1 Michigan Purchasers Health Alliance Annual Fall Kickoff U-M Drug Carve-out – Greater Plan Sponsor Involvement in Drug Benefit Management September 20, 2007 Keith Bruhnsen, MSW Assistant Director, Benefits Office Manager, Prescription Drug Plan

2 Presentation Topics University of Michigan Facts U-M Prescription Drug Carve-Out Plan Design PBM Selection Effective Controls and Innovative Practices Focus on Diabetes Focus on Medicines U-M Results

3 As a Employer: 34,800 employees & 6400 retiree contracts 80,00 covered lives 7 Unions (25% of actives) 2006 health care cost $233M (25% Rx) As a Provider: 4 pharmacy’s (1/2 of drug plan scripts) Coordinated effort with prescribers & hospital committees U-M Facts

4 U-M Prescription Drug History Pre % Rx trend rates Inadequate rx data from health vendors Minimal rx programming Inconsistent coverage Study the problem & propose solutions

Prescription Drug Work Group Recommended: Self-funded & self-administered carve-out operational structure Create an equitable co-pay structure Harmonize drug plan coverage Utilize campus expertise Improve physician and patient education 1/1/03 Consolidated Plan Implemented

6 U-M Plan Design Rich plan design, low member out-of-pocket cost ($7 - $14 - $24) Maintain open formulary of available drugs with standard exclusions (cosmetic, experimental) Added coverage for psychiatric drugs; oral contraceptives/devices; smoking cessation; $0 co-pay insulin/needles/test strips/lancets, prenatal vitamins; $5,000 fertility lifetime benefit Mail-order pharmacy (90-day retail max, 90-day option for mail order supplies at 2x co-pay) Annual Out-of-Pocket max “safety net”: $2,500 individual and $5,000 family 75% refill limit

RFP PBM Selection 2006 Selecting Transparent Vendor Plan design flexibility Claims data access Unbundled services Improved Pricing  Per transaction basis  100% pass-through  100% rebates  Good MAC Medicare Part-D Employer Subsidy Research opportunities Innovative partner Ease of doing business (coding )

8 Operations Benefits Office Administrative, financial and clinical oversight Pharmacy Benefit Oversight Committee Broad representation, advisory Endorse review of new drugs Review financials, customer issues, new programs Address member communication and privacy Pharmacy Benefit Advisory Committee (P&T) Small monthly work group of MD’s and pharmacist Review new drugs, formulary, PDL, programs Monitor utilization, design PA criteria

9 Key Strategies Manage toward lowest net cost based on evidence based medicine Adjust plan design to goals, sensitivity to member disruption, and more consumer involvement Manage rebate game - rebates diminish with generic releases and increased specialty Rx spending Future savings are in managing “appropriate use” - utilization, overuse, waste, abuse, and off-label prescribing Demand accountability: audit claims, system set up, and rebates Continually educate plan members on plan rationale and individual opportunities

10 Plan Design Initiatives Benefit Limitations on Supplies and Quantities –Limits on Fertility, ED, Smoking Cessation and Weight Loss Plan Exclusions –Standard (cosmetic, anorexiants, etc) –Non-coverage of Rx drugs with OTC alt/equivalents FDA Approved Dosing Limits (maximum daily doses) Manage Out-of-Network & Compound Claims

11 Pharmacy Program Intervention Matrix

12 U-M Rx Plan Cost History YearAnnual Plan Cost PMPYPlan ShareMember Share 2000$33M82%18% 2001$36M *78%22% 2002$42M79%21% 2003$43.4M **81.5%18.5% ($9.8M) 2004$49.4M12.6%82.1%17.9% ($10.7M) 2005$55.7M11.3%83%17% ($11.4M) 2006$58.3M3.4%83.3%16.7% ($11.7M) * = Copay changed from $5/$10 to $7/$14 ** = Added 3 rd Non-Preferred Tier at $24

13 U-M Health Plan Rates and Prescription Drug Plan Premiums Annual Percentage Change in Health Plan Rates: Health (Medical & Rx):14.90%5.00%5.40%8.9% Prescription18.80%-3.30%-6.40% 0.00% Medical13.70%7.70%9.00% 11.02% Monthly Prescription Drug Rates: Health Plan Coverage Levels One Person$71.58$66.58$63.92 $63.92 Two Person$136.72$133.16$ Three or More Person$159.64$187.76$180.26

14 UM RX Trend in Comparison to National Averages

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17 U-M 2006 Financials, 2007 Metrics FINANCIALS Transparent vendor = $4.5M 4.35% increased GDR = $2M cost avoidance Pill Splitting = $195k Plan, $25k Members 340B Pricing = $512k DAW1 = $130K (93 members) Smart PA’s = 17% reduction in PA request Medicare Part-D Subsidy = $3.5M Focus on Diabetes cost $200K (6 mths) 2Q 2007 Metrics Tier 1 generics = 62% Tier 2 preferred brands = 25% Tier 3 non-pref brands = 13% Mail Order Utilization = 8.4% 90 retail = 8.9% Generic sub. rate = 97% Percent generic adjudicated at MAC = 87% 2006 UM Plan $ inc. = 5.77% (2007 projected = 5.1%) 2006 PMPY $ Inc. = 3.64%

18 Research and Other Initiatives Tablet Splitting – half price financial incentives to patient College of Pharmacy: Retail Pharmacy Safety & Customer Satisfaction Survey, Whitepapers Injectable Pilot Program using hospital public health service pricing (340B) Statin & PPI Switch Program with UMHHC MHealthy: Focus on Diabetes MHealthy: Focus on Medicines

19 MHealthy: Focus on Diabetes Substantial medication underutilization and adherence (40-60%) 2,227 UM employees with diabetes mellitus 2,631 members benefiting Diet controlled may opt-in Copays: generics $0, brands -50%, non-pref. -25% Provide copay reduction for: –Glycemic agents –Antihyperlipemics (statins, fibrates, etc) –All antihypertensives (ACE, ARB, diuretics, etc) –Calcium Channel Blockers –Beta-Blockers –Antidepressants

20 Focus on Diabetes – cont. Outcome Measures –Adherence – based on pharmacy claims –Medication and total health care spending Plan Cost: $400,000/yr Member Copay Relief: Avg $152.89/yr Decrease in pill splitting side effect

21 MHealthy: Focus on Medicines 3000 employee & retirees with 9+ medications in past 120 days (review OTC, supplemental) Goals to improve health, identify safety concerns, contain cost, and optimize members therapy EOB with history, plan/member cost and savings opportunities: preferred brand, generic, or pill splitting Three study groups: 1)EOB suggestion to consult with physicians 2)EOB + offer of pharmacist phone consultation 3)EOB + letter offer for face-to-face consultation with pharmacist and review of medical record Identify areas for future expansion

22 Summary Competing interest in PBM’s profitability & employer cost Carve-out can control drug spending Employer must invest resources for returns Innovative designs can manage use and shape behavior There are vendors eager to work in a culture of innovation UM Benefits Office: Questions: