2012 Drug Trend Insights

2012 Drug Trend Insights

1 Executive Summary pharmacy benefit management

Table of Contents Welcome... 1 Executive Summary... 2 Methodology and Definitions... 14 Chapter 1: Managing Trend...15 Chapter 2: Traditional Drug Trend... 27 Chapter 3: Specialty Drug Trend... 33 Chapter 4: Benefit Design... 45 Chapter 5: Looking Ahead...51 Appendix 1: Traditional Drugs... 55 Appendix 2: Specialty Drugs...61

Prime Therapeutics 2012 Drug Trend Insights 1 Welcome Welcome to Prime Therapeutics 2012 Drug Trend Insights report. Each year, Prime takes this opportunity to review our performance and share our vision for the future. In these pages you will see the results achieved through our unique take on pharmacy benefit management. Owned by 13 non-profit health plans, Prime isn t beholden to Wall Street, fixated on next quarter s earnings or on tactics like hiding revenue streams, tinkering with wholesale prices or pursuing operational efficiencies beyond the point of prudence. Instead, we re focused on providing affordable access and fantastic service for customers so that they can get well, stay well and live well. We re also working tirelessly to trim prescription drug costs. In 2011, Prime drove the average ingredient cost per prescription down $2.37 and led the industry with drug trend of just 1.3 percent. Our success proves once again that starting with low costs and working to limit increases gets great results. We want to ensure premium dollars pay for health care, rather than being consumed by administrative costs and profit. That s why in 2011 Prime was the only PBM to encourage full transparency in drug reporting when the Department of Health and Human Services issued updated medical loss ratio regulations. In seeking to maximize the health benefit of every dollar spent on drugs, one of our greatest assets is the ability to assess how medication use affects overall health. Understanding the interplay between medical and pharmacy care is vital to staying ahead of the rising trend in health care costs. Today, even the biggest players seek to replicate the advantages of integrated pharmacy and medical benefits, the foundation on which Prime was built. Our vision for pharmacy benefits remains clear and simple. We are making health care easier and more affordable for those who rely on us to provide access to safe and effective medications. In the process, we are redefining how pharmacy benefit management supports and sustains people. Read on to learn more about how we can support you, too. Eric S. Elliott President and Chief Executive Officer Prime Therapeutics LLC

2 Executive Summary re focus I really appreciate the way Prime does business and the service they provide. I value the calls and reminders we receive about our prescriptions. They are always so friendly and helpful. Customer, Kansas 168% Prime s dynamic growth confirms that customers value our transparent business model and people-centric approach. Prime has grown 168 percent more than doubling in size since 2005. Today we serve nearly 20 million people across the nation and have partnerships with health plans in 19 states.

Prime Therapeutics 2012 Drug Trend Insights 3 Focus on what matters most Over the past two decades, pharmacy benefit management has grown considerably more complicated. PBMs today manage multiple member touch points and coordinate many aspects of care. As part of this evolution, publicly traded PBMs have developed complicated business models, opaque pricing and intricate revenue streams in order to maximize profits. Prime s partnership with not-for-profit health plans allows us to be different. This unique relationship means we are committed to stakeholder not stockholder value. We serve our stakeholders by providing low net cost pharmacy benefit management that is both objective and effective. People are our first priority Our number one priority is people. We are committed to providing affordable and easy-to-use care. We demonstrate this commitment by keeping costs low and staying responsive to customer needs. Prime s job is to help people get the medicine they need to get well, stay well and live well. That s why our work centers on streamlining access to quality medications and providing straightforward tools to help people make informed health care decisions. Delivering exceptional service is an extension of our people-centered approach. Paying attention to people pays off Customers tell us they appreciate our focus on the safety and quality of their care. We consistently receive the highest very satisfied ratings among leading PBMs. 1 What s more, as a result of our attention to quality, access and affordability, drug spending for Prime and its clients increased only 1.3 percent in 2011, our ninth consecutive year of single-digit trend. What motivates us is making a difference in people s health, not paying out dividends to investors. This drives us to be open and honest with our clients and customers. Some might consider Prime s approach shocking, but isn t focusing on people the only logical way to help people really benefit from their pharmacy benefits?

4 Executive Summary connect There was some confusion between me and my doctor s staff about what was to be ordered and when. To my surprise, Prime gladly took over and played advocate for me. It really took away the stress of doing it myself. Customer, Texas $4.73 : $1 Through industry partnerships, we are linking customers with local pharmacists for face-to-face counseling to address key therapy gaps, enhance quality and reduce costs. Connecting with pharmacists doesn t just reduce pharmacy costs; it also saves $4.73 in overall health care costs for every dollar invested. 2

Prime Therapeutics 2012 Drug Trend Insights 5 Deepening our connections with people, providers and pharmacists Big changes are taking place in health care. Right now, our nation is working to roll out reforms that will change how health care is delivered and funded. How the market will respond to health care reform is still taking shape. What is already clear, however, is that there is a tremendous need for more connected care. Integration is more relevant than ever Connectedness is the defining feature of Prime s integrated PBM model. By connecting medical and pharmacy information about costs and outcomes, we ve been able to improve drug therapy and show how targeted improvements in adherence can help to avert or reduce medical expenses. 3 We scour through combined data to identify gaps in care that would be invisible through medical or pharmacy data alone, and actively work to close those gaps. Prime also works to connect care. We share insights with the health plan to positively affect health outcomes and reduce overall health care costs. We unify care through a powerful engine that serves up actionable cost information and clinical intelligence when and where it is most useful. Our connections are expanding Day to day, Prime is expanding our relationships with people, providers and pharmacists. We are using our partnership with health plans to strengthen our clinical and cost management expertise. Together with our partners, Prime is redefining pharmacy benefit management. Not only does a connected model deliver better care, we believe it is the only rational path to achieving better health.

6 Executive Summary calculate In 2011, Prime s low net cost approach held our clients pharmacy trend to just 1.3 percent less than last year s 2.9 percent trend and that of other PBMs. Even better, while most PBMs have seen ingredient costs per prescription increase over time, Prime s total ingredient costs decreased from $61.81 in 2009 to $60.87 in 2011. 4 Fig. 1 Total Ingredient Cost Per Prescription PBM C $71.88 PBM B $68.11 PBM A $63.17 Prime Therapeutics $61.81 2009

Prime Therapeutics 2012 Drug Trend Insights 7 Start at the lowest cost. Increase at the lowest rate. Any way you calculate it, these numbers add up to success. $72.99 PBM B $72.43 $69.92 PBM C $70.87 PBM A $66.63 $64.84 $62.39 Prime Therapeutics $60.89 2010 2011

With Prime, it turns out less really is more: less expensive copays, more generic options, and more ways to save money. Customer, Texas 74.7% By the end of 2011, nearly three-quarters of all prescriptions filled by Prime were for generic drugs. In this proportion, generic discounts hold the key to cost control. Independent research conducted in 2011 found that Prime consistently offers more aggressive generic discounts than competitors. 4

Prime Therapeutics 2012 Drug Trend Insights 9 Providing quality care at a lower cost Smart car buyers know that the actual cost of a car does not always align with the price on the window; the same is true for pharmacy benefits. Yet plan sponsors continually focus on sticker price measures such as brand-name discounts or manufacturer rebates metrics that can be manipulated to make a deal look more attractive. We think the approach to pharmacy benefit management needs recalibration The price of pharmacy benefit management should be tied to the actual cost of drugs and services. We believe this so strongly that we offer average prescription price guarantees to clients who adopt best-practice benefit designs and formularies. We are the only PBM that does. Clients enjoy clear contract terms and competitive rates that include the full contracted discount from our national pharmacy network. Prime uses just one broad, aggressive maximum allowable cost (MAC) list no games or hidden agendas. We pass generic savings through right away so customers see real savings in real time. Saving money doesn t mean sacrificing quality Prime offers a full range of programs to make sure customers have access to needed medications while reining in health care cost increases. Our pharmacy programs reflect the collective clinical knowledge and expertise of Prime and its health plan partners. Decisions are data-driven, backed by rigorous and unbiased scientific research. Prime starts with the lowest ingredient cost per prescription in the industry. 4 We use the best benefit-management thinking around to keep these costs low. Finally, we fold in flexible contract terms to allow for adjustment as market changes occur. Plan sponsors who think beyond sticker price will find it pays to follow our blueprint for high-quality care at the lowest net cost.

10 Executive Summary envision 20.1% Prime s specialty drug expenditures increased 20.1 percent in 2011. At this rate, specialty spending will push overall drug trend into double digits within the next five years. The shift to specialty-driven health care is likely to accelerate, bringing increased costs and complications. Moving specialty drugs to the pharmacy benefit is a shortterm solution. Long term, plan sponsors need a partner who can handle the moving parts and cross-benefit challenges posed by specialty drugs. 15.4% 15.4 percent of clients pharmacy spend is consumed by specialty drugs. By 2016, specialty drugs could exceed 30 percent of total pharmacy benefit expenditures. 5 0.4% Despite a 20 percent increase in spend from 2010 to 2011, specialty drugs still represent less than one percent of total prescription volume. $2,654 On average, a specialty medication costs 50 times more than a traditional drug prescription.

Prime Therapeutics 2012 Drug Trend Insights 11 Heather S. My prescriptions are very expensive. If it were not for the pharmacy benefit, I would not be able to pay for this medication. Teacher, mother of three and specialty customer, Minnesota Prime s specialty program offers aggressive discounts, effective cost-management tools, consultation on benefit design and comprehensive care management. We manage the entire spectrum of specialty conditions, supporting both pharmacy- and medical-based delivery of medications. More than 99 percent of the people we serve have an integrated health plan offering. As a result, Prime s specialty program was built specifically for the holistic management of specialty drugs across all benefits, channels and classes. With decades of experience collaborating with health plans, Prime is well-positioned to provide superior specialty pharmacy management. Envision an integrated program where people come first. Then, work with Prime to make that vision a reality. As we unite to meet the challenge of specialty-driven care, Prime and its partners are focused on what matters most: simple access, affordable benefits and quality outcomes.

12 Executive Summary them Decisions are driven by the need to generate revenues and deliver quarterly profit increases. Opaque pricing, ambiguous definitions and hard-to-understand contract terms hide true program costs and inflate overall spend. Focus is on driving down the time and money spent on customer calls. Offerings may reflect outside influences, such as manufacturer rebates, exclusive distribution arrangements or special pricing deals. Misaligned incentives fuel narrow focus on pharmacy; better adherence is simply a route to bigger revenues.

Prime Therapeutics 2012 Drug Trend Insights 13 us People are our first priority. Access, quality and cost-saving objectives are front and center in every decision. Collaboration, alignment and clarity are hallmarks of our client relationships and agreements. Focus is on solving problems and simplifying service; Prime rated significantly higher for courtesy, friendliness and ease of filling prescriptions. 1 Smart benefit management delivers uncompromising quality of care while keeping drug trend consistently low. Programs are backed by evidence-based research. Pharmacy benefits with a total health perspective because the target of better adherence should be better health outcomes and lower total health care costs.

14 Chapter 1: Managing Trend Methodology This report examines changes in drug costs, utilization and other key measures that have an impact on total pharmacy spend. Data between January 1 and December 31, 2011 were compared with the same period in 2010. Pharmacy trend data represents our commercial book of business across all full service clients. Integrated medical and pharmacy data represent analysis of approximately 7 million lives. Other important considerations for interpreting data: Analysis reflects approximately 110 million commercial claims processed in 2011 Drug spend is defined as the total amount paid (including pharmacy network discounts, dispensing fees and taxes) per member per month (PMPM) Manufacturer rebates are included only when noted 90-day prescriptions have been weighted (converted to carry the same weight as retail 30-day fills) Unless otherwise noted, case studies and insights presented throughout the report are derived from Prime internal analyses Terminology Definitions for terms used frequently in this report: Specialty the list of drugs managed through our specialty pharmacy program Traditional all non-specialty drugs Total all drugs combined Ingredient Cost Per Prescription the total amount paid for drugs, less dispensing fees and taxes; claim counts are assigned according to the days supply > Average ingredient cost per prescription reflects pharmacy discounts > Net ingredient cost per prescription includes manufacturer rebates and administrative fees

Prime Therapeutics 2012 Drug Trend Insights 15 1 Managing Trend A look back at 2011 pharmacy trends Health care is multifaceted and dynamic. Health care trends reflect the everyday decisions of millions of individuals. By consistently keeping drug spending growth low, Prime demonstrates its ability to influence drug spending across a large and varied population. Keeping drug spend in check is important. Government analysts predict annual health care expenses will grow $4.6 trillion and consume nearly 20 percent of GDP by 2020. 6 During that same period, drug expenditures are expected to double. Prime has consistently delivered a drug trend that is a fraction of CMS s annual forecast. Drug spending for our clients increased only 1.3 percent in 2011, appreciably less than 2010 s increase of 2.9 percent. This is our ninth year of single-digit trend and our second consecutive year of decrease. Fig. 2 Total Cost PMPM 2.1% Number of drugs used (utilization) 4.6% Cost of drugs (inflation) -5.0% High-cost vs low-cost drugs used (mix) = 1.3% Change in total cost PMPM Mix is the main reason for slower spending growth in 2011. Less-expensive alternatives to several top-selling brand-name drugs hit the market, driving the generic rate to an all-time high. Generic use is expected to grow throughout 2012, offsetting inflation and increased use of prescription drugs. A future of rising costs requires a clear understanding of the factors that drive drug trend: utilization, inflation and mix. Prime continually adjusts management of these factors to address the evolving cost challenges of our industry.

16 Chapter 1: Managing Trend Utilization measures change in the number of prescriptions used by customers. Prescription drug use has experienced slow but steady growth over the past five years. This makes sense given our nation s aging population and increasing rates of chronic disease. 7, 8 Echoing national trends, utilization at Prime increased 2.1 percent in 2011. On average, Prime customers now fill 12.4 prescriptions per year (Figure 3). Fig. 3 Prescriptions Per Member Per Year (PMPY), 2007 2011 Drug utilization grew 2.1% in 2011 20.0 Number of Prescriptions 16.0 12.0 8.0 4.0 11.5 11.5 11.8 12.0 12.4 0 2007 2008 2009 2010 2011 While it does add to pharmacy costs, increased utilization is not always a negative. For certain targeted conditions, consistent medication use can keep symptoms at bay or prevent serious symptoms from becoming worse. That s why for Prime, utilization management is about encouraging responsible, cost-conscious choices not creating barriers to care. We use our total health perspective to refine individual drug use in a personalized way, striving for optimal therapy for each member. Drug use will continue to grow. People aged 55 64 are the fastestgrowing segment of the adult population and use prescription drugs at twice the rate of younger people. 9, 10 Prescription drug coverage is an increasingly important health insurance benefit for these employees, many of whom will remain in the workforce beyond the traditional retirement age.

Prime Therapeutics 2012 Drug Trend Insights 17 Inflation corresponds to changes in the cost of drugs. Inflation is the largest contributor to drug trend, increasing total costs by 4.6 percent across Prime s book of business in 2011. Unit cost inflation was driven almost exclusively by brand-name drugs; generic prices fell steadily as new alternatives flooded the market. 11 Inflation increased the total cost PMPM 4.6% in 2011 Prices for best-selling drugs are rising faster than ever. Because the health care reform bill signed in 2010 failed to put a cap on drug prices, manufacturers have posted double-digit price hikes on top-selling medicines. 12 Such dramatic price increases suggest drug makers are looking to wring as much profit as possible from blockbuster drugs before their patents expire. Last year, about $26.1 billion in sales 9 percent of the $300 billion market lost patent protection (Figure 4). 13 By 2016, an estimated $93 billion in additional sales will face generic competition. 14 Fig. 4 Top Brand-name Drugs Losing Patent Protection 2011 2012 14 Year Drug 2010 U.S. Sales (billions) % of Spend (Prime BoB) 2011 Lipitor $5.3 1.64% Zyprexa $2.5 0.11% Levaquin $1.3 0.01% Concerta $0.9 0.67% 2012 Plavix $6.2 1.42% Seroquel $3.7 0.61% Singulair $3.2 1.53% Actos $3.4 0.85% One way Prime shields clients from inflation is through priceprotection contracts with manufacturers. After 2015, generic-driven offsets to inflation will dry up. Inflation will remain a key trend driver as the market shifts toward high-cost specialty drugs (where generic alternatives are rare). Alerting customers to the most affordable drugs and delivery channels will become increasingly critical to fight drug price inflation.

18 Chapter 1: Managing Trend Drug mix reveals the effect of drug selection on total costs. Every penny counts in pharmacy benefit management. Each time a customer chooses a less expensive treatment option, savings are achieved. These cost-conscious choices are measured in the drug mix effect. In 2011, Prime s drug mix effect was -5.0 percent. This is the strongest mix effect Prime has seen in the past five years, reflecting a surge in expiring drug patents. Prime s book-of-business generic rate averaged 73.1 percent in 2011, and reached 74.7 percent by December 2011 (Figure 5). -5.0% drug mix effect was the highest on record The generic pipeline remains strong throughout 2012 and 2013. Prime will capitalize on coming generic opportunities by keeping customers informed and making it as easy as possible to move to the generic. Fig. 5 Generic Rate, 2011 2013 (projected) 80 Cymbalta Percentage 78 76 74 Lipitor Diovan HCT Singulair and Actos Plavix 72 70 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2011 2012 2013 Because the average generic drug costs about 90 percent less than its brand-name equivalent, a high generic rate reduces total pharmacy costs. 15 Independent research conducted in 2011 found that Prime had the highest generic dispensing rate among competitive PBMs studied. 4 What s more, Prime s average generic discount was more than one percentage point higher than the nearest competitor. 4

Prime Therapeutics 2012 Drug Trend Insights 19 define Translating low trend into tangible value Drug trend is frequently used to measure and track success in holding down pharmacy costs. But how does low trend create value for customers? Without Prime s efforts, total drug spend would have increased 8.6 percent in 2011. It helps to think about Prime and its partners as competitors in a tug-of-war (Figure 6). On one side are manufacturers, who regularly raise drug prices in order to stay profitable, and pharmacies, who want to maximize dispensing fees and reimbursement; these market forces add to pharmacy costs. On the other side is Prime, working to offset market forces and moderate cost increases. Fig. 6 PMPM Cost Comparison Market forces Cost driver Prime $0.90 Expired patents on rebated drugs; inflation Manufacturer rebates Contracting improvements; market share movement; price-protection rebates $0.12 $4.03 Inflation in dispensing fees; drug price inflation; tax changes Networks (all combined) Dispensing fee improvements; network improvements $3.25 $1.41 Higher drug use; increased prescribing Programs to impact medication use Optimal/appropriate use; reduced waste $0.56 $1.59 Patent expirations; drug mix Generic drugs PBM-driven generic use; drug mix $2.88 $4.75 Total $1.05 PMPM PMPM $ 3.70 In this ongoing struggle, Prime s goal is to keep added costs down while ensuring customers have access to needed medications. Through hard work and smart management, Prime and its partners exert opposing pressure to prevent market forces from taking over. Without these efforts, clients and customers would have paid $3.70 PMPM more on drugs in 2011 a drug trend of 8.6 percent, rather than just 1.3 percent. By mitigating market forces, Prime cut these costs by nearly 80 percent.

20 Chapter 1: Managing Trend Net ingredient cost per prescription By removing the factor of utilization, ingredient cost per prescription focuses attention on how drug spending can be reduced through contract negotiation and network management. Over the past five years, Prime has steadily increased the average generic discount rate and reduced generic ingredient costs per prescription, even as wholesale prices increased (Figure 7). Fig. 7 Prime Generic Ingredient Cost vs. Average Wholesale Price, 2008 2012 Our net ingredient cost per prescription decreased 1.6% $110 Cost Per Prescription $90 $70 $50 $30 $10 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q2012 7.5%* AWP/Rx -1.9%* Ingr/Rx *Compound annual growth rate In 2011, improved generic rates drove Prime s net ingredient cost per prescription down 1.6 percent, despite brand-drug price increases (Figure 8). Fig. 8 Net Ingredient Cost Per Prescription, 2011 $ Net Cost/Rx Change from 2010 Brand $165.33 12.9% Generic $17.95-8.3% Total $57.53-1.6% Most PBMs do not publish their net costs. Prime does, because it demonstrates our expertise and reflects our honest, straightforward approach. Because it includes all network discounts, manufacturer rebates and administrative fees, net cost per prescription distinguishes actual costs from PBM margins. This makes it an ideal way to compare the actual performance of a PBM at offsetting inflation and managing drug mix as opposed to their effectiveness at limiting access or denying coverage (utilization).

Prime Therapeutics 2012 Drug Trend Insights 21 success story Collaborative partnership pays dividends Florida Blue stands out as a good example of how health plan and PBM collaboration is bringing greater value to customers. Over the past several years, Florida Blue and Prime have been working together to increase generic adoption, optimize drug use and bring down customers drug costs. These efforts have been successful: Between 2009 and 2011, Florida Blue s net ingredient cost per prescription decreased $6.15 The Florida Blue generic rate averaged 75.7 percent in 2011, 2.6 points better than Prime s book of business Compared with leading competitors (and Prime s overall book of business) Florida Blue has the highest generic discount To make this possible, Florida Blue and Prime worked to implement several new programs. Even in the midst of change, our joint focus was on keeping customers well informed and well cared for. It paid off: Florida customers satisfaction with Prime has remained above 90 percent over the past three years. Affordability has been a major focus over the past several years. We believe we can offer affordable products without sacrificing quality of care. Our success is attributed to the hard work, dedication and collaboration of the Florida Blue and Prime teams, who have remained focused on reducing our overall medical cost for the benefit of our customers. Scott McClelland, PharmD, RPh, CPHIT, Senior Director, Commercial and Specialty Pharmacy Operations, Florida Blue

22 Chapter 1: Managing Trend Specialty drugs in the mix As the pharmaceutical industry shifts its focus from traditional to specialty drugs, use of these costly medications is growing. In 2011, specialty drug utilization increased 6 percent three times faster than traditional drugs. While specialty drugs still represent less than 0.5 percent of Prime s overall prescriptions, they now account for 15.4 percent of total expenditures. 15.4% of Prime s 2011 drug spend was for specialty drugs As shown in Figure 9, without specialty drugs, Prime s traditional pharmacy costs declined 1.5 percent. Clearly, these high-cost medications are already a major contributor to overall pharmacy trend. Fig. 9 PMPM Trend by Drug Type Specialty Traditional (non-specialty) All Drugs Change in total cost PMPM (drug trend) 20.1% -1.5% 1.3% Number of drugs used (utilization) 6.0% 2.1% 2.1% Cost of drugs (inflation) 9.2% 4.0% 4.6% High-cost vs. low-cost drugs used (mix) 3.7% -7.1% -5.0% Opportunities to trim specialty drug expenditures exist, but they can be challenging to identify and tricky to execute. A comprehensive and multi-faceted pharmacy management approach is vital to the successful management of specialty drugs. Turn to Chapter 3 for details on specialty trends and management.

Prime Therapeutics 2012 Drug Trend Insights 23 Trends in Medicare Part D Our Medicare clients achieved generic rates of more than 80% in 2011 Total pharmacy costs increased 1.7 percent for our Medicare book of business in 2011. Specialty drugs were the primary trend driver, with a 25 percent increase in total costs. Traditional drug costs decreased 0.2 percent, aided by outstanding generic use. The Medicare generic rate averaged 80.1 percent for the year (vs. 73.1 percent commercial), a 2.4 point increase over 2010. Despite higher drug utilization (50 prescriptions per year versus 12), the 2011 net ingredient cost per prescription in Medicare Part D was $40.93, nearly $17 dollars less than our commercial book of business (Figure 10). Fig. 10 Net Ingredient Cost Per Prescription, Medicare, 2011 $ Net Cost/Rx Change from 2010 Brand $149.19 13.8% Generic $13.41-8.5% Total $40.93-0.6% The Medicare benefit includes strong incentives to encourage use of the lowest-cost treatments. It is based on a highly structured, generics-centric formulary and employs a variety of programs to direct seniors toward generic and lower-cost drugs. For years Prime has pointed to our Medicare plans as examples of bestpractice pharmacy benefit management. The Medicare Part D benefit is unique, but the components themselves are not exclusive. The same tools are available to plan sponsors to build the ideal pharmacy benefit for their business.

24 Chapter 1: Managing Trend Drug trend drivers and moderators An effective pharmacy management strategy must address the unique market factors that affect each individual drug category. The amount of PMPM contribution (or reduction) is determined by the same factors that drive overall trend: inflation, utilization and drug mix. Among the top 10 categories driving trend, half are specialty drugs (Figure 11). This is consistent with the increased use and very high inflation for specialty drugs noted previously. Nearly all of the traditional drug categories contributing most to pharmacy trend experienced significant unit cost inflation. ADHD was the strongest trend driver in 2011; double-digit increases in utilization and inflation were the cause. Fig. 11 Top 10 Trend Drivers by Category, 2011 Group Category % of Rxs % of Spend PMPM Change $ PMPM Increase ADHD* 1.8% 4.4% 19.7% $0.48 Autoimmune 0.2% 5.5% 14.3% $0.44 Diabetes 5.6% 8.3% 8.1% $0.41 Multiple sclerosis* 0.1% 3.6% 20.6% $0.39 Hepatitis C 0.0% 0.7% 149.1% $0.28 Oral oncology 0.1% 2.3% 18.6% $0.24 Respiratory* 3.1% 6.1% 5.1% $0.20 Blood thinners* 1.0% 1.8% 17.6% $0.18 Psychosis* 0.5% 2.5% 11.3% $0.17 Hemophilia 0.0% 0.5% 21.5% $0.05 Traditional Specialty * Classes with inflation >10 percent.

Prime Therapeutics 2012 Drug Trend Insights 25 Categories with negative trend help to contain or reduce pharmacy costs (Figure 12). In 2011, the majority of trend-moderating classes joined the list because of significant improvements in generic use. The remaining categories experienced decreased utilization or only slight price inflation, which reduced their contribution to total PMPM costs. Note that few specialty drugs saw a reduction in PMPM in 2011. Fig. 12 Top 10 Trend Moderators by Category, 2011 Group Category % of Rxs % of Spend PMPM Change $ PMPM (Reduction) Gastrointestinal* 3.2% 4.0% -23.4% ($0.79) Allergy* 0.6% 0.5% -53.4% ($0.38) High blood pressure* 17.1% 5.8% -8.6% ($0.37) Depression* 7.3% 5.4% -7.7% ($0.30) Insomnia* 1.6% 1.0% -9.3% ($0.07) Women s health* 6.3% 4.3% -2.4% ($0.07) Pain 7.9% 5.1% -1.7% ($0.06) Blood modifiers 0.0% 0.3% -10.0% ($0.02) Lifestyle 0.6% 1.0% -0.9% ($0.01) Seizure 2.4% 2.1% -0.6% ($0.01) Traditional Specialty *Categories with generic rate increase >3 percent.

26 Chapter 1: Managing Trend A majority of the top 20 drugs (Figure 13) used by Prime customers already have or will soon have generic alternatives available for use. Encouraging customers to make the leap to lower-cost drugs is the easiest way to reduce plan costs. For drugs lacking a generic alternative, working with Prime to promote use of lower-cost or preferred formulary agents can also yield significant savings. Fig. 13 Top 20 Drugs by Percent of Spend, 2011 Impact Group Drug Category PMPM PMPM Change % of Spend Generic Alternatives Humira Autoimmune $1.50 25.2% 2.3% N/A Nexium Gastrointestinal $1.44-5.8% 2.2% omeprazole, pantoprazole, lansoprazole Enbrel Autoimmune $1.43 6.8% 2.2% N/A Singulair Respiratory $1.33 11.7% 2.0% zafirlukast Lipitor High cholesterol $1.27-2.3% 1.9% Crestor High cholesterol $1.25 10.3% 1.9% simvastatin, pravastatin, atorvastatin simvastatin, pravastatin, atorvastatin Plavix Blood thinner $0.97 7.2% 1.5% ticlopidine Lexapro Depression $0.96 5.4% 1.4% sertraline, citalopram, fluoxetine Advair diskus Respiratory $0.90-6.6% 1.4% N/A Copaxone Multiple sclerosis $0.89 19.1% 1.3% N/A Cymbalta Depression $0.87 10.5% 1.3% sertraline, citalopram, fluoxetine Lantus Diabetes $0.72 9.7% 1.1% N/A Abilify Psychosis $0.69 15.1% 1.1% risperidone, olanzapine Actos Diabetes $0.68-12.1% 1.0% metformin, glipizide er, glimepiride Assure Diabetes $0.68 3.5% 1.0% N/A Adderall XR ADHD $0.56 8.8% 0.8% amphetamine/dextroamphetamine Vyvanse ADHD $0.51 43.4% 0.8% dextroamphetamine er, methamphetamine valacyclovir hcl tabs* Herpes $0.50-4.6% 0.8% generic product Avonex Multiple sclerosis $0.50 6.8% 0.8% N/A Testim Low testosterone $0.49 21.9% 0.7% testosterone cypionate, testosterone enanthate, danazol Traditional Specialty *Generic

Prime Therapeutics 2012 Drug Trend Insights 27 2 Traditional Drug Trend Reshape traditional drug trend with smart pharmacy management Fig. 14 Traditional Drug Categories Percent of Total Spend, 2011 1.8% Blood thinners 2.1% Seizure 2.5% Psychosis 4.0% Gastrointestinal 4.3% Women s health 4.4% ADHD 5.1% Pain 5.4% Depression 5.8% High blood pressure More than 99 percent of the prescriptions filled today are for non-specialty medications. 16 These are the bottles we are all used to seeing in our medicine cabinets. With the introduction and growing prevalence of specialty medications, non-specialty medications have become known as traditional drugs. Despite the ho-hum label, traditional drugs are far from trivial. Traditional drugs treat a wide variety of health conditions and account for nearly 85 percent of all pharmacy expenditures at Prime (Figure 14). When used appropriately, these medications provide important health benefits and improve quality of life. Smart management of traditional drugs can promote safety and optimize use to help keep costs low. Within traditional drugs there are five drug classes that merit special attention. These are medications used to treat high blood pressure, high cholesterol, diabetes, respiratory disorders and depression. Together these medications account for 40 percent of all prescriptions and more than a third of all pharmacy dollars. Prime calls these focus drugs because research has shown that appropriate drug therapy can dramatically improve the management of these conditions. Prime s approach to these drugs includes a strong focus on promoting adherence, which has proven to result in better health outcomes and lower medical costs. By engaging people in their health and partnering with providers to improve the management of chronic illness, smart pharmacy management can help reduce overall health care costs. 6.1% Respiratory 7.9% High cholesterol 8.3% Diabetes 26.9% Other traditional drugs 84.6% of total spend For traditional drugs, pharmacy management that consistently engages people in making informed, cost-conscious health care decisions is the profile of success. Prime offers a wide assortment of proactive, targeted learning formats and management tools to help customers understand their options, make full use of our services and better manage their health.

28 Chapter 2: Traditional Drug Trend Traditional drug trends The average ingredient cost of a traditional drug obtained through Prime was $2.37 less in 2011 than in 2010. In the health care industry, where costs typically increase each year, this is remarkable. Even more extraordinary, this reduction took place despite a 10 percent increase in brand-name drug ingredient costs. Average ingredient costs decreased $ 2.37 in 2011 This is the power of drug mix. Joint planning and promotion with our health plan partners helped customers take full advantage of new generic opportunities in 2011. Together, we drove the traditional drug generic rate up four percentage points, helping to reduce total costs (Figure 15). Fig. 15 Traditional Drugs: Key Data, 2011 vs. 2010 2011 2010 % of Rxs 99.6% 99.6% % of spend 84.6% 86.9% % generic 73.4% 69.4% Average cost/rx $52.88 $55.25 For the third year, ADHD medications, blood thinners and drugs used to treat psychosis (everything from bipolar disorders and schizophrenia to aggressive behavior in the elderly), logged the highest cost increases among traditional drugs. ADHD also saw a noteworthy increase in utilization, making it the highest-trend traditional drug category. At the other end of the spectrum, allergy and gastrointestinal medications had the lowest drug trend. Prices decreased as more over-the-counter (OTC) alternatives became available. Of the focus drugs high blood pressure, high cholesterol, diabetes, respiratory and depression only diabetes and respiratory saw increased spending in 2011. Refer to Appendix 1 for a review of traditional drug trends by category.

Prime Therapeutics 2012 Drug Trend Insights 29 Tools to manage traditional drugs Traditional drugs are relatively affordable: per prescription costs for traditional drugs average $53 in Prime s book of business. Yet customers still have opportunities to save on traditional drugs. Lowest-cost drugs Increasing the generic rate 1% can shave 2.5% from total pharmacy spend Consistent use of generics and preferred formulary drugs over more expensive options delivers the maximum benefit at the lowest possible cost. And because they carry the lowest out-of-pocket costs, generics are truly a win-win for customers and plan sponsors. As brand-name drug prices increase, the value of generics savings go up. Based on today s prices, every one-percent increase in the generic rate is estimated to shave 2.5 percent off plan sponsors total pharmacy spend. Lowest-cost pharmacy PrimeMail nets average annual savings of $ 74 per prescription Using the lowest-cost pharmacy also helps to drive down per prescription costs. With no dispensing fees and better discounts, mail service for maintenance medications has been shown to reduce per-prescription drug costs. Pharmacy spend per member is approximately $16 lower for a 90-day drug supply than a 30-day supply at retail. 17 Limited retail networks are an increasingly popular way to promote use of the lowest-cost retail pharmacy. Lower copays draw customers to preferred pharmacies. In exchange for increased foot traffic, pharmacies commit to reduced drug prices that can save plan sponsors 1.5 to 2.5 percent over broad network prices. 18

30 Chapter 2: Traditional Drug Trend success story Pharmacists: A vital link to better care and lower costs More than $100 billion is spent each year in the United States on avoidable hospitalizations. 19 Often these events can be traced back to poor medication adherence or other gaps in drug therapy. Evidence shows as many as half of all patients do not adhere fully to their drug regimens, and medication errors complicate the lives of 19, 20 approximately 1.3 million people every year. Meanwhile, millions of dollars are wasted on unnecessary therapy or high-cost drugs prescribed even though lower-cost alternatives are available. Prime has found a solution to these problems in a unique place local pharmacies. Through retail pharmacy medication therapy management, Prime is connecting customers with neighborhood pharmacists to address key therapy gaps, enhance quality and reduce costs. Pharmacists are drug experts. They know how similar drugs may differ with regard to safety, effectiveness, compatibility and cost. In addition, they are among the most accessible health care providers and have earned public trust as a source of health information and advice. A nationwide network of more than 50,000 participating pharmacists use clinical guidelines and best practices to identify gaps in care. They connect with providers to close those gaps and deliver individualized counseling to help customers make informed decisions. Available on a limited basis in 2012, this program is being evaluated for future inclusion among Prime s core clinical services. Retail-based therapy management connects customers to expert pharmacists nationwide, with a special emphasis on closing gaps in diabetes care. Better management of diabetes has tremendous potential to improve health outcomes and reduce medical costs, which is why Prime is highly focused on this condition. By strengthening the connection among pharmacists, physicians and customers, this program is reducing wasteful spending and, more importantly, revitalizing care.

Prime Therapeutics 2012 Drug Trend Insights 31 Preventing waste and improving consistent, cost-effective drug use pays off: A typical medication therapy management program saves $1.87 in drug spend for every $1 in program fees. 2 Even better, improved care results in an annual overall return on investment of $4.73 per $1 invested. 2 Pharmacy care with a personal touch Filling a gap. When pharmacist Wendy Myren received a targeted intervention program TIP about a critical gap in cholesterol-lowering therapy for a customer with diabetes, she urged his physician to prescribe additional medication. Her action ultimately decreased the customer s risk of a future cardiovascular complication. The customer comes first. A customer at Deb Magstadt s pharmacy regularly skipped taking her cardiovascular medication. This behavior created a serious health risk, so Deb scheduled a face-to-face meeting to discuss the importance of consistently taking the medication. Upon follow-up, the customer reported taking her medication daily, as directed. Better health. Simplified. A once-a-day prescription looked odd to pharmacist Allison Ternes, who typically saw this medication used twice daily. She contacted the prescriber for clarification. Together they found an option suitable for once-a-day dosing, making adherence easy for the customer while ensuring a good health outcome.

32 Chapter 2: Traditional Drug Trend Lowest total cost of care Prime s unique take on traditional drug management goes beyond lowestcost drug, channel or pharmacy, to consider lowest total cost of care. For example, drugs to treat diabetes account for more than 8 percent of all pharmacy expenses. People with diabetes often also have related conditions, such as hypertension and heart disease. Identifying these customers for outreach, education and support can reduce medical costs. By ensuring that medications are used appropriately to keep symptoms under control, we can help avert complications that might require hospitalization or extensive medical care. Curing illness, controlling symptoms and preventing unnecessary medical expense are all part of pharmacy s role in health care. Sometimes the way to reduce overall health care costs is to invest in pharmacy. And sometimes it isn t. Prime uses insight, knowledge and experience to help plan sponsors think through and make these tough benefit decisions. Prime recently worked with a health plan partner to complete a diabetes study using medical and pharmacy data. Analysis of 1.2 million customers showed that 13.5 percent of people with diabetes had a history of diabetes-related complications. Yet nearly 20 percent (1,074) of these people were not taking any anti-diabetic medications. If all untreated customers started anti-diabetic therapy and remained adherent for at least one year, potential medical costs avoided are projected to be approximately $765,000. 21

Prime Therapeutics 2012 Drug Trend Insights 33 3 Specialty Drug Trend Answering the challenge of specialty pharmacy Fig. 16 Specialty Drug Categories Fewer than one percent of the people we serve use specialty drugs. Yet Prime and its partners spend a lot of money $1.3 billion in 2011 on specialty medications to treat complex or chronic conditions. These costs are growing quickly. Prime projects that specialty drugs will account for 30 percent of pharmacy benefit expenditures by 2016; it has been predicted that specialty drugs will be more than 40 percent of drug costs by 2030. 22 Figure 17 illustrates just how quickly specialty drug spend is growing especially when compared with expenditures for traditional brand-name and generic drugs. 5 Percent of Total Spend, 2011 0.6% Anticoagulants 0.7% Hepatitis C 0.9% Growth hormone The high cost of specialty drugs is a concern for the entire health care industry. All told, the United States spent $80 billion on specialty pharmaceuticals in 2011. 23 Combine that with more than 600 specialty drugs in Phase II or higher clinical trials, and conditions are ripe for a perfect storm when it comes to pharmacy spending trends. 24 1.8% Other specialty 2.3% Oral oncology 3.6% Multiple sclerosis Fig. 17 Pharmacy Benefit Spend, by Drug Type (projected) 80 5.5% Autoimmune 64 Brand 15.4% of total spend Percent of Spend 48 32 16 Generic Specialty 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 A 2011 survey of employers found that despite the rising cost of specialty drugs, more than a third did not know the percent of their overall drug spend attributed to specialty medications. 25 The majority (58 percent) used the same benefit design and cost-sharing for specialty drugs as for other prescription drugs. Prime believes the first step in managing specialty is helping plan sponsors see the full scope of costs and unique benefit challenges these drugs represent.

34 Chapter 3: Specialty Drug Trend Specialty drug trends Within Prime s book of business, specialty drug spending accelerated in 2011, increasing 20 percent in just one year. The increase was primarily the result of unit cost inflation (9.2 percent), but utilization also grew 6 percent. Nearly 100,000 more claims for specialty drugs were submitted under the pharmacy benefit in 2011 than in 2010, the result of an increasing number of people served and drugs used. Specialty drug spending increased 20.1% in 2011 Specialty drugs still represent a small number of prescriptions (0.4 percent), but grew to more than 15 percent of overall pharmacy benefit spending (Figure 18). Fig. 18 Specialty Drugs: Key Data, 2011 vs. 2010 2011 2010 % of Rxs 0.4% 0.4% % of spend 15.4% 13.1% % generic 3.7% 4.2% Average cost/rx $2,654 $2,336 Almost every specialty drug class saw both use and prices increase. But six drug classes continue to consume the lion s share of specialty spend: autoimmune, multiple sclerosis, oral oncology, growth hormone, hepatitis C and anticoagulants. Price increases drove category trends; multiple sclerosis (MS) topped the list, with unit cost inflation of 14.7 percent, followed by oral oncology (8.6 percent). As health care continues to shift toward specialty medications, these drugs will become the main drivers of trend and the chief focus of pharmacy benefit management. Given the already high cost of specialty drugs, rapidly increasing prices are a critical concern. One of Prime s top initiatives is to contract with drug manufacturers who provide protection from high inflation trends. These contracts protect both customers and plan sponsors from higher-than-expected increases in specialty drug prices and allow for more accurate forecasting of future drug costs.

Prime Therapeutics 2012 Drug Trend Insights 35 Because specialty drugs are used by such small populations, their trend profiles can be very unique. For example, consider how MS trends compare with those of hepatitis C (Figure 19). Fig. 19 Comparison of Trend Factors for MS and Hepatitis C, 2011 MS Hepatitis C % of spend 3.6% 0.7% Inflation 14.7% 4.9% Utilization (change) 4.7% 13.2% Drug mix 0.3% 109.7% Total PMPM 20.6% 149.1% Total $ spend $290 million $59 million Deep clinical knowledge and expertise is needed to manage specialty drugs. Much of the trend in MS was driven by higher prices for existing drugs (inflation). Unit costs of commonly used treatments such as Tysabri, Avonex and Rebif increased 7 to 18 percent. Increased prescribing of Ampyra, approved in 2010 as an add-on therapy for MS, also contributed to higher costs. Hepatitis C trend resulted from the introduction of two new drugs in 2011. Not only were these new drugs expensive, they also represented a new method of treating hepatitis C. People who had been unsuccessful with other treatments quickly lined up to try these new drugs. This example illustrates how important it is for pharmacy benefit managers to understand the specialty landscape in comprehensive detail. Having the ability to look across benefit boundaries is critical to effective specialty management. So is a shared focus on outcomes. Deep clinical knowledge and expertise is needed. If part of the story is missing, efforts to manage the drugs will be thwarted. And while driving competitive pricing and accurate distribution are important, truly successful specialty drug management requires so much more. Refer to Appendix 2 for a review of specialty drug trends by category.

36 Chapter 3: Specialty Drug Trend Medical-side specialty spending A big part of the specialty story lies hidden in the medical benefit. When total specialty spend is considered across both medical and pharmacy benefits, a slightly different picture emerges (Figure 20). Fig. 20 Total Specialty Drug Spend, by Benefit Type, 2Q2010 2Q2011 5.5% Autoimmune 3.3% Injectable cancer $1.8 billion total spent on specialty in 2011 across both medical and pharmacy benefit 3.0% Multiple sclerosis 1.8% Oral oncology 1.4% Blood modifiers 0.7% Anticoagulants 0.7% Growth hormone 0.7% Hemophilia 0.5% IVIG and serums 0.4% Pulmonary hypertension 0.4% Lung disorders 0.3% Hepatitis C 0.2% Enzyme deficiencies 0.04% Macular degeneration $0 $200 $400 (millions) Pharmacy benefit Medical benefit (percent of spend) This picture reveals categories of treatment that are administered almost entirely under the medical benefit expenses that are invisible to most standalone PBMs. Among these, injected cancer medications are a top cost center, consuming more than a quarter of all medical-side drug spending and accounting for 3.3 percent of total combined drug expenditures. A big part of the specialty story lies hidden in the medical benefit.

Prime Therapeutics 2012 Drug Trend Insights 37 Adding in medicalside drug costs increases the annual pharmacy bill by $600 million Many specialty drug categories managed under the pharmacy benefit also have significant expenses on the medical side. For example, autoimmune is the biggest category of specialty spending on the pharmacy side. Integrated reporting reveals another $73 million nearly 18 percent of total autoimmune drug costs spent on the medical side. Other PBMs would either overlook these medical-side drug claims or might attempt to move them to the pharmacy benefit. Prime sees no reason to shift drugs needlessly. Instead, we partner with the health plan in managing medical-side specialty costs, without creating harmful customer or provider disruption. This leaves us free to develop techniques for improving care and reducing costs regardless of where the claims are paid. Together with health plans, we focus on: Adherence Disease-focused care teams coordinate benefit coverage to get things started off right and are able to quickly intervene when side effects or other concerns threaten adherence. Gaps in care Medical data can find people with specialty diagnoses who are not being treated. Without the insights from combined data, these customers might remain invisible. Utilization management Using medical diagnoses to preload authorizations for qualified members to bypass utilization management edits improves cost-efficient medication utilization and adherence. Care management The use of accurate, quality information about gaps in care drives more timely outreach and disease-management intervention. Injected cancer treatments are administered and paid under the medical benefit. Prime s oncology management program reaches across the benefit divide to aid providers in selecting the most appropriate treatment for each patient. Medical-side management supports the delivery of quality care while helping to reduce cancer treatment costs.

38 Chapter 3: Specialty Drug Trend define An objective framework for applying cutting-edge science The potential for pharmacogenomics to deliver safer and more precise medicine is enormous. But excitement about the promise of pharmacogenomics (PGx) has created a great deal of confusion about what is possible and rational today. The truth is that the use of pharmacogenomic testing today remains limited to a select number of tests and applications. Our warfarin study found genetic testing was often used inappropriately (page 60). That s why Prime has created a set of criteria for evaluating and selecting appropriate uses for pharmacogenomic testing within the pharmacy benefit (Figure 21). Prime s goal is not to generate revenue, but to provide leadership, guidance and support in determining how to apply pharmacogenomics where it makes sense. Applying these criteria to potential testing opportunities makes it easy to determine the right areas for pharmacogenomic testing. This is the basis for a truly rational approach that capitalizes on immediate opportunities and sets parameters for expansion as personalized medicine advances. Fig. 21 PGx Evaluation Criteria YES Not a candidate for testing program Are tests used consistently? New PGx opportunity YES Does sufficient clinical evidence exist? NO NO YES Is test currently standard of care? NO YES YES Is there potential for ROI? NO YES Consider gaps in care program to support administration Pilot PGx program Discuss with client Is test administration feasible? Does health outcome justify cost? NO NO Not a candidate for testing program

Prime Therapeutics 2012 Drug Trend Insights 39 Managing specialty drugs The pharmaceutical industry is evolving quickly. New treatments are pushing the boundaries of science. Costs are multiplying. As research and development continue, specialty treatments may completely reshape health care. So when it comes to managing specialty drugs, what can plan sponsors do but hold on for dear life? There is a lot plan sponsors can do if they are willing to reset their thinking and realign their benefits to the new reality. Specialty drug management requires different thinking because a third to one half of all specialty drugs are paid under the medical benefit. Standalone pharmacy benefit providers who focus on managing just a slice of specialty pharmacy spend drugs delivered and paid through the pharmacy benefit, for example fail to see the big picture. While standalone pharmacy benefit providers are hampered by their inability to see or manage specialty drugs covered under the medical benefit, Prime has a clear view into all components of specialty drug management. Prime s integrated specialty pharmacy approach makes it possible to manage the constantly moving parts that play into specialty drug administration (Figure 22). Fig. 22 Variables in Specialty Drug Administration Benefit coverage? Where? Who? How? Pharmacy Home Self-administered By mouth Medical Infusion center Provider s office Health care professional Injected Infused Hospital Inhaled Carve-out PBM s know how to manage specialty drugs covered by the pharmacy benefit and taken by mouth at home. But are they up to the task when administration is more complicated?

40 Chapter 3: Specialty Drug Trend A comprehensive framework for specialty drug management Utilization management Clinical programs that support safe and effective medication use. Includes prior authorization, quantity limits and step therapy, as well as coordination of pharmacy rules and medical policy. Care management Coordination of all aspects of medication delivery and support. Encompasses sideeffect management, injection tips and adherence counseling; enhanced care is provided for therapeutic categories that require additional support. Specialty condition Drug dispensing Shipping from a single source for maximum quality and price control. Requires coordination of accurate and timely delivery to customer, health care provider or other site of administration. Contracting Negotiation of network prices and preferred products. Involves determination of best-price method of administration, site of care and support for related health plan contracting activities.

Prime Therapeutics 2012 Drug Trend Insights 41 Utilization management Customer and health care provider choices have a dramatic effect on pharmacy spending. The effect is multiplied with specialty drugs, which on average cost 50 times more than traditional drugs. 15 Prime consults on benefit designs, formularies and clinical programs that direct users to the most effective and affordable treatment options. We partner with health plans to sync pharmacy rules with medical policies, ensuring consistent application of best practices. Care management Consistent support can improve medication adherence, enhance quality of life and lower long-term health care costs. Prime s disease-focused teams include pharmacists, nurses, care coordinators and benefit specialists who provide support 24 hours a day, seven days a week. Unlike standalone specialty pharmacy programs, customer care activities are coordinated with those of the health plan. Our specialty customers will not receive contradictory advice because key information is shared across all touch points. Contracting Many specialty drugs must be administered by a qualified health care professional. Prime has insight into these activities through our collaboration with health plans. We use integrated data to identify cost variation between different sites of care. Then we partner with plans in establishing policies that prefer less costly providers. Plans have also used our insights to equalize costs across different sites of care. Drug dispensing Most specialty prescriptions should not be filled at a regular pharmacy. Making sure medications are received in a safe, timely manner is a big part of specialty pharmacy management. This can mean shipping drugs directly to the customer s home for self-administration. Or it may involve coordinating with providers offices to ensure the drugs get to the site of administration.

42 Chapter 3: Specialty Drug Trend Applying the framework Prime s framework provides a complete set of tools for specialty management across medical and pharmacy benefits (Figure 23). Applying this framework results in a management strategy reflecting the unique distribution, pricing, clinical and care aspects of each drug class. Solutions will vary by drug category, but all have customers at the center and reflect a big-picture view of the total cost of care. Fig. 23 Example Specialty Management Tools Utilization management Medical necessity Prior authorization Step therapy Split fill or quantity limit Predictive diagnostic or pharmacogenomic test Treatment protocols Care management Coordination of care Counseling and support Side-effect management Injection tips Adherence monitoring Information on patient assistance programs Enhanced care management: health assessments, educational materials, outcomes measurement and reporting Specialty condition Drug dispensing Prime Specialty Pharmacy: exclusive, preferred Retail Provider office Infusion suite Home infusion Contracting Drug-level discounts Fee schedule management Preferred product and rebate opportunities Contract alternate sites of care: retail/provider, infusion suite, laboratory, home health Other

Prime Therapeutics 2012 Drug Trend Insights 43 success story Connection provides vital support for people with cancer Being diagnosed with cancer can be overwhelming. Many questions regarding diagnosis and treatment options need to be addressed. It can be very helpful to have guidance through this difficult process. Support has also been shown to raise confidence, boost proper medication use and improve overall treatment outcomes. 26 Prompt outreach is critical. Yet medical claims sometimes move slowly. In 2009, health plans reported that 34 percent of health care provider claims were received more than a month after the date of service. 27 Such delays can create a gap in care at a vital time for people newly diagnosed with cancer. Prime is working with Blue Cross and Blue Shield of Alabama to close this gap by taking advantage of the real-time nature of pharmacy claims. Prime sends Blue Cross a weekly report on prescriptions for medications commonly used in cancer treatment. Oncology nurses use this information to identify the first fill of oral anti-nausea medications commonly prescribed before starting chemotherapy. Nurses reach out to the individuals identified to answer questions and to make sure they understand their diagnosis and treatment plan. This link between Prime and Blue Cross reduces the time it takes to connect people newly diagnosed with cancer with essential information and support. Answering questions and avoiding complications. A customer was identified for nurse outreach based on a new prescription for Zofran. After undergoing surgery for colon cancer, he had just begun chemotherapy. By choosing to participate in the Blue Cross Oncology Case Management program, he was able to get help with questions about drug side effects, work related issues and resources for his family. He expressed sincere appreciation for the information and resources that empowered him early in his fight with cancer and the ongoing support that has helped him avoid complications.

44 Chapter 3: Specialty Drug Trend Recent examples of specialty drug management make clear the benefits of a comprehensive, cross-benefit approach: Improving treatment for chemotherapy patients Specialty medications are used to reduce the severity or decrease the risk of neutropenia abnormally low white blood cell counts in people being treated for certain cancers. White blood cell modifiers Neupogen and Neulasta are essentially the same drug, but the longer-acting formulation, Neulasta, is a single injection effective for 14 days, while Neupogen must be injected daily for 10 or more days. Both drugs may be billed through the pharmacy or medical benefit, which creates a challenge in assessing use and costs. Blue Cross and Blue Shield of Minnesota asked for Prime s help to determine a preferred treatment. Our analysis of combined medical and pharmacy data led to the realization that lower claim costs for Neupogen were an illusion. In fact, the need for daily injections contributed to a shorter duration of treatment for Neupogen users insufficient therapy, according to clinical guidelines. Because this could increase the risk of hospitalization, Prime recommended using Neulasta instead of Neupogen to prevent low white blood cell counts in people undergoing chemotherapy. Maintaining cost control without reducing care Use of intravenous immunoglobulin (IVIG) to prevent infection in people with low immunity has increased drastically. Historically, IVIG has been administered through the medical benefit, but this is changing as selfadministered products become available. Thus, both pharmacy and medical claims can be found for IVIG. Getting a clear view of appropriate use, administration and costs requires successfully cleaning, sorting and creating connections between the various definitions, provider numbers, claim types and codes that distinguish medical and pharmacy claims. Since Prime works regularly with medical data and understands how to interpret these claims, our expertise is helpful in informing health plan decision-making and medical policies. Using pharmacy and medical data, Prime observed that costs differ dramatically based on drug source and where treatment is administered. We built a cost-control strategy focused on ensuring use of the lowest-cost channel and site of care.

Prime Therapeutics 2012 Drug Trend Insights 45 4 Benefit Design A framework centered on choice With health care costs continuing to go up each year, plan sponsors face difficult decisions in balancing their desire to provide generous benefits against the realities of the bottom line and the pressures of changing regulations. The goal of a pharmacy plan is to offer attractive benefits that provide the best health outcomes at the lowest cost. Building an effective plan design, including determining formulary and setting copayments, involves tough decisions. Getting it right is important because benefits play a big role in both employee satisfaction and costs. Choice matters Lack of choice is frequently mentioned as a source of employees dissatisfaction with benefits. 28 Choice imparts a sense of control. However, a good decision is only possible within the context of a good decisionmaking framework. Benefit design is the framework for pharmacy decisions. Prime uses a consultative approach to help plan sponsors set up the plan that best meets their needs. Within this framework, plan sponsors have tools to guide medication use and trim spending while giving individuals the power to choose. Customer-centric plan design still requires tough trade-offs between access and cost. But instead of imposing restrictions, decisions are placed directly in the hands of the customer. With the right framework, people can make informed, cost-conscious health care decisions. Access channel Cost share Customer Formulary Incentives Network

46 Chapter 4: Benefit Design Cost share The concept of drug benefit tiers is founded on the principle of choice: a cost differential between tiers guides customers towards cost-effective alternatives. Research shows it takes a noticeable price difference for people to choose a lower-cost option. 29 Prime recommends a difference of at least $20 between traditional drug tiers (coinsurance percentages should be adjusted to preserve similar cost differentials). For specialty, Prime recommends different tiers for preferred and non-preferred specialty drugs to encourage use of lower-cost options when available. We strongly recommend a $100 maximum on preferred drugs; our research has shown a dramatic increase in abandoned prescriptions above that price. 30 Prescription abandonment is three times more likely when out-of-pocket costs exceed $ 200 Fig. 24 Example Best-Practice Benefit Design Tier Drug type Copay/Coinsurance 1 Generics $5 15 2 Preferred brand $40 3 Preferred specialty/ Non-preferred brand $75 100 4 Non-preferred specialty 50% coinsurance with $200 max; min. at least $50 greater than tier 3 While most plans contain three or four tiers, plan designs are becoming increasingly complex to account for specialty drugs. 31 Complexity has the potential to cause dissatisfaction and inefficient use. That s why Prime s recommendation is typically a four-tier benefit. It is also important to remember that complicated benefit structures heighten the need for education and cost transparency.

Prime Therapeutics 2012 Drug Trend Insights 47 Formulary People who understand why their choices are limited tend to be more engaged and more satisfied than those who do not receive adequate communication. A formulary is used to establish access to safe, effective medications. An open formulary our recommended approach covers almost all prescription drugs and uses cost share to encourage use of preferred treatments. In this way, formulary works in tandem with cost share; customers have a choice about which drugs to use, but those who choose specific drugs over less expensive but equally effective options will pay more for the privilege. Formulary is rated the single most effective cost-control feature of pharmacy benefit design. 31 Limited formularies are increasingly popular in the market because of potential for significant savings. Prime offers several clinically-appropriate limited formulary options, but emphasizes careful and consistent communication when transitioning to a limited formulary. Pharmacy access channel Use incentives to promote cost-effective channels without compromising choice. Limits on access can be deeply felt, so programs that drive to a particular delivery channel must be implemented thoughtfully. Acceptance and participation improve when customers feel they have a choice. With consistently better prices than retail pharmacies and the potential to improve adherence mail is a smart choice for many individuals. 17 Using incentives to woo individuals to this channel while allowing them to pay more for an alternative is a win-win (see page 49). For specialty drugs, more aggressive control over access is necessary to manage prices and ensure proper patient care. For these drugs, choice of pharmacy may be less important than ease of use and comprehensive support. Good communication can help eliminate concerns about limits on choice. Ninety-day supplies, such as those provided through PrimeMail, are associated with 7 to 10 percent higher adherence rates compared with 30-day supplies. 32 What s more, our research found comparable levels of waste at mail and retail. After accounting for waste, pharmacy spend is approximately $16 lower per customer at mail than at a retail pharmacy. 17

48 Chapter 4: Benefit Design Retail network Many people express loyalty to a neighborhood independent pharmacy, so limits on access can cause real angst. Because people naturally flock to the best price, choices should capitalize on human nature in steering customers to lower-cost pharmacies. A preferred network honors choice but uses financial incentives to favor pharmacies that offer lower prices. Within Prime s framework, the number of preferred options can be adjusted to provide greater savings or wider access. Incentives Designed to motivate people to choose behaviors that improve health outcomes, incentives are the pinnacle of choice-oriented benefit components. Proving that people will willingly give up access in favor of lower costs, 2011 enrollment in preferred-network Medicare Part D plans grew twice as quickly as enrollment in non-preferred network plans. 33 Incentives can change the tipping point for people reluctant to make a change. But because many incentives reduce customers share of costs, they can end up costing more than they save, which is why only about 57 percent of plan sponsors use them. 31 Prime recommends using incentives thoughtfully and sparingly. Targeting high-volume drug classes or specific conditions is a good way to begin. A more advanced approach uses combined medical and pharmacy data to target only those people at the highest risk for an adverse medical event. Common incentives include: Reduced copay for specific drug classes Reduced copay for people with specific health conditions Temporary copay reduction to promote generics Rewards tied to participation in health assessments or care management

Prime Therapeutics 2012 Drug Trend Insights 49 define Solution promotes mail service without compromising choice Mail service pharmacy offers convenience and simplicity in a fast-moving world. Prescriptions arrive quickly without an extra trip to the store. Refills are fast and easy. Customers save money because mail copays are typically lower than retail. Despite these advantages, some people dislike being forced to get their prescriptions by mail. Mandatory mail users discontent stems not from mail service itself but from the elimination of choice. Yet with consistently better prices than retail pharmacies and the potential to reduce waste and improve adherence mail is the best source for most long-term 17, 32, 34 prescriptions. Fig. 25 Sample PrimeMail Excel Benefit Design First two fills After first two fills Non-maintenance Rx Maintenance Rx Maintenance Rx Retail Retail Retail 30 day PrimeMail 90 day Retail 90 day Generic $10 $10 x2 $20 $20 $60 Brand Formulary $35 $35 x2 $70 $70 $210 Non-Formulary $100 $100 x3 $300 $300 $900 400% To resolve this dilemma, Prime created PrimeMail Excel, a benefit program that preserves customer choice while offering a strong incentive to use mail. Under PrimeMail Excel, customers initially pay the same starting copay for maintenance and non-maintenance retail prescriptions. After two fills, customers who choose to continue getting maintenance prescriptions at retail pay more equal to the copay for a 90-day mail supply (Figure 25). One group who worked with Prime to implement PrimeMail Excel saw mail use increase 400 percent. This was about 80 percent of the change likely with mandatory mail. However, giving employees more choice kept disruption to a minimum, helping to reduce the risk that customers might stop filling their prescriptions as a result of the benefit change.

50 Chapter 4: Benefit Design For a truly choice-centered pharmacy benefit, keep these additional design principles in mind. Keep it simple When it comes to engaging people in cost and care decisions, complexity is the enemy For benefit design to be effective, people have to know the costs. Yet even within relatively simple cost-sharing structures, only 27 percent of adults with prescription coverage know their copay structures and amounts. 35 For that reason, we say keep it simple so that choice not chance can lead to lower costs. Communication is critical More choice requires continuous outreach and education Prime offers access to a robust catalog of materials about pharmacy benefits, health conditions and medications. These educational tools help customers understand how pharmacy benefits work so they can make informed decisions and teach them about health conditions so they can take better care of themselves. Targeted outreach alerts customers to potential health and savings opportunities so they can take an active role in managing health and costs. Make it easy Simple access and transparent cost information are essential Without the right tools, choice becomes a burden. Prime s online resources make choices clear by accurately displaying drug alternatives and copays. Mobile access makes it possible to look up prices right from the provider s office or request a refill from anywhere. Used in e-prescribing, these tools help make it easy for prescribers to make the right choices, too.

Prime Therapeutics 2012 Drug Trend Insights 51 5 Looking Ahead Setting a course for future success Big headlines in 2012 such as approval of one of the year s biggest corporate mergers, the introduction of new specialty drugs with eye-popping costs, and a nationwide focus on health care have put pharmacy benefit management firmly in the spotlight. Prime welcomes the spotlight because we know our approach is focused on the right things: customers and their health. As the clock ticks toward the implementation of health care reform, our industry will continue to be closely watched and carefully scrutinized. We keep a close eye on what s happening because it affects how we protect and serve our customers. Here are some key developments to watch in 2012: Drug pricing Within traditional drugs, the loss of patent protection for a large number of top-selling drugs has fueled noteworthy price increases as drug makers seek to capture as much revenue as possible from their products. Already in 2012, Prime has observed price increases of up to 22 percent on some products slated to go generic later this year. Another strategy that has emerged is the use of coupons to subsidize or pay off copayments for brand products. By artificially propping up demand for brand-name drugs, manufacturers are holding on to market share and sticking plan sponsors with the bill. Prime is fighting these tactics by contracting with drug manufacturers to provide protection from price inflation, excluding certain targeted drugs and amplifying efforts to increase adoption of generics.

52 Chapter 5: Looking Ahead The big story in coming years will be specialty drug pricing. Not only does the average specialty medication cost 50 times the average traditional drug, the exclusivity these products enjoy allows manufacturers to set prices high and raise them repeatedly. 15 The number of specialty products available is growing rapidly, expanding use and adding to costs. An increasing reliance on medication to treat or manage specialty conditions means the cost burden for care is likely to shift to the pharmacy benefit. Already in MS we are seeing pharmaceutical costs approaching 70 percent of total health care costs. Elimination of lifetime and annual coverage limits under health care reform only adds to the potential for massive specialty drug costs. No matter how you look at it, specialty medications will soon become the primary focus of drug trend management. How well plan sponsors deal with tomorrow s specialty challenges will depend in large part on the steps they take to prepare today. Specialty integration While integration is not a new idea, its value is gaining new attention. Movement to integrate PBMs and medical plans long an everyday reality at Prime is being driven in part by the rise of specialty care and PBMs expertise in drug therapy management. A recent study indicated that only 50 percent of self-funded employers have adopted a specialty drug strategy. 25 For employers seeking better specialty cost management and outcome tracking, specialty integration is a critical part of the solution. As an increasing number of plan sponsors seek the benefits of integration, it is vital to understand what integration really means. Integrated care goes well beyond integrated claims. True integrated care is the physician, the health plan and the pharmacy provider all having the right information at the right time to make the best care decisions possible. Prime has long followed an integrated care model, working closely with health plans to share data and develop programs that help people with complex conditions stay healthier and out of a hospital or nursing home. Now we are applying this expertise to the world of specialty.

Prime Therapeutics 2012 Drug Trend Insights 53 Limited networks Throughout 2011, the industry was captivated by the Express Scripts- Walgreens split over payments. In the end, Express Scripts chose to exclude Walgreens from its pharmacy network. If the former Medco cuts ties with Walgreens, too, an even larger number of people will be affected. It remains to be seen how other PBMs or large employers will react to the limited network trend. Despite the buzz caused by these events, a recent employer survey found that 80 percent of large, national employers would rather pay 2 percent more for a network with Walgreens than save 2 percent by losing Walgreens. 36 But context is important. As we approach 2014, health care reform is predicted to shift coverage from employers directly into the hands of consumers. Employers who maintain coverage are likely to select coinsurance models or consumer-directed benefit designs. Analysts are unanimous in their agreement that individual buyers will select benefits based largely on price. 37, 38 Only when price is in the right range will elements such as convenience, customer service and value-added services influence selection. As Medicare enrollment has shown, customers are choosing limited network plans on the basis of low cost. It is clear that a consumerdriven marketplace will make preferred pharmacy arrangements that keep prices low increasingly important in the coming years. Helping plan sponsors find the right balance of these elements is a big part of Prime s job. Insurance exchanges State-run health insurance exchanges for individuals and small employers are scheduled to begin in 2014 under the health reform law provided the U.S. Supreme Court decides to sustain that part of the law. Many observers see the launch of the exchanges as a land grab for new membership because once individuals sign up with a plan, they are unlikely to switch plans often. An issue to watch is how many health insurers and PBMs whether freestanding or captive sell their services on the exchanges. Prime is hands-on in this space, working with health plan partners to develop integrated offerings for the on-exchange market.

54 Chapter 5: Looking Ahead Consolidation Federal Trade Commission approval of the Express Scripts acquisition of Medco will likely shift the PBM competitive landscape dramatically. One giant company will dispense nearly a third of prescriptions and control 60 percent of the mail order business. 39 But regulators were impressed by the market s competitive vitality and capacity to restrain price increases. Three value propositions have emerged from all the tumult: Bigger is better (Express Scripts-Medco) Retail pharmacy integration (CVS Caremark) Total health focus (Prime) Prime and its partners are committed to proving that focusing on total health through the integration of medical and pharmacy benefits achieves the best outcomes for customers. In summary The year 2012 may be remembered as the time the PBM industry stepped boldly from the wings into center-stage, out from its accustomed place behind the far larger health insurance sector. As the industry has gotten bigger and more complex, we have evolved. But we haven t shed our fundamental values or changed our focus on quality care at a low net cost. The coming changes may transform the tools we use, but the way we support clients and serve customers will always reflect our heritage and our mission whether we re in the spotlight or not.

Prime Therapeutics 2012 Drug Trend Insights 55 Appendix 1 Traditional drugs: Key category trends Diabetes [8.3% of spend] Diabetes spending continues to grow. Utilization is increasing, and there have been few new generic entries to offset the use of high-cost injectable insulins. A new insulin product is expected in the second half of 2012 that will compete with Lantus, the market share leader in this category. Generic Actos and Avandia are also expected in 2012. Despite the potential for new competitive products in 2012, diabetes drug costs are expected to grow. Utilization will continue to creep upward with the aging and overweight population. A new class of oral anti-diabetic drugs known as DPP-4s (dipeptidyl peptidase-4) are gaining market share. Most of these drugs (Januvia, Onglyza, Tradjenta TM ) will remain under patent protection into the next decade. New drug development is focused on combination products. Juvisync TM, the first combination product containing a statin and DPP-4, was approved in late 2011. PMPM up 8.1% GFR up 1.0 point to 44.2% Utilization up 2.8% Inflation up 7.9% Obesity drugs such as Lorgess (lorcaserin) and Qnexa (phentermine/ topiramate) are again being reviewed by the FDA after failing to gain approval in 2010 and 2011. If approved, these products would likely accelerate the growth of diabetes drug expenditures. While not technically a medication, diabetes test strips covered under the pharmacy benefit contribute to drug trend in the diabetes category. A million-dollar grey market has emerged in which diabetic patients sell unused test strips as a source of income. 40 To limit such fraud and waste, Prime offers a step therapy/quantity limit program for glucose test strips/disks and meters.

56 Appendix 1: Traditional Drugs High cholesterol [7.9% of spend] Cholesterol drugs were in the news in 2011, as the November release of generic Lipitor marked the biggest generic drug launch in history. 41 As to be expected, strong generic use offset inflation and resulted in low trend for cholesterol medications. Looking ahead, expanded adoption of generic Lipitor will continue to drive down trend, especially after the loss of exclusivity in May 2012. Also helping to mitigate costs will be generic Tricor 145 mg, which is expected in late 2012 or early 2013. PMPM down 0.2% GFR up 5.5 points to 58% Utilization up 0.7% Inflation up 6.9% With the availability of multiple generics in the statin drug class primarily aimed in lowering LDL, manufacturers are shifting focus by targeting triglycerides or rarer forms of high cholesterol. Many of the products in development are used in combination with statins. Until these products become available, cholesterol trend is expected to remain very low. Through integrated research using medical and pharmacy data, Prime discovered that patients at high risk for cardiovascular events were over 20 percent less likely to end up in the hospital if they took their prescribed statin medication. 3 Our analysis highlights the importance of medication adherence in controlling this chronic disease. Respiratory (asthma/copd) [6.1% of spend] Use of respiratory treatments continued to decline in 2011, but significant price inflation increased spending. The launch of new hydroflouroalkane (HFA) formulations for asthma and inhaled steroid-free treatments for chronic obstructive pulmonary disease (COPD) are likely to increase respiratory spending. Arcapta TM Neohaler TM launched early in 2012 and the COPD pipeline is growing significantly with products of new mechanisms of action. A new PhRMA report outlines 54 products in late stage-development for COPD, some of which may be potential blockbuster drugs. 42 PMPM up 5.1% GFR up 0.5 points to 9.6% Utilization down 3.4% Inflation up 10.4% Singulair, the leading respiratory brand in Prime s book of business, is expected to become generic late 2012 and may help moderate the entry of high cost brand-name drugs in this category. Few other generics are expected in the coming years, so trend is expected to increase.

Prime Therapeutics 2012 Drug Trend Insights 57 High blood pressure [5.8% of spend] PMPM down 8.6% GFR up 3.4 points to 87.7% Utilization up 3.2% Inflation down 2.4% Representing 17.1 percent of all prescriptions filled, blood pressure-lowering medication is the most-used drug class. Spending decreased substantially in 2011 because of increased generic use and successful negotiation of improved generic drug prices. Continued growth in this category is expected because of our aging and obese population, but GFR is also expected to increase with the generic launches of Diovan, Avapro /Avalide and Atacand in 2012. These generic angiotensin II receptor blocker (ARB) products will ultimately improve the generic rate by about 1 percent. In early 2012, Novartis announced new safety information for Tekturna and related combination products. 43 Patients with type 2 diabetes taking Tekturna and an angiotensin-converting enzyme (ACE) inhibitor or ARB had a higher incidence of adverse events. Tekturna is part of the only drug class that treats high blood pressure with no generic products available. New treatment guidelines are anticipated in 2012 that could affect future utilization of these drugs. Depression [5.4% of spend] PMPM down 7.7% GFR up 5.2 points to 78.1% Utilization up 4.7% Inflation down 2.7% Among the top anti-depression medications, most now have therapeutically equivalent generic alternatives available. The leading brand-name drug, Lexapro, became available as generic in early 2012, leaving Cymbalta and Pristiq as the primary remaining brand-name anti-depressants. Cymbalta has also been indicated for treating musculoskeletal pain, which is driving more use of this agent. Generic pricing gains in 2011 and strong generic use drove down inflation and resulted in decreased spending despite increased anti-depressant use. Trend is expected to remain low. A small number of new drugs are in phase III development but are unlikely to increase drug trend in the near future.

58 Appendix 1: Traditional Drugs Pain [5.1% of spend] Despite the introduction of new high-cost brand-name pain drugs in the past two years, trend has remained negative with per-prescription ingredient costs declining by 5.5 percent. Celebrex, the only COX-2 inhibitor in the market, will be available generically in 2014, bringing the generic rate in this class to over 90 percent. PMPM down 1.7% GFR up 0.4 points to 88.3% Utilization up 4.1% Inflation up 0.4% Because of widespread concerns of abuse, manufacturers are focused on developing new abuse-deterrent products. Drug development has also focused on new formulations of products already available as generic, such as fentanyl. In June 2011, the FDA approved Lazanda, a nasal spray alternative to the existing fentanyl patch and lollipop. These new formulations have not dramatically increased spending, and the pipeline has few new drugs likely to drive trend in the immediate future. ADHD [4.4% of spend] Use of attention deficit disorder medications continues to increase rapidly in conjunction with significant price increases for household names such as Adderall XR, Concerta and Vyvanse. The result is the highest PMPM trend among traditional drugs. Ongoing drug shortages have likely contributed to increased use of more expensive, brand products. To alleviate shortages, the Drug Enforcement Administration (DEA) has increased 2012 production quotas for key ingredients methylphenidate and amphetamine in 2012. 44 PMPM up 19.7% GFR up 2.0 points to 31.3% Utilization up 12.7% Inflation up 14.8% An authorized generic for Concerta became available in 2011. Generic Ritalin LA is now available and generic Provigil is expected to become available early in 2012. Despite these cost-saving opportunities, ADHD spending is likely to remain high in 2012 as new approvals for ADHD in adults expand utilization. Adderall XR remains among the top 25 drugs at Prime (based on percent of spend); its generic availability has been delayed by ongoing litigation. 45

Prime Therapeutics 2012 Drug Trend Insights 59 Women s health [4.3% of spend] PMPM down 2.4% GFR up 6.9 points to 64.6% Utilization down 4.4% Inflation up 7.0% Despite inflationary pressure, spending was down for estrogens and medications to treat osteoporosis in 2011. The driving forces were reduced use and strong generic growth. Limited new drugs are in the pipeline with no major generic launches expected in 2012 and 2013. Provisions contained in the Patient Protection and Affordable Care Act (PPACA), to be implemented in August 2012, could drive trend in this category depending how plan sponsors choose to interpret the legislation. In non-grandfathered insurance policies, women of reproductive capacity must have access to all FDA-approved contraceptive methods, without cost-share requirements (i.e., $0 copay). Prime is currently reviewing the guidelines to establish a position and provide client implementation options. Gastrointestinal disorders [4.0% of spend] PMPM down 23.4% GFR up 7.4 points to 69.8% Utilization up 4.3% Inflation down 15.8% Per-prescription ingredient costs decreased 26.7 percent in 2011, driving negative trend in this class. Nexium remains the most common brandname drug, with over 20 percent category market share. Combination products Vimovo TM and Duexis, which help reduce gastric ulcers associated with use of aspirin, ibuprofen and similar products, had limited uptake and do not affect trend to date. Spending will continue to decline as a result of increased generic use and greater OTC product availability. Psychosis [2.5% of spend] PMPM up 11.3% GFR up 1.9 points to 22.1% Utilization up 3.2% Inflation up 11.0% Spending was up, driven by increased utilization and higher prices. Antipsychotics, such as Abilify, are used increasingly to treat resistant depression and indications beyond schizophrenia and bipolar disorder, further adding to costs. Cost-management opportunities exist but are complicated by the difficulty of treating psychosis and mental health parity legislation in some states. Generic Zyprexa was launched at the end of 2011, and generic versions of Seroquel and Geodon became available in March 2012. Accelerated uptake of these alternatives will help to rein in 2012 antipsychotic spending.

60 Appendix 1: Traditional Drugs Seizure [2.1% of spend] Despite the American Academy of Neurology s stance against therapeutic interchange, generic utilization (up 2.4 points) continues to generate PMPM declines for seizure medications. With the exception of Lyrica (8.2 percent of category market share), most drugs in this category (e.g. Topamax, Dilantin, Depakote and Keppra ), have gone generic and are continuing to drive down pharmacy trend. Keppra XR became available generically toward the end of 2011 and should help sustain the current generic trend. PMPM down 0.6% GFR up 2.4 points to 84.4% Utilization up 7.2% Inflation down 0.2% New treatments may increase anticonvulsant spending in 2012 and 2013. FDA approval for an entirely new type of seizure treatment, Eisai s perampanel, is expected in 2012. Add-on treatments Onfi TM and Potiga TM will launch in 2012. Off-label use for pain conditions is noteworthy in this class; utilization management may help limit potentially wasteful spending. Blood thinners/antiplatelet drugs [1.8% of spend] Trend is up, reflecting the entry of brand-name products (e.g., Xarelto and Pradaxa ) in direct competition with existing generic warfarin. Another competing product, Eliquis, is expected to gain FDA approval in 2012. Even though the patent on Plavix, the top brand in this category, is expected to expire in 2012, expect spending on blood thinners and antiplatelet therapy to increase. Recently updated guidelines recommend Brilinta over Plavix for patients in the first year after acute coronary syndrome (ACS); the patent on Brilinta isn t set to expire until 2019. 46 Manufacturers are also actively seeking expanded approvals that will extend patents and increase use. For example, Xarelto currently competes with warfarin for two conditions; its manufacturer is currently seeking a third indication that would position it in competition with Plavix. PMPM up 17.6% GFR down 1.0 points to 38.9% Utilization up 0.4% Inflation up 13.0% While rare, health care providers are starting to use pharmacogenomic tests when prescribing warfarin, a drug used to prevent blood clots. Unfortunately, many of these tests are used inappropriately. Testing is advised within the first five days of treatment to help determine accurate dosing. Our research found 49.1 percent of tests were administered after the initial treatment window. At a median cost of more than $150 per test, fees for these unnecessary tests can quickly add up. 47

Prime Therapeutics 2012 Drug Trend Insights 61 Appendix 2 Specialty drugs: Key category trends Autoimmune [5.5% of spend] PMPM up 14.3% Utilization up 1.0% Inflation up 7.6% Steady price inflation for market leaders Humira and Enbrel and other autoimmune products drove increased spending in 2012. Manufacturers are working to develop oral alternatives to these high-cost injectables. The FDA is currently reviewing Pfizer s tofacitinib, and a decision is expected in August 2012. Tofacitinib would be the first oral agent introduced in this class and has the potential to become a blockbuster drug. Orencia (previously available only as an IV infusion) is now available as a self-injected product. This new formulation could help reduce total health costs, because customers would no longer have to pay for infusion administration. There are multiple products in the pipeline and likely to be submitted for FDA approval in the next several years. Autoimmune spending will continue to increase as new products emerge. Pharmacy benefit management has the potential to help tame the cost of expensive treatments. In 2011, Prime worked with its partners to promote Humira as the preferred product in the autoimmune class. As a result, Prime was able to gain increased manufacturer discounts. Not only did this save money for plan sponsors; the lower prices helped keep treatment affordable for customers who depend on these drugs.

62 Appendix 2: Specialty Drugs Multiple sclerosis [3.6% of spend] Trend in this category experienced double-digit growth because of increased use and unit costs. Utilization growth may be attributable to add-on therapy such as Ampyra, rather than an increase in the number of people treated. Use of Ampyra grew 40 percent in 2011. Gilenya, the first oral disease-modifying drug, was approved in September 2010. By the end of 2011, Gilenya s market share within the category had increased to 4.5 percent. Several additional oral medications are in the pipeline or phase III development. PMPM up 20.6% Utilization up 4.7% Inflation up 14.7% Echoing trends across this category, the price of Tysabri increased dramatically over the past year. In January 2012, the FDA cleared the Stratify JCV Antibody ELISA test 2, which determines if a patient is at risk of progressive multifocal leukoencephalopathy (PML), a serious side effect of Tysabri. 48 Health care professionals may now feel more comfortable prescribing this product because high-risk patients can be appropriately identified. Ultimately, inflation, new products and add-on therapies will keep MS trend on the rise for the foreseeable future. Growth hormones [0.9% of spend] Spending is up as a result of inflation and increased use. This category is ripe for hands-on management. The similarity of products makes utilization management a highly effective solution to control costs. Clients who have implemented Prime s prior authorization with preferred product, Omnitrope, have cut their growth hormone costs significantly. PMPM up 2.7% Utilization up 2.8% Inflation up 6.7% In February 2012, the FDA issued draft rules for the approval of generic biologic drugs, known as biosimilars. 49 Manufacturers may soon begin to seek approval for biosimilar products. Increased competition among drug manufacturers will soon give pharmacy managers a new tool in the fight against rising specialty drug trend.

Prime Therapeutics 2012 Drug Trend Insights 63 Oral oncology [2.3% of spend] PMPM up 18.6% Utilization up 2.6% Inflation up 8.6% Increased use and higher prices drove significant oral oncology spending. Multiple new treatments with costs over $10,000 per month were approved in 2011, making these products some of the highest priced within the category. The new drugs modestly improved progression-free or overall survival in cancers that previously did not have oral therapies available. 50 Zelboraf and Xalkori were both approved with their own genetic test, reflecting the shift in developing more targeted therapies. The first drugs to treat medullary thyroid cancer (Caprelsa ) and intermediate or high-risk myelofibrosis (Jakafi TM ) were approved in 2011. Zytiga is the first drug in its class to treat late-stage prostate cancer. Cancer treatments dominate the drug development pipeline. Oral oncology spending will continue to increase rapidly. Based on the flood of anticipated approvals and inflationary pricing trends, management strategies may become more commonplace in this area. Oral oncology drugs, while more convenient than intravenous cancer treatments, can still cause unpleasant side effects. Patients do not always complete the full course of therapy, and as a result, a significant amount of expensive medication may be wasted. To help fight waste, Prime created a split fill option for oral oncology drugs. When a patient begins treatment, the first prescription is split in two. The charge for each partial fill is equal to half the standard copay or coinsurance amount. The savings of this approach can be significant. For common drugs Nexavar, Sutent and Tarceva, Prime s research shows that savings from the split-fill program can range from $2,000 to $4,000 per prescription.

64 Appendix 2: Specialty Drugs Hepatitis C [0.7% of spend] With the approval of Incivek TM and Victrelis TM in May 2011, the hepatitis C category achieved the biggest trend increase in 2011. Medication costs were a big factor in trend; a 12-week course of treatment for Incivek costs about $50,000. Prime swiftly met the launch of these new drugs with a coordinated strategy across clinical programs and formulary management. PMPM up 149.1% Utilization up 13.2% Inflation up 4.9% Incivek and Victrelis are effective in treating both first-time and previously treated patients, which represents a potentially large market and suggests utilization will continue to increase throughout 2012. The hepatitis C pipeline is robust and includes an oral drug that can potentially eliminate the need for injectable products. Continued growth in spending is expected over the coming years. Of the new treatments, Incivek TM is the market share leader in hepatitis C, likely because of its easier dosing regimen compared with Victrelis TM. After our analysis found Incivek was being prescribed in quantities greater than recommended in FDA labeling, Prime developed utilization management criteria to stop inappropriate use and help manage safety and costs in this class of drugs. Limiting prescriptions to the recommended 12-week regimen and establishing 28-day supply quantity limits saved clients $70,000 in just six months. 51 Anticoagulants [0.6% of spend] Generic enoxaparin was launched in 2010. However, prices have not dropped significantly despite significant increase in generic utilization. This highlights how even within specialty classes, prices of generics do not drop as significantly as traditional drug products. Prices may drop further since a preliminary injunction was lifted against some generic manufacturers, allowing for generic competition in early 2012. 52 The pipeline currently has no products within this category for 2012. PMPM down 2.7% Utilization up 1.6% Inflation no change

Acknowledgements We would like to acknowledge the contributions of the following individuals to the 2012 Drug Trend Insights: Shannon Ambrose Leah Bailey, JD John Beardsley, MBA Julie Belcher, MHA Carmen Chambers, RN, BSN Jennifer Donahue Eric Elliott, MBA Eric Elwer Jenna Elving Tim Fink Andy Gardner Jeff Gianforte, MS Pat Gleason, PharmD, FCCP, BCPS Brent Gunderson, PharmD Emily Hafner Jason Hall Curt Hedin Jack Jerome Steven Johnson, PharmD, BCPS Marlene Kadlec Kevin Krakowski Connie Krell April Kunze, PharmD David Lassen, PharmD Britt-Inger McDonnell Jeanne Mettner, MA Shawn Mullery Melissa Nielson Nils Oiseth Cameron Olig Shauncey O Rourke Walt Parker Biran Patel, PharmD Susanne Patterson Leslie Peabody-Barrett Amy Renzulli Jessie Salchert Mary Sage Shelley Sánchez Jeremy Schafer, PharmD, MBA Angela Seibert Michael Showalter Catherine I. Starner, PharmD, GCP, BCPS Molly Sullivan Sheila Thelemann Kirsten Tiberg, R Ph Alexandra Tungol, PharmD Rachelle Wan, R Ph, MBA Peter Wickersham, MApStat, MS, MSE Tracy Welsh, RN, BS, CPUR, CCM Angie Wlaschin Meredith Wolf Matt Yordy, MBA Patrick Zampogna, MBA

Footnotes 1 2011 Annual Member Satisfaction Benchmark Study, conducted by Kenexa. 2 Return-on-investment data provided by Outcomes Incorporated. 3 Gleason, Patrick P., Catherine I. Starner, Siting Zhou, Angeline Carlson and Kevin Slavik. Hypertension Medication Adherence Association with Hospitalizations and Total Cost of Care. Journal of Managed Care Pharmacy. 18.2 (2012):178. 4 2011 Pharmacy Benchmark Study commissioned by Prime, conducted by OptumInsights. 5 Prime projection based on analysis of 1.2 million commercial plan members conducted 3Q2011. 6 National Health Expenditure Data. Centers for Medicare and Medicaid Services. 10 May 2012. <http://www.cms.hhs.gov/nationalhealthexpenddata/>. 7 Wu, Shin-Yi and Anthony Green. Projection of Chronic Illness Prevalence and Cost Inflation. Santa Monica, CA:RAND Corporation, 2000. 8 2008 National Population Projections. United States Census Bureau. 2008. 9 March 2012. <http://www.census.gov/population/www/projections/ 2009projections.html>. 9 Centers for Disease Control and Prevention, National Center for Health Statistics. National Health and Nutrition Examination Survey. 2008. 10 March 2012. <http://www.cdc.gov/nchs/nhanes.htm>. 10 Centers for Disease Control and Prevention, National Center for Health Statistics. Health, United States, 2005: with Chartbook on Trends in the Health of Americans. Hyattsville, MD: Centers for Disease Control and Prevention. 2005. 9 March 2012. <http://www.cdc.gov/nchs/data/hus/hus05.pdf>. 11 AARP: Generic Drug Prices Fall for Fifth Consecutive Year. AARP Press Release. 21 July 2011. 12 March 2012. <http://www.aarp.org/about-aarp/press-center/ info-07-2011/aarp-says-generic-drug-prices-fall-for-fifth-consecutive-year.html>. 12 Beasley, Deena. Branded Drug Prices Soar as Generic Pressure Rises. Reuters. 23 March 2011. 9 March 2012. <http://www.reuters.com/article/2011/03/23/ us-branded-drug-prices-idustre72m57x20110323>. 13 World Preview 2016. Evaluate Pharma. June 2011. 12 March 2012. <http://www.evaluatepharma.com/evaluatepharma_worldpreview2016_june2011.aspx>. 14 Alazraki, Melly. The 10 Biggest-Selling Drugs That Are About to Lose Their Patent. DailyFinance. 27 February 2011. 10 May 2012. <http://www.dailyfinance. com/2011/02/27/top-selling-drugs-are-about-to-lose-patent-protection-ready/>. 15 Prime analysis of average ingredient costs across the commercial book of business. 16 Prime analysis of 2011 claim data for the commercial book of business. 17 Vuong, Tien, Becky Fenrick, Catherine I. Starner, et al. Statin Waste Associated with 90-Day Supplies Compared to 30-Day Supplies. Research presented at the Academy of Managed Care Pharmacy, April 2011. 18 Prime projection based on benefit model analysis. 19 Cutler, David M., and Wendy Everett. Thinking Outside the Pillbox Medication Adherence as a Priority for Health Care Reform. New England Journal of Medicine. 362.17 (2010):1553-1555. 29 April 2010. <http://content.nejm.org/doi/full/10.1056/nejmp1002305>. 20 Stoppler, Melissa Conrad. The Most Common Medication Errors. MedicineNet.com. 28 September 2009. <http://www.medicinenet.com/script/main/ art.asp?articlekey=55234>. 21 Prime Diabetes Efficiency Assessment for a 1.2 million member population. Conducted in 4Q2011. 22 Kober, Scott. The Evolution of Specialty Pharmacy. Biotechnology Healthcare. July/August 2008. 16 May 2012. <http://www.ncbi.nlm.nih.gov/pmc/articles/ PMC2706163/>. 23 National Sales Perspectives. IMS Institute for Healthcare Informatics. December 2011. 24 Maas, Angela. Payers Need Better Specialty Focus; Employers Want to Know Value. Specialty Pharmacy News. 2011. 9 March 2012. <http://aishealth.com/ archive/nspn0811-07>. 25 More Employers Using Third Party Managers to Save on Drug Programs Costs. 17 June 2011. Buck Consultants. 9 March 2012. <http://news.xerox.com/pr/ xerox/buck-consultants-a-xerox-company-survey-reveals-growing-use-of-pharmacy-benefit-managers.aspx?ncid=18418>. 26 IMS Health Inc. Understanding and Improving Adherence for Specialty Products. 2010. 16 May 2012. < http://www.imshealth.com/deployedfiles/ims/global/ Content/Solutions/Healthcare%20Analytics%20and%20Services/Specialty%20Analytics/Understanding_Improving_Adherence_Specialty_Products.pdf>. 27 Update: A Survey of Health Care Claims Receipt and Processing Times, 2009. AHIP Center for Policy and Research. January 2010. 4 May 2012. <www.ahip.org/ SurveyHealthCare-January2010>.

28 Davis, Karen, Karen S. Collins, Cathy Schoen and Cynthia Morris. Choice Matters: Enrollees Views of Their Health Plans. Health Affairs. 14.2 (1995):99-112. 29 Kennedy, Kelly. High-Deductible Insurance Plans are Gaining Popularity. USA Today. 30 May 2011. 16 March 2012. <http://www.usatoday.com/news/ washington/2011-05-30-health-care-deductibles-hospital-bills-doctors_n.htm>. 30 Gleason, Patrick P., Catherine I. Starner, Brent W. Gunderson, et al. Association of Prescription Abandonment with Cost Share for High-Cost Specialty Pharmacy Medications. Journal of Managed Care Pharmacy. 15.8 (2009):648-658. 31 2011-2012 Prescription Drug Benefit Cost and Plan Design Report. Pharmacy Benefit Management Institute. 16 May 2012. <http://www.benefitdesignreport.com>. 32 Hermes, Matt, Patrick P. Gleason and Catherine I. Starner. Adherence to Chronic Medication Therapy Associated with 90-day Supplies. Presented at Academy of Managed Care Pharmacy, April 2010. 33 Fein, Adam. Humana-Walmart Preferred Network Plan Wins Big in Part D. Drug Channels. 8 February 2012. 16 March 2012. <http://www.drugchannels. net/2012/02/humana-walmart-preferred-network-plan.html>. 34 Schmittdiel, Julie A., Andrew J. Karter, Wendy Dyer, et al. The Comparative Effectiveness of Mail Order Pharmacy Use vs. Local Pharmacy Use on LDL-C Control in New Statin Users. Journal of General Internal Medicine. 26.12 (2011):1396-1402. 35 Reed Mary, Richard Brand, Joseph P. Newhouse, Joe V. Selby and John Hsu. Coping with Prescription Drug Cost Sharing: Knowledge, Adherence, and Financial Burden. Health Services Research. 43.2 (2007):785-797. 36 Pharmacy Benefit Management: Takeaways from Our Proprietary PBM Survey. JP Morgan. 15 December 2011. 37 Senior Market Intelligence Service: Age-in Study 2011. Deft Research. 2011. 16 May 2012. <http://www.deftresearch.com/wp-content/uploads/2011/08/age_ in_sampler.pdf>. 38 Consumer Health Insights and Exchange Simulation. McKinsey Advanced Healthcare Analytics. 2012. 39 Silverman, Ed. FTC Approves Express Scripts-Medco Deal. Pharmalot. 2 April 2012. 10 May 2012. <http://www.pharmalot.com/2012/04/ftc-approves-expressscripts-medco-deal/>. 40 New Technologies to Contain Waste in Diabetes Test Supplies. OTCShowcase.com. 15 May 2012. <http://www.otcshowcase.com/new-technologies-tocontain-waste-in-diabetes-test-supplies/>. 41 Wilson, Duff. Facing Generic Lipitor Rivals, Pfizer Battles to Protect Its Cash Cow. The New York Times. 29 November 2011. 42 Carroll, John. PhRMA s COPD Pipeline Report Spotlights Blockbuster Hopefuls. FierceBiotech. 6 February 2012. 10 May 2012. <http://www.fiercebiotech.com/ story/phrmas-copd-pipeline-report-spotlights-blockbuster-hopefuls/2012-02-06>. 43 Dear Healthcare Professional Letter. Tekturna (aliskiren) tablets and Aliskiren-Based Products Information Center. Novartis. 2012. 4 January 2012. <http://www.pharma.us.novartis.com/index.jsp?usertrack.filter_applied=true&novaid=4029461999768894540>. 44 Harris, Gardiner. F.D.A Finds Short Supply of Attention Deficit Drugs. The New York Times. 31 December 2011. 1 March 2012. <http://www.nytimes.com/ 2012/01/01/health/policy/fda-is-finding-attention-drugs-in-short-supply.html?pagewanted=all>. 45 Upbeat News for Shire as FDA Delays Labeling Decision on ADHA Drugs; Firm Sues Watson. The PharmaLetter. 11 April 2011. 11 May 2012. <http://www.thepharmaletter.com/file/103504/upbeat-news-for-shire-as-fda-delays-labeling-decision-on-adha-drugs-firm-sues-watson.html>. 46 Antithrombotic Therapy and Prevention of Thrombosis, 9th ed: American College of Chest Physicians Evidence-Based Clinical Practice Guidelines. Chest 141.2 suppl (2012). 23 February 2012. <http://chestjournal.chestpubs.org/content/141/2_suppl>. 47 Starner, Catherine I., Steven Ritter, Peter Wickersham, Jill Phillips and Patrick P. Gleason. Warfarin Pharmacogenomics Testing: Prevalence, Timeliness, and Cost. Journal of Managed Care Pharmacy. 18.2 (2012):205. 48 Tysabri (natalizumab): Drug Safety Communication. New Risk Factor for Progressive Multifocal Leukoencephalopathy (PML). U.S. Food and Drug Administration. 20 January 2012. 10 May 2012. <http://www.fda.gov/safety/medwatch/safetyinformation/safetyalertsforhumanmedicalproducts/ucm288602.htm>. 49 Frieden, Joyce. FDA Issues Draft Guidance for Biosimilar Products. MedPage Today. 9 February 2012. 10 May 2012. <http://www.medpagetoday.com/ PublicHealthPolicy/FDAGeneral/31108>. 50 Pollack, Andrew. Two Drugs Appear to Delay Progression of Breast Cancer. New York Times. 7 December 2011. 10 May 2012. <http://www.nytimes.com/ 2011/12/08/health/research/two-drugs-appear-to-delay-progression-of-breast-cancer.html>. 51 Prime book-of-business analysis of Incivek utilizers from June through October 31, 2011. 52 Watson: Court Stays Injunction for Lovenox Generic. Chain Drug Review. 26 January 2012. 10 May 2012. <http://www.chaindrugreview.com/front-page/ suppliernews/watson-court-stays-injunction-for-lovenox-generic>.

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