Express Scripts 2012 Annual Report Download - page 10

Express Scripts 2012 Annual Report8
Segment Information
We report segments on the basis of services offered and have determined we have two reportable segments: PBM
and Other Business Operations. Our integrated PBM services include domestic and Canadian network claims processing,
home delivery pharmacy services, benefit design consultation, drug utilization review, drug formulary management,
compliance and therapy management programs, Medicare Part D and Medicaid products, distribution of injectable drugs to
patient homes and physician offices, fertility services to providers and patients, bio-pharma services, administration of a
group purchasing organization, consumer health and drug information, improved health outcomes through personalized
medicine and application of pharmacogenomics. Through our Other Business Operations segment, we provide services
including distribution of pharmaceuticals and medical supplies to providers and clinics and scientific evidence to guide the
safe, effective and affordable use of medicines. During the second quarter of 2012 we reorganized our other international
retail network pharmacy management line of business (which has been substantially shut down as of December 31, 2012)
from our PBM segment into our Other Business Operations segment. During the third quarter of 2011 we reorganized our
FreedomFP line of business from our Other Business Operations segment into our PBM segment. All related segment
disclosures have been reclassified, where appropriate, to reflect the new segment structure. Information regarding our
segments appears in Note 13 – Segment information of the notes to our consolidated financial statements and is
incorporated by reference herein.
Suppliers
We maintain an inventory of brand name and generic pharmaceuticals in our home delivery pharmacies and
biopharmaceutical products in our specialty pharmacies and distribution centers to meet the needs of our patients, including
pharmaceuticals for the treatment of rare or chronic diseases. If a drug is not in our inventory, we can generally obtain it
from a supplier within one business day. We purchase pharmaceuticals either directly from manufacturers or through
authorized wholesalers. Generic pharmaceuticals are generally purchased directly from manufacturers.
Clients
We are a provider of PBM services to several market segments. Our clients include managed care organizations,
health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and
government health programs. We also provide specialty services to customers, which include managed care organizations,
health insurers, third-party administrators, employers, union-sponsored benefit plans, government health programs, office-
based oncologists, renal dialysis clinics, ambulatory surgery centers, primary care physicians, retina specialists, and others.
On July 21, 2011 Medco announced that its pharmacy benefit services agreement with UnitedHealth Group would
not be renewed, although it continued to provide service under an agreement which expired on December 31, 2012.
Beginning January 1, 2013, a transition agreement is in place during which time patients will move in tranches off of the
Medco platform.
In November 2009, ESI implemented a contract with the United States Department of Defense (“DoD”) to provide
pharmacy network services and home delivery and specialty pharmacy services. 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 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, ESI completed the purchase of 100% of the shares and equity interests of certain subsidiaries
of WellPoint, Inc. (“WellPoint”) that provide pharmacy benefit management services (“NextRx” or the “NextRx PBM
Business”). ESI also entered into a 10-year contract under which ESI provides pharmacy benefits management services to
members of the affiliated health plans of WellPoint (the “PBM agreement”). Subsequent to this acquisition, we integrated
NextRx’s PBM clients into our existing systems and operations.
Refer to Note 13 – Segment information for a discussion of client concentration.
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. Eligible Medicare beneficiaries are
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-PDP”). In addition, the MMA created an opportunity for