive conduct, including negotiating and fixing reimbursement levels and rates, restricting the level of service offered to customers, and arbitrarily limiting the ability of retail pharmacies to compete with the PBMs mail order pharmacy. Pending January 20, 2004 Alameda Drug Co. Inc. et al. v. Medco Health Solutions Inc. et al. Medco Health Solutions Fixing, raising, stabilizing and maintaining prices of prescription drugs manufactured by Merck and Pending Current as of December 2010

Date Filed Case Name States Involved Defendant Alleged Unlawful Conduct Status others at supra competitive levels. January 13, 2003 Florida ex rel. Flower et al. v. Caremark Rx Inc. Florida Caremark Fraudulent activities, including failing to provide credit for returned prescription drugs, changing prescriptions without proper approval, misrepresenting the savings obtained from its recommendations, failing to substitute generics, failing to credit for prescriptions lost in the mail, and manipulating the mandatory times for filing prescriptions. Pending September 30, 2010 The Muecke Company Inc. et al. v. CVS Caremark Corp. et al. CVS Caremark Violating the RICO Act and HIPAA Pending Current as of December 2010

Mail Order, Generic Drugs and Pharmacy Benefit Managers (PBM) Mail Order, Generic Drugs and PBMs Review This First 1 Mail Order 101 The PBM Mail Order Business in Brief 2 Mail Order In Practice Pricing Games 3 Pill to Pill Plan Cost Retail v Mail June 2011 Simvastatin Different NDC PBM Mail Size and Scope 4 Mail Market Share Pharmacy Patients & Mail Order 5 Patient FAQs Mail Order 6 Mail Order is Not for Everyone Generics A Better Savings Alternative Than Mail Order 7 Community Pharmacies Reducing Costs through Generic Drug Use; Mail Order Pharmacies Continue to Lag Behind 8 Big 3 Generic Dispensing Rates by Channel 2010 2007 Historical Data 9 Don't Pay to Much For Generics Managed Care November 2010 [21] 10 Generics National Savings Study Press Release 11 Branded drug prices soar Reuters March 23 2011 Mail vs. Retail Research and Impact on Generics 12 Mail vs. Retail Research Summaries

Pharmacy Benefit Managers: Mail Order Services 101 Pharmacy Benefit Managers (PBMs) own automated dispensing facilities that fill and ship prescriptions requiring 90 day supplies. The PBMs refer to them as mail order pharmacies, however, these closed environment, robotics driven assembly lines don t deliver the patient benefits of a traditional pharmacy. Face to face consultation between a pharmacist and patient, the most effective type of intervention to ensure that patients adhere to their prescribed medication regime and are counseled about possible negative side effects, is replaced with patient email and calls to 1 800 numbers to seek assistance from out of state corporate pharmacists. PBMs hard sell health plans on implementing complex schemes to require a mandate that all patients on maintenance medications exclusively use PBM owned dispensing facilities. They promise outrageous savings and since these promised savings are never backed up with a dollar for dollar guarantee the health plans discover that the PBMs have over promised and under delivered on savings and in many cases, on patient service and care. A closer look at the mail order equation demonstrates that the numbers don t add up. The Mandated Mail Service Equation PBM + Mandated Mail = No Accountability to the Patient PBM +Profit = Less Patient Interest More Brands + More Rebates = Less Generics Savings How It Adds Up For Patients & Health Plans No patient can fire their PBM owned mail service. Once you re in you are locked in. The patient is captive to a single PBM owned mail service no matter how poorly it performs. Patients have reported numerous delivery issues that have caused patients to be unable to take medications that are vital to their health and well being including delays in receiving medications, temperature sensitive drugs being left outside or on delivery trucks, drugs lost in transit, medication switching and even the wrong drugs being shipped When given a choice, 83% of customers prefer to fill their prescription at a community pharmacy rather than at a so called mail order pharmacy. Clearly, mail order is not for everyone. This is why PBMs support mandates, complex costshifting schemes to promote the use of PBM owned dispensing facilities and even disincentives that penalize patients for using community pharmacies. In 2009, retail pharmacies drove a 69% generic dispensing rate while Medco Health Solutions, Inc., Express Scripts, Inc. and CVS Caremark dispensing facilities had GDRs under 58%. Coincidentally, PBMs receive billions from drug manufacturers each year to increase brand name drug market share. Increasing Generic Dispensing Rates (GDR) is the most effective method to drive and guarantee savings for both the members and the plans without mandating or restricting patient access to care through negative incentives and cost shifting For every $1 a plan invests in generics, the plan receives $2 in savings According to a new AARP report, the average retail price of the most popular brand name drugs increased by 8.3 percent in 2009 and by 41.5 percent over the past five years In 2009 alone, the use of FDA approved generics saved $139.6 billion a 15% growth over the prior year s savings or about $382 million every day. What Solutions Can Address the Most Egregious PBM Mail Order Practices? States enactment of legislation requiring PBMs to: Fully disclose to plan sponsors potential conflicts of interest in PBM service contracts Promote lower cost through increased competition by establishing an any willing provider provision in all PBM mail service contracts

FOR IMMEDIATE RELEASE: July 26, 2010 CONTACT: Lorrie McHugh 202-249- 7100 Generic Medicines Saved U.S. Health Care System $139.6 Billion in 2009; $824 Billion Saved over the Last Decade WASHINGTON, D.C., JULY 26, 2010 A new study released today of prescription drugs use in the U.S. found that dispensing generic versions of brand name drugs saved the American health care system more than $824 billion over the past decade, and $139.6 billion in 2009 alone. IMS Health, the world s leading provider of market intelligence to the pharmaceutical and health care industries, was commissioned by the Generic Pharmaceutical Association (GPhA) to provide and analyze brand and generic prescription drug sales data for the 10-year period 2000-2009. Generic pharmaceuticals continue to be one of the best buys in health care, said Paul Bisaro, Chairman of GPhA s Board of Directors. While prices for name brand prescriptions continue to rise year after year, generic prices have remained generally unchanged and in some cases have even declined as more competition enters the market. It is clear from the IMS analysis that increasing access to generics would significantly reduce the nation s overall health care bill, Mr. Bisaro said. This new study builds on the historic study released in May 2009 showing that the use of generic drugs saved the U.S. health care system nearly three-quarters of a trillion dollars over the decade 1999-2008. The new analysis is especially important this year because it further documents the correlation between increased savings and greater use of generic pharmaceuticals a reality that cannot be overlooked as regulators implement new health care reform laws and Congress continues its pursuit of savings in health care spending. This new analysis shows beyond a doubt that generic use is a proven way of bending the health cost curve downward. Policies that encourage greater use of generic medicines can help States afford the cost of implementing expanded Medicaid coverage under new health care reform laws. In fact, data from the Centers for Medicare and Medicaid Services show that each two percentage point increase in generic use in Medicaid saves the system an additional $1 billion annually, Mr. Bisaro noted. Too many families across the country are faced with the decision of whether to put food on the table or pay for their medication, said Senator Debbie Stabenow (D-MI). This study confirms what we already know generic drugs will lower health care costs for families. I was pleased to author a provision in the new health care law to give seniors enrolled in Medicare Part D more opportunities to sample affordable, generic drugs free of charge. I will continue fighting to give consumers more access to safe and effective generic drugs. Among the insights provided by the new IMS analysis are: newer generics are driving system-wide savings; generics approved by the FDA since 2000 produced $263 billion, or about one-third, of the total $824 billion in savings; treatments in the therapeutic categories of metabolism, cardiovascular and central nervous system (CNS) experienced the highest growth in savings, 2009 over 2008; - - more- - Generic Pharmaceutical Association 777 Sixth Street, NW, Suite 510 - Washington, DC 20001 - www.gphaonline.org

savings generated by the use of generic CNS drugs soared 20 percent in 2009 to $49.1 billion, up from $40.9 billion in 2008; savings from generic cardiovascular drugs jumped 14 percent to $37.3 billion in 2009, up from $32.7 billion in 2008; in 2009, the utilization of generics in the three therapeutic categories of CNS, cardiovascular and metabolism accounted for about three-fourths of the total $139.6 billion in savings. GPhA noted that the study is predictive of the greater savings that could be achieved in future years through the implementation of initiatives to: 1. increase funding of FDA s Office of Generic Drugs (OGD) to ensure the timely review and approval of new generic pharmaceuticals; 2. eliminate evergreening of biologic drug patents to facilitate access to more affordable generic versions of lifesaving biologic medicines; and 3. ensure access to affordable generics by continuing to allow generic manufacturers to settle patent challenges, bringing generics to market sooner and generating additional savings for American consumers. Millions of Americans suffer from diseases like cancer, Alzheimer s, arthritis, and multiple sclerosis that require the use of expensive biologic drugs to treat. We all know that generic drugs can help Americans save money at the pharmacy counter. But what today s report from IMS Health makes crystal-clear is that generic drugs have saved the U.S. healthcare system billions of dollars each year. If we were able to offer generic alternatives to expensive biologic drugs, these savings would multiply exponentially. That s why I ll continue to fight to ensure generic alternatives to biologic drugs are available to consumers as quickly as possible. Patients and taxpayers simply cannot afford needless delays in access to affordable medicines, said Senator Sherrod Brown (D-OH). GPhA expects generic savings to continue their robust growth in the near term as $89 billion in branded drug sales will lose patent protection over the next five years. Today, three-fourths of all prescriptions dispensed in the U.S. are filled using generics, but they account for only 22 percent of the total dollars spent on prescription drugs. The growing use of FDA-approved generic medicines demonstrates the safety, effectiveness and affordability of these pharmaceutical products. GPhA represents the manufacturers and distributors of finished generic pharmaceuticals, manufacturers and distributors of bulk pharmaceutical chemicals, and suppliers of other goods and services to the generic industry. Generic pharmaceuticals fill 75 percent of the prescriptions dispensed in the U.S. but consume just 22 percent of the total drug spending. Additional information is available at gphaonline.org. --30-- Generic Pharmaceutical Association 777 Sixth Street, NW, Suite 510 - Washington, DC 20001 - www.gphaonline.org

Branded drug prices soar as generic pressure rises By Deena Beasley March 23, 2011 LOS ANGELES (Reuters) - U.S. prices for brand-name drugs are rising faster than ever as patents expire on top-selling medicines and the pharmaceutical industry nervously eyes the future of healthcare reform. Prices for the 15 best-selling drugs rose by much higher rates in 2010 than they did in each of the last five years, according to exclusive data from Thomson Reuters MarketScan, which measured the average cost of a daily dose as shown in medical claims data. Two thirds of the drugs saw double-digit price hikes, well above inflation of 1.6 percent in 2010 measured by the consumer price index. The analysis indicates drug makers are scrambling to make as much money as possible from blockbuster drugs before their patents expire, while taking advantage of the fact that last year's healthcare reform bill did not cap drug prices. According to MarketScan, payments for Pfizer Inc's Lipitor rose 11.4 percent last year, compared with 5 percent annually from 2005 to 2010. That meant the cost of a daily dose of the cholesterol drug rose from $3.17 at the end of 2009 to $3.53 at the end of 2010. Lipitor, which will soon lose patent protection, had 2010 global sales of $10.7 billion. Drugs with price rises in the mid teens included: cholesterol drug Crestor made by AstraZeneca Inc; blood-clot preventer Plavix sold by Bristol Myers Squibb Co and Sanofi-Aventis; and asthma treatment Singulair, from Merck & Co. AstraZeneca's antipsychotic drug Seroquel topped the list with a 16.5 percent price jump, according to MarketScan data, which is particularly telling since it comes from actual payments by insurers, rather than manufacturer list prices. Insurers often get a discount on the list price -- but the fact that they are paying more for drugs is likely to push up the premiums they charge at a time when healthcare costs are already rising much faster than inflation. "The price escalation is truly incredible," said Judy Cahill executive director the Academy of Managed Care Pharmacy, a pharmacy trade group. She said that since drugs generally make up about 10 percent of medical spending, they are often not a top priority for cost-cutting. IMS Health estimates that $25.4 billion in U.S. drug sales are at risk of generic competition this year as patents expire on iconic brands like Lipitor and Plavix. Another $26.1 billion in sales -- about 9 percent of the $300 billion market -- will lose patent protection next year. "Because of the increased number of drugs going generic, they profit more from the brand drugs on the market by increasing prices," said Nancy Stalker, vice president Reuters Page 1

for pharmacy services at health plan Blue Shield of California. Everett Neville, vice president of pharma strategy at Express Scripts Inc, which manages drug benefit programs for health insurers and employers, said drugmakers typically raise prices for drugs as they approach patent expiration, but "what we have seen over the last few years are bigger increases for products that are early or midway in their patent cycle." Drug manufacturers have an exclusive right to sell new products for up to 20 years from the date of a U.S. patent filing. Once the patent expires, a number of generic copycats typically enter the market, driving down prices. IMS estimates that the U.S. healthcare system will reap at least $70 billion in savings over the next four years as brandname medicines are replaced by lower-cost generics. But until there is a generic competitor, there is very little pushback on the U.S. price of a brand-name drug. "There are hundreds of (health insurance) plans, so each of them individually does not have a whole lot of price leverage," said Joshua Cohen, professor at the Tufts Center for the Study of Drug Development in Boston. NO PRICE CAPS The accelerating price hikes come as a surprise to some given that the pharmaceutical industry dodged a bullet with healthcare reform. The Affordable Care Act, dubbed "Obamacare" by some, set no limits on drug prices, although the industry is on the hook for around $80 billion in discounts and taxes over 10 years. "Medicare and Obamacare are two reasons you are seeing higher rates of branded price inflation these days," said Joel Hay, professor of pharmaceutical economics and policy at the University of Southern California. Other industry sources said it would make more sense to limit drug price inflation when healthcare costs are under scrutiny -- but the looming patent cliff is forcing drugmakers to implement steep increases to stem revenue losses. The way drugmakers are paid -- and how consumers are reimbursed -- may also be pushing prices up, experts say. Since the 1990s, reimbursement rates have been structured to shift usage to the most cost-effective medicines. "There was a time where payers said that a drug is too expensive -- we won't cover it," but consumers rebelled at such restrictions, said Edgar Arriola, coordinator of the drug information center at the University of California, Los Angeles. "Now we have tiered systems. We make the co-pay higher for those drugs that are less desirable from the payer's point of view." But those efforts are becoming less effective now that many drugmakers are reimbursing consumers for co-payments. Pfizer, for example, is advertising co-pay cards limiting out-of-pocket Lipitor costs to "less than the average cost of a generic statin." Those offers drive up costs, said Blue Shield's Stalker. Makers of expensive biotechnology drugs have traditionally covered costs for uninsured or indigent patients, but some are now reimbursing all patients for any out-ofpocket costs. Amgen Inc, the world's largest biotech company, is covering co-pays for users of Xgeva, its new bone drug for cancer patients, and for Neupogen and Neulasta, much older drugs used to boost the immune systems of cancer patients. Neulasta's price rose nearly 9 percent last year, according to the MarketScan data. FUNDING RESEARCH Drug makers argue they need the revenue to pay for developing new medicines. Reuters Page 2

"Other products aren't regulated in the same way that we are," said Kirsten Axelsen, vice president of worldwide policy at Pfizer. "Lipitor will immediately be copied by a bunch of different companies... we are still responsible for monitoring anything that happens with a generic into infinity." Winning regulatory approval for a drug takes, on average, 15 years and $1 billion, according to the Pharmaceutical Research and Manufacturers of America. "It is the innovators' investments that lead to pioneering advances that improve patient care," said Karl Uhlendorf, the pharmaceutical trade group's deputy vice president. Drugmakers, of course, try to keep patent protection as long as possible. The U.S. Supreme Court earlier this month upheld a ruling that pharmaceutical companies can pay rivals to delay production of generic copies. "Drug companies have a responsibility to their shareholders to maximize profits and that means charging us as much as they can for their drugs," said Ben Weintraub, director of research at Wolters Kluwer inthought. "The cost of developing drugs is also skyrocketing, and really the only place to make up for those costs is in the United States, because drug pricing is so tightly regulated everywhere else in the world." Prices of the 75 top-selling drugs in the United States rose another 4 percent in the month of January, according to brokerage firm Raymond James, which listed increases like a 29 percent hike in the price of Johnson & Johnson's attention deficit disorder drug Concerta and a 13.5 percent increase for Pfizer's erectile dysfunction drug Viagra. "Right now they are trying to maximize and some would say squeeze as much as they can," said Cohen at Tufts. "It makes sense from their perspective." http://www.reuters.com/article/2011/03/23/u s-branded-drug-pricesidustre72m57x20110323 Reuters Page 3

Comparison of Mail Order With Community Pharmacy in Plan Sponsor Cost and Member Cost in Two Large Pharmacy Benefit Plans OBJECTIVES To determine the difference between mail order and community pharmacy: Payment (cost) per day of drug therapy for the plan sponsor and for the member for the highest expenditure therapeutic classes, Generic dispensing ratios for all drugs and for a comparative market basket of drugs Cost per unit for the top 20 generic drugs dispensed through the mail order channel Michael Johnsrud, PhD, RPh; Kenneth A. Lawson, PhD, RPh; and Marvin D. Shepherd, PhD, RPh J Manag Care Pharm. 2007;13(2):122 34 RESULTS: When comparing the cost per day for the top therapeutic categories, the authors found the plan sponsor cost was higher for mail order than for the community pharmacy channel for approximately half of the top therapeutic categories. For all claims, the generic dispensing ratios were lower in the mail order channel than in the community pharmacy channel (37.7% vs. 49.0% for Plan A and 34.7% vs. 45.0% for Plan B).

Study examines trends in the use of and payments for drug products between mailorder and community pharmacy channels in 2 publicly funded pharmacy benefit programs in Texas. Important to conduct such analyses because of the lack of published studies investigating the impact of PBM owned mail order plans on drug use and ultimately, on drug expenditures A summary of the study findings and their implications follow below. Widespread perception of lower prices via mail order versus community pharmacy has contributed to the growth of mail order pharmacy use despite a lack of evidence of cost savings for pharmacy benefit sponsors. Demonstrates that the mail order distribution channel can have higher net sponsor costs in a pharmacy benefit plan Generic dispensing ratios are lower in mail order than in community pharmacy Using a methodology that estimated the average price per unit and per day of drug therapy for mailorder prescriptions had they been dispensed instead by community pharmacies, one plan sponsor experienced a small financial benefit from mail order pharmacy while another plan sponsor experienced a slightly higher cost. Differences in pricing of generic drugs between mail order and community pharmacy appear to contribute to higher unit costs for generic drugs via mail order.

Comparison of costs of community and mail service pharmacy. Carroll NV, Brusilovsky I, York B, Oscar R. J Am Pharm Assoc (2003). 2005 May Jun;45(3):336 43 OBJECTIVE: To compare the costs of prescriptions dispensed through mail service and community pharmacies to quantify the comparative costs of the two types of pharmacies. PATIENTS: Approximately 100,000 members of the health plan. Intervention: The plan used a small pharmacy benefits manager (PBM) and a mail service pharmacy that was not owned by a major PBM, a three tier benefit design, and specified that patients could get a 90 day supply through mail service for the equivalent of two 30 day community pharmacy copayments. RESULTS: Total costs to the health plan were $4,726,637 through mail Total of $4,417,733 at community pharmacies. Member costs were $1,674,987 through mail $2,484,519 at community pharmacies. CONCLUSION: Compared with community pharmacies, the mail service pharmacy was less expensive overall, less expensive for patients, but more expensive to the health plan. From the health plan's perspective, the loss of copayments in the mail service benefit was greater than the savings on ingredient costs and dispensing fees.

Carroll Study of 2 vs. 3 co pay plan design for 90 day supply 44,847 scripts from non captive mail order pharmacies Retail Mail Order Variance Ingredient Cost $ 6,633,170 $ 6,401,624 $ 231,546 (Pharmacy) Dispensing Fees $ 269,082 $ - $ 269,082 Total Cost $ 6,902,252 $ 6,401,624 $ 500,628 Less Member Co-Pays $ 2,484,519 $ 1,674,987 $ 809,532 Additional Cost to Plan $ 4,417,733 $ 4,726,637 $ (308,904) + 7% Summary Pharmacies lose $269,082 in dispensing fees + Rx margins + rebates Payor pays 7% ($308,904) greater costs PBM gets control of $6.4 million in new ingredient cash flow Members save $809,532 at the expense of payor and pharmacies Clarity

A comparison of mail service and retail community pharmacy claims in 5 prescription benefit plans Bartholomew E. Clark, Ph.D., Mark V. Siracuse, PharmD, Ph.D., Robert I. Garis, M.B.A., Ph.D. OBJECTIVE: To present a comparative analysis of mail service and community pharmacy service drug benefit costs for 5 employer sponsored prescription drug benefit plans. Methods: A cross sectional comparison of 17,725 matched transaction pairs of community and mail service prescriptions from a data set comprised 484,987 prescription claims from a convenience sample of 5 employer sponsored prescription benefit plans. Differences between community pharmacy and mailservice prescription transactions were examined at the per unit level of analysis for drug ingredient costs, dispensing fees, co payments, dollar amounts paid by plan sponsor, and total dollar amounts. RESULTS: Two of 5 plans had co payment incentives to use mailservice, yet plan sponsors paid more for mail service drugs; respectively, 4.5% and 8.3% more overall, 25.0% and 21.4% more for generic medications; and 3.0% and 7.0% more for brand name medications CONCLUSION: Co payment incentives to use mail service pharmacies instead of community pharmacies were associated with higher mail service utilization rates and with higher costs to plan sponsors. Absence of a co payment incentive to use mail service pharmacies was associated with lower mailservice utilization rates and with lower costs to plan sponsors.

RESULTS: In the first 4 months of the benefit design, 31.8% of participants previously mandated to use mail service pharmacy elected to fill 90 day prescriptions at community pharmacies. Selection of community pharmacy ranged from a low of 23.7% (previous mail service pharmacy users) to 66.3% (previous community pharmacy users). Among those initiating therapy, 44.3% selected community pharmacy for their new prescriptions, and among those with no previous mail use, 68% selected community pharmacy for new prescriptions. Preference for community/mail service pharmacy was dependent on numerous characteristics, including age, gender, household income, region, driving distance (time), and concomitant medication use. CONCLUSION: Patient behavior indicates that certain patients prefer to access prescription medications via mail service and others through community pharmacy channels. Restrictive benefit designs that incentivize patients to use less preferable pharmacy channels may adversely affect patient convenience, which could have the unintended consequence of reducing medication use and adherence. Revealed preference for community and mail service pharmacy Joshua N. Liberman, Yun Wang, David S. Hutchins, Julie Slezak, and Will H. Shrank OBJECTIVE: To determine revealed pharmacy preference and predictors among patients enrolled in a pharmacy benefit that offered a 90 day supply of prescriptions via mail service and community pharmacy channels, with no differences in out of pocket costs. Patients: 324,968 commercially insured participants enrolled in plans that required use of mail service pharmacy for maintenance medications.

RESULTS: We identified 6550 articles. Of these, 168 were reviewed in full and 51 met inclusion criteria. Among person independent interventions (56% successful), electronic interventions were most successful (67%). Among person dependent interventions (52% successful), phone calls showed low success rates (38%). In person interventions at hospital discharge were more effective (67%) than clinic interventions (47%). In person pharmacist interventions were effective when held in a pharmacy (83% successful), but were less effective, driving distance (time), and concomitant medication use. CONCLUSION: Future medication adherence studies should explore new electronic approaches and in person interventions at the site of medication distribution. Identifying times of increased patient receptivity to the adherence message such as hospital discharge also will be important. (Am J Manag Care. 2010;16(12):929 942) Modes of Delivery for Interventions to Improve Cardiovascular Medication Adherence Sarah L. Cutrona, MD, MPH; Niteesh K. Choudhry, MD, PhD; Michael A. Fischer, MD, MPH; Amber Servi, BA; Joshua N. Liberman, PhD; Troyen A. Brennan, MD, JD; and William H. Shrank, MD, MSHS OBJECTIVE: To determine the optimal modes of delivery for interventions to improve adherence to cardiovascular medications.. Methods: We conducted systematic searches of English language, peer reviewed publications in MEDLINE and EMBASE, 1966 through December 31, 2008. We selected randomized controlled trials of interventions to improve adherence to medications for preventing or treating cardiovascular disease or diabetes. Articles were classified based on mode of delivery of the main intervention as (1) person independent interventions (mailed, faxed, or hand distributed; or delivered via electronic interface) or (2) person dependent interventions (non automated phone calls, in person interventions).

Mail-order prescription pricing: a critical examination By Robert I. Garis, RP, MBA PhD Aladdin Mohammed, PharmD (Candidate) Creighton University School of Pharmacy and Health Professions The pharmacy benefit manager (PBM) is the company that typically administers the employer s prescription benefit. Researchers at the Creighton University Pharmacy School have earned national recognition for innovative research into the PBM industry. Findings by our research/consulting group suggest the use of PBM-owned mail order pharmacy may NOT be a bargain when compared with community pharmacy. The tables below contain actual prescription found by our group in corporate benefit plans. The four employers below varied in size from 2,500 to over 30,000 employees. How we performed this study: Employers often have some employees in a PBM-owned mail order program ( mail ) and other employees in a retail pharmacy facility ( community ). For orientation, refer to the first entry for Employer #1. This employer had at least one person who got Atenolol 50mg tabs #90 from the PBM mail order and at least one person who got Atenolol 50mg tabs #90 from the community pharmacy. The prices below represent the TOTAL price of each prescription, before either the patient copayment or the employer payment of the balance. That is, for the first entry, the patient and the member would pay the total $38 charge in mail-order. Far too many examples show that mail-order prices can be significantly higher than community pharmacy prices. Employer 1* Drug Name & Strength Quantity Mail $ Community $ Saving in Community Atenolol 50 mg 90 $38 $8 $30 Cyclobenzaprine 10 mg 90 $43 $8 $35 Fluoxetine 20 mg 90 $120 $54 $66 Gemfibrozil 600 mg 180 $112 $39 $73 Naproxen 500 mg 180 $117 $33 $84 Temazepam 30 mg 30 $13 $5 $8 Trazodone 50 mg 90 $19 $6 $13 Verapamil 240 mg 90 $73 $32 $41 Minocycline 100 mg 60 $102 $47 $55 Employer 2* Drug Name & Strength Quantity Mail $ Community $ Saving in Community Alprazolam 0.25 mg 90 $31 $10 $21 Atenolol 100 mg 90 $56 $10 $46 Avandia 8 mg 90 $370 $318 $52 Captopril 50 mg 90 $52 $16 $36 Cyclobenzaprine 10 mg 90 $46 $17 $29 Doxycycl Hyc 100 mg 90 $63 $40 $23 Evista 60 mg 90 $177 $159 $18 Fluoxetine 20 mg Cap 90 $120 $56 $64 Fluoxetine 20 mg Tab 90 $126 $86 $40 Copyright Win-Rx, LLC and Robert I. Garis, PhD All rights reserved

Employer 3* Drug Name & Strength Quantity Mail $ Community $ Saving in Community Atenolol 25mg 30 $3 $2 $1 Doxazosin 4mg 45 $22 $15 $7 Fluoxetine 20mg 60 $35 $23 $12 Hyoscyamine 0.375mg 30 $17 $8 $9 Klor-Con 10mEq 60 $11 $8 $3 Methylphenidate 10mg 60 $25 $19 $6 Tamoxifen 20mg 30 $61 $35 $26 Timolol 0.5% 10ml $17 $7 $10 Triam/HCTZ 37.5mg/25mg 60 $19 $13 $6 Employer 4* Drug Name & Strength Quantity Mail $ Community $ Saving in Community Buspirone 10mg 90 $58 $38 $20 Enalapril 20mg 60 $41 $30 $11 Famotidine 40mg 90 $136 $62 $74 Glipizide 5mg 90 $15 $11 $4 Glyburide 5mg 90 $31 $25 $6 Ibuprofen 800mg 100 $17 $13 $4 Isosorbide Mono. 30mg 90 $45 $22 $23 Metformin 100mg 120 $59 $41 $18 Nortriptyline 50mg 120 $61 $29 $32 *Actual amounts were rounded to protect the anonymity of employers and community pharmacies Retail versus Mail: Issues to Consider Diminished patient medication compliance: -Patient compliance with their medication schedules may diminish with the use of mail order since there is no professional consultation to assure correct administration, adverse events monitoring or personal attention to patient concerns. 1,2 Medication wasting and potential stockpiling prescriptions: The prescription may be changed soon after the 3 month mail supply has been received. This necessitates disposal of the old medication waste of a large amount. Also, a patient may stockpile old Rx s, potentially increasing problems of overuse or abuse. 3 Shipping and storage concerns: Uncontrolled temperatures in transit may render the medication less effective, ineffective or dangerous. 4 Decrease in patient acceptance: Patients may resent the lack of choices with mandatory mail-order. Additional problems are shipping delays, and the absence of interpersonal contact with a pharmacist. 5,6,7 References: 1. McCormack-JR; Dixon-S; Evyan-R. Patients' perceptions for pharmacist counseling and patients' preferences for type of counseling in two retirement communities. AACP-Annual-Meeting; 1999; 100(Jul); 80. 2. Ghoshal-S. Mail-order pharmacy: good or evil?. Can-Pharm-J (Canadian-Pharmaceutical-Journal); 1996-1997; 129(Dec-Jan Suppl); 11, 14-15 3. Muirhead-G. Mail order no longer has price advantage, says PCS president. Drug-Top; 1993; 137(Jul 5); 50. 4. Gerthoffer-TD; Kirk-KW. Consumer Comparison of Mail-Order and Local Retail Pharmacies. APhA-Annual-Meeting; 1994; 141(Mar); 79. 5. Leary-BW; Donehew-GR; Swanson-L. Does mail-order pharmacy satisfy the needs of the elderly? Pharm-Times (Pharmacy-Times); 1992; 58(Aug); 82, 84-86, 88-89. 6. Beatty-J. Freedom of choice-endangered species. NJ-J-Pharm (New-Jersey-Journal-of-Pharmacy); 1990; 63(Feb); 17. 7. Gerthoffer-TD; Kirk-KW. Analysis of consumers' perceptions of risk associated with using mail-order and local retail pharmacies. APhA-Annual-Meeting; 1994; 141(Mar); 17. Copyright Win-Rx, LLC and Robert I. Garis, PhD All rights reserved

Retail v. Mail Cost Comparison Simvastatin Tablet 10 mg Quantity : 90 Cost Elements Retail Mail Variance NDC or UPC 55111-0198-30 63739-0436-10 Different NDC = Different AWP Ingredient Cost AWP Per Unit $2.80433 $3.52500 ($0.72) Minus % Discount Off AWP 66.50% 70.00% -0.035 Ingredient Discount in Dollars Per Unit 1.86 2.47 ($0.60) Net Ingredient Price Per Unit 0.94 1.06 ($0.12) Dispensing Fee Per Unit 0.12 0.00 $0.12 Total Ingredient & Dispensing Cost Per Unit 1.06 1.06 $0.00 Less Member Co-Pays Per Unit 0.17 0.11 $0.06 Net Cost to Plan Per Unit 0.89 0.95 ($0.05) Plus Average Wastage Per Unit 0.01 0.04 ($0.03) Total Unit Cost to Plan 0.90 0.98 ($0.08) 1% 1% 1% 1% 38% 40% 1% 1% 2% 0% Retail 90-Day Supply 57% Mail 90-Day Supply 57% Ingredient Cost (AWP)->Health Plan Dispensing Fees ->Health Plan Co-Pay #1->Member Co-Pay #2->Member Co-Pay #3->Member Ingredient Discount (Off AWP)->Health Plan Ingredient Cost (AWP)->Health Plan Dispensing Fees ->Mail Order Pharmacy Co-Pay #1->Member Co-Pay #2->Member Co-Pay #3->Health Plan Ingredient Discount (Off AWP)->Health Plan MAIL ORDER IS NOT FOR EVERYONE! In fact mail order is probably not for you if: Pricing transparency is important to your health plan Average Wholesale Price (AWP) is the basis for all mail discounts AWP is not the same as the Manufacturer s Suggest Retail Price (MSRP) for a new car In fact, it is more like the price for a used car the used car dealer knows the true cost of the car but he ll never use that as the basis of any discounts to the buyer AWP can be virtually any price that the mail order pharmacy decides A practice known as repackaging allows mail order pharmacies to literally repackage a drug, make up a new National Drug Code (NDC) and create a new AWP that will cost your health plan more Many health plans have discovered that they are getting a higher discount off a higher AWP You re a patient that must take daily multiple medications for chronic conditions Adherence counseling is done by pharmacists to insure that patients are taking medications as directed by their doctors. Non-adherence is estimated to cost the U.S. health systems between $290B - $305B annually and studies have proven that retail pharmacists are 2 to 3 times better at adherence counseling in fact, they are simply the best nurses come in second. Most non-adherence costs occur from additional medical treatments including emergency room visits and hospital stays. This is serious business life and death in some cases Patient taking multiple medications for chronic conditions are at higher risk for nonadherence. There is no substitute for in-store face-to-face counseling by pharmacists. Bear in mind that in 2010, doctor office visits declined by 4.2 M in 2010 mostly owning to economic considerations. Pharmacist consultations remain a real health care bargain literally costing only pennies per pill in most cases. If you re a consumer who believes that competition for your business drives lower cost and better service If your out-of-state mail order pharmacy the pill dispensing factory that thinks of you more as a prescription than a patient is providing bad service such as leaving temperature sensitive drugs sitting in a steamy mail box on a hot July day, or your prescription is late because you didn t fill out the mail order paperwork correctly or the medication that your doctor took you off six months ago is still being delivered to you like clockwork well, no doubt you re going to change pharmacies soon. Wrong! You re stuck! Mail order pharmacies are known as captive pharmacies. The pharmacies are not the captives but rather its patients. Patient can t change mail order pharmacies no matter how poor the service only the member s health plan can. Everyone in the plan has to change or no one can. Pill-to-Pill Plan Cost Retail v Mail June 2011 Simvastatin Different NDC

Mail Order Utilization Up from Year Ago Low Point Total adjusted annual mail order volume as of first quarter 2011 was 776 million, a 16% increase over the prior year figure of 668 million. However, the increase in mail volume lags behind a 20% increase in total Rx volume. Data from AIS s quarterly survey of PBMs indicate that mail order growth began declining in 2009 and reached its lowest point since 2005 in 2010 (DBN 4/30/10, p. 5). Mail order penetration the percentage of total scripts filled via mail remained fairly stable throughout the recession. It is currently 21.98% for companies with mail capability, and 16.32% industry wide (including companies that don t offer mail). Selected PBMs by Mail Order Volume, With Penetration and Market Share, As of Q12011 Mail Company Rx Via Mail Rx Via Mail Order Mail Order Order (Adjusted)* Penetration Market Share Medco Health Solutions, Inc 109,800,000 309,000,000 32.90% 38.83% CVS/Caremark 64,200,000 192,600,000 27.01% 24.17% Express Scripts, Inc. 54,100,000 162,300,000 21.24% 20.37% Aetna Pharmacy Management 8,294,537 24,883,611 18.97% 3.12% CIGNA Pharmacy Management 5,400,000 16,200,000 26.17% 2.03% Catalyst Rx 3,097,158 9,291,474 11.21% 1.17% Prime Therapeutics LLC 2,609,440 7,828,320 8.58% 0.98% Health Trans 1,950,000 5,850,000 5.23% 0.73% National Pharmaceutical Services 1,095,000 3,285,000 25.68% 0.41% SXC Health Solutions, Inc./Informed Rx 911,721 2,735,163 10.20% 0.34% SOURCE/METHODOLOGY: AIS s quarterly survey of PBMs and related companies, conducted for DNB. *Mail order prescriptions are multiplied by three to adjust for the fact that they are typically filled in a three month quantity vs. a one month quantity for retail scripts. Adjusted mail order figures were used for calculating penetration and market share in this analysis. Prescription volume figures represent the latest available 12 month count at the time of the survey. Market share refers to the percentage of total mail order scripts reported on this survey. Industry wide Volume of Adjusted Mail Order Scripts, 2004 2011 (Millions) 1000 800 600 649 745 737 808 802 400 668 776 200 493 0 25.0% 20.0% 15.0% 10.0% 5.0% 2004 2005 2006 2007 2008 2009 2010 2011 Industry wide Mail Penetration, 2004 2011 12.9% 18.8% 17.7%17.5% 18.9% 16.8% 17.9% 16.3% 2004 2005 2006 2007 2008 2009 2010 2011

Here are the FAQs (frequently asked questions) about Mail Service Pharmacies: Question 1: Who owns and operates the mail order pharmacies? Mail Service Pharmacies are owned and operated by Pharmacy Benefit Managers (PBMs) that are selected by your employer to assist with the day-to-day management of your company s pharmacy benefit. These companies entered the mail pharmacy business to reap windfall profits from filling prescriptions for the vital medications that patients like you take on a regular or daily basis (usually filled for 90-day supplies) Question 2: Who are these PBMs exactly? Medco, Express Scripts and CVS Caremark are the most well-known PBMs and own the largest mail service pharmacies. Many of the smaller PBMs don't own mail order pharmacies and will "outsource" their mail service prescriptions to the larger PBMs. In these cases, there are at least two companies seeking to make a profit from a patient s prescription. Question 3: Do the mail service pharmacies work closely with my community based pharmacist? No. The mail service pharmacies usually insist that your Pharmacy Benefit Plan prohibit your community based pharmacist from filling prescriptions for the medications you take regularly. Their windfall profits depend on having exclusive rights to fill patient prescriptions without competition from community pharmacies or other mail services Question 4: Where are these mail service pharmacies located and how do I get advice or get my questions answered if I can t work with my community pharmacist? For the overwhelming majority of patients, mail service pharmacies are out-of-state operations. These are not traditional pharmacies. They look more like a factory with multiple machineoperated assembly lines that fill orders across 2-3 work shifts. If you have a concern, problem or question, you can send an email or call a 1-800 number to speak with an out-of state corporate pharmacist. In most cases, you ll get a different corporate pharmacist each time you call. Question 5: Do these mail service factories ever make mistakes filling prescriptions? All factories make mistakes that s why there are recalls for automobiles and other products. Patients that have been forced to purchase their medications from out-of-state pharmacies have reported delays in receiving their medications, temperature-sensitive drugs being left outside, drugs lost in transit, medication switching and even the wrong drug being shipped. This has caused patients to be unable to take medications that are vital to their health and well-being.

Question 6: Why can t my community pharmacist fill the prescriptions for the medications I take regularly and deliver them to my home? In most cases, your local pharmacist can - if the mail service pharmacies haven t convinced your pharmacy benefit plan to prohibit it or contractually limited your pharmacist from doing so. Question 7: Why is my pharmacy benefit plan suggesting that I use the mail service pharmacies? Survey after survey has confirmed that the overwhelming majority of patients prefer to obtain their medications from a local pharmacy. The mail service pharmacies are aware of this preference, so, they hard sell pharmacy benefit plans on prohibiting the use of community pharmacies. They even go so far as a to slightly reduce the co-payment to incent the use of their out-of-state pharmacies, Additionally, the PBMs promise significant savings to your pharmacy benefit plan that are never guaranteed and are seldom delivered.. Question 8: How can I avoid using the out-of-state mail service pharmacies? Express your concern by writing or calling the appropriate person in your HR department or at your plan sponsor. Contact other plan members and ask them to express their concern as well. They will appreciate your input. Bear in mind, that once you re enrolled in with the PBM-owned mail order pharmacy, you a virtual captive patient. No matter how poor the service or the care, you can t discontinue the use of mail order. The best way to avoid this captivity is to vigorously voice your concerns up front.

Mail Order is not for Everyone Talking Points Face to face pharmacist/patient counseling can have a powerful impact on long term health care costs and quality. So the way we promote mail and generics use is crucial, because the wrong way could stifle patient care Adherence $290 billion is the estimated minimum annual cost of non adherence to the U.S. health system A retrospective analysis of data published over 40 years found that in store face toface counseling was the most effective at driving patient adherence followed by nurses talking directly with patients as they were leaving the hospital Face to face counseling by a pharmacist is 2 to 3 times more effective at increasing patient adherence Complex regimens with multiple prescriptions negatively impact patient adherence 10% of cardiovascular patients made 11 or more pharmacy visits in 90 days and had 23 or more prescriptions 12.6: average is the number of retail prescriptions per capita, 2009 Patient behavior indicates that certain patients prefer to access prescription medications via mail service and others through community pharmacy channels. Restrictive benefit designs that incentivize patients to use less preferable pharmacy channels may adversely affect patient convenience, which could have the unintended consequence of reducing medication use and adherence. Fifty eight percent of employers are using retail pharmacies to dispense 90 day supplies of medications Generic Utilization Almost no payers are maximizing potential generic drug savings Retail pharmacies dispensed generics 72.7% of the time The Big 3 PBMs Mail Order pharmacies dispense generics less than 62% of the time In 2006, the generic market share was just 63 percent; in 2010, it is 78 percent The prescription drug market available for generic substitution rose from just 70 percent in 2006 to 84 percent in 2010 Twenty two of the top 25 most prescribed products in 2010 are generics, versus three brand drugs Within six months of brand patent loss, patients received the generic form of the drug 80 percent of the time in 2010. This compares to just 55 percent in 2006 For patients starting therapy for chronic conditions in 2010, 3.2 million more patients started their therapy with a

generic while 6.6 million fewer patients started therapy with a brand IMS Health says that for every 1 percent increase in generic utilization, health plans can expect to save 2%. That s a 2:1 ROI Improved PBM contracting empowers retention of all generic savings Challenge PBMs to significantly increase and guarantee GDRs rather than simply float on market dynamics PBM misclassification of generic drugs reduce health plan savings In 2009, Medicaid had $329 million of overspending as a result of underutilizing generics Today, 7 out of 10 prescriptions are filled with generic drugs Average price of generic drug is about one quarter of the average brand: $35.22 vs. $137.90 Approximately 80% of FDA approved drugs available as generic 2.6B Rx are filled with generics annually Generics account for 69% of all U.S. Rx but only 16% of all dollars spend on Rx Generic Drugs saved the health system $824B from 2000 2009 & $140B in 2009 alone In 2011 & 2012, 6 of the 10 largest selling brands in the U.S. will lose their patents, enabling a windfall in generic savings The PBMs common practice of cost shifting 33 percent of the patients' cost sharing responsibility (co payments) for 90 day supplies of brand drugs back to the health plans reduces the financial motivation for mail order patients to move away from expensive brand drugs. Total Cost of Drugs Plans offering no mail service co payment incentives have a 6.6% 18.7% lower cost share (2) A 2009 study concluded that copayment incentives to use mail service pharmacies were associated with higher costs to plan sponsors. The study s conclusions were consistent with previous studies (3) and examined plans that utilized co payments as an incentive for members to use mail service pharmacies. These plans paid more for mail service medications; between 4.5% 8.3% more overall. Plans promoting mail with co payment incentives paid 21.4% 25% more for generic drugs. (4) A study concluded that generic dispensing ratios were lower in the mailorder channel than in the community pharmacy channel by 10.3% 11.3% Over 96% of health plans offer mail order service for maintenance medications, but only about 19% mandate the use of mail order Forty one percent of health plans use pharmacists counseling to improve utilization and control pharmacy cost while only 25 percent use co payment waiver or reduction PBMs will not guarantee on a dollar fordollar basis mail order promised savings because savings are seldom achieved Year over year mail order growth as a percentage of total prescriptions remains flat to negative because patients prefer retail channel

(1) JohnsrudM, Lawson KA, Shepherd MD Comparison of mail-order with community pharmacy in plan sponsor cost and member cost in two large pharmacy benefit plans. J Manage Care Phar 2007;13:122-134 (2) Clark BE PhD, Siracuse MV, PharmD, PhD, Garis RI MBS, PhD Comparison of mail-service and retail community pharmacy claims in 5 prescription benefit plans (3) Carroll NV, Brusilovsky I, York B, et al. Comparison of costs of community and mail service pharmacy. J. Am Phar Assoc 2005;45:336-343 (4) JohnsrudM, Lawson KA, Shepherd MD Comparison of mail-order with community pharmacy in plan sponsor cost and member cost in two large pharmacy benefit plans. J Manage Care Phar 2007;13:122-134 (5) GPha, IMS Health 10-year Supplemental Savings Analysis http://www.gphaonline.org/about-gpha/about-generics/case/generics-providing-savings-americans

Community Pharmacies Reducing Costs through Generic Drug Use; Mail Order Pharmacies Continue to Lag Behind By Zachary French Local pharmacists are consistently cutting costs for patients, employers and other health plan sponsors by maximizing the use of less-expensive generic drugs, where appropriate. By contrast, mail order pharmacies owned by major pharmacy benefit managers (PBMs) dispense generics 10 to 13 percent less frequently, according to their own data. New PBM arguments to explain away that gap simply don t add up. Specifically, the big PBMs trade group recently asserted that the reason for this discrepancy is that mail order pharmacies dispense maintenance medications that often have no generic alternatives, such as drugs that control patients' cholesterol. To support this, they pointed to two pre-2006 studies. These studies might have had some relevance in 2005, but changes to the prescription drug market since then have largely invalidated such a rationalization today. In 2006, simvastatin, a generic alternative to the brand drug Zocor that controls cholesterol levels, logged in with just 14 million prescriptions according to IMS. 2010 saw 94 million prescriptions of simvastatin; in fact, it was number two on the list of most highly utilized drugs. Lipitor, a brand name competitor lagged far behind in total 2010 prescriptions at just 45 million. Beyond cholesterol drugs, total generic market share has risen significantly over the last 5 years, according to IMS: In 2006, the generic market share was just 63 percent; in 2010, it is 78 percent The prescription drug market available for generic substitution rose from just 70 percent in 2006 to 84 percent in 2010 Twenty-two of the top 25 most-prescribed products in 2010 are generics, versus three brand drugs Within six months of brand patent loss, patients received the generic form of the drug 80 percent of the time in 2010. This compares to just 55 percent in 2006 For patients starting therapy for chronic conditions in 2010, 3.2 million more patients started their therapy with a generic while 6.6 million fewer patients started therapy with a brand Does this sound like we are living in a world where generic alternatives to brand name maintenance medications are scarce? Despite these trends, the difference between community pharmacy and mail order pharmacy generic dispensing rates remain virtually unchanged. Year after year, from 2007 to 2010, community pharmacies dispensed generics 10 to 13 percent more often than mail order. For patients, employers and health plans, that difference adds up quickly. For example, IMS Health concluded that every two percent increase in generic utilization in Medicaid programs saves taxpayers an additional $1 billion annually.

The most obvious explanation for this gap is the big PBMs pursuit of brand name manufacturer rebates. Industry analyst Linda Cahn has argued in Managed Care Magazine that PBMs also reap huge brand drug rebates by manipulating brand and generic drug definitions: when it is in PBMs interests to classify more drugs as generics, they magically recharacterize the drugs as generics. For example, PBMs wanting to make their generic substitution rate appear greater reclassify drugs that they invoiced as brands as generics when calculating the number of generic drugs dispensed. Similarly, if a contract calls for a PBM to pay a specified rebate per brand drug claim, it can reclassify drugs that were invoiced as brands as generics for the purpose of calculating rebates In fact, the major PBMs have paid out $370 million in recent years to settle allegations of deceptive conduct and fraud. Further, the common practice of cost shifting 33 percent of the patients' cost sharing responsibility for 90-day supplies of brand drugs back to the health plans reduces the financial motivation for mail order patients to move away from expensive brand drugs. Clearly, community pharmacies have established a generic dispensing rate that is the gold standard for the industry. In 2010, retail pharmacies dispensed generics 72.7 percent of the time while the Big 3 PBMs mail order dispensing facilities had generic dispensing rates of 60.5 to 61.5 percent.

CVS Caremark 2010 2009 2008 2007 Total 71.5% 68.2% 65.1% 60.1% Pharmacy Network 72.7% 69.3% 66.2% 61.7% Mail Order 61.3% 56.5% 54.4% 48.1% Medco 2010 2009 2008 2007 Total 71.0% 67.5% 64.1% 59.7% Pharmacy Network 72.7% 69.2% 66.0% 61.7% Mail Order 61.5% 57.8% 55.0% 50.0% Express Scripts 2010 2009 2008 2007 Total 71.6% 68.3% 66.1% 61.8% Pharmacy Network 72.7% 69.6% 67.3% 63.2% Mail Order 60.2% 57.7% 56.6% 50.5% Source: SEC Filings of CVS Caremark, Medco, ESI

Appendix Additional Information For Those that Seek More Context and Information Review This First Generics 1 Pharmacy Benefit Trends 2 GPhA Medicaid Savings by State Graphic 3 GPhA Savings Study Book Updated FINAL Jul23 2010 NCPA Commentary: PBMs and Pharmacy Benefit Cost Trend Control 4 NCPA analysis of CVS Caremark 2011 Pharmacy Benefit Trend Report 5 The Express Scripts 2010 Trend Report NCPA Analysis Consumer Pharmacy Preference 6 Best drugstores Consumer Reports May 2011 Edition When Things Go Wrong for PBMs And Taxpayers 7 CVS Caremark False Claims Settlement NCPA Commentary9 PBM Pending Litigation

Trends & Market Update

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Are Community Pharmacists Becoming More Critical? January PPG 6

3.2M More Patients Start Chronic Therapy With Generics January PPG 7

Generics Become More Widely Accepted January PPG 8

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2010 2011 Prescription Drug Benefit Cost and Plan Design Report Methodology The Pharmacy Benefit Management Institute (PBMI), an independent education and research organization, conducted its annual drug benefit plan design survey of U.S. employers from March through May 2010. Completed surveys from 372 employers representing 5,846,069 members are included in the analysis. The number of members reported by a respondent is for the benefit plan for which the survey was completed, not necessarily all of the members covered by the respondent for all plans offered. January PPG 10

Copayment differentials between retail and mail service continued to decline Generics Retail to Mail Co Payments Delta $3.61 Generic drug cost share amounts have decreased, as preferred and non preferred brand cost share amounts are increasing Pharmacy reimbursement continues to erode A total of 96.3% of employers offer access to mail service pharmacy to dispense maintenance medications used to treat chronic conditions. A total of 19.3% of employers require maintenance medications to be dispensed by a mail service pharmacy, commonly referred to as mandatory mail. A total of 28.1% of carve out plans have mandatory mail compared to 10% of carve in plans A total of 58.3% of employers are using retail pharmacies to dispense maintenance supplies of medications. Data show 43.0% of employers are restricting maintenance dispensing to select pharmacies. March GLP 11

Pharmacy Reimbursement Highlights Average Pharmacy Reimbursement by Dispensing Channel Pharmacy Channel Average Percentage Discount Off AWP Average Dispensing Fee Dollar Amount Retail Brand 17.5% $1.62 Retail Generic 46.6% $1.86 Retail 90 Day 19.8% $1.79 Mail Brand 23.3% $2.33 Mail Generic 53.5% $1.24 Specialty Drugs 18.7% $3.26 March GLP 12

Pharmacy Reimbursement Highlights Trends in Retail Brand Reimbursement Year Average Percentage Discount Off AWP Average Dispensing Fee (Dollar Amount) 2010 17.5% $1.62 2009 16.4% $1.57 2008 16.1% $1.73 2007 16.1% $1.88 2005 06 15.3% $1.88 2004 14.8% $1.95 2003 14.5% $2.05 2002 14.1% $2.13 2001 13.9% $2.21 2000 13.5% $2.31 March GLP 13

Pharmacy Reimbursement Highlights Trends in Mail service Brand Reimbursement Year Average Percentage Discount Off AWP Average Dispensing Fee (Dollar Amount) 2010 23.3% *$2.33 2009 23.7% **$3.19 2008 23.0% ***$2.17 2007 22.7% $1.62 2005 06 21.9% $0.24 2004 21.0% $0.41 2003 20.4% $0.52 2002 19.7% $0.86 2001 18.9% $1.09 2000 18.5% $1.15 * Only 21.0% of employers pay dispensing fee on mail prescriptions. ** Only 13.0% of employers pay dispensing fee on mail prescriptions. *** Only 20.3% of employers paid dispensing fee on mail prescriptions. March GLP 14

2009 Flaspöhler PBM Survey Methodology The FLASPÖHLER RESEARCH GROUP PBM MARKETING OPPORTUNITIES SURVEY was initiated in 2000 as an annual study of perceptions about PBMs and PBM related issues. The survey instrument consisted of 40 questions about PBM utilization, perceptions of PBMs, Medicare Part D and Specialty Pharmacy. Twenty four (24) PBMs/PBAs and sixteen (16)Specialty Pharmacy companies were evaluated. This 2009 survey included interviews by 304 executives. Over 265 unique organizations were represented. Respondents include those administering health plans ( MCOs ), self insured employers and agencies ( SIs ), third party administrators ( TPAOs & Others ) and consultants. March GLP 15

2009 Flaspöhler PBM Survey Key Findings Self Insurers 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 Attractive Pricing options 8.50 Effective Technology 8.30 Effective Cost Management Tools 8.20 Relationship Oriented 8.00 Superior Specialty Pharmacy Products 7.70 Superior Management Reporting 7.70 Flexibility 7.70 No Conflict of Interest 7.10 Unique Services & Programs 6.90 SIs consider Attractive Pricing Options as being the most important factor March GLP 16

2009 Flaspöhler PBM Survey Key Findings Consultants 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 Attractive Pricing options 8.30 Effective Cost Management Tools Relationship Oriented Superior Management Reporting Effective Technology Flexibility Superior Specialty Pharmacy Products 7.50 7.20 7.10 7.00 6.90 6.90 Unique Services & Programs No Conflict of Interest 6.20 6.10 Consultants view Attractive Pricing Options to be the most important factor March GLP 17

Health Plans Ratings of Best PBMs PBM Evaluation & Selection Factor Attractive Pricing Options PBMs Rated Best by MCOs Argus Health Systems Catalyst Rx Humana Pharmacy Solutions MedImpact Healthcare Systems Partners Rx Management SXC PBMs Rated Best by SIs Catalyst Rx CVS Caremark Express Scripts Humana Pharmacy Solutions Medco Health MedImpact Healthcare Systems No Conflict of Interest Argus Health Systems Catalyst Rx HealthTrans MedImpact Healthcare Systems SXC Aetna Pharmacy Management Catalyst Rx CIGNA Humana Pharmacy Solutions MedImpact Healthcare Systems March GLP 18

Which PBM(s) do Consultants recommend most often? Most Recommended in alphabetical order CVS Caremark Catalyst Rx Express Scripts Medco Health MedImpact Healthcare Systems Prescription Solutions January PPG 19

Sa v i n gs Ac h i e v e d Th r o u g h t h e Us e o f Generic Pharmaceuticals 2000-2009 Ju l y 2010 777 6th Street, NW, Suite 510 Washington, DC 20001 T: 202-249-7100 www.gphaonline.org

EXECUTIVE SUMMARY T his report builds on the historic study released in May 2009 showing that the use of generic drugs saved the U.S. health care system nearly three-quarters of a trillion dollars over the decade 1999-2008. Again this year, the Generic Pharmaceutical Association (GPhA) commissioned IMS Health, the world s leading provider of market intelligence to the pharmaceutical and health care industries, to conduct a 10-year supplemental savings analysis (2000-2009) that included brand and generic drug utilization data for 2009, the most recent full-year reporting period. The results of the IMS analysis are astounding. For the decade 2000 through 2009, the use of generic prescription drugs in place of their brand-name counterparts saved the nation s health care system more than $824 billion dollars. In 2009 alone the use of FDA-approved generics saved $139.6 billion a 15% growth over the prior year's savings or about $382 million every day. From the IMS analysis, GPhA makes the following observations: the exponential growth in savings since 2006 has been driven by the launch of generic versions of several blockbuster brand drugs; from 2008 to 2009, savings generated by the use of generic central nervous system drugs soared 20%; savings generated by new generics will continue to increase as $89 billion in branded drug sales will lose patent protection over the next five years; every 2% increase in generic utilization in Medicaid programs saves taxpayers an additional $1 billion annually; and over the past 10 years, patent settlements have resulted in billions of dollars in savings as dozens of first-time generics have come to market prior to patents expiring on the counterpart brand drugs. GPhA maintains that similar savings could be achieved in the biopharmaceutical marketplace if FDA implements a workable approval pathway for biogenerics and biosimilars. Such a system must prevent innovators from forestalling generic competition by evergreening their patents in order to receive multiple market exclusivity periods. Biogeneric and biosimilar products would inject the competition needed in the biologic market to lower costs and provide measurable savings. 1 Generic Pharmaceutical Association. All rights reserved.

HIGHLIGHTS AND TRENDS S ubstituting generic medicines for their brand-name counterparts saved our health care system more than $824 billion dollars over the decade 2000 to 2009. In 2009 alone the use of FDA-approved generic pharmaceuticals saved the U.S. health care system $139.6 billion. That equates to a savings of $382 million per day or more than $1 billion every three days. This remarkable level of savings dwarfs initial savings estimates that were made in 1984, when the Hatch-Waxman Act established the modern-day generic industry. At that time, it was projected that generics might save a billion dollars over the first 10 years. The Congressional Budget Office (CBO) reported in 1998 that savings realized from the substitution of generic for brand-name drugs saved consumers between $8 billion and $10 billion in 1994, the 10 th year after Hatch-Waxman was enacted. Since then, annual savings have grown exponentially. Generic Versions of Blockbuster Drugs Have Driven Surge in Savings This new analysis from IMS Health, based on brand and generic prescription drug sales and pricing data, including 2009, the most recent year, shows that annual savings have exceeded $100 billion in each of the last three years. During the Savings by Year ($ in billions) $139 first six years of the study period, savings $140.0 $121 increased steadily with an annual growth $120.0 $101 rate of between 3% and 10%, from $51 $100.0 $86 $78 $80.0 billion in 2000 to $78 billion in 2005. $69 Since 2005, savings have grown at an $20.0 annual rate of more than 15%, from $86 $0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 billion in 2006 to nearly $140 billion in 2009. This phenomenal four-year growth period was driven both by the launch of generic versions of several blockbuster brand drugs, including Zocor, Norvasc and Zoloft, and greater nationwide use of affordable generic medicines. Over the 10-year period of this study, more than 20 billion prescriptions were dispensed in the U.S. using generic pharmaceuticals. In 2009 alone, 3 billion of the 4 billion prescriptions dispensed in the U.S. were filled with generic equivalents to the $60.0 $40.0 $51 $55 $60 $65 2 Generic Pharmaceutical Association. All rights reserved.

brand drug. GPhA contends that without the availability of lower-cost generics, millions of Americans would not be able to afford the medicines they need. Cardiovascular Drugs Account for Highest Growth in Savings Of note in 2009 was the measurable increase in savings generated by generic central nervous system (CNS) drugs. From 2008 to 2009, savings generated by generic use in this therapeutic area soared 20%, from $41 billion in 08 to $49 billion in 09. Generic cardiovascular drugs also experienced a significant growth in savings, up 14% to $37.3 billion in 2009 from $32.7 billion the prior year. In 2009, generic utilization in the three therapeutic categories of CNS, cardiovascular and metabolism accounted for nearly three-fourths of the total $139 billion in savings. Over the 10-year period of the study, the use of generic CNS, cardiovascular and metabolism drugs have saved the U.S. health care system more than $565 billion dollars. Newer Generics Have Created Exponential Growth The analysis also found that savings from generics introduced over the past nine years are accumulating rapidly. In 2009, 64% of the savings, or approximately $90 billion of the $139 billion saved, was generated by these newer generic drugs. Over the 10-year study period, nearly one-third of the $824 billion in savings came from generic drugs approved since 2000. Equally significant is the fact that older generics, those approved prior to 2000, continue to provide a foundation of savings that has remained constant at the $50 billion mark for more than a decade. The savings generated by newer generics is expected to continue to increase exponentially as $89 billion in name brand drug 3 Generic Pharmaceutical Association. All rights reserved.

sales will lose patent protection over the next five years. Six of the 10 current largest-selling drug products are expected to encounter generic competition, including the top two: Pfizer's $14 billion cholesterol fighter Lipitor $40.0 and $32 $35.0 the blood clot preventer Plavix by $30.0 $25.0 $20 Bristol-Myers Squibb. Among the other $18 $20.0 $13 name brand blockbusters that will lose $15.0 patent protection between now and $10.0 $5 $5.0 2014 are Zyprexa, Singulair and $0.0 2010 2011 2012 2013 2014 Aricept. As more affordable generics continue dominating chronic care classes Brand Sales with Expiring Patents ($ in billions) such as antipsychotics, cholesterol control and antiulcerants, the savings these generic products achieve will play a significant role in reigning in health care costs. Generic Savings Are Critical as States Implement Health Care Reform GPhA strongly believes that increasing the use of generic medicines represents a particularly important component in expanding access and controlling costs as states implement the expansion of Medicaid mandated CMS data show that for every 2% increase in generic utilization, Medicaid saves an additional $1 billion annually. by health care reform signed into law in 2010. The government estimates that an additional 16 million new beneficiaries will be brought under the Medicaid program over the next three years, resulting in hefty cost increases. One way states can control the growing costs is through a greater reliance on the use of generic drugs. Data from the federal Centers for Medicare and Medicaid Services (CMS) show that in 2009 about 290 million prescriptions were purchased through the Medicaid program at a total cost of $23 billion. The availability of generics enabled Medicaid to purchase 64% of these prescriptions (186 million) by using just $3.9 billion of the $23 billion spent for drugs. In other words, Medicaid met nearly twothirds of its prescription drug need with less than one-fifth of its prescription dollars. CMS data show that for every 2% increase in generic utilization, Medicaid saves an additional $1 billion annually. With the Medicaid generic use rate running a full 10 percentage points lower than the 75% national rate, states have considerable opportunities to achieve added savings. 4 Generic Pharmaceutical Association. All rights reserved.

Prices Continue to Fall for Generic Prescriptions Access to approved, more affordable generic drugs has proven to be a primary driver of health care savings. A May 2010 report from AARP showed that while brand name drug prices increased 9.7% over the 12 months ending in March 2010, generic prices dropped nearly 10% during that same period. AARP concluded that the increase in brand prices was the largest one year spike since the group began tracking drug prices in 2002. It noted that over the period of the study, inflation remained nearly flat at 0.3%. AARP determined that the average annual cost of prescriptions for a person taking three brand medicines increased $706 during the one-year period, while the cost of generic versions of those same three medicines decreased by $51. Against this background, it is critical that new FDA-approved generics be introduced into the market sooner rather than later. American consumers and payors, including the federal government and the states, lose billions of dollars each week that generic access is delayed. Inadequate funding of FDA s Office of Generic Drugs (OGD) in past years has resulted in a backlog of more than 2,000 unapproved generic applications and a median approval time of more than 27 months. GPhA has long advocated for more robust funding for OGD and last year succeeded in getting a boost of nearly 20% in the Office s fiscal year 2010 budget. With data showing that each one percent increase in the nationwide generic utilization rate yields $4 billion in added savings, there is an enormous return on investment for adequately funding OGD to ensure near-term availability of new generic drugs. Patent Litigation Settlements Provide Even Greater Savings Access to the new cost-saving generics also is facilitated through pro-consumer settlements of drug patent litigation. Over the past 10 years, patent settlements have enabled dozens of first-time generics to come to market many months before patents on the counterpart brand drugs expired. For instance, settlement of the patent suit involving the anti-epileptic medication Lamictal allowed the generic to come to market three months prior to brand patent expiration, saving patients more than $190 million during the early launch period. And settlement of the Nexium patent suit will allow a generic of this popular antiulcerant to be introduced nearly one year before patent expiry, saving consumers an estimated $1.5 billion in prescription costs. While the settlement issue has engendered opposition from some who contend such generic-brand agreements are anticompetitive, the federal courts repeatedly have 5 Generic Pharmaceutical Association. All rights reserved.

recognized that settlements can be desirable options in patent litigation. The record is clear: settlements allow generic drugs to come to market long before patents on the counterpart brands expire, resulting in billions of dollars in annual savings. Year after year, settlements have proven to be pro-consumer and pro-competitive. Similar Savings Can Be Achieved in the Biologic Marketplace It is GPhA s position that the success of generics in achieving savings for consumers using traditional chemical drugs can be duplicated in the biopharmaceutical market. Biogenerics and biosimilars would inject the competition needed in the biologic market to lower costs and provide significant savings for patients in need of these lifesaving treatments. To maximize this opportunity, it is essential that the FDA implement regulations that do not permit innovators to evergreen patents and thereby stall generic competition for years to come. The new health care reform laws authorizes FDA to approve biogeneric and biosimilar products that meet the Agency s rigid standards for safety, purity and effectiveness. But without safeguards against evergreening patents, innovators could manipulate the system to get repeated monopolies, effectively delaying competition indefinitely. Current biologic medicine costs are staggering, putting these treatments out of reach for many patients. In some cases, insurance companies deny coverage for biologics because of their costs. Even when coverage is available, the co-pays can be thousands of dollars each year. Today, government spending for biologics is increasing at a faster pace than any other health care-related expense with the exception of diagnostic imaging tests. By the end of this year, spending for biologics is expected to reach $100 billion, accounting for more than a quarter of the country s total drug spending. This escalation in spending is unsustainable. The proven means of reigning in costs is market competition. Competition from biogenerics would provide a market-based mechanism to help reduce expenditures and generate sizeable savings. Without competition, patients will continue to experience ever-increasing prices, which ultimately will impact the care they receive. For complete information on any of the topics discussed in this study, including Medicaid and Medicare generic utilization, funding for the Office of Generic Drugs, patent settlements and the cost trends for brand and generic prescription drugs, please contact the Generic Pharmaceutical Association at 202-249-7100, or visit gphaonline.org. This IMS analysis was commissioned by the Generic Pharmaceutical Association; 777 6 th Street, NW, Suite 501; Washington, DC 20001. 6 Generic Pharmaceutical Association. All rights reserved.

This analysis conducted by IMS Health updates the previous analysis released in May 2009 on the total cost savings generic pharmaceuticals have provided to the U.S. health care system over the 10-year period of 2000 through 2009. The analysis utilized IMS data on sales and unit volumes of brand and generic products, estimating potential savings at the molecule level. To ensure consistency of the analysis, brand products are defined as originator molecules that no longer are patent protected; generic drugs are those that were launched after the patent protection had expired on the original reference product. The total savings was derived from a universe of 4,318 drugs, which are those products for which both brands and generics were available. As shown in the chart at right, excluded from the savings analysis were drug products for which: (1) there was no measurable generic competition, either because of an exclusivity or patents still in effect or because there was no generic METHODOLOGY Types % of Molecules 1. No generic competition 45% 2. Lost exclusivity after 1999 8% 3. Lost exclusivity 1999 and before 15% 4. No brand volume in the data set 32% Total Number of Molecules 4,318 Source: IMS Midas Data Data Source includes: US Clinic, Drugstores, Fed Facilities, Food Stores, HMO, Home Healthcare, Long Term Health Care, Mail Service, Non-Fed Hospital and Misc. Note: Because analysis was conducted across multiple TAs, some molecules can exist across multiple TAs. version of the brand yet approved; and (2) only a generic drug was available for sale because the brand drug was no longer available on the market. The overall methodology approach was to add 2009 generic volume to the 2008 Cost Savings Study data for each molecule. The average brand price in the last year of patent protection (for patent expirations before 2000) was estimated using the formula (Total sales of brand molecule) divided by (Total standard units of brand). For year 2009 brands under generic competition, the estimated value of the replaced brand product with generics was calculated using the formula (Average brand price) multiplied by (Total standard units of generic). Finally, the generic cost savings was computed using the formula (Value of replaced brands with generics) minus the (Total sales of generic), with total savings equal to the sum total of all cost savings across all therapeutic areas. To obtain the most accurate savings estimate, standard units are used throughout the study. The standard unit is the number of units divided by smallest common dose of a product form. Number of units refers to the number of tablets or capsules, ml or grams sold, multiplied by the number of packages sold, then multiplied by package size. 7 Generic Pharmaceutical Association. All rights reserved.

777 6th Street, NW, Suite 510 Washington, DC 20001 T: 202-249-7100 www.gphaonline.org

CVS Caremark 2011 Pharmacy Benefit Trend Report CVS Caremark s just released 2011 Pharmacy Benefit Trend Report comes as the company is beset on all sides by litigation, investigations and divestiture calls from critics. The company somewhat changes course in its trend report by paying lip service to the value of patient/pharmacist relationships and abandoning the typical pharmacy benefit manager (PBM) push for increased utilization of its own mail order pharmacies. Caremark s fall from its lofty perch could not be more startling. The PBM s overall claims declined from 658.5 million in 2009 to 584.8 million in 2010. Total Mail Choice claims declined from 66 million in 2009 to 64.2 million in 2010. With this backdrop and mail order sales flagging, CVS Caremark s report says, pharmacists are very effective at counseling patients on adherence. In its trend report, the company supports a Pharmacy Home for patients. This new concept extols the virtue of a single pharmacy similar to a medical home to help coordinate a patient s pharmacy care. In fact, when it comes to adherence (patients taking their medications as directed by their doctors) and other patient counseling, the trend report touts that a retrospective analysis of data published over 40 years, found that in store face to face counseling was the most effective, followed by nurses talking directly with patients as they were leaving the hospital. The value of patient/pharmacist relationships is, in fact, significant and the benefits of patients consolidating their prescriptions with one pharmacy are widely accepted among medical experts. CVS store operators will insist that the pharmacy home for all patients should be CVS pharmacies. This is a perfectly acceptable position for a retail drugstore to adopt as it competes with community pharmacies and others. However, Caremark embracing this position as a major PBM highlights the conflict of interest concerns that have plagued CVS Caremark since day one of its merger. While it seeks to drive more patients to CVS stores, it also sets pharmacy network discounts, conducts pharmacy audits of CVS competitors and decides what retail drugstores will be included or excluded from its pharmacy network. In addition, the CVS Caremark Trend Report also raises serious concerns about the company s ability to effectively drive adherence. Looking at their Best in Class results, in the Health Plan segment, optimal adherence for patients with high blood pressure actually dropped from 81% in 2009 (the percentage of patients taking their meds as directed by their doctor) to just 75% in 2010. This is critically important since patient adherence to medication, whether for high blood pressure or other conditions, leads to lower health care use and costs by approximately $290 $395 billion annually. The trend report also points out that patients, such as seniors who have complex regimens with multiple prescriptions, are negatively impacted by lack of adherence. These are the very patients that the PBMs have been attempting to push into their mail order pharmacies the patients who need faceto face pharmacist consultations the most.

Of course, community pharmacists have been saying this for years while the PBM owned mail order pharmacies have been using marketing schemes to erect barriers between patients and their pharmacists of choice. Over the last decade, the Big 3 PBMs have asked health plans and their beneficiaries to fund the PBMs relentless efforts to capture more maintenance medications prescriptions for 90 day supplies of drugs at PBM owned pharmacies where the PBMs set prices and retain huge profits. This ill conceived cost shifting scheme involves incenting health plan beneficiaries to move their maintenance meds to PBM owned mail order pharmacies by having the health plans pickup 33% of the patient cost sharing responsibility. The CVS Caremark 2011 Trend Report provides valuable insight into the consequence of these schemes to patients and health plans. The report states that, thirty percent of employers reduced the scope of health benefits or increased cost sharing in 2010. Therefore, unfortunately, this dynamic was occurring while PBMs encouraged health plan sponsors to incent the use of PBM mail order pharmacies with dollars that could have otherwise been used to mitigate cost increases and/or benefit cuts. Community pharmacists are proud that they stood up for patient care while advocating effective cost savings strategies such as the increased use of generic drugs, where appropriate. Thanks in large part to their face to face and trusted counseling, community pharmacists have helped move patients to generics. CVS Caremark points out that today, 9 out of 10 consumers are willing to take generics with cost savings being the overwhelming reason. CVS Caremark further validates this strategy in its trend report, stating that rising generic utilization drug mix lowered trend (benefit cost per member) significantly. What role did PBMs like CVS Caremark play in this process? In 2010, local pharmacies filled patient prescriptions with generic drugs 73% of the time while CVS Caremark s Mail Choice program filled patient prescriptions with generic alternatives about 61% of the time. The U.S. health system is expected to save $70 billion over the next four years due to new generics. Couple this with the $290 $395 billions in adherence savings annually, and it becomes extremely clear that community pharmacies are well positioned to help patients and plans reap these savings. However, the FTC and Congress need to stop CVS Caremark from erecting barriers to patient care through anticompetitive practices.

In reading between the lines of the Express Scripts, Inc. (ESI) 2010 Drug Trend Report, one is reminded how the big three pharmacy benefit managers (PBMs) tireless pursuit of profits can overtake their clients interests and deny patients their choice of pharmacy. The report claims that the annual cost of wasteful spending, or what it considers suboptimal pharmacy related behavior, is a staggering $403 billion. Unfortunately, this data point represents the most reasonable assertion in a 100 plus page document that may be the lengthiest paid advertisement for ESI s and other PBM owned mail order pharmacies. The biggest problem with this report is that its priorities are exactly backward. Namely, Express Scripts top recommendation throughout the report is to shift patients from their community pharmacy to mail order, like it or not. But even if one was to leave unchallenged the dubious premise that mail order saves health plans money, ESI is advocating that health plans make their top priority tackling just 1.9 percent of this $403 billion mountain of waste. (Per the fine print, $7.6 billion in savings would be achieved due to better unit pricing and lower dispensing fees in optimal channels. ) Over the last decade, The Big 3 PBMs (ESI, CVS Caremark and Medco Health Solutions) have asked health plans and their beneficiaries to fund the PBMs relentless efforts to capture more maintenance medications prescriptions for 90 day supplies of drugs at PBM owned pharmacies where the PBMs set prices and retain huge profits. This ill conceived cost shifting scheme involved incenting health plan beneficiaries to move their maintenance meds to PBM owned mail order pharmacies by having the health plans pick up 33 percent of the patient cost sharing responsibility. (Of course, those costs don t disappear ; they are simply rolled into the insurance/pbm premiums paid by all patients and the plan sponsor.) Despite this, mail order s market share has been relatively flat in recent years. Acoms Razor suggests two reasons for this: First, patients are satisfied with their community pharmacies. Second, mail order simply isn t for everyone, and finally, because of the incentive schemes, it seldom delivers the promised savings to health plans. Of course, accepting this wouldn t be popular with PBM shareholders. Enter Consumerology the new age corporate science akin to bending consumers will to that of a multi billion dollar corporation. In this instance, Express Scripts uses this methodology to assert that patients really prefer mail order, even though they still vote with their feet and wallets in favor of community pharmacies. There is no independent study to validate Express Script s conclusion. It is perhaps important to point out that ESI s mail order channel was the least utilized among the Big 3 mail order services in 2010. So much for the power of Consumerology. Express Scripts blames consumers for having their prescriptions filled at the pharmacy of their choice, claiming that patient choice accounts for $88.3 billion of the $403 billion waste it identifies in the 2010 Trend Report. By contrast, in its 2009 Trend Report, ESI identified so called channel waste at $6 billion. The change is simply sleight of hand to make mail order more attractive to employers, unless one believes that mail order costs decreased $80 billion in 12 months.

Per the fine print in the 2010 Trend Report, $7.6 billion in savings would be achieved due to better unit pricing and lower dispensing fees in optimal channels. This means that the real mail order savings opportunities represent only 1.9 percent of the overall $403 billion savings opportunity! Well, Express Scripts will never tell health plans sponsors that the channel savings opportunity is a virtual rounding error when it comes to overall annual pharmacy benefit waste not if it wants to sell mail order. The two real savings drivers that amount to $395 billion of the $403 billion estimate receive second billing in the report. The first is Non Adherence at $258.3 to $308 billion. Like most PBMs that have selling mail order as their primary mission, Express Scripts conflates Medication Possession Rates (MPR) with Adherence. Perhaps this is why ESI has $49.7 billion of non adherence savings inflating its Channel Waste category, Of course, non adherence is multi variant with as many as 20 different drivers and nonpossession of medication is but one. The second is Drug Mix (i.e., using more generic drugs vs. brand names) at $56.7 to $87.7 billion. The punch line here is that Express Scripts in 2010 had only a 60.2% generic penetration rate in its mail order channel this was dead last among the Big 3 PBMS, none of them managed a rate above 61.5%, and far off the 72.7% rate achieved in the pharmacy network. Because of these numbers, it is unclear how moving more prescriptions to its mail channel would promote higher generic utilization though Express Scripts again inflates the its Channel Waste number with $31 billion it attributes to improved generic utilization. All of this is to point out that when it comes to the 98 percent of the savings opportunities associated with the pharmacy benefit, Express Scripts needs to refocus its priorities on the things that really matter to patients and health plans rather than the bottom line of its mail order pharmacy.

This article appeared in May 2011 Consumer Reports Magazine. Best drugstores 43,739 readers rate pharmacies for accuracy, knowledge, and speed Chalk one up for the little guy. Consumer Reports latest drugstore study affirms that the top-rated walk-in stores are neighborhood independents, not giant chains such as Walgreens and CVS. Ninety-four percent of readers who shopped at independent drugstores were highly satisfied with their experiences. Included in this group are The Medicine Shoppe and Health Mart, independent-like chains that are individually owned and operated but have a common parent company. Independents made fewer errors, offered swifter service at the pharmacy counter, and were much more likely to have medications ready for pickup when promised than traditional chain, supermarket, or big-boxstore pharmacies, our survey found. People who filled their prescriptions at independent stores also praised the pharmacists accessibility and personal service, and encountered fewer delays and medication mixups than those who shopped elsewhere. The trends One of our most disturbing findings is that so few people are talking to their druggists about dosing, interactions, or medical conditions. In our latest survey, just 42 percent of respondents had a conversation with their pharmacist about their prescription drugs; 26 percent discussed over-the-counter medicines. If you re seeking answers on the Internet instead of from a health-care professional, you re swimming in shark-infested waters, warns John Santa, M.D., director of the Consumer Reports Health Ratings Center. Brand drugmakers have so much money and are so smart that it is very difficult to find information online that they do not influence heavily, he says. In my mind, unless you are very careful and already well informed, you should assume that whatever you read on the Internet is coming from a drug company. A lack of understanding about medications can have dire consequences. An estimated 25 percent of patients don t take their medications as prescribed, resulting in as many as 188 million visits to clinics and hospitals each year. Health-care consumers can and should become active partners with their healthcare practitioners in preventing medication errors and misuse, says Allen Vaida, Pharm.D., executive vice president of the Institute for Safe Medication Practices, a nonprofit organization. Patients should talk to their pharmacists, doctors, and nurses to learn how to take their medications properly and what the side effects are. 1 Consumer Reports May 2011

This article appeared in May 2011 Consumer Reports Magazine. But asking questions only at your pharmacy might not be enough. As part of our study, Consumer Reports sent anonymous shoppers to 20 drugstores around the U.S. to ask pharmacists or their assistants about the safety of taking the prescription drug Lipitor along with red yeast rice, an over-the-counter dietary supplement. Both are supposed to lower cholesterol. Taken together, they pose a greater risk of side effects, including muscle, kidney, and liver problems. But in 12 instances, the pharmacy gave the wrong advice. We found other shifts in the patient-pharmacy relationship and trends that might change your pharmacy experience: Readers report problems Almost half of readers surveyed had at least one problem during a total of about 54,000 drugstore visits. Top gripes: Medicine was out of stock (at least once in the past year for 32 percent of readers), counter service was slow (cited by 21 percent), and the order wasn t ready when promised (15 percent). Four percent of readers got the wrong number of pills, and even fewer reported medication mixups or billing errors. The stores most likely to be out of stock were supermarkets Albertsons, Jewel-Osco, Smith s, Stop & Shop, and Winn-Dixie. Almost half of those lacked the medicine readers needed at least once during the year. The delays were longest at Giant Food, where 44 percent of those who faced an out-of-stock drug didn t get their prescription for at least two days. Walmart had the biggest bottlenecks at the pharmacy counter, where half of visits resulted in a long wait. Giant Food and Meijer were almost as bad. On-time delivery improves Overall, drugstores have gotten better at delivering prescriptions when promised. In our 2002 survey 24 percent of readers said on-time delivery was problematic; this time 16 percent said so. That s especially good news because speed has become more important to readers. In our current survey 49 percent said the ability to get in and out quickly with medicine in hand was an important consideration in choosing a drugstore, compared with 24 percent in our 2002 survey. Compare prices If you have large out-of-pocket costs, comparison shopping is a necessity. That might require phone calls because many chains (with the notable exception of Costco) have removed their online price-checker feature. But the research should prove worthwhile. Our national study of prices for four common brand-name drugs (see How to save on medicine) found average total differences of $168, or 29 percent, between the cheapest source (HealthWarehouse.com) and costliest (Publix). More discounts and freebies offered Stores offer free diabetes drugs and antibiotics (a 14-day supply of commonly prescribed generic versions), low-priced generic prescription drugs (a 30-day supply for $4 or three months worth for about $10), and discounted immunizations for flu, measles, chicken pox, tetanus, pneumonia, hepatitis, HPV, and other conditions. (Pharmacists in all 50 states are now permitted to inoculate.) 2 Consumer Reports May 2011

This article appeared in May 2011 Consumer Reports Magazine. Many chains, including CVS, Publix, Shopko, Walgreens, and Walmart, have set up walk-in clinics where approved health-care providers offer services such as inexpensive physicals for school sports, pregnancy tests, and treatment for ailments such as bladder infections, poison ivy, and pinkeye. Some stores provide screenings for skin cancer and high blood pressure. Increasingly, chains are giving their best deals to those who join the store s loyalty or preferredshopper programs. Membership is sometimes free, and customers might receive points toward future purchases (Rite Aid and CVS), 10 percent off store-brand products (Kinney Drugs), $5 off the price of a flu shot (Winn-Dixie), or a $25 credit for transferring their prescription from another drugstore (Fred Meyer). Be careful buying on the Internet Though there are credible online pharmacies, such as those affiliated with physical stores (CVS.com, for example), most are shady. That s the conclusion of the National Association of Boards of Pharmacy, which accredits online drugstores. Of the more than 7,000 online drugstores whose practices the NABP has reviewed, only about 3.5 percent appear to be legitimate. The rest sell foreign or non-fdaapproved drugs, don t require a valid prescription, or lack a physical address, for example. Those rogue pharmacies continue to defy federal efforts to banish them and have actually gotten more brazen. According to the NABP, many rogue sites have expanded their offerings from drugs for sexual performance or weight loss to painkillers and other narcotics. Site operators often hide behind legitimate-looking storefronts, some of which appear to be based in Canada, whose regulatory system is similar to that of the U.S. In reality, they might be in China, Russia, the Middle East, or elsewhere. E-prescribing isn t used enough With almost 4 billion prescriptions dispensed annually, there s ample opportunity for wrong dosing instructions, missed drug interactions, patient allergies, and errors due to illegible handwriting. If more doctors sent prescriptions electronically to drugstore computer systems, which have access to patients medical histories, the error rate would drop and doctors would spend less time clearing up confusion. Rob Cronin, a spokesman for Surescripts, which operates one of the largest e-prescribing networks connecting prescribers to pharmacies, says that roughly 40 percent of doctors are transmitting electronically, up from less than 1 percent six years ago. Yet that represents only about 18 percent of all eligible prescriptions in 2010. Sixty-nine percent of readers surveyed who use walk-in pharmacies said they still drop off their prescriptions. 3 Consumer Reports May 2011

CVS Caremark Pays $17.5 million to Resolve False Claims Act Allegations CVS Caremark Corp.'s (CVS) retail pharmacy division will pay $17.5 million to resolve False Claims Act allegations according to the U.S Justice Department. The federal government pointed the finger at CVS Caremark regarding an alleged practice of submitting inflated prescription claims to the government by billing the Medicaid programs for more than what CVS was owed in Alabama, California, Florida, Indiana, Massachusetts, Michigan, Minnesota, New Hampshire, Nevada and Rhode Island. The U.S. alleged CVS billed and was paid a higher amount by Medicaid than what the insured would have been obligated to pay if the claims been submitted solely to a third party insurer. This latest settlement coupled with CVS Caremark s aggressive efforts to expand its management of state Medicaid plans, points to the need to establish an immediate FTC mandated firewall between the CVS Caremark retail and PBM business operations. While it is a virtual certainty that the CVS Caremark will stress that this settlement relates to the company s retail operations, it is important to note that the company s integrated model articulates the synergies of its retail and PBM operations working together as a single entity. NCPA, consumer groups and other interested stakeholders in controlling pharmaceutical costs have repeatedly expressed concern about the real dangers to consumers of a major PBM subordinating the interests of the health plans that is manages to the profit initiatives of a national retail drugstore chain. This settlement takes place amid intense CVS Caremark efforts to sell the virtues of its integrated model to states that are seeking better management of their Medicaid cost. In fact, the company s signature program, Maintenance Choice, offers the best example of this dynamic. For 90 day supplies of medications, CVS Caremark s PBM sales team steers members of the health plans that it manages into CVS stores while blocking other pharmacies from filling these prescriptions even at a lower price. Additionally, there have been lawsuits filed in several states that seek to protect private consumer health information from being shared between the company s retail and PBM operations. In a report just released by CVS Caremark, the PBM operation, extols the benefit of a pharmacy home using a single pharmacy to manage a patient s care. Of course, the pharmacy home that CVS Caremark s PBM operations will be selling to its clients will be CVS retail stores. This means that patients particularly Medicaid patients should be rightly concerned about the details of the recent settlement as well as the disposition of the FTC investigation. Further governors and state Medicaid directors should join NCPA and consumer groups in demanding that the FTC support regulatory control over the so called CVS Caremark integrated model including the immediate implementation of an operational firewall that would restrict the company from putting its profits first and pharmacy patients last.