Express Scripts 2009 Annual Report Download - page 26

Express Scripts 2009 Annual Report 24
In November 2009, we implemented a new contract with the United States Department of Defense (“DoD”).
While we have provided services to the DoD since 2003, this new contract combines the pharmacy network services, home
delivery and specialty pharmacy under one program. The DoD’s TRICARE Pharmacy Program is the military healthcare
program serving active-duty service members, National Guard and Reserve members and retirees, as well as their
dependents. Under the new contract, we provide online claims adjudication, home delivery services, specialty pharmacy
clinical services, claims processing and contact center support, and other services critical to managing pharmacy trend.
In December 2009, we completed an acquisition of WellPoint’s NextRx PBM business. Upon close of the
acquisition, we began integrating NextRx’s PBM clients into our existing systems and operations. We also entered into a
10-year contract under which we will provide pharmacy benefits management services to members of the affiliated health
plans of WellPoint (the “PBM agreement”).
Our top five clients collectively represented 23.7%, 18.2%, and 18.1% of revenues during 2009, 2008 and 2007
respectively. None of our clients accounted for 10% or more of our consolidated revenues in fiscal years 2009, 2008 or
2007. Due to the new long-term contracts we have entered into with WellPoint and the DoD, we expect to have a higher
concentration of revenues among these clients in the future.
Medicare Prescription Drug Coverage
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MMA”) created the federal
Voluntary Prescription Drug Benefit Program under “Part D” of the Social Security Act. Since January 1, 2006, eligible
Medicare beneficiaries have been able to obtain prescription drug coverage under Part D by enrolling in a prescription drug
plan (“PDP”) or a “Medicare Advantage” plan that offers prescription drug coverage (an “MA-PD”). In addition, the
MMA created an opportunity for employers offering eligible prescription drug coverage for their Medicare-eligible
members to receive a subsidy payment by enrolling in the Retiree Drug Subsidy (“RDS”) program. In order to claim the
subsidy, the beneficiaries claimed by the employer cannot be enrolled in a PDP or MA-PD.
Our services support clients who have elected to become a PDP or an MA-PD. In addition, we support the needs
of employers who enroll in the RDS program. We provide PBM services to these clients as well as Part D functions that
include managing member out of pocket costs, creation of Explanation of Benefits of the prescription data event,
medication therapy management services and various reporting required by CMS.
In 2006, we were approved by CMS to function as a Part D PDP plan sponsor, offering prescription drug coverage
to Employer Group Waiver Plans, through our wholly owned subsidiary, Express Scripts Insurance Company. Beginning
January 1, 2007, our PDP offered prescription drug coverage nationally and in Puerto Rico. In 2008, the requirement
changed no longer requiring us to offer a plan to the individual market. Therefore in 2008, we began offering coverage
only to Employer Group Waiver Plans. The Express Scripts Insurance Company is licensed by the Arizona Department of
Insurance as a Disability Insurer which meets the CMS requirements of a risk-bearing entity regulated under state insurance
laws or similar statutes.
Acquisitions and Joint Ventures
On December 1, 2009, we completed the purchase of the shares and equity interests of certain subsidiaries of
WellPoint that provide pharmacy benefit management services (“NextRx” or the “PBM Business”), in exchange for total
consideration of $4.675 billion paid in cash, which is subject to a purchase price adjustment for working capital. The
NextRx PBM Business is a national provider of PBM services, and we believe the acquisition will enhance our ability to
achieve cost savings, innovations, and operational efficiencies which will benefit our customers and stockholders. The
purchase price was primarily funded through a $2.5 billion underwritten public offering of senior notes completed on June
9, 2009 resulting in net proceeds of $2,478.3 million, and a public offering of 26.45 million shares of common stock
completed June 10, 2009 resulting in net proceeds of $1,569.1 million. Our PBM operating results include those of the
NextRx PBM Business beginning on December 1, 2009, the date of acquisition (see Note 3).
On July 22, 2008, we completed the acquisition of the Pharmacy Services Division of MSC - Medical Services
Company (“MSC”), a privately held PBM, for a purchase price of $251.0 million, which includes a purchase price
adjustment for working capital and transaction costs. MSC is a leader in providing PBM services to clients providing
workers’ compensation benefits. The purchase price was funded through internally generated cash and temporary
borrowings under our revolving credit facility. This acquisition is reported as part of our PBM segment and did not have a
material effect on our consolidated financial statements (see Note 3).