HomeMy WebLinkAboutExpress Scripts Inc./HREXPRESS SCRIPTS, INC.
PHARMACY BENEFIT MANAGEMENT AGREEMENT
THIS PHARMACY BENEFIT MANAGEMENT AG ENfENT- (kAgr be effective as
of the date set forth in Section 6.1 and is entered into by and between EXPRESS SCRIPTS, INC., a
Delaware corporation "ESI and City of Carmel, Indiana, by and through its Board of Public Works and
Safety, organized under the laws of the State of Indiana "Sponsor for the purpose of setting forth the
terms on which ESI will provide pharmacy benefit management services to Sponsor. The parties agree
as follows:
RECITALS
A. ESI, either directly or through its subsidiaries, engages in pharmacy benefit management
services, including, among other things, pharmacy network contracting, pharmacy claims processing, mail
and specialty drug pharmacy, and formulary and rebate administration "PBM Services
B. Sponsor provides or arranges for the provision of health benefits, including a prescription
drug benefit.
C. ESI and Sponsor desire that ESI be the exclusive provider of PBM Services for Sponsor's
Plan (as defined below) under the terms and conditions set forth herein.
THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree
as follows:
ARTICLE I DEFINITIONS
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TERMS OF AGREEMENT
"Average Wholesale Price" or "AWP" means the average wholesale price of a prescription drug
as identified by drug pricing services such as First DataBank or other source recognized in the retail
prescription drug industry selected by ESI for all clients. The applicable AWP shall be the 11 -digit NDC
for the product on the date dispensed, and for prescriptions filled in (a) Participating Pharmacies and
CuraScript will be the AWP for the package size from which the prescription drug was dispensed, and (b)
in the Mail Service Pharmacy the AWP for the smaller of: (i) the NDC code for the package size from
which the prescription drug was dispensed, or (ii) package sizes of 100 units or 16 ounce quantities, or
the next larger quantity if such specified quantities are not available.
"Brand Drug" means a prescription drug product that is not a Generic Drug as defined below.
See MAC List.
"Copayment" means that portion of the charge for each Covered Drug dispensed to the Member
that is the responsibility of the Member (e.g., copayment, coinsurance and /or deductible) as indicated on
the Set -Up Forms.
"Covered Drug(s)" means those prescription drugs, supplies, Specialty Products and other items
that are covered under the Plan, each as indicated on the Set -Up Forms.
"CuraScript" means CuraScript, Inc. or another pharmacy wholly -owned or operated by ESI or its
wholly -owned subsidiaries that primarily dispenses Specialty Products.
"Eligibility Files" means the list submitted by Sponsor to ESI in reasonably acceptable electronic
format indicating persons eligible for drug benefit coverage services under the Plan.
"Formulary" means the list of FDA approved prescription drugs and supplies developed by ESI's
Pharmacy and Therapeutics Committee and /or customized by Sponsor, which is selected and adopted by
Sponsor.
"Generic Drug" means a prescription drug, whether identified by its chemical, proprietary, or non-
proprietary name, that is therapeutically equivalent and interchangeable with drugs having an identical
amount of the same active ingredient(s) and approved by the FDA. See MAC List.
"Mail Service Pharmacy" means a duly licensed pharmacy operated by ESI or its subsidiaries,
other than CuraScript, where prescriptions are filled and delivered to Members via mail delivery service.
"Manufacturer Administrative Fees" means those administrative fees paid by pharmaceutical
manufacturers to, or otherwise retained by, ESI pursuant to a contract between ESI and the manufacturer
and directly in connection with ESI's administering, invoicing, allocating and collecting the Rebates under
the Rebate program.
"MRA" or "Maximum Reimbursement Amount" is the price charged to Sponsor for a prescription
drug product on the MAC List.
"MAC List" means a list of prescription drug products identified as readily available as Generic
Drugs, generally equivalent to a Brand Drug (in which case the Brand Drug may also be on the MAC List)
and which are deemed to require pricing management due to the number of manufacturers, utilization
and pricing volatility. Whether a Prescription Drug Claim processes at the Generic ingredient cost rates
set forth on Exhibit A -1 is subject to the Covered Drug's inclusion on the MAC List and the application of
"dispensed as written protocols and Sponsor defined plan design and coverage policies. The MAC List
is intended to result in a weighted average discount range of 43% to 51%, but Client's actual experience
may vary within, or above or below this range depending upon Client's Generic Drug and Brand Drug mix
and plan design.
"Member" means each person who Sponsor determines is eligible to receive prescription drug
benefits as indicated in the Eligibility Files.
"Member Submitted Claim" means a paper claim submitted by a Member for Covered Drugs
dispensed by a pharmacy other than a Participating Pharmacy or for which the Member paid cash.
"Participating Pharmacy" means any licensed retail pharmacy with which ESI has executed an
agreement to provide Covered Drugs to Members. Participating Pharmacies are independent contractors
of ESI.
"Protected Health Information" or "PHI" will have the same meaning as the term "protected health
information" in 45 CFR 160.103, limited to the information created or received by ESI from or on behalf of Plan
"Plan" means Sponsor's welfare benefit plan(s) that contains a prescription drug benefit.
"PMPM" means per Member per Month determined by ESI from the Eligibility Files.
"Prescription Drug Claim" means a Member Submitted Claim, Subrogation Claim or claim for
payment submitted to ESI by a Pharmacy as a result of dispensing Covered Drugs to a Member.
"Rebates" means retrospective rebates that are paid to ESI, or otherwise retained by ESI,
pursuant to the terms of a rebate contract negotiated independently by ESI with a pharmaceutical
manufacturer, and directly attributable to the utilization of certain pharmaceuticals by Members. Rebates
do not include Manufacturer Administrative Fees, product discounts related to purchase of prescription
drug inventories, or compensation for services related to the distribution of certain pharmaceutical
products or similar remuneration received by subsidiary pharmacies of ESI.
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"Set -Up Forms" means any standard ESI document or form, which when completed and signed
by Sponsor, will describe the essential benefit elements and coverage rules adopted by Sponsor for its
Plan.
"Specialty Product List" means the standard list of Specialty Products and their reimbursement
rates under the applicable (exclusive or open) option as updated from time to time.
"Specialty Products" means those injectable and non injectable drugs on the Specialty Product
Drug List and typically having one or more of several key characteristics, including: frequent dosing
adjustments and intensive clinical monitoring to decrease the potential for drug toxicity and increase the
probability for beneficial treatment outcomes; intensive patient training and compliance assistance to
facilitate therapeutic goals; limited or exclusive product availability and distribution; specialized product
handling and /or administration requirements and /or cost in excess of $500 for a 30 -day supply.
"Subrogation Claim" means subrogation claims submitted by any state under Medicaid or similar
United States or state government health care programs for which Sponsor is the primary payor.
"Usual and Customary Price" or "U &C" means the retail price charged by a Participating
Pharmacy for the particular drug in a cash transaction on the date the drug is dispensed as reported to
ESI by the Participating Pharmacy.
ARTICLE II PBM SERVICES
2.1 Eligibility /Set Up. Sponsor will submit a completed Set -Up Forms and Eligibility Files (initial and
updated) on a mutually determined basis, which ESI will accurately implement. Changes to the Set -Up
Forms must be documented on ESI's standard amendment forms. Eligibility performed manually by ESI
for Sponsor, or material changes to the Eligibility File processes requested by Sponsor during the term
may be subject to additional fees set forth on Exhibit A -2. Sponsor will be responsible for all Prescription
Drug Claims during the period of the Member's eligibility as indicated on the Eligibility File including for
retroactively termed Members, except in the event of ESI's negligence.
2.2 Pharmacy Network.
(a) Participating Pharmacies. ESI will maintain a network(s) of Participating Pharmacies as
identified in Exhibit A, and will make available an updated list of Participating Pharmacies on -line. ESI
maintains multiple networks, and periodically consolidates networks or migrates clients to other networks,
in order to capitalize on certain operational efficiencies and other benefits associated with a streamlined
network offering.
(i) ESI will require each Participating Pharmacy to meet ESI's network participation
requirements, including but not limited to licensure, insurance and provider agreement
requirements. ESI also performs electronic and on -site audits of Participating Pharmacies to
determine compliance with their provider agreements. ESI will attempt recovery of identified
overpayments through offset, demand or other reasonable means; provided that ESI will not be
required to institute litigation. Recovered overpayments are credited to Sponsor. To compensate
ESI for the cost of conducting audits, ESI charges an audit fee in the amount set forth in Exhibit A
upon recovery of overpayments. Copies of participation requirements and auditing processes are
available upon request.
(ii) ESI does not direct or exercise any control over the professional judgment
exercised by any pharmacist in dispensing prescriptions or otherwise providing pharmaceutical
related services at a Participating Pharmacy.
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(b) Mail Service Pharmacy. Members may have prescriptions filled through the Mail Service
Pharmacy. Subject to applicable law, ESI may communicate with Members regarding benefit design, cost
savings, availability and use of the Mail Service Pharmacy, as well as provide supporting services.
(c) Specialty Products. Members may have prescriptions filled through CuraScript on an
exclusive basis, or through CuraScript and Participating Pharmacies (each as described in Exhibit A -1).
Sponsor hereby authorizes ESI and CuraScript to communicate with Members and physicians regarding
the transition from Mail Service Pharmacy (or other pharmacies) to CuraScript, if applicable, as well as to
advise Members filling Specialty Products at Participating Pharmacies of the availability of filling
prescription through CuraScript.
2.3 Claims Processing.
(a) Claims Processing. ESI will perform claims processing services for Covered Drugs
dispensed by Participating Pharmacies, Mail Service and CuraScript. ESI will perform a standard
concurrent drug utilization review "DUR analysis of each prescription submitted for processing on -line
by a Pharmacy in order to assist the dispensing pharmacist and prescribing physician in identifying
potential drug interactions, incorrect prescriptions or dosages, and certain other circumstances that may
be indicative of inappropriate prescription drug usage. ESI's DUR processes are not intended to
substitute for the professional judgment of the prescriber, the dispensing pharmacist or any other health
care professional providing services to the Member. If elected by Sponsor, ESI will process Member
Submitted Claims and /or Subrogation Claims in accordance with the rules in the Set -Up Forms and ESI's
standard procedures. Sponsor or its third party designee (as applicable) will have the final responsibility
for all decisions with respect to coverage of a Prescription Drug Claim and the benefits allowable under
the Plan, including determining whether any rejected or disputed claim will be allowed.
(b) Prior Authorization. For the fees set forth on Exhibit A -2 (if applicable), ESI will provide
prior authorization "PA services as specified and directed by Sponsor for drugs designated on the Set
Up Form. Prior authorized drugs must meet Sponsor- approved guidelines "Guidelines before they are
deemed to be Covered Drugs. Sponsor authorizes coverage for an otherwise excluded use in the event
of co- morbidities, complications and other factors not otherwise expressly set forth in the Guidelines,
unless Sponsor directs in writing that Sponsor be provided such issue for determination. In determining
whether to authorize coverage of such drug under the PA Program, ESI will apply only the Guidelines and
may rely entirely upon information about the Member and the diagnosis of the Member's condition
provided to it from the prescriber. ESI will not undertake to determine medical necessity, make diagnoses
or substitute ESI's judgment for the professional judgment and responsibility of the physician.
(c) Appeals. ESI will not conduct any appeals of denied Member Submitted Claims or PA
requests; however, Sponsor may elect to have ESI facilitate appeals through the UM Company for the
fees set forth in Exhibit A -2, or through a third party of Sponsor's choice. In any case, ESI will route to
UM Company (Sponsor or other Sponsor designated entity) Member appeals properly sent to ESI's
designated address.
(i) UM Company. In the event Sponsor elects to utilize MCMC, LLC "UM
Company the UM Company will be responsible for conducting the appeal on behalf of Sponsor
in accordance with state law requirements, and Sponsor acknowledges and agrees that:
(A) ESI is not acting as a fiduciary in connection with the appeals being
conducted by the UM Company, and ESI will not be named by Sponsor as a fiduciary in
connection with such appeals; the UM Company, and not ESI, will be conducting appeals
on behalf of Sponsor; the UM Company is an independent contractor of ESI and ESI
does not in any way control or direct the UM Company with respect to appeals conducted
by the UM Company; and
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(iii) Recourse. ESI represents to Sponsor that UM Company has contractually
agreed that: (A) UM Company will conduct appeals in accordance with the applicable law and
Sponsor's plan, (B) Sponsor is a third party beneficiary of UM Company's agreement with ESI (a
copy of which is available upon request) and the remedies set forth therein, and (C) UM
Company will indemnify Sponsor for third party claims caused by the UM Company's negligence
or willful misconduct in providing the appeal services. ESI will not be liable to Sponsor for any
injury or damages arising as a result of the UM Company's acts or omissions.
(d) Call Center. ESI will provide 24 -hours a day, 7 -days a week toll -free telephone, IVR and
Internet support to assist Sponsor, Sponsor's agents and Members with Member eligibility and benefits
verification, location of Pharmacies or other related Member concerns.
2.4 Formulary Support and Rebate Management.
(a) Formulary Adherence and Clinical Programs. Upon Sponsor's written election, ESI will
provide the then available Formulary management, clinical, safety and /or trend programs identified on
Exhibit A -2, or such other programs as ESI may introduce from time to time, some of which may require
payment of additional fees.
(b) Rebate Program. ESI will pay to Sponsor the amounts set forth on Exhibit A -3.
2.5 Program Operations.
(B) with respect to the appeals designated by Sponsor for UM Company to
perform, the UM Company will have full authority and full discretion to interpret the terms
of Sponsor's plan, make all findings of fact and conduct the appeals.
(a) Reporting. ESI will make available to Sponsor ESI's on -line standard management
information reporting applications. Upon Sponsor's request, ESI may develop special reporting
packages or perform custom programming at ESI's standard hourly rate for such services, as set forth in
Exhibit A -2.
(b) Claims Data.
(i) Claims Data Retention. ESI will retain Sponsor's claims data for a total of seven
(7) years from the date the prescription is filled. Thereafter ESI will dispose of such data in
accordance with its standard policies and practices and applicable state and federal law.
Disposition of PHI shall be in accordance with the Business Associate Agreement.
(ii) Claims Data to Vendors. Upon Sponsor's written request and at no additional
charge, ESI will provide regular prescription claims data in ESI's standard format(s) to Sponsor's
vendors "Vendors for disease management, flexible savings account and other "payment,"
"treatment" and "healthcare operations" purposes (as defined under HIPAA). Requests for
retrieval of data beyond thirty (30) months are subject to the hourly custom programming charge
set forth in Exhibit A -2.
(iii) De- Identified Claims Data. ESI may use both during and after the term of this
Agreement the anonymized claims data (de- identified in accordance with HIPAA) and drug and
related medical data collected by ESI or provided to ESI by Sponsor for research, provider
profiling and maintaining databases for benchmarking, drug trend, cost analyses, cost
comparisons or other ESI business purposes.
(c) Sponsor Audits. Provided that this Agreement has been duly executed by Sponsor and
Sponsor is current in the payment of invoices under this Agreement, Sponsor may, upon written request,
audit the prescription management services provided pursuant to this Agreement on an annual basis
(unless additional audits are warranted), consistent with the Audit Protocol set forth in Exhibit B. Sponsor
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may use an independent third party auditor "Auditor so long as such Auditor does not have a conflict of
interest with ESI (as determined by ESI acting reasonably and in good faith), and provided that Sponsor's
Auditor executes a mutually acceptable confidentiality agreement mutually acceptable to ESI and
Sponsor. Any written request by Sponsor to permit an Auditor to perform an audit will constitute
Sponsor's direction and authorization to ESI to disclose PHI to the Auditor.
ARTICLE III FEES; BILLING AND PAYMENT
3.1 Fees. In consideration of the PBM Services provided by ESI, Sponsor will pay the applicable
claims reimbursement amounts "Claims Reimbursements and other administrative fees "Administrative
Fees," and together with Claims Reimbursements, "Fees set forth in Exhibit A.
3.2 Billing and Payment.
(a) Billing., ESI will invoice Sponsor twice per month for all applicable Fees.
(b) Payment. Sponsor will pay ESI by wire, ACH transfer or pre- authorized debit within two
(2) days from the date of Sponsor's receipt of each ESI invoice. Sponsor will be responsible for all
reasonable costs of collection, and agrees to reimburse ESI for such costs and expenses, including
reasonable attorneys' fees. All amounts not paid by the due date thereof will bear interest at the rate of
1.5% per month or, if lower, the highest interest rate permitted by law. In addition to any rights under
Section 6.2, ESI may apply Rebate amounts otherwise owed to Sponsor against any unpaid Fees.
(c) Deposit. If, at any time: (i) Sponsor has two or more invoices past due and outstanding,
or (ii) ESI has reasonable grounds to believe Sponsor may be delinquent in payment of fees based on
Sponsor's financial data (e.g., persistent negative cash flow, bankruptcy or insolvency), ESI may require
that the Sponsor provide to ESI a deposit in an amount equal to the average of the last three (3) months
of billing history as the basis for determining the one (1) month deposit amount or, if three (3) months
billing history is not available, the most recent month of billing history as the basis. ESI will retain the
deposit until the earlier of termination of this Agreement (following any run -off period), or six (6)
consecutive months of timely payments of all Fees following submission of the deposit, and may apply
the deposit to delinquent fees until return of the deposit.
ARTICLE IV HIPAA; CONFIDENTIAL INFORMATION
4.1 HIPAA. The parties agree that as relates to use and disclosure of PHI, electronic transaction
standards and security of electronic PHI under the Health Insurance Portability and Accountability Act of
1996, as amended, they are subject to the terms of the Business Associate Agreement set forth in Exhibit
C to the extent the same do not conflict with applicable law.
4.2 Confidential Information.
(a) Each party agrees that the terms of this Agreement and information of the other party,
including, but not limited to and the following, except as set forth with applicable law, will constitute
confidential and proprietary information "Confidential Information (i) with respect to ESI: ESI's
reporting and other web -based applications, eligibility and adjudication systems, system formats and
databanks (collectively, "ESI's Systems clinical or formulary management operations or programs,
information and contracts relating to Rebates and Manufacturer Administrative Fees, prescription drug
evaluation criteria, drug pricing information, and Participating Pharmacy agreements; and (ii) with respect
to Sponsor: Sponsor and Member data, Eligibility Files, Set -Up Form information, business operations
and strategies. Neither party will use the other's Confidential Information, or disclose it or this Agreement
to any third party (other than Sponsor attorneys and accountants), at any time during or after termination
of this Agreement, except as specifically contemplated by this Agreement, as required by applicable law,
or upon prior written consent, which will not unreasonably be withheld. Subject to the above, upon
termination of this Agreement, each party will cease using the other's Confidential Information, and all
such information will be returned or destroyed upon the owner's direction. Confidential Information does
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not include information which is or becomes generally available to the public; was within the recipient's
possession or knowledge prior to its being furnished to the recipient pursuant to this Agreement, or is
independently developed by the recipient under circumstances not involving a breach of this Agreement.
(b) Sponsor will not, and will not permit any third party acting on Sponsor's behalf to, access,
intentionally attempt to access, test or audit ESI's Systems or any other system or network connected to
ESI's Systems. Without limiting the foregoing, Sponsor will not: access or attempt to access any portion
or feature of ESI's Systems, by circumventing ESI's Systems access control measures, either by hacking,
password "mining" or any other means; or probe, scan, audit or test the vulnerability of ESI's Systems,
nor breach the security or authentication measures of ESI's Systems.
ARTICLE V COMPLIANCE WITH LAW; PRICING BENCHMARKS; FIDUCIARY
ACKNOWLEDGEMENTS; FINANCIAL DISCLOSURE
5.1 Compliance with Law; Change in Law. Each party shall be responsible for ensuring its
compliance with any laws and regulations applicable to its business, including maintaining any necessary
licenses and permits. Sponsor shall be responsible for any governmental or regulatory charges and
taxes imposed upon the services provided hereunder, other than taxes based on the net income of ESI.
The Sponsor shall be responsible for disclosing to Members any and all information relating to the Plan
and this Agreement as required by law to be disclosed, including any information relating to Plan
coverage and eligibility requirements, commissions, rebates, discounts, or provider discounts referred to
in Section 5.4 hereof. If there is a change in federal or state laws or regulations or the interpretation
thereof, regulatory, judicial or legal action that, among other things, materially burdens ESI, requires ESI
to increase payments or shorten payment times for Covered Drugs to Participating Pharmacies, or
materially changes the scope of services hereunder, then there shall be an appropriate modification of the
services, reimbursement rates, administrative fees and /or Rebates such that the parties are returned to
their comparable economic position as of the Effective Date. If the parties cannot agree on a modification
or adjusted fee or rates, then either party may terminate the Agreement on thirty (30) days prior written
notice to the other.
5.2 Pricinq Benchmarks. The parties understand there are extra market industry, legal,
government and regulatory activities which may lead to changes relating to, or elimination of, the AWP
pricing index that could alter the financial positions of the parties as intended under this Agreement. The
parties agree that their mutual intent has been and is to maintain pricing stability as intended and not to
advantage either party to the detriment of the other. Accordingly, to preserve this mutual intent, if ESI
undertakes any or all of the following: (a) changes the AWP source across its book of business (e.g., from
First DataBank to MediSpan); (b) maintains AWP as the pricing index with an appropriate adjustment as
described below, in the event the AWP methodology and /or its calculation is changed, whether by the
existing or alternative sources; (c) transitions the pricing index from AWP to another index or benchmark
(e.g., to Wholesale Acquisition Cost), Participating Pharmacy, CuraScript and Mail Service Pharmacy
rates, rebates and guarantees, as applicable, will be modified as reasonably and equitably necessary to
maintain the pricing intent under this Agreement. ESI shall provide Sponsor with at least forty -five (45)
days notice of the change, and written illustration of the financial impact of the pricing source or index
change (e.g., specific drug examples). If Sponsor does not agree to the change it may terminate the
Agreement, without penalty, on thirty days prior written notice to ESI.
5.3 Fiduciary Acknowledgements. ESI offers pharmacy benefit management services, products and
programs "PBM Products for consideration by all clients, including Sponsor. The general parameters of
the PBM Products, and the systems that support these products, have been developed by ESI as part of
ESI's administration of its business as a PBM. The parties agree that they have negotiated the financial
terms of this Agreement in an arm's length fashion. Sponsor acknowledges and agrees that neither it nor
the Plan intends for ESI to be a fiduciary of the Plan, and neither will name ESI or any of ESI's wholly
owned subsidiaries as a plan fiduciary. Sponsor further acknowledges and agrees that neither ESI nor
any of ESI's wholly -owned subsidiaries: (i) have any discretionary authority or control respecting
management of the Plan's prescription benefit program, or (ii) exercise any authority or control respecting
management or disposition of the assets of the Plan or Sponsor. Sponsor further acknowledges that it is
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responsible for the Plan's benefit design, coverage rules and determinations relating to the Plan. Upon
reasonable notice, ESI will have the right to terminate PBM Services to any Plan (or, if applicable,
Members) located in a state requiring a pharmacy benefit manager to be a fiduciary to Sponsor, a Plan,
or a Member in any capacity.
5.4 Disclosure of Certain Financial Matters. In addition to the administrative fees paid to ESI by
Sponsor, if any, ESI and ESI's wholly -owned subsidiaries derive margin from fees and revenue in one or
more of the ways as further described in the Financial Disclosure to ESI PBM Clients set forth in Exhibit D
hereto "Financial Disclosure In negotiating any of the fees and revenues described in the Financial
Disclosure or in this Agreement, ESI and ESI's wholly -owned subsidiaries act on their own behalf, and not
for the benefit of or as agents for Sponsor, Members or the Plan. ESI and ESI's wholly -owned
subsidiaries retain all proprietary rights and beneficial interest in such fees and revenues described in the
Financial Disclosure and, accordingly, Sponsor acknowledges that neither it, any Member, nor the Plan,
has a right to receive, or possesses any beneficial interest in, any such fees or revenues; provided, that
ESI will pay Sponsor amounts equal to the amounts expressly set forth on Exhibit A -3. Nothing in the
Financial Disclosure is intended to supersede any of the specific financial terms and conditions agreed to
under this Agreement.
ARTICLE VI TERM AND TERMINATION; DEFAULT AND REMEDIES
6.1 Term. (a) This Agreement will commence effective as of the later of January 1, 2009, or the
date that is ten (10) business days following ESI's execution of this Agreement "Effective Date and will
continue for a period of three (3) years "Initial Term and may be terminated earlier or extended in
accordance with the terms of Section 6.2 below. Thereafter, this Agreement will automatically renew with
the same terms and conditions as set forth herein for successive one (1) year renewal terms, subject to
the right of termination as otherwise provided herein.
(b) Not less than ninety (90) days prior to the end of the Initial Term or any renewal term of
this Agreement either party may notify the other party in writing that it desires to terminate this Agreement
effective as of the end of the then current term. Except as expressly provided in this Agreement this
Agreement is not terminable "without cause" prior to the expiration of the Initial Term by either party.
6.2 Termination.
(a) Breach or Default. Either party may give the other written notice of a material breach of
this Agreement. If the breaching party has not cured said breach within thirty (30) days from the date
such notice was sent, this Agreement may be terminated at the option of the non breaching party. If the
amount of time commercially reasonable for the breach to be cured is longer than thirty (30) days, this
Agreement may not be terminated by the non breaching party pursuant to this provision until such
commercially reasonable period of time has elapsed; provided, however, that in no event will such period
exceed sixty (60) days.
(b) Non Payment. Notwithstanding anything to the contrary herein, ESI (and its wholly
owned subsidiaries) may terminate or suspend their performance hereunder and cease providing or
authorizing provision of Covered Drugs to Members upon forty -eight (48) hours written notice if Sponsor
fails to pay ESI or provide a deposit, if required, in accordance with the terms of this Agreement. ESI
attempts collection through written and verbal communications with Sponsor prior to sending the notice
described herein.
(c) Obligations Upon Termination. Upon notice of termination of this Agreement, the parties
will mutually develop a run -off plan providing for: (i) Sponsor notification to Members of the timing of any
transition to a successor pharmacy benefit manager; (ii) ESI provision of open Mail Service Pharmacy
refill files and standard claims data and PA files for transition to the successor pharmacy benefit manager
in accordance with then existing industry protocol; and (iii) whether Sponsor elects for ESI to process
Participating Pharmacy or Member Submitted Claims for prescriptions filled during the Term but filed with
ESI after the effective date of termination "Termination Date Sponsor will continue to pay ESI in
147526v2 8
accordance with this Agreement for any Fees for PBM Services provided during the term of this
Agreement and throughout any mutually agreeable run -off period. ESI will continue filing for Rebates for
claims incurred prior to the Termination Date and will pay Sponsor Rebates for such claims in accordance
with the Rebate payment schedule set out herein.
6.3 Remedies.
(a) Remedies Not Exclusive. A party's right to terminate this Agreement under Article VI will
not be exclusive of any other remedies available to the terminating party under this Agreement or
otherwise, at law or in equity.
(b) Force Majeure. Neither party will lose any rights under this Agreement or be liable in any
manner for any delay to perform its obligations under this Agreement that are beyond a party's
reasonable control, including, without limitation, any delay or failure due to riots, earthquakes, storms,
floods or other extreme weather conditions, fires, acts of terrorism, epidemics, embargoes, war or other
outbreak of hostilities, government acts or regulations, the failure or inability of carriers, suppliers, or
telecommunications providers to provide services necessary on a regional basis to enable a party to
perform its obligations hereunder, or any other reason where failure to perform is beyond the party's
reasonable control, and is not caused by the negligence, intentional conduct or misconduct of the
defaulting party; provided, however, that this clause may not be invoked to excuse a party's payment
obligations hereunder. ESI represents that it maintains and continually updates a business continuity
plan designed to mitigate any disruption to the services provided by ESI under this Agreement.
(c) Limitation of Liability. Except for the indemnification obligations set forth in Section
6.3(d), each party's liability to the other hereunder will in no event exceed the actual proximate losses or
damages caused by breach of this Agreement. In no event will either party or any of their respective
affiliates, directors, employees or agents, be liable for any indirect, special, incidental, consequential,
exemplary or punitive damages, or any damages for lost profits relating to a relationship with a third party,
however caused or arising, whether or not they have been informed of the possibility of their occurrence.
(d) Indemnification.
(i) In addition to any indemnification obligations set forth in the Business Associate
Agreement, ESI will indemnify and hold Sponsor harmless from and against any loss, cost,
damage, expense or other liability, including, without limitation, reasonable costs and attorney
fees "Costs incurred in connection with any and all third party claims, suits, investigations or
enforcement actions "Claims which may be asserted against, imposed upon or incurred by
Sponsor and arising as a result of (A) ESI's negligent acts or omissions or willful misconduct
(including those of the Mail Service Pharmacy and CuraScript), or (B) ESI's breach of this
Agreement.
(ii) Sponsor will indemnify and hold ESI harmless from and against any Costs for
Claims which may be asserted against; imposed upon or incurred by ESI and arising as a result
of (A) Sponsor's negligent acts or omissions or willful misconduct, benefit design and coverage
decisions, or breach of this Agreement, or (B) any improper use Sponsor, an Auditor or Vendor
may make of PHI or ESI System access provided to such party.
(iii) As a condition of indemnification, the party seeking indemnification will notify the
indemnifying party in writing promptly upon learning of any Claim for which indemnification may
be sought hereunder, and will tender the defense of such claim to the indemnifying party. No
party will be obligated to indemnify the other with respect to any claim settled without the written
consent of the other, which consent shall not be unreasonably withheld..
6.4 Survival. The parties' rights and obligations under the Sections 2.5 (b)(i), Articles III, IV and V,
and Sections 6.2(c), 6.3, 6.4, 7.2, 7.3, 7.4, 7.6, and 7.10 will survive the termination of this Agreement for
any reason.
147526v2 9
ARTICLE VII MISCELLANEOUS
7.1 Liability Insurance. Each party will maintain such policies of general liability, professional liability
and other insurance of the types, including self insurance, and in amounts customarily carried by their
respective businesses. Proof of such insurance will be available upon request. ESI agrees, at its sole
expense, to maintain during the term of this Agreement or any renewal hereof, commercial general
liability insurance, pharmacists professional liability insurance for the Mail Service and CuraScript
pharmacies, and managed care liability with limits, excess of a self insured retention, in amounts of not
less than $5,000,000 per occurrence and in the aggregate. ESI does not maintain liability insurance on
behalf of any Participating Pharmacy, but does contractually require such pharmacies to maintain a
minimum amount of commercial liability insurance or, when deemed acceptable by ESI, to have in place
a self- insurance program
7.2 Notice. Any notice or document required or permitted to be delivered pursuant to this Agreement
must be in writing and will be deemed to be effective upon mailing and must be either (a) deposited in the
United States Mail, postage prepaid, certified or registered mail, return receipt requested, or (b) sent by
recognized overnight delivery service, in either case properly addressed to the other party at the address
set forth below, or at such other address as such party will specify from time to time by written notice
delivered in accordance herewith:
147526v2
Express Scripts, Inc.
Attn: President
One Express Way
St. Louis, Missouri 63121
With copy to Legal Department
Fax No. (800) 417 -8163
City of Carmel
Attn: Barbara Lamb
One Civic Square
Carmel, Indiana 46032
Fax No. (317) 571 -2409
With copy to Legal Department
Fax No. (317) 571 -2484
7.3 Independent Parties. No provision of this Agreement is intended to create or will be construed to
create any relationship between ESI and Sponsor other than that of independent entities contracting with
each other solely for the purpose of effecting the provisions of this Agreement. Neither party, nor any of
their respective representatives, will be construed to be the partner, agent, fiduciary, employee, or
representative of the other and neither party will have the right to make any representations concerning
the duties, obligations or services of the other except as consistent with the express terms of this
Agreement or as otherwise authorized in writing by the party about which such representation is asserted.
7.4 Successors and Assigns. This Agreement will be binding upon, and inure to the benefit of and be
enforceable by, the respective successors and permitted assigns of the parties hereto; provided that this
Agreement may be assigned by Sponsor upon ESI's written consent following a standard credit review,
which consent will not unreasonably be withheld.
7.5 Integration; Amendments. This Agreement and any Exhibits hereto constitute the entire
understanding of the parties hereto and supersedes any prior oral or written communication between the
parties with respect to the subject matter hereof. If there is a separate Business Associate Agreement
between the parties, such an agreement will be incorporated herein for all applicable purposes. No
modification, alteration, or waiver of any term, covenant, or condition of this Agreement will be valid
unless in writing and signed by the parties or the agents of the parties who are authorized in writing.
10
7.6 Choice of Law. This Agreement will be construed and governed in all respects according to the
laws in the State of Missouri, without regard to the rules of conflict of laws thereof.
7.7 Waiver. The failure of either party to insist upon the strict observation or performance of this
Agreement or to exercise any right or remedy will not be construed as a waiver of any subsequent breach
of this Agreement or impair or waive any available right or remedy.
7.8 Third Party Beneficiary Exclusion. This Agreement is not a third party beneficiary contract, nor
will this Agreement create any rights on behalf of Members as against ESI. Sponsor and ESI reserve the
right to amend, cancel or terminate this Agreement without notice to, or consent of, any Member.
7.9 Authority to Contract. Sponsor hereby represents and warrants that it has obtained due and
proper authority to enter into this Agreement through its governing body.
7.10 Open Records. ESI acknowledges that Sponsor, as a government agency, may be subject to
applicable open records laws and must, upon request, disclose such materials as are covered by and not
exempted from such laws. Pursuant to Section 3.2 hereof, Sponsor acknowledges that certain
information contained herein or subject to this Agreement is considered proprietary and confidential to
ESI. Sponsor agrees to promptly give ESI written notice of any request for such proprietary and
confidential information so that ESI may, in its sole discretion, request redactions or limitations on any
disclosures made by Sponsor pursuant to a third party open records request pertaining to this Agreement
or any proposal related hereto, and promptly seek a determination as to the Sponsor's proposed
disclosures made pursuant to such request, at ESI's sole cost and expense.
147526v2
11
IN WITNESS WHEREOF, the undersigned have executed this Pharmacy Benefit Management
Agreement as of the day and year below set forth.
EXPRESS SCRIPTS, INC
By
Printed Name:
Title:
Date:
147526v2
12
CITY OF CARMEL, INDIANA
by and through its Board of
Public Works and Safety
By: 1ZG
Prig ed Name: James Brainard
Title: Presiding Officer
Date:
/a- 7--
By:
Printe Na Mary Ann Burke
Title: Boar Meter l/
Date: p(
By:
Printed Lori Watson
Title: •ard Member
Date: a-I 7 1 I
ATTEST:
By:
Printed Name: Diana !ordray IAMC
Title: Clerk- Treasurer
Date:
Phone: 317- 571 -2471
Fax: 317- 571 -2409
Federal ID Number: 35- 6000972
a M. Johnson,
uty Clerk for
EXHIBIT A
PHARMACY PROGRAM FEES
Sponsor will pay to ESI the amounts set forth below, net of applicable Copayments. Sales or
excise tax or other governmental surcharge, if any, will be the responsibility of Sponsor. If ESI pays a
particular Participating Pharmacy a higher rate because Sponsor has requested in writing and that ESI
has agreed to add such pharmacy be included in the network, the rate charged to Sponsor will be the net
ingredient cost plus the dispensing fee paid by ESI to such pharmacy, plus applicable sales or excise tax
or other governmental surcharge, if any. A Member's Copayment charged for a Covered Drug will be the
lesser of the applicable Copayment or the U &C.
ESI shall be Sponsor's exclusive provider of PBM Services for Sponsor's Plans offering a
prescription benefit as long as this Agreement is in effect. The financial terms set forth in Exhibit A are
conditioned on such exclusive arrangement and all other specified conditions expressly incorporated in
such exhibits, including, but not limited to the adoption by Sponsor of the specified network, qualifying co-
payment structures, Formulary, a minimum of 1,400 Members implemented on the Effective Date of this
Agreement, and no Members in a 100% co- payment plan (if applicable). In the event one or more of the
following occurs (whether between the date of the Cost Proposal and the Effective Date, or during the
Term), ESI will have the right, upon forty -five (45) days prior written notice, and subject to the right of such
adjustments and provides ESI with at least thirty (30) days prior written notice of such termination, to
make an equitable adjustment to the rates, administrative fees and /or Rebates, solely as necessary to
return ESI to its contracted economic position as of the effective date of such event:
(a) There is a material change in: (i) the conditions or assumptions stated in this Agreement;
or (ii) the size, demographics or gender distribution of Sponsor's Membership compared to data provided
by Sponsor;
(b) Sponsor changes its Formulary, benefit designs, implements OTC plans, clinical or trend
programs or otherwise takes an action that has the effect of lowering the amount of Rebates earned by
Sponsor;
(c) Sponsor elects to use on -site clinics or pharmacies to dispense prescription drugs to
Members which materially reduces Rebates and /or the number of Covered Drug claims submitted on -line;
and /or
status.
I 47526v2
(d) Rebate revenue is materially decreased because Brand Drugs move off patent to generic
13
Exhibit A -1
Pharmacy Reimbursement Rates
I. Participating Pharmacy Reimbursement Rates
I 47526v2
II. Mail Pharmacy Reimbursement Rates
III. Specialty Products
(a) Exclusive. CuraScript is the exclusive provider of Specialty Products for the
reimbursement rates shown on the Exclusive CuraScript Specialty Product List. Any Specialty Product
dispensed from a pharmacy other than CuraScript (for example, limited distribution products not then
available through CuraScript or overrides) will be reimbursed at the standard Participating Pharmacy
Specialty Product rates shown below. Upon CuraScript acquisition of limited distribution products,
Members will obtain prescriptions through CuraScript.
14
2 -Tier Plan Design
or
3 -Tier Plan Design
Less than $15.00 Copay Differential
ESI National Preferred Formulary
Network
1 -34 Days' Supply
35 -90 Days' Supply
Ingredient Cost Brand Drugs
single source Generic Drugs are priced as brands
AWP 17%
AWP 24%
Ingredient Cost Generic Drugs
AWP 17% or, if lower,
MRA
AWP 24% or, if lower,
MRA
Ingredient Cost Compound Drugs
Combined AWP plus applicable service fee
Brand Dispensing Fee /Rx
Subject to change for changes in delivery rates
$1.50
$0.00
Generic Dispensing Fee/Rx
Subject to change for changes in delivery rates
$1.65
$0.00
Administrative Fee/Rx
$0.00
$0.00
Minimum Rate 1 Rx
$8.99
$8.99
Exhibit A -1
Pharmacy Reimbursement Rates
I. Participating Pharmacy Reimbursement Rates
I 47526v2
II. Mail Pharmacy Reimbursement Rates
III. Specialty Products
(a) Exclusive. CuraScript is the exclusive provider of Specialty Products for the
reimbursement rates shown on the Exclusive CuraScript Specialty Product List. Any Specialty Product
dispensed from a pharmacy other than CuraScript (for example, limited distribution products not then
available through CuraScript or overrides) will be reimbursed at the standard Participating Pharmacy
Specialty Product rates shown below. Upon CuraScript acquisition of limited distribution products,
Members will obtain prescriptions through CuraScript.
14
2 -Tier Plan Design
or
3 -Tier Plan Design
Less than $15.00 Copay Differential
ESI National Preferred Formulary
Network
Minimum 50,000 Participating Pharmacy Network
Ingredient Cost Brand
single source Generic Drugs are priced as brands
Lesser of AWP 17 or U &C
Ingredient Cost Generic
Lesser of AWP 17%, MRA or U &C
Ingredient Cost Compound Drugs
Lesser of U &C or combined AWP plus applicable service fee
Brand Dispensing FeelRx
$1.50
Generic Dispensing FeeIRx
$1.65
Administrative Fee/Rx
$0.00
Exhibit A -1
Pharmacy Reimbursement Rates
I. Participating Pharmacy Reimbursement Rates
I 47526v2
II. Mail Pharmacy Reimbursement Rates
III. Specialty Products
(a) Exclusive. CuraScript is the exclusive provider of Specialty Products for the
reimbursement rates shown on the Exclusive CuraScript Specialty Product List. Any Specialty Product
dispensed from a pharmacy other than CuraScript (for example, limited distribution products not then
available through CuraScript or overrides) will be reimbursed at the standard Participating Pharmacy
Specialty Product rates shown below. Upon CuraScript acquisition of limited distribution products,
Members will obtain prescriptions through CuraScript.
14
(b) Open. Specialty Products shall be available through CuraScript and Participating
Pharmacies for the Participating Pharmacy Specialty Product reimbursement rates.
(c) Specialty Products will be excluded from any price guarantees set forth in the Agreement.
CuraScript or ESI will be entitled to charge a fuel surcharge fee of the amount in excess of any carrier
charged fee over $5.00. In no event will the Mail Service Pharmacy or Participating Pharmacy pricing
specified in the Agreement apply to Specialty Products.
(d) ESI will notify Sponsor no more frequently than monthly of new Specialty Products that
are introduced to the market and added to the Specialty Drug List on or after the Effective Date of this
Agreement with their applicable Specialty Drug List reimbursement rates "Notice The parties agree as
follows:
147526v2
(I) If Sponsor has expressly excluded a specific therapy class or product on a Set
Up Form, Specialty Products in such excluded classes will automatically be deemed excluded
from coverage and will reject as "NDC Not Covered" through Participating Pharmacies, Mail
Service Pharmacy and CuraScript; otherwise, all other Specialty Products will be implemented
as Covered Drugs at the rate specified in the applicable Specialty Drug List or Notice, and
Sponsor acknowledges and agrees to same. If Sponsor desires to cover otherwise excluded
Specialty Products, Sponsor must notify ESI in writing that it desires to cover the Specialty
Product before ESI will adjudicate as a Covered Drug, and if ESI receives such confirmation of
coverage from Sponsor such Specialty Product will be loaded thereafter as a Covered Drug at
the applicable Specialty Drug List reimbursement rate set forth in the Notice.
(ii) Sponsor must notify ESI in writing if it wants to exclude the Specialty Product
from coverage. The exclusion will be implemented within seven (7) business days after the date
of ESI's receipt of such the notification. There will not be any retroactive denials for Prescription
Drug Claims processed prior to ESI's receipt of the rejection notice and implementation of the
exclusion as provided above and Sponsor will be responsible for the payment of such
Prescription Drug Claims processed prior to the rejection of coverage.
(e) For Specialty Products filled through CuraScript only, Members may receive the following
services from CuraScript, depending on the particular therapy class or disease state:
(I) Patient Intake Services: patient enrollment, initial referral processing, insurance
eligibility and benefits verification, alternative coverage searches, schedule of initial Specialty
Product order, and coordination of patient education and instruction for each new patient;
(ii) Pharmacy Dispensing Services: dispensing the Specialty Product pursuant to a
prescription in accordance with applicable law, deposit of such Specialty Product with a third
party carrier to facilitate the delivery of same per the Member's instructions, and the provision of
certain ancillary supplies (e.g., syringes, needles, and alcohol swabs) and related items in
connection with the Specialty Product that may be necessary or useful to the Member in
connection with the administration of the Specialty Product;
(iii) Ongoing Clinical and Specialty Pharmacy Support Services: self- injection
teaching support, patient education, assessment, clinical interventions and clinical screenings,
15
Ingredient Cost
Dispensing Fee
Exclusive CuraScript
See Exclusive Specialty Drug List
Lesser of AWP discount or MRA
$0.00
Non Exclusive CuraScript
Non Exclusive Specialty Drug List
Lesser of AWP discount or MRA
$0.00
Participating Pharmacy
Specialty Products
Participating Pharmacy Specialty Drug List
Lesser of AWP discount, U &C or MRA
$2.00
(b) Open. Specialty Products shall be available through CuraScript and Participating
Pharmacies for the Participating Pharmacy Specialty Product reimbursement rates.
(c) Specialty Products will be excluded from any price guarantees set forth in the Agreement.
CuraScript or ESI will be entitled to charge a fuel surcharge fee of the amount in excess of any carrier
charged fee over $5.00. In no event will the Mail Service Pharmacy or Participating Pharmacy pricing
specified in the Agreement apply to Specialty Products.
(d) ESI will notify Sponsor no more frequently than monthly of new Specialty Products that
are introduced to the market and added to the Specialty Drug List on or after the Effective Date of this
Agreement with their applicable Specialty Drug List reimbursement rates "Notice The parties agree as
follows:
147526v2
(I) If Sponsor has expressly excluded a specific therapy class or product on a Set
Up Form, Specialty Products in such excluded classes will automatically be deemed excluded
from coverage and will reject as "NDC Not Covered" through Participating Pharmacies, Mail
Service Pharmacy and CuraScript; otherwise, all other Specialty Products will be implemented
as Covered Drugs at the rate specified in the applicable Specialty Drug List or Notice, and
Sponsor acknowledges and agrees to same. If Sponsor desires to cover otherwise excluded
Specialty Products, Sponsor must notify ESI in writing that it desires to cover the Specialty
Product before ESI will adjudicate as a Covered Drug, and if ESI receives such confirmation of
coverage from Sponsor such Specialty Product will be loaded thereafter as a Covered Drug at
the applicable Specialty Drug List reimbursement rate set forth in the Notice.
(ii) Sponsor must notify ESI in writing if it wants to exclude the Specialty Product
from coverage. The exclusion will be implemented within seven (7) business days after the date
of ESI's receipt of such the notification. There will not be any retroactive denials for Prescription
Drug Claims processed prior to ESI's receipt of the rejection notice and implementation of the
exclusion as provided above and Sponsor will be responsible for the payment of such
Prescription Drug Claims processed prior to the rejection of coverage.
(e) For Specialty Products filled through CuraScript only, Members may receive the following
services from CuraScript, depending on the particular therapy class or disease state:
(I) Patient Intake Services: patient enrollment, initial referral processing, insurance
eligibility and benefits verification, alternative coverage searches, schedule of initial Specialty
Product order, and coordination of patient education and instruction for each new patient;
(ii) Pharmacy Dispensing Services: dispensing the Specialty Product pursuant to a
prescription in accordance with applicable law, deposit of such Specialty Product with a third
party carrier to facilitate the delivery of same per the Member's instructions, and the provision of
certain ancillary supplies (e.g., syringes, needles, and alcohol swabs) and related items in
connection with the Specialty Product that may be necessary or useful to the Member in
connection with the administration of the Specialty Product;
(iii) Ongoing Clinical and Specialty Pharmacy Support Services: self- injection
teaching support, patient education, assessment, clinical interventions and clinical screenings,
15
therapy adherence counseling and related clinical patient management activities and programs,
physician consultations, authorization maintenance, assistance with Member coverage appeals,
refill follow -up calls, managing ongoing medication orders, and insurance follow -up and related
ongoing delivery coordination; and
(iv) Social Services: patient advocacy, hardship reimbursement support, and indigent
and patient assistance programs.
The aforementioned services do not include home infusion supplies and related home health services
and may require the payment of additional fees.
147526v2
16
PBM Services No Additional Fee
Customer service for Members
Electronic claims processing
e Electronic /on -line eligibility submission
Plan setup
Standard coordination of benefits (COB)
(reject for primary carrier)
Software training for access to our on -line system(s)
FSA eligibility feeds
Network Pharmacy Services
Pharmacy help desk
Pharmacy reimbursement
Pharmacy network management
Network development (upon request)
Home Delivery Services
Benefit education
Prescription delivery standard
Reporting Services
Web -based client reporting produced by Sponsor
Annual Strategic Account Plan report
Ad -hoc desktop parametric reports
Billing reports
Claims detail extract file electronic (NCPDP format)
Inquiry access to claims processing system
Load 12 months claims history for clinical reports and
reporting
Website Services
Express Scripts.com for Clients access to reporting
tools, eligibility update capability, contact directory, sales
and marketing information, and benefit and enrollment
support
Express PreviewsM enrollment option available during
open enrollment to enable members to evaluate
prescription benefit plan options
Express Scripts.com for Members access to benefit,
drug, health and wellness information; prescription
ordering capability; and customer service
Digital Certificates (up to five certificates)
Implementation Package and Member Communications
New Member packets (includes two standard resin ID
cards)
Member replacement cards printed via web
Implementation support
Safety Management
Concurrent Drug Utilization Review
Emerging Therapeutics
Trend Management
Prior Authorization Administrative
Non clinical Prior Authorization
Lost/stolen overrides
Vacation supplies
Prior Authorization Clinical Base List
Blood Glucose Meter program
Therapeutic Interchange
Care Management
Care Management (Level 1) Member Portal
Exhibit A -2
Administrative Services and Clinical Program Fees
I. Administrative Services
147526v2
17
PBM Services
Fees
Manual /hardcopy eligibility submission
$1.00 /update (includes initial entry)
Member submit fee (includes Medicaid subrogation
claims)
$2.50 /claim
Network Pharmacy Services
$0.03 PMPM
Pharmacy audit recoveries
20% of audit recoveries
Reporting Services
Web -based client reporting produced by
ESI
$100 /report
Custom ad -hoc reporting
$150 /hour, with a minimum of $500
Replacement Member Communication Packets
Member requested replacement packets
Sponsor requested re- carding
$1.50 postage per packet
$1.50 postage per packet
Appeals by MCMC
Clinical appeals
Non clinical appeals
$350 /review
$160 /review
Plans subject to state law (non -ERISA plans) will be
charged a retainer fee of $1000 per month for appeals
handled by MCMC
Medicare Part D
Part D subsidy enhanced service (ESI sends reports
to CMS on behalf of Sponsor)
Notice of Creditable Coverage
$1.12 PMPM for Medicare qualified Members with a
minimum annual fee of $7,500
$1.35 /letter postage
Part D Subsidy standard service (ESI sends reports
to Sponsor)
Notice of Creditable Coverage
$0.62 PMPM for Medicare qualified Members with a
minimum annual fee of $5,000
$1.35 /letter postage
Part D Subsidy No Subsidy Reports; Actual Cost
Adjustment data provided to Sponsor reporting
vendor– ESI provide final rebate figures
$0.42 PMPM with a minimum annual fee of $1,500
Medicare Part B
Part B Services (Participating Pharmacy and Mail
Benefit)
$0.42 PMPM for Medicare qualified Members
Trend Management Programs
Fees
Drug Quantity Management
$0.02 PMPM
Prior Authorization Clinical Supplemental List
$0.03 PMPM
Prior Authorization Other Clinical Overrides (e.g. non-
$20 /request
standard Prior Authorization medications, medical exceptions)
$25 /physician review
Step Therapy Individual modules and packages available
Pricing varies by module
More than 25 modules available. The most utilized include:
ACE inhibitors and angiotensin -2 receptor blockers (ARBs),
non steroidal anti- inflammatory drugs (NSAIDS) and COX -2s,
II. Selected Clinical/Trend Programs.
ESI offers a comprehensive list of trend, safety, care and disease management programs, a
limited number of which are identified below, and which may change or be discontinued from time to time.
ESI also offers savings guarantees under certain conditions. Information concerning such programs,
guarantees and fees, if applicable, is available from the ESI Account Team.
147526v2
18
Total Health Management Programs
(optional, implementation only at Sponsor request)
Fees
Managing Medication Therapy and Safety
Medication Adherence
$0.02 PMPM
Includes all seven modules
Retrospective DUR
Retrospective DUR Seniors
$0.03 /Rx
$0.02 /Rx
RxPredict$
$0.05 PMPM for six months each time
the report is run (e.g. 100,000 members
$0.05 PMPM six months). A
subsequent charge will occur with the
second report. There is a minimum
charge of $3,000.
Managing Overall Health
Care Management
$0.01 /claim Asthma
$0.01 /claim Cardiovascular Disease
$0.02 /claim CHF
$0.02 /claim Depression
$0.01 /claim Diabetes
$0.03 /claim GI Disease
$0.02 /claim Hypertension
$0.02 /claim Migraine
Disease Management
Three disease suite
Five disease suite
Six disease suite
Priced upon request
List of drugs subject to change at the discretion of ESI. PMPM means per Member per Month as determined by ESI
by reference to the Eligibility Files for the applicable time period.
147526v2 19
proton pump inhibitors (PPIs), selective serotonin reuptake
inhibitors (SSRIs), HMG enhanced, calcium channel blockers,
leukotriene pathway inhibitors, topical immunomodulators,
other antidepressants.
Formulary Rapid Response
$0.01 PMPM
$0 Generic Copay
$1.25 /Member mailing or $1,000 for
Member identification and authorization
List of drugs subject to change at the discretion of ESI. PMPM means per Member per Month as determined by ESI
by reference to the Eligibility Files for the applicable time period.
147526v2 19
Total Health Management Programs
(optional, implementation only at Sponsor request)
Fees
ExpressAlliance Level 1
5,000- 20,000 lives
20,000- 50,000 lives
50,000+ lives
$0.04 PMPM
$0.02 PMPM
$0.01 PMPM
ExpressAlliance Level 2
5,000- 20,000 lives
20,000- 50,000 lives
50,000+ lives
$0.20 PMPM
$0.10 PMPM
$0.09 PMPM
ExpressAlliance Level 3
5,000- 20,000 lives
20,000- 50,000 lives
50,000+ lives
$0.35 PMPM
$0.20 PMPM
$0.18 PMPM
RxPredict$
$0.05 PMPM for six months each time
the report is run (e.g. 100,000
members* $0.05 PMPM* six months).
A subsequent charge will occur with the
second report. There is a minimum
charge of $3000.
High Utilizer Case Management Report
$150 /report
147526v2 20
2. Member Submitted and Subrogation Claims, OTC products, Plans that do not meet
eligibility requirements set forth herein, claims older than 180 days, claims through Sponsor -owned or
340b pharmacies, claims for 100% copayment (cash and carry) plans not offered in connection with a
health plan benefit, and other similar claims may not be eligible for Rebates.
3. Guarantees are measured in the aggregate and reconciled annually. Amounts
representing the Rebates allocated to Sponsor pursuant to the terms of this Agreement will be paid on a
quarterly basis approximately 150 days following the end of each quarterly period. ESI retains all right,
title and interest to any and all actual Rebates received from manufacturers, except that ESI will pay
Sponsor amounts equal to the Rebate amounts allocated to Sponsor, as specified above, from ESI's
general assets (neither Sponsor, its Members, nor Sponsor's plan retains any beneficial or proprietary
interest in ESI's general assets). Sponsor acknowledges and agrees that neither it, its Members, nor its
Plan will have a right to interest on, or the time value of, any Rebate payments received by ESI during the
collection period or moneys payable under this Section. No Rebates will be paid until this Agreement is
executed by Sponsor. ESI will have the right to apply Sponsor's allocated Rebate amount to unpaid Fees
and will have the right to delay payment of Rebates for up to an additional sixty (60) days to allow for
final adjustments upon termination of this Agreement.
4. Sponsor acknowledges that it may be eligible for Rebates under this Agreement only so
long as Sponsor, its affiliates, or its agents do not contract directly or indirectly with anyone else for
discounts, utilization limits, rebates or other financial incentives on pharmaceutical products or formulary
programs for claims processed by ESI pursuant to the Agreement, without the prior written consent of
ESI. In the event that Sponsor negotiates or arranges with a pharmaceutical manufacturer for Rebates or
similar discounts for any Covered Drugs hereunder, but without limiting EST's right to other remedies, ESI
may immediately withhold any Rebates earned by, but not yet paid to, Sponsor as reasonably necessary
to prevent duplicative rebates on the applicable Covered Drugs. To the extent Sponsor knowingly
negotiates and /or contracts for discounts or rebates on claims for Covered Drugs without prior written
approval of ESI, such activity will be deemed to be a material breach of this Agreement, entitling ESI to
suspend payment of Rebates hereunder and to renegotiate the terms and conditions of this Agreement.
147526v2
EXHIBIT A -3
Rebates
1. ESI will pay to Sponsor an amount equal to the following:
21
2 -Tier Plan Design
or
3 -Tier Plan Design
Less than $15.00 Copay Differential
ESI National Preferred Formulary
Participating Pharmacies and
CuraScript
Mail Service Pharmacy
Per Prescription Drug Claim
$2.00
$9.00
2. Member Submitted and Subrogation Claims, OTC products, Plans that do not meet
eligibility requirements set forth herein, claims older than 180 days, claims through Sponsor -owned or
340b pharmacies, claims for 100% copayment (cash and carry) plans not offered in connection with a
health plan benefit, and other similar claims may not be eligible for Rebates.
3. Guarantees are measured in the aggregate and reconciled annually. Amounts
representing the Rebates allocated to Sponsor pursuant to the terms of this Agreement will be paid on a
quarterly basis approximately 150 days following the end of each quarterly period. ESI retains all right,
title and interest to any and all actual Rebates received from manufacturers, except that ESI will pay
Sponsor amounts equal to the Rebate amounts allocated to Sponsor, as specified above, from ESI's
general assets (neither Sponsor, its Members, nor Sponsor's plan retains any beneficial or proprietary
interest in ESI's general assets). Sponsor acknowledges and agrees that neither it, its Members, nor its
Plan will have a right to interest on, or the time value of, any Rebate payments received by ESI during the
collection period or moneys payable under this Section. No Rebates will be paid until this Agreement is
executed by Sponsor. ESI will have the right to apply Sponsor's allocated Rebate amount to unpaid Fees
and will have the right to delay payment of Rebates for up to an additional sixty (60) days to allow for
final adjustments upon termination of this Agreement.
4. Sponsor acknowledges that it may be eligible for Rebates under this Agreement only so
long as Sponsor, its affiliates, or its agents do not contract directly or indirectly with anyone else for
discounts, utilization limits, rebates or other financial incentives on pharmaceutical products or formulary
programs for claims processed by ESI pursuant to the Agreement, without the prior written consent of
ESI. In the event that Sponsor negotiates or arranges with a pharmaceutical manufacturer for Rebates or
similar discounts for any Covered Drugs hereunder, but without limiting EST's right to other remedies, ESI
may immediately withhold any Rebates earned by, but not yet paid to, Sponsor as reasonably necessary
to prevent duplicative rebates on the applicable Covered Drugs. To the extent Sponsor knowingly
negotiates and /or contracts for discounts or rebates on claims for Covered Drugs without prior written
approval of ESI, such activity will be deemed to be a material breach of this Agreement, entitling ESI to
suspend payment of Rebates hereunder and to renegotiate the terms and conditions of this Agreement.
147526v2
EXHIBIT A -3
Rebates
1. ESI will pay to Sponsor an amount equal to the following:
21
147526v2
EXHIBIT B
AUDIT PROTOCOL
1. AUDIT PRINCIPLES
ESI recognizes the importance of its clients ensuring the integrity of their business relationship by engaging in
periodic audits of their financial arrangements with ESI. ESI provides this audit right to each and every client. In
granting this right, ESI's primary interest is to facilitate a responsive and responsible audit process. In order to
accomplish this goal, for all clients, ESI has established the following Protocol. Our intent is in no way to limit
Sponsor's ability to determine that ESI has properly and accurately administered the financial aspects of the
Agreement, but rather to create a manageable process in order to be responsive to our clients and the
independent auditors that they may engage. If Sponsor has any concern that this Protocol will prohibit Sponsor
from fully confirming its financial arrangement with ESI, we encourage Sponsor to express such concern at the
audit kick -off meeting.
2. AUDIT PREREQUISITES
A. The financial aspects of the Agreement can be broken down into the following three main components.
Sponsor has the right to audit any or all three of these components, if applicable:
Claims
Rebates
Performance Guarantees
At Sponsor's discretion, Sponsor may conduct an audit of each component separately, or may combine all
three components in one audit. In addition to the above audit rights, Sponsor may address general claim
inquiries, which do not require an audit, by contacting Sponsor's ESI Account Management team at any
time.
B. ESI will provide all data reasonably necessary for Sponsor to determine that ESI has performed in
accordance with contractual terms.
C. ESI engages a national accounting firm, at its sole cost and expense, to conduct a SAS 70 audit on behalf of
its clients. Upon request, ESI will provide the results of its most recent SAS 70 audit. Testing of the areas
covered by the SAS 70 is not within the scope of Sponsor's audit rights (i.e., to confirm the financial aspects
of the Agreement) and is therefore not permitted. However, if requested, ESI will explain the SAS 70 audit
process and findings to Sponsor in order for Sponsor to gain an understanding of the SAS 70.
3. AUDITS
A. ESI recommends that the initial audit period for a claims audit cover a timeframe not to exceed twenty -four
(24) months immediately preceding the request to audit (the "Audit Period This Audit Period allows a
reasonable amount of time for both parties to conclude the audit before claims data is archived off the
adjudication system. ESI will accommodate reasonable requests to extend the Audit Period, but this may
delay ESI's response time to audit findings due to the age of the claims.
B. When performing a Rebate audit, Sponsor may perform an on -site review of the applicable Rebate rate
components of manufacturer agreements, selected by Sponsor, as reasonably necessary to audit the
calculation of the Rebate payments made to Sponsor by ESI.
C. ESI recommends that Sponsor select an initial number of manufacturer contracts to enable Sponsor to audit
fifty percent (50 of the total Rebate payments due to Sponsor for two (2) calendar quarters during the
twelve (12) month period immediately preceding the audit. ESI will accommodate reasonable requests to
extend this audit scope, but this may delay ESI's on -site preparation time as well as response time to audit
findings.
4. AUDIT FINDINGS
A. Following Sponsor's initial audit, Sponsor (or its Auditor) will provide ESI with a written report of suspected
errors, if any. In order for ESI to evaluate Sponsor's audit report, Sponsor shall provide an electronic data
file in a mutually agreed upon format containing either a representative sample of claims, or the entire
suspected error population, and the dollar amount associated with the suspected errors.
B. If Sponsor provides the entire suspected error population, consistent with generally accepted industry audit
standards, ESI will evaluate a statistically valid sample of claims in order to provide a timely response. ESI
will use commercially reasonable best efforts to respond to the audit report in no more than thirty (30) days
from ESI's receipt of the report. Please be aware, however, that audits that require evaluation of six (6) or
more findings typically require additional time to respond due to the complex nature of such audits. Our
22
pledge to respond within the foregoing timeframe is predicated on a good faith and cooperative effort
between Sponsor and /or its Auditor and ESI.
C. Following ESI's evaluation of Sponsor's (or its Auditor's) audit report, if the audit findings warrant an
increase in the Audit Period or the number of contracts reviewed, then ESI and Sponsor will mutually
determine the scope of further analysis.
D. Sponsor agrees that once audit results are accepted by both parties, the audit shall be considered closed
and final.
E. ESI shall promptly pay overpayments (or Sponsor shall promptly pay underpayments, if applicable) upon
closure of the audit.
5. CONFIDENTIALITY
ESI's contracts are highly confidential and proprietary. For this reason, ESI only permits on -site review rather
than provide copies to our clients. During on -site contract review, Sponsor (or its Auditor) may take and retain
notes to the extent reasonably necessary to document any identified errors, but may not otherwise copy (through
handwritten notes or otherwise) or retain any manufacturer or Participating Pharmacy agreements (in part or in
whole) or related documents provided or made available by ESI in connection with the audit. ESI will be entitled
to review any notes to affirm compliance with this paragraph.
I47526v2
23
THIS BUSINESS ASSOCIATE AGREEMENT "Agreement is made for the purpose of delineating the
terms and conditions under which ESI "Business Associate and Sponsor "Covered Entity shall comply with
obligations under HIPAA relating to the PBM Services ESI provides to Sponsor under the PBM Agreement.
1. Definitions.
(a) "Designated Record Set" will mean a group of records maintained by or for Plan that is (i) the
medical records and billing records about individuals maintained by or for Plan, (ii) the enrollment, payment, claims
adjudication, and case or medical management record systems maintained by or for a health plan; or (iii) used, in
whole or in part, by or for Plan to make decisions about individuals.
(b) "Electronic PHI" or "ePHI" means PHI transmitted or maintained in electronic media as defined in
45 CFR 160.103
(c) "HIPAA Rules" means the collective privacy, transaction and security regulations promulgated
pursuant to the Health Insurance Portability and Accountability Act, as codified at 45 CFR Parts 160, 162 164.
(d) "Health Plan" or "Plan" will have the same meaning as the term "Health Plan" in 45 CFR 160.103.
(e) "Individual" will have the same meaning as the term "individual" in 45 CFR 160.103 and will
include a person who qualifies as a personal representative in accordance with 45 CFR 164.502(g).
(f) "PBM Agreement" means the Pharmacy Benefit Management Agreement to which this Business
Associate Agreement is attached.
(g) "Protected Health Information" or "PHI" will have the same meaning as the term "protected health
information" in 45 CFR 160.103, limited to the information created or received by ESI from or on behalf of Plan.
(h) "Privacy Rule" will mean the Standards for Privacy of Individually Identifiable Health Information at
45 CFR Part 160 and Part 164, as they exist now or as they may be amended.
(i)
G)
designee.
EXHIBIT C
BUSINESS ASSOCIATE AGREEMENT
"Required By Law" will have the same meaning as the term "required by law" in 45 CFR 160.103.
"Secretary" will mean the Secretary of the Department of Health and Human Services or his
(k) "Security Standards" will mean the Security Standards, 45 C.F.R. parts 160, 162 and 164, as they
exist now or as they may be amended.
(I) "Transaction Standards" will mean the Standards for Electronic Transactions, 45 C.F.R. 160 and
162, as they exist now or as they may be amended.
Terms used, but not otherwise defined, in this Addendum will have the same meaning as those terms in 45
CFR 160.103 and 164.501.
2. General Use and Disclosure Provisions. ESI and the Plan acknowledge and agree as follows:
(a) Except as otherwise limited in this Agreement, ESI may use and disclose PHI to properly provide,
manage and administer the services required under the PBM Agreement and consistent with applicable law to assist
the Plan in its operations, as long as such use or disclosure would not violate the HIPAA Rules if done by the Plan.
(b) ESI will take reasonable efforts to limit requests for, use and disclosure of PHI to the minimum
necessary to accomplish the intended request, use or disclosure.
(c) Except as otherwise limited in this Agreement:
(i) ESI may use PHI for the proper management and administration of ESI or to carry out
ESI's legal responsibilities.
(ii) ESI may disclose PHI to third parties for the proper management and administration of
147526v2 24
ESI or to carry out the legal responsibilities of ESI, provided that the disclosures are Required by Law, or
ESI obtains reasonable assurances from the person to whom the information is disclosed that it will remain
confidential and used or further disclosed only as Required by Law or for the purpose for which it was
disclosed to the person, and the person notifies ESI of any instances of which it is aware in which the
confidentiality of the information has been breached.
(iii) ESI may use PHI to perform Data Aggregation services on behalf of the Plan as permitted
by 45 CFR 164.504(e)(2)(i)(B).
(d) ESI agrees to promptly notify the Plan if ESI has knowledge that PHI has been used or disclosed
by ESI in a manner that violates applicable law.
(e) ESI agrees to use appropriate safeguards, consistent with applicable law, to prevent use or
disclosure of PHI in a manner that would violate this Agreement. ESI will provide the Plan with such information
concerning such safeguards as the Plan may reasonably request from time to time.
(f) ESI agrees to mitigate, to the extent practicable, any harmful effect that is known to ESI of a use or
disclosure of PHI by ESI in violation of this Agreement or the PBM Agreement.
(g) ESI agrees to ensure that any agent, including a subcontractor, to whom it provides PHI received
from, or created or received by ESI on behalf of the Plan agrees to the same restrictions and conditions that apply
through this Agreement to ESI with respect to such information.
(h) Within fifteen (15) business days of a request from the Plan, ESI will provide access to the Plan to
PHI in a Designated Record Set in order to meet the requirements under 45 CFR 164.524. If ESI receives a request
directly from an Individual, or if the Plan requests that access be provided to the Individual, ESI will provide access to
the Individual to PHI in a Designated Record Set within thirty (30) days in order to meet the requirements under 45
CFR 164.524.
(I) Within sixty (60) days of a request of the Plan or subject Individual, ESI agrees to make any
appropriate amendment(s) to PHI in a Designated Record Set that the Plan directs or agrees to pursuant to 45 CFR
164.526.
(j) ESI agrees to document disclosures of PHI and information related to such disclosures as would be
required for the Plan to respond to a request by an Individual for an accounting of disclosures in accordance with 45
CFR §164.528.
(k) Within thirty (30) business days of a proper request by the Plan, ESI agrees to document and make
available to the Plan, for a reasonable cost -based fee (under conditions permitted by HIPAA if an Individual requests
an accounting more than once during a twelve month period), such disclosures of PHI and information related to such
disclosures necessary to respond to such request for an accounting of disclosures of PHI, exclusive of those
disclosures for payment, treatment or healthcare operations, in accordance with 45 CFR 164.528. Within sixty (60)
days of proper request by subject Individual, ESI agrees to document and make available to the Individual the
information described above. ESI will retain copies of any accountings for a period of six (6) years from the date the
accounting was created.
(I) Within fifteen (15) business days of a request of the Plan, ESI agrees to evaluate a request to
restrict the use or disclosure of PHI on behalf of an Individual in accordance with 45 CFR 164.522.
(m) ESI agrees to make internal practices, books, and records relating to the use and disclosure of PHI
received from, or created or received by ESI on behalf of, the Plan available to the Plan within ten (10) business
days, or at the request of the Plan or the Secretary of HHS "Secretary"), to the Secretary in a time and manner
directed by the Secretary, for purposes of the Secretary determining the Plan's compliance with the HIPAA Rules.
3. Plan Obligations.
(a) Plan will notify ESI of any limitation(s) in the notice of privacy practices of Plan in accordance with
45 C.F.R. §164.520, to the extent that such limitation may affect ESI's use or disclosure of PHI.
(b) Plan will notify ESI of any changes in, or revocation of, permission by an Individual to use or
disclose PHI, to the extent that such changes may affect ESI's use or disclosure of PHI.
(c) Plan will notify ESI of any restriction to the use or disclosure of PHI that Plan has agreed to in
accordance with 45 C.F.R. §164.522, to the extent that such restriction may affect ESI's use or disclosure of PHI.
I 47526v2
25
(d) Plan will not request that ESI use or disclose PHI in any manner that would exceed that which is
minimally necessary under the HIPAA Rules or that would not be permitted by a Covered Entity.
4. Transactions Standards. To the extent applicable, ESI will comply with the applicable transactions
standards for claims processing functions between ESI and provider pharmacies. The parties each hereby agree that
it will not change any definition, data condition or use of a data element or segment in a standard, add any data
elements or segment to the maximum defined data set, use any code or data elements that are either marked "not
used" in the standard's implementation specification or are not in the implementation specification, or change the
meaning or intent of the implementation specification.
5. Security Standards. To the extent that ESI creates, receives, maintains or transmits electronic PHI, ESI
will:
(a) Implement administrative, physical and technical safeguards that reasonably and appropriately
protect the confidentiality, integrity, and availability of the Electronic PHI that ESI creates, receives, maintains or
transmits on behalf of the Plan as required by the Security Standards;
(b) Ensure that any agent, including a subcontractor, to whom ESI provides Electronic PHI agrees to
implement reasonable and appropriate safeguards to protect the PHI; and
aware.
(c) Promptly report to Plan any Security Incident involving Electronic PHI of which ESI becomes
6. Breach; Termination.
(a) Without limiting the termination rights of the parties pursuant to the PBM Agreement, upon the
Plan's knowledge of a material breach by ESI of this Agreement, the Plan will notify ESI of such breach and ESI will
have thirty (30) days to cure such breach. In the event ESI does not cure the breach, or cure is infeasible, the Plan
will have the right to immediately terminate this Agreement and the PBM Agreement. If cure of the material breach is
infeasible, Plan will report the violation to the Secretary.
(b) To the extent feasible, upon termination of the PBM Agreement for any reason, ESI will, and will
cause any subcontractors and agents to, return or destroy and retain no copies of all PHI received from, or created or
received by ESI on behalf of, the Plan. If return or destruction of such information is not feasible, ESI will continue to
limit the use or disclosure of such information as set forth in this Agreement as if the PBM Agreement had not been
terminated.
7. Indemnification. ESI will indemnify and hold harmless Plan from and against any claim, cause of action,
liability, damage, cost or expense, including reasonable attorneys' fees and court or proceeding costs, arising out of
or in connection with any (a) unauthorized use or disclosure of PHI, (b) failure in security measures affecting PHI; or
(c) other material breach of the terms of this Agreement by ESI or any person or entity under ESI control.
Indemnification is conditioned upon the Plan notifying ESI in writing promptly upon learning of any claim for which
indemnification may be sought hereunder, and will tender the defense of such claim to ESI. ESI will not be required
to indemnify Plan if any claim is settled without ESI's written consent.
8. Miscellaneous.
(a) Amendment. The parties acknowledge that the foregoing provisions are designed to comply with
the mandates of the HIPAA Rules. Should the provisions of the HIPAA Rules change or be amended after the date
of this Agreement, the parties will engage in negotiations to amend the provisions of this Agreement to comply with
such changes or amendments. If the parties fail to agree on reasonable amendment to the provisions of this
Agreement, either party may terminate this Agreement upon ninety (90) days written notice.
(b) Effect on PBM Agreement. Except as relates to the use, security and disclosure of PHI and
electronic transactions, this Agreement is not intended to change the terms and conditions of, or the rights and
obligations of the parties under, the PBM Agreement.
(c) No Third -Party Beneficiaries. Nothing express or implied in the PBM Agreement or in this
Agreement is intended to confer, nor will anything herein confer, upon any person other than the parties and the
respective successors or assigns of the parties, any rights, remedies, obligations or liabilities whatsoever.
(d) Interpretation. Any ambiguity in this Agreement will be resolved in favor of a meaning that permits
the Plan to comply with the HIPAA Rules.
147526v2 26
EXHIBIT D
FINANCIAL DISCLOSURE TO ESI PBM CLIENTS
This disclosure provides an overview of the principal revenue sources of Express Scripts, Inc. "ESI and does not
supersede any of the specific financial terms and conditions between ESI and an individual client. In addition to
administrative and dispensing fees paid to ESI by our clients for pharmaceutical benefit management "PBM services, ESI
derives revenue from other sources, including arrangements with pharmaceutical manufacturers, wholesale distributors, and
retail pharmacies. Some of this revenue relates to utilization of prescription drugs by members of the clients receiving PBM
services. ESI may pass through certain manufacturer payments to its clients or may retain those payments for itself,
depending on the contract terms between ESI and the client.
Network Pharmacies ESI contracts for its own account with retail pharmacies to dispense prescription drugs to
client members. Rates paid by ESI to these pharmacies may differ among networks (e.g., Medicare, Worker's Comp, open
and limited), and among pharmacies within a network. PBM agreements generally provide that a client pay ESI an
ingredient cost, plus dispensing fee, for drug claims at a uniform rate. If the rate paid by a client exceeds the rate contracted
with a particular pharmacy, ESI will realize a positive margin on the applicable claim. The reverse also may be true, resulting
in negative margin for ESI. ESI also enters into pass- through arrangements where the client pays ESI what the pharmacy is
paid. In addition, when ESI receives payment from a client before payment to a pharmacy, ESI retains the benefit of the use
of the funds between these payments.
Brand /Generic Classifications Prescription drugs may be classified as either a "brand" or "generic;" however, the
reference to a drug by its chemical name does not necessarily mean that the product is recognized as a generic for
adjudication, pricing or copay purposes. ESI distinguishes brands and generics through a proprietary algorithm "BGA that
uses certain published elements provided by First DataBank (FDB) including price indicators, Generic Indicator, Generic
Manufacturer Indicator, Generic Name Drug Indicator, Innovator, Drug Class and ANDA. The BGA uses these data
elements in a hierarchical process to categorize the products as brand or generic. The BGA also has processes to resolve
discrepancies and prevent "flipping" between brand and generic status due to price fluctuations and marketplace availability
changes. The elements listed above and sources are subject to change based on the availability of the specific fields.
Updated summaries of the BGA are available upon request.
Maximum Allowable Cost/Maximum Reimbursement Amount "MAC As part of the administration of the PBM
services, ESI maintains a MAC List of drug products identified as requiring pricing management due to the number of
manufacturers, utilization and /or pricing volatility. The criteria for inclusion on the MAC List are based on whether the drug
has readily available generic product(s), is generally equivalent to a brand drug, is cleared of any negative clinical
implications, and has a cost basis that will allow for pricing below brand rates. ESI also maintains correlative MAC price lists
based on current price reference data provided by FDB or other nationally recognized pricing source, market pricing and
availability information from generic manufacturers and on -line research of national wholesale drug company files. Similar to
the BGA, the elements listed above and sources are subject to change based on the availability of the specific fields.
Updated summaries of the MAC methodology are available upon request.
Manufacturer PBM Formulary Rebates and Associated Administrative Fees ESI contracts for its own account with
manufacturers to obtain formulary rebates attributable to the utilization of certain brand drugs and supplies by PBM client
members (and possibly certain authorized generics marketed under a brand manufacturer's new drug application).
Formulary rebate amounts vary based on the volume of utilization as well as a client's benefit design and formulary position
applicable to the drug or supplies, and in certain instances also may vary based on the product's market share. ESI often
pays an amount equal to all or a portion of the formulary rebates it receives to a client based on the client's PBM agreement
terms. ESI retains the financial benefit of the use of any funds held until payment of formulary rebate amounts is made to
the client. In addition, ESI provides administrative services to formulary rebate contracted manufacturers, which includes
access to drug utilization data, as allowed by law, for purposes of verifying and evaluating the rebate payments and
participation in ESI's PBM rebate program. ESI receives administrative fees from the participating manufacturers for the
maintenance and operation of the systems and other infrastructure necessary for managing and administering the PBM
formulary rebate process. These administrative fees are calculated based on the price of the rebated drug or supplies and
do not exceed the greater of (i) 3.5% of the average wholesale price, or (ii) 4.375% of the wholesale acquisition cost of the
products. (Currently
147526v2
3.5% of AWP is the equivalent of 4.375% of WAC)
ESI Subsidiary Pharmacies ESI has several licensed pharmacy subsidiaries, including our specialty pharmacies.
These entities may maintain product purchase discount arrangements and /or fee for service arrangements with
pharmaceutical manufacturers and wholesale distributors. These subsidiary pharmacies contract for these arrangements on
their own account in support of their various pharmacy operations. Many of these subsidiary arrangements relate to services
provided outside of PBM arrangements, and are entered into irrespective of whether the particular drug is on one of ESI's
national formularies. Discounts and fee for service payments received by ESI's subsidiary pharmacies are not part of the
PBM formulary rebates or associated administrative fees paid to ESI in connection with ESI's PBM formulary rebate
programs. In addition, these subsidiary pharmacy arrangements are negotiated separately from ESI's PBM formulary rebate
27
contracts. The following provides additional information regarding ESI subsidiary pharmacy discount arrangements and fee
for- service arrangements:
147526v2
ESI Subsidiary Pharmacy Discount Arrangements ESI subsidiary pharmacies purchase prescription drug
inventories, either from manufacturers or wholesalers, for dispensing to patients. Often, purchase discounts off
the acquisition cost of these products are made available by manufacturers and wholesalers in the form of
either up -front discounts or retrospective discounts. These purchase discounts, obtained through separate
purchase contracts, are not formulary rebates paid in connection with our PBM rebate programs since they are
not based on any PBM client's benefit design, formulary or member utilization. Drug purchase discounts are
based on a pharmacy's inventory needs and, at times, the performance of related patient care services and
other performance requirements. When a subsidiary pharmacy dispenses a product from its inventory, the
purchase price paid for the dispensed product, including applicable dispensing fees, may be greater or less
than that pharmacy's acquisition cost for the product net of purchase discounts. In general, our pharmacies
realize an overall positive margin between the net acquisition cost and the amounts paid for the dispensed
drugs.
ESI Subsidiary Pharmacy Fee For Service Arrangements ESI's subsidiary pharmacies also may receive fee
for- service payments from manufacturers, which may be in lieu of or in addition to product purchase discounts,
in conjunction with various programs or services, such as: (i) patient assistance programs for indigent patients;
(ii) dispensing prescription medications to patients enrolled in clinical trials; (iii) various therapy adherence and
fertility programs, and (iv) various other specialty pharmacy programs and services. As a condition to having
access to certain specialty products, and sometimes related to certain FDA requirements, a specialty
pharmaceutical manufacturer often will require a specialty pharmacy to report selected information to the
manufacturer regarding the pharmacy's service levels and other dispensing related data with respect to
patients who receive that manufacturer's product. A portion of the discounts or other fee for service payments
made available to our specialty pharmacies represents compensation for such reporting. In addition, specialty
pharmacies may sell non patient identifiable claim information they receive in connection with the performance
of their pharmacy services to data aggregators or manufacturers on a fee for service basis. All reporting
activities are conducted in compliance with applicable patient and pharmacy privacy laws. Note, however, that
ESI does not sell data resulting from its PBM services to healthcare data aggregators or similar entities at this
time. Should this change, ESI would do so only if expressly permitted under the PBM agreements with its
clients and applicable law.
Other Manufacturer Arrangements ESI also owns a wholesale distribution business, a group purchasing
organization, and various other businesses that provide additional services for manufacturers. Compensation derived
through these business arrangements is not part of the PBM formulary rebates or associated administrative fees paid to
ESI in connection with EST's PBM formulary rebate programs. In addition, these business arrangements are negotiated
separately from ESI's PBM formulary rebate contracts and are unrelated to the PBM drug formulary development process.
The following is an overview of these other businesses:
Wholesale Distribution ESI owns a wholesale distribution business. The wholesale distributor purchases
products from pharmaceutical manufacturers and distributes products to physicians, physician clinics and other
healthcare providers (and sometimes secondary wholesalers). Often, purchase discounts (either up -front or
retrospective) off the acquisition cost of these products are made available to Priority Healthcare by the
pharmaceutical manufacturers. The purchase price paid by the physician or similar client for product distributed
by Priority Healthcare may be greater or less than Priority Healthcare's acquisition cost for the for the product
from the pharmaceutical manufacturer, with Priority Healthcare often recognizing a positive margin on the sale
transaction. In lieu of, or in addition to, these purchase discounts, Priority Healthcare may enter into various
fee for service arrangements with pharmaceutical manufacturers related to its wholesale distribution services.
Group Purchasing Organization ESI owns a group purchasing organization, servicing primarily physicians
who enroll as members of Matrix to obtain preferential product purchase rates made available to group
purchasing organizations through pharmaceutical manufacturers. Matrix receives group purchasing
organization administrative fees from manufacturers, and sometimes wholesale distributors, in addition to
securing member product purchase discounts from pharmaceutical manufacturers. From time to time, Matrix
may also enter into other ancillary fee for service arrangements with manufacturers to perform other services.
ESI also maintains other lines of business that provide the following services for pharmaceutical manufacturers
on a fee for service basis: (i) product reimbursement support service programs and related hub services; (ii)
patient assistance program services; and (iii) drug and sample fulfillment and accountability, alternative
sampling, and direct mail and literature fulfillment services through Phoenix Marketing Group, LLC. In addition,
certain materials provided by ESI to patients and prescribers may be provided or funded by pharmaceutical
manufacturers, in compliance with applicable laws.
28
Services related to the Other Manufacturer Arrangements described above are provided to manufacturers
irrespective of whether a drug is on one of ESI's national formularies.
October 2008
THIS EXHIBIT REPRESENTS ESI'S CURRENT FINANCIAL POLICIES. ESI MAY PERIODICALLY UPDATE ITS
FINANCIAL DISCLOSURES TO REFLECT CHANGES IN ITS BUSINESS PROCESSES; THE CURRENT FINANCIAL
DISCLOSURE IS AVAILABLE UPON REQUEST AND ACCESSIBLE ON EXPRESS SCRIPTS.COM FOR CLIENTS AND
ADVISORS.
147526v2
29