Pharmacy – Fully Insured versus Self Funding HR CE Information HRCI: 382946 SHRM: 19-5WG27 Pharmacy – Fully Insured versus Self Funding Tulsa Employee Benefits Group March 21, 2019

1 Why Pharmacy Matters

Why Is Pharmacy So Important? Pharmacy represents about 25–35% of healthcare spending now Most frequently utilized benefit Pharmacy will be approximately 50% of healthcare spending by 2024 Pharmacy is the fastest growing portion of healthcare Top Concerns High inflation rates New high cost specialty drugs Inadequate utilization management

Extent of Compliance and Non-Adherence For Every 100 Prescriptions Written * * # The Centers for Disease Control estimates that almost half of everyone taking prescription drugs does so incorrectly. It leads to medical complications, decreased wellness, and expensive medical bills.  Patients who are non-compliant with their medication use are 17 percent more likely to wind up in the hospital. Non-adherence is the reason behind 30 to 50 percent of all treatment failures. * *Adherence #Compliance National Association of Chain Drug Stores Pharmacies: Improving Health, Reducing Costs. July 2010. Based on IMS Health data.

Intentional and Unintentional Reasons for Non-adherence Self Reported Reasons for Nonadherence Medication Adherence in America: A National Report 2013 ncpanet.org/pdf/reportcard/AdherenceReportCard_Abridged.pdf

Prescription Drug Flows

2 Pharmacy Carve Out

Key Questions Do you have visibility into your pharmacy arrangement? Do you have confidence your PBM contract is competitive? What is your pharmacy strategy; is it a problem or a solution? Can you speak to all pharmacy components as part of the overall healthcare discussion? How do you demonstrate value or ROI on pharmacy? How are you staying ahead of the pharmacy trend curve?

Employer Options Carve In Health plan administering the medical plan also provides the PBM contract Health carrier holds the PBM contract Lack of transparency Relationship with insurer; Rx managed “behind the scenes” Focus on medical One-Size-Fits-All Carve Out Plan sponsor contracts separately with health plan & PBM administrators Employer holds the PBM contract Transparent pricing Relationship directly with PBM Focus on pharmacy Customized plan

Employer Challenges with Pharmacy Benefits Pharmacy benefits are often neglected though they represent 25–35% of employer’s overall healthcare cost. lack of visibility Service Level Contract Complexity Employers don’t receive pharmacy contract during renewal process Contracts are often in place for years without evaluation or a market check Medical provider acting as pharmacy expert Standard pharmacy contracts without guaranteed discounts and service levels Pricing and terms dictated by administrator without explaining implications There is significant opportunity to negotiate contractual terms without reducing employee benefits

Argument Against Carving Out Integration

Carve Out Advantages Greater transparency on manufacturer rebates and drug purchase discounts Guaranteed discounts at the individual client level Fully auditable contract Flexibility in clinical initiatives Customizable pharmacy arrangement, aligned with employer’s culture and goals On average, clients save more than 25% in contract savings with an additional 5–10% with an enhanced clinical programs.

Review Contract & Drug Utilization Audit Financial Audit Clinical Review & Audit Contract Comparison Our line-by-line comparison shows how the group’s contract terms compare to other arrangements Detailed Pharmacy Claims Reprice We identify savings opportunities based on current pricing and rebates available in the market Low Clinical Value Medications See how high-cost, low value drugs are impacting the current plan Utilization Management We illustrate opportunities to improve efficiency and oversight of these strategies Claims Distribution Overview Find out how the group’s drug mix compares to industry averages Market Check See how the group’s contract and effective rates compare to some of the top contracts in the market High Dollar Claim Review Find out which high-cost brand medications are driving trend Disruption Report See how the group’s members and formulary would be impacted based on our findings and recommendations Manufacturer Assistance Programs We identify available funds to lower specialty drug costs for the plan and members

Estimated Range Savings % Additional Savings Opportunity from Optional Programs and Limited Network Estimated Range Savings % Limited Retail Network Limited Networks come in a range of options from slightly limited to narrow network options. 2.0% to 3.0% Value Formulary Narrow, Limited, or closed formulary that focuses on the most clinically appropriate and cost-effective brands and generics. Covers many disease states and offers aggressive savings for clients. 1.5% to 11.5% Mandatory Mail Mandatory Mail requires members to fill their long-term (maintenance) prescriptions by purchasing them exclusively through the PBM mail order channel. 2.0% to 5.0% Enhanced Maintenance Programs Enhanced Maintenance programs allow members to access 90 days' supply of their long-term (maintenance) prescriptions exclusively through the PBM designated mail channel and/or retail network. Members are required to pay the appropriate mail copay, and the group receives the benefit of the deeper mail discounts. 1.5% to 3.5% Generic Step Therapy Generic Step Therapy program requires a specific set of criteria be met before a specific brand drug is covered, options include: generic first or use of a brand on high performance formulary list. Specialty Trend Programs Specialty Program evaluating the appropriateness of drug therapy of Specialty medications according to evidence based guidelines - before initiation of therapy as well as on an on-going basis. 3.0% to 6.5% Specialty Step Therapy program designed for specific specialty drugs. 1.5% to 3.0% Exclusive Specialty Network allows groups to increase savings and management through an exclusive specialty pharmacy network. Savings were modeled based on historical claims and based on gross spend. 1.5% to 4.0% POTENTIAL SAVINGS 10% to 20+% After apples to apples – look at additional program level savings Specialty programs – Limited retail network – Generic Step Therapy prior to Brand use

HR CE Information HRCI: 382946 SHRM: 19-5WG27