Pulling Back the Curtain on PBMs

1. Pulling Back the Curtainon PBMs LeAnn C. Boyd, PharmD, CEO leann.boyd@southernscripts.net

2. Pulling in the Same Direction? “Relatively few employers believe the goals of their PBMs strongly align with their own goals for managing employee health, productivity and costs.” ~TBV *TBV throughout this presentation refers to: National Pharmaceutical Council. Toward Better Value, http://www.npcnow.org/system/files/research/download/npc-employer-pbm-survey-final.pdf, accessed 11/15/2017.

3. PBM Types & Buzz Words ….that current pharmacy benefit management models lack transparency and are overly complicated. ~TBV Transparency & Pass-Through are not the same. TraditionalPBM retains anetwork spread and some or all of the rebates as compensation Pass-ThroughPBM charges clientthe exact amount it pays pharmacies.PBMis compensated with an agreed upon fee for service 85% of the market

4. PBM Market 70% of all prescription claims processed by “Big 3”. PBM Market Share, Drug Channels, http://www.drugchannels.net/2017/12/the-cvs-aetna-deal-five-industry-and.html, accessed 12/5/2017

5. Quote from Toward Better Value Survey: Notably, just 19 percent of respondents…..understand exactly how their PBM makes money for the services provided to their organizations. ~TBV Toward Better Value, National Pharmaceutical Council, http://www.npcnow.org/system/files/research/download/npc-employer-pbm-survey-final.pdf, accessed 11/15/2017

6. How PBMs Make Money TRADITIONAL MODEL • Spread • Reclassify Generics as Brands • Switch NDCs • Clawbacks • Backdoor Fees • Zero Balance Due Claims • “Guaranteed” Discounts • “Sharing” Rebates • Secret “Other Monies” • Excluding certain Brands or Specialty • Waived Copays • Refill Creep • Package Size Billing • Repackaging • Waste PASS-THROUGH MODEL 100% Adapted from information credited to George Hill | (+1) 212 250-2177 | george.hill@db.com February 24, 2016

7. PBM Profit Levers TRADITIONAL MODEL PASS-THROUGH MODEL Admin Fees Quote from Toward Better Value Survey:

8. Mail Order Profiteering PACKAGE SIZE REPACKAGE REFILL CREEP STEERING Biggest PBM profit center – the “crown jewel” of the PBM. Acting as Administrator & Seller.

9. Mail Order Waste *These are actual images sent by participating pharmacies in the Dispose My Meds Program. Patient information has been removed or obscured to comply with all applicable laws protecting personal health information.

10. Discount Profiteering ZBDs SPREAD SWITCH RECLASSIFY DISCOUNTS DOLLARS Manipulation inflates “discounts” to increase PBM profits which increase costs.

11. Caution: “Guaranteed” Discount “Guaranteed” Discounts gives a PBM “Guaranteed” Revenue Pass-Through Discount PBM Spread $$$$ Guaranteed Discount Traditional PBMs keep over-performance savings on their guarantees.

12. Clawbacks & Backdoor Fees NEGATIVE REMITS NETWORK ACCESS PERFORMANCE FEES DIRs Clawback – the recovery of money already disbursed “They are a form of extortion but if we don’t pay, we are out of a PBM network.” ~Ted Okon, Community Oncology Alliance Executive DIrector

13. Rebate Profiteering RECLASSIFY STEERING TYPES CHERRY PICK The risk to employers in focusing too strongly on rebates is that it acts as a distraction, taking attention away from other important factors that can have profound impacts on the value they get in return for the money spent providing prescription drug benefits to their employees... ~TBV

14. Rebate Profiteering Secret “Other Monies”Admin Fees & Price Protection Rebates Price increased by Manufacturer  Rebate Increases Formulary Rebates ONLY ones paid to client ~6.9% passed-through to the client – PBM retained the rest (over $8.7M). Notable percentages express skepticism about the helpfulness of rebates in achieving and aligned and effective health care supply chain. ~TBV https://www.propublica.org/documents/item/3762086-Express-Scripts-vs-Kaleo.html

15. Prescription Economics Prescription with an AWP of $360: The “typical” PBM generates: $3.00 Retail Network Spead $9.00 Retained Rebate $6.00 Retained Admin Fee $18.00 Total Per Script Revenue In an environment in which transparency and complexity are such common challenges, it’s not easy for employers to get good value for money spent on prescription drug benefits for their employees. ~TBV http://www.drugchannelsinstitute.com/files/Drug_Channel_Economics-Pembroke-August2017.pdf

16. Employers Believe… Toward Better Value, National Pharmaceutical Council, http://www.npcnow.org/system/files/research/download/npc-employer-pbm-survey-final.pdf, accessed 11/15/2017

17. What Employers Want Toward Better Value, National Pharmaceutical Council, http://www.npcnow.org/system/files/research/download/npc-employer-pbm-survey-final.pdf, accessed 11/15/2017

18. Take Home Messages from TBV • The problem faced by most employers is that, while they are concerned about a lack of transparency, they are confused and intimidated by the sheer complexity of the prevailing PBM models… • A trust gap exists between employers and their pharmacy benefit vendors. Only about a third of respondents rated their PBM vendors as trustworthy… • The data reveal large gaps between the percentage of employers who rate key service elements as very important and the percentage who rate the performance of their PBM in delivery of those services as very good. • The issues of pharmacy benefit transparency, complexity and rebates repeatedly surface as concerns among employers. • In an environment in which transparency and complexity are such common challenges, it’s not easy for employers to get good value for money spent on prescription drug benefits for their employees. • In summary, the research demonstrated that a large majority of employers value the functions performed by their PBM. However, employers share concerns about alignment, trustworthiness and overall satisfaction with their PBM vendors. Toward Better Value, National Pharmaceutical Council, http://www.npcnow.org/system/files/research/download/npc-employer-pbm-survey-final.pdf, accessed 11/15/2017

19. Pulling Back the Curtainon PBMs LeAnn C. Boyd, PharmD, CEO leann.boyd@southernscripts.net