Managing Pharmacy in the Post-PPACA World Michael A. Rashid President and Chief Executive Officer AmeriHealth Mercy Family of Companies July 13, 2010 “ “A Case Study”

Background  50/50 partnership between Independence Blue Cross and Mercy Health System (Catholic Health East)  One of the largest organizations serving Medicaid and publicly insured clients in the U.S, operating in 13 states with over $3.0 billion in combined revenues  A mission and values driven company with five product lines:  Full risk managed care plans  Management and administrative services (non-risk)  Pharmacy benefit management program  Care coordination programs  Managed behavioral health services

Product Lines Approximately 40,000 ABD members in Indiana Medicaid “Care Select” FFS Program 111,795 Members 2.4 million members served nationwide 140,646 Members 196,910 Members 4,136,009 members served in 10 contracts nationwide 631,611 members served in contracts with health plan and provider organizations Full Risk Contracts Behavioral Health Managed Care 326,554 Members TPA Subcontracts Pharmacy Benefit Management Care Management

Current State: Pre-PPACA Environment  MCOs have full control  Formulary structure and content  Prior authorization criteria and process  Rebate contracting and administration  Resulted in rebates of approximately 9 to 10% of total drug spend or $5 to $6 PMPM  Robust pharmacy utilization management activities  Funded by rebate dollars  Pharmacy trend always well below national trend for Medicaid FFS and most commercial health plans

Effect of PPACA on Medicaid Pharmacy Programs Before PPACA:  5 year battle to fend off state pharmacy “carve-out” efforts  Primary arguments against “carve-out” - More effective UM programs - Equal or lower overall pharmacy trend - More comprehensive “coordination of care” efforts  Primary argument for “carve-out” -Lower rebates than states After PPACA:  PPACA legislation effectively eliminates state benefit of MCO pharmacy “carve-out” strategy

Capitated Managed Care Rx Carve-out by State Source: National Association of Medicaid State Directors and other sources

Best Case:  MCO retains formulary, utilization management (UM) and rebate contracting capabilities  Improves quality of care and contains cost Worst Case:  States implement statewide Medicaid formulary/PDL and prior authorization requirements  Undesirable since both clinical and financial outcomes will be negative Post–PPACA (Non Carve-Out States) Possible Outcomes

Post–PPACA (Carve-Out States) Best Case:  States continue with current carve-out strategy, effectively no change for MCOs or “carve” pharmacy “in” to MCOs with rebates Worst Case:  States reverse direction and “carve-in” pharmacy benefit while returning responsibility for operational and administrative functions to MCO without proper funding or ability to provide appropriate clinical management Possible Outcomes

MCO Strategy: “Burning Platform”  In “carve-in” states: oppose any statewide formulary/PDL structure and drug utilization management requirements.  In “carve-out” states: encourage Medicaid directors to shift administrative, operational and clinical responsibilities for the management of pharmaceutical product to MCOs with proper funding and appropriate clinical oversight.  Ensure your PBM focuses on clinical management and controlling medical costs

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