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Investor Presentaiton

Introduction Prescription drugs reduce the need for medical services and improve and extend life. The ever- increasing cost of prescription drugs in the U.S. is a topic of national interest. The high price of medications can reduce consumers' access and contributes to higher spending, straining both state and federal budgets. From 2009 to 2018, national spending on prescription drugs in the Medicaid program increased from $18 billion to $32 billion. The prescription drug system in the U.S. is complex, involving many entities. While some of the efforts to decrease drug prices in recent years have targeted drug manufacturers, there is growing public interest in assessing the role, value of, and significant power and influence held by third-party organizations known as pharmacy benefit managers. Pharmacy benefit managers are influential within the U.S. health care system The supply of prescription drugs starts with drug manufacturers, who develop and manufacture medications. Some of the largest drug manufacturers in the world include Johnson & Johnson, Eli Lilly, Pfizer, and AbbVie. Drug manufacturers then sell medications to wholesale distributors, who resell those drugs directly to pharmacies or collective groups who pool resources and negotiate on their behalf. The final step in the supply chain happens when pharmacies fill and dispense medications to consumers. Involved in many of these processes are third-party companies known as pharmacy benefit managers (PBMs). Today's PBMs have emerged as powerful intermediaries between insurers, manufacturers, pharmacies, and governments, though historically they were created as simple claims processing administrators. Within this paradigm, the three largest PBM's control 80% of the U.S. prescription market as seen in Figure 1. Private sector insurers first started covering high volumes of prescription drugs for health plans in the 1960s. When this happened, insurers had challenges in managing the overall increase in claims. Early PBMs were initially created to ease the administrative burden of insurers. Over time, the role of PBMs has expanded significantly. In the decades after their initial creation, PBMs leveraged new technologies as they emerged to streamline and simplify administrative processes, like creating real-time electronic claims processing and efficient pharmacy communication methods. PBMs also began to offer new services over time to insurers, like mail order, pharmacy networks, and clinical consulting, among others. In the 90's, drug manufacturers began acquiring PBMs, which created conflict of interest concerns. The Federal Trade Commission ordered the manufacturers to divest the businesses and started a trend of mergers and acquisitions within the PBM industry. Some of the current responsibilities of PBMs include: Processing and paying prescription drug claims; 1 The term collective groups is used in this report to refer to the combination of pharmacy services administration organizations and group purchasing organizations. A definition of these entities, as well as a full glossary of terms, can be found in Appendix A. Oregon Secretary of State Report 2023-25 | August 2023 | page 1
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