City of Charleston Healthcare Trends

February 7, 2011

Presented ByJ. Arthur Dail, Inc.

In 2006, JAD was retained by the City to solicit proposals for administration of the City’s medical and pharmacy plan.

As a result of the RFP process, the City selected two separate vendors for its Pharmacy and Medical Plans in lieu of Mountain State BCBS (MS BCBS) with Medco:

Catalyst Rx for pharmacy benefit administration (Effective October 2006) Acordia National (currently Wells Fargo Third Party Administrators) for

medical plan administration (Effective January 2007)

Over the years, our services to the City have expanded and currently include:

Consultation on various healthcare benefit matters including plan design

Medical and Pharmacy Cost & Utilization Reporting Assistance when requested for establishing projection of expenses

and budgetary rates Oversight assistance of Healthstat regarding the on-site clinic

J. Arthur Dail, Inc. (JAD) & The City of Charleston

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2006 MS BCBS served as Plan Administrator for medical and pharmacy benefits Effective October 1, 2006, Catalyst Rx became pharmacy benefit manager (PBM),

replacing Medco via MS BCBS Pharmacy Plan Benefits:

• Generic - $5 copay + 20%• Brand and Non-Preferred - $15 copay + 20%• Specialty Drugs – Greater of $40 copay or 20%

2007Medical Effective January 1, 2007, Acordia National (now Wells Fargo Third Party Administrators)

became Plan Administrator City continued its direct contractual arrangement with CAMC, resulting in greater

discounts• Plan benefit structure crafted to encourage utilization

On-Site Clinic JAD assisted City with RFP to establish an on-site clinic As a result of the RFP Healthstat was chosen to establish and manage the on-site clinic Employees and spouses completed baseline Health Risk Assessments (HRAs)

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City’s Healthcare Plan History

2008Medical City partnered with CAMC’s Behavioral Health programPharmacy Non-Preferred Brand copay increased from $15 + 20% of balance to $25 + 20% of balanceOn-Site Clinic Clinic initially opened to employees and retirees in May 2008 and services expanded to

include dependents in November 2008

2009Medical No changesPharmacy Catalyst Rx 2009 Formulary with 3 tiers implemented Adjustments made to retail copays

• Preferred Brand ($20 + 20%) • Non-Preferred Brand ($25 +20%) with a maximum copay of $100 for specialty

products• Brand with generic equivalent copay ($35 + 20%)

Catalyst Rx standard quantity limits implemented Walgreen’s Specialty Management Program implemented – Q3 2009On-Site Clinic No changes

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City’s Healthcare Plan History(Continued)

2010Medical Stop loss coverage cancelled – premium costs banked for future expenses Annual maximum of $750,000 added to benefit plan in lieu of stop loss Plan design changed to provide parity for mental health benefits in line with

Federal Government regulation Pharmacy• Formulary Optimization Program implemented mid-yearOn-Site Clinic October 2010 – HRA Reassessments

• 1,084 individuals participated in a mass HRA campaign • Deadline for completing HRAs extended to February 28, 2011 due to demand

2011Medical Federal Government’s Patient Protection and Affordable Care Act of 2009

• City maintained “Grandfather” status limiting number of mandated plan changes

• Coverage for dependent children extended to age 26

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City’s Healthcare Plan History(Continued)

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Historical Overview of

Healthcare Plan Costs

City’s Average Employee Count

2007 2008 2009 20101,000

1,050

1,100

1,150

1,200

1,250

1,197 1,187 1,181 1,191

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Note:Average employee counts based on WFTPA census reports

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Overview of Healthcare Plan Expenses

Note:2007 – Admin fees include both MS BCBS (10% of paid run-out claims) and Acordia National2010 – Stop loss premium banked for future events

  2006 2007 2008 2009 2010Stop Loss Premiums $574,422 $561,088 $558,437 $535,324 $0

Medical Admin Fees $332,179 $365,179 $299,251 $292,734 $295,150

Medical Paid Claims $7,926,349 $7,480,041 $7,666,920 $7,979,499 $7,520,792

Pharmacy Rebates   ($25,657) ($53,794) ($49,803) ($91,160)Pharmacy Admin Fees $29,115 $52,664 $52,914 $53,639 $55,746 Pharmacy Paid Claims $902,940 $1,039,935 $1,096,779 $1,110,061 $1,153,796

Subtotal $9,765,004 $9,473,250 $9,620,507 $9,921,454 $8,934,324 Healthstat Clinic $108,204 $271,016 $403,452 $504,440

Total $9,765,004  $9,581,454 $9,891,524 $10,424,906 $9,438,764

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City’s Total Plan Spend

2006 2007 2008 2009 2010 $5,000,000

$5,500,000

$6,000,000

$6,500,000

$7,000,000

$7,500,000

$8,000,000

$8,500,000

$9,000,000

$9,500,000

$10,000,000

$9,765,004 $9,473,250 $9,620,507 $9,921,454 $8,934,324

Wells Fargo TPA / Catalyst RxMountain State BCBS

Note:Total spend includes paid claims, admin costs and pharmacy rebates Healthstat Clinic costs are not included

Components of Health Care Trend

General Health Care Inflation

Increased Utilization

Technology and Prescription Drugs Availability of more expensive, state-of-the-art technological services New drugs – Industry must recoup costs associated with developing new

drugs

Chronic Disease Longer life spans Greater prevalence of chronic illnesses

Aging Population

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Opened an on-site clinic for employees and dependents to promote a more cost effective venue for acute care, for wellness care, and for chronic disease management

Created plan incentives to promote the use of more cost-effective drugs, such as generics, through the Pharmacy Plan

Established an annual maximum provision under the medical plan in lieu of purchasing medical stop-loss insurance

Actions Taken to Offset Trend

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In 2006, the City’s average cost per employee was $7,725 while the National Average cost per employee was $7,140

In 2010, the City’s average cost per employee was $7,502 while the National Average cost per employee was $9,028

From 2006 – 2010, the City’s average cost per employee decreased 2% and the National Average increased by 24%

Over the 4-year period, the City’s average annual trend was -0.5% while the National Average annual trend was +6%

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City’s Healthcare Trend Versus National Trend

2006 - 2010

Average Cost Per Employee

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City

Note:City’s average cost included paid claims, admin costs and pharmacy rebates Healthstat Clinic costs not included

National Average obtained from Aon-Hewitt

2006 2007 2008 2009 2010 $5,000

$5,500

$6,000

$6,500

$7,000

$7,500

$8,000

$8,500

$9,000

$9,500

$10,000

City

National

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Medical Plan Component

Medical: Total Paid Claims

MS BCBS2006

WFTPA2007 2008 2009 2010

$7,200,000

$7,300,000

$7,400,000

$7,500,000

$7,600,000

$7,700,000

$7,800,000

$7,900,000

$8,000,000

$8,100,000

$7,889,803

$7,480,042

$7,666,920

$7,979,499

$7,520,791Aver-age

Annual Trend of -

1.17%

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Claimants over $100K

  2007 2008 2009 2010Number of Claimants 9 7 3 4Average Paid / Claimant $164,893 $145,191 $113,625 $136,753 Total Paid $1,484,036 $1,016,340 $340,876 $547,012

Large Claims Impact

1484036.22

20%

5996005.78

80%

2007

Claimants Over $100KAll Others

547012.037%

6973779.2793%

2010

Claimants Over $100KAll Others

Paid for Claimants over $100K as a Percentage of Total Paid

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Pharmacy Plan Component

Pharmacy: Total Paid Claims

MS BCBS with Medco2006

CATALYST Rx2007 2008 2009 2010

$800,000

$900,000

$1,000,000

$1,100,000

$1,200,000

$1,300,000

$902,940

$1,039,936

$1,096,779$1,110,061

$1,153,796

Average Annual

Trend of 6.9%

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Measures Taken to Reduce Pharmacy Costs

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Year Pharmacy Plan ChangeEstimated Annualized

Financial Impact

Estimated Member Impact

(Utilizers)

2007 - 2010

Increased Generic Utilization Dispensing rate increased from 64.6% to 73.3%

$165,742 All Members

2009 Copay Adjustments $95,555 6832009 Step Therapy for Antidepressants $63,496 339

July 2009 Proton Pump Inhibitors - Nexium becomes 3rd tier - Coverage of OTCs at generic copay

$31,765 194

2009 Catalyst Rx Quantity Limits $29,000 259July 2010 Formulary Optimization Program $8,236 26

Note:Estimated Annualized Financial Impact and Estimated Member Impact data provided by Catalyst Rx

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Clinic Component

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Healthstat Clinic Costs

Note:Miscellaneous includes set-up charges, flu shots, etc.

  2007 2008 2009 2010

Program Costs   $210,315 $307,867 $350,712 Lab Fees   $22,183 $95,036 $91,476 HRAs $108,204 $27,136 $0 $62,252 Miscellaneous   $11,382 $549 $0 

Total $108,204 $271,016 $403,452 $504,440

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Healthstat Clinic VisitsFor the Period of January – December 2010

2,872 Visits38% of Visits are High Risk Visits

Current Participants with Chronic Disease

Chronic Disease # of Participants

As a % of Total

Population

Hypertension 596 22.3%Hyperlipidemia (High cholesterol) 373 14.0%Depression (or on antidepressants) 352 13.2%Diabetes 247 9.3%Osteoarthritis 166 6.2%Coronary Artery Disease (CAD) 159 6.0%Asthma / COPD 139 5.2%Cancer 117 4.4%Renal Failure 69 2.6%

Note:Based on current year data representing January – November 2010Participants may be included in more than one category

Data Source: Sightlines Medical Intelligence (D2 Hawkeye) 23

The City and the University of Charleston School of Pharmacy Program Face-to-face Counseling Sessions – at the School of Pharmacy Drug Therapy & Regimen Compliance Establishment of Realistic Individual Goals for Success

Pharmacist and participant develop a trusting relationship that creates accountability

Results = Clinical Improvement Financial Improvement Quality of Life Improvement

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New Pharmacist-Based ProgramFor Chronic Disease Management

From 2006 to 2010, the City’s medical plan trended significantly BELOW national average while the pharmacy plan tracked the national average.

Although there were numerous contributing factors, key factors affecting the City’s trends were the changes in medical and pharmacy plan administrators

By choosing to establish an on-site clinic, the City benefited from reduced time away from work with less absenteeism and is gaining a healthier work force

Questions?

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Summary