HUMANA’S STRATEGY For Addressing Pharmacy Industry Trends

1. HUMANA’S STRATEGYFor Addressing Pharmacy Industry Trends University of Kentucky October 3, 2001

2. Humana Inc.Pharmacy Management DepartmentWho we are... Part of Humana’s Clinical Leadership and Innovation Center 16 pharmacists in Louisville 14 additional pharmacists throughout Humana’s markets Corporate operations, support, and analysis has 18 associates Clinical Call team includes 28 associates Pharmacy Customer Service is supported by 135 associates company wide

3. University of KentuckyHumana PPO Pharmacy Plan Three-Tier Pharmacy Benefit • Tier 1 $8 • Generic medications on the drug list • Tier 2 $20 • Brand name medications on the drug list • Tier 3 $40 • Other covered drugs that are not on the drug list

4. Pharmaceutical explosion continues expect to see underlying trend of 18-20% manufacturer pipelines direct-to-consumer Consumers want choice direct-to-consumer works doctors are faced with consumers requesting specific drug products consumers are more informed Benefit Design Empowerment tools internet paper other Take Home Message HumanaStrategy Important Trends

5. Where has the industry been? Double Digit Drug Budget Increases 1998 1999 2000 Unit Cost Inflation 3 - 4% 3 - 4% 3-4% Utilization 4 - 6% 5 - 8% 6-9% Intensity 6 - 8% 6 - 9%6-9% Overall trend 13-18% 14-21% 15-22% Source: Humana Data; Milliman and Robertson; SG Cowen, September 2000

6. Rise in Direct-to-Consumer Advertising Expenditures Predict nearly $3.5 Billion in 2001 Source: Competitive Media Reporting and IMS America Ltd.

7. US Prevalence of Selected Conditions Asymptomatic Symptomatic

8. Manufacturer Sales Force Increased 34% from 1998 to 2000 • Company# Reps • Pfizer 8,300 • Glaxo/SKB 8,000 • Aventis 8,000 • Novartis 8,000 • Merck 5,000 • BMS 4,800 • Schering 4,500 • Pharmacia 4,000 • Am. Home Product 4,000 • Lilly 3,500 • Other 17,000 • TOTALS 75,100 • Total Promotion Expense > $7 Billion Source: SG Cowen, September 2000

9. Generic Drug Pricing Outlook Over past 2 years, generic manufacturers have enjoyed a rise in competitive power via industry consolidation Source: SG Cowen, September 2000

10. Flurry of Upcoming Patent Expirations • High blood pressure • Vasotec • GI • Prilosec, Pepcid, Axid • Diabetes • Glucophage • Behavioral health • Buspar, Prozac • Cholesterol • Mevacor • Allergy • Claritin Source: SG Cowen, September 2000

11. Humana’s Approach to Managing Pharmacy Trends Positive effects of Rx3 Source: Finance department - earnings call process All data is net of rebates.

12. Clinical Hotline Implemented P&T decisions Implemented Step Therapy

13. Calls to Pharmacy Team Customer Service

14. Key Metric - Generic Dispensing Rx3 provides copay incentives to use generic drugs • Important Notes: • Generic dispensing is the percent of prescriptions that are written as generic. • Rx3 plans have a higher generic dispensing rate because of incentives and/or requirements to • use generic drugs.

15. Key Metric - Drug List Usage Rx3 provides copay incentives to use drugs on the Drug List • Important Notes: • This news is compelling data which shows that members are willing to choose between brand recognition in exchange for lower cost shares. In Small Group, Drug List compliance increased between non-Rx3 (open Drug Lists) and Rx3 plans. In Large Group, Drug List compliance only decreased slightly between non-Rx3 (primarily closed Drug List plans) and Rx3 plans. • It is this data that Humana’s pharmacy contracting area can share with pharmaceutical • manufacturers to leverage our proactive benefit designs for discounts.

16. Lessons Learned from Rx3 • Members do Not like the unpredictable nature of Rx3 • Members do Not like Prior Authorization with Rx3 • In Rx3 Generics are assigned to Level One with no regard to cost and movement to other levels is impossible • Rx3 does not effectively control underlying Pharmacy trends

17. The Time is Right for Rx4 • No benefit is used more by members than their prescription drug benefit. • Pharmaceutical companies increase their direct-to-consumer advertising • Technology continues to develop • Drug utilization continues to rise • Prescription drug benefits become more costly to provide • Rx4 addresses the higher price of drugs, their growing use and provides a benefit with greater choice for prescription drugs. • Simple • Convenient to use • Makes coverage for some prescription medications more accessible

18. High Level Overview of Rx4 • Level 1 -generic and brand-name drugs which are low cost • approximately 45-50% of the scripts • Level 2 -generic and brand-name drugs which are higher cost • approximately 40-45% of the scripts • Level 3 - higher cost, mostly brand-name name drugs that may have generic or therapeutic alternatives within level one or level two, some injectables • approximately 10-15% of the scripts • Level 4 -most self-administered injectable drugs, biotechnology drugs and gene therapy • approximately 1% of the scripts

19. Humana’s Top 15 drugs by volume with Level Comparisons Jan 2001

20. Examples of Options with Rx4 Rx 4 level Drug Name Copayment Amount* Level 1 Ranitidine (Generic Zantac) $10 Level 2 Protonix or Prevacid $25 Level 3 Prilosec, Aciphex or $45 Zantac * copayments depend on benefit option

21. Value of Rx4 in Managing Trend • Rx4 manages trend through flexibility in copayment levels and the copayment design structure • Allowed benefit enhancement without significantly raising premiums • Engages the customer - Aligns member choice with member responsibility

22. Levers that impact pharmacy premium Premium

23. Lessons Learned from Rx3 • Members do not like the unpredictable nature of Rx3 • The member will no longer be responsible for the cost differential between the generic and the brand name medication. The most a member will ever pay is the Level Three copay. • Members do not like prior authorization with Rx3 • Rx4 reduces level of prior authorization from 5% to less than 1% • In Rx3 generics are assigned to Level One with no regard to cost and movement to other tiers is impossible • Rx4 applies the appropriate cost share for low cost brands and high cost generics • Rx3 does not effectively control underlying Pharmacy trends • Rx4 offers protection against inflated costs of new technology

24. Rx4 • Positive, innovative consumer-focused, approach to addressing Rx benefits and medical costs • Rx4 offers "enhanced" benefits to members • favorable placement of drugs compared to competitors • flexible design of levels allows lower cost in lower tiers (vs. generics only in lowest levels) • Several brand drugs available in Level 1 (e.g. Premarin) • Reduction of prior authorization • Rx4 also manages trend • through flexible definitions of copay levels and of course the copay design • without Rx4, the enhanced benefits would not have occurred without premium increases

25. Source: Physicians’ Attitudes About Prescribing and Knowledge of Costs of Common Medications, Archives of Internal Medicine, Oct. 9, 2000 Impact of physician knowledge of costs

26. Maximize Your Benefit…helping consumers make informed decisions • Takes a page out of the drug manufacturer’s playbook… • It’s all about Direct-To-Consumer strategies… • Impact to date shows that nearly 1,000 members acting on letter… Push Technology: • Send letters weekly to inform consumers…began April/May 2001 • Have a benefit design that gives them choice • Let them know we believe they purchased a higher cost drug for which there may be choices they can discuss with their doctor • Send daily emails (some day on the hour)…begins in 4Q01 Pull Technology: • ePharmacy portal…available on Humana.com

27. Maximize Your Benefit VAT Application Address member by name and confirm identity Determine interest in lowering drug copayment Offer member short list of prescription drugs and alternative information Offer member letter to take to physician Remind member to review their drug coverage, claims history, copayment amounts, and more on www.humana.com

28. Tier Rx 1 Rx filled Pharmacy Tier 2 Tier Rx claim information “Ask Your Doctor” 3 Tier Analytical Tools Use the Internet to notify that an alternative Rx of comparable quality is available which costs the consumer less 4 Corporate Information Factory Engaging the consumer

29. Pharmacy Internetwww.humana.com • Robust ePharmacy Functionality for commercial members (Medicare coming soon) • Plan benefit information • Claims history - 13 months--REAL TIME! • Drug query cost share tool…with alternatives • Drug list capabilities • Drug information • basic clinical information • drug interactions--interactive • natural health encyclopedia • Pharmacy locator • Mail order

30. Prescription Drug Benefits and ServicesUnsecured Menu

31. Drug Search Function/Status of a Drug The status of the specified drug is displayed. The information includes: Type of drug Generic available? Is the drug on the formulary? Is prior auth required? Are there dispensing limits?

32. Drug Search Function/Printable Lists

33. Clinical Drug Information

34. Drug Interaction Tool

35. The Natural Health Encyclopedia

36. Prescription Drug Benefits and ServicesSecured Functions

37. View Possible Alternatives When the alternatives transaction is complete, the member will be presented with the therapeutic class alternatives, along with the copay and coverage information

38. Member Claims History

39. Humana Value…Pharmacy • Price • Networks…5-6% better than PBMs…3-4% better than most insurers • Rebates…better than most PBMs…most likely even with insurers • Claims adjudication fees…significantly better • Benefit Design…connecting pharmacy with medical • Rx4…industry leading • Generation Next… • Technology • ePharmacy • Maximize Your Benefit • Programs • Ask The Pharmacist