1. Pharmacy Reimbursement Surviving and Thriving in the World of Prescription Benefit Managers Cindy Puffer RPh Managed Care Pharmacy Operations Manager Pharmacy Services May 29, 2014

2. Outline the Evolution of Drug Benefit Management Understanding Pharmacy Benefit Management (PBM) pricing Understanding PBM Relationships Opportunities to Improve Outcomes and Control Costs Learning Objectives

3. Institution Overview Engagement July 1, 2006 merger created Third largest higher education, public institution in Ohio Discovery Excellence in learning UT Mission: To Improve the Human Condition through: University of Toledo Medical Center University of Toledo

4. Unique Model Sitting on Both Sides of the House Copay incentives in place GPO pricing90 day supply Main Campus Outpatient Pharmacy 2 unions, AAUP and CWA 81% employee prescriptions filled HSC Outpatient Pharmacy 1 union AFSCME, 90.6% filled at UT Two UT Outpatient Pharmacies Fill 85% UT employee prescriptions

5. 1980’s PBM’s emerged as an industry Goal to administer prescription drug insurance benefits Interventions Drug interactions Limited DUR Transmitted claims electronically Managed a network of pharmacies Negotiated rebates for the first time Administered prescription drug cards Offered limited mail service fulfillment Evolution of PBMs

6. 1990’s PBM industry experienced significant growth Plan administration expansion HMO/Managed Care/Self-funded Expansion of rebates Aggressive mail order growth More clinical services DUR/Retrospective DUR/Interventions/Disease Management/ Drug interactions More competitive rebates Expansion of data offerings Mid 1990’s Pharmaceutical manufacturer involvement Eli Lilly and Bristol Myer Squibb purchased PBMs Goal of establishing greater presence in managed care arena Secure formulary status for their products

7. Early 2000 led to increased PBM competition PBMs began to offer enhanced clinical services Enhanced DUR review Enhanced prior authorization Clinical account management Increasingly sophisticated data driven strategies Consumer behavior modifications Provider data Enhanced member level data PBM mergers and acquisitions and consolidations Negotiate better discounts and rebates Lowered reimbursement for network pharmacies Lowered Rx benefit costs for clients Evolution of PBMs

8. Manages the reimbursement for prescription drugs for plan sponsors/adjudicates drug claims Consultation for benefit design Creates and maintains pharmacy retail networks Ongoing pharmaceutical manufacturers rebate programs Growth in specialty mail service Relational partnerships Evolution of PBMs - Today

9. Maintains a P&T committee and develops a national formulary Customized for individual plan Mailings to members when formulary changes Enhanced clinical programs Drug utilization review Disease management Prior authorizations Clinical programs Specialty pharmacy management Compliance and persistency programs Provider education Specialty clinical programs MTM program administration Evolution of PBMs Today

10. Reporting Capabilities Plan performance review Review and analyze of historical data Strategic planning Utilization trends Suggestions for plan optimization Suggestions for copay reengineering Adherence reporting MPR/PDC Synchronization programs Plan Administration Marketing ID cards Coordination of benefits Audits Evolution of PBMs – Today

11. PBM Terminology Plan Sponsor - sets the benefit design Employer Health plan Government plan Copayment Portion paid up by the member Can be set up to incentivize pharmacies Can lead to responsible behavior Dispensing Fee Payment made to the pharmacy in addition to ingredient cost Fee for services provided Pharmacist labor, cost of bottles, labels, etc.

12. PBM Terminology Administrative Fee Plan sponsor fees Per claim fee to cover cost of processing the claim and account management Typically 0.35 per claim Class of Trade Retail Group purchasing organization 340B Benefit Design Parameters by which the plan is set up Plan sponsor vs. Patient cost share Copayment vs. Coinsurance

13. Rebates Discounts negotiated from manufacturers Purported to be a benefit to the prospective plan sponsor Plan sponsor receives % of rebate or flat guaranteed amount per claim Payable to the plan sponsor PBM tricks to capture “lions share” of the rebate Rebate broken down into several categories Access to formulary– do not share Fees for marketing or other activates Not characterized as rebates Not shared with plan sponsor Performance – market share driven l PBM Terminology

14. Understanding PBM Pricing Three PBM Pricing Models Traditional Model No disclosure of fees Difficult to follow the funding sources Spread pricing in place Rebates are an important source of revenue Transparent Model PBM reveals information regarding revenue streams Transparent/Pass-thru model Administrative fee only revenue source for the PBM Revenue stream revealed Per claim or per member charge 100% rebates to the plan sponsor or no rebates No incentive to promote certain drugs for rebates Model used by University of Toledo

15. Understanding PBM Pricing Average Wholesale price/AWP Subject of lawsuits in 2007 with FDB and McKesson Gross inflation of AWP 2-4% Unreliable benchmark Actual Acquisition Cost / AAC Pharmacy actual cost of the drug Average Manufacturer Price/AMP Average Price paid to the manufacturer by wholesaler Price available to retail class of trade Reflective of discounts and price concession 79% AWP ( AWP-21%) Average Sales Price / ASP Estimated average acquisition cost Basis for payment from Medicare Part B transplant only 106% AWP

16. Understanding PBM Pricing Wholesale Acquisition Cost / WAC Not reflective of actual acquisition cost Not inclusive of discount or rebates MAC or maximum allowable cost Unit price established by the PBM for a multi source drug Developed for PBM clients May be amended from time to time PBMs sole discretion PBM can change the drugs it includes or excludes into MAC whenever it desires Specify maximum unit ingredient cost payable Create different MAC lists for different clients

17. Understanding PBM Pricing Contract Language Common contract formulas determining how plan sponsor is invoiced : Retail generic drugs invoiced at the lowest of: 1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP

18. Understanding PBM Pricing Strategies Used by PBMs To Increase Profits PBMs insert MAC into contract language Allowing PBM to define MAC Allowing PBM to manipulate MAC Include or exclude MAC when advantageous to PBM Change the drugs that are included or excluded Select price determined by the PBM Change the MAC list at any time

19. Exclude generics from MAC list Option one drops off U&C typically above AWP Plan sponsor is invoiced the generic drug at AWP-18% Pharmacy reimbursed at generic rate of AWP -70% Equivalent to a brand discount Robs client of generic savings Resulting in enormous profits for the PBM Retail generic drugs invoiced to the client at the lowest of: 1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

20. Includes a generic on MAC but PBM sets a MAC price that is weaker than AWP -18% MAC price now the lowest of the three alternatives PBM will invoice client at AWP-18% which is lower than AWP – 70% that they reimburse the pharmacy Retail generic drugs invoiced at the lowest of: 1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

21. The PBM can also select any MAC price it wants Includes the generic drug on the MAC list Selects MAC for which the product is not available to the pharmacy Can pick and choose a subset of generics to provide guaranteed reimbursement l Retail generic drugs invoiced at the lowest of: 1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

22. Balloon Strategies Squeeze one element of pricing matrix Another element “pops” out somewhere else Example lower admin fee = nonnegotiable dispensing fee Clinical Service Fees Prior Authorizations become higher Administrative fees for the Electronic transmission fees 0.35 Cost PBM 0.13 No fee for mail order Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

23. PMB Relationships The Role of the PBM in the Flow of Money Consumer Drugs dispensed $ Cost-sharing amount $ reimbursement for plan share $ Payment for drug and admin % of manufacturer rebates $ Real time billing for Rx Prescription drugs Negotiate Rebate $ Pharmacy Wholesaler Plan Sponsor Benefit design PBM Manufacturer Inventory transfer Contracting for rebates $

24. Plan Sponsor Perspective Demand full pricing disclosure Know the spread between plan pays and PBM reimbursement to the pharmacy Know the pricing model being utilized Transparency vs. Pass-thru Know your definitions Know charges for clinical services Indicate an “out clause” in contracts in case of any issues arise Opportunities to Improve Outcomes and Control Costs

25. Pharmacy Perspective – Student Health Insurance Get involved in the Student Health Insurance RFP committee Negotiate reimbursement rates for the pharmacy if this does not impact the premium AWP – 10% + $2.50 Negotiate reimbursement for pharmacist MTM Become MTM certified and utilize APPE students Pharmacist CPT codes 99605: Medication therapy management service(s) provided by a pharmacist, individual, new patient face-to-face 99606: 15 minutes, established patient 99607: Each additional 15 minutes $45.00 per 15 minute increment Opportunities to Improve Outcomes and Control Costs

26. Pharmacy Perspective – Student Health Insurance Know definitions Control MAC Set copays to incentivize students to your pharmacy Advocate for OC’s, acne, smoking cessation to be included in the plan Partner with PBM to offer specialized opportunities for students Sponsoring health fair, career day events etc Partner with a College of Pharmacy to be a part of a pharmacy residency program Continue outreach programs for students Continue to hire students when possible Engage on University committees Partner with affiliate to obtain GPO pricing Opportunities to Improve Outcomes and Control Costs

27. Pharmacy Perspective - Employee Benefit Partner with HR to offer a cost saving model for employee prescription benefits Educate HR on the plan design and rebates Prepare a business plan demonstrating cost saving Partner with academic medical center to engage in affiliate agreement for discounted pricing Engage in copay re-engineering project to demonstrate cost savings Use a portion of the savings for staffing

28. Incentivize employees to utilize in-house pharmacy UT 1.5 million in savings 2013 Push envelope on clinical programs and IT capabilities Gaps in Care Synchronization Programs Adherence program Specialty medication pharmacy Negotiate better reimbursement rates for your pharmacy Pass-thru transparent model – no rebates Opportunities to Improve Outcomes and Control Costs

29. Medicaid Union Health Plans Employer Drug Manufacturer Rebates Clinical Tools Drug Utilization Review Member Web Portal Prior Authorization Member Help Desk Formulary Services Pharmacy Network Long- Term Care Medicare Knowledgeable Pharmacy and Plan Sponsor Teams Opportunities to Improve Outcomes And Control Costs PBM Partnerships

30. Questions Cindy Puffer RPh Managed Care Pharmacy Operations University of Toledo Medical Center 3000 Arlington Avenue Toledo Ohio 43614 419-383-6668