Laurie Forrester, PharmD April 19, 2006

1. Current Status and Future Outlook for Long Term Care Under Medicare Part D Laurie Forrester, PharmD April 19, 2006 A Presentation for the Medicaid Health Plans of America

2. Don’t let this happen to you!

3. Today’s Agenda • Long term care (LTC) environment • Medicare D in LTC • The first 100 days: implementation challenges • What lies ahead • 2007 strategic considerations • Future Vision

4. Long Term Care Environment

5. Long-Term Care Market Total 2.9 million beds ALF & Alternate Care 1.2 M beds LTC SNF 1.7 M beds

6. Institutional Pharmacy: Annual Expenditures LTC spend is more than double the ALF spend $ in billions Source: IMS data, company reports, and Warburg Dillon Read LLC estimates

7. Influencing Factors: ALFs vs SNFs Assisted Living Facilities - Growing Market • ALFs are generally unregulated by the states • Increasing level of services provided by ALFs • Elders with higher incomes choose ALFs Skilled Nursing Facilities - Flat Market • SNFs are highly regulated at the state and federal level • CMS defined as INSTITUTIONALIZED • Up to 75% of SNF residents will be Dual Eligible beneficiaries - low paying/ 2.5 year stays/ high # of co-morbid conditions

8. PDP Enrollment: What’s Known at This Point…

9. Institutional Care Settings CMS requires adequate LTC Pharmacy Network coverage for all institutional care facilities: • Skilled Nursing Facilities • Assisted Living Facilities (wavier beds only) • Correctional Facilities • Mental Health/ Mental Retardation • Group Homes • Hospice

10. Influencing Factors: ALFs vs SNFs • Medicare Part D impacted both but SNF residents qualify for Special Enrollment Period (SEP) and ALFs do NOT • Relatively few Low Income Subsidy or Dual Eligible in the ALFs; most ALF residents are full premium and co-pay • Residents in both may have Medicare Part B and Part Dbut the coverage rules are different: • ALF residents have infusion therapy and nebulized medications covered under Part B • In the SNF, infusion therapy and nebulized meds are covered under Part D

11. LTC Residents Average LTC resident is: • Female > Male • 83 years old • 6 or more comorbidities • On 10 scheduled meds •  renal & liver function,  ADRs • Seen by Physician ~ every 1.3 mo. • Average stay 2 ½ years Continuity of care and consistency of drug regimen is critical. American Society of Consultant Pharmacists 2004 American Medical Directors Association 2004

12. LTC Pharmacy: CMS Service and Performance Standards • Services Offered by: • Comprehensive Inventory of LTC Meds • Pharmacy Ops and Rx Orders –DUR & • Cost Containment • Special Packaging • I.V. meds and I.V. nutritional therapies • Compounding Alternative Formulations • Pharmacists and nurses available • 24 hrs/ day, 365 days/ year • Delivery service available 24 hrs/ day • Emergency Boxes ( E-kits) • E-kit Log Books • Miscellaneous Reports & Forms Retail           Hospital          +/- LTC           CMS Long Term Care Guidance. March 16, 2005

13. LTC Pharmacy: Additional Standard Service and Performance Offerings • Services Offered by: • Consultant Pharmacists to provide on-site chart review (DRR), inspections and written reports as required by law OBRA 90 • Inservice and educational programs • Participation on facility Quality Assurance & Case Management teams • Medicare Part A “Senior Safe” Formulary development and management for care assurance and cost containment Retail     Hospital   +/-  LTC     LTC Pharmacy Alliance 2005

14. LTC Pharmacy Performance & Service Criteria • CMS performance and service criteria are minimum requirements for a network LTC pharmacy. • Payment to LTC pharmacies under Part D only covers drug ingredient costs and dispensing fees as defined in the final regulations (42 CFR § 423.100). • The LTC service elements, except for drug cost, are legitimate costs to reflect in the dispensing fee. • KEY POINT • Specialized drug administration services provided after drugs are dispensed and delivered from the LTC pharmacy, are NOT covered by the Part D benefit; • This means IV pumps and supplies are NOT paid for by Part D and not covered under Part B the LTC Pharmacy or SNF must pay; may be covered by some state Medicaid wrap-around CMS Long Term Care Guidance. March 16, 2005

15. LTC Pharmacy Chains • Top 3 LTC Pharmacy Providers service nearly 2/3 of market • Smaller Pharmacies are supplied by LTC GPOs • - MHA, GeriMed, Innovatix Source: IMS and Company web-sites

16. PDPs and LTC Pharmacy Network Strategies to Effectively build a LTC Pharmacy Network • Look to the 3 large chains and 3 LTC GPOs Strategies to build an Effective LTC Pharmacy Network, especially MAPDs and SNPs Look to LTC Pharmacy Providers that can assist with: • Formulary compliance communications • Provider education • Call enters and E-fax capabilities • Implement Blanket Authorization • Utilize LTC Consultant Pharmacist but monitor patient outcomes

17. The First 100 Days: Implementation Challenges

18. Not without problems…..

19. January 1 – D-Day! - LTC Experience • Week 1: E1 queries returning info on 30-50% • Means 50% to 70% of Rxs PENDING • DE claims returning with deductibles and co-pays • PDPs/ MAPDs not recognizing • Beneficiary or Pharmacy • WellPoint emergency POS enrollment used broadly • Retail: some duals leaving pharmacy without meds • LTC: all meds must be delivered; pharmacy on the hook financially Used with permission PharMerica & Beverly, 2006

20. Inquiry Volumes to E1 System Source: Testimony of CMS Administrator McClellan to the Senate Finance Committee, February 8, 2006.

21. February 28th - 60 Days • E1 queries responses up to about 90% to 95% • Means 5% - 10% of Rxs Pending • Most state Medicaids covering excluded meds, some non-formulary, and duals without an identifiable plan so 5% of these paid • Some Plans not providing CMS recommended transition (14 to 30 days) and Part D (B) meds coverage for SNFs • Plans inconsistent in use of patient locator codes (identifying the LTC) results in inappropriately charged deductibles, co-pays and B/D coverage • LTC pharmacies still dispensing some meds with still no identified payor • Blende

22. April 10th- 100 Days • CMS recommended initial transition period over March 31st • CMS reiterated to continue 30 day transition period • E1 queries responses still about 90% to 95% • 6 states identified as continuing coverage for excluded meds, some non-formulary, & duals without identifiable plan • Pharmacies completing Prior Authorization and Appeal forms for physicians – sending to MDs for additional information and signature • 15% of forms completed and submitted by physicians • Rather are defaulting to formulary meds • Physician’s complaint – even if sub-optimal therapy they get no reimbursement for management of pharmacotherapy

23. Med D Formularies Full impact of formularies not yet known; what we know now: • Some entire classes of drugs require Prior Authorization (PA) or other administrative burden • E.g. Influenza, Alzheimer's, & injectable meds • IN LTC, Physician and medical records separated • PDPs/ MAPDs all differ in processes, notices & forms • Some formularies “promote” less expensive but potentially inappropriate generic or “Beers List” meds

24. Rebates To LTC Pharmacies • CMS issued Q&A in November 2005 • Felt rebates to LTC pharmacies contrary to spirit of Medicare law requiring management of formularies by plans • Driving to higher tiered products because of rebates could raise overall price of Rx benefit • Model is to report ALL price concessions in plans’ bid, including LTC • Referred to concern about anti-kickback statute • Issue likely to be considered further in 2006 Source: CMS Part D Q&A #6326 & 6688 on CMS/ rebates/ LTC pharmacies, Nov. 28, 2005 & Feb. 13, 2006; LTCPA to CMS on rebate disclosure, Dec. 5, 2005.

25. Implementation Challenges in LTC • Cleaning up the duals mess pronto • Payer/ state/ CMS reconciliations will take months • Preparing for the next “tsunamis” • Coverage gap for non-duals – receiving payment • Managing operational effects of lock-in • Does not apply to LTC due to SEPs but does allpy to ALF • LTC pharmacy and home infusion B vs D – coverage mess to figure out • For MAPDs/ SNPs: mastering risk adjustment before 2007

26. What Lies Ahead

27. 2007 to USP Formulary Model : LTC Implications • Restructures therapeutic category and classes; total number changed from 146 to 133 (-13) • Two “anti-dementia” classes combined into one- could restrict access to appropriate meds • Two classes have two different MOAs • Expansion of GI agents to ensure access to medications with differing MOAs

28. 2007 Strategic Considerations - LTC • Sponsors will be facing end of aggregate reinsurance • Sponsors will be ratcheting-up control mechanisms due to decreased risk share • Step Therapy, Prior Authorization, Quantity Limits, Strict Formularies • Will evidence-based practices dictate preferred drugs or tier placement in a therapeutic class? • Administrative burden on MDs for PAs & Appeals;  role for LTC pharmacies limited by legislation

29. LTC Resident Part D Assistance Act • Sponsored by Sen. Chuck Schumer (D-NY) • Provides additional protections for LTC beneficiaries • Requires dedicated phone line at plans for LTC staff • Permits “facilitated” enrollment into plans rather than auto-assignment • Reimburses LTC facilities for costs incurred for prescription coverage, enrollment assistance, and appeals process

30. Convergence of Health PoliciesCreate Opportunities for MA- SNPs Lock-In Exemptions • Special Needs Plans: • Sub-set or MA PDs • Chronic Care • Dual Eligibles • Institutionalized SNPs Part D Auto-Enroll of Duals Medicaid- Managed Care Risk Adjustment

31. 2007 Strategic Considerations - Plans • Movement into Special Needs Plans (SNPs) • Plans getting 100% Risk Adjustment will be marketing to increase enrollment • SNP-eligibles – have no lock-out period, can change plans anytime • Medicaid reforms will move A/B/D populations to mandatory managed care plans; • Managed LTC may become popular

32. Looking Forward for Plans • Market Pressures • “Roadkill” and consolidation inevitable • Moving system toward “value-based” program • Better data on outcomes and quality • Pay for performance -- quality indicators • Integrating true disease management and MTMP • Plan education to direct prescriber decision-making • Required investment in e-prescribing

33. Conclusions • Tectonic shift and major challenges for LTC and PBMs in particular • Trends to continue, intensify in 2007 • “Road-kill” expected in the Plan market as plans begins to consolidate even as late entrants join • Unexpected “road-kill” possible in the LTC Pharmacy market – depending on payments for non-covered meds • Migration from PDPs  MA-PDs  SNPs for many duals • LTC facility providers interested in implementing LTC-SNP model as demonstrated by Evercare; probable 2008 before plans in place

34. How to Reach Us Gorman Health Group, LLC Washington, DC Headquarters (202) 364-8283 Laurie P. Forrester, PharmD 214-987-2002 lforrester@gormanhealthgroup.com

35. Competitive Landscape:PDPs 2006

36. Impact of Dual Assignments on PDPs Source: Lehman Brothers and GHG Analysis, September 2005.