Why Have a Pharmacy Benefit Manager Partnership

1. Why Have a Pharmacy Benefit Manager Partnership Vicki Doss Product Manager September 13, 2010

2. Employer Challenges • Increasing drug costs • Injured Employees taking expensive brand drugs when generics are available • Lack of adherence to drug therapy • Over prescribing / Over utilization

3. Role of a PBM • Provide retail network • Provide claims processing • Provide mail and specialty pharmacy • Provide reporting and account management • Provide clinical management

4. Elements of your PBM Contract • Contract should be clear and concise • Definitions • Services to be provided by PBM • Services to be provided by client • Audit Rights • Termination rights • Performance Standards • Pricing

5. How do you Measure the Performance of your PBM partner? • Flexibility • Customization of plan designs to meet your unique needs • Utilization Management • Improve generic utilization, monitor fraud/abuse, market trends • Savings Opportunities • Constant negotiations with retail pharmacies

6. Drug Pricing Methods, Transparency & Tools for Cost Containment Dennis M. Sponer, Esq. President/CEO ScripNet, Inc. STRIMA 2010 Conference; Prattville, Alabama; September 2010 6

7. Definition of Pricing Terms: • Usual and Customary: 120% of AWP According to TDI. • State Fee Schedules: 36 states publish a maximum price for workers’ compensation medications. • Average Wholesale Price: Average Wholesale Price (AWP), a common benchmark for price negotiation and payments between PBMs and pharmacies and between PBMs and their carrier and self-insured customers. Medi-Span and First Data Bank have been the standard publishers of AWP. • - WAC: Wholesale Acquisition Cost • - MAC: Maximum Allowable Cost • - FUL: Federal Upper Limit • HCFA MAC: Health Care Financing Administration – Maximum Allowable Cost • Pharmacy Billed Amount: Cash price? 7

8. Industry Pricing Illustration 8

9. PBM Pricing Methods & Transparency: Spread Pricing: Based on a percentage off AWP, regardless of the PBM’s actual pharmacy costs from their negotiated network discounts. Cost-Plus Pricing: Based on a markup of the PBM’s negotiated pharmacy costs. Percentage of Savings: Start with the Fee Schedule, subtract out the negotiated pharmacy rate, and base PBM fees on a percentage of that savings 9

10. Tools for Managing Costs • RFPs: ScripNet has authored an article in Risk & Insurance Magazine, along with our customer, Minnesota Counties Insurance Trust, on the effective use of RFPs: • www.riskandinsurance.com/story.jsp?storyId=108721524 • Pharmacy Contracts: Pharmacy networks & cost information sharing with payors. • Formularies: specify which medicines are approved to be prescribed under a particular contract. • Generic Substitution: is the replacement of a brand name drug with an equivalent generic drug. 10

11. More Tools for Managing Costs • Pharmacy Audits: Identifies and corrects errors, waste and fraud and ensures that network pharmacies are correctly following industry dispensing practices as well as contracted fulfillment, adjudication and reimbursement procedures. • Online Claims Database: Tracks, analyzes and reports on operations and is accessible in real-time to client risk managers. • Monitoring & Reporting: Key business metrics should be monitored and reported back to customers, including: • - Network penetration (the percentage of client's prescriptions that are discounted: i.e., in-network) • - Percentage of prescription filled that were generic versus brand • - Percentage of first fills captured • - Percentage of second fills captured 11

12. More Tools for Managing Costs • Drug Manufacturer Rebates: Pay me now or pay me (much) later (maybe). • Compounding: The process of mixing pharmaceuticals to the specifications of a customized prescription and for people who have unique health needs. • Repackaging: You get to make up your own AWP! • Point of Sale Approvals and Escalation Policies for Adjudication: Pharmacies have online access to patient information, patient authorization and/or adjudication. • Drug Utilization Reviews & Physician Outreach: Include a more extensive statistical analysis of client claims data to identify and contain potential fraud, waste and abuse, including physician outreach. 12

13. The PBM:Can we help your injured worker avoid addiction, fraud, abuse, drug interactions and more?“The price is not the cost” Dr. Ralph Kendall Vice President of Clinical Services 13

14. 1 Passik SD, Webster LR, Pain and Addiction Interface, Pain Medicine Vol 9 #6 2008 2 See shayes@tampabay.com July 5, 2010 Tampa Bay Tribune 3 Simon S, August 3, 2010, Wall Street Journal 4 Stein L, July 25, 2010, St Petersburg Times 5 Stancil L, August 6, 2010, SunSentinel.com 6 Girion L, July 30, 2010, LA Times 7 Kleffman S, July 22, 2010, Contra Costa Times 8 rxnews@listserve.com, Mudri Associates, Inc. ADEA Consultancy, Dunedin, FL • NEWS FLASH!!! • ”Opiophobia must go!”1 • ”Drug Sting arrests 29 so far; 37 more coming”2 • “At work, a Drug Dilemma”3 • “New rules for pain doctors”4 • “Woman brought kids along for oxycodone buy”5 • “Former physician sentenced to 25 years & fined $1 million”6 • “Painkiller drug abuse soaring, CDC Chief warns”7 • “Physician’s drug arrest reveals how regulators protect problem doctors”8 14

15. Opioid Abuse and Diversion 1 Kuehn BM. Opioid prescriptions soar: increase in legitimate use as well as abuse. JAMA 2007; 297:249-51 2 Manachikanti, Laxmaiah, and Singh, Angelie, “Therapeutic Opioids: A Ten-Year Perspective of the Complexities and Complications of Escalating Use, Abuse, and Nonmedical Use of Opioids.” Pain Physician, March 2008. 3 Joint Meeting of the Drug Safety and Risk Mangement Advisory Committee, Non-prescription Drugs Advisory Committee, and the Anesthetic and Life Support Drugs Advisory Committee Meeting, June 20-30, 2009. The US comprises 4.5% of world population1 • Globally, the United States consumes:2,3 • 65% of all illegal drugs • 80% of all opioids • 49% of all morphine • 99% of all hydrocodone • Potential for opioid abuse increases with rate of prescribing • 85% increase in overall opioid abuse • 116% increase in hydrocodone abuse • 166% increase in oxycodone abuse 15

16. Opioid Prescription Use Retail Sales of Opioids, 1997 – 2005 (in grams of medication) 16

17. Let’s start with a focus on some terms we misuse! Is addiction the same as dependence? • Addiction is an uncontrollable compulsion (disease) characterized by drug-seeking and abuse behavior without regard to its negative consequences. Addiction is the same irrespective of whether the drug is alcohol, amphetamines, cocaine, heroin, marijuana, opioids or nicotine. The risk of addiction is in part, thought to be genetic. • Dependence is a physical state resulting from the body’s becoming accustomed to having the drug present. When the substance is suddenly discontinued the appearance of characteristic withdrawal symptoms appear. While opioids, benzodiazepines, barbiturates, alcohol and nicotine are all well known for their ability to induce physical dependence, other drugs share this property that are not considered addictive. This is NOT addiction • What is pseudo-addiction? (UNDERTREATMENT) 17

18. What about New & Abuse-Deterrent Opioids What’s the value? • Currently marketed NEW opioid products • Oxycontin (v 2.0) (ODG – "N") "sticky gel" Oradur® technology - "Remoxy" • Extended release oxycodone • Exalgo (ODG – "N") NOT an abuse-deterrent opioid • Extended release hydromorphone • Embeda (ODG – "Y") • Extended release morphine plus naltrexone • REMS ??? • What they can (and can’t) do • Can we prevent ADDICTION? • What else is being done? 18

19. How valuable are these tools? 19

20. When should new drugs be employed in a case? 1 Pegler S, Underhill J, Evaluating the Safety and Effectiveness of New Drugs, Am Fam Physician. 2010;82(1):53-57. STEPS(Safety, Tolerability, Effectiveness, Price, and Simplicity)1 Is it really safe? 97% of FDA approvals are based on short-term clinical trial evidence involving approximately 1,500 patients. What happens long term? Can the patient tolerate the side effects well enough to be adherent to the therapy? We are finding that studies sometimes reduce a clinical risk factor but don’t necessarily lead to the anticipated benefit. We treat what we measured, but the patient didn’t live longer or even get better. Is the new drug better than what is currently available? The price; the all important price: A good example might be the fentanyl lollipop. Yes, it is effective, but at what cost? The adverse effects might be unintended dose escalation, loss of teeth, death due to respiratory depression or arrest, significant drug interactions. How simple is the drug regimen? The simpler ( one dose per day versus three or four) creates a better fit with the patient’s lifestyle and greater success of the drug. What about Drug InteractionsDrugs that modify metabolism of opioids & genetic traits of certain individuals 20

21. What should I expect from my PBM? What is your reporting strategy? Do you just watch your drug spend happen? OR Do you participate in managing your drug spend? • Drug Plan design • Use of the Prior Authorization as an alert flag • What sort of interventions will you have available • Can you employ some sort of “Fraud Indicators”? • What predictive criteria can you use? 21

22. BEST TOOL - Analyze your data • Data mining/drill down capability • Isolate relevant information • Injury types • Provider trends • Drug utilization • Turn awareness into action • Claims handling • Loss control/risk management 22

23. Urine Drug Testing Here’s a link to some Urine Drug Testing case vignettes. Try your hand to see if you can tell what’s going on. http://www.emergingsolutionsinpain.com/theUDT/udt_intro.php 23

24. Predictive modeling • Use your data to develop how you will make decisions • Evaluate the characteristics that created your best outcomes • Your model should predict likely outcomes • Develop a process to “rate” your claims (high cost vs. best return to work) • Work with your PBM to develop trends and patterns • This is a continuous quality learning process 24

25. Questions?rkendall@healthesystems.com

26. PBM Considerations for Risk Managers Jonathan D. Bow Executive Director State Office of Risk Management

27. Risk Manager’s Perspective • Risk Identification • Risk Analysis • Risk Control • Risk Financing • Monitoring • Procurement

28. Risk Identification • Multi-level responsibility for payment / distribution of pharmaceuticals • Workers’ Compensation • Social Services Agencies • Medical Facilities • Identify the Cost of Pharmaceuticals • Generic vs. Name Brand • Drug Diversion / Abuse / Fraud • Drug Interaction / Appropriateness

29. Risk Analysis • Delivery Mechanisms • Directly dispensed by State • Delivery through Point of Sale • Ability of the State to control access to drugs it pays for • Existence of fee guidelines or direct contracts with providers • Evidence of Drug Diversion / Abuse / Fraud or a lack of evidence to conduct the analysis

30. Risk Control • Is a PBM appropriate? • Is the existing cost of delivery of pharmaceuticals greater than the cost if delivered in a PBM setting? • Do the controls provided by a PBM address the identified risks? • What percentage of the drug deliveries will be subject to network controls? • Direct Contracting with supplier / dispensing agent if you can control distribution point

31. Risk Financing • Ideally the use of the PBM should result in net savings over existing cost of risk to be an effective choice • The net cost may be affected by how you access the PBM • If you access through a TPA, there will generally be a markup by the TPA. By contracting directly, a higher percentage of savings may be realized • Drugs are generally priced as a percentage of Average Wholesale Price (AWP), but other calculations may provide better prices

32. Monitoring • Require regular reports • Network penetration • Generic vs. Name Brand • Results of Diversion / Abuse / Fraud monitoring • Effectiveness of pricing methodology • Provider contracts are properly maintained and accessible

33. Procurement • Consider giving as much leeway as possible for vendors to bid “solutions” rather than just prices • Require vendors to disclose the cost of delivery for a historic sample of your data based on name of drug, generic availability, distributor, and location • Require vendor to market and provide notifications / pharmacy cards to patients as part of implementation and operations • If possible make site visits to vendor after selection to evaluate vendor operations before awarding the bid