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Pharmaceutical CoalitionPharmaceutical CoalitionTransparency in Pharmaceutical Transparency in Pharmaceutical

Purchasing Solutions (TIPPS) Purchasing Solutions (TIPPS) InitiativeInitiative

May 2008May 2008

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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

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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

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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

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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

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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

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Affiliated Computer Services, Inc. General Mills, Inc. PepsiCo, Inc.ALCOA Inc. Georgia Pacific PPG Industries, Inc.Armstrong World Industries Guardian Industries Corp. Prudential Financial, Inc.AT&T Inc. HCA Inc. Quest Diagnostics IncorporatedBAE Systems Hewitt Associates LLC Rolls-Royce North America Inc.Caterpillar Inc. Hilton Hotels Corporation Shell Oil CompanyCox Enterprises, Inc. The Home Depot, USA Inc. Sodexho, Inc.DTE Energy Honeywell International Inc. Starbucks Coffee CompanyEaton Corporation IBM Corporation Sunoco, Inc.EMC Corporation International Paper Company Swift Transportation Co., Inc.Emerson Electric Co. Johnson Controls, Inc. Texas Instruments IncorporatedExelon Corporation KeyCorp TXU Business ServicesFederal-Mogul Corporation Lowe’s Companies, Inc. United Technologies Corp.First Data Corporation Maersk, Inc. University of Missouri SystemFMC Corporation Marathon Petroleum Company LLC Verizon CommunicationsFMC Technologies McDonald’s Corporation Verizon WirelessFord Motor Company Motorola, Inc. The Walt Disney Company

FPL Group, Inc. Northrop Grumman Corporation

General Dynamics Corporation Northwestern Mutual

Pharmaceutical Coalition Members

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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

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Current Certified PBMs

In 2005, only 3 PBMs met TIPPS certification

By 2008, 13 PBMs became TIPPS-certified:

• Aetna Pharmacy Management

• BlueCross and Blue Shield of Alabama

• CVS Caremark

• Catalyst Rx, A HealthExtras Company

• Cigna Pharmacy Management

• Express Scripts

• Humana Pharmacy

• Medco Health Solutions, Inc.

• Prime Therapeutics LLC

• RESTAT

• SXC Health Solutions, Inc.

• Walgreens Health Initiatives

• WellPoint NextRx

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Washington Post Ad Sponsored by HR Policy

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Wall Street Journal Ad by Aetna Announcing TIPPS Certification

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Exploring TIPPS for Your CompanySteps 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

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For More Information…

HR Policy AssociationPharmaceutical Coalition Executive Director:

Marisa MiltonMMilton@hrpolicy.org

202-789-8671

Hewitt’s TIPPS Project Manager:Joshua Golden

joshua.golden@hewitt.com404-862-3605