Managing Drug Costs in Workers’ Compensation Artemis Emslie President, myMatrixx

© 2012 myMatrixx. All rights reserved. Agenda  Industry overview  PBM Background  Pricing Benchmarks  Cost Drivers  WC PBM Programs to Manage Costs  Monitoring Plan Performance  Hot Topics  Legislative Update  Summary © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Pharmacy Landscape 2011 Total Rx spend approx. $319 billion. – Growth in Dollars = 3.7% – Growth in Transactions = less than 1% Moderate growth in dollars due to generics. —Brand name losing patents and more generics in market. Other growth factors include: – Lack of introduction of new drugs. – OTC conversions. Source IMS © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Pharmacy Landscape, cont. Market Update Deals – ESI – Medco – SXC – HealthTrans and Catalyst (Walgreens) – Private Equity – PMSI and Progressive – ESI – MSC Healthplans are spinning off in-house PBM's Impact to Stakeholders – Network – System integration © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. PBM Background PBM Manufacturer (Sets AWP) Wholesaler Pharmacy Network/ Mail Order Claimant/ Patient Physician Dispensing Model Revenue Streams - Difference btw Payer contract & Pharmacy contract - Rebates paid to PBM for market share - Clinical programs National Drug Code – NDC Manufacturer, drug name and quality Data Warehouse - MediSpan - First Databank Optimal Data Exchange - Patient utilization – Payer - Physician Report - PPO Managed Care DoctorPayer © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Pricing Benchmarks Provide a guideline for multiple data points and stakeholders – AWP – Average Wholesale Price – AAC – Average Acquisition Cost – NADAC – National Average Drug Acquisition Cost – RSP – Retail Survey Price – WAC – Wholesale Acquisition Cost – ASP – Average Sale Price Challenges —Time needed to adjust processes —Maintenance and data —Contracts —Legislation —Business planning - transitions

© 2012 myMatrixx. All rights reserved. Cost Drivers Increased numbers of prescriptions per claim. Narcotic usage. Increasing wholesale medication costs. Newer, more expensive drugs. Off label use. Continued growth of senior demographic as a percentage of the workforce. Increasing severity of workplace injuries. Long tail of drug coverage in workers’ compensation. Direct-to-consumer advertising. Physician Dispensing. Drug Testing. © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. WC PBM Programs to Manage Costs Network compliance/Network penetration – Third Party Billers/Paper Bills – Claimant Communication – Card Usage Utilization Management (prospective, concurrent and retrospective) Prior Auth Programs Mail Order Data Management Tools Clinical Programs – Step Therapy, Physician Outreach Pharmacy Review – Formulary Management – Generic conversion © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Monitoring Plan Performance Plan Information Audit contract term Complex plan coverage documentation Actual Rx Claims Data Utilize both paid claim data and copies of invoices. Financial Review Module Review claims for outliers: AWP Discounts Ingredient cost calculations Administration fees Dispensing fees AWP Neutrality Adjustment Applicable state sales taxes State Fee Schedule Plan Benefit Review Module Review claims for errors from incorrect application of plan rules: Injured worker eligibility Drug coverage – first fill & injury-specific formularies Pharmacy/injured workers’ billings High use of controlled substances Review of utilization management Review prior auth process Review for duplicate claims Other customized edits DAW codes Generic efficiency © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Hot Topics Physician Dispensing – Several states are addressing and considering legislation. National Trends in Opioids* – Studies have shown narcotic prescriptions are increasing, which may lead to more abuse in workers’ comp. – Doctors may be over treating injured workers with more, and stronger, narcotics than necessary. Compounding** – In the next five years, a growing number of doctors and patients will likely turn to compounding pharmacies to prepare medications. – Due to growing number of senior citizens who require alternate doses and strengths. – Also due to increasing number of mass manufactured drugs in short supply. Bath Salts – Synthetic Stimulant – Also sold as plant food – Banned in several states including FL, AL, GA, TN *May, 2012 National Safety Council’s magazine, “Safety + Health”, article “Injured and addicted?” **Compounding Pharmacies in the US: Market Research Report, May 2012, IBISWorld. © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Legislation Update Physician Dispensing – In Florida regulators declined, for a third year, to place into law rules and regulations banning the ability to charge the increased price of a repackaged medication. – California, South Carolina and Oklahoma have made considerable changes to close the gap. – States to soon review this are Illinois and Hawaii. AWP migration – California continues to review options for change to AAC or WAC. – Most likely to be held up for months if not years due to the large endeavor involved. – No standard is being considered nationally. © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Legislative Update, cont. Risk Evaluation and Mitigation Strategy (REMS) – The Food and Drug Administration Amendments Act of 2007 gave FDA the authority to require a REMS from manufacturers to ensure that the benefits of a drug or biological product outweigh its risks. – FDA experts indicate extended-release and long-acting opioids are extensively misprescribed, misused and abused, leading to overdoses, addiction and even death in the US. – Blueprint for Prescriber Continuing Education Program for extended-release (ER) and long-acting (LA) opioids introduced. © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Summary Numerous challenges exist to setting Pricing Benchmarks. PBM’s challenged with Network Penetration and Clinical Oversight. Success of a PBM = Managing Costs Proactively – Key factors to success include Network Pricing Network Compliance Legislation Physician Dispensing Opioids Analyze ongoing performance of PBM to create process and improvements to program —Review Plan Information – contract terms —Utilize Actual Rx Claims Data © 2012 myMatrixx. Do Not Distribute.

© 2012 myMatrixx. All rights reserved. Questions? Artemis Emslie © 2012 myMatrixx. Do Not Distribute.