PLAINTIFF’S MOTION FOR A TEMPORARY RESTRAINING ORDER

IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, OHIO CAREMARKPCS HEALTH, LLC, Plaintiff, v.

BARBARA R. SEARS, OHIO DEPARTMENT OF MEDICAID, Defendant.

: : : : : : : : : :

Case No. 18-cv-5943 Judge Jenifer A. French

DEFENDANT SEARS’ MEMORANDUM CONTRA PLAINTIFF’S MOTION FOR A TEMPORARY RESTRAINING ORDER

MICHAEL DeWINE (0009181) Ohio Attorney General C. David Paragas (0043908) Kevin R. McDermott (0019256) David J. Dirisamer (0092125) Barnes & Thornburg LLP 41 South High Street, Suite 3300 Columbus, Ohio 43215 Telephone: (614) 628-0096 Facsimile: (614) 628-1433 David.Paragas@btlaw.com Kevin.McDermott@btlaw.com David.Dirisamer@btlaw.com

Ara Mekhjian (0068800) Julie Brigner (0066367) Assistant Attorneys General Health and Human Services Section 30 East Broad Street, 26th Floor Columbus, Ohio 43215-3400 Telephone: (614) 644-8993 Facsimile: (866) 478-7791 ara.mekhjian@ohioattorneygeneral.gov julie.brigner@ohioattorneygeneral.gov

Counsel for Plaintiff

Counsel for Defendant

TABLE OF CONTENTS I.

INTRODUCTION ...............................................................................................................1

II.

BACKGROUND .................................................................................................................2 A.

Medicaid services in Ohio are provided mostly through arrangements with Medicaid managed care companies...........................................2

B.

Ohio’s Plans hire pharmacy benefit managers to help administer their prescription drug benefit..................................................................................3

C.

PBMs try to hide their activities, driving up taxpayer costs and creating inefficiencies. .............................................................................................4

III.

FACTS .................................................................................................................................6

IV.

ANALYSIS ........................................................................................................................11 A.

Standard of review .................................................................................................11

B.

Ohio’s public records law must be construed broadly, in favor of disclosure. ..............................................................................................................12

C.

Caremark has not shown a substantial likelihood of success on the merits of its claim that the information in the Report is a trade secret. .....................................................................................................................13 i.

Caremark has not carried its burden of showing that any part of the Report is a trade secret. ............................................................13

iii.

Caremark could not have reasonably relied on ODM’s actions or extraneous agreements to adequately protect the Report.........................................................................................................14

iii.

Caremark could not have reasonably relied on ODM’s actions or extraneous agreements to adequately protect the Report.........................................................................................................17

D.

The release of the Report will not cause irreparable damage to Caremark. ...............................................................................................................19

E.

Release of the Report will not harm third parties and will benefit the public................................................................................................................21

i

F.

V.

If the Court determines that the Report contains Caremark trade secrets, it should identify the trade secrets in the Report, direct ODM to redact them, and direct ODM to disclose a redacted report. .....................................................................................................................22

CONCLUSION ..................................................................................................................24

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TABLE OF AUTHORITIES Page(s) Cases Brookville Equip. Corp. v. City of Cincinnati, 2012-Ohio-3648 (1st Dist.) ................................................................................................11, 13 State ex rel. Dispatch Printing Co. v. City of Columbus, 90 Ohio St.3d 39 (2008)...........................................................................................................12 State ex rel. Dispatch Printing Co. v. Johnson, 106 Ohio St.3d 160 (2005).......................................................................................................12 State ex rel. Dispatch Printing Co. v. Wells, 18 Ohio St.3d 382 (1985).........................................................................................................18 Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171 (1999).........................................................................................................13 State ex rel. Gannett Satellite Information Network v. Shirey, 78 Ohio St.3d 400 (1997)...................................................................................................13, 18 Griffith v. J.C. Penny (1986), 24 Ohio St.3d 112........................................................................................................18 Hill v. Sonitrol, 36 Ohio St.3d 36 (1988)...........................................................................................................17 J.P. v. T.H., 2017-Ohio-233 (9th Dist.) .................................................................................................11, 13 Jedson Engineering, Inc. v. Spirit Constr. Servs., 720 F.Supp.2d 904 (S.D. Ohio 2010) ......................................................................................16 Johnson v. Morris, 108 Ohio App.3d 343 (4th Dist. 1995) ....................................................................................12 Keefer v. Ohio Dept. of Job & Family Servs., 2003-Ohio-6557 (10th Dist.) ...................................................................................................19 Kendall Holdings, Ltd. V. Eden Cryogenics, LLC, 630 F.Supp.2d 853 (S.D. Ohio 2008) ......................................................................................19 Mead Corp. v. Lane, 54 Ohio App.3d 59 (4th Dist. 1988) ..................................................................................11, 13

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Oriana House, Inc. v. Montgomery, 108 Ohio St.3d 419, 2006-Ohio-1325 (2006) ....................................................................21, 22 Pharm. Care Mgmt. Ass’n v. Rowe, 2005 U.S. Dist. LEXIS 2339 (D. Maine 2005) ....................................................................5, 21 State ex rel. Plain Dealer v. Ohio Dep’t of Ins., 80 Ohio St.3d 513 (1997)...................................................................................................12, 24 R.C. v. Olmstead, Inc. v. CU Interface, LLC, 606 F.3d 262 (6th Cir. 2010) ...................................................................................................16 Sinoff v. Ohio Permanente Med. Group, 146 Ohio App.3d 732, 2001-Ohio-4186 (8th Dist.).................................................................12 State ex rel. Smith v. Maharry, 97 Ohio St. 272 (1918).............................................................................................................21 State ex rel. Sun Newspapers v. Westlake Bd. of Edn., 76 Ohio App.3d 170 (8th Dist. 1991) ......................................................................................18 Teodecki v. Litchfield Twp., 2015-Ohio-2309 (9th Dist.) .....................................................................................................19 White v. Long, 12 Ohio App.2d 136 (1st Dist. 1967).......................................................................................12 Youngstown City Sch. Dist. Bd. of Educ. v. State, 2017-Ohio-555 (10th Dist.) .....................................................................................................12 Statutes R.C. 149.011(A), (B), and (D) .......................................................................................................13 R.C. 149.43 ....................................................................................................................................12 R.C. 149.43(A)...............................................................................................................................13 R.C. 149.43(A)(1)(v) .....................................................................................................................13 Other Authorities 42 C.F.R. §§438.2, 438.4 & 438.5 ...................................................................................................2

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I.

INTRODUCTION The issue in this public-records case is whether the Ohio Department of Medicaid

(“ODM”) can release the undisclosed part of a report describing how CaremarkPCS Health, LLC, (“Caremark”) spent hundreds of millions of dollars of state and federal funds. The first part of the report has already been released, with Caremark’s consent. Caremark has asked to enjoin release of the undisclosed part of the report because it allegedly contains trade secrets.

It’s true that trade secrets are exempt from disclosure as public records. But the report doesn’t contain any of Caremark’s trade secrets. A trade secret is statutorily defined as certain information that “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Caremark did not make efforts that, under the circumstances, were reasonable to protect the report. Caremark states that releasing the undisclosed part of the report would be devastating to its $120 billion dollar per year national business. But what did Caremark do protect information that could allegedly “devastate” its multi-billion dollar business? It approved contract terms that allowed an unaffiliated third party to permit disclosure of the entire report to anyone, for any reason. That unaffiliated third party is HealthPlan Data Solutions, L.L.C. (“HDS”), which is the company that produced the report.

Caremark’s approval of such

disclosures prevents the report from being a Caremark trade secret.

If the Court determines that the undisclosed part of the report contains Caremark trade secrets, it should identify those trade secrets, direct ODM to redact them, and direct ODM to release a redacted report. There should be no reasonable dispute that, regardless of Caremark’s efforts (or lack thereof) to protect the report, parts of the report do not contain any Caremark trade secrets.

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As an aside, Caremark has argued against the release of its contracts with Medicaid managed care plans.

ODM has not proposed to release those agreements to the public.

Therefore, they are not relevant to Caremark’s TRO motion and are not discussed below.

II.

BACKGROUND To understand Caremark’s trade-secret claims, it is helpful to understand Caremark’s role

in the provision of prescription drugs to Medicaid recipients. Sections II(A) through (C), below, provide a high-level overview of the role that pharmacy benefit managers like Caremark play in providing prescription drugs to Medicaid recipients.

A.

Medicaid services in Ohio are provided mostly through arrangements with Medicaid managed care companies.

In Ohio, most Medicaid-covered services are provided under arrangements with Medicaid managed care plans (“Plans”). Each Plan contracts with healthcare providers, who agree to furnish healthcare services to the Plan’s members at rates negotiated between the Plan and the healthcare provider (a hospital, physician, psychologist, etc.). Each Plan then markets its services to Medicaid recipients, who agree to receive care from a particular Plan’s network of healthcare providers.

ODM hires an actuary to develop rates it will pay each Plan for a particular population of Medicaid recipients, in a particular geographic area covered by a particular Plan, for a particular period of time. See 42 C.F.R. §§438.2, 438.4 & 438.5. For example, Medicaid currently pays a Plan $716 per month for each aged, blind, and disabled individual under age 21 in the North Central region of the state. Ohio Medical Assistance Provider Agreement for Managed Care Plan (rev. 7-1-2018), at App. 1, p. 1. 1 This payment arrangement between ODM and the Plans is

1

Available at http://medicaid.ohio.gov/Portals/0/Providers/ProviderTypes/Managed%20Care/Provider%20Agreements/ ManagedCare-PA-201807.pdf (last accessed 7-25-2018).

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called a “capitation payment.” Each Plan is required to use these capitation payments, in the aggregate, to pay for all Medicaid-covered healthcare services that its members require.

B.

Ohio’s Plans hire pharmacy benefit managers to help administer their prescription drug benefit.

All of Ohio’s Plans have contracted with a pharmacy benefit manager (“PBMs”) to help them administer their prescription drug coverage. Four Plans have hired Caremark and one Plan has hired OptumRx. The services provided by PBMs may vary depending on the service line (Medicare, Medicaid, private insurance, etc.), the state, the PBM, the managed care provider, and other factors. See Lavin Aff., ¶¶15-16 attached as Ex. A to Caremark’s TRO Motion (every Caremark contract is unique). 2 But, generally speaking, PBMs contracting with Ohio’s Plans perform at least the following services: they contract with a network of pharmacies that agree to provide prescription drugs to the Plan’s members; they help determine which drugs the Plans will pay for; they negotiate discounts from drug manufacturers; they negotiate how much they will pay pharmacies to provide prescription drugs to Plan members, and they help process claims for prescription drugs provided to Plan members. See Complaint, ¶¶10, 19-20; Lavin Aff., ¶¶5, 15, and 24, attached as Ex. A to Caremark’s TRO Motion. See also, The Role of Pharmacy Benefit Managers in American Health Care: Pharmacy Concerns and Perspectives: Part 1, Pharmacy Times (Nov. 14, 2017). 3 When performing some functions, PBMs act much like the Plans themselves.

Just as the ODM pays the Plans, who use their network of healthcare

providers to furnish health care services to the Plans’ members, the Plans pay the PBMs, who use their network of pharmacies to provide prescription drugs to the Plans’ members.

2

ODM is not at this time conceding the accuracy of any facts in the Complaint, Caremark’s TRO Motion, or the Affidavit, but merely assuming some of them, as cited, the purpose of this Memorandum.

3 Available at https://www.pharmacytimes.com/news/the-role-of-pharmacy-benefit-mangers-in-americanhealth-care-pharmacy-concerns-and-perspectives-part-1 (last visited June 28, 2018).

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A greatly simplified relationship among ODM, the Plans, and PBMs looks like this:

C.

PBMs try to hide their activities, driving up taxpayer costs and creating inefficiencies.

In theory, PBMs negotiate discounts and save money for Plans and, by extension, the Medicaid program.

See Complaint ¶¶11-13.

In reality, the picture is more complicated.

Americans spent at least $328 billion on prescription drugs in 2016. See National Health Expenditure Projections 2017-2026, Health Affairs, 37:3, p. 487 (March 2018), attached as Ex. A. Medicare and Medicaid paid for approximately $128 billion of that amount ($95 billion for Medicare and $33 billion for Medicaid). See NHE Projections, 2017-2026 – Tables (Table 11 Prescription Drug Expenditures), published by the Office of the Actuary of the federal Centers for Medicare and Medicaid Services. 4 Among major health care goods and services, prescription drugs are projected to experience the fastest average annual spending growth in 2017-2026. See Ex. A at 484.

4

Available at https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-andreports/nationalhealthexpenddata/nationalhealthaccountsprojected.html (last visited July 26, 2018).

4

Despite the vast amount of taxpayer money involved, it is difficult to determine how wisely this money is being spent. This is partly due to PBMs’ efforts to try to prevent anyone from finding out exactly what they do and how they do it. Take Caremark’s position in this case as examples.

Caremark states that its agreements with the Plans are confidential – so

confidential that it can’t even disclose the confidentiality provisions of those agreements it says prevent the release of information. See Complaint, p. 6 & n.1. Or consider Caremark’s request for an injunction prohibiting the release of the entire Report 5 – including page 8, which contains no information about Caremark or anything it does, page 10, which describes how HDS handled certain raw data it received (again, revealing nothing about Caremark), and page 23, which describes HDS’ estimate of the $16 million cost savings that could be realized if the Plans used pass-through pricing instead of the Spread Pricing 6 that generated a $197 million difference between the amounts the Plans paid Caremark and the amount that Caremark paid pharmacies.

See Report pp. 8, 10, and 23 (provided to Court for in-camera review).

Numerous commentators have cited the lack of transparency in the PBM industry as a contributor to unnecessary costs and inefficiencies. See, e.g., Pharm. Care Mgmt. Ass’n v. Rowe, 2005 U.S. Dist. LEXIS 2339 at *7 (D. Maine 2005) (“[A]lthough PBMs afford a valuable bundle of services to benefits providers, they also introduce a layer of fog to the market that prevents benefits providers from fully understanding how best to minimize their net prescription drug costs.”); Making Medicines Affordable, National Academy of Sciences, p. 19 (2018), attached as Ex. B (“The profits generated by PBMs [and others in the pharmaceutical supply chain] 5

Caremark has asked for a “permanent injunction, restraining and enjoining ODM . . . from disclosing the Report. . . .” Complaint at p. 16.

6 “Spread Pricing” is a PBM practice of paying a pharmacy less for a prescription drug than the PBM receives from a Plan for that same drug. For example, if a Plan pays a PBM $5.00 for the provision of a drug to a Plan Member and the Plan pays the pharmacy $4.50 for that drug, then there’s a $.50 “spread” in the price. These pricing spreads add up when multiplied by the approximately 39,267,983 drugs provided to Plan members. See Report, pp. 3-4.

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ultimately affect the patients and their ability to pay for therapies, and do not increase the incentives to develop new drugs.”). In some cases, PBMs have prohibited pharmacies from telling patients about ways to purchase their prescriptions at a lower cost and/or or telling patients that their drugs would be cheaper if they paid cash rather than use their insurance. 7 III.

FACTS ODM was investigating the activities of PBMs in Ohio’s Medicaid program in the spring

of 2018. As part of that investigation, ODM hired HDS to analyze whether and to what extent PBMs were using Spread Pricing, 8 and other related issues. See HDS Agreement, attached as Ex. C. HDS completed its work over the summer and provided a 51-page report (the “Report”) to ODM in June 2018. See Complaint, ¶60.

The protection of confidential information in the Report is governed by an agreement between HDS and ODM. See HDS Agreement, Ex. C. Caremark, through its attorney, proposed many of the confidentiality provisions in that agreement. See March 26, 2018, email, attached as Ex. 1 to Lodge Aff. (Ex. D). Caremark, also through its attorney, “signed off” on the final version of the many of the confidentiality provisions of the Report. See March 27, 2018, email, attached as Ex. 2 to Lodge Aff. (Ex. D) (“CVS has signed off on the language. I am now working on the logistics of communication.”). Those confidentiality provisions recognize that the result of HDS’ work (e.g., the Report) might contain confidential information. See HDS Agreement, §5.3 (“If any Deliverables[9] contain data, documentation, or other written information that is confidential in nature and properly labeled as such, then it will also be

7

The Ohio Department of Insurance recently issued a bulletin defining this as a prohibited “fraudulent, coercive, or dishonest practice.” See Bulletin 2018-02, Pharmacy Benefits – Prohibited Practices (eff.

April 3, 2018), attached as Ex. E and available at https://www.insurance.ohio.gov/Legal/Bulletins/Documents/2018-02.pdf.

8 See definition of “Spread Pricing” at n.6, above.

9 “Deliverables” include “any custom materials resulting from the [HDS]’ services, such as the Report.

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Confidential Information for purposes of this section.”). They state that ODM can’t disclose such Confidential Information to any third party without first obligating the third party to maintain the secrecy of the information. HDS Agreement, §5.3, ¶2. But ODM’s obligations to maintain the confidentiality of Confidential Information do not apply when: 1) HDS provides the Confidential Information to ODM; and 2) gives ODM written consent to disclose that information. The actual language of the contract states:

See HDS Agreement, §5.3 (emphasis added). So if HDS (as the Disclosing Party) gave ODM (as the Receiving Party) confidential information in the Report, ODM could disclose it with HDS’ written consent. This is part of the language that Caremark “signed off” on. See Ex. 1 and 2 to Lodge Aff. (Ex. D). It is also the sort of disclosure that Caremark states would “devastating to Caremark’s entire nationwide business model. . .” See Complaint at ¶¶25, 39. Publications by Caremark’s parent company indicate that its national PBM business generates over $120 billion per year in revenue ($34.2 billion in Q4 2017 and $32.2 billion in Q1 2018). See Fourth Quarter 2017 Earnings Conference Call and First Quarter 2018 Earnings Conference Call, attached as Ex. F, p. 22 and G, p. 23. 10 And yet Caremark “signed off” on contract terms giving HDS the 10

These documents are available on the internet at http://investors.cvshealth.com/~/media/Files/C/CVSIR-v3/documents/02-08-2018/q4-2017-earnings-presentation.pdf and http://investors.cvshealth.com/~/media/Files/C/CVS-IR-v3/documents/02-may-2018/q1-2018-earningspresentation.pdf (last visited July 27, 2018).

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discretion to allow ODM to disclose confidential information in the Report to anyone, for any reason. See Ex. C and Ex. 1 to Lodge Aff. (Ex. D). Ultimately, that’s exactly what happened – HDS agreed to allow ODM to disclose confidential information in the Report to anyone. See July 12, 2018, email from Gary Rutherford to Joel Lodge, attached as Ex. 3 to Lodge Aff. (Ex. D) (“HealthPlan Data Solutions grants permission for ODM to share anything in the complete report ‘ODM_HDS Final Report’, with any entity ODM determines should have access”).

Caremark also “signed off” on contract language allowing ODM to disclose any confidential information to any third party (e.g., a Plan, a pharmacy, or a competing PBM), provided ODM obligates the third party to maintain the secrecy of the confidential information. See HDS Agreement, §5.3, ¶2; Ex. C and Ex. 1 to Lodge Aff. (Ex. D).

Other provisions in the HDS Agreement state that: •

“All custom work done by the Contractor and covered by [the HDS Agreement] will belong to ODM, with all rights, title, and interest in all intellectual property that comes into existence through the Contractor’s work under this Contract being assigned to ODM.” See HDS Agreement, §5.2, ¶1 (Ex. C).

•

“Subject to the limitations and obligations of ODM with respect to Pre-existing Materials [not at issue in this case], ODM may make all custom Deliverables available to the general public without any proprietary notices of any kind.” See HDS Agreement, §5.2, ¶4.

Further, after being given an opportunity to review them, Caremark agreed to the release of the first seven pages of the Report (the “Executive Summary”), which contain significant amounts of information about Caremark’s business. See Report, pp.1-7 (provided to the Court for in-camera review). The Executive Summary contains information regarding: 1.

The number of prescription claims that Caremark processed, broken out by Plan;

2.

The total dollars that Caremark paid to each Plan for certain pharmacy claims;

3.

The total amount that each Plan paid Caremark for certain pharmacy claims;

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4.

The difference between what Caremark paid the pharmacies and what it paid the Plans for certain pharmacy claims (“Spread Pricing”);

5.

Aggregate pricing discounts;

6.

Dispensing fees paid to independent pharmacies and Caremark-affiliated pharmacies; and

7.

Recent percentage changes in reimbursement.

The Executive Summary also showed that Caremark was engaging in Spread Pricing (that is, billing the Plans more than it paid pharmacies). The Executive Summary showed that this CVS’ Spread Pricing cost the Plans $197,330,048.71. See Report, p. 3, attached as Exhibit J (the full 51-page Report was provided to the Court for in-camera review on July 17, 2018).

Much of the information in the Executive Summary also appears elsewhere in the Report.

See Ex. T (filed under seal) for a side by side comparison of portions of the Executive Summary to portions of the rest of the Report. For example: •

The information on page 3 is reproduced almost verbatim on page 15 of the Report.

•

The words under the heading “Data Validation through the Comparison of Ingredient Cost and Dispensing Fees” on page 4 of the Executive Summary, are virtually identical to the words on page 12 of the Report. Four of the columns from the table on page 4 are included in Table 3 on page 11 of the Report.

•

Similarly, the information under the heading “Identification of Potentially AntiCompetitive Pricing by CVS against Independent Pharmacies” on page 5 also appears on page 19 of the Report (see rows labeled “Independent”). The information under the heading “Implementation of Pass-Through Pricing Model PBM Contracts for MCPs is substantively the same as that contained on page 22 of the Report.

•

The substance of the carry-over paragraph at the top of page 6 is set forth on page 21 of the Report. The dollar amounts set forth in that paragraph also appear on pages 21 and 22 of the Report. All of the information under the heading “Fee-for-Service Pricing Comparison” on pages 6 and 7 also appears on pages 23 and 24 of the Report.

Information in the Report that has already been revealed in the Executive Summary

cannot be a Caremark trade secret because it has already been disclosed, with Caremark’s permission. Far from objecting to the release of the Executive Summary, Caremark stated that it 9

was “extremely pleased” with certain parts of the Executive Summary. See CVS Statement Regarding Ohio Department of Medicaid’s Report on PBM Performance for Managed Care Plans (6-21-2018), attached as Ex. K. 11 It made no public comment on the release of any information regarding the number of prescriptions filled, the $197 million in Spread Pricing, or other matters in the Executive Summary. Id. The information in the Executive Summary generated significant interest from the General Assembly and members of the public. See, e.g., Medicaid Analysis Shows Hundreds of Millions in PBM Spread Pricing Dollars, Ohio Pharmacists’ Association; 12 Lawmakers Consider Whether Ohio Medicaid is Overpaying . . ., the Center for Community Solutions; 13 The (more) Complete PBM Picture, Sen. William P. Coley, II; 14 State Report: Pharmacy Middlemen Reap Millions From Tax-Funded Medicaid, Columbus Dispatch. 15 The Columbus Dispatch asked ODM to provide a copy of the full report. See June 8, 2018, email from Catherine Candisky to Melissa Ayers at ODM, attached as Ex. 1 to Ayers Aff. (Ex. P). ODM initially refused, citing various confidentiality laws and contractual provisions. See June 29, 2018, email from Thomas Betti to Catherine Candisky, attached as Ex. 1 to Betti Aff. (Ex. Q). ODM later stated that the entire Report was a public record and should be released. See Complaint at Ex. A. ODM notified Caremark and OptumRx of the impending release of the Report to give them an opportunity to contest the disclosure of the Report. Caremark filed this lawsuit to prevent the 11

Available at https://cvshealth.com/newsroom/press-releases/cvs-health-statement-regarding-ohiodepartment-medicaids-report-pbm (last visited July 26, 2018).

12 Attached as Ex. L and available at https://www.ohiopharmacists.org/aws/OPA/pt/sd/news_article/174606/_PARENT/layout_interior_details /false (last visited June 27, 2018).

13 Attached as Ex. M and available at https://www.communitysolutions.com/june-jmoc-part-2/ (last visited June 27, 2018).

14 Attached as Ex. N and available at http://www.jmoc.state.oh.us/assets/meetings/ColeyJMOCPresentation.pdf (last visited June 27, 2018).

15 Attached as Ex. O and available at http://gatehousenews.com/sideeffects/state-report-pharmacymiddlemen-reap-millions-from-tax-funded-medicaid/ (last visited June 27, 2018).

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release of the entire Report. OptumRx has not filed any action to prevent disclosure of the entire Report.

As discussed below, the entire Report should be released. Nothing in the Report is a trade secret of Caremark because Caremark failed to take efforts that are reasonable under the circumstances to maintain the secrecy of Report that it claims would be devastating to its $100 billion-plus business. Because the information in the Report not a trade secret, it is a public record and must be disclosed in response to public records requests. In the alternative, it is clear that much of the information in the Report is not a trade secret, regardless of the efforts that Caremark made (or failed to make) to keep the information confidential because the information simply doesn’t meet the definition of a “trade secret” under Ohio law. If the Court determines that the Report contains Caremark trade secrets, ODM respectfully requests that the Court identify those trade secrets, direct ODM to redact them, and direct ODM to release a redacted report to the public.

IV.

ANALYSIS A.

Standard of review

In order to be entitled to a temporary restraining order, a plaintiff must demonstrate, by clear and convincing evidence that: (1) the moving party has a substantial likelihood of success in the underlying suit; (2) that the moving party will suffer irreparable harm if the order does not issue; (3) that no third parties will be harmed if the order is issued; and (4) that the public interest is served by issuing the order. Mead Corp. v. Lane, 54 Ohio App.3d 59, 63 (4th Dist. 1988) (“clear and convincing” standard applied case seeking to enjoin disclosure of trade secrets); Brookville Equip. Corp. v. City of Cincinnati, 2012-Ohio-3648, ¶11 (1st Dist.); J.P. v. T.H., 2017-Ohio-233, ¶19 (9th Dist.). Courts assess motions for a preliminary injunction in light of

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those same four factors and evidentiary burden. See Johnson v. Morris, 108 Ohio App.3d 343, 352 (4th Dist. 1995). “[N]o one factor is dispositive and all four factors must be balanced.”

Youngstown City Sch. Dist. Bd. of Educ. v. State, 2017-Ohio-555, ¶68 (10th Dist.). “[A] preliminary injunction is an extraordinary remedy and, as such, the appellant has a substantial burden to meet in order to be entitled to a preliminary injunction. The party seeking the preliminary injunction must establish a right to the preliminary injunction by showing clear and convincing evidence of each element of the claim.” Sinoff v. Ohio Permanente Med. Group, 146 Ohio App.3d 732, 2001-Ohio-4186, ¶39 (8th Dist.) (internal citations omitted).

A court should be especially careful when asked to grant an injunction if doing so would interfere with or suspend the operation of important works or to control the action of another department of government. See White v. Long, 12 Ohio App.2d 136, 140 (1st Dist. 1967).

B.

Ohio’s public records law must be construed broadly, in favor of disclosure.

In enacting Ohio’s public records law, R.C. 149.43, the General Assembly sought to provide broad access to public records. See State ex rel. Dispatch Printing Co. v. City of Columbus, 90 Ohio St.3d 39, 41 (2008), citing State ex rel. Allright Parking of Cleveland, Inc. v.

Cleveland, 63 Ohio St.3d 772, 775 (1992).

Ohio’s public records law must be construed

liberally and is subject to only a few very limited and narrow exceptions. State ex rel. Plain Dealer v. Ohio Dep’t of Ins., 80 Ohio St.3d 513, 518, (1997), quoting State ex rel. Williams v.

Cleveland, 64 Ohio St.3d 544, 549 (1992). A citizen therefore may gain access to records kept by a public office unless the requested records fall within an exception to the Act. State ex rel.

Plain Dealer, 80 Ohio St.3d at 518. Any doubt regarding disclosure of public records is resolved in favor of disclosure. State ex rel. Dispatch Printing Co. v. Johnson, 106 Ohio St.3d 160, ¶16 (2005).

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Public records will be subject to disclosure in spite of an agreement or contract designating it confidential. State ex rel. Gannett Satellite Information Network v. Shirey, 78 Ohio St.3d 400, 403 (1997).

C.

Caremark has not shown a substantial likelihood of success on the merits of its claim that the information in the Report is a trade secret.

A “public record” is a record kept by any public office. R.C. 149.43(A). ODM is a public office. R.C. 149.011(A), (B), and (D). The Report ODM received from HDS is a “record” held by a public office.

Therefore, the Report is a public record and subject to

disclosure unless an exception to Ohio’s public records laws applies. The only exception that Caremark has identified is the trade-secret exception. See Caremark’s TRO Motion, pp. 6-9; R.C. 149.43(A)(1)(v) (prohibiting disclosure of information whose disclosure is prohibited by state or federal law). Because trade secrets are prohibited from release by state law, they are not public records.

As discussed below, the Report at issue in this case is not a trade secret because Caremark did not make efforts that were reasonable under the circumstances to keep it secret. i.

Caremark has not carried its burden of showing that any part of the Report is a trade secret.

A party seeking a temporary restraining order must show by clear and convincing evidence that it is entitled to relief. Mead Corp., 54 Ohio App.3d at 63; Brookville Equip. Corp., 2012-Ohio-3648, ¶11; J.P., 2017-Ohio-233, ¶19. Further, an entity claiming trade-secret status bears the burden to identify and demonstrate that the material is a trade secret. Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171, 181 (1999). Caremark has failed to carry this burden because it has not identified the parts of the Report that it alleges to be a trade secret or even provided the Court with a copy of the Report for an in-camera inspection. The fact that

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ODM has provided the Court with a copy of the Report is not relevant. It is Caremark’s burden to affirmatively produce clear and convincing evidence showing that it is entitled to relief. Its failure to satisfy its burden leaves this Court to speculate as to what information Caremark claims is a trade secret and where that information is located within the Report. Caremark’s failure in this regard means that it has failed to carry its burden to show that it is entitled to injunctive relief. ii.

Caremark did not make reasonable efforts to protect the secrecy of the Report.

As discussed above, Caremark gave HDS, an unaffiliated third party, complete discretion to allow ODM disclose confidential information in the Report. It reviewed and “signed off” on contract provisions stating that ODM has no obligations to keep confidential information in the Report secret if HDS gives ODM written consent to disclose the information. See March 27, 2018, email, attached as Ex. 2 to Lodge Aff. (Ex. D) (“CVS has signed off on the language. I am now working on the logistics of communication.”); See HDS Agreement, §5.3 (Ex. C). Again, the actual text of this agreement reads:

Caremark also “signed off” on contract language allowing ODM to disclose any confidential information in the Report to any third party (e.g., a Plan, a pharmacy, or a competing PBM), provided ODM obligates the third party to maintain the secrecy of the 14

confidential information. See HDS Agreement, §5.3, ¶2; Ex. C and Ex. 1 to Lodge Aff. (Ex. D).

Further, the agreement regarding the confidentiality of the Report states that ODM has “all rights, title, and interest in all intellectual property that comes into existence through [HDS] work under this Contract being assigned to ODM.” See HDS Agreement, §5.2 (Ex. C). The Report was work done under the HDS Agreement. Id. at §2.2. So ODM has all rights, interest, and title to the Report. The HDS Agreement further states that “ODM may make all custom deliverables [such as the Report] available to the general public without any proprietary notices of any kind.” 16 See HDS Agreement, §5.2, ¶4.

Caremark’s pricing and other data have been disclosed to the public in other contexts.

For example, an executed copy of a PBM agreement between Caremark and Riverside County Rubidoux Pharmacy is available on the internet. See Riverside County Agreement, attached as Ex. R. 17 This agreement, which is publicly available on the internet, contains specific pricing terms, showing the specific prices that Caremark pays various networks for generic and brandname drugs. Id. For example, the agreement states:

16

There is an exception stating that HDS retains ownership of all “Pre-existing Materials,” but those materials aren’t at issue in this case. See HDS Agreement, §5.2, ¶4. “Pre-existing Materials” are “tools, methods, techniques, standards, and other development procedures, as well as generic and preexisting shells, subroutines, and similar material incorporated into any custom Deliverable.” Id. 17 This document is available on the internet at http://rivcocob.org/proceeds/2011/p2011_11_01_files/03.22001.pdf (last visited July 27, 2018).

15

This is some of the information in the Report that Caremark wants to have declared to be a “trade secret” and which Caremark claims has never “been publicly revealed.” See Complaint, ¶46. Compare this information to the information in pages 34-36, 38-42, and 44-49 of the Report.

ODM does not agree that the disclosure of the Report would have the devastating impact that Caremark alleges. Caremark, however, clearly believes that it would. Given that belief, one would have expected Caremark to take extreme measures to prevent the release of the information. But it did not. It gave an unaffiliated third party – HDS – the discretion to allow ODM to disclose it to anyone, for any reason. It allowed ODM to share the Report with anyone (including Caremark’s customers and business competitors) as long as they agreed to keep it secret.

Caremark’s failure to take reasonable efforts under the circumstances to maintain the secrecy of the Report prevents the Report from being a trade secret. See R.C. v. Olmstead, Inc. v.

CU Interface, LLC, 606 F.3d 262, 276 (6th Cir. 2010). In that case, Olmstead licensed hardware and software to a credit union. Id. at 265. The credit union hired an independent contractor, CU Interface, to write software that the credit union used to replace Olmstead’s software. Id. at 266.

Olmstead sued, claiming that one part of the software (a user interface) was a trade secret. Id. at 268. The Northern District of Ohio rejected Olmstead’s trade-secret claim and the Sixth Circuit upheld that ruling. The Sixth Circuit stated that the user interface was not a trade secret because Olmstead did not take reasonable steps to maintain its secrecy. Olmstead, 606 F.3d at 276, 277.

Specifically Olmstead’s contract with the credit union did not contain any confidentiality provisions preventing third parties from viewing the software. Id. at 277 (“[N]othing in the agreement limited the ability of those third parties to view the software.”). See also, Jedson

16

Engineering, Inc. v. Spirit Constr. Servs., 720 F.Supp.2d 904, 922 (S.D. Ohio 2010) (lack of confidentiality provision in agreement defeats trade secret claim).

Construing exceptions to Ohio’s public records laws narrowly and favoring disclosure, as it must, the Court should conclude that Caremark failed to take reasonable efforts to protect the information in the Report, thereby preventing it from being a trade secret. iii.

Caremark could not have reasonably relied on ODM’s actions or extraneous agreements to adequately protect the Report.

Caremark could not have reasonably relied on provider agreements between ODM and the Plans to show that it adequately protected the secrecy of the Report. The only parties to those agreements are ODM and the Plans. Caremark has no standing to enforce any provisions of those agreements. Caremark cannot reasonably argue that it has enforceable rights as an intended third-party beneficiary to these agreements, because none of the agreements require a Plan to hire any PBM, much less Caremark. At best, Caremark is an incidental beneficiary of these agreements, without any enforceable rights. See Hill v. Sonitrol, 36 Ohio St.3d 36, 40 (1988), citing, Norfolk & Western Co. v. United States, 641 F.2d 1201, 1208 (6th Cir. 1980).

Further, the relevant confidentiality provisions in those Plan agreements discuss the confidentiality of information provided by to ODM by a Plan, but do not contain any confidentiality provisions for information provided to ODM by HDS. See The Ohio Department of Medicaid Medical Assistance Provider Agreement for Managed Care Plan, Art. III, §B and App. C, §60(D) (eff. April 1, 2014), attached as Ex. S. So even if Caremark had standing to enforce those a Medicaid provider agreement and it does not), the terms of those agreements would not protect the confidentiality of the Report because the Report was given to ODM by HDS and not a Plan.

17

Caremark also could not have reasonably relied on ODM’s statements that it would keep information confidential to show that it adequately protected the secrecy of the Report. ODM cannot be estopped from now stating that the Report is a public record. See, e.g., Griffith v. J.C. Penny (1986), 24 Ohio St.3d 112, 113 (litigant cannot invoke estoppel against state when it relied on erroneous advice from Ohio Bureau of Employment Services employee regarding time for filing claim for unemployment benefits).

Neither ODM’s opinions nor its previous

statements can prevent the Report from becoming a public record unless an exception to the public records law applies. State ex rel. Gannett Satellite Information Network v. Shirey, 78 Ohio St.3d 400, 403 (1997).

In Shirey, the city of Cincinnati contracted with a private consultant to assist with hiring a safety director.

Id. at 401.

The Cincinnati Enquirer sued for access to the resumes and

supporting documents for all applicants for the position. On review, the Supreme Court held that the Enquirer’s public records request was proper because the applicants’ materials were public records and not exempt from disclosure by law. Id. at 403-404. The Court rejected the city’s argument that the terms of the contract made the records confidential. Id. at 402. The Court noted that “promises of confidentiality to applicants did not alter the public nature of resumes and documents submitted by applicants for the safety-director position.” Id. at 403, citing State ex rel. Findlay Publishing Co. v. Schroeder, 76 Ohio St.3d 580, 583 (1996); State ex rel.

Dispatch Printing Co. v. Wells, 18 Ohio St.3d 382, 384 (1985) (finding collective bargaining agreement cannot alter city’s duty to provide access to public records; otherwise “private citizens would be empowered to alter legal relationships between a government and the public at large via [contracts]”); State ex rel. Sun Newspapers v. Westlake Bd. of Edn., 76 Ohio App.3d 170, 173, (8th Dist. 1991) (public entity cannot enter into enforceable promises of confidentiality with

18

respect to public records). See also, Teodecki v. Litchfield Twp., 2015-Ohio-2309 (9th Dist.) (court ordered disclosure of public records that parties had agreed to keep confidential).

D.

The release of the Report will not cause irreparable damage to Caremark.

An irreparable harm is one for which there is no plain, adequate, and complete remedy and for which money damages would be impossible, difficult, or incomplete. Keefer v. Ohio Dept. of Job & Family Servs., 2003-Ohio-6557, ¶17 (10th Dist.). Caremark cannot show that it will suffer an irreparable injury because, at worst, the disclosure of the information in the Report will cause no more than limited financial harm compensable by damages.

It does not matter that some courts have held that irreparable harm is “generally” presumed when the disclosure of trade secrets is at issue.

That principle has been held

inapplicable when, as in this case, a plaintiff cannot establish a substantial likelihood of success on the merits. See Kendall Holdings, Ltd. V. Eden Cryogenics, LLC, 630 F.Supp.2d 853, 867 (S.D. Ohio 2008) (presumption applies “where is it shown that the defendant has misappropriated plaintiff’s trade secrets”) (emphasis in original). As discussed above, Caremark has not shown a substantial likelihood of success on the merits, so the presumption of irreparable harm does not exist in this case. See Kendall Holdings, Ltd., 630 F.Supp.2d at 867.

Caremark has failed to show actual irreparable harm. As Caremark states in the affidavit in support of its TRO motion, Caremark’s business is built on more than the information in the Report. Caremark states that it provides numerous services that are not discussed in the Report.

Lavin Aff., ¶15, attached as Ex. A to Caremark’s TRO Motion. Services 1, 2, 3(a), 3(b), 4, and 6 cited in ¶15 of the Lavin Affidavit are not discussed in the Report. 18

Disclosure of the

information in the Report will not compromise any secret about these services.

18

The Report explicitly states that “HDS did not report on PBM performance on specialty drugs. . . .” See Report, provided to Court for in-camera review.

19

Also, any information in the report relates only to the Ohio Medicaid program. Caremark is a “large national PBM, administering prescription drugs to tens of millions of Americans and millions of Ohioans.” As of April 2018, there were 2,775,439 people on Medicaid in Ohio. 19 Even if all of them used Caremark as their PBM (and we know they do not), that would equal only 13% of all people served by Caremark, assuming that it provides PBM services to 20 million people.

Further, Caremark provides services not only to the Plans, but to employers, unions, and government programs like Medicaid Part D.

Complaint, ¶6.

It has over 65,000 network

pharmacies. Id. at 10. And “each customer contract is separately negotiated and contains a unique combination of services and financial terms. Each customer has its own benefit plan design and features, and negotiates a customized service contract and pricing to fit its needs.”

Lavin Aff., ¶16, attached as Ex. A to Caremark’s TRO Motion.

Finally, all of the pricing information and contracts discussed in the Report have expired and some of them are nearly a year old. See Report, pp. 34-51 (terms expiring on 7-31-2017 are identified on pages 34-36, 40-43 of the Report). Each new Caremark contract is, according to Caremark, unique. See Lavin Aff., ¶16, attached as Ex. A to Caremark’s TRO Motion.

So what Caremark is left with in terms of “irreparable damages” is, at worst, the revelation a limited amount of data regarding just one of several services lines (Medicaid), in one of 50 states, affecting the vast minority of people served by its business, affecting a minority of the services that the company provides, that will not be used again, because all of Caremark’s customer contracts are unique.

19

Available at https://www.medicaid.gov/state-overviews/stateprofile.html?state=ohio (last visited July 28, 2018).

20

E.

Release of the Report will not harm third parties and will benefit the public.

Release of the Report will allow something that nearly every other business in the country experiences – honest competition based on price.

This will benefit policymakers,

lawmakers, the public, and every third party in the prescription-drug supply chain, from manufacturers to patients.

The Plans will perhaps reap the greatest reward because they will be able to analyze whether the “savings” that Caremark purports to provide are really the best deal they can get.

They can comparison-shop the terms that are disclosed in the Report with other PBMs or compare the deals offered by Caremark to non-PBM alternatives. Patients will benefit because disclosure of the information in the Report will eliminate the “fog to the market” that prevents purchasers of PBM services from minimizing their drug costs, affects patients’ ability to pay for their therapies, and does not increase incentives to develop new drugs. See Pharm. Care Mgmt.

Ass’n., 2005 U.S. Dist. LEXIS 2339 at *7; Making Medicines Affordable, National Academy of Sciences, p. 19 (2018). Lawmakers, policymakers outside of ODM, and the general public will know more about the soundness of the procedures used to create the Executive Summary, will have detailed information about how their tax dollars are being spent, and will be better able to remedy any abusive practices made apparent by the Report. See, e.g., the Ohio Department of Insurance’s bulletin prohibiting certain fraudulent, coercive, or dishonest PBM practices, attached as Ex. E. Disclosure of the Report would also further public policy. “Individuals or entities who control public funds have a duty to account for their handling of those funds.” Oriana House, Inc. v. Montgomery, 108 Ohio St.3d 419, 422, 2006-Ohio-1325 (2006), citing State ex rel.

Linndale v. Masten, 18 Ohio St.3d 228, 229 (1985); State ex rel. Smith v. Maharry, 97 Ohio St.

21

272, 276 (1918). “This duty is to ‘prevent frauds against the public, to protect public funds, and to place final responsibility for public funds on the shoulders of the officials charged with the collection and care of such funds.’” Oriana House, 2006-Ohio-1325, ¶13, quoting Masten, 18 Ohio St.3d at 229.

Consider what the release of just the Executive Summary has done. It has revealed that that Caremark was receiving a previously-undisclosed revenue stream of $197 million in state and federal taxpayer dollars. See Report at 3. It has revealed that the taxpayers of the State of Ohio could save an additional $16,154,557 savings if the Ohio Medicaid program switched from a Spread Pricing model to a pass-through pricing model, at least in HDS’ opinion. See Report at 5-6. It even benefited Caremark by giving it ammunition against critics who were claiming that Caremark paid independent pharmacies less than pharmacies owned by Caremark’s parent corporation. See CVS Statement Regarding Ohio Department of Medicaid’s Report on PBM Performance for Managed Care Plans (6-21-2018), attached as Ex. K. F.

If the Court determines that the Report contains Caremark trade secrets, it should identify the trade secrets in the Report, direct ODM to redact them, and direct ODM to disclose a redacted report.

If the Court determines that the Report contains Caremark trade secrets, it should identify those trade secrets, direct ODM to redact them, and direct ODM to release a redacted Report. As discussed above, much of the Report cannot be a trade secret because the Executive Summary has already been released, with Caremark’s permission. See pp. 9-10 above and Ex. T (filed under seal). Those parts of the Report that were already released in the Executive Summary cannot be trade secrets because they have been made publicly available, with Caremark’s permission.

22

In addition, some parts of the Report should be disclosed because they don’t contain clearly do not any information that could reasonably be considered a trade secret. Those parts include: Page Number

Type of Information

8

Introduction, without any description of any specific information

9

Table of contents, without any description of any specific information

10

Summary of what how HDS imported data, matched claims and description of the percentage of claims matched

12

Summary of certain of HDS’ data validation procedures and aggregate price information

21

HDS’ explanation of Spread Pricing and pass-through pricing, and its estimates of the Plans’ per-claim administrative fees

22

HDS’ suggested pricing formulas and cost-savings projections based on HDS proposals

23

HDS’ comparison of Medicaid managed care costs to Medicaid fee-for-service costs, with no specific information regarding any PBM

25

A description of HDS’ method of analyzing how PBMs performed, with no PBM or Plan data

28

HDS’ opinion about PBM performance, with no specific data about any PBM

29

A list of tables in the Appendix to the Report, indicating which Plans contract with which PBMs (but this information is already ascertainable from page 3 of the Executive Summary)

33

HDS’ projections of potential savings with pass-through pricing model, indicating spread pricing data and which Plans contract with which PBMs (but this information is already ascertainable from the Executive Summary)

Also, the report contains information describing how Caremark performed in regard to various contractual representations.

See Report, pp. 38-49 (far right-hand column).

This

information should not be considered to be a trade secret. Caremark did not invest resources in 23

the creation of this information – HDS created it. Id. Because Caremark did not create the information, most of the remaining criteria for determining the trade-secrecy of the information are inapplicable. See State ex rel. Plain Dealer v. Ohio Dept. of Ins., 80 Ohio St.3d 513, 524-525 (1997). To the extent that those criteria are applicable, they favor disclosure. The information is known outside of Caremark (by HDS), adequate steps were not taken to protect the secrecy of the information, and the information has little value to competitors because it reveals nothing about Caremark’s performance benchmarks.

Revealing the information would not reveal

anything about Caremark’s methods or even reveal the benchmarks themselves. It would reveal only the dollar value by which Caremark exceeded or failed to meet those benchmarks.

V.

CONCLUSION The Court should allow ODM to immediately release an unredacted copy of the Report to

the public. The information in the Report is a public record unless it is a Caremark trade secret.

However, because Caremark did not take measures that were reasonable under the circumstances to protect the secrecy of that information, the Report is not a Caremark trade secret. In the alternative, if the Court determines that the Report does contain Caremark trade secrets, it should identify those trade secrets, direct ODM to redact them, and direct ODM to release a redacted Report.

As stated in the Introduction, disclosure of any PDM contracts between Caremark and the Plans is not relevant because ODM has not proposed to release those agreements to the public.

24

Respectfully submitted, MICHAEL DeWINE (0009181) Ohio Attorney General /s/ Ara Mekhjian ARA MEKHJIAN (0068800) JULIE BRIGNER (0066367) Assistant Attorneys General Health and Human Services Section 30 East Broad Street, 26th Floor Columbus, Ohio 43215-3400 (614) 644-8993 (telephone) (866) 478-7791 (facsimile) ara.mekhjian@ohioattorneygeneral.gov julie.brigner@ohioattorneygeneral.gov Counsel for Defendant

CERTIFICATE OF SERVICE I certify that a true and accurate copy of the foregoing Defendant Sears’ Memorandum Contra Plaintiff’s Motion for a Temporary Restraining Order was served via via the Court’s electronic filing system and email on July 30, 2018, upon the following: C. David Paragas, Esq. Kevin R. McDermott, Esq. David J. Dirisamer, Esq. Barnes & Thornburg LLP 41 South High Street, Suite 3300 Columbus, Ohio 43215 David.Paragas@btlaw.com Kevin.McDermott@btlaw.com David.Dirisamer@btlaw.com /s/ Ara Mekhjian ARA MEKHJIAN

25

IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, OHIO CAREMARKPCS HEALTH, LLC, Plaintiff, v.

BARBARA R. SEARS, OHIO DEPARTMENT OF MEDICAID, Defendant.

: : : : : : : : : :

Case No. 18-cv-5943 Judge Jenifer A. French

EXHIBITS A THROUGH F TO DEFENDANT SEARS’ MEMORANDUM CONTRA PLAINTIFF’S MOTION FOR A TEMPORARY RESTRAINING ORDER

MICHAEL DeWINE (0009181) Ohio Attorney General C. David Paragas (0043908) Kevin R. McDermott (0019256) David J. Dirisamer (0092125) Barnes & Thornburg LLP 41 South High Street, Suite 3300 Columbus, Ohio 43215 Telephone: (614) 628-0096 Facsimile: (614) 628-1433 David.Paragas@btlaw.com Kevin.McDermott@btlaw.com David.Dirisamer@btlaw.com

Ara Mekhjian (0068800) Julie Brigner (0066367) Assistant Attorneys General Health and Human Services Section 30 East Broad Street, 26th Floor Columbus, Ohio 43215-3400 Telephone: (614) 644-8993 Facsimile: (866) 478-7791 ara.mekhjian@ohioattorneygeneral.gov julie.brigner@ohioattorneygeneral.gov

Counsel for Plaintiff

Counsel for Defendant

1

Costs

10.1377/hlthaff.2017.1655 HEALTH AFFAIRS 37, NO. 3 (2018): 482–492 ©2018 Project HOPE— The People-to-People Health Foundation, Inc.

doi:

Gigi A. Cuckler (Gigi.Cuckler@ cms.hhs.gov) is an economist in the Office of the Actuary, Centers for Medicare and Medicaid Services (CMS), in Baltimore, Maryland.

Andrea M. Sisko is an economist in the CMS Office of the Actuary.

John A. Poisal is a deputy director of the National Health Statistics Group, CMS Office of the Actuary.

&

Spending

By Gigi A. Cuckler, Andrea M. Sisko, John A. Poisal, Sean P. Keehan, Sheila D. Smith, Andrew J. Madison, Christian J. Wolfe, and James C. Hardesty

National Health Expenditure Projections, 2017–26: Despite Uncertainty, Fundamentals Primarily Drive Spending Growth ABSTRACT Under current law, national health spending is projected to grow 5.5 percent annually on average in 2017–26 and to represent 19.7 percent of the economy in 2026. Projected national health spending and enrollment growth over the next decade is largely driven by fundamental economic and demographic factors: changes in projected income growth, increases in prices for medical goods and services, and enrollment shifts from private health insurance to Medicare that are related to the aging of the population. The recent enactment of tax legislation that eliminated the individual mandate is expected to result in only a small reduction to insurance coverage trends.

Sean P. Keehan is an economist in the CMS Office of the Actuary.

Sheila D. Smith is an economist in the CMS Office of the Actuary.

Andrew J. Madison is an actuary in the CMS Office of the Actuary.

Christian J. Wolfe is an actuary in the CMS Office of the Actuary.

James C. Hardesty is an actuary in the CMS Office of the Actuary.

482

S

ince the beginning of the Great Recession in late 2007, the health sector has seen noteworthy spending patterns, not only because of economic effects on the use and price of health care services, but also because of the passage and enactment of major health care reform, including major insurance coverage expansions.1 Although considerable debate and uncertainty regarding the future of health care policy remain, under current law—including the Tax Cuts and Jobs Act of 2017, which effectively repealed the individual mandate by eliminating the shared-responsibility payment for failure to maintain minimum essential coverage—the outlook for national health spending and enrollment over the next decade is expected to be driven primarily by fundamental economic and demographic factors: trends in disposable personal income,2 increases in prices for medical goods and services, and shifts in enrollment from private health insurance to Medicare that result from the continued aging of the babyboom generation into eligibility.

National health spending growth is expected to average 5.5 percent per year for 2017–26 and to reach $5.7 trillion by 2026 (exhibit 1).3 Over

H e a lt h A f fai r s

Ma rch 2 018

the same period, growth in the nation’s gross domestic product (GDP) is expected to be 4.5 percent per year. This 1.0-percentage-point differential is expected to result in an increase in the health share of the economy from 17.9 percent in 20161 to 19.7 percent in 2026.

The projected average annual growth rate of 5.5 percent for 2017–26 is somewhat higher than the rate for 2008–13 (3.8 percent per year), when the most recent recession and modest recovery contributed to historically slow average annual growth in health spending, and for 2014–16 (5.0 percent per year), when the implementation of the Affordable Care Act (ACA) coverage expansions in 2014 was the primary influence. Spending growth in Medicare and Medicaid is a substantial contributor to the faster projected overall growth in national health spending through 2026. Over the period, projected increases in the use and intensity of care contribute to rising growth in Medicare per enrollee spending relative to recent nearly historic lows. In addition, Medicare enrollment is expected to continue to reflect the aging of the baby-boom generation into the program. For Medicaid, aging is anticipated to increase the share of enrollment accounted for by relatively more expensive

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A

Exhibit 1 National health expenditures (NHE), aggregate and per capita amounts, share of gross domestic product (GDP), and average annual growth from previous year shown, by source of funds, selected calendar years 2013–26 Source of funds

2013a

2015

2017b

2016

2018b

2020b

2026b

Expenditure, billions NHE Health consumption expenditures Out of pocket Health insurance Private health insurance Medicare Medicaid Federal State and local Other health insurance programsc Other third-party payers and programs and public health activity Investment Population (millions) GDP, billions Disposable personal income, billions NHE per capita GDP per capita Prices (2009 = 100.0) GDP Implicit Price Deflator, chain weighted Personal Health Care Price Index NHE as percent of GDP Annual growth NHE Health consumption expenditures Out of pocket Health insurance Private health insurance Medicare Medicaid Federal State and local Other health insurance programsc Other third-party payers and programs and public health activity Investment Populationd GDP Disposable personal income NHE per capita GDP per capita Prices (2009 = 100.0) GDP Implicit Price Deflator, chain weighted Personal Health Care Price Index

$2,879.0 2,725.9 325.2 2,087.8 946.4 590.2 445.4 256.9 188.5 105.9

$3,200.8 3,047.1 339.3 2,382.8 1,068.8 648.8 544.1 343.1 201.0 121.1

$3,337.2 3,179.8 352.5 2,486.8 1,123.4 672.1 565.5 358.1 207.5 125.8

$3,489.2 3,325.4 365.3 2,607.3 1,186.6 705.8 582.0 360.4 221.7 132.8

$3,675.3 3,504.3 379.8 2,755.2 1,244.1 748.1 622.0 385.8 236.2 141.1

$4,090.9 3,901.7 417.3 3,075.6 1,348.8 873.1 696.4 429.4 267.0 157.3

$5,696.2 5,437.1 555.3 4,351.9 1,776.0 1,366.0 996.2 613.0 383.2 213.8

312.9 153.1 315.7 $16,691.5 12,395.8 9,120.9 52,879.7

325.0 153.7 320.3 $18,120.7 13,615.0 9,994.2 56,579.7

340.5 157.4 322.5 $18,624.5 13,968.6 10,348.2 57,751.2

352.8 163.9 325.4 $19,350.9 14,441.9 10,723.5 59,471.4

369.2 171.1 328.4 $20,182.9 15,074.4 11,193.2 61,467.2

408.8 189.2 334.5 $22,192.4 16,609.6 12,230.4 66,347.2

529.8 259.2 352.3 $28,900.0 21,799.9 16,167.6 82,026.7

1.069 1.084 17.2%

1.100 1.107 17.7%

1.114 1.120 17.9%

1.133 1.135 18.0%

1.155 1.160 18.2%

1.206 1.217 18.4%

1.375 1.428 19.7%

3.8% 4.0 1.9 4.4 3.4 5.3 5.4 5.6 5.0 6.0

5.4% 5.7 2.1 6.8 6.3 4.9 10.5 15.6 3.3 6.9

4.3% 4.4 3.9 4.4 5.1 3.6 3.9 4.4 3.2 3.9

4.6% 4.6 3.6 4.8 5.6 5.0 2.9 0.6 6.9 5.5

5.3% 5.4 4.0 5.7 4.8 6.0 6.9 7.1 6.5 6.2

5.5% 5.5 4.8 5.7 4.1 8.0 5.8 5.5 6.3 5.6

5.7% 5.7 4.9 6.0 4.7 7.7 6.1 6.1 6.2 5.2

3.3 1.7 0.8 2.4 2.8 3.0 1.6

1.9 0.2 0.7 4.2 4.8 4.7 3.4

4.7 2.4 0.7 2.8 2.6 3.5 2.1

3.6 4.1 0.9 3.9 3.4 3.6 3.0

4.7 4.4 0.9 4.3 4.4 4.4 3.4

5.2 5.2 0.9 4.9 5.0 4.5 3.9

4.4 5.4 0.9 4.5 4.6 4.8 3.6

1.6 2.2

1.4 1.1

1.3 1.2

1.7 1.4

1.9 2.2

2.2 2.4

2.2 2.7

SOURCES Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group; and Department of Commerce, Bureau of Economic Analysis and Bureau of the Census. NOTES For definitions, sources, and methods for NHE categories, see CMS.gov. National Health Expenditure Accounts: methodology paper, 2016: definitions, sources, and methods [Internet]. Baltimore (MD): Centers for Medicare and Medicaid Services; [cited 2018 Jan 17]. Available from: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/dsm-16.pdf. Numbers may not add to totals because of rounding. Percent changes are calculated from unrounded data. aAnnual growth, 2008–13. bProjected. cIncludes health-related spending for Children’s Health Insurance Program, Titles XIX and XXI; Department of Defense; and Department of Veterans Affairs. dEstimates reflect the Bureau of the Census’s definition of resident-based population, which includes all people who usually reside in the fifty states or the District of Columbia but excludes residents living in Puerto Rico and areas under U.S. sovereignty, and US Armed Forces overseas and US citizens whose usual place of residence is outside of the United States. Estimates also include a small (typically less than 0.2 percent of population) adjustment to reflect census undercounts. Projected estimates reflect the area population growth assumptions found in the 2017 Medicare Trustees Report (see note 5 in text).

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Health Affa irs

483

Costs

&

Spending aged and disabled beneficiaries who tend to have disproportionately higher use and intensity of care provided relative to nonaged or nondisabled beneficiaries. Despite the faster growth projected over the next decade, overall national health spending growth is not anticipated to reach rates experienced in the period before the last recession (7.3 percent per year for 1990–2007).

Another key contributor to faster health spending growth over the projection period is the trend in prices for medical goods and services, which is projected to increase gradually from historically low rates in 2014–16 (1.1 percent per year) and average 2.5 percent per year in 2017–26. Medical-specific factors—including projected growth in input prices for the goods and services required to provide health care— contribute to this trend, as do expected increases in economywide prices. However, for medical goods and services, the rate of price growth is projected to remain lower over the projection period than the 3.3 percent average annual growth rate in 1990–2007.

Among the largest health care goods and services, prescription drugs are projected to experience the fastest average annual spending growth in 2017–26 (6.3 percent per year). This trend primarily reflects faster anticipated growth in drug prices, which is attributable to a larger share of drug spending being accounted for by specialty drugs over the coming decade.

The share of the population with health insurance is projected to decline slightly over the projection period (from 91.1 percent in 2016 to 89.3 percent in 2026). The projected decline is due in part to the elimination of penalty payments associated with the ACA individual mandate. The trend is also influenced by economic factors, such as the impact of growth in GDP and employment on private health insurance enrollment.

Model And Assumptions The national health expenditure projections are primarily developed under a current-law framework.4 Thus, they do not reflect potential health law changes or their impact on the health care economy. The projections are constructed using actuarial and econometric modeling methods, as well as judgments about future events and trends that influence health spending.2 The projections are based on economic and demographic assumptions in the 2017 Medicare Trustees Report,5 updated to reflect recent macroeconomic data, and the 2017 Actuarial Report on the Financial Outlook for Medicaid.6 The provisions of the recently enacted Tax 484

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Cuts and Jobs Act are partially reflected in these projections of health spending and insurance coverage. Specifically, the impacts from the repeal of the individual mandate have been incorporated, which assume that some younger and healthier people will choose to be uninsured— particularly those with comparatively higher incomes who might not qualify for premium subsidies in the health insurance Marketplaces.2 However, the potential effects of the legislation on projected economic trends have not been included, to maintain consistency with the economic assumptions in the 2017 Medicare Trustees Report.5 This analysis is inherently subject to substantial uncertainty that increases over the projection horizon. Factors such as macroeconomic conditions, changes in health insurance markets, varying consumer responses to changes in benefit design, provider responses to payment reforms, and technological advances are all elements that are uncertain. To the extent that these factors differ from expectations, they may lead to divergence between projected and actual spending.

Chronological Outlook Of Yearly Trends 2017 National health spending is projected to have grown 4.6 percent in 2017 (and to have reached nearly $3.5 trillion), up slightly from 4.3 percent in 2016 (exhibit 1). Underlying this faster growth are several key factors: Medicare spending growth is projected to have accelerated in 2017 after several years of near-historically low growth; prices for medical goods and services are projected to have grown slightly more rapidly, mainly because of faster growth in economywide prices; and private health insurance spending growth is projected to have accelerated in 2017, partly because of increases in premiums for insurance purchased through the health insurance Marketplaces.

Medicare spending growth is projected to have accelerated to 5.0 percent in 2017 from 3.6 percent in 2016, largely because of faster projected growth in spending per beneficiary, from 0.8 percent in 2016 to 1.7 percent in 2017 (exhibit 2).

Recent slow growth in Medicare spending through 2016 was influenced by both low utilization (particularly of hospital services) and slow growth in payment rates (partly the result of modest inflation and ACA-related payment adjustments).5 In 2017, however, growth in the use of services and increases in payment updates are projected to have begun to contribute to faster overall Medicare spending growth. Medicare enrollment growth is also expected to have

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Exhibit 2 National health expenditures (NHE) and health insurance enrollment, aggregate and per enrollee amounts, and average annual growth from previous year shown, by source of funds, selected calendar years 2013–26 Source of funds

2013a

2015

2016

2017b

2018b

2020b

2026b

$946.4 590.2 445.4

$1,068.8 648.8 544.1

$1,123.4 672.1 565.5

$1,186.6 705.8 582.0

$1,244.1 748.1 622.0

$1,348.8 873.1 696.4

$1,776.0 1,366.0 996.2

Expenditure, billions Private health insurance Medicare Medicaid Annual growth in expenditure Private health insurance Medicare Medicaid Per enrollee spending

3.4% 5.3 5.4

Private health insurance $ 5,044 Medicare 11,509 Medicaid 7,556 Annual growth in per enrollee spending Private health insurance Medicare Medicaid Enrollment (millions) Private health insurance Medicare Medicaid Uninsured Population Insured share of total population

6.3% 4.9 10.5 $ 5,445 11,951 7,870

5.1% 3.6 3.9 $ 5,721 12,046 7,941

5.6% 5.0 2.9 $ 6,030 12,257 8,011

4.8% 6.0 6.9

4.1% 8.0 5.8

$ 6,301 12,622 8,412

$ 6,839 13,876 9,118

4.7% 7.7 6.1 $ 8,814 18,525 12,247

4.2% 2.4 0.9

3.9% 1.9 2.1

5.1% 0.8 0.9

5.4% 1.7 0.9

4.5% 3.0 5.0

4.2% 4.8 4.1

4.3% 4.9 5.0

187.6 51.3 58.9 44.2 315.7 86.0%

196.3 54.3 69.1 29.5 320.3 90.8%

196.4 55.8 71.2 28.6 322.5 91.1%

196.8 57.6 72.7 29.4 325.4 91.0%

197.5 59.3 73.9 30.0 328.4 90.9%

197.2 62.9 76.4 32.7 334.5 90.2%

201.5 73.7 81.3 37.7 352.3 89.3%

−0.8% 2.9 4.4 1.2 0.8

2.3% 2.9 8.3 −18.3 0.7

0.0% 2.8 3.0 −2.8 0.7

0.2% 3.2 2.0 2.8 0.9

0.3% 2.9 1.8 1.8 0.9

−0.1% 3.0 1.6 4.4 0.9

0.4% 2.7 1.1 2.4 0.9

Annual growth in enrollment Private health insurance Medicare Medicaid Uninsured Population

SOURCE Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. NOTES For definitions, sources, and methods for NHE categories, see CMS.gov. National Health Expenditure Accounts: methodology paper, 2016 (see exhibit 1 notes). Numbers may not add to totals because of rounding. Percent changes are calculated from unrounded data. aAnnual growth, 2008–13. bProjected.

contributed to the acceleration, with a projected rate of 3.2 percent in 2017 after a rate of 2.8 percent in 2016.

The Personal Health Care Price Index, which measures the rate of inflation associated with medical goods and services purchased, is also projected to have increased slightly—from 1.2 percent in 2016 to 1.4 percent in 2017 (exhibit 1). The main contributor is anticipated to be economywide inflation, which is projected to have accelerated by 0.4 percentage point to 1.7 percent in 2017. Despite this slight acceleration, the projected price increases associated with providing medical goods and services remain near historic lows.

Total private health insurance spending is projected to have grown 5.6 percent in 2017, compared to 5.1 percent in 2016 (exhibit 1). This slight acceleration reflects faster growth in the net cost of private health insurance (or the

amount of private health insurance spending attributed to nonmedical expenses such as administrative costs, taxes, net gains or losses to reserves, and profits), which is projected to have increased 12.8 percent in 2017 from 3.3 percent in 2016 (data not shown). This expectation is related to two primary factors. First, Marketplace premiums were priced higher in 2017 to account for previous underpricing, given the relative health status of the population that enrolled—which suggests that these plans are on track to regain profitability in 2017.7 Second, according to several large insurers, increased cost sharing in employer-sponsored plans contributed to more modest growth in medical benefits than in premiums, and this in turn contributed to faster growth in underwriting gains for these plans.8 Growth in private health insurance spending on personal health care (or spending attributable to medical benefits) is projected to March 2 018

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Spending have decelerated in 2017 (4.7 percent) from 2016 (5.3 percent), driven by lower Marketplace enrollment and continued modest utilization in employer-sponsored insurance plans because of the rapid growth of high-deductible plans over the past decade and their impact on use.9,10 Unlike overall health spending, Medicaid expenditures are projected to have grown more slowly in 2017, at 2.9 percent, after increasing 3.9 percent in 2016 (exhibit 1). Influencing this trend is an anticipated reduction in 2017 of Medicaid’s net cost of health insurance spending (or the difference between payments received

by Medicaid managed care organizations and the benefits paid on behalf of their enrollees), because of recoveries related to risk-mitigation strategies. Risk-mitigation payments are exchanged between managed care organizations and states and the federal government to settle contractual arrangements and provide protection against large losses. Managed care organizations returned a portion of these funds to the government in 2017 because the payments exceeded the actual costs of providing care in 2014–16.

With the major changes in health insurance enrollment realized following the implementation of the ACA coverage expansion in 2014, the insured share of the population is projected to have stabilized somewhat in 2017 at 91.0 percent, compared to 91.1 percent in 2016 (exhibit 2).

Notably, however, for the first time in seven years, the projected number of uninsured people did not fall in 2017.

2018 In 2018, the rate of growth in national health expenditures is projected to rise again to 5.3 percent (exhibit 1). This outcome is mainly driven by two key factors: The rate of inflation associated with the provision of medical goods and services is expected to be faster than the recent trend, and Medicaid spending growth is expected to accelerate—primarily due to smaller recoveries of previous risk mitigation payments.

The Personal Health Care Price Index is projected to rise to 2.2 percent in 2018 from 1.4 percent in 2017 (exhibit 1). This increase partly reflects faster projected prescription drug price growth of 4.4 percent in 2018 (from 2.1 percent in 2017), which is based on the expectation that the dollar value of drugs losing patents in 2018 is smaller than in prior years and that price growth will therefore be influenced more strongly by relatively more expensive brand-name drugs.11 Faster drug price growth also contributes to a projected acceleration in total prescription drug spending growth—to 6.6 percent in 2018 from 2.9 percent in 2017 (exhibit 3).12 Medicaid spending is projected to increase 4 percentage points more rapidly in 2018, at a

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projected rate of 6.9 percent (exhibit 1). Growth in the net cost of health insurance spending for Medicaid principally drives this trend, which is a result of smaller recoveries of risk-mitigation payments in 2018 than in 2017.6 At the same time, private health insurance spending growth is projected to slow to 4.8 percent in 2018 (exhibit 1). This slowdown is due to a deceleration in growth in the net cost of private health insurance (5.6 percent), mainly from slowing growth in the net cost of health insurance in the Marketplaces in 2018 that is trending to better align with anticipated benefit spending for enrollees. This slower growth in net cost more than offsets the upward pressure on Marketplace premium growth related to the cancellation of cost-sharing reduction payments to insurers from the federal government, resulting in slower growth in private health insurance spending in the aggregate.13,14 2019–20 In 2019–20, national health spending growth is projected to average 5.5 percent, a slight acceleration from 5.3 percent in 2018 (exhibit 1). This trend is a result of faster projected growth in Medicare spending that is not fully offset by slower private health insurance spending growth, which is partly attributable to the effects of the repeal of the individual mandate.

Compared to 2018, Medicare spending is projected to grow 2 percentage points more rapidly on average during 2019–20, at 8.0 percent (exhibit 1). One factor contributing to this acceleration is incentive payments made to physicians under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015.15 Another factor is projected growth in the combined volume of Medicare goods and services consumed and the intensity of care provided—growth that is expected to increase from recent historic lows.

Both of these factors influence the projected Medicare per enrollee average spending growth of 4.8 percent over the period, compared to 3.0 percent in 2018 (exhibit 2).

Growth in private health insurance spending is projected to slow, on average, to 4.1 percent for 2019–20 from 4.8 percent in 2018 (exhibit 2).

Contributing to this trend is slower projected growth in private health insurance enrollment (−0.1 percent for 2019–20, on average, down from 0.3 percent in 2018) resulting from the repeal of the individual mandate, beginning in 2019 (exhibit 2). Between 2018 and 2020, the number of uninsured people is projected to increase from 30.0 million to 32.7 million. The impact of the repeal is expected to be concentrated in this period, since most people who would be responsive to the penalty for not maintaining coverage are anticipated to make their coverage decision shortly after the effective date of the

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Exhibit 3 National health expenditures (NHE) amounts and annual growth from previous year shown, by spending category, selected calendar years 2013–26 Spending category Expenditure, billions NHE Health consumption expenditures Personal health care Hospital care Professional services Physician and clinical services Other professional services Dental services Other health, residential, and personal care Home health care Nursing care facilities and continuing care retirement communities Retail outlet sales of medical products Prescription drugs Durable medical equipment Other nondurable medical products Government administration Net cost of health insurance Government public health activities Investment Noncommercial research Structures and equipment Annual growth

2013a

2015

2016

2017b

2018b

2020b

2026b

$2,879.0 2,725.9 2,436.7 937.6 759.4 569.6 78.7 111.1 144.2 80.5

$3,200.8 3,047.1 2,715.5 1,033.4 837.7 631.0 87.8 118.9 164.8 88.8

$3,337.2 3,179.8 2,834.0 1,082.5 881.2 664.9 92.0 124.4 173.5 92.4

$3,489.2 3,325.4 2,958.0 1,132.6 923.8 698.3 96.5 129.1 180.4 97.1

$3,675.3 3,504.3 3,112.7 1,189.9 969.9 733.9 101.6 134.4 191.6 102.8

$4,090.9 3,901.7 3,466.3 1,326.4 1,074.9 814.2 113.7 147.0 214.4 117.1

$5,696.2 5,437.1 4,836.3 1,848.2 1,457.8 1,110.2 155.6 192.0 301.1 172.6

149.0 365.9 265.2 45.1 55.7 36.9 174.0 78.3 153.1 46.6 106.5

158.1 432.7 324.5 48.6 59.6 42.1 207.7 81.7 153.7 46.5 107.2

162.7 441.7 328.6 51.0 62.2 43.8 219.8 82.2 157.4 47.7 109.7

168.1 456.1 338.1 52.9 65.1 45.1 237.7 84.5 163.9 50.6 113.3

174.6 483.9 360.2 55.7 68.0 48.1 256.3 87.1 171.1 52.9 118.2

191.9 541.6 404.4 62.4 74.9 54.5 288.9 92.1 189.2 58.1 131.2

261.0 795.6 604.8 89.1 101.7 81.2 408.6 110.9 259.2 78.4 180.7

3.8% 4.0 4.1 5.2 3.6 3.7 4.6 2.2 4.9 5.8

5.4% 5.7 5.6 5.0 5.0 5.3 5.6 3.5 6.9 5.0

4.3% 4.4 4.4 4.7 5.2 5.4 4.7 4.6 5.3 4.0

4.6% 4.6 4.4 4.6 4.8 5.0 4.9 3.8 4.0 5.1

5.3% 5.4 5.2 5.1 5.0 5.1 5.3 4.2 6.2 5.9

5.5% 5.5 5.5 5.6 5.3 5.3 5.8 4.6 5.8 6.7

5.7% 5.7 5.7 5.7 5.2 5.3 5.4 4.6 5.8 6.7

2.9 2.1 1.3 4.9 4.4 4.0 5.8 0.6 2.4 2.6 2.3

3.3 3.3 2.9 3.9 4.6 2.9 8.1 2.8 4.1 6.1 3.2

3.9 6.1 6.6 5.2 4.4 6.6 7.8 3.1 4.4 4.5 4.4

4.8 5.8 5.9 5.8 5.0 6.5 6.2 2.8 5.2 4.8 5.3

5.3 6.6 6.9 6.1 5.2 6.9 5.9 3.2 5.4 5.1 5.5

NHE Health consumption expenditures Personal health care Hospital care Professional services Physician and clinical services Other professional services Dental services Other health, residential, and personal care Home health care Nursing care facilities and continuing care retirement communities Retail outlet sales of medical products Prescription drugs Durable medical equipment Other nondurable medical products Government administration Net cost of health insurance Government public health activities Investment Noncommercial research Structures and equipment

3.0 2.2 2.0 3.3 2.6 4.0 3.3 2.9 1.7 1.5 1.8

3.0 8.7 10.6 3.8 3.5 6.9 9.3 2.2 0.2 −0.2 0.3

SOURCE Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. NOTES For definitions, sources, and methods for NHE categories, see CMS.gov. National Health Expenditure Accounts: methodology paper, 2016 (see exhibit 1 notes). Numbers may not add to totals because of rounding. Percent changes are calculated from unrounded data. aAnnual growth, 2008–13. bProjected.

repeal.

2021–26 For 2021–26, national health spending growth is projected to accelerate slightly to 5.7 percent, on average, from the 5.5 percent projected for 2019–20 (exhibit 1). Among the major payers of health care, spending growth for Medicare and Medicaid is anticipated to continue to outpace that for private health insur-

ance, mainly because of faster enrollment growth associated with the aging of the population. (Per enrollee growth rates are expected to be somewhat similar, as shown in exhibit 2.)

Growth in Medicare spending is projected to be faster than for the other major payers because of sustained strong enrollment growth as baby boomers continue to enter the program. For the M a r ch 20 1 8

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Spending same reason, private health insurance spending is projected to increase relatively more slowly, as baby boomers continue to shift out of private coverage and into Medicare. Medicaid spending is also projected to grow relatively faster than private health insurance spending because of a projected increase in the share of aged and disabled Medicaid enrollees.

Spending for Medicare is projected to grow the fastest among three major payers in 2021–26, averaging 7.7 percent—which is near the 8.0 percent growth rate projected for 2019–20. Medicare enrollment is projected to increase at an average rate of 2.7 percent for 2021–26, representing a slight deceleration from 2019–20, while Medicare per enrollee spending growth is projected to average 4.9 percent for 2021– 26. Moreover, the ending of sequestration under the Budget Control Act of 2011 and the expiration of MACRA incentive payments markedly influences the pattern of Medicare spending growth in 2025 and 2026. Beginning in April 2013 and continuing through March 2025, the sequestration reduces Medicare benefit payments by 2 percent, with a larger reduction of 4 percent scheduled for April through September 2025.5 Under MACRA, incentive payments to physicians, which previously contributed to faster Medicare spending growth in 2019, are set to expire in 2025. Given these two effects, overall Medicare spending growth is projected to slow to 6.6 percent in 2025, down from 7.6 percent in 2024. In 2026, however, since sequestration would no longer be in effect, Medicare spending growth is projected to accelerate sharply to a projection-period high of 9.0 percent.

Growth in Medicaid spending is projected to average 6.1 percent over 2021–26, a somewhat faster average rate than that of 5.8 percent for 2019–20 (exhibit 1). Driven by increasing shares of comparatively expensive aged and disabled enrollees, growth in per enrollee Medicaid spending is projected to accelerate from an average of 4.1 percent for 2019–20 to 5.0 percent over 2021–26 (exhibit 2). Enrollment growth, however, is projected to slow to 1.1 percent during this time from an average rate of 1.6 percent projected for 2019–20 in lagged response to decreases in the unemployment rate. Finally, reductions in Medicaid’s disproportionate-share hospital payments under current law are due to expire during 2025, leading to a projected acceleration in the rate of growth for Medicaid hospital spending—to 8.6 percent in 2026 from 7.0 percent in 2025 and 5.5 percent in 2024.16 In contrast to spending by the other major payers, spending for private health insurance is projected to grow relatively more slowly in 2021–26, at 4.7 percent on average (exhibit 1).

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Growth in private health insurance enrollment is projected to remain modest and average just 0.4 percent for 2021–26. This 2021–26 trend in enrollment growth largely reflects the continued shift of the baby-boom generation from private health insurance to Medicare, as well as slower anticipated employment growth in the latter half of the projection period. Growth in private health insurance spending per enrollee for 2021–26 (4.3 percent) is expected to remain similar to 2019–20 (4.2 percent) (exhibit 2)—a result that is partly due to accelerating growth attributable to the lagged effect of faster growth in disposable personal income during 2018–20, which is offset, in part, by the excise tax on highcost health insurance plans now scheduled to take effect in 2022 under current law. The excise tax is anticipated to result in some employers’ reducing benefits and increasing cost-sharing requirements to keep plan costs under the thresholds for the tax. Accordingly, the presence of the tax results in faster projected growth in out-of-pocket spending (5.2 percent in 2022, compared to 4.7 percent in 2021) (data not shown).

In 2026, national health expenditures sponsored by federal, state, and local governments are projected to account for 47 percent of total spending, up from 45 percent in 2016, while national health expenditures collectively sponsored by private businesses, households, and other private revenues are projected to represent 53 percent of total spending by 2026, down from 55 percent in 2016 (exhibit 4). These trends largely reflect the impact of shifting demographics. The projected increasing share of spending sponsored by the federal government (from 28 percent to 31 percent) and the corresponding decreasing share sponsored by private businesses (from 20 percent to 19 percent) are largely attributable to the baby boomers’ continued shift out of private health insurance and into Medicare. Ongoing subsidies paid for lowerincome enrollees in Marketplace plans by the federal government also contribute to its rising share.

Factors Accounting For Growth The overall health spending trends in 2017 and 2018 are influenced by the effects on spending associated with Medicaid risk-mitigation payments and Marketplace premium pricing, two anomalous issues that are not necessarily indicative of the underlying drivers of medical spending. To elucidate these underlying drivers, the discussion in this section focuses on the key factors that are anticipated to affect personal health care spending, which is the subset of national

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Exhibit 4 National health expenditures (NHE) amounts, average annual growth from previous year shown, and percent distribution, by type of sponsor, selected calendar years 2013–26 Type of sponsor

2013a

2015

2016

2017b

2018b

2020b

2026b

$2,879.0

$3,200.8

$3,337.2

$3,489.2

$3,675.3

$4,090.9

$5,696.2

1,618.7 579.8 832.1 206.8 1,260.3 752.7 507.6

1,742.6 633.3 897.5 211.8 1,458.3 908.9 549.3

1,828.7 664.6 938.8 225.2 1,508.6 944.1 564.5

1,926.4 700.6 990.3 235.5 1,562.8 973.9 588.9

2,026.8 738.2 1,041.4 247.2 1,648.5 1,028.7 619.8

2,237.1 817.0 1,144.6 275.6 1,853.8 1,167.3 686.5

2,993.2 1,066.4 1,561.7 365.1 2,703.1 1,755.0 948.1

3.8%

5.4%

4.3%

4.6%

5.3%

5.5%

5.7%

2.8 2.3 3.1 3.3 5.3 6.1 4.2

3.8 4.5 3.9 1.2 7.6 9.9 4.0

4.9 5.0 4.6 6.3 3.5 3.9 2.8

5.3 5.4 5.5 4.6 3.6 3.2 4.3

5.2 5.4 5.2 5.0 5.5 5.6 5.3

5.1 5.2 4.8 5.6 6.0 6.5 5.2

5.0 4.5 5.3 4.8 6.5 7.0 5.5

100%

100%

100%

100%

100%

100%

100%

56 20 29 7 44 26 18

54 20 28 7 46 28 17

55 20 28 7 45 28 17

55 20 28 7 45 28 17

55 20 28 7 45 28 17

55 20 28 7 45 29 17

53 19 27 6 47 31 17

Expenditure, billions NHE Businesses, household, and other private revenues Private businesses Households Other private revenues Governments Federal government State and local governments Annual growth NHE Businesses, household, and other private revenues Private businesses Households Other private revenues Governments Federal government State and local governments Distribution NHE Businesses, household, and other private revenues Private businesses Households Other private revenues Governments Federal government State and local governments

SOURCE Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. NOTES For definitions, sources, and methods for NHE categories, see CMS.gov. National Health Expenditure Accounts: methodology paper, 2016 (see exhibit 1 notes). Numbers may not add to totals because of rounding. Percent changes are calculated from unrounded data. aAnnual growth, 2008–13. bProjected.

health spending that captures spending on medical goods and services provided directly to patients. In 2017–26, personal health care spending growth is projected to average 5.5 percent per year, with prices and use and intensity expected to account for roughly 75 percent of this growth. Over the projection period, however, the trends for each of these components are anticipated to diverge compared with trends in the recent historical period (2014–16). The years 2014–16 were notable for their historically low rate of growth in personal health care prices of 1.1 percent, on average (exhibit 5), which was primarily influenced by slow economywide price growth. During that time, stronger growth in use and intensity of 2.8 percent per year, on average, was related to the ACA coverage expansions and increased access to medical care.

Growth in personal health care prices is expected to accelerate over the projection period, from 1.1 percent in 2014–16 to an average of

2.7 percent per year by 2021–26. About half of the projected acceleration is attributable to faster growth in economywide inflation, and the rest is a result of faster growth in medicalspecific price inflation.

Beginning in 2018, projected growth in personal health care price inflation (2.2 percent) is expected to outpace growth in economywide prices (1.9 percent) for the first time since 2010. Projected input prices associated with providing medical services are expected to rebound, in part reflecting more rapid growth in health care workers’ wages. As a result, in 2018 and later, growth in personal health care price inflation is anticipated to be the single largest factor explaining personal health care spending growth, as it was in 1990–2013. Over the full projection period, such inflation is expected to account for 2.5 percentage points of the 5.5 percent average annual growth rate for personal health care spending.

March 2018

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Spending Exhibit 5 Factors accounting for growth in personal health care expenditures, selected calendar years 1990–2026

SOURCE Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group. NOTES “Use and Intensity” includes quantity and mix of services. As a residual, this factor also includes any errors in measuring prices or total spending.

“Medical prices” reflect a chain-weighted index of the price for all personal health care deflators. “Population” is population growth.

“Age-sex mix” refers to that mix in the population. aProjected.

Conversely, the proportion of growth attributed to changes in the use and intensity of care is expected to fall over the projection period following the mostly one-time effects of the ACA coverage expansions.17 Two key factors impacting the trend through 2020 are the transition toward more typical growth rates under employers’ efforts to manage health care costs and the impacts on use from changes in coverage resulting from the repeal of the individual mandate.

Thereafter, the growth trend in use and intensity of care provided, especially care that is paid for through private health insurance and out-ofpocket spending, reflects the lagged impact of projected growth in disposable personal income.

Over the full projection period, growth in use and intensity is expected to account for just under one-third (1.7 percentage points) of the 5.5 percent average annual growth rate for personal health care spending.

Population growth and the changing age and sex mix of the population account for the remainder of the projected average annual growth for personal health care. On average for 2017– 26, population growth is expected to account for 0.9 percentage point per year, and changes in the age and sex composition of the population are expected to account for the remaining 0.5 percentage point. While the aging of the baby-boom generation has significantly influenced Medi490

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care enrollment growth in the recent past and will continue to do so, increases in the proportion of younger and relatively healthier Medicare beneficiaries are likely to continue to moderate the growth in Medicare per enrollee spending.

Even with modest growth in per enrollee spending, coupling that with consistent rapid enrollment growth in 2017–26 results in faster overall projected Medicare spending, relative to spending by other major payers.

Special Topics Prescription Drug Rebates The availability of prescription drug manufacturer rebates to pharmacy benefit managers has increased sharply in the past few years. These rebates, typically provided based on the inclusion of drugs on plan formularies, are estimated to have contributed to lower net prices for many prescription drugs in recent years and are expected to have dampened prescription drug spending growth in 2017.18,19 In 2018 and beyond, the share of total prescription drug spending affected by rebates is not expected to increase as rapidly as in the recent past. As a result, the outlook for such spending reflects somewhat stronger growth in drug prices, which is in part due to the expectation that the effects of rebates will level off by the last half of the projection period.5 Faster projected prescrip-

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tion drug price growth by the end of the projection period is largely influenced by trends in relatively more costly specialty drugs, which are expected to represent a larger share of prescription drug spending over the projection period.12 The Effect Of High-Deductible Health Plans Now that the major impacts of the ACA coverage expansion have been realized, future growth in the use of health care goods and services by the privately insured is again expected to be influenced by plan design. This factor—most notably the use of high deductibles—in combination with economic trends had been a driver of slower utilization growth for several years before the coverage expansion.20 The share of covered workers who are enrolled in high-deductible plans was 28 percent in 2017, compared with just 5 percent in 2007.10 Recent research has continued to find that enrollment in high-deductible plans tends to constrain the use of health care goods and services, particularly when the initial enrollment shift occurs.9 Since people shifting into highdeductible plans have constituted a growing share of private health insurance enrollees over the past decade, such research suggests that this trend has moderated growth in private health insurance utilization. In contrast to 2014–16, a period when the effects of the ACA coverage expansions more than offset the effect of highdeductible plans on use, growth in utilization of care by private insurance enrollees in 2017 is anticipated to have been more strongly influenced by the prevalence of these plans. As a result, this effect contributes to the projected deceleration in private health insurance spending growth in 2017 for hospital care (0.9 percentage point slower than in 2016) and for physician and clinical services (also 0.9 percentage point slower).21,22 Additionally, growth of out-of-pocket spending for these services is projected to reflect this impact on utilization, though the effect is mitigated somewhat by the higher cost-sharing requirements associated with highdeductible plans.

Over the past decade, there has been rapid growth in high-deductible plans’ penetration of the employer market. Some employer surveys suggest, however, that employers are evaluating The opinions expressed here are the authors’ and not necessarily those of the Centers for Medicare and Medicaid

different cost containment and care delivery approaches as alternatives to further increases in cost sharing, in part as a way to remain competitive for labor.23 Accordingly, the share of private health insurance enrollees in high-deductible plans is anticipated to stabilize over the projection period. Consequently, by the latter half of the period, both out-of-pocket and private health insurance spending for personal health care are projected to be driven by the same underlying factors (most importantly, disposable personal income that affects the use of health care goods and services). The result is similar projected growth for private health insurance and out-ofpocket spending in 2021–26.

Conclusion Though future health policy remains an area of significant uncertainty, these projections illustrate that under current law, economic and demographic trends are expected to be key drivers of projected growth in national health spending and enrollment over the next decade. Price growth for medical goods and services is projected to accelerate during this period from recent historical lows, driven by economywide inflation and growth in health-sector wages.

The aging of the population is projected to influence trends in spending for the major payers, predominantly through enrollment—with projected enrollment shifts to Medicare mainly from private health insurance. Accordingly, after 2017, Medicare spending is projected to grow more rapidly than private health insurance spending, as the baby-boom generation continues its shift out of private plans and into Medicare and as employers and insurers continue their efforts to manage health care cost growth.

In addition, by the end of the projection period, the expected higher share of aged and disabled enrollees contributes to faster growth in Medicaid spending. These factors collectively lead to projected national health spending growth of 5.5 percent on average in 2017–26. While this projected average annual growth rate is more modest than the 7.3 percent rate observed over the longer-term history before the last recession (1990–2007), it is more rapid than had been experienced in 2008–16 (4.2 percent). ▪

Services. The authors thank Paul Spitalnic, Stephen Heffler, Aaron Catlin, Micah Hartman, Greg Savord, Cathy

Curtis, and anonymous peer reviewers for helpful comments. [Published online February 14, 2018.]

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37 : 3

H ea lt h A f fai r s

4 91

Costs

&

Spending NOTES 1 Hartman M, Martin AB, Espinosa N, Catlin A. National Health Expenditure Accounts Team. National health care spending in 2016: spending and enrollment growth slow after initial coverage expansions. Health Aff (Millwood). 2018;37(1):150–60.

2 Centers for Medicare and Medicaid Services. Projections of National Health Expenditures: methodology and model specification [Internet].

Baltimore (MD): CMS; 2017 Feb 9 [cited 2018 Jan 17]. Available from: https://www.cms.gov/ResearchStatistics-Data-and-Systems/ Statistics-Trends-and-Reports/ NationalHealthExpendData/ Downloads/Projections Methodology.pdf 3 Unless otherwise specified, national health expenditure and gross domestic product (GDP) estimates are presented on a nominal basis. In other words, they are not adjusted for inflation.

4 The projections reflect health tax provisions of the continuing resolution legislation passed January 22, 2018.

5 Boards of Trustees. 2017 annual report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds [Internet].

Baltimore (MD): Centers for Medicare and Medicaid Services; 2017 [cited 2018 Jan 17]. Available from: https://www.cms.gov/ResearchStatistics-Data-and-Systems/ Statistics-Trends-and-Reports/ ReportsTrustFunds/Downloads/ TR2017.pdf 6 Truffer CJ, Wolfe CJ, Rennie KE. Report to Congress: 2017 actuarial report on the financial outlook for Medicaid [Internet]. Baltimore (MD): Centers for Medicare and Medicaid Services; forthcoming.

7 Cox C, Semanskee A, Levitt L. Individual insurance market performance in late 2017 [Internet]. Menlo Park (CA): Henry J. Kaiser Family Foundation; 2018 Jan [cited 2018 Jan 18]. (Issue Brief). Available from: http://files.kff.org/ attachment/Issue-Brief-IndividualInsurance-Market-Performance-inLate-2017 8 Coombs B. As Obamacare twists in political winds, top insurers made $6 billion (not that there is anything

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Health Affai rs

March 2018

9

10

11

12

13

14

15

wrong with that). CNBC [serial on the Internet]. [Updated 2017 Aug 6; cited 2018 Jan 18]. Available from: https://www.cnbc.com/2017/08/ 05/top-health-insurers-profit-surge29-percent-to-6-billion-dollars.html Agarwal R, Mazurenko O, Menachemi N. High-deductible health plans reduce health care cost and utilization, including use of needed preventive services. Health Aff (Millwood). 2017;36(10):1762–8.

Henry J. Kaiser Family Foundation, Health Research and Educational Trust. 2017 employer health benefits survey [Internet]. Menlo Park (CA): KFF; 2017 Sep 19 [cited 2018 Jan 18].

Available from: https://www.kff .org/health-costs/report/2017employer-health-benefits-survey/ UBS. Longer term investments: generics [Internet]. Basel: UBS; 2017 Jul 5 [cited 2018 Jan 18]. Available from: https://www.ubs.com/ content/dam/WealthManagement Americas/documents/longer-terminvestments-genetics.pdf IQVIA Institute for Human Data Science. Medicines use and spending in the U.S.: a review of 2016 and outlook to 2021 [Internet]. Parsippany (NJ): IQVIA Institute; 2017 May 4 [cited 2018 Jan 18]. (Institute Report). Available for download (free registration required) from: https://www.iqvia.com/institute/ reports/medicines-use-andspending-in-the-us-a-review-of-2016 It is assumed that cost-sharing reduction payments under the ACA to insurers from the federal government are not paid from 2018 forward, in accordance with the October 12, 2017, executive order.

Pearson CF, Sloan C. Silver exchange premiums rise 34% on average in 2018 [Internet]. Washington (DC): Avalere; 2017 Oct 25 [cited 2018 Jan 19]. Available from: http://avalere .com/expertise/managed-care/ insights/silver-exchange-premiumsrise-34-on-average-in-2018 Under MACRA, payments of $500 million per year for physicians in the Merit-based Incentive Payment System and 5 percent annual bonuses for those in Advanced Alternative Payment Models are payable in the period 2019–24. See the 2017 Medicare Trustees Report (note 5).

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16 Reductions in Medicaid disproportionate-share hospital payments were initially enacted under the ACA, but subsequent legislation has combined to delay the start of these reductions until 2018 and extend their duration through a portion of 2025.

17 Growth in the use and intensity of care provided is measured as a residual after price, population, and age/sex growth effects are removed from personal health care spending growth.

18 Barrett P, Langreth R. The crazy math behind drug prices. Bloomberg BusinessWeek [serial on the Internet]. 2017 Jun 29 [cited 2018 Jan 18]. Available from: https:// www.bloomberg.com/news/ articles/2017-06-29/the-crazymath-behind-drug-prices 19 Drug rebates as a percentage of total Part D drug costs are projected to increase from 22.0 percent in 2016 to 23.8 percent in 2017. See Table IV.B8, “Key Factors for Part D Expenditure Estimates,” in the 2017 Medicare Trustees Report (note 5).

20 Hartman M, Martin AB, Lassman D, Catlin A, National Health Expenditure Accounts Team. National health spending in 2013: growth slows, remains in step with the overall economy. Health Aff (Millwood). 2015; 34(1):150-60.

21 Barkholz D. Hospital volumes laid low by high-deductible health plans.

Modern Healthcare [serial on the Internet]. 2017 Aug 11 [cited 2018 Jan 18]. Available from: http:// www.modernhealthcare.com/ article/20170810/NEWS/170819994 22 DiJulio B, Kirzinger A, Wu B, Brodie M. Data note: Americans’ challenges with health care costs [Internet].

Menlo Park (CA): Henry J. Kaiser Family Foundation; 2017 Mar 2 [cited 2018 Jan 18]. Available from: https://www.kff.org/health-costs/ poll-finding/data-note-americanschallenges-with-health-care-costs/ 23 Mercer. Mercer national health survey: employers finding new ways to hold the line on health benefit cost growth [Internet]. New York (NY): Mercer; 2017 Nov 2 [cited 2018 Jan 18]. Available from: https://www .mercer.com/newsroom/mercernational-health-survey-employersfinding-new-ways-to-hold-the-lineon-health-benefit-cost-growth.html

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Making Medicines Affordable: A National Imperative

Norman R. Augustine, Guru Madhavan, and Sharyl J. Nass, Editors Committee on Ensuring Patient Access to Affordable Drug Therapies Board on Health Care Services Health and Medicine Division

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Copyright National Academy of Sciences. All rights reserved.

Making Medicines Affordable: A National Imperative

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This activity was supported by grants from the American College of Physicians, Breast Cancer Research Foundation, Burroughs Wellcome Fund, California Health Care Foundation, The Commonwealth Fund, Laura and John Arnold Foundation, Milbank Memorial Fund, and the Presidents’ Committee of the National Academies of Sciences, Engineering, and Medicine. Any opinions, findings, conclusions, or recommendations expressed in this publication do not necessarily reflect the views of any organization that provided support for the project.

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2018. Making medicines affordable: A national imperative. Washington, DC: The National Academies Press. doi: https://doi.org/10.17226/24946.

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Making Medicines Affordable: A National Imperative

THE AFFORDABILITY CONUNDRUM

19

solutions in the case of prescription drugs is complicated because describing the biopharmaceutical supply chain in the United States as largely driven by competitive market forces would be substantially misleading.

The dynamics of the biopharmaceutical supply chain reflect the actions of profit-seeking enterprises operating within an extremely complex array of privileges and constraints set by the government. The nature and significance of these government interventions—which include the funding of research, the granting of market exclusivity, the enforcement of strict product requirements and standards, and acting as the ultimate purchaser for large segments of the population—mean that the market is distorted in many ways. Simply stated, the typical presumption that market forces will work—and work best—does not hold well for the biopharmaceutical sector. The nature of these market forces is powerfully shaped by government and other interventions, and is also contingent on specific diseases and their overall impact. In contrast with the market for most household goods, in which consumers are the primary decision makers, consumers wield relatively modest influence over decisions related to medicines. Instead, prescribers largely determine which drugs are to be purchased and in what quantity, and patient cost-sharing arrangements specified by prescription drug insurance plans influence whether patients obtain the medicines prescribed.

Another unique characteristic of the biopharmaceutical supply chain relates to the number of intermediaries. One approach frequently posed as a solution to make current drugs affordable while not affecting future drug development is to reduce the value extracted by the biopharmaceutical intermediaries in the supply chain. The profits generated by PBMs, wholesalers, and retail pharmacies, coupled with insurer’s profits and the margins on reimbursement for drugs administered in the hospital or outpatient setting, ultimately affect the patients and their ability to pay for therapies, and do not increase the incentives to develop new drugs.

This is not to say that intermediaries play no useful function. Managing drug plans, wholesale logistics, and retail dispensing are among the essential functions performed by intermediaries in the biopharmaceutical supply chain. Another benefit intermediaries offer is to negotiate lower prices for their clients, including insurers and self-insured employers who can potentially turn those savings into lower insurance premiums or cost sharing for their enrolees. The question is whether market forces in the biopharmaceutical sector work effectively enough to ensure true competition and prevent excessive profits that otherwise might have been passed on to patients. The answer to this question is hotly contested, with participants in the biopharmaceutical supply chain typically pointing at each other, while claiming that their own activities deliver substantive benefits to patients.

Another form of market failure relates to externalities, which occur

Copyright National Academy of Sciences. All rights reserved.

Julie E. Brigner From: Sent: To: Subject: Attachments:

Paragas, David <David.Paragas@btlaw.com> Thursday, April 26, 2018 3:16 PM JOEL.LODGE@medicaid.ohio.gov Suggested Edits 12232279_1.docx

JoelͲ

I made and effort to streamline the changes consistent with my last note. Once you have had a chance to review and discuss with your team, I am hoping we can discusss.

Best regards,

David

VCard | Bio | Dept Info

C. David Paragas Partner david.paragas@btlaw.com Barnes & Thornburg LLP 41 S. High Street Suite 3300 Columbus, Ohio 43215-6104

Phone: (614) 628-1407 Fax: (614) 628-1433 www.btlaw.com

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5.3

CONFIDENTIALITY. ODM may disclose to the Contractor written material or oral or other information that ODM treats as confidential ("Confidential Information”). Title to the Confidential Information and all related materials and documentation ODM delivers to the Contractor will remain with ODM as applicable, unless title to the Confidential Information belongs to an Intended Third Party Beneficiary (as defined below). The Contractor must treat such Confidential Information as secret if it is so marked, otherwise identified as such, or when, by its very nature, it deals with matters that, if generally known, would be damaging to the best interests of the public, other contractors or potential contractors with ODM, or individuals or organizations about whom ODM keeps information. The Contractor may not disclose any Confidential Information including summaries or compilations of or derived from Confidential toInformation to third parties and must use it solely to perform under this Contract.

If any Deliverables contain data, documentation, or other written information that is confidential in nature and properly labeled as such, then it also will be Confidential Information for purposes of this section. ODM will keep all such Confidential Information in confidence and will not use it other than as authorized under this Contract. Nor will ODM disclose any such Confidential Information to any third party without first obligating the third party to maintain the secrecy of the Confidential Information.

Notwithstanding anything to the contrary, the parties agree that any part set forth on exhibit “ “ are intended third party beneficiaries of this section 5.3 (“Intended Third Party Beneficiary”).

Contractor shall not directly or indirectly use Confidential Information to the disadvantage or to compete against an Intended Third Party Beneficiary as part of Contractor’s consulting or audit services (or other similar service) in other engagements.

Notwithstanding anything to contrary herein, Contractor agrees that the only employees or subcontractors who will receive the Confidential Information will be those who have (a) a need to know the Confidential Information, (b) been instructed to safeguard the Confidential Information from disclosure and treat such Confidential Information as confidential, and (c) been made aware of this agreement and its terms.

Contractor further warrants and represents that it will assure the Confidential Information obtained for this engagement is secure from access from employees other than those involved in this engagement and an effective “firewall” exists between those employees who are not involved in this engagement.

If one party discloses Confidential Information (“Disclosing Party”) to the other party to this Contract (“Receiving Party”), the Receiving Party’s obligation to maintain the confidentiality of the Confidential Information will not apply where such:

(1) (2) (3) (4) (5) (6)

Was already in the possession of the Receiving Party without an obligation of confidence; Is independently developed by the Receiving Party, provided documentary evidence exists to support the independent development; Except as provided in the next paragraph, is or becomes publicly available without a breach of this Contract; Is rightfully received by the Receiving Party from a third party without an obligation of confidence; Is disclosed by the Receiving Party with the written consent of the Disclosing Party; or Is released under a valid order of a court or governmental agency, provided that the Receiving Party: (a) (b)

Notifies the Disclosing Party, if legally permitted, of the order immediately upon receipt of it; and Allows the Disclosing Party an opportunity to obtain a protective order from the issuing court or agency limiting the disclosure and use of the Confidential Information solely for the purposes intended to be served by the original order of production.

Information that may be available publicly through other sources about people that is personal in nature, such as medical records, addresses, phone numbers, social security numbers, and similar things are nevertheless sensitive in nature and may not be disclosed or used in any manner except as expressly authorized in this Contract. Therefore, item (3) in the preceding paragraph does not apply, and the Contractor must treat such information as Confidential Information whether it is available elsewhere or not.

Except for Confidential Information that the Contractor delivers to ODM and that is part of a Deliverable or necessary for the proper use or maintenance of a Deliverable, the Receiving Party must return all originals of any Confidential Information and destroy any copies it has made on termination or expiration of this Contract.

The disclosure of the Confidential Information of the Disclosing Party in a manner inconsistent with the terms of this provision may cause the Disclosing Party and Intended Third Party Beneficiaries irreparable damage for which remedies other than injunctive relief may be inadequate, and each Receiving Party agrees that in the event of a breach of the Receiving Partyâ&#x20AC;&#x2122;s obligations hereunder, the Disclosing Party will be entitled to temporary and permanent injunctive relief to enforce the provisions of this Contract without the necessity of proving actual damages. However, provision does not diminish or alter any right to claim and recover damages.

5.4

CONFIDENTIALITY AGREEMENTS. When the Contractor performs services under this Contract that require the Contractor’s and its subcontractors’ personnel to access facilities, data, or systems that ODM in its sole discretion deems sensitive, ODM may require the Contractor’s and its subcontractors’ personnel with such access to sign an individual confidential agreement and policy acknowledgements, and have a background check performed before accessing those facilities, data, or systems. ODM may may require a confidentiality agreement or acknowledgement. The Contractor must immediately replace any of its or its subcontractors’ personnel who refuse to sign a required confidentiality agreement or acknowledgment or have a background check performed.

Julie E. Brigner From: Sent: To: Subject: Attachments:

Paragas, David <David.Paragas@btlaw.com> Friday, April 27, 2018 3:59 PM JOEL.LODGE@medicaid.ohio.gov 12247304_1.docx 12247304_1.docx

JoelͲ

I cleaned up the edit (reinserted “Information”). CVS has signed off on the language. I am now working on the logistics of communication.

I will call you in a minute.

Thank you,

David CONFIDENTIALITY NOTICE: This email and any attachments are for the exclusive and confidential use of the intended recipient. If you are not the intended recipient, please do not read, distribute or take action in reliance upon this message. If you have received this in error, please notify us immediately by return email and promptly delete this message and its attachments from your computer system. We do not waive attorney-client or work product privilege by the transmission of this message.

1

5.3

CONFIDENTIALITY. ODM may disclose to the Contractor written material or oral or other information that ODM treats as confidential ("Confidential Information”). Title to the Confidential Information and all related materials and documentation ODM delivers to the Contractor will remain with ODM as applicable, unless title to the Confidential Information belongs to an Intended Third Party Beneficiary (as defined below). The Contractor must treat such Confidential Information as secret if it is so marked, otherwise identified as such, or when, by its very nature, it deals with matters that, if generally known, would be damaging to the best interests of the public, other contractors or potential contractors with ODM, or individuals or organizations about whom ODM keeps information. The Contractor may not disclose any Confidential Information including summaries or compilations of or derived from Confidential toInformation to third parties and must use it solely to perform under this Contract.

If any Deliverables contain data, documentation, or other written information that is confidential in nature and properly labeled as such, then it also will be Confidential Information for purposes of this section. ODM will keep all such Confidential Information in confidence and will not use it other than as authorized under this Contract. Nor will ODM disclose any such Confidential Information to any third party without first obligating the third party to maintain the secrecy of the Confidential Information.

Notwithstanding anything to the contrary, the parties agree that any part set forth on exhibit “ “ are intended third party beneficiaries of this section 5.3 (“Intended Third Party Beneficiary”).

Contractor shall not directly or indirectly use Confidential Information to the disadvantage or to compete against an Intended Third Party Beneficiary as part of Contractor’s consulting or audit services (or other similar service) in other engagements.

Notwithstanding anything to contrary herein, Contractor agrees that the only employees or subcontractors who will receive the Confidential Information will be those who have (a) a need to know the Confidential Information, (b) been instructed to safeguard the Confidential Information from disclosure and treat such Confidential Information as confidential, and (c) been made aware of this agreement and its terms.

Contractor further warrants and represents that it will assure the Confidential Information obtained for this engagement is secure from access from employees other than those involved in this engagement and an effective “firewall” exists between those employees who are not involved in this engagement.

If one party discloses Confidential Information (“Disclosing Party”) to the other party to this Contract (“Receiving Party”), the Receiving Party’s obligation to maintain the confidentiality of the Confidential Information will not apply where such:

(1) (2) (3) (4) (5) (6)

Was already in the possession of the Receiving Party without an obligation of confidence; Is independently developed by the Receiving Party, provided documentary evidence exists to support the independent development; Except as provided in the next paragraph, is or becomes publicly available without a breach of this Contract; Is rightfully received by the Receiving Party from a third party without an obligation of confidence; Is disclosed by the Receiving Party with the written consent of the Disclosing Party; or Is released under a valid order of a court or governmental agency, provided that the Receiving Party: (a) (b)

Notifies the Disclosing Party, if legally permitted, of the order immediately upon receipt of it; and Allows the Disclosing Party an opportunity to obtain a protective order from the issuing court or agency limiting the disclosure and use of the Confidential Information solely for the purposes intended to be served by the original order of production.

Information that may be available publicly through other sources about people that is personal in nature, such as medical records, addresses, phone numbers, social security numbers, and similar things are nevertheless sensitive in nature and may not be disclosed or used in any manner except as expressly authorized in this Contract. Therefore, item (3) in the preceding paragraph does not apply, and the Contractor must treat such information as Confidential Information whether it is available elsewhere or not.

Except for Confidential Information that the Contractor delivers to ODM and that is part of a Deliverable or necessary for the proper use or maintenance of a Deliverable, the Receiving Party must return all originals of any Confidential Information and destroy any copies it has made on termination or expiration of this Contract.

The disclosure of the Confidential Information of the Disclosing Party in a manner inconsistent with the terms of this provision may cause the Disclosing Party and Intended Third Party Beneficiaries irreparable damage for which remedies other than injunctive relief may be inadequate, and each Receiving Party agrees that in the event of a breach of the Receiving Partyâ&#x20AC;&#x2122;s obligations hereunder, the Disclosing Party will be entitled to temporary and permanent injunctive relief to enforce the provisions of this Contract without the necessity of proving actual damages. However, provision does not diminish or alter any right to claim and recover damages.

5.4

CONFIDENTIALITY AGREEMENTS. When the Contractor performs services under this Contract that require the Contractor’s and its subcontractors’ personnel to access facilities, data, or systems that ODM in its sole discretion deems sensitive, ODM may require the Contractor’s and its subcontractors’ personnel with such access to sign an individual confidential agreement and policy acknowledgements, and have a background check performed before accessing those facilities, data, or systems. ODM may may require a confidentiality agreement or acknowledgement. The Contractor must immediately replace any of its or its subcontractors’ personnel who refuse to sign a required confidentiality agreement or acknowledgment or have a background check performed.

Julie E. Brigner From: Sent: To: Subject:

Brianne.Brown@medicaid.ohio.gov Thursday, July 12, 2018 3:31 PM Jonathan R. Fulkerson; Ara Mekhjian FW: Release from Confidentiality in section 5.3

FYI

From: Gary Rutherford <gary.rutherford@hdsͲrx.com> Sent: Thursday, July 12, 2018 3:14 PM To: Lodge, Joel <JOEL.LODGE@medicaid.ohio.gov>; Brown, Brianne <Brianne.Brown@medicaid.ohio.gov> Cc: Wharton, Donald <Donald.Wharton@medicaid.ohio.gov>; Jarrod Grossman <jarrod.grossman@hdsͲrx.com> Subject: Release from Confidentiality in section 5.3

Good afternoon Brianne and Joel, HealthPlan Data Solutions grants permission for ODM to share anything in the complete report “ODM_HDS Final Report”, with any entity ODM determines should have access.

Gary Rutherford RPh HealthPlan Data Solutions, LLC CoͲFounder & Chief Clinical Officer 614Ͳ515Ͳ2704 (o) 614Ͳ296Ͳ0622 (c)

CONFIDENTIALITY NOTICE: The contents of this email message and any attachments are intended solely for the addressee(s) and may contain confidential and/or privileged information and may be legally protected from disclosure. If you are not the intended recipient of this message or their agent, or if this message has been addressed to you in error, please immediately alert the sender by reply email and then delete this message and any attachments. If you are not the intended recipient, you are hereby notified that any use, dissemination, copying, or storage of this message or its attachments is strictly prohibited.

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John R. Kasich, Governor

Jillian Froment, Director

BULLETIN 2018-02 PHARMACY BENEFITS - PROHIBITED PRACTICES Effective April 3, 2018

This Bulletin pertains to all Third Party Administrators, including Pharmacy Benefit Managers, and health insurance companies (collectively, entities). The Department has received inquiries related to entities withholding cost-saving information from consumers, which sometimes results in an insured paying more for pharmacy benefits than the actual cost of such pharmacy benefits.

The purpose of this Bulletin is to clarify certain prohibited practices with respect to the provision of pharmacy benefits and set forth the Departmentâ&#x20AC;&#x2122;s interpretation of and position on certain acts and/or practices that ultimately increase costs to consumers.

Pursuant to R.C. 3959.12(A)(5), an administratorâ&#x20AC;&#x2122;s license may be suspended upon a finding that the entity has used fraudulent, coercive, or dishonest practices. Additionally, R.C. 3923.02 prohibits policies of sickness and accident insurance from containing provisions that are ambiguous, misleading or deceptive, and R.C. 3923.021 requires policies to provide benefits that are reasonable in relation to the premium charged.

Therefore, the Department defines the following practices as a violation of the statutes cited above and prohibits any entity from the following: 1) Prohibiting any person, directly or indirectly, from informing, by any means, an individual about less expensive ways to purchase prescription drugs that may also be available under any insurance policy or benefit plan.

2) Requiring cost-sharing in an amount, or directing a pharmacy to collect cost-sharing in an amount, greater than the amount an individual would pay for the prescription drug if the drug were purchased without coverage under a health benefit plan.

These prohibitions are effective immediately. No filing submissions are necessary to effect these prohibitions.

Superintendent of Insurance

Jillian Froment Director

50 W. Town Street, 3rd Floor, Suite 300 Columbus, Ohio 43215

Fourth Quarter 2017 Earnings Conference Call Larry Merlo President & Chief Executive Officer

Dave Denton Executive Vice President & Chief Financial Officer February 8, 2018

Important Information No Offer or Solicitation This communication is for informational purposes only and not intended to and does not constitute an offer to subscribe for, buy or sell, the solicitation of an offer to subscribe for, buy or sell or an invitation to subscribe for, buy or sell any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

Additional Information and Where to Find It In connection with the proposed transaction between CVS Health Corporation (“CVS Health”) and Aetna Inc. (“Aetna”), on February 5, 2018, CVS Health filed with the Securities and Exchange Commission (the “SEC”) an amendment to the registration statement on Form S-4 that was originally filed on January 4, 2018. The registration statement includes a preliminary joint proxy statement of CVS Health and Aetna that also constitutes a preliminary prospectus of CVS Health, which will be mailed to stockholders of CVS Health and shareholders of Aetna once the registration statement becomes effective and the joint proxy statement/prospectus is in definitive form.

The registration statement is not yet effective. INVESTORS AND SECURITY HOLDERS OF CVS HEALTH AND AETNA ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain free copies of the registration statement and the joint proxy statement/prospectus and other documents filed with the SEC by CVS Health or Aetna through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by CVS Health are available free of charge within the Investors section of CVS Health’s Web site at http://www.cvshealth.com/investors or by contacting CVS Health’s Investor Relations Department at 800-201-0938. Copies of the documents filed with the SEC by Aetna are available free of charge on Aetna’s internet website at http://www.Aetna.com or by contacting Aetna’s Investor Relations Department at 860-273-0896.

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Important Information Participants in the Solicitation CVS Health, Aetna, their respective directors and certain of their respective executive officers may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of CVS Health is set forth in its Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on February 9, 2017, its proxy statement for its 2017 annual meeting of stockholders, which was filed with the SEC on March 31, 2017, and certain of its Current Reports on Form 8-K. Information about the directors and executive officers of Aetna is set forth in its Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on February 17, 2017, its proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on April 7, 2017, and certain of its Current Reports on Form 8-K. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, are contained in the preliminary joint proxy statement/prospectus and will be contained in the definitive joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

Cautionary Statement Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of CVS Health or Aetna. This communication may contain forward-looking statements within the meaning of the Reform Act. You can generally identify forward-looking statements by the use of forward-looking terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “evaluate,” “expect,” “explore,” “forecast,” “guidance,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “potential,” “predict,” “probable,” “project,” “seek,” “should,” “view,” or “will,” or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond CVS Health’s and Aetna’s control.

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Important Information Statements in this communication regarding CVS Health and Aetna that are forward-looking, including CVS Health’s and Aetna’s projections as to the closing date for the pending acquisition of Aetna (the “transaction”), the extent of, and the time necessary to obtain, the regulatory approvals required for the transaction, the anticipated benefits of the transaction, the impact of the transaction on CVS Health’s and Aetna’s businesses, the expected terms and scope of the expected financing for the transaction, the ownership percentages of CVS Health’s common stock of CVS Health stockholders and Aetna shareholders at closing, the aggregate amount of indebtedness of CVS Health following the closing of the transaction, CVS Health’s expectations regarding debt repayment and its debt to capital ratio following the closing of the transaction, CVS Health’s and Aetna’s respective share repurchase programs and ability and intent to declare future dividend payments, the number of prescriptions used by people served by the combined companies’ pharmacy benefit business, the synergies from the transaction, and CVS Health’s, Aetna’s and/or the combined company’s future operating results, are based on CVS Health’s and Aetna’s managements’ estimates, assumptions and projections, and are subject to significant uncertainties and other factors, many of which are beyond their control. In particular, projected financial information for the combined businesses of CVS Health and Aetna is based on estimates, assumptions and projections and has not been prepared in conformance with the applicable accounting requirements of Regulation S-X relating to pro forma financial information, and the required pro forma adjustments have not been applied and are not reflected therein. None of this information should be considered in isolation from, or as a substitute for, the historical financial statements of CVS Health and Aetna. Important risk factors related to the transaction could cause actual future results and other future events to differ materially from those currently estimated by management, including, but not limited to: the timing to consummate the proposed transaction; the risk that a regulatory approval that may be required for the proposed transaction is delayed, is not obtained or is obtained subject to conditions that are not anticipated; the risk that a condition to the closing of the proposed transaction may not be satisfied; the outcome of litigation related to the transaction; the ability to achieve the synergies and value creation contemplated; CVS Health’s ability to promptly and effectively integrate Aetna’s businesses; and the diversion of and attention of management of both CVS Health and Aetna on transaction-related issues.

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Important Information In addition, this communication may contain forward-looking statements regarding CVS Health’s or Aetna’s respective businesses, financial condition and results of operations. These forward-looking statements also involve risks, uncertainties and assumptions, some of which may not be presently known to CVS Health or Aetna or that they currently believe to be immaterial also may cause CVS Health’s or Aetna’s actual results to differ materially from those expressed in the forward-looking statements, adversely impact their respective businesses, CVS Health’s ability to complete the transaction and/or CVS Health’s ability to realize the expected benefits from the transaction. Should any risks and uncertainties develop into actual events, these developments could have a material adverse effect on the transaction and/or CVS Health or Aetna, CVS Health’s ability to successfully complete the transaction and/or realize the expected benefits from the transaction. Additional information concerning these risks, uncertainties and assumptions can be found in CVS Health’s and Aetna’s respective filings with the SEC, including the risk factors discussed in “Item 1.A. Risk Factors” in CVS Health’s and Aetna’s most recent Annual Reports on Form 10-K, as updated by their Quarterly Reports on Form 10-Q and future filings with the SEC. You are cautioned not to place undue reliance on CVS Health’s and Aetna’s forward-looking statements. These forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Neither CVS Health nor Aetna assumes any duty to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, as of any future date.

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Forward-looking Statements This presentation contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current views related to our future financial performance, future events and industry and market conditions. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what may be indicated in the forward-looking statements. We strongly encourage you to review the information in the reports that we file with the SEC regarding these specific risks and uncertainties, in particular those that are described in the Risk Factors section of our most-recently filed Annual Report on Form 10-K. This presentation includes non-GAAP financial measures that we use to describe our companyâ&#x20AC;&#x2122;s performance. In accordance with SEC regulations, you can find the definitions of these non-GAAP measures, as well as reconciliations to comparable GAAP measures, on the Investor Relations portion of our website.

Link to our Q4 and FY non-GAAP reconciliations: http://bit.ly/2E8xOYx

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Fourth Quarter Business Update

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Fourth Quarter: Solid Results Q4 2017

Change vs. Q4 2016

Consolidated net revenues

$48.4 billion

5.3%

Adjusted operating profit

$3.2 billion

5.7%

Adjusted EBITDA

$3.8 billion

4.8%

$1.92

12.0%

($642) million

(143%)

Adjusted EPS

Free Cash Flow

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2017 Provides Foundation for Growth in 2018 2017

Change vs. 2016

Consolidated net revenues

$184.8 billion

4.1%

Adjusted operating profit

$10.0 billion

(5.8%)

Adjusted EBITDA

$12.4 billion

(4.4%)

$5.90

1.0%

$6.4 billion

(22%)

Adjusted EPS

Free Cash Flow

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PBM Business:

2018 Selling Season Seeing Good Progress • Gross wins of ~ $6.2 billion • Net new business of ~ $2.4 billion - Does not include any impact from our individual Med D PDP - Strong retention rate of ~ 96.5% (1)

• Welcome season saw service levels reaching record performance • 2019 Selling Season - $39 billion up for renewal in 2019, inclusive of FEP retail and mail contracts - FEP extended through 2019 - Renewed high percentage of our health plan clients - Too early to gauge full extent of RFP activities, though not as much health plan activity as past years 1. Client retention rate is defined as: 1 less (estimated lost revenues from any known terminations plus annualization of any midyear terminations, divided by estimated PBM revenues for that selling season year) expressed as a percentage. Both terminations and PBM revenues exclude Medicare Part D SilverScript individual products.

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PBM Business:

Top of Mind for Clients • Plan designs that effectively lower unit costs and overall health care costs – Most common are plans with formularies focused on the highest value drugs – Clinical programs such as Transform Diabetes Care and Pharmacy Advisor increasingly central to clients’ benefit and health management strategies – Specialty management continues to be highly emphasized in plan design elections

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PBM Business:

Specialty Pharmacy • In Q4, specialty revenues increased 9.2%; scripts increased 14.5% – Benefited from new product introductions and increased access to limited distribution drugs

• Revenue moderated by: – Lower levels of inflation on specialty drugs – Increase in generic dispensing within specialty • Decreases revenue but benefits margin

– Mix of drugs shifting towards lower-priced therapies as well as fewer scripts for Hep C

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PBM Business:

SilverScript Still Clear Leader in Med D Space • Another successful enrollment period – Including non-captive Med D lives CVS Caremark manages for our health plan clients, we have 13.3 million lives under management

Medicare Part D Lives Served by CVS Caremark (1)(2) (millions) January ‘17

January ‘18

Individual

4,532.0

4,831.8

6.6%

EGWP

987.4

1,278.6

29.5%

Total captive lives

5,519.4

6,110.4

10.7%

Non-captive lives

6,769.2

7,157.9

5.7%

Total lives

12,288.7

13,268.4

8.0%

1. Source: Centers for Medicare & Medicaid Services.

2. Totals may not foot due to rounding.

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Jan YOY Growth

Retail/LTC Business:

Q4 Pharmacy Revenue and Script Growth (1) •

Total same-store sales increased 0.1%, more than 100 bps better than expectations

•

Pharmacy same-store sales increased 0.4% ̶

•

Negative impact of ~ 340 bps due to recent generic introductions

Pharmacy same-store prescription volumes increased 2.5% on a 30-day equivalent basis (2), ahead of expectations – Flu season strengthened in December, continuing into the first several weeks of 2018 – Previously discussed network changes restricting CVS Pharmacy from participating in certain networks had a negative impact of ~ 320 bps •

100 bps better than impact on Q3, due to comping start of the Tricare restriction at beginning of December

– Adjusting for network changes, same-store prescription volumes would have been up 5.7%

•

Retail pharmacy market share increased ~ 15 bps versus Q4 2016

1. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, long-term care operations and from commercialization services.

2. Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

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Retail/LTC Business:

Collaborating With All Payors • We will return to healthy script growth, driven in part by our new collaborations with Optum, Cigna, and Express Scripts ̶

Collaborations will help patients receive the most from their health benefits while improving their health

• Believe that being preferred in more Med D networks will help us to further drive prescription volume in the growing Med D market ̶

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Includes SilverScript, Aetna, and Wellcare

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Retail/LTC Business:

Q4 Front Store Revenue and Gross Margin • Front store comps decreased 0.7% – Cold and flu season added 80 bps •

When cold and flu impact adjusted out, comp improved sequentially

– Reflects a number of factors, including decision to optimize promotional strategies

• Reduction in circular promotion in 2017 was successful – Supported by refinement of our industry-leading promotional analytics and processes

• Store brands remain an area of strength and opportunity • Represented 23.7% of front store sales in quarter • Flat to LY

•

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Front store gross margin once again improved in the quarter versus last year

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Retail/LTC Business:

Real Estate Update Locations at end of Q3 Opened Closed Retail locations at end of Q4 2017 Net new locations Relocations Retail locations with pharmacies

9,751 65 (13) 9,803 52 5 9,755 (1)

1. Including 8,060 CVS Pharmacy stores that operated a pharmacy and 1,695 pharmacies located within Target stores. Excludes onsite pharmacy stores.

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Fourth Quarter 2017 Financial Review

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Financial Update:

Capital Allocation • For full-year 2017, generated $6.4 billion in free cash • Paid ~ $510 million in dividends in Q4; $2.0 billion in full-year 2017 – 12-month trailing dividend payout ratio of 30.9% (1) – Down slightly due to non-cash tax reform benefit captured in net income during Q4

• In Q4, no shares repurchased due to the Aetna transaction • Full-year, repurchased 55 million shares for $4.4 billion, or $78.68 per share; year ended with $13.9 billion left in authorizations • Dividends kept flat and share repurchases suspended due to the Aetna transaction until we reach leverage ratios more in line with our credit ratings category 1. The dividend payout ratio is defined as the sum of the dividends paid for the last four quarters, divided by the sum of net income for the last four quarters. Dividends paid and net income are both included on the consolidated statements of cash flows.

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Financial Update:

Free Cash Flow and Capex • In Q4, outflow of ($642) million in free cash as we settled the CMS payable associated with the 2016 plan year • In 2017, gross capital expenditures of ~ $1.9 billion, about $306 million lower than LY -

Primarily due to higher spend in 2016 on integration of the Omnicare and Target operations

- Net capex for 2017 of ~ $1.7 billion, with $265 million in proceeds from sale leasebacks

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Q4 2017 Income Statement:

Earnings per Share • Q4 Adjusted EPS of $1.92, at the high end of guidance range – Several items open at year-end resolved in our favor, causing our effective tax rate to be lower than forecasted •

None are individually significant and, where appropriate, are factored into 2018 guidance

– Retail/LTC segment operating profit slightly above high-end of guidance range

– PBM posted profit growth within our updated expectations from January

• GAAP diluted EPS of $3.22, above expectations – Outperformance due to enactment of Tax Cuts and Jobs Act in December, 2017, which resulted in a reduction in our net deferred income tax liabilities

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Q4 2017 Income Statement:

Revenues: Consolidated, PBM • Consolidated revenues of ~ $48.4 billion, up 5.3% vs. LY • PBM revenues of $34.2 billion, up 9.3% vs. LY – Growth was 150 bps above the high-end of guidance – Year-over-year growth driven by increase in pharmacy network and specialty volume, brand inflation and increase in Medicare Part D revenues – Growth partially offset by increase in GDR to 86.9%, up ~ 80 bps vs. LY

• PBM adjusted claims grew 7.8% (1) vs. LY – 2017 FY: 1.78 billion adjusted claims

1. The pharmacy claims processed and the generic dispensing rate for all periods presented are adjusted to reflect 90-day prescriptions as the equivalent of three 30-day prescriptions.

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Q4 2017 Income Statement:

Revenues: Retail/LTC • Retail/LTC revenues of $20.9 billion, up 0.3% vs. LY – Better than expectations due to stronger-than-expected pharmacy same store sales and script growth and better-than-expected volume in front store •

Stronger cold and flu season contributed ~ 80 bps to front store same store sales growth

– Retail/LTC GDR of 86.8%, up ~ 160 bps vs. LY

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Q4 2017 Income Statement:

Gross Profit Margin: Consolidated, PBM • Consolidated adjusted gross margin of 16.3%, down ~ 30 bps vs. LY, primarily driven by mix shift, as lower-margin PBM is growing faster than Retail/LTC • Consolidated adjusted gross profit dollars increased 3.5% • PBM gross margin of 5.4%, up ~ 15 bps vs. LY

• PBM gross profit dollars increased 11.9% vs. LY – Driven by shift in the timing of Medicare Part D profits into the fourth quarter, increased network and specialty volume, and favorable purchasing economics

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Q4 2017 Income Statement:

Gross Profit Margin: Retail/LTC • Retail/LTC adjusted gross margin of 30.0%, up ~ 25 bps vs. LY – Increase primarily driven by favorability in front store margin and increased generic dispensing, partially offset by continued reimbursement pressure • Favorability in front store margin driven by continued optimization of promotional strategies

• Retail/LTC adjusted gross profit dollars increased 1.1% vs. LY, due to strong front store margin and script growth, partially offset by loss of scripts from the network changes that occurred in 2016

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Q4 2017 Income Statement:

Operating Expenses and Margin • Consolidated: adjusted operating expenses were 9.7% of revenues …~ 30 bps improvement vs. LY • PBM: adjusted operating expenses as percent of sales flat to LY • Retail/LTC: adjusted operating expenses as percent of sales increased slightly due to less leverage from revenue growth • Corporate: adjusted operating expenses of $236 million, consistent with last year

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Q4 2017 Income Statement:

Operating Profit and Margin • Consolidated – Adjusted operating profit increased 5.7%, in line with expectations – Adjusted operating margin of 6.6%, flat vs. LY

• PBM – Operating profit increased 13.5%, in line with expectations – Operating margin of 4.3%, up ~ 15 bps vs. LY

• Retail/LTC – Adjusted operating profit decreased 0.3%, exceeding expectations – Adjusted operating margin of 10.3%, down 10 bps vs. LY

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Q4 2017 Income Statement:

Below-the-line • Net interest expense of $241 million, ~ $1.5 million lower than LY • Adjusted effective tax rate of 38.3%; 38.1% for the year (1) – Better than expectations

• Weighted-average share count of ~ 1.0 billion shares

1. The income tax provision for the three months and year ended December 31, 2017, excludes the approximately $1.5 billion income tax benefit associated with the enactment of the Tax Cuts and Jobs Act in December 2017.

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2018 Guidance

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Guidance: 2018 Full-year

Investment from Tax Reform • Updating guidance only to reflect plans for investment of tax reform benefit • Reduction in tax expense to yield ~ $1.2 billion in cash benefits, allowing us to make incremental investments in our business • Anticipate spending at least half of tax benefit on debt reduction, supporting our goal to return to leverage ratio of mid-3X within two years after closing of Aetna transaction; low-3X longer-term • Three areas where we plan to invest: – Investment in our colleagues, increasing wages and benefits – Investment in data analytics and care management solutions to improve our predictive power and further transform processes, accelerating our abilities to improve outcomes and lower costs – Investment in stores to pilot enhanced service offerings – A portion of the spend will be capitalized on the balance sheet – Expect to spend at least $275 million of operating expenses on these initiatives in 2018, predominantly in Retail/LTC – Run rate of at least $425 million 30

© 2018 CVS Health

Guidance: 2018 Full-year

Enterprise Outlook Full-year 2018

Net Revenue Growth

0.75% to 2.50%

Enterprise Adjusted Operating Profit Growth

(1.5%) to 1.5%

Tax Rate

~ 27%

Assumptions: 1. Revised from January guidance to reflect $275 million investment of the benefit from tax reform in operating expenses.

2. Assume for guidance purposes only, Aetna transaction closes after year-end 2018, given the uncertainty of the timing of the close of the transaction.

3. Bridge financing fees, transaction and integration costs related to the deal are excluded from adjusted figures.

4. Unfavorably affected by 2018 implementation costs for the Anthem contract and the absence of the RxCrossroads business due to its sale. Combined negative impact on growth of these factors is ~ 125 basis points.

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Guidance: 2018 Full-year

Retail/LTC

Segment Outlook Net Revenue Growth

2.5% to 4.0%

Same-Store Sales (1) Same-Store Adjusted Scripts (1) (2)

2.0% to 3.5%

Operating Profit Change (3) Net Revenue Change Pharmacy Services

Full-year 2018

6.0% to 7.0% Down low-single digits 1.5% to 3.5%

Total Adjusted Claims (4)

1.91 billion to 1.93 billion

Operating Profit Growth (5)

Low- to mid-single digits

1. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil and long-term care operations.

2. Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

3. The sale of the RxCrossroads business will negatively impact Retail/LTC operating profit growth by ~ 50 bps due to the absence of the business in 2018.

4. Includes the adjustment to reflect 90-day prescriptions as the equivalent of three 30-day prescriptions.

5. Anthem implementation costs of ~$150 million will negatively impact PBM operating profit growth by ~ 190 bps.

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Guidance: 2018 Full-year

Below-the-Line • Share repurchases suspended for 2018 due to Aetna transaction – Expect to use cash to pay down existing debt, continue to pay $2 per share annual dividend and fund purchase of Aetna

• Expect net interest in range of $2.0 billion to $2.3 billion – Net interest on existing portfolio of debt expected to be ~ $1.05 billion – Bridge financing fees expected to be in range of $170 million to $205 million; excluded from adjusted EPS – Remainder is interest from new debt; included in adjusted EPS – Ranges take into account variability of timing of issuance, interest rate, and mix of maturities

• Expect effective tax rate to be ~ 27% in 2018, taking into account the reduction in the federal tax rate to 21% and other changes in December’s tax reform legislation

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Guidance: 2018 Q1

Enterprise Outlook Q1 2018

Net Revenue Growth

1.5% to 3.25%

Enterprise Adjusted Operating Profit Growth

0.5% to 4.5%

Assumptions: 1. Assume for guidance purposes only, Aetna transaction closes after year-end 2018, given the uncertainty of the timing of the close of the transaction.

2. Bridge financing fees, transaction and integration costs related to the deal are excluded from adjusted figures.

3. Unfavorably affected by 2018 implementation costs for the Anthem contract and the absence of the RxCrossroads business due to its sale.

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Guidance: 2018 Q1

Segment Performance Q1 2018

Retail/LTC

Net Revenue Growth Same-Store Sales (1) Same-Store Adjusted Scripts (1) (2)

Pharmacy Services

Adjusted Operating Profit Growth Net Revenue Growth Operating Profit Growth

4.0% to 5.5% 4.0% to 5.5%

7.0% to 8.5% Low- to mid-single digits 2.0% to 3.75% Flattish to slightly up

1. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, long-term care operations and from commercialization services.

2. Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

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IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, OHIO CAREMARKPCS HEALTH, LLC, Plaintiff, v.

BARBARA R. SEARS, OHIO DEPARTMENT OF MEDICAID, Defendant.

: : : : : : : : : :

Case No. 18-cv-5943 Judge Jenifer A. French

EXHIBITS G THROUGH L TO DEFENDANT SEARS’ MEMORANDUM CONTRA PLAINTIFF’S MOTION FOR A TEMPORARY RESTRAINING ORDER

MICHAEL DeWINE (0009181) Ohio Attorney General C. David Paragas (0043908) Kevin R. McDermott (0019256) David J. Dirisamer (0092125) Barnes & Thornburg LLP 41 South High Street, Suite 3300 Columbus, Ohio 43215 Telephone: (614) 628-0096 Facsimile: (614) 628-1433 David.Paragas@btlaw.com Kevin.McDermott@btlaw.com David.Dirisamer@btlaw.com

Ara Mekhjian (0068800) Julie Brigner (0066367) Assistant Attorneys General Health and Human Services Section 30 East Broad Street, 26th Floor Columbus, Ohio 43215-3400 Telephone: (614) 644-8993 Facsimile: (866) 478-7791 ara.mekhjian@ohioattorneygeneral.gov julie.brigner@ohioattorneygeneral.gov

Counsel for Plaintiff

Counsel for Defendant

1

First Quarter 2018 Earnings Conference Call Larry Merlo President & Chief Executive Officer

Dave Denton Executive Vice President & Chief Financial Officer May 2, 2018

G

Important Information No Offer or Solicitation This communication is for informational purposes only and not intended to and does not constitute an offer to subscribe for, buy or sell, the solicitation of an offer to subscribe for, buy or sell or an invitation to subscribe for, buy or sell any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

Additional Information and Where to Find It In connection with the proposed transaction between CVS Health Corporation (“CVS Health”) and Aetna Inc. (“Aetna”), CVS Health filed a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”), which includes a joint proxy statement of CVS Health and Aetna that also constitutes a prospectus of CVS Health. The registration statement was declared effective by the SEC on February 9, 2018, and CVS Health and Aetna commenced mailing the definitive joint proxy statement/prospectus to stockholders of CVS Health and shareholders of Aetna on or about February 12, 2018, and the special meeting of the stockholders of CVS Health and the shareholders of Aetna was held on March 13, 2018. INVESTORS AND SECURITY HOLDERS OF CVS HEALTH AND AETNA ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain free copies of the registration statement and the definitive joint proxy statement/prospectus and other documents filed with the SEC by CVS Health or Aetna through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by CVS Health are available free of charge within the Investors section of CVS Health’s Web site at http://www.cvshealth.com/investors or by contacting CVS Health’s Investor Relations Department at 800201-0938. Copies of the documents filed with the SEC by Aetna are available free of charge on Aetna’s internet website at http://www.Aetna.com or by contacting Aetna’s Investor Relations Department at 860-273-0896.

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© 2018 CVS Health

Important Information Cautionary Statement Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of CVS Health or Aetna. This communication may contain forward-looking statements within the meaning of the Reform Act. You can generally identify forward-looking statements by the use of forward-looking terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “evaluate,” “expect,” “explore,” “forecast,” “guidance,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “potential,” “predict,” “probable,” “project,” “seek,” “should,” “view,” or “will,” or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond CVS Health’s and Aetna’s control.

Statements in this communication that are forward-looking, including projections as to the closing date for the pending acquisition of Aetna (the “transaction”), the extent of, and the time necessary to obtain, the regulatory approvals required for the transaction, the anticipated benefits of the transaction, the impact of the transaction on CVS Health’s and Aetna’s businesses, the expected terms and scope of the expected financing for the transaction, the ownership percentages of CVS Health’s common stock of CVS Health stockholders and Aetna shareholders at closing, the aggregate amount of indebtedness of CVS Health following the closing of the transaction, CVS Health’s expectations regarding debt repayment and its debt to capital ratio following the closing of the transaction, CVS Health’s and Aetna’s respective share repurchase programs and ability and intent to declare future dividend payments, the number of prescriptions used by people served by the combined companies’ pharmacy benefit business, the synergies from the transaction, and CVS Health’s, Aetna’s and/or the combined company’s future operating results, are based on CVS Health’s and Aetna’s managements’ estimates, assumptions and projections, and are subject to significant uncertainties and other factors, many of which are beyond their control. In particular, projected financial information for the combined businesses of CVS Health and Aetna is based on estimates, assumptions and projections and has not been prepared in conformance with the applicable accounting requirements of Regulation S-X relating to pro forma financial information, and the required pro forma adjustments have not been applied and are not reflected therein.

None of this information should be considered in isolation from, or as a substitute for, the historical financial statements of CVS Health and Aetna. Important risk factors related to the transaction could cause actual future results and other future events to differ materially from those currently estimated by management, including, but not limited to: the timing to consummate the proposed transaction; the risk that a regulatory approval that may be required for the proposed transaction is delayed, is not obtained or is obtained subject to conditions that are not anticipated; the risk that a condition to the closing of the proposed transaction may not be satisfied; the outcome of litigation related to the transaction; the ability to achieve the synergies and value creation contemplated; CVS Health’s ability to promptly and effectively integrate Aetna’s businesses; and the diversion of and attention of management of both CVS Health and Aetna on transaction-related issues.

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© 2018 CVS Health

Important Information In addition, this communication may contain forward-looking statements regarding CVS Health’s or Aetna’s respective businesses, financial condition and results of operations. These forward-looking statements also involve risks, uncertainties and assumptions, some of which may not be presently known to CVS Health or Aetna or that they currently believe to be immaterial also may cause CVS Health’s or Aetna’s actual results to differ materially from those expressed in the forward-looking statements, adversely impact their respective businesses, CVS Health’s ability to complete the transaction and/or CVS Health’s ability to realize the expected benefits from the transaction. Should any risks and uncertainties develop into actual events, these developments could have a material adverse effect on the transaction and/or CVS Health or Aetna, CVS Health’s ability to successfully complete the transaction and/or realize the expected benefits from the transaction. Additional information concerning these risks, uncertainties and assumptions can be found in CVS Health’s and Aetna’s respective filings with the SEC, including the risk factors discussed in “Item 1.A. Risk Factors” in CVS Health’s and Aetna’s most recent Annual Reports on Form 10-K, as updated by their Quarterly Reports on Form 10-Q and future filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Neither CVS Health nor Aetna assumes any duty to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, as of any future date.

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© 2018 CVS Health

Forward-looking Statements This presentation contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current views related to our future financial performance, future events and industry and market conditions. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what may be indicated in the forward-looking statements. We strongly encourage you to review the information in the reports that we file with the SEC regarding these specific risks and uncertainties, in particular those that are described in the Risk Factors section of our most-recently filed Quarterly Report on Form 10-Q. This presentation includes non-GAAP financial measures that we use to describe our companyâ&#x20AC;&#x2122;s performance. In accordance with SEC regulations, you can find the definitions of these non-GAAP measures, as well as reconciliations to most comparable GAAP measures, on the Investor Relations portion of our website.

Link to our non-GAAP reconciliations: https://bit.ly/2HLoRlU

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Š 2018 CVS Health

Aetna Update

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© 2018 CVS Health

Aetna Update – Shareholders and Regulatory • Shareholder approval: CVS & Aetna shareholders each voted to approve transaction with +95% approval on March 13 • Regulatory update – Highly experienced legal and regulatory team has made significant progress since the signing – In process of responding to second request from the U.S. Department of Justice, received Feb 1, 2018

– Form A filings submitted to 28 state Departments of Insurance in January •

States that require hearings are starting to schedule and hold hearings

•

Have started to receive approvals from states  Florida Office of Insurance Regulation provided approval on April 13

̶

7

Continue to expect transaction to close in second half of 2018

© 2018 CVS Health

Aetna Update – Integration Planning • Formal, tightly organized Integration Management Office (IMO) established –

Reporting to Larry Merlo and Mark Bertolini, led by senior executives from both companies

–

Steering committee of executive management developed to provide guidance and strategic direction to the IMO

–

Two goals:

1.

Ensure smooth transition, along with laying out path to the expected $750 million synergies in the second full year of operations

2.

Create long-term roadmap for growth after close of transaction

• Twenty-two integration work streams developed, with representation from both CVS and Aetna, focused on wide range of objectives:

8

–

How we will work together most efficiently

–

Operational processes

–

Capturing opportunities for growth and innovation

–

Valuable progress has been made on identifying components of $750 million synergy goal for second full year of operation

© 2018 CVS Health

Aetna Update – Opportunity •

Transaction creates opportunity to re-think and re-invent U.S. health care

•

We have begun to identify populations and intervention tools for first programs –

–

Primary patient populations: •

Those with one of five chronic diseases: diabetes, hypertension, hyperlipidemia, asthma, depression

•

Patients undergoing transition in care

•

Broader focus on managing high-risk patients

Initial tools in four major categories: •

Interventions in stores

•

Activities in patients homes

•

New digital tools and capabilities

•

Data and advanced analytics

• This combination will create an innovative, new health care platform that will be easier to use, less expensive for consumers, and integrated broadly within the marketplace to deliver superior, coordinated care • Cumulative value of the management teams will aid fulfillment of the vision of both companies

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© 2018 CVS Health

Driving Growth Through Recent Innovations

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© 2018 CVS Health

We Are Continuing to Innovate • Constantly exploring ways to provide greater value to health care stakeholders we support • Looking to improve quality and lower costs for patients and clients

• Several recent announcements highlighted ways we continue to innovate – Addressing chronic kidney disease – PBM Drug Trend report – Saving Patients Money

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© 2018 CVS Health

Initiative Focused on Kidney Care and Dialysis Innovation • Marshalling enterprise resources to help address an area of significant, unmet clinical need: chronic kidney disease • Two main tenets: 1. Use data analytics to predict and support diagnosis earlier in the patients’ disease course 2. Absent renal transplantation, home dialysis is potentially the best alternative for many patients. Longer, more frequent therapy reported to improve outcomes.

• Clinical trial needed to generate the safety and efficacy data to obtain FDA clearance to market a new home hemodialysis device – Trial planned for late this summer – 18-24 month timeframe anticipated for trial completion, data submission, and FDA review

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© 2018 CVS Health

Drug Trend Report • 2017 Drug Trend Report released last month – Our PBM strategies reduced drug trend for commercial clients to lowest level in 5 years, 1.9% per member per year •

Drug price growth at minimal 0.2% despite manufacturer price increases of ~ 10%

– 42% of payor clients spent less on pharmacy benefit plan in 2017 than in the prior year – Members saved money and had lower out-of-pocket costs in 2017 •

13

Nearly 9 out of 10 members spent less than $300 out-of-pocket, and monthly cost per member declined to $11.89

© 2018 CVS Health

Saving Patients Money • Industry’s most comprehensive approach to helping make prescriptions more affordable by providing greater pricing transparency across all points of care …

– At the doctor’s office: Real-Time Benefits enables prescribers to see member-specific out-of-pocket costs of a prescribed medication and costs of clinically appropriate therapeutic alternatives in real-time – At the pharmacy: new Rx Savings Finder enables retail pharmacists to help patient find lowest cost alternative under their pharmacy benefits plan – Directly to members: Point of Sale rebate offering allows value of negotiated rebates on branded drugs to pass on directly to patients when they fill prescriptions

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© 2018 CVS Health

First Quarter 2018 Business & Financial Review

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Š 2018 CVS Health

First Quarter: Strong Results Q1 2018

Change vs. Q1 2017

Consolidated net revenues

$45.7 billion

2.6%

Adjusted operating profit

$2.1 billion

3.4%

Adjusted EBITDA

$2.7 billion

3.7%

$1.48

26.5%

$1.9 billion

(39.1%)

Adjusted EPS

Free Cash Flow

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Š 2018 CVS Health

Financial Update:

Capital Allocation • In Q1, generated $1.9 billion in free cash • Paid ~ $508 million in dividends in Q1 – Expect to return more than $2 billion to shareholders this year through dividends

• In Q1, no shares repurchased due to the Aetna transaction • Issued multiple tranches of senior notes totaling $40 billion • Well-laddered maturities, ranging from 2 to 30 years; weighted-average blended rate of 4.19% • Proforma, trailing 12-month adjusted debt-to-EBITDA expected to be ~ 4.6x post-close of transaction; committed to improving to 3.5x within two years post-close of the transaction. Ultimate goal is leverage ratio in low 3x.

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© 2018 CVS Health

Financial Update:

Debt Maturity Schedule 10

$, billions

9 8 7 6 5 4 3 2 1 0

2018

2019

2020

2021

2022

2023

2024

2025

2026

CVS existing debt

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Š 2018 CVS Health

2027

2028

2035

2038

$40 billion financing

2039

2041

2043

2045

2048

Q1 2018 Income Statement:

Earnings per Share • Q1 Adjusted EPS of $1.48, a 26.5% increase over last year – Primarily due to the lower effective income tax rate and higher script volume in the Retail/LTC segment – Interest and taxes slightly better than expectations, contributing ~ 2¢ to Adjusted EPS

• GAAP diluted EPS of $0.98 • Beginning in Q1, will exclude net interest associated with Aetna debt from non-GAAP metrics – As we are not yet benefiting from Aetna’s cash flows and earnings, this will provide a clearer picture of our underlying performance as we wait for the transaction to close

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© 2018 CVS Health

Q1 2018 Income Statement:

Consolidated • Consolidated revenues of ~ $45.7 billion, up 2.6% vs. LY, consistent with expectations • Adjusted gross margin of 15%, up ~ 25 bps vs. LY due to segment mix, consistent with expectations • Adjusted gross profit dollars increased 4.4% • Adjusted operating expenses were 10.5% of sales … ~ 20 bps deterioration vs. LY –

Primarily due to increased store operating costs with the growth in the Retail/LTC business

–

A portion is related to the investments we are making in process improvements and technology enhancements as part of our enterprise streamlining initiative

• Adjusted operating profit increased 3.4%, in line with expectations

• Adjusted operating margin of 4.5%, flat vs. LY

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© 2018 CVS Health

Q1 2018 Income Statement:

Enterprise Streamlining Initiative Update • Across all work streams, expect to generate ~ $475 million in gross benefits this year; $700 million or more annually once work is complete • Enhancement example: – CVS Pharmacy and Caremark implemented process to share member’s eligibility and plan design data in real time – Historically, eligibility-related rejections impact ~ 6% of Caremark scripts at pharmacy counter, so large opportunity to improve customer service and cost savings – To date, seen a nearly 70% reduction in Caremark rejects related to eligibility, and have eliminated more than 8 million rejections in Q1 – Solution is being pursued with other payers as well

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© 2018 CVS Health

Q1 2018 Income Statement:

Cost Allocation Methodology • In Q1, moved to common financial platform (SAP) across the enterprise, as previously discussed • Now have better information to allocate shared services costs to operating segments • Revising 2016 and 2017 financial statements for this change, which impacts profitability for the segments while consolidated operating profit does not change • Reconciliation is posted to the IR portion of the website: https://bit.ly/2JLOeV5

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© 2018 CVS Health

Q1 2018 Income Statement:

PBM •

PBM revenues of $32.2 billion, up 3.2% vs. LY – Year-over-year growth driven by net new business, including growth in Medicare Part D lives, and specialty growth – Growth partially offset by continued pricing pressure and increase in GDR to 87.6%(1) , up ~ 65 bps vs. LY

• Adjusted claims grew 6.4% (1) vs. LY – 468.8 million adjusted claims

•

Gross margin of 3.5%, flat vs. LY

•

Gross profit dollars increased 5.1% vs. LY –

•

Primarily driven by increased volume in specialty pharmacy and the continued adoption of Maintenance Choice, partially offset by Anthem implementation costs

Adjusted operating expenses were 1.2% of sales –

Operating expense dollars increased by ~ $52 million in Q1, primarily driven by the reinstatement of the Affordable Care Act’s health insurer fee and acquisition of Wellpartner, Inc.

• Operating profit increased 0.4%, in line with expectations •

Operating margin of 2.4%, flat vs. LY

1. The pharmacy claims processed and the generic dispensing rate for all periods presented are adjusted to reflect 90-day prescriptions as the equivalent of three 30-day prescriptions.

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© 2018 CVS Health

Q1 2018 Income Statement:

PBM 2019 Selling Season • More than halfway through 2019 client renewals • Retention rate(1) currently in line with rates seen in prior years • Expect RFP opportunity in 2019 to be less than past few selling seasons

1. Client retention rate is defined as: 1 less (estimated lost revenues from any known terminations plus annualization of any midyear terminations, divided by estimated PBM revenues for that selling season year) expressed as a percentage. Both terminations and PBM revenues exclude Medicare Part D SilverScript individual products.

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© 2018 CVS Health

Q1 2018 Income Statement:

Specialty Pharmacy • In Q1, specialty revenues increased 5.9%; scripts increased 8.0%(1) • Revenue moderated by: – Mix of drugs shifting towards lower-priced therapies as well as fewer scripts for Hep C

1. Includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

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© 2018 CVS Health

Q1 2018 Income Statement:

SilverScript Still Clear Leader in Med D Space •

Including non-captive Med D lives CVS Caremark manages for our health plan clients, we have 13.4 million lives under management

Medicare Part D Lives Served by CVS Caremark (1)(2) (thousands) March ‘17

March ‘18

Individual

4,536.3

4,851.2

6.9%

EGWP

988.7

1,270.2

28.5%

Total captive lives

5,525.0

6,121.4

10.8%

Non-captive lives

6,880.6

7,270.4

5.7%

Total lives

12,405.5

13,391.8

8.0%

1. Source: Centers for Medicare & Medicaid Services.

2. Totals may not foot due to rounding.

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© 2018 CVS Health

March YOY Growth

Q1 2018 Income Statement:

Retail/LTC •

Retail/LTC revenues of $20.4 billion, up 5.6% vs. LY – Strong growth primarily driven by increased script volumes due to continued adoption of our Patient Care Programs, partnerships with PBM’s and health plans, and preferred position in a number of additional Med D networks this year – Also benefitted from strong cough, cold, and flu season in Q1 – Retail/LTC GDR of 88.1%(1), up ~ 60 bps vs. LY

• Adjusted gross margin of 29.0%, down ~ 40 bps vs. LY – Decrease driven by continued pressure on reimbursement rates, partially offset by an increase in GDR as well as an improvement in front store margin rate driven, in part, by a strong cough and cold season

• Adjusted gross profit dollars increased 4.1% vs. LY, due to increased script and front store volume, as well as improvements in purchasing through Red Oak Sourcing • Adjusted operating expenses as percent of sales improved slightly due to leverage from revenue growth • Adjusted operating profit increased 4.1%, in line with expectations • Adjusted operating margin of 8.4%, down ~ 10 bps vs. LY 1. The generic dispensing rate for all periods presented are adjusted to reflect 90-day prescriptions as the equivalent of three 30day prescriptions.

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© 2018 CVS Health

Q1 2018 Income Statement:

Retail/LTC Revenue and Script Growth •

Total same-store sales increased 5.8%

•

Pharmacy same-store sales increased 7.3% ̶ Negative impact of ~ 280 bps due to recent generic introductions

•

Pharmacy same-store prescription volumes increased 8.5% on a 30-day equivalent basis (2), at the high end of guidance range – Flu season strong in Q1. Seasonal adjusted scripts grew ~ 4 million scripts YOY (2)

•

Front store same store sales increased 1.6% Positive impact from calendar shift of Easter holiday this year (positive 90 bps impact), as well as strong cough and cold season ̶

•

Retail pharmacy market share increased ~ 140 bps versus Q1 2017 to 24.6%, due to healthy results from our initiatives, including those with other PBMs and health plans, and our inclusion in a number of Med D networks this year

•

Store brands represented 22.4% of front store sales in quarter

1. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, long-term care operations and from commercialization services.

2. Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

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© 2018 CVS Health

Q1 2018 Income Statement:

CVS MinuteClinic • Operate 1,111 clinics across 33 states and Washington, D.C. • Q1 revenues up ~ 15% vs. same quarter a year ago, including clinics within Target stores • Plan to launch telehealth services later this year with which patients can access our care providers via the CVS app or online

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© 2018 CVS Health

Q1 2018 Income Statement:

Real Estate Update Locations at end of Q4

9,803

Opened

50

Closed

(6)

Retail locations at end of Q1 2018 Net new locations Relocations

Retail locations with pharmacies

9,847 44 5

9,798 (1)

1. Including 8,099 CVS Pharmacy stores that operated a pharmacy and 1,699 pharmacies located within Target stores. Excludes onsite pharmacy stores.

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Š 2018 CVS Health

Q1 2018 Income Statement:

Corporate â&#x20AC;˘ Corporate: adjusted operating expenses of $224 million, flat to LY and slightly better than expectations

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Š 2018 CVS Health

Q1 2018 Income Statement:

Below-the-line • Adjusted net interest expense of $242 million, ~ $10 million lower than LY • Adjusted effective tax rate of 26.1% – Better than expectations

• Weighted-average share count of ~ 1.0 billion shares

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© 2018 CVS Health

2018 Guidance

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© 2018 CVS Health

Guidance: 2018 Full-year

Enterprise Outlook

Full-year 2018

Net Revenue Growth

1.25% to 3.0%

Enterprise Adjusted Operating Profit Growth

(1.5%) to 1.5%

Tax Rate Adjusted Net Interest

~ 27% ~ 1.03 billion

Adjusted EPS

$6.87 to $7.08

Growth

16.25% to 20.0%

GAAP EPS

$5.11 to $5.32

Assumptions: 1. Adjusted net interest reflects an additional adjustment for net interest expense from the proposed Aetna acquisition.

2. Assume for guidance purposes only, Aetna transaction closes at year-end 2018. By doing so, we are setting no expectations for results of Aetnaâ&#x20AC;&#x2122;s operations in 2018.

3. Net interest expense, transaction and integration costs related to the deal are excluded from adjusted figures.

4. Unfavorably affected by 2018 implementation costs for the Anthem contract and the absence of the RxCrossroads business due to its sale.

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Š 2018 CVS Health

Guidance: 2018 Full-year

Retail/LTC

Segment Outlook Net Revenue Growth

4.0% to 5.5%

Same-Store Sales (1) Same-Store Adjusted Scripts (1) (2)

4.0% to 5.5%

Adjusted Operating Profit Change (3) Net Revenue Growth Pharmacy Services

Full-year 2018

7.25% to 8.25% Down low-single digits 1.5% to 3.5%

Total Adjusted Claims (4)

1.88 billion to 1.90 billion

Operating Profit Growth (5)

Low- to mid-single digits

1. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil and long-term care operations.

2. Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

3. The sale of the RxCrossroads business will negatively impact Retail/LTC operating profit growth by ~ 50 bps due to the absence of the business in 2018.

4. Includes the adjustment to reflect 90-day prescriptions as the equivalent of three 30-day prescriptions.

5. Anthem implementation costs of ~$150 million will negatively impact PBM operating profit growth by ~ 190 bps.

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Š 2018 CVS Health

Guidance: 2018 Full-year

Quarterly Operating Profit Cadence • Operating profit will be weighted more to front half of this year, differing from what we indicated previously – $275 million of investments made with a portion of the savings from tax reform is predominantly back-half weighted – Retail/LTC segment making better progress on certain pharmacy initiatives in front half, and was positively affected by strong flu season in Q1 – LTC business experiencing some challenges, and its growth rate is lower than previously expected

• While not different from prior expectations, Anthem implementation costs are back-half weighted

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© 2018 CVS Health

Guidance: 2018 Q2

Enterprise Outlook Q2 2018

Net Revenue Growth

0.25% to 2.0%

Enterprise Adjusted Operating Profit Growth

Flat to 3.25%

Adjusted EPS

$1.59 to $1.64

Growth

19.25% to 23.0%

GAAP EPS

$1.21 to $1.26

Assumptions: 1. Assume for guidance purposes only, Aetna transaction closes at year-end 2018. By doing so, we are setting no expectations for results of Aetnaâ&#x20AC;&#x2122;s operations in 2018.

2. Net interest expense, transaction and integration costs related to the deal are excluded from adjusted figures.

3. Unfavorably affected by 2018 implementation costs for the Anthem contract and the absence of the RxCrossroads business due to its sale.

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Š 2018 CVS Health

Guidance: 2018 Q2

Segment Performance

Pharmacy Services

Retail/LTC

Net Revenue Growth

Q2 2018

4.5% to 6.0%

Same-Store Sales (1) Same-Store Adjusted Scripts (1) (2)

4.75% to 6.25%

Adjusted Operating Profit Growth

Mid- to high-single digits

Net Revenue Growth Operating Profit Change

7.75% to 9.25%

(0.25%) to 1.5% Down mid- to high-single digits

1. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, long-term care operations and from commercialization services.

2. Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

3. Timing of PBM profit delivery affected by investments being made to support Anthem implementation and timing of certain client commitments.

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Š 2018 CVS Health

HealthPlan Data Solutions, LLC 88 East Broad Street Page 1 of 7 Private and Confidential Suite 1340 Columbus, OH 43215 HDS Contacts: Gary Rutherford, RPh Chief Clinical Officer & Cofounder 614-515-2704 gary.rutherford@hds-rx.com Jarrod Grossman, PharmD, RPh Director of Pharmacy 614-506-5690 jarrod.grossman@hds-rx.com

Ohio Department of Medicaid Executive Summary Report on MCP Pharmacy Benefit Manager Performance June 15th, 2018

1|Page

Page 2 of 7 Private and Confidential To:

Director Sears, Ohio Department of Medicaid Patrick Stephan, Director of Managed Care - Ohio Department of Medicaid Dr. Donald Wharton, Assistant Medical Director - Ohio Department of Medicaid

Re: Executive Summary of Report on MCP Pharmacy Benefit Manager Performance From: HealthPlan Data Solutions, LLC Date: June 15th, 2018 Thank you for the opportunity to provide this executive summary of our report on the performance of Pharmacy Benefit Managers (PBM) in their management of the pharmacy benefit plans for the Managed Care Providers (MCPs) servicing the Ohio Department of Medicaid (ODM).

HealthPlan Data Solutions (HDS) provides transparency to the prescription benefit data and gives the plan sponsors and managed care providers the ability to measure performance and contract terms against competitive benchmarks.

The results of the HDS analysis for the following benefit components are included in the executive summary of the report: 1. Amount of â&#x20AC;&#x153;PBM Spreadâ&#x20AC;? between the prices billed to the MCPs by their PBMs and the amount paid to the pharmacy providers 2. Analysis of the provider payments; looking for any anti-competitive pricing that is biased against the independent pharmacy providers 3. Financial impact of a cost-neutral, pass-through PBM pricing option for ODM, which may resolve the challenges associated with the current traditional pricing PBM-MCP pricing model 4. Financial comparison of the current MCP managed model to a Fee-for-service model for all ODM prescription services

2|Page

Page 3 of 7 Private and Confidential

Summary of Results The analysis of the current benefit structure was performed on data matching ODM Encounter data to the Managed Care Plans (MCP) provided data. The HDS Claims Insight system identified the following: Total Calculated Spread for MCP Prescription Claims matched to Medicaid Encounter Data The HDS Claims Insight system matched the prescription claims data provided by the Managed Care Plans (MCP) to the ODM Encounter data.

HDS excluded MCP claims data that could not be matched to ODM Encounter data in this analysis. The total calculated spread between what was billed to the MCPs by the PBMs and paid to the pharmacy providers for matched claims is $223,711,075.37.

• This is 8.78% of the total amount billed to the MCPs by the PBMs for matched claims • The total spread for matched claims administered by CVS is $197,330,048.71 o This is 8.70% of the total amount billed to the MCPs by CVS for matched claims • The total spread for matched claims administered by OptumRx is $26,381,026.66 o This is 9.41% of the total amount billed to the MCP by OptumRx for matched claims Table: Spread in the MCP Claims Data Matched to ODM Encounter Data* Managed Care Plan

Rx Count

Total Price Paid to Pharmacy

Buckeye Community Health Plan

4,570,618

$268,014,861.22

$300,953,989.46

Spread Between Total Price Billed to MCP by PBM and Total Price Paid to Pharmacy+ $32,939,128.24

22,277,984

$1,289,174,706.61

$1,403,459,575.04

$114,284,868.43

8.14%

Molina Healthcare of Ohio

4,889,609

$286,187,123.03

$313,460,929.73

$27,273,806.70

8.70%

Paramount Advantage United Healthcare Community Plan

3,468,464 4,061,308

$227,008,099.53

$249,840,344.87

$22,832,245.34

9.14%

$253,972,561.75

$280,353,588.41

$26,381,026.66

9.41%

Totals

39,267,983

$2,324,357,352.14

$2,548,068,427.51

$223,711,075.37

$2,070,384,790.39 Totals: CVS Administered Plans 35,206,675 4,061,308 $253,972,561.75 Totals: OptumRx Administered Plans *Results based on 98.88% of MCP claims matched to ODM Encounter Data +Calculated spread does not equal PBM profitability

$2,267,714,839.10 $280,353,588.41

$197,330,048.71 $26,381,026.66

8.78% 8.70% 9.41%

Caresource

Total Price Billed to MCP by PBM

Percent Spread of Total Price Billed to MCP by PBM 10.94%

3|Page

Page 4 of 7 Private and Confidential Data Validation through the Comparison of Ingredient Cost and Dispensing Fees During the validation of the data provided by the MCPs, the HDS Claims Insight System identified inconsistencies on 6.96% of the claims provided by the MCPs. HDS defined an inconsistency where the total price billed or paid did not equal the ingredient cost plus dispensing fee.

The ingredient cost and dispensing fee usually equals the total amount billed or paid for most claims. Without a complete data set from the PBMs, HDS could not determine the specific reasons for these inconsistencies. Some of the common reasons include: • • • • •

Coordination of benefit (COB) or secondary coverage claims Vaccine claims with additional dispensing fee or incentive fees to the pharmacy provider Sales tax charged on prescriptions filled in states that charge sales tax on prescriptions Claims submitted manually by the member Subrogation claims

Since the calculation of spread is based on the difference between the price billed to the MCP by the PBM and the price paid to the pharmacy provider, HDS included these claims in the calculation of the spread.

Table: Ingredient Cost and Dispensing Fees for MCP Claims Matched to ODM Encounter Data Managed Care Plan

Rx Count

Total Ingredient Cost Paid to Pharmacy

Total Ingredient Cost Billed to MCP by PBM

Total Dispensing Fee Paid to Pharmacy

Total Dispensing Fee Billed to MCP by PBM

Buckeye Community Health Plan

4,570,618

$269,510,125.59

$298,584,042.93

$1,840,631.44

$2,358,898.18

Caresource

22,277,984

$1,291,705,837.09

$1,402,704,233.32

$11,770,693.27

$15,425,384.29

Molina Healthcare of Ohio

4,889,609

$286,966,690.81

$313,813,700.19

$2,033,836.65

$2,558,044.83

Paramount Advantage

3,468,464

$228,400,715.39

$250,914,832.34

$1,494,203.15

$1,909,709.27

United Healthcare Community Plan

4,061,308

$253,372,283.36

$277,516,774.01

$2,765,797.14

$5,002,423.15

Totals Totals: CVS Administered Plans

39,267,983 35,206,675

$2,329,955,652.24 $2,076,583,368.88

$2,543,533,582.79 $2,266,016,808.78

$19,905,161.65 $17,139,364.51

$27,254,459.72 $22,252,036.57

Totals: OptumRx Administered Plans

4,061,308

$253,372,283.36

$277,516,774.01

$2,765,797.14

$5,002,423.15

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Page 5 of 7 Private and Confidential

Identification of Potentially Anti-Competitive Pricing by CVS against Independent Pharmacies HDS did not identify preferential pricing paid to CVS-owned pharmacies by CVS that would create an anti-competitive advantage over independent pharmacies • A pharmacy was classified as independent based on publicly available data in combination with the number of pharmacies under common ownership • In the aggregate, CVS paid independent pharmacies more than they paid CVS pharmacies o Independent pharmacies would have been reimbursed 3.61% less for traditional brand drugs if reimbursed at the rates paid to CVS pharmacies o Independent pharmacies would have been reimbursed 3.36% less for traditional generic drugs if reimbursed at the rates paid to CVS pharmacies Pharmacy Group

Retail/Mail Order Indicator

Brand/Generic Indicator

Aggregate Pricing Discount Paid to Independent pharmacies by CVS

Independent Independent

Retail Retail

Brand Generic

15.07% 86.53%

Dispensing Fee/Rx Paid to Independent pharmacies by CVS

Aggregated Pricing Discount Paid to CVS pharmacies by CVS

Dispensing Fee/Rx Paid to CVS pharmacies by CVS

Percent Change in Reimbursement if Independent pharmacies were paid at rates CVS paid CVS pharmacies: Increase (+) / Decrease (-)

$1.23 $0.48

17.80% 86.91%

$0.37 $0.38

-3.61%* -3.36%*

*Percent change in reimbursement is measured by calculating the percent change in the amount paid to independent pharmacies if CVS had paid independent pharmacies the same rates CVS paid its own pharmacies: Percent change in reimbursement = (Price paid using CVS rates – Current price paid)/Current Price Paid x 100%

Summary of Recommendations Implementation of Pass-Through Pricing Model PBM Contracts for MCPs Based the on analysis by the HDS Claims Insight system of the current benefit structure after matching ODM Encounter data to the Managed Care Plans (MCP) provided data, HDS is recommending that the MCPs move to a pass-through pricing option with their PBM in place of the traditional PBM contract with spread pricing. HDS considered the following four factors before recommending moving to a passthrough pricing model PBM contract: 1. Increased administrative fees charged in a pass-through model 2. Negotiating the appropriate AWP discount based on historical pricing performance and market benchmarks 3. Remaining cost neutral to the Ohio Department of Medicaid 4. Improving reimbursement to the pharmacy providers Based on our analysis of the current PBM contracts signed by the MCPs, a solution in which increased administrative fees paid to the PBM for administering a pass-through pricing model can be offset with more competitive pricing discounts and dispensing fee guarantees. In the pass5|Page

Page 6 of 7 Private and Confidential

through pricing model, the guaranteed discount rates are the same for the MCP and pharmacy providers. The HDS suggested discounts would result in improved payments to the pharmacies while offsetting the increased administrative fees and keeping the pass-through model cost neutral to ODM and the MCPs. Based on information in the PBM contracts provided and HDS market intelligence, the fees should be in the range of $0.95 to $1.90 per prescription. This will result in an increase in the administrative cost to the MCPs of $43,414,533.15. This can be offset by increasing the pricing discounts and reducing the dispensing fee rates guaranteed to the MCPs. With the suggested discounts, the overall net decrease in prescription plan costs for the MCPs would be $16,154,557.17 while increasing the pharmacy reimbursement by $191,038,145.91.

Fee-for-Service Pricing Comparison The HDS Claims Insight system calculated prescription pricing if MCP matched prescription claims had been paid under the Medicaid FeeFor-Service (FFS) methodology utilizing NADAC to estimate acquisition cost. HDS ran two separate dispensing fee models to estimate the total billed price that would be paid under the Fee-for-Service model. â&#x20AC;˘ Dispensing Fee Model 1: if the professional dispensing fee paid to pharmacies with no assigned dispensing fee tier is assumed to be $9.79 per prescription, the NADAC plus dispensing fee price would increase the cost of pharmacy claims by $145,778,114.92 â&#x20AC;˘ Dispensing Fee Model 2: if the professional dispensing fee paid to pharmacies with no assigned dispensing fee tier is assumed to be the default dispensing fee formulas used by ODM, the NADAC plus dispensing fee price would increase the cost of pharmacy claims by $145,146,577.97 o In both models HDS applied the tiered dispensing fee if the pharmacy was assigned a tier by ODM Table: Estimated Pricing for MCP Claims if paid under the Medicaid-Fee-for-Service Methodology Managed Care Plan

Total Price Billed to MCP

by PBM

Estimated Medicaid FeeFor-Service Price Paid Dispensing Fee Model 1

Increase in Estimated Price Paid Dispensing Fee Model 1

Estimated Medicaid Fee-ForService Price Paid Dispensing Fee Model 2

Increase in Estimated Price Paid Dispensing Fee Model 2

Buckeye Community Health Plan

$300,993,309.56

$312,348,117.25

$11,354,807.69

$312,726,009.49

$11,732,699.93

Caresource

$1,403,459,575.04

$1,501,923,869.31

$98,464,294.27

$1,503,336,631.32

$99,877,056.28

Molina Healthcare of Ohio

$313,460,929.73

$337,128,960.78

$23,668,031.05

$337,514,236.66

$24,053,306.93

Paramount Advantage United Healthcare Community Plan Totals

$249,840,344.87

$262,077,602.75

$12,237,257.88

$259,072,590.74

$9,232,245.87

$280,353,588.41

$280,407,312.44

$53,724.03

$280,604,857.37

$251,268.96

$2,548,107,747.61

$2,693,885,862.53

$145,778,114.92

$2,693,254,325.58

$145,146,577.97

6|Page

Page 7 of 7 Private and Confidential

HDS would recommend a follow up analysis to determine if the potential increase in rebates would offset the increase in prescription claim costs in the FFS model and the prescription claims were carved out of the Managed Care Program. This analysis will provide a net quantification of the potential savings for ODM.

7|Page

CVS Health Statement Regarding Ohio Department of Medicaid's Report on PBM Performance for Managed Care Plans Share this: Thursday, June 21, 2018

WOONSOCKET, R.I., June 21, 2018 /PRNewswire/ -- CVS Health (NYSE: CVS) is pleased that a report issued today that was commissioned by the Ohio Department of Medicaid (ODM) on pharmacy benefit manager (PBM) performance for the state's Medicaid managed care plans confirms that our PBM, CVS Caremark, does not provide preferential pricing to CVS Pharmacy that would create an anti-competitive advantage over independent pharmacies.

The report's analysis of our claims data clearly shows that CVS Caremark reimburses independent pharmacies at a higher rate than CVS pharmacies are reimbursed, and that CVS Caremark pays a higher dispensing fee to independent pharmacies than it pays to CVS pharmacies.

We believe CVS Caremark's "spread" of 8.70% - which is significantly lower than was previously reported by news media that used only selective samples - is very reasonable, given that this pricing model is in lieu of our managed care clients paying an administrative fee for the PBM services we provide, and it provides our clients with stability and certainty around their drug costs by guaranteeing their rate. A significant portion of the "spread" we receive pays for vitally important clinical services and other benefit management services we provide to clients.

It is important to note that in 2017, CVS Caremark's overall net profit margin was only 3.5%, and in the first quarter of 2018 it was just 2.4%.

The report raises interesting questions about the benefit of managed Medicaid plans moving to a "passthrough" pricing model. We agree with the report's recommendation that more analysis is needed. The report's data analysis concludes that under the Managed Care model, Ohio's Medicaid program saved $145 million annually in prescription drug costs as compared to its former fee-for-service pricing model.

Ultimately, clients choose the pricing option that best meet their individual needs. We look forward to discussing this report in more detail with our managed Medicaid clients, ODM and Ohio's elected officials.

K

We are extremely pleased that the ODM report validates that accusations made by some Ohio independent pharmacies are without merit, and are not supported by the report's data analysis performed by an independent third party.

MEDIA CONTACT: Mike DeAngelis CVS Health Corporate Communications 401.770.2645 SOURCE CVS Health

Š Copyright 1999 - 2018 CVS Health

7/28/2018

Medicaid analysis shows hundreds of millions in PBM spread pricing dollars

Complete Story

Medicaid analysis shows hundreds of millions in PBM spread pricing dollars The Ohio Department of Medicaid has released its interpretation of the official analysis of the managed care pharmacy program, and the results provide one of the first-ever glimpses into the depths of pharmacy benefit manager (PBM) pricing tactics. As we had largely speculated months ago, it was confirmed that in 2017, PBMs pocketed a whopping $223.7 million in spread pricing alone in the Medicaid managed care program.

In the report, which ultimately was an analysis of PBM-volunteered data, HDS found that the $223.7 million dollars was approximately an 8.8% markup on pharmacy claims. While this total is large in its own right, perhaps most revealing is that this amount did not include other PBM revenue streams like transaction fees and drug rebates.

To view the analysis conducted by Columbus-based HealthPlan Data Solutions (HDS), CLICK HERE (http://www.healthtransformation.ohio.gov/LinkClick.aspx?fileticket=V32MjoaNqYs%3d&tabid=193&portalid=0) .

OPA applauds the Ohio Department of Medicaid (ODM) for this comprehensive analysis, and for taking the first step forward to reform this opaque, unpredictable system to ensure providers and taxpayers are getting value. We call on lawmakers and the Department to increase the accountability in this system and to reform policies that have caused Ohioans to pay more for less. We must ensure that the system's incentives align with taxpayer intent and recipient outcomes.

We agree with the recommendations of HDS that the Medicaid managed care organizations should move to a pass-through pricing model with their PBMs instead of the costly, ambiguous spread-pricing model that is crushing pharmacy access and charging taxpayers hundreds of millions of dollars with little additional value.

Specifically, HDS considered the following four factors before recommending moving to a pass-through pricing model PBM contract: 1. Increased administrative fees charged in a pass-through model 2. Negotiating the appropriate AWP discount based on historical pricing performance and market benchmarks 3. Remaining cost neutral to the Ohio Department of Medicaid 4. Improving reimbursement to the pharmacy providers Adopting this model would cut the excess out of the PBM spread, while reshuffling needed dollars to pharmacy providers who have shouldered the burden of well-below-market reimbursement rates through the Medicaid program. Additionally, in their recommendations, HDS believed this model could save the state more than $16 million. This move would streamline pharmacy reimbursements, maintain the structural fabric of the current Medicaid program, and reprioritize important taxpayer dollars away from administrative middlemen and back to Ohio's communities.

"The state Medicaid program says (https://pharmacy.medicaid.ohio.gov/sites/default/files/oh-pdfs-2016-report.pdf) that on average, it costs $10.49 for a pharmacy to provide all the services necessary to fill a prescription," said OPA Executive Director Ernie Boyd. "Those fees are largely ignored in the managed care pharmacy program, and instead of paying providers or saving taxpayers money, PBMs are artificially inflating drug costs at their own whims. We will continue our fight for reform."

"This exposure of massive PBM spread is a gift from Ohio to the entire country," said OPA government affairs director Antonio Ciaccia. "Even without factoring in transaction fees and drug rebates, we now have hundreds of millions of reasons to pull back the entire PBM curtain, not just in Medicaid, but for all payers. This is extremely alarming, and the PBM gravy train needs to end."

OPA is appreciative of the analysis of PBM-volunteered data commissioned by Ohio Medicaid. Its findings of an 8.8% difference between the rates pharmacies are paid and that PBM MCOs ultimately report to the state are lower than an independent analysis (http://gatehousenews.com/sideeffects/cost-cuttinghttps://www.ohiopharmacists.org/aws/OPA/pt/sd/news_article/174606/_PARENT/layout_interior_details/false

L

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Medicaid analysis shows hundreds of millions in PBM spread pricing dollars

middlemen-reap-millions-via-drug-pricing-data-show/site/dispatch.com/) by the Columbus Dispatch, who showed approximately 12% of a spread markup.

These differing rates of spread point to the lingering need to verify the validity of PBM-volunteered data with actual pharmacy data.

While a portion of the PBM-volunteered data showed minimal differential between rates paid to independent pharmacies and PBM-owned pharmacies, this is a largely meaningless statistic, considering the fact that the additional $223 million in spread would easily afford a PBM to pay low rates to themselves on the pharmacy side while making up the difference (and more) on the PBM side through spread. Our concerns over this significant warped incentive remain.

Of further interest in the report were findings that PBMs earned $5.77 per prescription in 2017, a margin that actually exceeded margins reportedly paid to pharmacies during that same time.

OPA continues to be dismayed over the extremely low rates that are being paid to local pharmacies of all sizes, and we continue to share our concern over the growing number of pharmacy closures across the state. Access is being adversely impacted, and Ohio's most underserved and poor communities are being hit the hardest. OPA calls on lawmakers to continue its work on HB 465 sponsored by Reps. Scott Lipps & Kyle Koehler to fix this broken system.

We would like to thank our many members and lawmakers for blowing the whistle on this problem, and we can't thank the Columbus Dispatch enough for their constant truth-seeking on this issue through their 'Side Effects' investigative series (http://gatehousenews.com/sideeffects/home/site/dispatch.com) .

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IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, OHIO CAREMARKPCS HEALTH, LLC, Plaintiff, v.

BARBARA R. SEARS, OHIO DEPARTMENT OF MEDICAID, Defendant.

: : : : : : : : : :

Case No. 18-cv-5943 Judge Jenifer A. French

EXHIBITS M THROUGH S TO DEFENDANT SEARS’ MEMORANDUM CONTRA PLAINTIFF’S MOTION FOR A TEMPORARY RESTRAINING ORDER

MICHAEL DeWINE (0009181) Ohio Attorney General C. David Paragas (0043908) Kevin R. McDermott (0019256) David J. Dirisamer (0092125) Barnes & Thornburg LLP 41 South High Street, Suite 3300 Columbus, Ohio 43215 Telephone: (614) 628-0096 Facsimile: (614) 628-1433 David.Paragas@btlaw.com Kevin.McDermott@btlaw.com David.Dirisamer@btlaw.com

Ara Mekhjian (0068800) Julie Brigner (0066367) Assistant Attorneys General Health and Human Services Section 30 East Broad Street, 26th Floor Columbus, Ohio 43215-3400 Telephone: (614) 644-8993 Facsimile: (866) 478-7791 ara.mekhjian@ohioattorneygeneral.gov julie.brigner@ohioattorneygeneral.gov

Counsel for Plaintiff

Counsel for Defendant

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7/28/2018

Lawmakers consider whether Ohio Medicaid is overpaying for pharmacy benefits – and what health outcomes are being achieved, June JMOC …

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July 9, 2018

Lawmakers consider whether Ohio Medicaid is overpaying for pharmacy benefits – and what health outcomes are being achieved, June JMOC Pt. 2

by Adam White

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in Blog

This is the second of a two-part blog covering the June 28, 2018 meeting of the Joint Medicaid Oversight Committee. The first part, addressing the committee’s discussion of Behavioral Health Redesign, can be found here.

The business models of pharmacy benefit managers (PBMs) have come under scrutiny from both the media and state investigators in the months since the Joint Medicaid Oversight Committee (JMOC) last discussed their impact on Ohio’s Medicaid program in its March meeting. A series of investigative reports from The Columbus Dispatch, along with a report commissioned by the Ohio Department of Medicaid (ODM), sought to shed light on how PBMs make their profits, and whether their profit margins inappropriately burden Ohio taxpayers.

Advancing the WellBeing of Older Adults AIDS Funding Collaborative Behavioral Health Blog City of Cleveland County Budget Cuyahoga County Data Health Infant Mortality Medicaid

Background – The Role of PBMs

Ohio

PBMs serve as br okers between insur ers, drug manufactur ers and pharmacies by negotiating drug prices and rebates in exchange for placing a manufacturer’s drug on a “formulary,” or a list of drugs to be covered by an insurer. PBMs then reimburse pharmacies for dispensing those drugs. In the context of Medicaid, PBMs theoretically create cost savings for taxpayers by making prescription drugs cheaper for the publicly funded health insurance program to pay for. But because the price negotiations by PBMs intentionally lack transpar ency, it becomes difficult to assess the extent to which these savings ar e actually r ealized. It is important to note that PBMs are contracted by the state’s Medicaid Managed Care Organizations (MCOs), not by the state directly – adding an extra barrier to transparency.

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Archives Select Month

The lack of transparency in drug pricing negotiations is not just an Ohio Medicaid issue, but one that exists throughout the U.S. healthcare system, including in private insurance. The flowchart below helps to map out the role of PBMs in a complicated process.

M https://www.communitysolutions.com/june-jmoc-part-2/

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7/28/2018

Lawmakers consider whether Ohio Medicaid is overpaying for pharmacy benefits – and what health outcomes are being achieved, June JMOC …

Source: Neeraj Sood, Tiffany Shih, Karen Van Nuys, and Dana Goldman, “Follow the Money: The Flow of Funds in the Pharmaceutical Distribution System,” Health Affairs Blog, June 13, 2017.

ODM Identifies $224 Million in “Spread Pricing” Retained by PBMs While much remains unknown about the size of the discounts and rebates negotiated

by PBMs, the investigations by the Dispatch and ODM have uncover ed the differ ence between what PBMs ar e paid by Ohio’ s MCOs and how much the PBMs pass on to pharmacies as r eimbursement for dispensing pr escription drugs to the state’ s Medicaid population . This difference, known as “spread pricing”, is a major source of profit for PBMs. The Dispatch and ODM have claimed that their investigations mark the first time that any state has publicly uncovered the amount of this spread pricing within its Medicaid program. The ODM r eport also analyzed whether CVS Car emark, the PBM contracted by four of Ohio’s five MCOs, engaged in anticompetitive behavior favoring CVS pharmacies over independent pharmacies.

”

The lack of transparency in drug pricing negotiations is not just an Ohio Medicaid issue, but one that exists throughout the U.S. healthcare system, including in private insurance.

The ODM r eport found that CVS Car emark and OptumRx, the only PBMs contracted with Ohio Medicaid MCPs, paid pharmacies an average of 8.8 per cent less than what they billed the MCPs – a spr ead of nearly $224 million that was retained by the PBMs in one year. The report was unable to identify anticompetitive pricing by CVS Caremark, indicating CVS paid independent pharmacies between 3.4 to 3.6 percent more than CVS pharmacies.

Is Better Value Achievable?

At the June 28 JMOC meeting, the key question facing lawmakers and ODM officials was whether or not 8.8 percent represents an appropriate spread. In other words, how much of that 8.8 per cent is needed to cover the PBMs’ administrative costs and https://www.communitysolutions.com/june-jmoc-part-2/

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7/28/2018

Lawmakers consider whether Ohio Medicaid is overpaying for pharmacy benefits – and what health outcomes are being achieved, June JMOC …

how much is pur e pr ofit derived fr om taxpayer dollars? ODM Director of Managed Care Patrick Stephan posited that the report’s findings did not necessarily signal a crisis justifying immediate regulatory intervention. When challenged on this position by Senator Vernon Sykes, ODM Director Barbara Sears responded that ODM is still seeking more answers to the questions surrounding the issue, and that the Medicaid pr ogram cannot “move on a dime” without negatively impacting the people and pr oviders it serves . Sears and Stephan explained that now that the spread data has been made public, MCOs may be in a position to negotiate a better deal from PBMs, allowing the market to address the issue without regulatory intervention. The officials told JMOC that ODM is requiring MCOs to review the report and notify the department of any changes each plan intends to make related to pharmacy administration by September 30.

This JMOC meeting has been widely publicized, with much attention being given to individual lawmakers’ criticism of ODM’s handling of the PBM issue. But amid the lively back-and-forth centering on the question of PBM profits, it would have been easy to miss an important conversation among JMOC members about paying for value in Medicaid pharmacy benefits.

”

…a PBM is more of a third-party transactional entity than a healthcare entity.

JMOC Chair Senator David Burke first raised the question of Medicaid paying for outcomes, saying that a PBM is more of a third-party transactional entity than a healthcare entity. Burke suggested that PBMs do not care what product is provided, as long as they receive payment. Senator Lou Terhar attested that if PBMs are keeping a share of the rebates from manufacturers based on the volume of drugs dispensed, then their primary incentive is to push more drugs out to plan members, regardless of whether those drugs are actually helping people achieve better health.

Repr esentative Emilia Sykes asked if it wer e possible for Ohio Medicaid to reduce the cost of pharmaceuticals by identifying the most pr escribed and most expensive drugs and seeking ways to pr event the conditions associated with them, or tr eating them in other ways. Representative Sykes pointed out that the state is already doing this with opioids.

Sears and Stephan told the committee that they hope to get to a place where pharmacists can better assist members achieve healthcare outcomes, rather than just dispensing drugs. Sears said ODM is working to more effectively engage pharmacists, providers and MCPs to reduce the volume of prescriptions by providing educational information to members.

Key Takeaway The question of whether the state is overpaying for pharmacy benefits via Medicaid Managed Car e and PBMs is a critical one for lawmakers and ODM to car efully consider . This is an issue, along with prescription drug pricing in general, that is likely to remain at the forefront of both this year’s gubernatorial election and next year’s state budget deliberations. It is also worthwhile to think about the ways in which this type of subcontracting through the MCOs is more significant than just the pharmacy benefit. But the br oader question of the value of PBMs in Ohio and other states’ Medicaid programs, particularly related to health outcomes, should not be lost in the continuing debate over what constitutes an appr opriate pr ofit margin in the context of cost containment in Medicaid.

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Lawmakers consider whether Ohio Medicaid is overpaying for pharmacy benefits – and what health outcomes are being achieved, June JMOC …

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The (more) Complete PBM Picture Senator William P. Coley, II

The Spread in Context A B C

Dollars in Millions except PMPM HDS calculated "spread" - 2017 Total Drug Spending HDS Overall "spread"

$223.7 $2,548.1 8.78%

This is the total spread calculated in the HDS study This is the total dollar amount included in the HDS study for 2017 A divided by B

D E F

FY17 Generic Spend (non my care) FY17 Brand MCO Spend (non my care) FY17 Specialty PMPM (non my care)

$750.18 $984.02 $813.90

PMPM x 2.43 million members x 12 month/yr (adjusted for HDS total dollar amount)

ď&#x201A;&#x2014; What was not mentioned in the HDS report is that the vast

majority of "spread" occurs on the generic drugs. ď&#x201A;&#x2014; Spread must be looked at relative to total generic spending.

G

Generic "spread"

29.82%

A divided by D - assumes all spread comes from generic drugs

The (more) Complete PBM Picture ď&#x201A;&#x2014; When it comes to brand and specialty drugs, the PBM makes

their money on rebates from the manufacturers, which we can ballpark from numbers provided to JMOC on 3/15 A

HDS calculated "spread" - 2017

H

Increase in Pharmacy Rebates on FFS

I J K

Fee charged per script (now increased to $0.17) # of Scripts Revenue from scripts

Total PBM fees taken from manufacturer, pharmacy, taxpayer

223.70 This is the total spread calculated in the HDS study $ 286.90 From 3/15/18 presentation from Dir. Sears to JMOC $ 0.14 39,267,983 $ 5.50 I times J $

$

516.10 A + H + K

The (more) Complete PBM Picture

ď&#x201A;&#x2014; This doesnâ&#x20AC;&#x2122;t even include the value of restricting dispensing of

specialty drugs to own mail order pharmacies (32% of drug spend last year)

Fee-for-Service Comparison Table: Estimated Pricing for MCP Claims if paid under the Medicaid-Fee-for-Service Methodology

 Taken out of context, without taking into account any benefits of switching to

the model (as the HDS report points out itself)  Page 7 of Report- “HDS would recommend a follow up analysis to determine if the potential increase in rebates would offset the increase in prescription claim costs in the FFS model and the prescription claims were carved out of the Managed Care Program. This analysis will provide a net quantification of the potential savings for ODM.”

No Reference to Report Recommendations  No analysis of these report findings from ODM even mentions the

central pillar of any report: the recommendation.  In this case, the recommendation to move to a pass-through model for PMB contracts.  From Page 5 of the HDS report: “HDS is recommending that the MCPs move to a pass-through pricing option with their PBM in place of the traditional PBM contract with spread pricing.”  “the overall net decrease in prescription plan costs for the MCPs would be $16,154,557.17 while increasing the pharmacy reimbursement by $191,038,145.91.”

Review  Spread is only one part of the equation in determining

whether the current model with PBMs benefits the Ohio Taxpayer.  The spread is only relevant to generic drugs, and in that context it is nearly 30%.  Manufacturer rebates provide around $280 million benefit to PBMS (per 3/15 JMOC presentation on fiscal impact of pharmacy carve out)  Still don’t have the full report, or all of the deliverables listed in the SOW.

7/28/2018

Side Effects: An investigation into the PBM and prescription drug industry

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State report: Pharmacy middlemen reap millions from tax-funded Medicaid B Y C AT H E R I N E C A N D I S K Y | T H E C O L U M B U S D I S PAT C H

Pharmacy middlemen managing Ohio Medicaid’s prescription drug program billed taxpayers 8.8 percent more for medications than they paid pharmacies, according to an audit commissioned by the health insurance program for the poor and disabled.

That difference — $223.7 million — was kept by CVS Caremark and Optum RX, pharmacy benefit managers for Medicaid’s five managed care plans.

The analysis of more than 39 million drug transactions for the year ending March 30 appears to be the first comprehensive review of “price spread” on behalf of a government agency, state officials said. They hope other states follow suit.

http://gatehousenews.com/sideeffects/state-report-pharmacy-middlemen-reap-millions-from-tax-funded-medicaid/

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7/28/2018

Side Effects: An investigation into the PBM and prescription drug industry

The release of the report, prepared by HealthPlan Data Solutions of Columbus, follows an investigation by

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The Dispatch which found that CVS Caremark, which has most of Ohio’s Medicaid business, was billing the state more than it paid pharmacies and often reimbursed them less than the cost of the medication.

Greg Moody, director of the Governor’s Office of Health Transformation, said he couldn’t say whether the state was being overcharged for prescription drugs, primarily because it is not clear how much of the price difference, known as the price spread, is profit and how much goes to administrative costs.

“Is it too high? Is it too low? Our position is these are the facts as we understand them currently, and we are now asking those questions ourselves,” Moody said. “At this point, we are reserving judgment.”

The report found that CVS Caremark reimbursed independent pharmacies — which have complained about what they believe are low reimbursement rates — at a higher rate than CVS Caremark's affiliated CVS pharmacies. Specifically, the report said the reimbursement was 3.6 percent more for brand drugs and 3.4 percent more for generic drugs.

The report also concluded that under managed care, Medicaid saved $145 milliion in prescription drug costs as compared its former fee-for-service pricing.

“This is the first day we believe any state has had access to this information,” Moody said.

The analysis does not look into instances of CVS Caremark cutting rates to some independent pharmacies and then CVS offering to purchase their businesses, or pharmacy benefit managers, also known as PBMs, steering patients to their own pharmacies.

Medicaid director Barbara Sears acknowledged that state officials intervened last fall when CVS Caremark slashed pharmacy reimbursements for some 100 medications. Similar cuts occurred at about the same time in other states.

"This is not just a Medicaid issue, and it is not just an Ohio issue — because this drop in these drugs was not just Medicaid. It was commercial carriers and not just in Ohio," Sears said.

State officials released the report Thursday after briefing some state lawmakers earlier in the day.

Mike DeAngelis, senior director of corporate communication for CVS, who said he received an advance copy of the report's executive summary, said the report "confirms that CVS Caremark does not provide preferential pricing to CVS Pharmacy that would create an anti-competitive advantage over independent pharmacies.

"The report’s analysis of our claims data clearly shows that CVS Caremark reimburses independent pharmacies at a higher rate than CVS pharmacies are reimbursed, and that CVS Caremark pays a higher dispensing fee to independent pharmacies than it pays to CVS pharmacies," he said.

DeAngelis said CVS Caremark’s price spread of 8.7 percent (slightly lower than the 8.8 percent overall rate with Optum Rx included) "is very reasonable."

He noted that "a significant portion of the 'spread' we receive pays for vitally important clinical services and other benefit management services we provide to clients. It is important to note that in 2017, CVS Caremark’s overall net profit margin was only 3.5 percent, and in the first quarter of 2018 it was just 2.4 percent."

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Side Effects: An investigation into the PBM and prescription drug industry

Critics say the current system is costing taxpayers.

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"Under this system that lacks fundamental transparency and accountability, it appears that PBMs have their own personal money tree," said Antonio Ciaccia, lobbyist for the Ohio Pharmacists Association. "This crap has to end, because it is a clear violation of the public trust and it is costing us all hundreds of millions of dollars."

Others questioned the validity of the analysis because reimbursement data provided by the PBMs wasn't checked with pharmacies to verify. Medicaid officials said they could not share the PBM data because it is considered proprietary.

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Side Effects: An investigation into the PBM and prescription drug industry

"This is a fox-in-the-hen house type of audit," said state Sen. Dave Burke, R-Marysville and an independent

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pharmacist. "Did someone go back and verify what the pharmacy was paid?"

Rick Marlin, director of pharmacy for Allen’s Pharmacy, an independent pharmacy in Youngstown, said Medicaid’s report is not credible. He said the state decision not to get reimbursement numbers from pharmacies and relying only on CVS Caremark is troubling.

“You can’t verify the data, and they should have had their contractor make a comparative sample,” said Marlin, a pharmacist for 46 years. “There’s no validation at all, but my contract with CVS Caremark says that I cannot release those numbers anyway.”

Medicaid’s report follows an analysis by The Dispatch published Sunday that found CVS Caremark billed the state about 12 percent more for drugs than what it paid pharmacies to dispense medications to Medicaid enrollees.

The Dispatch analyzed data from a subset of Ohio pharmacies to get past the lack of transparency in the drugpricing process and show the cost to taxpayers. The newspaper reviewed more than 125,000 drug transactions to come up with a per-pill cost for the 13 million pills dispensed by 40 pharmacies across Ohio in 2017. The data showed that CVS Caremark received more than $1.6 million from the transactions.

In all, about 2,000 Ohio pharmacies dispensed $3 billion in prescriptions under Medicaid last year.

The $26 billion program in Ohio provides health coverage to about 3 million people.

Pharmacy benefit managers, or PBMs such as CVS Caremark, negotiate prices with drug companies, help decide which medications are covered by health insurance plans and set reimbursement rates to pharmacies.

Dispatch reporter Lucas Sullivan contributed to this story.

Buckeye Forum

Breaking: Medicaid con rms Dispatch ndings 13:34

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Julie E. Brigner From: Sent: To: Subject:

Brianne.Brown@medicaid.ohio.gov Friday, July 20, 2018 10:07 AM Julie E. Brigner; Ara Mekhjian FW: Message

From: Ayers, Melissa Sent: Friday, June 8, 2018 2:43 PM To: Brown, Brianne <Brianne.Brown@medicaid.ohio.gov> Subject: FW: Message Can we please discuss.

Thanks!

Melissa

From: candisky, cathy [mailto:ccandisk@dispatch.com] Sent: Friday, June 08, 2018 2:32 PM To: Ayers, Melissa <Melissa.Ayers@medicaid.ohio.gov> Subject: Re: Message

I want the report they've given you; absent that I want all written correspondence/everything you've gotten from Healthcare Data Solutions pertaining to work they are doing for Medicaid.

Thanks, Cathy

Catherine Candisky Public Affairs Reporter Columbus Dispatch 34 S. Third Street Columbus, Ohio 43215 614.469.6062 ccandisky@dispatch.com @ccandisky On Fri, Jun 8, 2018 at 1:56 PM, Melissa.Ayers@medicaid.ohio.gov <Melissa.Ayers@medicaid.ohio.gov> wrote: 1

Hi Cathy, I'm really sorry, but I'm tied up and can't break away. Any way you could shoot me a note about what you need?

Thanks, Melissa

This message may contain confidential and/or privileged information. If you are not the intended recipient or authorized to receive this for the intended recipient, you must not use, copy, disclose or take any action based on this message or any information herein. If you have received this message in error, please advise the sender immediately by sending a reply email and delete this message. Thank you for your cooperation.

2

Julie E. Brigner From: Sent: To: Subject:

Brianne.Brown@medicaid.ohio.gov Wednesday, July 18, 2018 2:58 PM Ara Mekhjian; Rebecca Thomas - HHS; Julie E. Brigner FW: JMOC Follow-up statement

On Jul 6, 2018, at 3:37 PM, "Thomas.Betti@medicaid.ohio.gov" <Thomas.Betti@medicaid.ohio.gov> wrote: Below is what I sent to Cathy.

Tom Betti Press Secretary The Ohio Department of Medicaid T: 614 - 752 – 3688 M: 614 - 546 - 6472 thomas.betti@medicaid.ohio.gov From: Betti, Thomas <thomas.betti@medicaid.ohio.gov> Sent: Friday, June 29, 2018 4:55 PM To: ccandisky@dispatch.com Subject: Re: JMOC FollowͲup statement

This email acknowledges receipt of your request on June 8, 2018 and was forwarded to our Public Records Administrator for response.

The Ohio Department of Medicaid (ODM), will not be releasing the final HealthPlan Data Solutions report. Pursuant to our contract with our Managed Care Plans (MCPS), the MCPs expressly indicated the information provided for the final report was propriety and considered a trade secret under O.R.C. 1333.61(D) and/or 18 U.S.C §1836. Information contained in the report, if made public, could provide unfair advantages in future procurements opportunities in violation of 48 CFR 9.505. Under ORC 149.43, ODM cannot release records if doing so would violate state or federal law.

Tom Betti Press Secretary The Ohio Department of Medicaid T: 614 - 752 – 3688 M: 614 - 546 - 6472 thomas.betti@medicaid.ohio.gov On Jun 29, 2018, at 10:23 AM, candisky, cathy <ccandisk@dispatch.com> wrote: Tom - I feel like your stonewalling me. I've included Ohio public records law below; I believe we are entitled to report with proprietary data redacted. Please tell me the laws to which you refer. Thanks,

-Cathy

1

ORC 149.43 (B) (1) Upon request and subject to division (B)(8) of this section, all public records responsive to the request shall be promptly prepared and made available for inspection to any person at all reasonable times during regular business hours.

Subject to division (B)(8) of this section, upon request, a public office or person responsible for public records shall make copies of the requested public record available at cost and within a reasonable period of time. If a public record contains information that is exempt from the duty to permit public inspection or to copy the public record, the public office or the person responsible for the public record shall make available all of the information within the public record that is not exempt. When making that public record available for public inspection or copying that public record, the public office or the person responsible for the public record shall notify the requester of any redaction or make the redaction plainly visible. A redaction shall be deemed a denial of a request to inspect or copy the redacted information, except if federal or state law authorizes or requires a public office to make the redaction.

Catherine Candisky Public Affairs Reporter Columbus Dispatch 34 S. Third Street Columbus, Ohio 43215 614.469.6062 ccandisky@dispatch.com @ccandisky On Thu, Jun 28, 2018 at 2:19 PM, Thomas.Betti@medicaid.ohio.gov <Thomas.Betti@medicaid.ohio.gov> wrote: Cathy,

Here’s another version (with a slightly different second paragraph) if you wanted to use:

“Ohio Medicaid’s focus is to ensure that Medicaid enrollees have access to quality health care, including pharmacy benefits, and taxpayers get a fair price.

2

We continue to share the legislature’s frustration with the inability to follow the pricing structure from the beginning of the supply chain with the manufacturers and will seek input from all of the actors in the pharmaceutical supply chain and have asked the state's managed care plans to identify any changes they plan to make based on our recent report. Ohio Medicaid will take all of this into consideration when it sets managed care rates in November for calendar year 2019.

Director Sears met with Senator Coley after the hearing and we look forward to reviewing his presentation.

With respect to the full report, it contains information that may be proprietary and / or contain trade secrets. Ohio Medicaid is prohibited from releasing such information by state and federal law. “

Tom Betti Press Secretary The Ohio Department of Medicaid T: 614 Ͳ 752 – 3688 M: 614 Ͳ 546 Ͳ 6472 thomas.betti@medicaid.ohio.gov

From: Betti, Thomas Sent: Thursday, June 28, 2018 2:01 PM To: 'cathy candisky' <ccandisk@dispatch.com> Subject: JMOC Follow-up statement

Hi Cathy,

Below is our follow up statement from JMOC:

3

“Ohio Medicaid’s focus is to ensure that Medicaid enrollees have access to quality health care, including pharmacy benefits, and taxpayers get a fair price.

We are seeking input from all of the actors in the pharmaceutical supply chain and have asked the state's managed care plans to identify any changes they plan to make based on our report. Ohio Medicaid will take all of this into consideration, as well as input from legislators and others, when it sets managed care rates in November for calendar year 2019.

Director Sears met with Senator Coley after the hearing and we look forward to reviewing his presentation.

With respect to the full report, it contains information that may be proprietary and / or contain trade secrets. Ohio Medicaid is prohibited from releasing such information by state and federal law. “

Tom Betti Press Secretary The Ohio Department of Medicaid T: 614 Ͳ 752 – 3688 M: 614 Ͳ 546 Ͳ 6472 thomas.betti@medicaid.ohio.gov

This message may contain confidential and/or privileged information. If you are not the intended recipient or authorized to receive this for the intended recipient, you must not use, copy, disclose or take any action based on this message or any information herein.

If you have received this message in error, please advise the sender immediately by sending a reply e-mail and delete this message. Thank you for your cooperation.

4

SUBMITTAL TO THE BOARD OF SUPERVISORS COUNTY OF RIVERSIDE, STATE OF CALIFORNIA FROM: Human Resources Department

SUBMITTAL DATE: September 28, 2011

SUBJECT: Provider Agreement Contract between Caremark and Riverside County Rubidoux Pharmacy for the provision of pharmacy services to Caremark prescription benefit members.

RECOMMENDED MOTION: I) Approve the attached Provider Agreement Contract between Caremark and Riverside County Rubidoux Pharmacy; 2) authorize the Chairperson to sign three (3) copies of the attached agreement and; 3) retain one (1) copy of the signed Provider Agreement, ~ returning two (2) copies to Human Resources for distribution. ~

-T

!:::: :;:,

g BACKGROUND: Riverside County Rubidoux Pharmacy, operated by the Human Resources

8 Department, funded by Exclusive Care and located in the Don Schroeder Community Genter will {1 become a participating pharmacy, if approved, under Caremark in order to provide( prescription ~ services for §PH~W'Pt~hte:reJq~·:Et-!f1PI?X~~~ .~J;ld;:retir~e.s .enrolled in the Health Net health plan.

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Barbara A. Olivier _.:: 1 ~ r .. , , 11 .. ·' ...

Asst. County Executive Officer/Hum·an.Re.so.utces OiL ~~·:·_!: ·.. '· l: 1:,".. ' ·':c. , :; :_:, iC ..!~::C ·,: :.:•r.y.J::JCi.urer)t'F;v:·'Tofal Cost:··?~''- '' ·. · :. 0 '~"~;FINANCIAbe rcurrenrF:Y.tfiieU!!oufity<::.~:rv

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Yes

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euster; Tavagliori~. Benoit and Ashley None · · : · · .· ·

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motion 9f Supervisor Buster, seconded by Supervisor Ashley and duly carried Tr_WAS QRDEOf~EDthat the above. matter· is approved as recommended. ... : .

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Kecia Harper.,.lhem Clerk of the Board

By:~~ /1 · Dep

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22

Form 11 - Caremark Contract September 28, 2011 Page2

BACKGROUND continued:

On August 10, 2010, the Board of Supervisors approved the offering of the HealthNet Elect Open Access (EOA) plan for active employees and early retirees as a replacement for the Blue Shield HMO plan.

HealthNet's Pharmacy Benefit Manager (PBM) is Caremark, therefore it is necessary for the Riverside County Rubidoux Pharmacy to become a contracted pharmacy in the Caremark network.

The purpose of the agreement is to allow the 4,067 County of Riverside employees and retirees (along with their dependents) who have subscribed to the HealthNet health plan to obtain pharmacy services via Rubidoux Pharmacy. Rubidoux Pharmacy will become a participant of the Caremark network.

The Rubidoux Pharmacy is a public benefit for Riverside County Residents, their dependents, low income individuals and other public employees of the County. There is no impact to the County General fund.

•

I

CONFIDENTIAL AND PROPRIETARY -··FOT~';EXEMPT­ DO NOT DISCLOSE

CAREMARK PROVIDER AGREEMENT This Provider Agreement (the "Provider Agreement" or "Agreement'') is entered into between Caremark, L.L.C., a California limited liability company and CaremarkPCS, L.L.C., a Delaware limited liability company (collectively "Caremark"), and the undersigned provider ("Provider"). Caremark and Provider agree as follows: 1.

Definitions. Unless otherwise defined herein, capitalized tenns used in the Agreement shall have the meanings set forth in the Glossary ofTenns contained in the Provider Manual.

2.

Credentialing. Provider represents, warrants, and agrees that as of the date of execution of the Agreement, Provider is and shall maintain in good standing, all federal, state and local licenses and certifications as required by Law. Provider will provide Caremark with the infonnation required from time to time regarding Provider' s credentials, including, but not limited to Provider's licensure, accreditation, certification, and insurance, and will comply with and maintain Caremark credentialing standards and requirements.

3.

Provider Services and Standards. Unless Provider's professional judgment dictates otherwise, Provider will render to all Eligible Persons the Pharmacy Services to which the Eligible Person is entitled in accordance with the Agreement, the prescriber's directions, the applicable Plan, and applicable Law. Provider will submit all Claims for such Pharmacy Services electronically to Caremark in accordance with the Caremark Documents. Caremark may inspect all records of Provider relating to the Agreement.

4.

Eligible Person Identification and Cost Sbare. Provider will require each person requesting Pharmacy Services to verify that he or she is an Eligible Person. With respect to each Covered Item dispensed to an Eligible Person, Provider will collect from the Eligible Person the applicable Patient Pay Amount communicated to Provider through the Caremark claims adjudication system or other method established by Caremark. Provider will not waive, discount, reduce, or increase the Patient Pay Amount indicated in the Caremark claims adjudication system unless otherwise authorized in writing by Caremark. Except for the collection of the applicable Patient Pay Amount, in no event will Provider seek compensation in any manner from an Eligible Person for Pharmacy Services with respect to a Covered Item.

5.

Network Participation and Payment. Provider agrees to participate in the networks identified on the attached Schedule A according to the tenns set forth therein. Caremark will pay Provider for Covered Items dispensed to Eligible Persons pursuant to the Agreement in accordance with Schedule A. Any overpayments made to Provider by Caremark may be deducted from amounts otherwise payable to Provider.

6.

Comoliance with Law. Provider will comply with all applicable Laws, including but not limited to those Laws referenced in the Federal and State Laws and Regulations section (and attached Addendums thereto) set forth in the Provider Manual.

7.

Indemnification. Proviqer acknowledges that Provider bears sole responsibility for any liability arising (i) from any actual or alleged malpractice, negligence, misconduct. or breach by Provider in the performance or omission of any act or responsibility assumed by Provider or (ii) in the provision of Phannacy Services or the sale, compounding, dispensing, manufacturing, or use of a drug or device dispensed by Provider. .

8.

Limitation on Liability. In no event will Caremark be Hable to Provider for indirect, consequential, or special damages of any nature (even if infonned of their possibility), lost profits or savings, punitive damages, injury to reputation, or loss of customers or business.

sar - , · il,.

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Initial I

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1

RECEIVED NOV -

Caremark Provider Agreement 9-15-2009

Z01\

NOV 0 1 2011 :j,27..;JDI~ - 1-

1IIO~a-

CONFIDENTIAL AND PROPRIETARY- FOIA EXEMPTDO NOT DISCLOSE

9.

Term. The Agreement will begin on the date of acceptance by Caremark and will remain in effect until terminated in accordance with the Provider Manual.

10.

Assignment. Neither party may assign this Agreement without the prior written consent of the other party; provided, however, that Caremark may, without consent, assign this Agreement to any direct or indirect parent, subsidiary, or affiliated company or to a successor company. Any permitted assignee shall assume all obligations of its assignor under this Agreement. This Agreement shall inure to the benefit of and be binding upon each party, its respective successors and permitted assignees.

11 .

Entire Agreement. This Agreement, the Provider Manual, and all other Caremark Documents constitute the entire agreement between Provider and Caremark, all of which are incorporated by this reference as if fully set forth herein and referred to collectively as the "Provider Agreement" or "Agreement". Any prior agreements, promises, negotiations, or representations concerning the subject matter covered by the Agreement are terminated and of no force and effect.

Provider's non-compliance with any of the provisions of this Agreement, including the Provider Manual and other Caremark Documents will be a breach of the Provider Agreement. In the event there is a conflict between any of the provisions in this Provider Agreement, the Provider Manual, other Caremark Documents and a provision in an applicable State specific addendum attached to the Federal and State Laws and Regulations section of the Provider Manual, the terms of the applicable State specific addendum shall govern.

12.

Waiver. Failure to exercise any of the rights granted under the Agreement for any one default will not be a waiver of any other or subsequent default. No act or delay shall be deemed to impair any of the rights, remedies, or powers granted in the Agreement.

13.

Lawful Interpretation and Jurisdiction. Whenever possible, each provision of the Agreement shall be interpreted so as to be effective and valid under applicable Law. Should any provision of this Agreement be held unenforceable or invalid under applicable Law, the remaining provisions shall remain in full force and effect..

14.

Headings. The headings of Sections contained in the Agreement are for convenience only and do not affect in any way the meaning or interpretations of the Agreement.

Initial

RECEIVED 2

NOV

¡~

9 2011

Caremark Provider Agreement 9-15-2009

Any changes to this agreement must be initialed.

By signing below, Provider agrees to the tenns set forth above and acknowledges receipt of the Provider Manual.

PharmacyName:

NCPDP#:

Riverside County Rubidoux Pharmacy

5627469

y:

.::JJ, j LMirJ

(Print name of Officer)

-

Barbara A. Olivier, Asst. County Executive Officer;Date._ ___..{A.........,{hp ""-==--'-(~=-t-·-M .=....=;;......>....: {f_ _ __ 1 (Print name of authorized agent) Human Resources Director Date:

I C) -e;J 0 -t \

******ATTENTION********

PAGES 1, 2, AND 4 MUST BE INITIALED

BY AUTHORIZED AGENT BEFORE CONTRACT WILL BE ACCEPTED

CONFIDENTIAL AND PROPRIETARY- FOIA EXEMPTDO NOT DISCLOSE

/3>2 RECEIVED NOV - 9 2011 3

Initial Caremark Provider Agreement 9·15-2009

SCHEDULE A NETWORK PARTICIPATION AND PAYMENT This Schedule A is comprised of !his Schedule A and all prior and subsequent network addendums and network enrollment forms, all of which are incorporated herein by this reference and referred to collectively as "Schedule A". Provider agrees that it wiU participate in all Caremark and Plan Sponsor phannacy networks in which; (1) Provider participates in as of the date of this Agreement; (2) Provider and Caremark have executed a network addendwn or network enrollment form as of the date of this Agreement; (3) Provider and Caremark subsequently execute a network addendum or network enrollment form; and (4) Provider agrees to participate as evidenced by its provision ofPhannacy Services to an Eligible Person of a Plan. Sponsor utilizing such pharmacy nerwork(s).

Unless otherwise set forth in a network addendum or network enrollment fonn signed by both parties, claims submitted for a Plan Sponsor participating in an Carema.rk or Plan Sponsor network will be reimbll!$:d al tile lower of: (i) AWP less the applic:Wlc AWP Discount plus the applicable Dispensi og Fee Jess the applicable Patient Pay Amount; (ii) MAC plus LfJe applicable Dispensing Fee less !.he appHcab!e Patient Pay Amount; (iii) ingredient cost submitted by Provider plus the applicable Dispensing Fee less the applicable Patient Pay Amount; or (iv) Provider's U&C price less the applicable Patient Pay Amount. The appli<:aOle AWP Discounl and Dispensing Fee witl be set forth in the applicable network addendun~ or neLwork enroilment form. If Provider bas not executed and delivered to Caremark a network addendum or network enrollment fonn, the applicable AWP Discount and Dispensing Fee will be the reimblltSement rate as indicated in the adjudication claims system as to such claim. AWP Discounts and Dispensing Fees may be amended in accordance with the terms oftbe Agreement.

Notwithstanding any other provision in the Provider Agreement, claims (excluding compounded medications) submitted for a Pl;m Sponsor parti.cipating in a Caremark or Plan Sponsor network m.ey be reimbursed at the lower of: (i) Price Type plus an applicabie percentage of the Price Type, or minus the applicable percentage of the Price Type, plus the applicable Dispensing f-ee less me applicable Patient Pay Amount (or if applicable Price Type is unavailable for a given drug, Caremark will pay Provider based upon AWP minus the applicable AWP Discount plus the applicable Dispensing Fee mi nus !.he applicable Patient Pay Amount); (ii) MAC plus the appl!cable Dispensing Fee less the applicable Patient I'ay Amount; (iii) ingredient cost submitted by Provider plus the applicnble Dispensing Fee less the applicable Patient Pay Amount; (iv) Provider' s U&C price less the applicable Patient Pay Amount; or (v) gross amount due less the applicable Patient Pay Amount

CONFIDENTIAL AND PROPRIETARY- FOIA EXEMPT-

DO NOT DISCLOSE

~-emark Provider Agreement

9¡!5¡2009

4

Caremlrt

9501 E Shea Boulevard· Scotlsdale, Arizona 85260-6719

480-391-4623

www-Caremad<-cOm

Dear Pharmacy Provider:

Tlian~ you for your interest in a Caremart phamlaey membetshlp. Caremark is the largest and most well-known of the nation's 'Pf8SCription benefit managers {PBMs). Cumm11y, more than 75 million plan membec8 are enrolled in a~ prescripllon drug benefit management Program. As you may be aware, Carematk consfsts of both. Caremafk, LLC Inc. and C8remarkPCS, LLC.

Enclosed Is the membefship enrolment package. The documents in 1he package well explain the options available to you. When complete you will be a member of all Caremark claims processing systemS.

Please do not hold claims for Caremark members while your application I! belna processed. We are

unable to retrq-process your effective date.

·

PLEASE NOTE THAT BY ACCEPTING THIS MEMBERSHIP ENR0U.11ENT PACKET FROM CAREIIARK, YOU HAVE AGREI!!D ~T THE ENCLOSED MATERIALS CONTAIN CONFIDEN11AL AND PROPRIETARY TRADE SECRETS OF CAREMARK, AND ntATTtEIR ·

CON1'Eti1'S MAY NOT BE DISCLOSED BEYOND AUTHORIZED RECIPIENTS WITHOUT CAREMARK'S PRIOR WAI'I1&N CONSENT.

Please have the appropriate person sign each of the network contracts and keep all signatures conSistent. If signatures are not consistent, your phannaoy wUI not b8 enrolled until all documents.rettect the signature.

same

flsi.a comPtete and Ntum: (please ensure all documents reflect name·of ~as It appears on conlnlct} _._ . Signed and Initialed C8remark Provkler Agreement (Retum all4 peges)

_ _ Signed Credentlallngi'Service Level Workaheet With primed name arid t111e of Corporate OffiCer, OWner, or Authorized Agent. On~ one penson can 8ign conlnlCt (See revense under Authorlze•fAgents)

_ _ Signed Network Enrollment Forms

- - . Legl)le, ~copy, of DEA Certillcate (Supplied by Phannacy) _ _ Legible. current copy, of State Licen8e Cenlffcate (Suppled by Pllannacy)

· _ _. L.e9lble. current eopy, of Liability Polley orTOAT ~ by Pharmacy) __ . Legible, OUIT8I1l copv, of PJ!!nna£y NPI Cortftrmation L.ellerflom Govemment NPI Enumerator

*If you have purcbaaad an uieting pharmacy, pleaSe. atao lnolud~ Bill of Sale

_

n.e

*If you have assumed the existing NCPDN, please aiao Include: . _ _ .A tetter from the pnwioue owner or NCPDP aulhodzlng the use of the INim8 NCPOPI.

Nollwl_,

*If your phannacy Is owned by an LLCIPirlnership, .,..._lncfude; _ _ A letter .ldng al menibers and ewes.

Documents-above must be complelad and returned to Caramark before your phlrmacy will be enrolled with any Ce.remark ptOgramS. Caotmalfrl!!ef!IS,. riqlrl fp dearemplllrtMt fo mymwldelj.

Be sure to OOti(y Caremark of any change$ in status. euoh as address. flalephone or FAX number, ownership, or corporate ret1ruclure.

eecau. a change may affect pharmacY payment, plea$e submit the change request on leUerhead via mail or FAX signed bytbe owner

or approptiate representative. Changes In status should also be repot1ed to NCPOP (National Council for Presctiption Drug Programs) at480-477-1000. .

To ensure a prompt and accurate enrollment, please~ and fA1 all~ c:tocurnentafkm to:

480:861::3864

·ar. maa the documentation to: POBOX52115 Phoenix, AZ 66072·9982 If you have any questions related to enrollment, please ct111 the C8ram8rk Pharmaoy Provider MeesagE! Center at 480-891-4623.

Sincerely,

Caremark Pharmacy Provider Enrollment

;;

L ___ --

CONFIDENTIAL AND PROPRIETARY- FOIA EXEMPTDO NOT DISCLOSE

Network Enrollment Form CBreValue1, careValue2, careValue3 The undersigned hereby enrolls as a provider in the Network(s) indicated below. For the purposes of Section 4.3 or Schedule A, whichever is applicable, of the Caremark Provider Agreement, Provider agrees to the following reimbursement, and other unique requirements, if any, as indicated below.

â&#x20AC;˘ For Caremark contracted chains and affiliationS/PSAOs {Pharmacy SetVices Administration OrganiZation), the above rates apply to all pharmacies.

IN WITNESS WHEREOF, the parties hereto have caused this Network Enrollment Form to be executed by their respective officers or representatives duly authoriZed so to do. By signing below, Provider agrees to become a participant in the Caremark Network{s) above effective as of the date Caremark accepts this Network EnroHment Form. Further, Provider understands and agrees that all the terms and conditions estabNshed in the Caremark Provider Agreement shall apply to Pharmacy Services provided hereunder. Capitalized terms not defined herein shall have the meanings used in the Caremark Provider Agreement. The Network Enrollment Form constitutes the entire agreement of the parties with respect to the subject matter of this Network Enrollment Form, and supersedes any and al other agreements, writings, ;:Jnd understandings.

I Provider Info: (Please Print) Riverside County Rubidoux Pharmacy Provider Name

5627469

1467658385

Chain Code I Affiliation Code I NCPOP#

Barbara A. Olivier,

NPI#

Assistant County Executive Officer/Human Resources Director

Name of Owner I A~zed Agent (if no~~:/

~ 4

pr~;;~z~~~~~:J~;;:::: '""~~"---

Provider Signature

Tttle

Caremark Signature

Tttle

Date of Acceptance by Caremark

CVlO, CVll, CV12

10-11-10

RIVERSIDE COUNTY RUBIDOUX PHARMACY 5256 MISSION BLVD RIVERSIDE, CA 92509-0000-000

11.1 •••• 1. l.l.l.llu.l.lull •• ,n ••• ll ... lJu,n ••• n... llml

OEA Ri5~ISTRATION

NtJM8ER

IFR0305400 SCHEDULES

~31 3N 14,51

12.2N,

nus ReGISTRATION

~~

EXPIRES

04-30-2013

FEE

Bl1Siti$&CTI\Ill'(

EXEMPT~

ISSUE DATE

RETAfL PHARMACY

CONTROlLED SU9STANCE REGISTRATION CERTIFICATE UNITED STATES OEPARl\IENT OF JUSTICE I DRUG ENFORCEMENT ADMINISTRATION I WASHINGTON D.C. 20537 I f This regilllration is only for l,l$9 at Federal or State institutions.

I

I

03-0S..201

RIVERSIDE COUNTY RUBIDOUX PHARMACY 5256 MISSION B.LVD " RIVERSIDE, CA 92509-0000

01

I I I I I I I I I I

Sections 304 and 1008 (21 USC 824 and 958} of the Controlled

Sutlsiances Act of 1970, as amended, ~ that the Attorney General may revoke or suspend a registration to manufacture, dislllbute, otSpenS&. import or export a controlled substance.

THIS CER11FICATE IS NOT TRANSFERABLE ON CHANGE OF

OWNERsHIP, CONTROL, LOCATION, Ott BUSINESS ACTIVITY,

AND IT IS NOT VALID AFTER THE EXPiRATION DATE.

-----------------------------------~---~-~~~----~----~--~----------CONTROLLED SUB$TANCE REGlS:rRAOON CERTIFICATE UNITED STATES OEPARlMENT OF JUSTICE DRUG ENFORCEMENT ADMINISTRATION WASHINGTON D.C. 20537

.

Fe:i'~r --~·-1'S~~Iile::li--~~~-----· -··~-­ BUSIHI!SS ACTIVITY

,2,2N,

RETAIL PHARMACY

~,3N,4,5,

RIVERSIDE COUNTY RUBIDOUX PHARMACY 5256 MISSION BLVD RIVERS\OE, CA 92509-0000

ISSUEDATE

03-06-20101

SeGtiofiS~-·:1008 (21 USC 824 a~ 958) of the Controlled Su~~,Act 9f 19'70/as amended, provide that·:U. AUo'mey ·~r rnay: ·revoke or suspend a registtatiQn to man~re. distribute, dispense, import or export a controlled substance.

THIS CERTIFICATE IS NOT TRANSFERABLE ON CHANGE OF~. CONTROL, LOCATION, OR BUSINESS ACTIVITY, AND IT IS NOT VALID AFTER THE EXPIRATION DATE. .

3541

iiDIiiiJ IIJMJIUIIIIIIII

CONFIDENTIAL AND PROPRIETARY- FOIA EXEMPTDO NOT DISCLOSE

Network EnrollmentForm

CareValuel, careValue2, care~alue3 The undersigned hereby enrolls as a provider in the Network(s) Indicated below. For the purposes of section 4.3 or Schedule A, whichever Is applicable, of the Caremark Provider Agreement, Provider agrees to the following reimbursement, and other unique requirements, If any, as Indicated below.

.n!l 'Fee· Brand 1.50 1.50

careva1ue1 careValue2 CareValue3a

1.25

L25

carevalue3b

Generic $1.50 $1.50

$.1.25 $1.25

• For Caremark contracted chains and affillatlonsiPSAOs (Phannacy SeJVices Administration Organization), the above rates apply to ali pharmades.

IN WITNESS WHEREOF, the parties hereto have caused this Network Enrollment Form to be executed by tllelr respective officers or representatives duly authorized so to do. By signing below, Provider agrees to become a partid pant In the caremark Networi<(s) above effective as of the date caremark accepts this Network Enrollment Fonn. Further, Provider understands and agrees that ali the terms and conditions established in the Caremark Provider Agreement sh all apply to Pharmacy Services provided hereunder. Capitalized terms not defined herein shall have the meanings used In th e caremark Provider Agreement. The Network Enrollment Form constitutes the entire agreement of the parties with respect to the subject matter of this Network Enrollment Form, and supersedes any and all other agreements, writings, and understandlngs.

I Provider Info: (Please Print)

I

Riverside County Rubidoux. Pharmacy Provider Name

5627469

1467658385

Chain Code I Alftliation Code I NCPOP#

Barbara A.

O.livie~,

NPI#

Assistant County Executive Officer/Human Resources Di I~5;t;Q[

Title 1itle

Date of Acceptance by caremerk

/

EFFECTIVE NOV 09 ZOU CV10, CVU, CV12

_

___:.

I 10·11·10

______, . \\/\}2oiJ

The Provider Agreement is hereby executed as of the latest date below written:

County of Riverside On Behalf of the Exclusive Care Division of its Human Resources Department

ATTEST: Clerk to the Board Kecia Harper-lhem

;ยงt?6 ~~

By

Bob Buster Chairman, B~ard of Supervisors

NOV 0 1 2011

NOV 01 2011 Date ----------------- Date ------------------Approved as to form and content: Neal Kipnis {

t\ffi'l'{

::unty Coun] c

jJ(J!&: ~~~-~--...

By: __~~~~--~~--~~--------------~

Let

Date:

\~ -

}4 - J-o la

L __ _

--

RECEIVED NOV -

20H

NOV 0 1 2011 ~. ~2

Caremark Credentialing/Service Level Worksheet- Continued ~

D Open 24 hours/day

0

Open 7 days/week

121Oosed door/Not open to the public

0 Orive-thru window

DAft« hours/emergency RX service

Hours of Operation;

If your Pharmacy is NOT open 24 hours/ seven days a week, please list your store hours below.

OPENING HOUR$ Monday Tuesday

D lZJ:[]IQJ liJ AM D

0 Closed 0Ciosed

D(i]:BJ[Q]g]AM

Saturday

DE!J:(]@J~AM Ocrosed 0[1]:5J@l ~AM Dc1onc~ DElJ:[I]@I ~AM ~closed DD:OOOAM

Sunday

18l closed

Wednesday Thursday

Friday

CLOSING HOUR$

Dclosed

0[£J:IQJIQJoAM ~ Dl£1:[£][£] 0 AM ~PM DC9:@1[£)oAM (BpM

PM

DPM 0PM

DI~J:[£1[£] 0 AM ~PM D~:Q[QJ DAM I}!J PH DD:DDoAM DPM

DPM

OPM OPM

DD:DDoAM DPM

DD:DDoAM OPM

Delivery

D Free Delivery w/ Umltations

[g Free Delivery

0

Delivery - Charges Apply

Durable Meclk;al Equipment

0

0

Limited

Full-line

Patient Consultatlon

~Written material available for each Rx ~ 3406 Pharmacy ImmunizatiOI'IS

0 0 0

Infusion Therapy

0 0 0

l~:fCounseling of an meds patient is taking

Specialty Pharmacy Blood Pressure Screening Vision Services

0 Long Term care Pharmacy D Health Screening 0 Au Shots

g

Compliance rnooitoring

0 On-Site Clinics 0 0 Disease State Management D Auto Refill Reminder

Compounding

Pharmacy ownership CChoose AU tflat applyl:

D Male 0 Female 0 African American D Aslan I Pacific Island American 0 Native American/Alaskan 0 Veteran 0 Disadvantaged Business Enterprise 0 HUBZone Business Enterprise

0 Caucasian 0 Disabled Veteran 1tJ Other: 6c> vt?a. AJ ~GNI

0 0

Hispanic American Disabled Business Enterprise -FI'\C.r 1-1 TY

i.IDOuaaM- (s;hoose 6Y, that app!J): Spoken Printed On Label

Spoken

Printed On Label

English

~

18J

Japanese

D

0

Arabic

0

D

Korean

0

French

0 0

German

D

Hindi

0 0

0 0 D 0 0

Chinese

ItaHan

Russian

0 0

Spanish

~

Vietnamese

D

0 0 0

Braille

N/A

0

American Sign Language

D

N/A

RECEIVED

other: - - - --

NOV ~ 9 201\

\o '

Barbara A. Olivier

.;to , l \

Assistant County Executive Officer/Human Resources Director 2

09[.!4/2010

RECEIVED N0\1 -

2.0\

~NTIL NOVE ~ a~ ~ . 01~ c

9/ 10.

9/ 10

The. of.ficial stat~s i of x'

•' ~. \·

~:

. '·.•..

this lif~~~~ can b·e . verified at

- -- - -

.....,='-""............_.......,......,~<L¥....,.

N .O'~..:;;T RA• NS FER ABLE

PQS.T

(

"' .

,(

2011

2011-Nov-17 04:29PM HUMAN RESOURCES - CAC 9519550055

212

Ms. Patsy Harvey Provider Enrollment Senior Rep IV, Retail strategies CVS Caremark 9501 E. Shea Blvd.

Scottsdale, Al. 85260

Dear Ms. Harvey, Per your request. this Jetter confirms that Rubidoux Pharmacy is self insured and all liabilities are assumed by the County of Riverside. Please note that the phannacy is owned and operated by the County of Riverside.

Please feel free to contact me or Eric Quon if you have any further questions.

RECEIVED NOV 17 2011 1

11/17/2011

4:27PM

Shams, Jahan From: Sent: To: Subject:

customerservice@npie~umerator.col

Tuesday, August 21 . 2007 12:41 Pwl" Shams, Jahan National Provider ldenti 1er I

I

A request for a National Provider Identifier fo submitted:

the following provider was recently

l I

Riverside County Rupidoux EIN:

RECEIVED

Practice Location: 5256 Mission ave Rubidoux, CA 92509

NOV ¡- 9 2011

Provider Taxonomies: Taxonomy: 3336COOO~X License: 48541 ' State : CA Details: PharmacyYClinic PHarmacy This is the Primary Taxonory.

I

Since_~ were listed as the contact person, tHi s is to inform you that the request was -s-u~cessr uD:y._.,_proc essed, and the following NPI ~ s been assigned to the organization above : I is jahanshams. Please use this User ID ( 1467658385. The User ID you selected for this ~e~on to the National Provider System at https://nppes.cms.hhs.gov.

If you have any questions about this notifica t ion you may contact the NPI Enumerator at : NPI Enumerator PO Box 6059 Fargo, ND 58108-6059 1-800-465-3203 (NPI Toll-Free) 1-800-692-2326 (NPI TTY}

I

You may view or change your informat iob by l ogg ' ng onto the NPPES website at https://nppes.cms.hhs.gov.

Please note: If you are not the provider, you are required to inform the provider of the information in this e-mail and furnish ! a copy o ' this notification to the provider.

1

Medicaid Managed Care Baseline THE OHIO DEPARTMENT OF MEDICAID OHIO MEDICAL ASSISTANCE PROVIDER AGREEMENT FOR MANAGED CARE PLAN This Provider Agreement (hereinafter “Agreement”) is entered into this first day of July, 2017, at Columbus, Franklin County, Ohio, between the State of Ohio, The Ohio Department of Medicaid, (hereinafter referred to as ODM) whose principal offices are located in the City of Columbus, County of Franklin, State of Ohio, and _______________________, Managed Care Plan (hereinafter referred to as the MCP), an Ohio corporation, whose principal office is located in the city of _________, County of ______________, State of Ohio.

The MCP is licensed as a Health Insuring Corporation by the State of Ohio, Department of Insurance (hereinafter referred to as ODI), pursuant to Chapter 1751 of the Ohio Revised Code (ORC) and is organized and agrees to operate as prescribed by Chapter 5160-26 of the Ohio Administrative Code (OAC), and other applicable portions of the OAC as amended from time to time.

The MCP is an entity eligible to enter into a provider agreement in accordance with 42 CFR (Code of Federal Regulations) 438.3 and is engaged in the business of providing comprehensive health care services as defined in 42 CFR 438.2 through the managed care program for the Medicaid eligible population described in OAC rule 5160-26-02 and any other Medicaid eligible populations authorized by the Centers for Medicare and Medicaid Services (CMS) and described in Ohio’s Medicaid State Plan.

ODM, as the single state agency designated to administer the Medicaid program under Section 5162.03 of the ORC and Title XIX of the Social Security Act, desires to obtain MCP services for the benefit of certain Medicaid recipients. In so doing, the MCP has provided and will continue to provide proof of the MCP's capability to provide quality services, efficiently, effectively and economically during the term of this Agreement.

This Agreement is a contract between ODM and the undersigned MCP, provider of medical assistance, pursuant to the federal contracting provisions of 42 CFR 434.6 and 438.6 in which the MCP agrees to provide comprehensive Medicaid services through the managed care program as provided in OAC Chapter 5160-26, assuming the risk of loss, and at all times complying with federal and state laws and regulations, federal and state Medicaid program requirements, and other requirements as specified by ODM. This includes without limitation Title VI of the Civil Rights Act of 1964; Title IX of the Education Amendments of 1972 (regarding education programs and activities); the Age Discrimination Act of 1975; the Rehabilitation Act of 1973; the Americans with Disabilities Act; and Section 1557 of the Affordable Care Act. ARTICLE I - GENERAL A. ODM enters into this Agreement in reliance upon the MCP’s representations that it has the necessary expertise and experience to perform its obligations hereunder, and the MCP represents and warrants that it does possess such necessary expertise and experience.

B. The MCP agrees to communicate with the Director of the Office of Managed Care (OMC) (hereinafter referred to as OMC) or his or her designee as necessary in order for the MCP to ensure its understanding of the responsibilities and satisfactory compliance with this Agreement.

Rev. 4/2018

Page 1 of 210

Medicaid Managed Care Baseline ARTICLE VI - NONDISCRIMINATION OF EMPLOYMENT A. The MCP agrees that in the performance of this Agreement or in the hiring of any employees for the performance of services under this Agreement, the MCP shall not by reason of race, color, religion, gender, gender identity, sexual orientation, age, disability, national origin, military status, health status, genetic information or ancestry, discriminate against any individual in the employment of an individual who is qualified and available to perform the services to which the Agreement relates.

B. The MCP agrees that it shall not, in any manner, discriminate against, intimidate, or retaliate against any employee hired for the performance or services under the Agreement on account of race, color, religion, gender, sexual orientation, age, disability, national origin, military status, health status, genetic information or ancestry.

C. In addition to requirements imposed upon subcontractors in accordance with OAC Chapter 5160-26, the MCP agrees to hold all subcontractors and persons acting on behalf of the MCP in the performance of services under this Agreement responsible for adhering to the requirements of paragraphs (A) and (B) above and shall include the requirements of paragraphs (A) and (B) above in all subcontracts for services performed under this Agreement, in accordance with OAC rule 5160-2605.

ARTICLE VII - RECORDS, DOCUMENTS AND INFORMATION A. The MCP agrees that all records, documents, writings or other information produced by the MCP under this Agreement and all records, documents, writings or other information used by the MCP in the performance of this Agreement shall be treated in accordance with OAC rule 5160-26-06 and shall be provided to ODM, or its designee, if requested. The MCP shall maintain an appropriate record system for services provided to members. The MCP shall retain all records in accordance with 42 CFR 438.3(u).

B. All information provided by the MCP to ODM that is proprietary shall be held to be strictly confidential by ODM. Proprietary information is information which, if made public, would put the MCP at a disadvantage in the market place and trade of which the MCP is a part [see ORC Section 1333.61(D)]. The MCP agrees to expressly indicate by marking the top or bottom of each individual record containing information the MCP deems proprietary or trade secret, regardless of media type (CD-ROM, Excel file etc.) prior to its release to ODM. Upon request from ODM, the MCP agrees to promptly notify ODM in writing of the nature of the proprietary information including all reasonable evidence regarding the nature of the proprietary information in records submitted to ODM. The MCP also agrees to provide for the legal defense of all proprietary information submitted to ODM. ODM shall promptly notify the MCP in writing or via email of the need to legally defend the proprietary information such that the MCP is afforded the opportunity to adequately defend such information. Failure to provide such prior notification or failure to legally defend the proprietary nature of such information is deemed to be a waiver of the proprietary nature of the information, and a waiver of any right of the MCP to proceed against ODM for violation of this Agreement or of any proprietary or trade secret laws. Such failure shall also be deemed a waiver of trade secret protection in that the MCP will have failed to make efforts that are reasonable under the circumstances to maintain the informationâ&#x20AC;&#x2122;s secrecy. The provisions of this Article are not selfexecuting.

Rev. 4/2018

Page 4 of 210

Medicaid Managed Care Appendix C Plan Responsibilities APPENDIX C PLAN RESPONSIBILITIES The following are Managed Care Plan (MCP) responsibilities not otherwise specifically stated in Ohio Administrative Code (OAC) rule or elsewhere in this Agreement.

1. The MCP shall implement program modifications as soon as reasonably possible or no later than the required effective date, in response to changes in applicable state and federal laws and regulations.

2. The MCP shall submit a current copy of its Certificate of Authority (COA) to the Ohio Department of Medicaid (ODM) within 30 days of issuance by the Ohio Department of Insurance (ODI).

3. The MCP shall designate the following: a. A primary contact person (the Contract Compliance Officer) who will dedicate a majority of his or her time to the Medicaid product line and coordinate overall communication between ODM and the MCP. ODM may also require the MCP to designate contact staff for specific program areas. The Medicaid Contract Compliance Officer will be responsible for ensuring the timeliness, accuracy, completeness and responsiveness of all MCP submissions to ODM. b. A provider relations representative for each service area included in this Agreement.

This provider relations representative can serve in this capacity for only one service area.

4. Communications. The MCP shall take all necessary and appropriate steps to ensure all MCP staff are aware of, and follow, the following communication process: a. All MCP employees are to direct all day-to-day submissions and communications to their ODM-designated Contract Administrator within the Office of Managed Care (OMC) unless otherwise notified by ODM. If the MCP needs to contact another area of ODM in any other circumstance, the Contract Administrator within the OMC shall also be copied or otherwise included in the communication. b. Entities that contract with ODM should never be contacted by the MCP unless ODM has specifically instructed the MCP to contact these entities directly. c. Because the MCP is ultimately responsible for meeting program requirements, ODM will only discuss MCP issues with the MCPâ&#x20AC;&#x2122;s subcontractor when the MCP is also participating in the discussion or when the MCP grants ODM permission to do so. MCP subcontractors should communicate with ODM when the MCP is participating, or when the MCP grants authorization to communicate directly with ODM. 5. The MCP shall be represented at all meetings and events designated by ODM that require mandatory attendance.

Rev. 4/2018

Page 15 of 210

Medicaid Managed Care Appendix C Plan Responsibilities business day prior to the effective date of the change. b. The MCP shall participate in ODM sanctioned workgroups and processes to establish a state-level emergency response plan which will include a provision for Medicaid recipients, and will comply with the resulting procedures. c. During the time of an emergency or a natural, technological, or man-made disaster, the MCP shall be able to generate a current list of members for whom an individual disaster plan, according to the specifications below, has been developed, including the risk and the individual-level plan, and distribute to local and state emergency management authorities according to the protocol established by ODM. d. The MCP shall identify members who are at risk for harm, loss, or injury during any potential natural, technological, or manmade disaster. The MCP shall ensure every member who is technology and/or service dependent, with no known reasonable means to access services, is known and documented as part of the planâ&#x20AC;&#x2122;s Comprehensive Disaster/Emergency Response Plan. For these members, the MCP shall develop an individual-level plan with the member when appropriate. The MCP shall ensure staff, including care managers, are prepared to respond to and implement the plans in the event of an emergency or disaster. The member-level plan shall: i. Include a provision for the continuation of critical services appropriate for the memberâ&#x20AC;&#x2122;s needs in the event of a disaster including, but not limited to access to medication/prescriptions; ii. Identify how and when the plan will be activated; iii. Be documented in the member record maintained by the MCP; and iv. Be provided to the member.

59. MCP Portfolio Expansion. The MCP shall immediately report to ODM all arrangements wherein services or contracts may overlap with Medicaid plans when plans are seeking to expand their portfolios through contracts with other entities.

60. Subcontractual Relationships and Delegation. If the MCP delegates to any first tier, downstream and related entity (FDR), they shall ensure it has an arrangement with the FDR to perform administrative services as defined below on the MCPâ&#x20AC;&#x2122;s behalf. a. Unless otherwise specified by ODM, administrative services include: care management, marketing, utilization management, quality improvement, enrollment, disenrollment, membership functions, claims administration, licensing and credentialing, provider network management, and coordination of benefits. b. Parties to administrative services arrangements are defined as:

Rev. 4/2018

Page 56 of 210

Medicaid Managed Care Appendix C Plan Responsibilities i. First tier entity: any party that enters into a written arrangement, acceptable to ODM, with the MCP to provide administrative services for Ohio Medicaid eligible individuals. ii. Downstream entity: any party that enters into a written arrangement, acceptable to ODM, with a first tier or related entity or below the level of a first tier or related entity to provide administrative services for Ohio Medicaid eligible individuals. These arrangements continue down to the level of the ultimate provider of the administrative services. iii. Related entity: any party related to the MCP by common ownership or control, and under an oral or written arrangement performs some of the administrative services under the MCP’s contract with ODM. c. Before the MCP enters into an arrangement with an FDR to perform an administrative function not listed above that could impact a member’s health, safety, welfare or access to Medicaid covered services, the MCP shall contact ODM to request a determination of whether or not the function should be included as an administrative service that complies with the provisions listed herein. d. Upon request, the MCP shall disclose to ODM all financial terms and arrangements for payment of any kind that apply between the MCP, or the MCP’s first tier, downstream and related entity (FDR), and any provider of a Medicaid service. ODM acknowledges that such information may be considered confidential and proprietary and thus shall be held strictly confidential by ODM as specified in Article VII of this Agreement. e. The MCP that enters into a written arrangement with an FDR shall include the following enforceable provisions: i. A description of the administrative services to be provided by the FDR and any requirements for the FDR to report information to the MCP. ii. The beginning date and expiration date or automatic renewal clause for the arrangement, as well as applicable methods of extension, renegotiation and termination. iii. Identification of the service area and Medicaid population, either “non-dual” or “non-dual and dual” the FDR will serve. iv. A provision stating that the FDR shall release to the MCP and ODM any information necessary for the MCP to perform any of its obligations under the MCP’s provider agreement with ODM, including but not limited to compliance with reporting and quality assurance requirements. v. A provision that the FDR’s applicable facilities and records will be open to inspection by the MCP, ODM, its designee or other entities as specified in OAC rule.

Rev. 4/2018

Page 57 of 210