Contents:

Executive Summary Strategic Considerations Stakeholder Implications Overview Organization and Funding of the U.S. Health Care System Private Insurance Medicare Medicaid Military and Other Federal Health Care Programs Pharmaceutical Prices in the United States Prices Relative to Other Major Markets Pricing in the Public Sector Pricing in the Private Sector Generics Pricing Provider Reimbursement Medicare Hospital Inpatient Treatment Hospital Outpatient Treatment Office-Based Physicians Commercial Insurers Coverage Decision Making Public Sector Private Sector Cost-Containment Measures Multitier Formularies Patient Copayments and Coinsurance Use of Generics Therapeutic Substitution Prior Authorization and Step Therapy Specialty Pharmacy Health Technology Assessment in the United States Academy of Managed Care Pharmacy Agency for Healthcare Research and Quality Drug Effectiveness Review Project Medicare HTA Outlook Outlook for the U.S. Pharmaceutical Market Tables 1. Health Insurance Coverage of the U.S. Population, 1999-2006 2. Medicare Part D: Key Parameters of the Standard Drug Benefit Design, 2006-2008 3. Multilateral Comparison of Average Ex-Manufacturer Prices of Branded Medicines in Select Markets as a Percentage of U.K. Average Ex-Manufacturer Prices, 1992-2004 4. U.S. Prices of Select Drugs as a Percentage of Average Prices in Six Other Major Pharmaceutical Markets, 2006 5. Prices of Leading Biologics in the Major Markets as a Percentage of U.S. Prices, 2006 6. Pricing Benchmarks in the United States 7. Technologies That Have Pass-Through Status in the Medicare Outpatient Prospective Payment System, 2008 8. Key Features of Medicare Inpatient and Outpatient New Technology Payment Mechanisms 9. Frequency with Which Pharmacy and Therapeutics Committees Consider Select Drug Attributes in Formulary Decision Making (%) 10. Frequency with Which Pharmacy and Therapeutics Committees Consider Select Drug Attributes in Formulary Decision Making (mean scores) 11. U.S. Employers’ Views on Strategies to Increase Prescription Drug Benefit Value, 2005 12. Bills Introduced in the 110th Congress to Promote Comparative Effectiveness Research 13. Key Trends of Change in the U.S. Prescription Drug Market: Implications for the Pharmaceutical Industry Figures 1. Percentage of the U.S. Population Covered by Various Forms of Health Insurance 2. Percentage of Covered Workers Enrolled in Various Types of Health Plan, 1998-2007 3. Medicare Beneficiaries’ Sources of Health Care Coverage, January 2007 4. Standard Medicare Part D Drug Benefit Design, 2008 5. Annual Deductible Policies of Standalone Medicare Prescription Drug Plans and Medicare Advantage Plans, 2008 6. Detailed Coverage Gap Policies of Standalone Medicare Prescription Drug Plans, 2008 7. Detailed Coverage Gap Policies of Medicare Advantage Plans, 2008 8. Medicaid Pharmaceutical Expenditures, 1996-2006 (estimated) 9. Average Prices of Leading Biologics, Small-Molecule Drugs, and Pharmaceuticals Overall in the Major Markets as a Percentage of U.S. Prices, 2006 10. Comparison of Prices of Select Branded Medicines and Generics for Customers With and Without PBM Membership, 2002 11. Average Rebates Per Prescription Received by U.S. Employers, 2007 12. Employers’ Perceptions of Pharmacy Benefit Management Companies’ Impact on Their Overall Drug Costs, 2002 and 2005 13. Average Price of Brands and Generics As a Percentage of Respective Brands’ Price Prior to Generic Entry 14. National Coverage Determination Process of the Centers for Medicare and Medicaid Services 15. Important Factors for Making Reimbursement Decisions 16. Percentage of Covered Workers in Formularies of Various Structures, 2000-2007 17. Percentage of Employers Using Formularies of Various Structures, 2007 18. Percentage of Medicare Standalone Prescription Drug Plans Offering Formularies of Various Designs, 2006-2007 19. Percentage of Medicare Advantage Plans Offering Formularies of Various Designs, 2006-2007 20. Importance of Clinical and Nonclinical Factors to Tier Placement Figures 21. Ranking of Clinical and Nonclinical Factors as Influences on Tier Placement 22. Importance of Cost Attributes to Tier Placement 23. Evolution of Mean Patient Copayments for Generics, Preferred Branded Medicines, Nonpreferred Branded Medicines, and Fourth-Tier Drugs, 2000 2007 24. Evolution of Average Retail Copayments for Generics, Preferred Branded Medicines, and Nonpreferred Branded Medicines, 2000-2007 25. Evolution of Average Mail-Order Copayments for Generics, Preferred Branded Medicines, and Nonpreferred Branded Medicines, 2002-2007 26. Percentage of Covered Workers Required to Pay Copayments and/or Coinsurance by Formulary Tier, 2007 27. Evolution of Mean Patient Coinsurance Rates for Generics, Preferred Branded Medicines, Nonpreferred Branded Medicines, and Fourth-Tier Drugs, 2000-2007 28. Leading PBMs’ Generic Dispensing Rates, 2002 and 2006 29. Percentage of Employers That Permit Therapeutic Substitution for Select Chronic Disorders 30. Percentage of Employers That Permit Step Therapy and Prior Authorization for Select Chronic Disorders 31. Employers’ Specialty Pharmacy Policies 32. Main Sources of Funding for Prescriptions Dispensed in the United States, 2005-2007 33. Share of Total Prescription Drug Expenditures by Source of Funding, 2000-2016 (projected) 34. HMO Pharmacy Directors’ Views on Main Drivers of Biogenerics Use in the United States 35. HMO Pharmacy Directors’ Views on Likely Strategies for Promoting Biogenerics Use

Companies Mentioned

Companies and Organizations - Academy of Managed Care Pharmacy (AMCP) - Agency for Health Care Policy and Research (AHCPR) - Agency for Healthcare Research and Quality (AHRQ) - American Medical Directors Association - American Society of Consultant Pharmacists - Aon Consulting - Avalere Health - Blue Cross Blue Shield Association (BCBSA) - Bristol-Myers Squibb - Census Bureau - Centers for Medicare and Medicaid Services (CMS) - Coast Guard - Community Oncology Alliance (COA) - Congressional Budget Offi ce (CBO) - CVS Caremark - Department of Defense (DoD) - Department of Health and Human Services (HHS) - Department of Labor (DOL) - Department of Veteran Affairs (VA) - Drug Effectiveness Review Project (DERP) - Dyckman & Associates - Eli Lilly - Evaluate Pharma - Express Scripts - Federal Trade Commission (FTC) - Food and Drug Administration (FDA) - Government Accountability Offi ce (GAO) - Health Care Financing Administration (HCFA) - Health Industries Research Center - Health Research Educational Trust (HRET) - Health Strategies Group - HealthNet - Hewitt Associates - House of Representatives, Committee on Government Reform, Special Investigations Division - House of Representatives, Committee on Ways and Means, Subcommittee on Health - IMS Health - Kaiser Family Foundation - Medco Health - Medical Technology Council (MTC) - Medicare Payment Advisory Commission (MedPAC) - Merck - National Drug Center (NDC) - Offi ce of the Inspector General, HHS - Pharmaceutical Care Management Association (PCMA) - Pharmaceutical Research and Manufacturers of America (PhRMA) - Pharmacy & Therapeutics Society - Pharmacy Benefi t Management Institute (PBMI) - Pharmacy Outcomes Specialists - PricewaterhouseCoopers (PwC) - Public Health Service (PHS) - Organization for Economic Cooperation and Development (OECD) - Scott Levin - United States Pharmacopeial Convention (USP) - Verispan - Wal-Mart - WellPoint - Zitter Group