Pharmaceutical Coalition Transparency in Pharmaceutical Purchasing Solutions (TIPPS) Initiative

1. Pharmaceutical CoalitionTransparency in Pharmaceutical Purchasing Solutions (TIPPS) Initiative May 2008

2. The Challenge • Pharmacy Benefit Managers (PBMs) rely heavily on “indirect” revenue streams to support their business model • PBMs can mark-up drug prices (they “buy low” from pharma manufacturers, then “sell high” to employers) • PBMs can retain drug rebates and other pharma credits, sometimes over 7% of actual drug costs • PBM revenue vastly exceeds the typical administrative fee that employers pay them

3. The Challenge • Traditional contracts are convoluted and complicated, difficult for employers to understand how PBMs earn revenue • potential conflicts of interest exist • PBMs may steer a patient towards a more expensive therapy if it results in higher rebate revenue for them • PBMs may encourage a patient to use an unnecessary drug if PBM could earn a “mark-up” profit on that drug

4. The Long Term Solution • Move the industry to a “cost-plus” or “transparent” business model • move PBMs away from all indirect revenue streams • ensure that PBMs “pass-through” their negotiated discounts and rebates to employers • allow PBMs to earn revenue through a full and fair administrative fee • remove potential for PBM conflicts of interest • drive more competitive employer pricing – and better health management – through transparency

5. The Solution Takes Shape • Pharmaceutical Coalition formed in 2004 • Includes almost 60 employers, chaired by Sidney C. Banwart, VP Human Services Division at Caterpillar Inc. • Coalition’s goal is to promote a truly transparent or cost-plus business model for PBMs and employers

6. The Solution Takes Shape • Coalition started the Transparency In Pharmaceutical Purchasing Solutions (TIPPS) Initiative: • evaluates the financial transparency of all major PBMs • TIPPS Certifications are issued annually to endorse those PBMs that demonstrate true transparency • Powerful tool to educate employers and facilitate negotiations with PBMs • Raises bar and creates accountability for PBMs • Enables PBMs to publicly demonstrate commitment to transparency

7. Pharmaceutical Coalition Members

8. Response to Coalition’s TIPPS Initiative • PBMs offering greater transparency, more competitive pricing on traditional arrangements • At least seven Coalition companies have transitioned to TIPPS arrangements • 12 or more employers currently evaluating TIPPS arrangements • More evaluations anticipated for Q2-Q4 2008

9. Current Certified PBMs • In 2005, only 3 PBMs met TIPPS certification • By 2008, 13 PBMs became TIPPS-certified:

10. Washington Post Ad Sponsored by HR Policy

11. Wall Street Journal Ad by Aetna Announcing TIPPS Certification

12. Exploring TIPPS for Your Company • Steps for clients interested in learning more: • Confirm up-to-date membership in the Hr-Policy Association’s TIPPS initiative (mmilton@hrpolicy.org) • Contact the TIPPS consulting partner, Hewitt Associates (joshua.golden@hewitt.com), to begin the TIPPS evaluation process • Process will include a financial comparison of current PBM arrangement vs. one or more TIPPS proposals • Evaluation typically takes approximately 6 weeks to complete • Can drive significant savings for employers, and improves the transparency of the PBM relationship

13. For More Information… • HR Policy AssociationPharmaceutical Coalition Executive Director:Marisa MiltonMMilton@hrpolicy.org202-789-8671 • Hewitt’s TIPPS Project Manager:Joshua Goldenjoshua.golden@hewitt.com404-862-3605