Medco 2014 Annual Report Download - page 42

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Express Scripts 2014 Annual Report
40
RESULTS OF OPERATIONS
Wereportsegmentsonthebasisofproductsandservicesofferedandhavedeterminedwehavetworeportable
segments:PBMandOtherBusinessOperations.OurPBMsegmentincludesourintegratedPBMoperationsandspecialty
pharmacyoperations.OurOtherBusinessOperationssegmentincludesUnitedBioSource(“UBC”)andourspecialty
distributionoperations.
During2014,wereorganizedourbusinessrelatedprimarilytopharmaceuticalandbiotechnologyclientpatient
accessprograms,includingpatientassistanceprograms,reimbursement,alternatefundingandcomplianceservicesfromour
PBMsegmentintoourOtherBusinessOperationssegment.During2014,ourEuropeanoperationsweresubstantiallyshut
down.During2013,wesoldvariousportionsofUBCandouracuteinfusiontherapieslineofbusiness.During2012,wesold
EuropaApotheekVenloB.V.(“EAV”).OuracuteinfusiontherapieslineofbusinesswaspreviouslyincludedinourPBM
segmentandtheremainingbusinesseswerepreviouslyincludedinourOtherBusinessOperationsSegment.Theresultsof
operationsforthesebusinesseswerereportedasdiscontinuedoperationsandexcludedfromallperiodspresentedinthe
accompanyinginformationprovidedbelow.
PriortotheMerger,ESIandMedcousedslightlydifferentmethodologiestoreportclaims;however,webelievethe
differencesbetweentheclaimsreportedbyESIandMedcowouldnotbematerialhadthesamemethodologybeenapplied.We
havesincecombinedthesetwoapproachesintoonemethodology.ThischangewasmadeprospectivelybeginningApril2,
2012.Wehavenotrestatedthenumberofclaimsinpriorperiodsbecausethedifferencesarenotmaterial.
Throughoutthedescriptionbelow,referenceismadetotheimpactofgenericfillrates.Theimpactofhigher
genericfillrateslowersPBMrevenues,asgenericdrugsaregenerallypricedlowerthanbrandeddrugs.However,asingredient
costongenericdrugsisincrementallylowerthanthepricecharged,highergenericfillratesgenerallyhaveafavorableimpact
ongrossprofit.
Thehomedeliverygenericfillrateiscurrentlylowerthanthenetworkgenericfillrateasfewergeneric
substitutionsareavailableamongmaintenancemedications(e.g.,therapiesforchronicconditions)commonlydispensedfrom
homedeliverypharmaciescomparedtoacutemedicationswhichareprimarilydispensedbypharmaciesinourretailnetworks.
InJuly2011,MedcoannounceditspharmacybenefitservicesagreementwithUnitedHealthGroupwouldnotbe
renewed;althoughwecontinuedtoprovideserviceunderanagreementwhichexpiredonDecember31,2012.Atransition
agreementwasinplacethroughout2013,duringwhichtimepatientsmovedintranchesoffoftheMedcoplatform.Duetothis
transitionofUnitedHealthGroup,claimsvolumeandrelatedrevenuesandcostofrevenuesdecreasedthroughout2013.
36