Collier County Health Care Consortium August 4, 2016...SSG in their generic guarantees we adjusted their brand discount up 1.5% and their quoted generic discount up by 6%. The initial

Collier County Health Care Consortium August 4, 2016

Report on Request for Proposal for Managed Pharmacy Services Analysis Collier County Public Schools

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Background

Prior to 2014, the Collier County Government (CCG), Collier County Public Schools (CCPS) and NCH Health Care all utilized Express Scripts (ESI) to provide pharmacy benefit management services (PBM). The Collier County Sherriff�s office utilized EnvisionRx.

There had been significant ongoing customer service issues with ESI that had not been appropriately remedied and as a result, the CCG, CCPS and NCH initiated into a group RFP process lead by the CCPS purchasing department and supported by Willis Towers Watson.

As a result of that process, on January 1st 2014, EnvisionRx was contracted to provide pharmacy benefit management (PBM) services to the Collier County Government and Collier County Public Schools. Prime Therapeutics was contracted to provide pharmacy benefit management (PBM) services to NCH at the same time. The Collier County Sherriff�s office was already under contract with EnvisionRx.

The original agreements were for a two-year period that would have ended on December 31, 2015. The reasoning for a two year versus a three year agreement is that the pharmacy benefit landscape and discount structures have been changing significantly over the past few years. Willis Towers Watson has observed that contract terms longer than two years place the client at a disadvantage since they may not receive contractual recognition of the improving terms. The initial agreements with EnvisionRx and Prime Therapeutics did allow for a market check at the conclusion of the first two years.

A market check was completed in 2015 and both Envision RX and Prime Therapeutics provided terms making it beneficial for these organizations to extend the agreement under revised terms for an additional year. The EnvisionRx agreement with the Collier County Sheriff�s Office (CCSO) does not expire until the end of 2017.

Since the commencement of the agreements with EnvisionRx and Prime Therapeutics Scripts, there have not been significant customer service issues and the financial performance has been consistent with expectations. However, EnvisionRx was recently acquired by Rite-Aid, which is in turn being acquired by Walgreens. Further, there continues to be significant changes in the PBM marketplace in terms of continued mergers and acquisitions as well as new entrance to the marketplace.

To make sure the current vendors represent the best possible choice for the CCG, CCPS and NCH, in Aprilthese organizations decided to release a joint RFP through the District School Board�s Purchasing Department to evaluate alternative PBM�s for a January 1, 2017 program commencement date.

Together, the three employers represent approximately 16,000 covered lives. Working together is more efficient and a joint bid enables the leveraging the size these organizations to attract favorable pricing and terms.

However, the RFP indicated that each group retains the right to select the vendor they determine will best meet their needs. Willis Towers Watson, the actuarial and benefits consultant for these entitiesprepared an RFP document with the input from each organization. The RFP was then publically posted by the CCPS Purchasing Department and an e-mail notification provided to major vendors, which the employers collectively believed might be interested in evaluating a relationship.

Proposals were received from the following nine vendors:



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1. Magellan

2. EnvisionRx

3. Navitus

4. CitizensRx

5. Optum

6. RxBenefits

7. Prime

8. ESI

9. CVS Caremark

Executive Summary

Taking the opportunity to market the program as a group provided measurable benefit. It was apparent that all respondents provided aggressive terms with an expectation of obtaining the business or in the case of the incumbents, concern over losing all the business to another vendor.

To aid in reaching a determination as to whether a change was warranted Willis Towers Watson analyzed the financial terms quoted, per pill pricing and assessed the written responses to see if there was a material difference in the value propositions the proposing organizations offered which would have warranted further consideration. These findings were discussed with the selection committee of each organization individually and as a group. It was the unanimous opinion of the organizations that a change was not warranted.

This recommendation was based on the following:

1. The analysis of the financial terms and per pill pricing did not suggest a material benefit would accrue to any of the three organizations by making a change either individually or as a group.

2. None of the other organizations quoting were able to outline a service and management proposal that was materially different from the incumbents that might have warranted further consideration.

3. Changing PBMs does have an opportunity cost as it requires a significant investment of staff,time to coordinate the change and communicated to employees.

4. Any change to another PBM would have resulted in significant disruption to employees and dependents using certain medications due to differences in the formularies each organization has adopted.

The initial terms quoted by ESI and CVS suggested there may have been savings by moving to these organizations. The expected savings for the CCPS was $200,000 over the two year term of the agreement. However, after the initial assessment and analysis of additional per pill pricing and formulary disruption, it was determined the savings would not likely be realized.

After the initial financial assessments Willis Towers Watson was asked to approach both EnvisionRx and Prime Therapeutics and request best and final offers in light of the terms offered by ESI and CVS Caremark.



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The revised terms offered an improvement over the original terms quoted and a significant improvement over the current contract terms. The financial benefit to CCPS is summarized in table 2below:

Table 2 - Expected Costs ($000) for 2017-2018 combined

2017 - 2018 Current Envision Envision Envision Envision

Rates Schools CCHCC-ALL Schools CCHCC-ALL

Administrative Fees 512,273$ 310,185$ 310,185$ 310,185$ 310,185$

Dispensing fee 239,778$ 144,550$ 144,550$ 137,982$ 137,982$

Ingredient Cost

Brand 8,191,965$ 7,914,105$ 7,914,105$ 7,897,118$ 7,897,118$

Generic 4,142,591$ 3,554,937$ 3,554,937$ 3,540,941$ 3,540,941$

Specialty 8,362,838$ 8,203,353$ 8,203,353$ 8,165,585$ 8,165,585$

Compound 142,163$ 142,163$ 142,163$ 142,163$ 142,163$

Total Costs 21,591,607$ 20,269,294$ 20,269,294$ 20,193,975$ 20,193,975$

Brand Rebates 360,872$ 2,380,751$ 2,579,248$ 2,380,751$ 2,579,248$

Specialty Rebates 29,805$ 1,693,383$ 1,250,345$ 1,693,383$ 1,250,345$

Implementation Credit -$ 10,946$ 10,946$ 10,946$ 10,946$

Net Vendor Costs 21,200,931$ 16,184,213$ 16,428,756$ 16,108,894$ 16,353,437$

- Member Copays 3,496,426$ 3,496,426$ 3,496,426$ 3,496,426$ 3,496,426$

Net Plan Costs 17,704,505$ 12,687,788$ 12,932,330$ 12,612,469$ 12,857,011$

BAFO

The table above shows that the CCPS will see a two year benefit of $5.1 over the current terms and achieved a $320,000 improvement via the best and final quote provided by EnvisionRx. It�s important to keep in mind that these represent improvements in the terms on a gross basis and can not necessarily be construed as a reduction in cost since the analysis looks at the total costs and does not adjust for trend, utilization or employee cost share.

Request for Proposal Process

The CCG, CCPS and NCH asked Willis Towers Watson to develop a request for proposal (RFP) document and assist in the evaluation of responses. The RFP document was developed and finalized after several conference calls and in-depth discussion.

The distribution of the RFPs and receipt was overseen and conducted by the Purchasing Department at the CCPS. A copy of the RFP is attached as Appendix B.

Vendors were free to participate in the RFP process through a public competitive bid process. Nine vendors were included in the RFP�s and responses were received from all nine.

1. Magellan

2. EnvisionRx



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3. Navitus

4. CitizensRx

5. Optum

6. RxBenefits

7. Prime

8. ESI

9. CVS Caremark

In June, Willis Towers Watson conducted a preliminary analysis of the financial terms offered in each of the responses.

Evaluation Approach

Since there were not significant concerns over the level of service provided by either Envision RX or Prime Therapeutics, the initial analysis focused on the financial terms. This analysis was completed to determine whether there was a significant financial benefit which would warrant serious consideration and interviewing of other firms.

Willis Towers Watson also evaluated the qualitative aspects of the response to assess whether any one respondent offered a compelling value proposition that was materially different from the incumbents.

Willis Towers Watson performed a detailed financial analysis of the following areas affecting the ultimate cost of a pharmacy benefit program:

1. Total expected cost based on all facets of the program, quoted discounts, rebates and administrative fees

2. Contract language

3. Per pill pricing of the top 50 generic and brand medications.

Willis Towers Watson obtained detailed claim file records for each of the three employers from EnvisionRx and Prime Therapeutics, including number of prescriptions, AWP, and ingredient cost for brand, generic, and specialty drugs, retail and mail order, and the amounts paid.

The AWP and the utilization rates were trended forward for the two year term proposed in the RFP.Each firm quoted terms that were then applied to the AWP and Rx counts on a gross level for the twoyear term of the agreement.

Based on current enrollment and the actual experience data, prescription drug plan ingredient costs and number of prescriptions for the respective members were projected forward through 2018 assuming no plan design changes, a 0%(zero) annual trend for brand use, 6% trend for specialty use and 1% trend for overall use; and an 8% annual increase in the ingredient cost of brand, 12% for specialty, and 3% for generic medications.

The cost and number of prescriptions was trended separately. This approach is more representative of total drug trend and provides a better determination of ultimate cost. A two year time frame was utilized in the financial analysis since that is the period of time vendors were asked to guarantee terms.



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For the comparison, the quoted administration fees, dispensing fees, ingredient cost, and rebates were applied to each member�s projected prescriptions, number of employees, and AWP to develop the total costs.

Based on vendor�s contract language, we made adjustment to the quoted discounts that vendors submitted. If a vendor did not include single source generics (SSG) in their generic discount guarantees, that gives them an advantage of 1-2% on brands and 3-8% on generics. For firms that do not include SSG in their generic guarantees we adjusted their brand discount up 1.5% and their quoted generic discount up by 6%.

The initial quotations received from ESI and CVS offered terms that suggested an improvement over the terms offered by EnvisionRx and Prime Therapeutics. The savings potential depending on the organization ranged from a low of $80,000 for NCH to almost $500,000 for the CCG. The table below summarizes the expected two year costs for 2017 and 2018 for the top 5 financial responses.

CCG CCG Group

Price

CCPS CCPS Group

Price

NCH NCH Group

Pricing

Prime Therapeutics 10,727,381$ n/a 14,064,520$ n/a 6,622,087$ n/a

EnvisioRX 10,209,190$ $ 10,190,455 12,687,788$ $ 12,932,330 7,129,747$ $ 6,798,031

CVS Caremark 9,737,010$ n/a 12,471,200$ n/a 6,535,754$ n/a

Navitus 11,531,983$ $ 11,315,912 15,481,660$ $ 15,029,411 7,618,362$ $ 7,496,493

Optum 10,929,351$ $ 10,591,667 14,168,353$ $ 13,721,417 7,279,429$ $ 6,968,697

ESI 9,587,269$ $ 9,698,254 13,537,585$ $ 12,547,984 6,649,946$ $ 6,612,321

The details of the analysis of financial terms for all respondents for the CCPS are included in Appendix A.

The preliminary financial analysis suggested the CCPS could save $200,000 by moving administration of the program to CVS Caremark. There was also a potential to save $100,000 for all, in group purchasing quotation from ESI. However, since NCH had determined there was no benefit to move from Prime Therapeutics the group purchasing quotation from ESI would not be an option.

However, making a purchasing decision based on quoted discounts alone can be misleading. Contract language can have a significant impact and how discounts are calculated and hence the apparent size of the discounts. Although the Willis Towers Watson analysis process attempts to adjust most of these factors there are still small nuances which can affect discounts that are difficult to adjust for in the analysis.

To address this potential risk, Willis Towers Watson relies on a secondary analysis using per pill pricing. To determine whether the price difference suggested by the traditional financial analysis outlined above is likely to produce a savings is to evaluate the contracted per pill pricing terms as of a specific point in time. To accomplish this Willis Towers Watson provided each vendor with a file containing the specific NDC�s for the top 50 generic and brand name drugs and asked that each vendor provide the pricing as of a specific consistent point in time.

The results of this analysis are shown in the table below.



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PBM CCPS NCH CCG

Retail Mail Retail Mail Retail Mail

Benecard other other other

Citizens 957,672 891,474 3,546,941 3,398,424 3,657,011 3,503,443

CVS Caremark 854,416 798,900 3,523,706 3,418,473 3,679,280 3,562,826

Envision 859,152 787,654 3,590,327 3,452,514 3,675,322 3,532,361

Express Scripts n/a n/a n/a

Magellan n/a n/a n/a

Maxor n/a n/a n/a

Navitus 834,966 794,850 3,592,379 3,512,526 3,625,005 3,543,972

OptumRx n/a n/a n/a

Prime Therapeutics 845,109 814,458 3,464,277 n/a 3,545,097 n/a

Rx Benefits n/a n/a n/a

This analysis demonstrates that the more aggressive discounts quoted by CVS Caremark ESI are more a function of how they calculate discounts versus superior pricing with pharmacies that would be pass-through to the CCPS.

Willis Towers Watson also conducted an assessment of the formulary disruption that would occur in making a change. Formularies are created so PBMs are able to drive market share to a specific manufacturer of a brand-name medication. For example there are several brand-name medications that are utilized to treat hyperlipidemia. By providing more favorable plan design structures to a certain medication the PBM is able to negotiate rebates which benefit the plan sponsor in this case the CCPS. However, this disruption brings with it the risk that employees won�t change and pay the higher copayment as well as the risk that more expensive medications may be included on the proposing as opposed to incumbent PBM�s formulary.

The table below shows the results of this analysis.

CCHCC - Formulary Disruption

Rx Members Rx Members Rx Members

Envision * n/a n/a 2,161 877

Prime 5,004 1,335 6,421 1,877 1,944 746

ExpressScripts 2,171 921 2,759 1,428 1,811 723

Govt Schools NCH

Rx - Number of prescriptions negatively impacted by formulary change.

Members - number of unique members impacted.

*Envision, as the incumbent, did not provide a formulary disruption for CCG or schools.

The evaluation team of each organization individually and collectively considered these factors. As notedin the executive summary above, the determination was that there would be little if in fact any benefit at all to changing to a different PBM effective January 1 of 2017.

As a result it is in the best interest of the CCPS to accept the best and final offer terms proposed by EnvisionRX and contract with them for the two-year period beginning January 1, 2017 with an option to renew for an additional two years with an appropriate market check in 2018.



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Evaluation Team

Throughout this report, reference is made to the �group� evaluation of responses and analysis prepared by Willis Towers Watson. The group included the following representatives of the member organizations of the CCHCC who participated in reviewing the results and making the recommendationoutlined in this report.

Collier County Government

• Jeff Walker

• Sonja Sweet

Collier County Public Schools

• Ian Dean

• Jane Knoble Manalich

• Marie Irwin

• Cynthia Battle

NCH Healthcare

• Renee Thigpen

• Lori Darrah

• Theresa Hansen

Willis Towers Watson provided technical guidance and financial analysis and assisted the group in writing this report and recommendation. The following individuals from Willis Towers Watson assisted in this process:

• Douglas J. Ley, Senior Vice President / Director, National Actuarial Practice, Willis Towers WatsonEmployee Benefits

• John Pauly, Vice President and Actuary, National Actuarial Practice, Willis Towers Watson Employee Benefits

• Susan Cugno, Account Executive, Willis Towers Watson Employee Benefits

• Mary Caligiuri, Senior Client Manager, Willis Towers Watson Employee Benefits

• Chris Woertz, Senior Financial Analyst , Willis Towers Watson Employee Benefits

Documents

Collier County Health Care Consortium August 4, 2016...SSG in their generic guarantees we adjusted their brand discount up 1.5% and their quoted generic discount up by 6%. The initial