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Pharmaceutical Genius

Barrett Toan, chairman and CEO of Express Scripts, Inc. has found the prescription for success, making the pharmacy benefit management company the third largest in North America, serving more than 45 million members and managing approximately $15 billion annually on drug expenditure, and one of St. Louis’ newest Fortune 500 headquarters.

By Pam Droog

When Barrett Toan was a teenager in the 1960s in Briarcliff Manor, N.Y., he read and was impressed by a New Yorker article about the public-policy debate over the structure of Medicaid and Medicare. The article peaked Toan’s interest in health care policy and influenced his career path, leading to his own influential roles in several state governments and as chairman and chief executive officer of Express Scripts, Inc.

The Maryland Heights-based pharmacy benefit management (PBM) company is the third largest in North America, serving more than 45 million members and managing approximately $15 billion annually on drug expenditures. Through facilities in seven states and Canada, Express Scripts serves managed care organizations, insurance carriers, third-party administrators, employers and union-sponsored benefit plans.

Besides its original mail pharmacy services, Express Scripts administers a retail pharmacy network, designs pharmacy benefit plans, electronically processes point-of-sale claims and manages formularies. It also offers medical information management services, informed decision counseling and specialty pharmaceutical distribution. Since 1992, the company’s revenues have grown 65 percent annually. In 2000, net income was $94.1 million and earnings per share were $2.41, a 36 percent increase over the previous year. It’s listed in the Fortune 500, (prior to a 2-for-1 stock split in June 2001), Forbes Platinum 400 and Barrons 500.

But it wasn’t so long ago that the company was on shaky ground. “When I first got here in 1992, Express Scripts was losing about $3.5 million a year,” Toan says. “There was a real question as to whether we’d survive.”

State By State

After Toan read that impressive New Yorker article, he went on to earn a bachelor’s degree at Kenyon College and a master’s degree at The Wharton School of Finance and Commerce at the University of Pennsylvania. “At that time in the mid-’70s, tax revenues were pretty modest, but demand for services like welfare and Medicaid were growing at a much faster rate. That meant states faced budgetary problems,” Toan says. “So people like me who came out of a business school environment were recruited to help state governors balance the needs for services with limited resources.”

Consequently, after grad school, he worked for Illinois Governor Dan Walker’s Bureau of the Budget for three years, then for the state of Pennsylvania for a year. He went to Washington, D.C. to work for PriceWaterhouse as a consultant to state and local governments, and was assigned to help then Arkansas Attorney General Bill Clinton prepare his first budget as governor, though he hadn’t been elected yet.

“The governor had to submit his two-year budget essentially two weeks after he was elected, which was still about two months before he took office,” Toan explains. So he spent the summer of 1979 in Little Rock working on the budget with Clinton’s campaign staff. After Clinton was elected, he asked Toan to stay on as commissioner of the Division of Social Services. At the end of Clinton’s first (two-year) term, Gov. Kit Bond recruited Toan to become the director of the Missouri Department of Social Services.

“We got a lot done in both states,” he says. Among the legislative accomplishments Toan helped to pass, he lists the Children’s Trust Fund and Parents As Teachers. “We completely rewrote the Medicaid Reimbursement policy and we updated child support statutes,” he adds.

At the end of Bond’s second term, after 10 years in public service and serving as a cabinet officer in two states, Toan says, “it seemed like a good time to try to do something in the private sector.”

Going For Profit

Looking over his service in state government, Toan says he realized, “We had been very successful in enrolling welfare recipients in HMOs and in order to do that we had to create our HMOs to serve the welfare population.”

Based on that experience, he saw opportunity, since there were not many prepaid plans available in Kansas City or St. Louis. At the same time, a group at McDonnell Douglas was looking into starting a prepaid plan in St. Louis. The result was Sanus of Missouri, Inc., later GenCare. Toan served as executive director and chief operating officer from 1985 to 1991, when General American Life Insurance took over the plan and took the company public.

By then, however, Toan was working part time at Express Scripts, the mail pharmacy provider for Sanus members. He had been asked to join the company by its new owners, New York Life Insurance, in 1989. He began working with Express Scripts full time in 1992, in time for its IPO.

“Mail-order pharmacy was in its early days then,” Toan explains. “A few others had tried it but not very successfully and certainly not in the way we think of it today.” What made all the difference was the invention of chronic medications in the late 1970s. “If you just need an antibiotic or a 10- or 30-day supply of something, you should use the local pharmacy. But if you need to take a drug repeatedly for a long time, it begins to make more sense to have those drugs delivered through the mail,” Toan says. “As those drugs became more prevalent, mail order became more realistic. Express Scripts was probably one of the first to do that.”

Time To Redefine

Still, the company was losing millions of dollars a year when Toan arrived, because it takes many years just to break even on mail order. “We did a thorough analysis of how we might be able to continue to stay in business, frankly,” he says. “And that’s where this idea came up of trying to be more than just a mail order company.”

That meant redefining the company as a pharmacy benefit manager, “a group that would help others organize and manage their pharmacy program costs,” Toan explains. “We developed a variety of services to do that, and in retrospect, it was the right thing to do.”

Among other things, Express Scripts quickly developed its network of pharmacies, built its point-of-sale electronic claims system, developed formularies and worked with manufacturers to increase the use of more cost-effective medicines.

“There really weren’t other companies trying to do it quite the way we were,” Toan says. “I think by establishing a variety of programs to position ourselves as benefit managers, we were able to win a lot of new contracts and actually get to the point where we were making money.”

And when the company generated profits, Toan and Express Scripts could then really focus on doing more rigorous planning, to develop products and services to meet the needs of what might be coming down the line,” he says.

Mail & More

Today Express Scripts is the second biggest mail order pharmacy in the U.S., shipping approximately 20 million prescriptions a year with a value of $2.5 billion. But that represents only about 16 percent of the company’s dollar volume, Toan says. About 85 percent of the prescriptions it fills go through the retail networks.

“We decided we needed to balance mail order and retail,” Toan explains. In other words, Express Scripts did not want to alienate retail pharmacies by urging plan members to order prescriptions by mail. “So we created the first, to our knowledge, national program that had uniform pricing for retailers and for mail order in all 50 states,” Toan says. “I think balancing the interests of the retail pharmacies, the patient and the insurer is really the core to our success,” Toan says, “and we began to sell pretty well.”

As a result, the mail order portion of the company is “very important and certainly a big business, but really, what we do is help our clients manage their pharmacy programs,” Toan says. “We’re also developing as many programs as we can around our pharmacy operations.”

Express Scripts now manages a pharmacy program in Canada and is building a dental plan there, too. In the U.S., the company has moved into specialty pharmaceuticals management, where certain drugs are used by limited groups of people with various diseases. Express Scripts distributes the drugs as needed on behalf of the manufacturers.

Specialty pharmacy distribution builds on Express Scripts’ mail order, call center and reimbursement system, among other areas of expertise. “We’re definitely looking for new products and services that have a similar fit,” Toan says.

This kind of strategic thinking apparently is a Toan trait. “He’s able to strategize at a high level of sophistication,” says Stuart Greenbaum, dean of the Olin School of Business at Washington University. “Express Scripts has grown dramatically and been able to weather a few speed bumps, which Barrett has navigated with exquisite adroitness.” Summing up, Greenbaum says, “He’s one of the St. Louis business leaders for whom I have enormous respect on a professional level.”

Style & Substance

It takes more than 5,000 employees to keep Express Scripts operating speed-bump free. Toan gets his messages out to them through direct visits and management communications, video conferencing, web site and intranet postings and e-mail. “But to be honest, it’s something of a challenge,” he says. About half the employees have options in the company. That ownership culture helps create a very open and participative environment, Toan believes.

He travels a lot. In fact, one of his two typical days, he says, is “where I get in a plane in the morning and come home the next day, usually after meeting with a client or maybe an investor.” The other typical day, when he’s in the office, “is usually just one meeting after another after another. But to be honest, I don’t know a better way to manage a company. It’s very important to have direct conversation with the people who do the day-to-day running of the company.”

Besides communicating with his staff and employees, Toan stays in contact with key players throughout the PBM industry. One of the main ways is through Express Scripts’ Outcomes Conference. The fifth annual one was held in June and attracted approximately 1,000 clients and pharmacy industry constituents. “Pharmacy is the most used benefit,” Toan explains. “So we analyze our extensive database and present our research to our clients, so they can understand the trends and challenges.”

The conference is the most widely attended in the industry, Toan believes. “It sets us apart as far as our vision of what this type of organization can be.”

Toan also helps determine the vision of other organizations by serving on their boards of directors. These include U.S. Cellular, Olin School of Business, Missouri Historical Society, Mentor St. Louis and Kenyon College.

Kenyon’s president, Robert Oden, tells this story: “On three occasions last year, board members were trying to find a solution to a problem. Each time Barrett pointed out, we haven’t defined the problem. When he redefined it, we said, Of course! I strongly suspect that’s what he’s done at Express Scripts.”

Toan is a member of the RCGA’s Investor’s Council and Leadership Circle, and active in the education initiative. He describes his hopes for the region as simple, medium term and long term.

Simple: “Build access from the Arch to downtown.” Medium term: “I think what St. Louis 2004 has done with the parks and trails initiative, which Express Scripts supports, is just wonderful and I’d very much like to see that program be successful.” Long term: “The most important thing is to make the region successful in plant sciences. I’d like to see venture capital funds and small, entrepreneurial enterprises take advantage of developments in plant genome science.”

Away from it all, Toan reads. “Anything well written, modern fiction, but a lot of non-fiction, too. A lot of history and literature,” he says.

He’s been married for 24 years to his wife, Polly, whom he met in Illinois state government. She’s president of St. Louis CASA, a board member and past board president of New City School, where their daughter is in sixth grade. Their son is a sophomore at Whitfield High School.

Have things turned out the way he expected? “No! Absolutely not,” Toan says. “In terms of Express Scripts, this company is more successful than any of us ever imagined it would be, not that we didn’t work hard to make it happen.” He concludes, “Life is full of surprises and fortunately, in my case, most of them have been pretty positive.”

Pam Droog is a St. Louis-based free-lance writer.



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