2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies Adam J. Fein, Ph.D. Pembroke Consulting, Inc., and Drug Channels Institute January 2015 Full report available for download at http://drugchannelsinstitute.com/products/industry_report/pharmacy/
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ABOUT THE AUTHOR Adam J. Fein, Ph.D., is the president of Pembroke Consulting, Inc., a management advisory and business research firm based in Philadelphia. He also is the CEO of Pembroke s Drug Channels Institute, a leading management educator for and about the pharmaceutical industry. Dr. Fein is one of the country s foremost experts on pharmaceutical economics and the drug distribution system. Top manufacturers call on Dr. Fein s insights and judgment to create successful commercial strategies and make better strategic decisions in our evolving healthcare environment. Dr. Fein s popular and influential Drug Channels website (www.drugchannels.net) is the go-to source for definitive and comprehensive industry analysis, delivered with a witty edge. He has published hundreds of academic and industry articles, and is regularly quoted in such national publications as The Wall Street Journal, The New York Times, USA Today, Pharmaceutical Executive, and many others. He serves on the editorial advisory boards of Pharmaceutical Commerce and Drug Benefit News. Dr. Fein earned his doctoral degree from the Wharton School of Business at the University of Pennsylvania and a B.A., summa cum laude, from Brandeis University. He lives in Philadelphia with his wife and their two children. Contact information Adam J. Fein, Ph.D. Pembroke Consulting, Inc. 1515 Market Street, Suite 960 Philadelphia, PA 19102 Phone: 215-523-5700 Website: www.pembrokeconsulting.com Email: afein@pembrokeconsulting.com Visit the Drug Channels website for the latest industry updates! www.drugchannels.net iii
ABOUT DRUG CHANNELS INSTITUTE Drug Channels Institute (DCI), a division of Pembroke Consulting, Inc., is a leading provider of specialized management education and computer-based training for and about the pharmaceutical industry. Drug Channels Institute combines Dr. Fein s expertise and cutting-edge analysis such as this 2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies into online e-learning modules that offer a thorough grounding in crucial industry topics in 45 minutes or less. These online learning tools mix the latest industry data and cutting-edge analysis with highly interactive elements that engage and entertain. They educate a wide variety of learners: from sales reps and field teams, who need immediate, easily digestible industry concepts for their key accounts, to internal teams who need to better understand customers and channels. View a module list at http://drugchannelsinstitute.com/products/e-learning-modules/. View a sample at http://drugchannelsinstitute.com/e-learning-module-sample/. DCI can code and brand any module for your company s internal Learning Management System. Or you can get started quickly by letting us host your team via our online e-learning portal. DCI s hosted e-learning modules are instantly viewable on all computer platforms, including ipads. To learn more about how Drug Channels Institute can help your business, please contact: Paula Fein, M.S.Ed. V.P., Business Development Drug Channels Institute 1515 Market Street, Suite 960 Philadelphia, PA 19102 Phone: 215-523-5700 x11 Website: www.drugchannelsinstitute.com Email: paula@drugchannelsinstitute.com iv
INTRODUCTION AND GUIDE TO THIS REPORT In 2014, the pharmacy industry continued to evolve. Prescription revenues exceeded $300 billion. Generic substitution rates have begun to level off, even as generic drugs have experienced unexpected inflation. Meanwhile, specialty drugs accounted for almost a quarter of these revenues, and they continue to reshape business strategies throughout the industry. The largest independent specialty pharmacy, Diplomat Pharmacy, became a public company. What s more, a growing number of healthcare organizations now compete to dispense specialty drugs. Chain drugstores led the industry s overall growth. Walgreens completed its acquisition of Alliance Boots, forming Walgreens Boots Alliance. CVS Caremark renamed itself CVS Health, and signaled its broader healthcare focus by stopping cigarette sales in CVS retail drugstores. Rite Aid and Walgreens have both restructured their wholesale relationships, shifting from selfwarehousing to direct-store deliveries from a wholesaler. The largest chains have also entered into new combinations that aggregate generic purchasing power across the supply chain. Amid this change, understanding the implications of the industry s evolution has never been more crucial. The 2014 15 Economic Report on Retail, Mail, and Specialty Pharmacies our sixth edition remains the most comprehensive tool for analyzing the economic and business realities of the U.S. pharmacy industry. About the Report The 2014 15 Economic Report on Retail, Mail, and Specialty Pharmacies provides an up-to-date, fact-based analysis of the pharmacy channel and its interactions with other participants in our healthcare system. I have synthesized a wealth of statistical data, research studies, financial information, and my own unique business consulting experience into a definitive, nonpartisan resource. The report is essential for pharmaceutical manufacturers, wholesalers, pharmacists, pharmacy owners, benefit managers, managed care executives, healthcare policy analysts, investors, consultants anyone who wants to understand and benefit from this ever-changing industry. After reading the 2014 15 Economic Report on Retail, Mail, and Specialty Pharmacies, you will be able to: Describe the U.S. pharmacy industry s overarching structure Identify the largest participants in the pharmacy industry Distinguish the different dispensing formats for prescription pharmaceuticals Identify key participants in the specialty pharmacy market Explain specialty pharmacies services for patients, manufacturers, and payers Explain the factors influencing the pharmacy industry s growth Compare growth trends among different dispensing formats v
Describe the relationships between Pharmacy Benefit Managers (PBMs) and pharmacies that participate in a PBM s network Explain how third-party payers affect a pharmacy s economics Summarize the primary methods of estimating a pharmacy s ingredient costs Distinguish among services that pharmaceutical wholesalers provide to larger and smaller pharmacies Identify typical per-prescription profit margins of generic vs. brand-name prescriptions Explain why and how pharmacy profitability from a generic drug varies over its lifecycle Distinguish between the profitability levels of retail vs. mail pharmacies Define key trends affecting the pharmacy industry s future This report will help you master the latest data and concepts about the complex interactions within the pharmacy distribution and reimbursement system, shown below. The U.S. Pharmacy Distribution and Reimbursement System This chart illustrates the three key channel flows that we discuss in this 2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies: Product movement, which traces bulk distribution from pharmaceutical manufacturers to the drug wholesalers that supply pharmacies. A pharmacy marks the final step in which a prescription is dispensed to a patient. Financial flows, which transfer money from third-party payers to Pharmacy Benefit Managers (PBMs), who in turn reimburse pharmacies. Funds flow to manufacturers via pharmacies, which purchase drugs from wholesalers. Funds flow from manufacturers in vi
the form of rebates to PBMs, which share a portion of these payments with plan sponsors, reducing net prescription costs. Manufacturers rebates to PBMs and other third-party payers do not flow through wholesale or retail channels. Contractual relationships, which govern the relationships between: 1) payers and PBMs; 2) PBMs and pharmacies; 3) pharmacies and wholesalers; 4) wholesalers and manufacturers; and 5) manufacturers and PBMs. Thousands of companies operate in this system, ultimately enabling more than 4 billion prescriptions to be dispensed annually. The table below highlights the major public companies operating in the pharmacy distribution and reimbursement system. Major Public Companies Operating in Pharmacy Drug Channels Structure of the Report This year s report has been updated, revised, reorganized, and expanded. It contains the latest financial and industry data, along with detailed information about the strategies and market positions of the largest public companies CVS Health, Express Scripts, Rite Aid, Walgreens Boots Alliance, Walmart, and others. Beyond updating all data and information from previous editions, this 2014-15 report includes many new elements, such as: A new Chapter 3, with expanded, in-depth analysis on specialty drugs and specialty pharmacies A revised Chapter 4, which integrates our analysis of pharmaceutical payment and pharmacy benefit management New reimbursement comparisons for different dispensing channels (mail vs. retail vs. specialty) All-new material on globalizing retail and wholesale markets vii
Highlights of the new track-and-trace federal law New details on wholesalers pricing and discount models to pharmacies New analysis of the changing relationships between larger pharmacies and wholesalers Expanded competitive analysis of health systems and physician practices that dispense specialty drugs And much more! The report analyzes the industry in seven major chapters. The chapters are self-contained and do not need to be read in order. We include extensive internal references to help you navigate the entire document and customize it to your specific needs. (These references are clickable hyperlinks in the PDF document.) There are also more than 300 endnotes, most of which have hyperlinks to original source materials. A guide to the chapters: Chapter 1: Industry Overview (page 1) defines the industry and its regulatory framework, explains different pharmacy industry participants, distinguishes among outpatient dispensing business models, and identifies the biggest pharmacies and their national and regional market shares in 2014. Chapter 2: Changes in Pharmacy Industry Structure (page 18) quantifies U.S. spending on outpatient drugs and analyzes the industry s 10-year and most recent prescription and revenue growth trends. It analyzes differences among dispensing formats, the surprising resilience of independent pharmacies, the slowdown in mail dispensing, and the expansion of retail clinics and medication therapy management services. Chapter 3: Specialty Drugs and Specialty Pharmacies (page 37), entirely new for this 2014-15 edition, provides a comprehensive overview of specialty drugs and the pharmacies dispensing these medications. We present our exclusive analysis of national market share for pharmacy-dispensed specialty drugs. The chapter also discusses the various definitions of specialty drugs and specialty pharmacies, summarizes the top specialty therapy classes and average prescription costs, and analyzes trends in specialty drug spending. It offers a competitive analysis of the various healthcare organizations that compete to dispense specialty medications. Chapter 3 also reviews the channel strategies that pharmaceutical manufacturers and third-party payers use. Chapter 4: Pharmaceutical Payment and Pharmacy Benefit Management (page 60) examines the primary payers for prescription drugs at retail, mail, and specialty pharmacies. It identifies the PBM industry s key participants, explains the services provided by PBMs to third-party payers, reviews the crucial role of PBMs in pharmacy economics, describes the relationship between PBMs and pharmacies that participate in a PBM s network, and reviews how Pharmacy Services Administration Organizations (PSAOs) intermediate between retail pharmacies and PBMs. Chapter 4 also identifies the viii
key elements of pharmacy benefit design, analyzes consumer copayments and coinsurance, and explains the impact of manufacturer copayment offset programs. Chapter 5: Prescription Reimbursement by Third-Party Payers (page 81) explains the latest formulas and methodologies for computing a pharmacy s revenue from brandname, generic, and specialty prescriptions. This chapter compares and contrasts traditional list price methods with emerging acquisition cost reimbursement approaches. It also illustrates how prescription reimbursement, formulary rebates, and consumer copayments affect a plan sponsor s net costs for a prescription. Chapter 6: Relationships with Pharmaceutical Wholesalers (page 102) explores the interactions of pharmacies with their primary suppliers of drugs. It explains wholesalers channel roles and services, identifies the largest wholesale suppliers, and analyzes wholesalers role for specialty drugs and specialty pharmacies. This chapter also analyzes wholesalers changing relationships with self-warehousing chains and larger mail pharmacies. Chapter 7: Pharmacy and Prescription Profitability (page 119) unites the reimbursement and cost discussion from Chapters 4, 5, and 6 by presenting the latest data on pharmacy and prescription profitability. This section documents overall drugstore profitability, pharmacy margins for prescriptions, profit differences between brand and generic prescriptions, and PBM profits from network and mail pharmacies. Chapter 8: Economic Trends and Outlook (page 135) analyzes and updates the significant trends that will impact retail, mail, and specialty pharmacies: 1) Healthcare Reform and the U.S. Outpatient Pharmaceutical Spending Outlook, 2) The Evolving Generic Marketplace, 3) Narrow Pharmacy Benefit Networks, 4) The Specialty Boom, 5) Pharmacy Participation in the 340B Drug Pricing Program, and 6) Globalization of Retail and Wholesale Drug Channels. This year, we have integrated the report summary into Chapter 1, which concludes with Pharmacy Industry Trends and Report Overview (starting on page 15). This new section highlights the major themes in the 2014-15 report. As always, I welcome your comments and feedback. Please contact me if you have any questions or comments about the 2014 15 Economic Report on Retail, Mail, and Specialty Pharmacies. Adam J. Fein January 2015 P.S. You can find post-publication errata here: http://drugchannelsinstitute.com/files/2014-15-pharmacyindustry-errata.pdf ix
CONTENTS Chapter 1: Industry Overview... 1 1.1. Defining the Practice of Pharmacy... 1 1.1.1. The Products That Pharmacies Dispense... 2 1.1.2. Top Traditional Therapy Classes and Average Prescription Costs... 3 1.1.3. Regulation and Supply Chain Security... 4 1.2 Pharmacy Industry Participants... 5 1.2.1. Outpatient Pharmacy Dispensing Formats... 5 1.2.2. Other Outpatient Dispensing Formats... 6 1.2.3. Differences Among Outpatient Dispensing Formats... 6 1.2.4. Pharmacy Employment and Salaries... 10 1.3. Market Size and Share... 11 1.3.1. Revenues and Number of Pharmacies... 11 1.3.2. National Market Share by Company in 2014... 12 1.3.3. Regional Market Share and Smaller Drugstore Chains... 13 1.4 Pharmacy Industry Trends and Report Overview... 15 Chapter 2: Changes in Pharmacy Industry Structure... 18 2.1. Prescription Drugs and Healthcare Spending... 18 2.2. Overall Industry Growth... 19 2.3. Long-Term Trends... 20 2.4. Recent Growth Trends... 23 2.4.1. Market Changes by Dispensing Format... 23 2.4.2. National Retail Chains... 24 2.4.3. Independent Drugstores... 26 2.4.4. Mail Pharmacies... 28 2.5. Clinical and Healthcare Services... 31 2.5.1. Retail Clinics... 31 2.5.2. Medication Therapy Management (MTM)... 34 2.5.3. Provider Status... 35 x
Chapter 3: Specialty Drugs and Specialty Pharmacies... 37 3.1. Defining Specialty Drugs... 37 3.1.1. Common Characteristics of Specialty Drugs... 37 3.1.2. How Payers Define Specialty Drugs... 38 3.1.3. Top Specialty Therapy Classes and Average Prescription Costs... 40 3.1.4. Trends in Specialty Drug Spending... 41 3.2. Defining Specialty Pharmacy... 42 3.2.1. Clinical and Data Services... 42 3.2.2. Accreditation... 44 3.3. Specialty Market Participants... 44 3.3.1. Overview... 44 3.3.2. Health Plans and PBMs... 45 3.3.3. Independent Specialty Pharmacies... 46 3.3.4. Retail Pharmacies... 47 3.3.5. Hospitals and Physicians... 49 3.6. National Market Share for Specialty Pharmaceuticals... 51 3.6.1. Mergers and Acquisitions Among Specialty Pharmacies... 53 3.7. Channel Strategies for Specialty Drugs... 54 3.7.1. Manufacturer-Defined Dispensing Networks... 54 3.7.2. Specialty Hubs... 56 3.7.3. Payer-Defined Dispensing Networks... 57 3.7.4. Payers Specialty Pharmacy Strategies for Provider-Administered Drugs... 58 Chapter 4: Pharmaceutical Payment and Pharmacy Benefit Management... 60 4.1. Payment for Prescription Drugs... 60 4.2. Role of Pharmacy Benefit Managers... 63 4.2.1. PBM Industry Structure... 64 4.2.2. Relationships Between PBMs and Plan Sponsors... 65 4.2.3. Formulary Development and Management... 67 4.2.4. Rebate Negotiation with Manufacturers... 68 4.2.5. Clinical Management Services by PBMs... 70 4.3. Consumer Copayments and Coinsurance... 71 xi
4.3.1. Commercial Health Plans... 71 4.3.2. Medicare Part D and Medicaid... 74 4.3.3. Manufacturer Copayment Offset Programs... 74 4.4. Relationships Between PBMs and Pharmacies... 76 4.4.1. Retail Pharmacy Participation in Payer Networks... 76 4.4.2. PBM-Pharmacy Negotiations... 77 4.4.3. Smaller Pharmacies and Pharmacy Services Administration Organizations... 78 Chapter 5: Prescription Reimbursement by Third-Party Payers... 81 5.1. The Basics of Prescription Reimbursement... 81 5.1.1. Reimbursement Methodologies for Estimating Drug Costs... 82 5.1.2. Dispensing Fees... 83 5.1.3. Service and Data Fees... 84 5.2. Reimbursement for Brand-Name and Specialty Prescriptions... 85 5.2.1. Wholesale Acquisition Cost (WAC) and Average Wholesale Price (AWP) List Prices... 85 5.2.2. Why List Prices Are Used for Brand-Name Prescription Reimbursement... 86 5.2.3. Average AWP Discounts for Pharmacy Reimbursement... 88 5.2.4. Retail vs. Mail Reimbursement Rates for Brand-Name Drugs... 89 5.2.5. Why Mail Pharmacies Accept Lower Reimbursements... 90 5.3. Reimbursement for Generic Prescriptions... 91 5.3.1. Challenges for List-Price Benchmarks... 91 5.3.2. Maximum Allowable Cost (MAC) Limits... 93 5.3.3. Controversy over MAC Limits... 93 5.3.4. Medicaid and Federal Upper Limits... 94 5.4. Acquisition Cost Reimbursement... 95 5.4.1. Average Acquisition Cost (AAC) in State Medicaid Programs... 95 5.4.2. National Average Drug Acquisition Cost (NADAC)... 96 5.4.3. Direct-to-Payer Acquisition Cost... 98 5.5. Manufacturer Sales Price Methods... 99 5.5.1. Average Manufacturer Price (AMP)... 99 5.5.2. Average Sales Price (ASP)... 100 xii
5.6. How Prescription Reimbursement, Formulary Rebates, and Consumer Copayments Affect Plan Sponsor Costs... 100 Chapter 6: Relationships with Pharmaceutical Wholesalers... 102 6.1. Wholesalers Channel Role for Pharmacies... 102 6.1.1. Overview of Pharmacy Purchasing Strategies... 102 6.1.2. Cost-Minus Pricing of Brand-Name Drugs to Pharmacies... 103 6.1.3. Influence on Pharmacy Reimbursement... 105 6.2. Largest Wholesale Suppliers... 105 6.2.1. Full-Line Wholesalers... 107 6.2.2. Specialty Distributors... 108 6.3. Relationships with Independent Drugstores... 109 6.3.1. Wholesaler Services for Independent Pharmacies... 110 6.3.2. Wholesaler Relationships with Pharmacy Buying Groups... 112 6.3.3. Wholesaler Generic Programs for Retail Pharmacies... 113 6.4. Wholesalers Role in Pharmacy-Dispensed Specialty Drug Distribution... 114 6.4.1. Specialty Products with Limited Pharmacy Networks... 114 6.4.2. Specialty Products in Open Distribution... 115 6.5. Large Retail Chains and Mail Pharmacies... 115 6.5.1. Wholesale Suppliers to Largest U.S. Pharmacies... 115 6.5.2. Changing Relationships Between Wholesalers and Retail Chains... 116 6.5.3. Walgreens-AmerisourceBergen Relationship... 117 6.5.4. Rite Aid-McKesson Relationship... 119 Chapter 7: Pharmacy and Prescription Profitability... 120 7.1. Overall Drugstore Gross Margins... 120 7.1.1. Industry Averages... 120 7.1.2. Large Drugstore Chains... 122 7.2. Pharmacy Per-Prescription Profits... 122 7.2.1. Sources of Per-Prescription Profits... 122 7.2.2. Average Prescription Gross Margins... 123 7.2.3. PBM Per-Prescription Profits from Network and Mail Pharmacies... 126 7.2.4. Pharmacy Profits With Acquisition Cost-Based Reimbursement... 127 xiii
7.3. Lifecycle Profits for Generic Drugs... 128 7.3.1. Single-Source, Brand Only Period... 128 7.3.2. Exclusivity Period... 129 7.3.3. Post-Exclusivity Period... 130 7.3.4. Maturity Period... 131 7.4. Retail Generic Drug Discount Programs... 132 7.4.1. Overview of Discount Programs... 132 7.4.2. Profit Impact... 133 Chapter 8: Economic Trends and Outlook... 135 8.1. Healthcare Reform and the U.S. Outpatient Pharmaceutical Spending Outlook... 136 8.1.1. Summary... 136 8.1.2. Pharmaceutical Spending Projections... 136 8.1.3. Payment for U.S Outpatient Prescription Drugs... 138 8.2. The Evolving Generic Marketplace... 140 8.2.1. Summary... 140 8.2.2. The Generic Outlook... 140 8.2.3. Generic Drug Purchasing Organizations... 142 8.2.4. The Unexpected Generic Inflation Challenge... 144 8.2.5. Medicaid and AMP-Based Federal Upper Limits... 145 8.3 Narrow Pharmacy Benefit Networks... 147 8.3.1. Summary... 147 8.3.2. Pharmacy Benefit Network Models... 147 8.3.3. Preferred Networks in Medicare Part D... 150 8.3.4. Cost Savings and Pharmacy Profits in Narrow Networks... 151 8.3.5. The Outlook for Narrow Networks... 154 8.4. The Specialty Boom... 156 8.4.1. Summary... 156 8.4.2. The Shift to Specialty Drugs... 156 8.4.3. Projected Growth in Specialty Drug Trend... 156 8.4.4. Pharmacy Industry Revenues from Specialty Drugs... 158 8.4.5. The Outlook for Biosimilars... 158 xiv
8.5. Pharmacy Participation in the 340B Drug Pricing Program... 160 8.5.1. Summary... 160 8.5.2. Overview of the 340B Program... 160 8.5.3. The Role of 340B Contract Pharmacies... 161 8.5.4. Flow of Funds with a Contract Pharmacy... 162 8.5.5. Profits from 340B Prescriptions... 164 8.5.6. The Outlook for 340B Contract Pharmacies... 165 8.6. Globalization of Retail and Wholesale Drug Channels... 167 8.6.1. Summary... 167 8.6.2. Global Expansion by the Large Pharmacies and Wholesalers... 167 8.6.3. Overview of Global Pharmaceutical Markets... 168 8.6.4. European Pharmacy Markets... 169 APPENDIX: The AWP Rollback... 171 Acronyms and Abbreviations... 172 Endnotes... 173 xv
LIST OF EXHIBITS Exhibit 1: Average Revenue per Equivalent Outpatient Prescription, 1998-2013... 3 Exhibit 2: Top 10 Traditional Therapy Categories and Average Prescription Cost, 2013... 4 Exhibit 3: Timeline of DSCSA Requirements for Pharmacies (Dispensers)... 5 Exhibit 4: Average Annual Number of Prescriptions per Pharmacy, by Dispensing Format, 2013... 7 Exhibit 5: Average Annual Prescription Revenue per Pharmacy Outlet, 2013... 8 Exhibit 6: Median Wait Time to Fill a Prescription, by Dispensing Format, 2013... 8 Exhibit 7: Customer Satisfaction with Pharmacies, by Dispensing Format, 2014... 9 Exhibit 8: Primary Reason for Pharmacy Selection, by Dispensing Format, 2013... 9 Exhibit 9: Pharmacist Employment and Salary, by Dispensing Format, 2013... 10 Exhibit 10: Overview of U.S. Pharmacy Market, 2014... 11 Exhibit 11: Largest 15 U.S. Pharmacies Ranked by Total Prescription Revenues, 2014... 12 Exhibit 12: Market Share by Chain, Top 20 U.S. Metropolitan Areas, 2012... 13 Exhibit 13: Top 10 Regional Chain Drugstores, by Total Prescription Revenues, 2013... 14 Exhibit 14: Share of U.S. National Health Expenditures, by Major Spending Category, 1973-2023... 18 Exhibit 15: U.S. Prescriptions, Annual Total and Growth, 2003-2014E... 19 Exhibit 16: U.S. Drugstore Revenues, Year-Over-Year Change in Total Revenues, 1999-2014... 20 Exhibit 17: Share of Revenue Growth by Dispensing Pharmacy Format, 2003 vs. 2013... 20 Exhibit 18: Number of Pharmacies by Dispensing Format, 2003 vs. 2013... 21 Exhibit 19: Change in Total Prescriptions Dispensed, by Pharmacy Format, 2003-2008 vs. 2009-2013... 22 Exhibit 20: Average Number of Prescriptions Dispensed per Location, by Dispensing Format, 1992-2013... 22 Exhibit 21: Number of Prescriptions by Dispensing Format, 2012 vs. 2013... 23 Exhibit 22: Prescription Revenues by Dispensing Format, 2012 vs. 2013... 24 Exhibit 23: Year-Over-Year Change in Same-Store Prescription Count, January 2012 to December 2014... 25 Exhibit 24: Number of Independent Pharmacies, 1990-2013... 27 Exhibit 25: Share of Mail Pharmacy Revenues, by Company, 2014... 28 Exhibit 26: Equivalent Mail Prescriptions, Annual Total and Growth, 2003-2013... 29 Exhibit 27: Number of U.S. Retail Clinics, 2004-2014... 31 Exhibit 28: Largest Retail Clinic Operators, 2014... 32 Exhibit 29: Providers of Medication Therapy Management Services, 2013... 35 Exhibit 30: Factors Determining Health Plan Classification as Specialty Therapy, 2013... 38 Exhibit 31: Specialty Drugs as a Percentage of Payers Pharmacy Benefit Spending, by PBM, 2013... 39 Exhibit 32: Top 10 Specialty Therapy Categories and Average Prescription Cost, 2013... 40 Exhibit 33: Commercial Drug Trend, Traditional vs. Specialty Drugs, by PBM, 2013... 41 Exhibit 34: Examples of Pharmacies Dispensing Specialty Pharmaceuticals... 44 Exhibit 35: Locations with URAC Specialty Pharmacy Accreditation, 2008-2015E... 45 xvi
Exhibit 36: Fastest-Growing Private Specialty Pharmacies, 2013... 46 Exhibit 37: Employer Perceptions of Specialty vs. Retail Pharmacies... 49 Exhibit 38: Health Systems and Physician Practices, by URAC Specialty Pharmacy Accreditation Status, 2014... 50 Exhibit 39: Oral Oncology Volume, by Dispensing Channel, 2014... 51 Exhibit 40: Pharmacy Revenues and Market Share from Specialty Pharmaceuticals, by Company, 2014... 52 Exhibit 41: Leading Specialty Hub Providers... 56 Exhibit 42: Payer-Mandated Usage of Specialty Pharmacies by Oncologists, by Product Type, 2010-2013... 58 Exhibit 43: Infused Therapy Sourcing at Oncology Practices, by Distribution Channel, 2014... 59 Exhibit 44: Source of Payment for Outpatient Prescription Drugs, 2013... 60 Exhibit 45: Change in Expenditures for Outpatient Prescription Drugs, by Payer, 2012 vs. 2013... 61 Exhibit 46: Consumers Out-of-Pocket Spending Share of Outpatient Prescription Drug Expenditures, 1963-2013.. 63 Exhibit 47: PBM Market Share, by Total Equivalent Prescriptions, 2014... 65 Exhibit 48: Common Pharmacy Benefit Plan Designs... 67 Exhibit 49: Type of Rebate Arrangement for Traditional Brand Medications, by Employer Size, 2014... 68 Exhibit 50: Average Flat Guaranteed Rebate Amount per 30-Day Equivalent Brand-Name Prescription Type, by Dispensing Format, 2014... 69 Exhibit 51: Government Programs, Average Rebates as Percentage of Retail Drug Price... 70 Exhibit 52: Distribution of Cost-Sharing Formulas for Prescription Drug Benefits in Employer-Sponsored Plans, 2004 vs. 2014... 71 Exhibit 53: Average Copayments by Prescription Drug Tier, Employer-Sponsored Plans, 2004 vs. 2014... 72 Exhibit 54: Average Copayments by Prescription Drug Tier, Bronze vs. Platinum Health Insurance Marketplace Plans, 2015... 73 Exhibit 55: Cost-Sharing Arrangements for Prescription Drug Benefits in Employer-Sponsored Plans, 2014... 73 Exhibit 56: Manufacturer Copay Offset Programs for Brand-Name Drugs, 2012 vs. 2014... 75 Exhibit 57: Largest Pharmacy Services Administration Organizations, by Members and Ownership... 78 Exhibit 58: Payer Methodologies for Computing a Pharmacy s Estimated Acquisition Cost (EAC)... 83 Exhibit 59: Average Dispensing Fee for Brand-Name Prescriptions at Retail Pharmacies, 1999-2014... 83 Exhibit 60: Methodology Used to Compute Average Wholesale Price, by Publisher... 86 Exhibit 61: Single-Source Brand-Name Drugs, Comparison of Per-Unit Pricing Metrics and Pharmacy Acquisition Cost, Medicaid... 87 Exhibit 62: Reimbursement of Brand-Name and Specialty Prescriptions, Percentage of Average Wholesale Price, by Dispensing Format, 2014... 88 Exhibit 63: Percentage of AWP Billed to Employers for Brand-Name Prescriptions, Retail vs. Mail, 1999 to 2014... 89 Exhibit 64: Generic Drugs, Comparison of Per-Unit Pricing Metrics and Pharmacy Acquisition Cost, Medicaid... 92 Exhibit 65: Reimbursement of Generic Prescriptions, Percentage of Average Wholesale Price, by Dispensing Format, 2014... 92 Exhibit 66: Average Acquisition Cost Methodologies for Pharmacy Reimbursement Used by State Medicaid Programs, 2014... 96 Exhibit 67: Example of Net Prescription Economics for Payer... 101 xvii
Exhibit 68: Determination of a Pharmacy s Brand-Name Drug Acquisition Cost from a Wholesaler... 103 Exhibit 69: Drug Distribution and Related Revenues at Big Three Wholesalers, CY2014... 106 Exhibit 70: Full-Line Wholesaler Sales, by Type of Customer, 2013... 107 Exhibit 71: Average Full-Line Wholesaler Inventory Levels, by Product Type, 2013... 107 Exhibit 72: Specialty Distributor Sales, by Type of Customer, 2013... 108 Exhibit 73: Estimated Market Share with Independent Pharmacies, by Wholesaler, 2013... 109 Exhibit 74: Pharmacy Franchise and Marketing Programs of Large Drug Wholesalers, 2013... 110 Exhibit 75: Pharmacy Buying Groups and Primary/Preferred Wholesaler Relationship... 112 Exhibit 76: Alternative Channels to Specialty Pharmacies in Limited Networks... 115 Exhibit 77: Largest U.S. Pharmacies and Their Primary Wholesale Suppliers... 116 Exhibit 78: Overall Gross Margins for Chain and Independent Drugstores, 1993-2012... 121 Exhibit 79: Total Gross Profits for Chain and Independent Drugstores, 2001-2012... 121 Exhibit 80: Overall Gross Margins for Drugstores, by Company, 2013... 122 Exhibit 81: Average Prescription Gross Margins at Independent Drugstores, 2006-2013... 123 Exhibit 82: Diplomat Pharmacy, Per-Prescription Revenues and Profits, 2011-2014... 124 Exhibit 83: Average Retail Pharmacy Gross Margin per Prescription, Brand-Name vs. Generic Drugs, 2012... 125 Exhibit 84: PBM Gross Margin per Equivalent Script, by Channel and Drug Type, 2014... 126 Exhibit 85: Lifecycle of Per-Prescription Gross Profits, Brand vs. Multisource Generic... 128 Exhibit 86: Lexapro (10 mg tablet), Pharmacy Acquisition Cost per Pill, Brand-Name vs. Generic, July 2012 to April 2013... 130 Exhibit 87: Examples of Pharmacy Acquisition Cost, Brand-Name vs. Generic Drug, 2014... 131 Exhibit 88: Projected Growth in National Health and Outpatient Prescription Drug Expenditures, 2011-2023... 136 Exhibit 89: Median Prescription Expenses per Person, by Age, 2012... 137 Exhibit 90: Source of Payment for Outpatient Prescription Drug Expenditures, 1973-2023... 138 Exhibit 91: Change in Total Expenditures for Outpatient Prescription Drugs, by Payer, 2013 vs. 2023... 139 Exhibit 92: Generics, Share of U.S. Prescriptions, 2003-2018... 140 Exhibit 93: Projected Brand Revenues Lost to Generic Launches from 2009 to 2017... 141 Exhibit 94: Top Brand-Name Drugs Facing Generic Competition, 2015-2017... 141 Exhibit 95: Share of U.S. Generic Purchasing Volume, By Organization, 2014... 142 Exhibit 96: Generic Drugs, Change in Pharmacy Acquisition Cost per Unit, November 2013 vs. November 2014... 145 Exhibit 97: Summary of Pharmacy Benefit Network Design Options... 147 Exhibit 98: Retail Pharmacy Participation in Major Medicare Part D PDPs with Preferred Networks, 2015... 150 Exhibit 99: Express Scripts Client Savings from Alternative Pharmacy Network Designs, 2013... 152 Exhibit 100: DIR Fees for Medicare Part D Preferred Cost-Sharing Pharmacies, 2015... 153 Exhibit 101: Top 10 U.S. Drugs, 2013 vs. 2020... 156 Exhibit 102: Drug Trend Forecasts, by PBM, 2014-2016... 157 Exhibit 103: Total Spending on Specialty Drugs, by Product and Benefit Type, 2012-2018... 158 Exhibit 104: Total Number of 340B Contract Pharmacies, 2000-2014... 161 xviii
Exhibit 105: 340B Contract Pharmacy Locations, by Chain, July 2014... 162 Exhibit 106: Flow of Funds and Product for 340B Contract Pharmacy Network... 163 Exhibit 107: Hypothetical Profits to a 340B Entity for a Third-Party Prescription Dispensed by a 340B Contract Pharmacy... 165 Exhibit 108: Global Pharmaceutical Spending, by Country/Region, 2013 vs. 2018... 168 Exhibit 109: Generics, Share of Prescriptions, Major European Countries, 2013... 169 Exhibit 110: Number of Pharmacies, Major EU Countries, 2013... 170 xix