Mail Order Pharmacies
DOD's Use of VA's Mail Pharmacy Could Produce Savings and Other Benefits Gao ID: GAO-05-555 June 22, 2005There has been long-standing congressional interest in whether the Department of Defense (DOD) could use the Department of Veterans Affairs (VA) Consolidated Mail Outpatient Pharmacy (CMOP) system as a cost-effective alternative to beneficiaries picking up outpatient refill prescriptions at DOD military treatment facilities (MTF). To evaluate this possibility, DOD and VA conducted a pilot program in fiscal year 2003 in which a VA CMOP provided outpatient pharmaceutical refill services to DOD beneficiaries served through three MTFs. GAO was asked to estimate cost savings that could be achieved if DOD used VA's CMOP instead of MTF pharmacies for outpatient refill prescriptions, and what other benefits were achieved at the three pilot sites. To estimate potential cost savings and determine what other benefits were achieved, GAO reviewed pilot and pharmacy program documentation and interviewed DOD and VA officials responsible for purchasing and dispensing drugs. GAO also compared drug and administrative costs of dispensing outpatient refills through the fiscal year 2003 pilot program with the costs of dispensing the refills at the three DOD MTFs that participated in the pilot.
DOD could achieve savings if it used VA's CMOP to dispense its outpatient refill prescriptions by taking advantage of VA's generally lower drug prices. Based on the drugs dispensed through the pilot, GAO estimated that the three MTFs that participated in the CMOP pilot program in fiscal year 2003 could have saved about $1.39 per prescription in drug costs, or a total of about $1.5 million, if the MTFs moved all their refill prescriptions to the CMOP. However, while DOD saved money on drug costs at the pilot MTFs, these savings were offset because DOD paid administrative costs for refill operations twice--first to pay VA for the administrative costs charged by the CMOP and second to maintain outpatient pharmacy refill operations at the MTFs. Consequently, achieving savings would require closing MTF outpatient pharmacy refill operations to offset CMOP administrative expenses. In addition to demonstrating that financial savings are possible, the pilot produced nonmonetary benefits. MTF officials reported benefits such as reduced automobile traffic congestion and shorter pharmacy waiting times because many civilian beneficiaries at the pilot sites no longer came to MTFs to pick up refill prescriptions. Further, DOD beneficiaries who participated in the pilot program reported satisfaction with the CMOP's accurate and timely distribution of pharmaceuticals. There are other potential cost implications for DOD if it decides to close MTF outpatient refill pharmacies and move the workload to the VA CMOP. Because DOD beneficiaries are allowed to choose among various options for obtaining drugs, they would be able to obtain their drugs from retail pharmacies and DOD's mail order pharmacy instead of the CMOP. These options, however, are more costly for DOD than having beneficiaries obtain their drugs from the CMOP. Consequently, if DOD closes the outpatient refill pharmacies at the pilot sites with the expectation that beneficiaries would use the CMOP and they did not, DOD's costs could increase. Any cost increases will challenge DOD to find more efficient ways to manage its pharmacy benefits program, such as by encouraging beneficiaries to choose the most cost-effective options for where they obtain their drugs. We provided a draft of this report to VA and DOD for comment. VA said that it concurred with the draft report and DOD said that it was technically accurate but neither explicitly concurred nor nonconcurred.
GAO-05-555, Mail Order Pharmacies: DOD's Use of VA's Mail Pharmacy Could Produce Savings and Other Benefits
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Report to the Chairman, Subcommittee on Oversight and Investigations,
Committee on Veterans' Affairs, House of Representatives:
United States Government Accountability Office:
GAO:
June 2005:
Mail Order Pharmacies:
DOD's Use of VA's Mail Pharmacy Could Produce Savings and Other
Benefits:
GAO-05-555:
GAO Highlights:
Highlights of GAO-05-555, a report to the Chairman, Subcommittee on
Oversight and Investigations, Committee on Veterans‘ Affairs, House of
Representatives:
Why GAO Did This Study:
There has been long-standing congressional interest in whether the
Department of Defense (DOD) could use the Department of Veterans
Affairs (VA) Consolidated Mail Outpatient Pharmacy (CMOP) system as a
cost-effective alternative to beneficiaries picking up outpatient
refill prescriptions at DOD military treatment facilities (MTF). To
evaluate this possibility, DOD and VA conducted a pilot program in
fiscal year 2003 in which a VA CMOP provided outpatient pharmaceutical
refill services to DOD beneficiaries served through three MTFs. GAO was
asked to estimate cost savings that could be achieved if DOD used VA‘s
CMOP instead of MTF pharmacies for outpatient refill prescriptions, and
what other benefits were achieved at the three pilot sites.
To estimate potential cost savings and determine what other benefits
were achieved, GAO reviewed pilot and pharmacy program documentation
and interviewed DOD and VA officials responsible for purchasing and
dispensing drugs. GAO also compared drug and administrative costs of
dispensing outpatient refills through the fiscal year 2003 pilot
program with the costs of dispensing the refills at the three DOD MTFs
that participated in the pilot.
What GAO Found:
DOD could achieve savings if it used VA‘s CMOP to dispense its
outpatient refill prescriptions by taking advantage of VA‘s generally
lower drug prices. Based on the drugs dispensed through the pilot, GAO
estimated that the three MTFs that participated in the CMOP pilot
program in fiscal year 2003 could have saved about $1.39 per
prescription in drug costs, or a total of about $1.5 million, if the
MTFs moved all their refill prescriptions to the CMOP. However, while
DOD saved money on drug costs at the pilot MTFs, these savings were
offset because DOD paid administrative costs for refill operations
twice”first to pay VA for the administrative costs charged by the CMOP
and second to maintain outpatient pharmacy refill operations at the
MTFs. Consequently, achieving savings would require closing MTF
outpatient pharmacy refill operations to offset CMOP administrative
expenses.
In addition to demonstrating that financial savings are possible, the
pilot produced nonmonetary benefits. MTF officials reported benefits
such as reduced automobile traffic congestion and shorter pharmacy
waiting times because many civilian beneficiaries at the pilot sites no
longer came to MTFs to pick up refill prescriptions. Further, DOD
beneficiaries who participated in the pilot program reported
satisfaction with the CMOP‘s accurate and timely distribution of
pharmaceuticals.
There are other potential cost implications for DOD if it decides to
close MTF outpatient refill pharmacies and move the workload to the VA
CMOP. Because DOD beneficiaries are allowed to choose among various
options for obtaining drugs, they would be able to obtain their drugs
from retail pharmacies and DOD‘s mail order pharmacy instead of the
CMOP. These options, however, are more costly for DOD than having
beneficiaries obtain their drugs from the CMOP. Consequently, if DOD
closes the outpatient refill pharmacies at the pilot sites with the
expectation that beneficiaries would use the CMOP and they did not,
DOD‘s costs could increase. Any cost increases will challenge DOD to
find more efficient ways to manage its pharmacy benefits program, such
as by encouraging beneficiaries to choose the most cost-effective
options for where they obtain their drugs.
We provided a draft of this report to VA and DOD for comment. VA said
that it concurred with the draft report and DOD said that it was
technically accurate but neither explicitly concurred nor nonconcurred.
What GAO Recommends:
www.gao.gov/cgi-bin/getrpt?GAO-05-555.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Cynthia A. Bascetta at
(202) 512-7101.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD Could Realize Financial Savings and Nonmonetary Benefits by Using
VA's CMOP:
Concluding Observations:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Average Drug Prices Included in Cost Comparison, June
2004:
Appendix III: Components of Administrative Costs:
Appendix IV: Services and Costs of VA's CMOP and DOD's TRICARE Mail
Order Pharmacy:
Appendix V: Comments from the Department of Veterans Affairs:
Appendix VI: Comments from the Department of Defense:
Tables:
Table 1: Copayments for DOD Civilian Beneficiaries:
Table 2: DOD Outpatient Prescription Drug Costs, Fiscal Year 2004:
Table 3: MTF Outpatient Refills, Fiscal Year 2003:
Table 4: Estimated Annual Administrative Cost for MTF Outpatient Refill
Operations:
Table 5: Average Administrative Cost Per Prescription for VA CMOP,
Fiscal Years 2003 and 2004:
Figures:
Figure 1: Number of Outpatient Pharmacy Benefit Users, July 2001
through September 2004:
Figure 2: Components of Final DOD and VA Drug Prices as of June 2004:
Abbreviations:
CMOP: Consolidated Mail Outpatient Pharmacy:
DOD: Department of Defense:
FSS: federal supply schedule:
MHS: military health system:
MTF: military treatment facility:
PDTS: pharmacy data transaction service:
POS: point of service:
TMA: TRICARE Management Activity:
VA: Department of Veterans Affairs:
United States Government Accountability Office:
Washington, DC 20548:
June 22, 2005:
The Honorable Michael Bilirakis:
Chairman:
Subcommittee on Oversight and Investigations:
Committee on Veterans' Affairs:
House of Representatives:
Dear Mr. Chairman:
In fiscal year 2004, the Department of Defense (DOD) dispensed over 100
million prescriptions to about 6 million health care
beneficiaries.[Footnote 1] These beneficiaries picked up their drugs at
military treatment facilities (MTF) or at retail pharmacies, or had
them delivered through DOD's mail order program. About 19 million of
the prescriptions were refill prescriptions that were dispensed at MTF
outpatient pharmacies. These drugs cost DOD about $840 million. During
that year, active duty military personnel and their dependents[Footnote
2] accounted for 14 percent of MTF 30-day outpatient refill
prescriptions; 85 percent were for civilians, mainly retired military
personnel and their dependents.[Footnote 3]
While DOD dispenses most prescriptions at MTFs, the Department of
Veterans Affairs (VA) uses a different approach to dispense
prescriptions for its beneficiaries. It dispenses most of its
prescriptions through a system of seven Consolidated Mail Outpatient
Pharmacies (CMOP) that mail prescriptions to VA beneficiaries. There
has been long-standing congressional interest in whether VA's CMOP
could be a cost effective alternative for DOD beneficiaries instead of
picking up outpatient refill prescriptions at MTFs.[Footnote 4] Due, in
part, to this congressional interest, DOD and VA conducted a pilot
program during fiscal year 2003 to determine the feasibility of using
one CMOP to provide outpatient pharmacy refill services free of charge
to DOD beneficiaries who received prescriptions at three participating
MTFs. You asked us to report on the results of the pilot program,
specifically, what estimated cost savings could be achieved if DOD used
VA's CMOP instead of MTF pharmacies for outpatient refill
prescriptions, and what other benefits were achieved at the three pilot
sites.
To estimate potential cost savings and determine what other benefits
were achieved, we reviewed pilot and pharmacy program documentation and
interviewed DOD and VA officials responsible for purchasing and
dispensing drugs, including officials from the VA CMOP located in
Leavenworth, Kansas, and each of the three DOD MTFs involved in the
pilot--Darnall Army Community Hospital, Fort Hood, Texas (Fort Hood);
the 377th Medical Group, Kirtland Air Force Base, New Mexico
(Kirtland); and the Naval Medical Center San Diego, San Diego,
California (San Diego). (See app. I for more information on our scope
and methodology.) To assess the costs of the pilot, we considered two
types of costs at each location--the costs of the drugs themselves and
the administrative costs of dispensing them. For drug costs, we
compared the costs of the drugs at the CMOP with the costs at the three
MTFs. To make this comparison, we identified 90 of the drugs with the
highest total costs out of the 1,397 drugs dispensed by the CMOP
through the pilot. The 90 drugs that we included in our comparison
accounted for 65 percent of total drug costs for the pilot program
($15.6 million), while the remaining drugs dispensed during the pilot
accounted for 35 percent of total drug costs. To compare VA's costs
with DOD's costs for the 90 drugs, we obtained the prices that the CMOP
and MTFs paid for the drugs in June 2004 (see app. II) and applied
these prices to the quantity of each drug dispensed during the pilot.
To estimate costs for the remaining drugs dispensed during the pilot,
we collected information on general differences in DOD and VA pricing
that applies to all drugs. We combined estimated savings from the 90
drugs in our analysis and the remaining drugs to determine an estimate
of drug cost savings during the pilot. During the pilot program,
beneficiaries chose to have the CMOP fill a combined 47 percent of the
prescription refills that usually would have been handled at the three
pilot MTFs. To estimate the potential for savings if all prescription
refills from the pilot MTFs were dispensed by the CMOP, we multiplied
the savings per prescription estimated from the drugs dispensed through
the pilot by the total number of refill prescriptions from the three
pilot MTFs in fiscal year 2003--including those dispensed through the
CMOP and those dispensed at the MTFs. For administrative costs, we
collected information on the costs of personnel, equipment, supplies,
and other aspects of dispensing outpatient refill prescriptions at the
MTFs and compared them to the administrative cost of dispensing
prescriptions through the CMOP. (See app. III.) We also compared the
costs and services of the CMOP program with DOD's mail order program,
the TRICARE Mail Order Pharmacy. (See app. IV.) To assess the
reliability of DOD and VA data, we interviewed agency officials and
tested the data for errors. We determined that the data were
sufficiently reliable for our purposes. We conducted our work from
April 2004 through May 2005 in accordance with generally accepted
government auditing standards.
Results in Brief:
DOD could achieve savings if it used VA's CMOP to dispense its
outpatient pharmacy refill prescriptions by taking advantage of VA's
generally lower drug prices. VA's prices for the 90 drugs in our cost
comparison were generally lower than DOD's prices for the same drugs,
based on June 2004 prices for the drugs dispensed during the pilot in
fiscal year 2003. Using the estimated differences in price for the
1,397 drugs dispensed through the pilot, we estimate that the three
pilot MTFs saved approximately $646,000, or about $1.39 per
prescription, in fiscal year 2003. If these MTFs had fully utilized the
pilot for all their outpatient refill prescriptions dispensed during
fiscal year 2003--including those dispensed through the CMOP and those
dispensed at the MTFs--savings could have been higher, potentially
totaling $1.5 million if the MTFs achieved the same savings per
prescription ($1.39) as estimated for the pilot. Additional drug cost
savings would also be possible if the CMOP was made aware of and was
able to use lower prices that DOD has negotiated for some drugs.
However, while DOD saved money on drug costs at the pilot MTFs, these
savings were offset because DOD paid administrative costs for refill
operations twice--first to pay VA for the administrative costs charged
by the CMOP and second to maintain outpatient pharmacy refill
operations at the MTFs. Consequently, to realize savings from the cost
of drugs, DOD would have to close its MTF outpatient pharmacy refill
operations, as most of the MTFs' dispensing costs are for personnel and
equipment. In addition to demonstrating the potential for financial
savings, the pilot produced nonmonetary benefits. For example, DOD
beneficiaries who participated in the pilot program reported
satisfaction with the CMOP's accurate and timely distribution of drugs.
MTF officials reported benefits such as reduced automobile traffic
congestion and shorter pharmacy waiting times because many civilian
beneficiaries at the pilot sites no longer came to MTFs to pick up
refill prescriptions. In addition, according to DOD officials, using
the CMOP could allow military personnel to focus primarily on DOD's
core mission to provide services for active duty beneficiaries and
their families at the MTFs, consistent with DOD's goal to support
military readiness.
We provided a draft of this report to DOD and VA for comment. VA said
that it concurred with the draft report, and DOD said that it was
technically accurate but neither explicitly concurred nor nonconcurred.
DOD also included technical comments that we incorporated where
appropriate. In addition, DOD raised some concerns with the information
presented in the draft report such as the amount of refunds DOD expects
to receive from drug manufacturers. We believe the information in our
report supports the presentation of our findings.
Background:
DOD's beneficiaries have four options for obtaining prescription drugs.
They can pick them up directly from MTFs, network retail pharmacies, or
nonnetwork retail pharmacies. They can also receive them in the mail
through DOD's TRICARE Mail Order Pharmacy. DOD operates 536 pharmacies
at 121 of its MTFs. Each MTF may have multiple pharmacies. For example,
San Diego maintains satellite pharmacies at several locations in
addition to its main pharmacy, which has a separate section that
dispenses outpatient refill prescriptions. Fort Hood and Kirtland each
maintain a separate pharmacy to dispense outpatient refill
prescriptions, and Fort Hood maintains several satellite pharmacies at
health care clinics. In addition to pharmacies at its MTFs, DOD
contracts with Express Scripts, Inc., a private pharmacy benefits
management company, to operate DOD's retail pharmacy program and its
TRICARE Mail Order Pharmacy. For the retail system, Express Scripts has
a network of over 54,000 retail pharmacies where DOD beneficiaries can
pick up prescriptions; beneficiaries can also utilize nonnetwork
pharmacies, that is, any retail pharmacy not in Express Scripts'
network. For the TRICARE Mail Order Pharmacy, beneficiaries submit
their prescriptions to Express Scripts, which dispenses and mails the
drugs directly to the beneficiary. Civilian beneficiaries pay
copayments for drugs obtained through the mail or at retail pharmacies,
but do not pay at MTFs. (See table 1.) Active duty service members do
not pay copayments.
Table 1: Copayments for DOD Civilian Beneficiaries:
Delivery option: Military treatment facility;
Copayment: None;
Supply: Up to 90 days.
Delivery option: Retail network pharmacy;
Copayment: $3 generic; $9 brand;
Supply: Up to 30 days.
Delivery option: Retail nonnetwork pharmacy;
Copayment: Greater of $9 or 20 percent of total cost;
Supply: Up to 30 days.
Delivery option: TRICARE Mail Order Pharmacy;
Copayment: $3 generic; $9 brand;
Supply: Up to 90 days.
Source: DOD.
Note: Active duty service members do not pay copayments. For retail
pharmacies and the TRICARE Mail Order Pharmacy, DOD has established a
new copayment of $22 per prescription for drugs designated "non-
formulary." For nonnetwork retail pharmacies, the copayment is the
greater of $22 or 20 percent of total cost. As of April 27, 2005, DOD
had designated three non-formulary drugs that are subject to the
copayment. According to DOD officials, drugs that are designated "non-
formulary" are not available at MTFs.
[End of table]
For most drugs, all four options are available to DOD beneficiaries
regardless of where they obtain health care services. For example, a
beneficiary can obtain a prescription from a private or military
physician and then choose to have the prescription filled at an MTF, a
network or nonnetwork retail pharmacy, or the TRICARE Mail Order
Pharmacy. However, DOD's cost differs considerably depending on the
delivery option the beneficiary chooses. (See table 2.)
Table 2: DOD Outpatient Prescription Drug Costs, Fiscal Year 2004:
Delivery option: MTF pharmacies;
Cost to DOD: $1,703,728,991[A];
Number of 30-day prescriptions: 78,572,443;
Average DOD cost per 30-day prescription: $21.68.
Delivery option: Network and nonnetwork retail pharmacies;
Cost to DOD: $2,430,383,288[B];
Number of 30-day prescriptions: 39,879,525;
Average DOD cost per 30-day prescription: $60.94.
Delivery option: TRICARE Mail Order Pharmacy;
Cost to DOD: $546,040,968[B];
Number of 30-day prescriptions: 16,890,727;
Average DOD cost per 30-day prescription: $32.33.
Source: DOD.
[A] Includes only drug costs because beneficiaries at MTFs are not
subject to copayments and because DOD generally does not separate
administrative costs related to dispensing prescriptions from other
administrative costs at its MTFs.
[B] DOD's drug costs after adjusting for administrative fees and
beneficiary copayments.
[End of table]
DOD's average cost per 30-day prescription varies among the delivery
options for a number of reasons, including differences in the price of
drugs dispensed in each system, copayments, and administrative costs of
dispensing the drugs. For example, DOD does not receive federal
discounts when beneficiaries obtain drugs through retail pharmacies, so
DOD's costs for purchases at retail pharmacies are generally higher
than at MTFs or through the TRICARE Mail Order Pharmacy.[Footnote 5]
The administrative cost of dispensing drugs is not included in the MTF
costs, but according to DOD officials, MTFs remain the least expensive
of the three systems. However, an increasing number of DOD
beneficiaries have chosen in recent years to use retail pharmacies (see
fig. 1), which is DOD's most expensive delivery option.
Figure 1: Number of Outpatient Pharmacy Benefit Users, July 2001
through September 2004:
[See PDF for image]
Note: This figure shows which of the three points of service (POS) for
drugs in the military health system (MHS)--MTF, Retail, and DOD's
TRICARE Mail Order Pharmacy--that beneficiaries chose to use from
fiscal years 2001 through 2004. The MHS has three missions: (1)
maintaining the health of active-duty service personnel; (2) medically
supporting military operations; and (3) providing care to the
dependents of active duty personnel, retirees and their families, as
well as to survivors and their dependents. The information in the
figure was compiled by DOD from its pharmacy data transaction service
(PDTS).
[End of figure]
VA CMOP:
As part of its pharmacy system, VA operates a mail pharmacy program,
the CMOP, which uses automated equipment to dispense and mail
prescriptions to beneficiaries. VA operates seven CMOP facilities,
which dispensed about 88 million prescriptions in fiscal year 2004. In
that year, CMOP facilities dispensed 76 percent of all VA
prescriptions, including over 95 percent of refill prescriptions. Most
of the remaining prescriptions were dispensed through pharmacies at
VA's hospitals and clinics. VA beneficiaries generally do not have the
option to obtain prescriptions at retail pharmacies.
DOD and VA Drug Procurement Practices:
DOD and VA have a number of drug procurement options available to them
that can result in differences in drug prices. For example, DOD and VA
have access to discounted drug prices through the federal supply
schedule (FSS). The FSS is maintained by VA's National Acquisition
Center and is available to all federal purchasers. All FSS prices,
regardless of which federal agency purchases the drug, include a fee of
0.5 percent of the price to fund the National Acquisition Center's
activities. DOD and VA also have access to federal ceiling prices,
which are mandated by law to be 24 percent lower than nonfederal
average manufacturer prices.[Footnote 6] For some drugs, DOD and VA
negotiate, through national contracts or other agreements, prices that
are even lower than FSS or federal ceiling prices. Generally, DOD and
VA negotiate these contracts and agreements jointly, in which case they
both pay the same price for the drug. However, when VA or DOD
negotiates contracts and agreements separately, the two agencies may
pay different prices for the same drug. In a few cases, individual VA
medical centers or DOD MTFs have obtained lower prices through local
purchase agreements with manufacturers than they could have through the
national contracts, FSS, or federal ceiling prices. Differences in DOD
and VA prices can also occur when the departments order the same drug
in different package sizes or from different manufacturers.
Two other factors account for the departments paying different prices
for the same drugs. First, both DOD and VA use prime vendors, which are
drug distributors, to purchase drugs from manufacturers and deliver
them to DOD or VA facilities. As of June 2004, VA used one prime
vendor, while DOD used five prime vendors, each one servicing different
geographic areas. Both departments receive discounts from their prime
vendors that further reduce the prices that DOD and VA pay for drugs.
For DOD, the discounts vary among prime vendors and the areas they
serve.[Footnote 7] As of June 2004, VA's prime vendor discount was 5
percent, while DOD's discounts averaged about 2.9 percent within the
United States. Discounts from the prime vendors serving the three pilot
MTFs averaged about 3 percent. Second, the price of drugs purchased
directly by DOD facilities or the TRICARE Mail Order Pharmacy included
a 1.7 percent fee to fund the Defense Supply Center's
activities.[Footnote 8] Figure 2 shows the various components of DOD
and VA drug prices.
Figure 2: Components of Final DOD and VA Drug Prices as of June 2004:
[See PDF for image]
[A] Differences in price also occur when the departments order the same
drug in different package sizes or from different manufacturers, or
when individual facilities use local purchase agreements.
[B] Discounts from the prime vendors serving the three pilot MTFs
averaged about 3 percent.
[End of figure]
Pilot Program for DOD Use of VA's CMOP:
During fiscal year 2003, DOD and VA conducted a pilot program to assess
the feasibility of dispensing outpatient refill prescriptions for DOD
beneficiaries using a VA CMOP. Under the program, the CMOP in
Leavenworth, Kansas, dispensed prescriptions for three DOD MTFs--Fort
Hood, Kirtland, and San Diego. Using automated phone systems for
ordering prescription refills--already in place at the three pilot
MTFs--beneficiaries chose whether to have each prescription refilled at
the CMOP or at the MTF. Once a beneficiary chose the option to have the
CMOP dispense a refill, the prescription was electronically transmitted
from the MTF to the CMOP. The CMOP then purchased drugs--or used drugs
already in inventory--to dispense each prescription. The CMOP mailed
each refill prescription directly to the beneficiary. After sending the
refill prescription, the CMOP sent a report of its activity back to the
MTF, which maintained responsibility for patient care.
During the pilot program, the VA CMOP distributed only prescription
refills--no original prescriptions and no controlled substances--to DOD
beneficiaries, although the CMOP routinely dispenses them for VA
beneficiaries. The TRICARE Management Activity (TMA)[Footnote 9] paid
both drug and administrative costs of the pilot program to VA during
fiscal year 2003. DOD beneficiaries did not pay a copayment or any
other charge for the drugs they received from the CMOP, the same as if
they had obtained the drugs at an MTF.
As of April 2005, two of the three MTFs, San Diego and Kirtland,
continued to have prescriptions filled through the VA CMOP. Fort Hood
ended its CMOP participation at the end of fiscal year 2003 when TMA
informed the three MTFs that it would not fund administrative or drug
costs for CMOP-dispensed drugs in fiscal year 2004. TMA later decided
to pay administrative costs, so, for fiscal year 2004, San Diego and
Kirtland paid only drug costs.
In fiscal year 2003, during the pilot program, beneficiaries chose to
have the VA CMOP fill a combined 47 percent of the prescription refills
that usually would have been handled at the three pilot site MTFs. In
fiscal year 2004 at San Diego and Kirtland, the two sites that
continued CMOP participation, beneficiaries chose to have the CMOP fill
a combined 65 percent of the outpatient pharmacy refill prescriptions.
The remaining outpatient refill prescriptions were dispensed by MTF
pharmacies.
DOD Could Realize Financial Savings and Nonmonetary Benefits by Using
VA's CMOP:
DOD could achieve savings by taking advantage of VA's generally lower
drug prices if it used the VA CMOP to dispense its outpatient pharmacy
refill prescriptions. Estimated savings from the 90 drugs included in
our price comparison plus estimated savings from the other drugs
dispensed in the pilot during fiscal year 2003 total $646,000, or about
$1.39 per prescription. Additional savings would also be possible if
the CMOP were made aware of and used lower prices that DOD has
negotiated for some drugs. However, achieving savings would require
closing MTF outpatient pharmacy refill operations to offset CMOP
administrative expenses. In addition to demonstrating that financial
savings are possible, the pilot produced nonmonetary benefits such as
providing high-quality service as indicated by measurements of
beneficiary satisfaction and rates of accurate and timely distribution
of drugs, reducing automobile traffic congestion and pharmacy wait
times, and freeing DOD resources for its core mission of supporting
military readiness.
DOD Can Save on Drug Costs by Using the CMOP:
Our analysis showed that June 2004 VA CMOP drug prices were generally
lower than prices at the DOD MTFs. Based on the differences in drug
prices that existed in June 2004, we estimate that for these 90 drugs
the three pilot sites produced savings during fiscal year 2003 for DOD
of about $437,000, or about 4 percent. For these drugs, the estimated
savings averaged $2.74 per prescription. We estimated these savings by
comparing the June 2004 prices that the CMOP and DOD paid for 90 of the
drugs with the highest total costs that were dispensed at Fort Hood,
Kirtland, and San Diego by the CMOP during the fiscal year 2003 pilot
program. (See app. I for the methodology we used to select these drugs.)
These drugs comprised 65 percent of total drug costs in the pilot. We
did not obtain individual prices for the drugs that comprised the
remaining 35 percent of pilot drug expenditures. Therefore, we do not
know what, if any, specific differences exist in DOD's and VA's prices
for these drugs. However, general differences in DOD and VA drug
purchasing apply to all the drugs. As of June 2004, VA received a 5
percent price discount from its prime vendor, and the three pilot MTFs
received price discounts averaging 3 percent from their prime vendors.
In addition, DOD's Defense Supply Center charged a fee of 1.7 percent
for MTF drug purchases. These differences amount to VA's drug prices
being about 3.7 percent lower than DOD's. Applying a 3.7 percent
reduction to the remaining 35 percent of drug expenditures yields
overall estimated savings of about $209,000, which amounts to $0.69 per
prescription for the drugs in the pilot that were not included in our
analysis.
We estimate that the combined savings from the 90 drugs and the other
drugs dispensed through the pilot in fiscal year 2003 total $646,000,
making VA's total drug costs during the pilot approximately 3.9 percent
less than DOD costs, or approximately $1.39 less per prescription. If
the three MTFs had been able to achieve the same savings per
prescription and had fully utilized the pilot for all their outpatient
refill prescriptions in fiscal year 2003--including those dispensed
through the CMOP and those dispensed at the MTFs--drug cost savings
during fiscal year 2003 could have been about $1.5 million.
DOD could have realized even greater savings if the VA CMOP were made
aware of and used DOD's lower negotiated price for some drugs. About 15
percent of the prices for the 90 drugs in our price comparison were
more expensive for DOD MTFs when purchased through the VA than if they
had been acquired through DOD purchase agreements. For example, MTFs
involved in the pilot paid an average of $0.64 in June 2004 for each 30
mg capsule of lansoprazole, a drug that stops production of stomach
acid and is prescribed for conditions such as gastroesophageal reflux
disease, based on an agreement with the drug's manufacturer. When
ordering through the CMOP, however, the pilot sites paid a higher price
for lansoprazole--$1.77 per capsule in June 2004--which was based on
the FSS price. DOD could obtain the lower prices it has negotiated,
according to CMOP officials, if the MTFs ordered these drugs through
their prime vendors at DOD prices and had them delivered to the CMOP
for distribution to DOD patients. Another way to achieve lower drug
prices, they said, would be for MTFs to obtain rebates from drug
manufacturers for the difference between the CMOP price and the lower
DOD price. For example, San Diego began to use this process in fiscal
year 2004. Officials at the MTF expect to receive rebates from drug
manufacturers of over $300,000 for drugs purchased during the first
quarter of fiscal year 2005. Based on our comparison of June 2004 drug
prices for the 90 drugs in our analysis, we estimate that if DOD's
lower prices had applied to the 15 percent of those drugs with lower
prices at the MTFs than at the CMOP--either by MTFs having the drugs
delivered to the CMOP through their prime vendors or obtaining rebates
from drug manufacturers--DOD would have saved an additional $500,000 in
drug costs during fiscal year 2003.
Cost Savings Depend on Closing MTF Outpatient Refill Operations:
Since DOD beneficiaries chose to use the VA CMOP for 47 percent of
their outpatient refill prescriptions in fiscal year 2003, the MTFs'
refill workload was not eliminated. For example, the three MTFs
dispensed about 79,000 refill prescriptions in September 2002, the
month before the pilot began, and dispensed about 37,000 prescriptions
in September 2003, during the pilot. The outpatient refill workload
that remained at the MTFs required that the MTF outpatient pharmacy
refill operations remain open and maintain personnel and equipment to
dispense refills. Because most of the MTFs' costs of dispensing refills
are for personnel and equipment, according to officials at the three
MTFs, the decreased workload did not lead to a proportional decrease in
costs.
For dispensing drugs through the VA CMOP during the pilot, DOD agreed
to pay the CMOP's average administrative cost, which includes the cost
to mail prescriptions to beneficiaries. Because of a change in the way
the CMOP computed administrative costs in fiscal year 2003, DOD paid VA
$2.36 prior to July 2003 and $2.27 from July 2003 to the end of the
fiscal year, on average per prescription to cover these costs.[Footnote
10] These costs include VA's average administrative costs to fill each
prescription of $1.34 prior to July 2003 and $1.24 from July 2003 to
the end of the fiscal year, plus mailing costs of $1.02 and $1.03,
respectively. We estimate that DOD's administrative costs at the three
MTFs were about $2.31 per refill prescription--roughly equal to the
administrative costs of obtaining refill prescriptions through the CMOP
and mailing them to beneficiaries.[Footnote 11] Consequently, closing
MTF outpatient pharmacy refill operations would offset CMOP
administrative expenses and yield drug cost savings for DOD from its
use of the CMOP.[Footnote 12] (See app. III for a calculation of DOD's
and VA's administrative cost.)
Use of CMOP Provided Nonmonetary Benefits to DOD:
The pilot also produced nonmonetary benefits. Based on VA's
measurements of beneficiary satisfaction and rates of prescription
accuracy and timeliness, the VA CMOP provided high-quality service to
DOD beneficiaries. However, because the pilot MTFs and the CMOP used
different methods for measuring accuracy and because DOD did not
conduct satisfaction and timeliness surveys for the three pilot MTFs,
we could not make a meaningful comparison between the two dispensing
options.
Regarding the VA CMOP's performance for fiscal year 2003, 97 percent of
DOD beneficiaries surveyed by VA rated their overall satisfaction with
the services it provided as excellent or very good. This rate is even
higher than the 91 percent of surveyed VA patients who rated the CMOP's
performance as excellent or very good in that year. In addition, for
fiscal year 2003, the CMOP reported that more than 99.9 percent of its
prescriptions were accurately dispensed, meaning that beneficiaries
received the correct medications in the correct amounts, with no damage
or labeling problems. Finally, the CMOP was able to deliver drugs to
DOD beneficiaries on average in 3.5 days from the time the prescription
was requested to the time it was received by the patient. To put VA's
delivery time in some perspective, a company that has one of the
country's largest private mail order pharmacy operations estimates that
its customers typically receive their mail order refill prescriptions
in 3 to 5 days.
Another benefit, reported by DOD officials, was that use of the VA CMOP
helped reduce the number of civilians coming to military installations.
Because most prescriptions dispensed at MTFs were for civilian retirees
and their dependents (see table 3), using the CMOP to dispense some of
the prescriptions helped reduce facility overcrowding. For example, San
Diego and Fort Hood officials reported less crowding and shorter
waiting times at their MTF pharmacies during the pilot, and San Diego
officials reported less automobile traffic congestion and fewer parking
shortages. In addition, a Fort Hood official reported that after the
CMOP pilot was terminated, lines at the main pharmacy got very long and
beneficiaries had to wait 2 or more hours to have prescriptions
dispensed. Moreover, these officials told us that using the CMOP could
fill a critical need during times of heightened security because
civilian beneficiaries might have difficulty getting onto military
installations to pick up their prescriptions at MTF pharmacies.
Table 3: MTF Outpatient Refills, Fiscal Year 2003:
Beneficiary type: Active duty and their dependents[B];
Number of 30-day prescriptions: 4,302,836;
Percentage of total prescriptions: 12;
Drug cost[A]: $124,063,735;
Percentage of total drug cost: 17%.
Beneficiary type: Retirees and their dependents[C];
Number of 30-day prescriptions: 29,155,884;
Percentage of total prescriptions: 84;
Drug cost[A]: $558,064,896;
Percentage of total drug cost: 78%.
Beneficiary type: Other civilians and their dependents;
Number of 30- day prescriptions: 396,951;
Percentage of total prescriptions: 1;
Drug cost[A]: $8,270,558;
Percentage of total drug cost: 1%.
Beneficiary type: Unknown;
Number of 30-day prescriptions: 780,108;
Percentage of total prescriptions: 2;
Drug cost[A]: $22,575,907;
Percentage of total drug cost: 3%.
Totals;
Number of 30-day prescriptions: 34,635,780;
Percentage of total prescriptions: 100;
Drug cost[A]: $712,975,097;
Percentage of total drug cost: 100%.
Source: DOD.
Note: Columns may not add to totals due to rounding.
[A] These figures include only drug costs; administrative costs of
dispensing drugs are not included.
[B] This category includes service academy students, active duty
beneficiaries who are transitioning from active duty as part of the
Transitional Assistance Management Program, and foreign military
members.
[C] Retirees and dependents are considered civilians.
[End of table]
According to DOD officials, using the VA CMOP could allow DOD pharmacy
staff to focus on DOD's core mission of supporting military readiness
by serving the pharmacy needs of active duty members and their
dependents. They said that the pilot, to the extent that it moved
civilian workload away from MTFs, was consistent with DOD's emphasis on
having military personnel support military readiness. If a greater
percentage of MTFs' workload was moved to the CMOP, then MTFs could
have additional flexibility to focus on military readiness needs. In
addition, DOD officials told us that transferring the outpatient refill
pharmacy workload to the CMOP could help in other ways, such as
allowing the department more flexibility to redeploy pharmacy staff to
clinical services.
Concluding Observations:
The pilot demonstrated that DOD could achieve cost savings at very high
levels of beneficiary satisfaction by delivering drugs to beneficiaries
using the CMOP rather than MTF outpatient refill operations. Additional
cost savings could be realized if the CMOP were made aware of and used
lower prices that DOD had negotiated for some drugs. However, DOD
savings are dependent on closing the refill portion of its MTF pharmacy
operations to avoid paying MTF administrative costs for refills in
addition to administrative costs charged by the VA CMOP. While DOD's
use of the CMOP is a significant opportunity for DOD to achieve savings
and expand its sharing of resources with VA, there are other cost
implications that could become important if MTF refill operations were
closed with the expectation that beneficiaries would use the CMOP.
Specifically, rather than obtaining drugs from the CMOP, beneficiaries
might choose instead to obtain their drugs from a more costly option
for DOD, such as retail pharmacies. Any cost increases will challenge
DOD to find more efficient ways to manage its pharmacy benefits
program, such as by encouraging beneficiaries to choose the most cost-
effective options for where they obtain their drugs.
Agency Comments and Our Evaluation:
We received written comments from DOD and VA on a draft of this report.
VA concurred with our draft report. VA stated that our report would
benefit from a discussion of market pressures that control the cost of
generic drugs. However, these pressures were reflected in our work that
focused on the lowest prices VA and DOD could secure, which included
purchasing generic drugs. VA's written comments are reprinted in
appendix V.
DOD made an overall comment that our report was technically accurate.
It made additional comments that we address below.
One comment concerned our characterization of refunds from drug
manufacturers. During our audit work DOD pharmacy officials told us
that they expect that manufacturer refunds will cover only a small
portion of the difference in cost between retail and MTF prices, and we
included this information in our draft report. However, in its letter
providing the agency's comments, DOD commented that this statement is
inaccurate and misleading, so we removed it from the report.
DOD also commented that the 1.7 percent fee charged on DOD drug
purchases should be considered in the context that it supports DOD's
readiness mission. Specifically, DOD stated that reducing the amount of
drugs upon which the fee is paid would cost DOD "somewhere else" to
support the mission. We disagree, and based on our findings, we believe
that more money would be available for DOD's use by using VA's CMOP.
For example, drugs purchased during the pilot by VA's CMOP were about
3.9 percent less than if they had been purchased by the MTFs.
In addition, DOD stated that it is not correct that DOD would always
realize a savings on the acquisition cost of a drug by using the VA
CMOP. We noted in the draft report that we found VA's prices to be
generally, but not always, lower than DOD's. We noted that in some
cases drugs were more expensive for DOD MTFs when purchased through the
VA than if they had been acquired through DOD purchase agreements, and
that additional cost savings could be realized if the CMOP used these
lower prices that DOD had negotiated for some drugs.
DOD stated that it is unlikely that it could move all refill
prescriptions to the CMOP, and asserted that GAO recommended closing
all MTF refill services and providing them only to active duty members.
However, our report makes no such recommendation. Although cost savings
through the CMOP are dependent on closing MTF outpatient pharmacy
refill operations, we noted in the draft report that MTFs could
continue to dispense outpatient refill prescriptions at MTF main
pharmacies. As noted in the draft report, in fiscal year 2003, during
the pilot program, 47 percent of the prescription refills that usually
would be handled at the three pilot MTFs were dispensed at the CMOP. In
fiscal year 2004 at San Diego and Kirtland, the two sites that
continued CMOP participation, program participation increased as the
CMOP filled 65 percent of the outpatient pharmacy refill prescriptions.
Determining whether to encourage beneficiaries to use the most cost-
effective dispensing method, which would assure that savings are
achieved while continuing to provide high-quality pharmacy service to
beneficiaries, is part of DOD's responsibility to manage its pharmacy
program in a fiscally sound manner.
DOD agreed that the pilot produced other benefits, such as reducing
facility traffic congestion, but further stated that our reference to
"civilian beneficiaries" could be misinterpreted to include
beneficiaries not currently covered, and should be defined as "retiree
beneficiaries." We believe that our use of the term "civilian
beneficiaries" is appropriate because, as DOD's data show, 85 percent
of MTF 30-day outpatient refill prescriptions in both fiscal years 2003
and 2004 were for retirees and their dependents, and other civilians
and their dependents.
DOD also commented that patient choice as a DOD pharmacy benefit is a
lawful entitlement. According to DOD, it cannot mandate DOD
beneficiaries to utilize one option over another, and such a
restriction would require legislative action. We note, however, that
DOD has taken action to influence beneficiary behavior to choose one
option over another option, for example, by increasing copayment
amounts to help it manage the pharmacy benefit and control costs. DOD's
pharmacy benefit regulations state that "the higher cost-share paid for
prescriptions dispensed by a non-network retail pharmacy is established
to encourage the use of the most economical venue to the
government."[Footnote 13] This type of action demonstrates fiscal
responsibility on DOD's part while it strives to provide cost-effective
pharmacy services to its beneficiaries.
Finally, DOD stated that we assumed that current options are more
costly for DOD than having beneficiaries obtain their drugs from the
CMOP, and that this was a subjective conclusion. We based our
conclusion on our finding that the CMOP's drug costs during the pilot
were approximately 3.9 percent lower than the costs for the same drugs
at the three pilot MTFs. In addition, we found that the administrative
costs for dispensing refill prescriptions were about the same at the
MTFs and at the CMOP. And, as noted in the draft report, the CMOP's
drug costs and administrative costs were lower than the drug and
administrative costs for DOD's TRICARE Mail Order Pharmacy.
DOD also included technical comments that we incorporated where
appropriate. DOD's written comments are reprinted in appendix VI.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days from the date of this letter. We will then send copies to
the Secretaries of Veterans Affairs and Defense, and relevant
congressional committees. We will also make copies available upon
request. In addition, the report will be available at no charge on
GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me on (202) 512-7101 or Michael T. Blair, Jr. on (404) 679-
1944. William Simerl and Richard Wade made key contributions to this
report.
Sincerely yours,
Signed by:
Cynthia A. Bascetta:
Director, Health Care:
[End of section]
Appendix I: Scope and Methodology:
To address our objective, we compiled information on the operations of
the Department of Defense (DOD) and the Department of Veterans Affairs
(VA) Consolidated Mail Outpatient Pharmacy (CMOP) pilot program, and we
compared the costs of purchasing and dispensing drugs at the CMOP that
dispensed drugs for the pilot with the costs at the pilot military
treatment facilities (MTF).
To compile information on the pilot program and on related aspects of
DOD's and VA's pharmacy programs, we conducted site visits, reviewed
program documentation, and interviewed DOD and VA officials responsible
for purchasing and dispensing drugs. We interviewed or collected
documentation from:
* officials at the VA CMOP involved in the pilot located in
Leavenworth, Kansas, including the national CMOP director;
* officials at each of the three DOD MTFs involved in the pilot--
Darnall Army Community Hospital, Fort Hood, Texas (Fort Hood); the
377th Medical Group, Kirtland Air Force Base, New Mexico (Kirtland);
and the Naval Medical Center San Diego, San Diego, California (San
Diego);
* DOD pharmacy officials, including the director of DOD pharmacy
programs and pharmacy officials for the Air Force, Army, and Navy;
* officials at DOD's Pharmacoeconomic Center; and:
* officials at VA's National Acquisition Center and DOD's Defense
Supply Center, responsible for procurement of drugs.
To compare the drug costs at the VA CMOP and the participating MTFs, we
selected 90 of the drugs with the highest total expenditures dispensed
through the pilot during fiscal year 2003. These 90 drugs, due to high
volume, high unit cost, or both, comprised about 65 percent of total
drug costs for the pilot. To select drugs for our analysis, we first
identified the 100 drugs with the highest total expenditures dispensed
through the pilot in fiscal year 2003. We then obtained available price
information for June 2004 purchases of these drugs at the CMOP in
Leavenworth, Kansas and the three MTFs that participated in the pilot.
We used June 2004 prices for each drug because DOD and VA officials
told us that June 2004 data were the most reliable data available.
According to the officials, because drugs can have many different
prices throughout the year, obtaining DOD prices that can be accurately
compared to the full range of prices that VA paid for drugs throughout
fiscal year 2003 was not feasible.
We evaluated the quality of the drug pricing data by checking for
missing and inconsistent values and interviewing agency officials,
including those from VA's CMOP, VA's National Acquisition Center, DOD's
Pharmacoeconomic Center, and DOD's Defense Supply Center. Based on
these interviews and on documentation obtained from the officials, we
considered differences between DOD and VA drug prices caused by
separate pricing agreements, differences in prime vendor discounts,
differences in fees to fund drug procurement, differences in drug
package sizes, and, for some drugs, differences in manufacturers.
We eliminated drugs from our analysis in cases where differences in the
prices for them at the various locations could not be explained by
these factors, in cases where DOD officials believed the drug pricing
to be erroneous, or in cases where June 2004 drug pricing was
unavailable. After eliminating these drugs, 90 of our original 100
drugs remained. We also adjusted for differences in DOD and VA unit
measurements to ensure that the unit prices were comparable to each
other.
We estimated VA CMOP drug costs during fiscal year 2003 for each of the
90 drugs by multiplying the CMOP's June 2004 unit price by the number
of units dispensed by the CMOP for each MTF during fiscal year 2003.
Using the same method for costs at the three MTFs--multiplying MTF June
2004 unit prices by the number of units dispensed by the CMOP for each
MTF during fiscal year 2003--we estimated the amount that the three DOD
MTFs would have spent on the same drugs. The difference between VA's
and DOD's total estimated costs for the 90 drugs during fiscal year
2003 is our estimate of savings for these drugs during the pilot. In
cases where no units of a drug were ordered through the pilot by an MTF
during fiscal year 2003, the price of that drug at that location was
not included in our comparison.
We did not obtain individual prices for the drugs that comprise the
remaining 35 percent of pilot drug expenditures. Therefore, we do not
know what, if any, differences exist in the VA's and DOD's prices for
these drugs. For these drugs, we estimated differences in drug prices
as of June 2004 based on differences in prime vendor discounts and the
fee charged by DOD's Defense Supply Center, which are general
differences in DOD and VA drug pricing that apply to all drugs.
To compare the administrative costs of dispensing refill prescriptions
at the CMOP with the costs at MTFs participating in the pilot, we
collected cost information from program officials and evaluated it to
ensure that it was comparable to the costs from the other sites.
Although DOD generally does not separate information on MTF
administrative costs, we were able to obtain this information for
refill prescriptions at the three MTFs. Our cost comparison included
the costs of personnel, equipment, supplies, space, utilities, and
other aspects of refill operations. Although precise cost information
was not always available, we reviewed the information and interviewed
officials at each site to determine that it was sufficiently reliable
for the purposes of our cost comparison.
Because moving refill workload to the CMOP without decreasing fixed
costs could inflate the average MTF administrative cost per
prescription, we used the best available information to estimate the
per prescription administrative costs for dispensing refill
prescriptions at the three DOD MTFs as if the CMOP pilot did not exist.
For Fort Hood, we obtained information on administrative costs for
calendar year 2004 after officials had discontinued use of the CMOP and
reorganized the outpatient refill pharmacy to separate it from the main
pharmacy in January 2004. For Kirtland, we obtained cost information
for fiscal year 2003. Although the pilot was operating during this
time, Kirtland officials indicated that they had not changed any fixed
costs, such as personnel or equipment, due to the pilot. To estimate
the number of refill prescriptions that the Kirtland pharmacy would
have filled if the CMOP pilot had not been operating, we added the
number of outpatient refill prescriptions filled through the CMOP for
Kirtland beneficiaries to the number of outpatient refill prescriptions
dispensed at the Kirtland pharmacy. Because the operating costs for
Kirtland were incurred while the number of MTF prescriptions was lower
due to the CMOP operation, we had to adjust the variable costs to
correspond with the higher number of prescriptions that the MTF would
have dispensed without the CMOP. Therefore, we used the total number of
outpatient refill prescriptions that the Kirtland pharmacy would have
filled if the CMOP pilot had not been operating to estimate variable
costs, such as bottles, labels, and other supplies. We also used this
total number of prescriptions when determining the overall average cost
of dispensing refill prescriptions at the MTFs. San Diego has been
participating in the CMOP program since the start of fiscal year 2003,
and has made changes to its pharmacy operations, such as changes to
staffing, due to CMOP use. To estimate the cost of refill prescriptions
without influence from the CMOP pilot, San Diego officials provided us
with information on costs and the number of refill prescriptions from
fiscal year 2002, before the pilot began operation. Appendix III
contains the information we obtained from the pilot sites and VA to
estimate MTF and CMOP administrative costs.
To compare the VA CMOP with DOD's TRICARE Mail Order Pharmacy, we
interviewed or obtained documentation from officials at VA's CMOP; VA's
National Acquisition Center; DOD's Defense Supply Center; DOD's
Pharmacoeconomic Center; and the TRICARE Mail Order Pharmacy
contractor, Express Scripts, Inc. To compare drug costs between the
CMOP and the TRICARE Mail Order Pharmacy, we selected the 100 drugs
with the highest total costs dispensed during the first year of the
TRICARE Mail Order Pharmacy program (March 2003-February 2004). Next,
we obtained June 2004 prices for these drugs for the CMOP and the
TRICARE Mail Order Pharmacy. We used June 2004 prices for each drug to
ensure comparability since drug prices can vary significantly over
time, and because DOD and VA officials told us that June 2004 data were
the most reliable data available. We eliminated 11 drugs from our
comparison because prices were unavailable or due to inconsistencies in
the data that we could not explain. We compared prices for each of the
remaining 89 drugs, adjusting for differences in VA's and DOD's drug
data, such as unit measurement differences. To estimate annual cost
differences for the drugs in our comparison, we multiplied the June
2004 DOD and VA unit prices by the number of units ordered for each
drug during the first year of the TRICARE Mail Order Pharmacy program,
from March 2003 to February 2004.
We conducted our work from April 2004 through May 2005 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Average Drug Prices Included in Cost Comparison, June
2004:
Drug: accu-chek comfort curve-h test strip;
June 2004 price per unit: VA Leavenworth CMOP: $0.32;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.33.
Drug: albuterol 90mcg/ipratropium 18mcg 200 dose inhaler;
June 2004 price per unit: VA Leavenworth CMOP: $23.91;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$24.18;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$24.35;
June 2004 price per unit: Naval Medical Center San Diego: $24.36.
Drug: alendronate 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.78;
June 2004 price per unit: Naval Medical Center San Diego: $0.80.
Drug: alendronate 35mg;
June 2004 price per unit: VA Leavenworth CMOP: $5.50;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$5.60;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$5.65;
June 2004 price per unit: Naval Medical Center San Diego: $6.84.
Drug: alendronate 70mg;
June 2004 price per unit: VA Leavenworth CMOP: $5.48;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$5.63;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$5.64;
June 2004 price per unit: Naval Medical Center San Diego: $6.19.
Drug: amlodipine besylate 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.23;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.88;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.88;
June 2004 price per unit: Naval Medical Center San Diego: $0.88.
Drug: amlodipine besylate 2.5mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.80;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.83;
June 2004 price per unit: Naval Medical Center San Diego: $0.83.
Drug: amlodipine besylate 5mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.78;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.80;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.81;
June 2004 price per unit: Naval Medical Center San Diego: $0.81.
Drug: anastrozole 1mg;
June 2004 price per unit: VA Leavenworth CMOP: $4.21;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$4.35;
June 2004 price per unit: Naval Medical Center San Diego: $4.38.
Drug: atorvastatin calcium 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.28;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.33;
June 2004 price per unit: Naval Medical Center San Diego: $1.34.
Drug: atorvastatin calcium 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.92;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.99;
June 2004 price per unit: Naval Medical Center San Diego: $2.00.
Drug: atorvastatin calcium 40mg;
June 2004 price per unit: VA Leavenworth CMOP: $2.07;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$2.13;
June 2004 price per unit: Naval Medical Center San Diego: $2.15.
Drug: atorvastatin calcium 80mg;
June 2004 price per unit: VA Leavenworth CMOP: $2.06;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$2.13;
June 2004 price per unit: Naval Medical Center San Diego: $2.14.
Drug: brimonidine tartrate 0.15% solution;
June 2004 price per unit: VA Leavenworth CMOP: $4.01;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$4.10;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$4.13;
June 2004 price per unit: Naval Medical Center San Diego: $4.18.
Drug: bupropion (wellbutrin SR) 150mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.98;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.01;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.02;
June 2004 price per unit: Naval Medical Center San Diego: $1.02.
Drug: carvedilol 25mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.97;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.00;
June 2004 price per unit: Naval Medical Center San Diego: $1.01.
Drug: celecoxib 100mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.91;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.85;
June 2004 price per unit: Naval Medical Center San Diego: $0.94.
Drug: celecoxib 200mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.53;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.59;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.40;
June 2004 price per unit: Naval Medical Center San Diego: $1.60.
Drug: cetirizine HCL 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.92;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.95;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.95;
June 2004 price per unit: Naval Medical Center San Diego: $0.95.
Drug: citalopram hydrobromide 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.18;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.22;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.22;
June 2004 price per unit: Naval Medical Center San Diego: $1.23.
Drug: citalopram hydrobromide 40mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.17;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.22;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.22;
June 2004 price per unit: Naval Medical Center San Diego: $1.23.
Drug: clopidogrel bisulfate 75mg;
June 2004 price per unit: VA Leavenworth CMOP: $2.19;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$2.27;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$2.26;
June 2004 price per unit: Naval Medical Center San Diego: $2.29.
Drug: diltiazem (tiazac) 240mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.03;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.98.
Drug: divalproex 250mg (delayed release);
June 2004 price per unit: VA Leavenworth CMOP: $0.49;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.51;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.54;
June 2004 price per unit: Naval Medical Center San Diego: $0.52.
Drug: donepezil hydrochloride 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $2.20;
June 2004 price per unit: Naval Medical Center San Diego: $2.28.
Drug: donepezil hydrochloride 5mg;
June 2004 price per unit: VA Leavenworth CMOP: $2.20;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$2.27;
June 2004 price per unit: Naval Medical Center San Diego: $2.28.
Drug: efavirenz 600mg;
June 2004 price per unit: VA Leavenworth CMOP: $8.00;
June 2004 price per unit: Naval Medical Center San Diego: $8.32.
Drug: epoetin alfa 10,000 units/ml;
June 2004 price per unit: VA Leavenworth CMOP: $51.97;
June 2004 price per unit: Naval Medical Center San Diego: $76.00.
Drug: estrogens, conjugated 0.625mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.42;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.43;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.44;
June 2004 price per unit: Naval Medical Center San Diego: $0.44.
Drug: etanercept 25mg/vial;
June 2004 price per unit: VA Leavenworth CMOP: $85.53;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$88.28;
June 2004 price per unit: Naval Medical Center San Diego: $88.94.
Drug: fexofenadine 60mg/pseudoephedrine 120mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.78;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.81;
June 2004 price per unit: Naval Medical Center San Diego: $0.81.
Drug: fexofenadine hydrochloride 180mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.35;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.83;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.84;
June 2004 price per unit: Naval Medical Center San Diego: $0.84.
Drug: fexofenadine hydrochloride 60mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.77;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.80;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.79;
June 2004 price per unit: Naval Medical Center San Diego: $0.79.
Drug: fluconazole 200mg;
June 2004 price per unit: VA Leavenworth CMOP: $7.40;
June 2004 price per unit: Naval Medical Center San Diego: $7.69.
Drug: fluticasone propionate 110mcg 120 dose inhaler;
June 2004 price per unit: VA Leavenworth CMOP: $41.83;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$43.18;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$43.48;
June 2004 price per unit: Naval Medical Center San Diego: $43.50.
Drug: fluticasone propionate 220mcg 120 dose inhaler;
June 2004 price per unit: VA Leavenworth CMOP: $61.62;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$63.59;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$64.04;
June 2004 price per unit: Naval Medical Center San Diego: $64.07.
Drug: fosinopril sodium 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.36;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.49;
June 2004 price per unit: Naval Medical Center San Diego: $0.48.
Drug: fosinopril sodium 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.31;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.45;
June 2004 price per unit: Naval Medical Center San Diego: $0.30.
Drug: fosinopril sodium 40mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.30;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.49;
June 2004 price per unit: Naval Medical Center San Diego: $0.47.
Drug: gabapentin 300mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.74;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.76;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.77;
June 2004 price per unit: Naval Medical Center San Diego: $0.77.
Drug: gabapentin 600mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.48;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.53;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.54;
June 2004 price per unit: Naval Medical Center San Diego: $1.49.
Drug: insulin lispro 100 units/ml;
June 2004 price per unit: VA Leavenworth CMOP: $30.37;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$31.34;
June 2004 price per unit: Naval Medical Center San Diego: $31.58.
Drug: insulin glargine 100 units/ml;
June 2004 price per unit: VA Leavenworth CMOP: $24.74;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$25.54;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$25.72;
June 2004 price per unit: Naval Medical Center San Diego: $25.73.
Drug: interferon beta-1a 30mcg/vial;
June 2004 price per unit: VA Leavenworth CMOP: $166.19;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$171.53.
Drug: ipratropium bromide 18mcg 200 dose inhaler;
June 2004 price per unit: VA Leavenworth CMOP: $16.63;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$16.83;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$16.94;
June 2004 price per unit: Naval Medical Center San Diego: $16.95.
Drug: irbesartan 150mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.50;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.51;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.52;
June 2004 price per unit: Naval Medical Center San Diego: $0.78.
Drug: irbesartan 300mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.50;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.51;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.52;
June 2004 price per unit: Naval Medical Center San Diego: $0.61.
Drug: lamivudine 150mg;
June 2004 price per unit: VA Leavenworth CMOP: $2.99;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$3.09;
June 2004 price per unit: Naval Medical Center San Diego: $3.11.
Drug: lamivudine 150mg/zidovudine 300mg;
June 2004 price per unit: VA Leavenworth CMOP: $6.44;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$6.65;
June 2004 price per unit: Naval Medical Center San Diego: $6.70.
Drug: lansoprazole 30mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.77;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.64;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.64;
June 2004 price per unit: Naval Medical Center San Diego: $0.64.
Drug: latanoprost 0.005% solution;
June 2004 price per unit: VA Leavenworth CMOP: $11.59;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$7.09;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$7.13;
June 2004 price per unit: Naval Medical Center San Diego: $10.07.
Drug: lisinopril 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.10;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.26;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.57;
June 2004 price per unit: Naval Medical Center San Diego: $0.10.
Drug: meloxicam 15mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.94;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.97;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.97;
June 2004 price per unit: Naval Medical Center San Diego: $0.97.
Drug: mesalamine 400mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.53;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.54;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.55;
June 2004 price per unit: Naval Medical Center San Diego: $0.55.
Drug: mometasone furoate 50mcg 120 dose nasal inhaler/spray;
June 2004 price per unit: VA Leavenworth CMOP: $23.55;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$35.67;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$35.92;
June 2004 price per unit: Naval Medical Center San Diego: $35.93.
Drug: montelukast sodium 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.63;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.68;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.69;
June 2004 price per unit: Naval Medical Center San Diego: $1.69.
Drug: montelukast sodium 5mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.62;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.68;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.68;
June 2004 price per unit: Naval Medical Center San Diego: $1.70.
Drug: mycophenolate mofetil 250mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.53;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.60;
June 2004 price per unit: Naval Medical Center San Diego: $1.60.
Drug: nifedipine 30mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.33;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.34;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.35;
June 2004 price per unit: Naval Medical Center San Diego: $0.35.
Drug: omeprazole 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.39;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$2.39;
June 2004 price per unit: Naval Medical Center San Diego: $2.41.
Drug: ortho tri-cyclen 28 pack;
June 2004 price per unit: VA Leavenworth CMOP: $11.62;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$11.99.
Drug: ortho-cyclen 28 pack;
June 2004 price per unit: VA Leavenworth CMOP: $11.26;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$11.63.
Drug: paroxetine hydrochloride 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.80;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.33;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.82;
June 2004 price per unit: Naval Medical Center San Diego: $0.83.
Drug: paroxetine hydrochloride 40mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.88;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.89;
June 2004 price per unit: Naval Medical Center San Diego: $1.04.
Drug: precision xtra (glucose) test strip;
June 2004 price per unit: VA Leavenworth CMOP: $0.31;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.32;
June 2004 price per unit: Naval Medical Center San Diego: $0.32.
Drug: prempro 0.625mg/2.5mg, 28 pack;
June 2004 price per unit: VA Leavenworth CMOP: $18.24;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$11.85;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$11.93;
June 2004 price per unit: Naval Medical Center San Diego: $11.76.
Drug: rabeprazole 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.62;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.64;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.65;
June 2004 price per unit: Naval Medical Center San Diego: $0.65.
Drug: raloxifene hydrochloride 60mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.44;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.49;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.50.
Drug: risperidone 1mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.72;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.74;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.72;
June 2004 price per unit: Naval Medical Center San Diego: $1.75.
Drug: rofecoxib 25mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.30;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.37;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.24;
June 2004 price per unit: Naval Medical Center San Diego: $1.45.
Drug: rosiglitazone maleate 8mg;
June 2004 price per unit: VA Leavenworth CMOP: $2.77;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$2.12;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$2.14;
June 2004 price per unit: Naval Medical Center San Diego: $2.14.
Drug: salmeterol 21mcg 120 dose inhaler;
June 2004 price per unit: VA Leavenworth CMOP: $42.35;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$43.71;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$44.02;
June 2004 price per unit: Naval Medical Center San Diego: $44.04.
Drug: sertraline hydrochloride 100mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.19;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.41;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.42;
June 2004 price per unit: Naval Medical Center San Diego: $1.42.
Drug: sertraline hydrochloride 50mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.15;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.41;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.42;
June 2004 price per unit: Naval Medical Center San Diego: $1.42.
Drug: sildenafil citrate 100mg;
June 2004 price per unit: VA Leavenworth CMOP: $4.64;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$5.54;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$5.58;
June 2004 price per unit: Naval Medical Center San Diego: $5.59.
Drug: sildenafil citrate 50mg;
June 2004 price per unit: VA Leavenworth CMOP: $4.51;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$5.47;
June 2004 price per unit: Naval Medical Center San Diego: $5.51.
Drug: simvastatin 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.25;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.26;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.26;
June 2004 price per unit: Naval Medical Center San Diego: $0.26.
Drug: simvastatin 20mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.43;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.44;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.44;
June 2004 price per unit: Naval Medical Center San Diego: $0.44.
Drug: simvastatin 40mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.64;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.66;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.67;
June 2004 price per unit: Naval Medical Center San Diego: $0.67.
Drug: simvastatin 80mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.87;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.89;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.90;
June 2004 price per unit: Naval Medical Center San Diego: $0.90.
Drug: sumatriptan succinate 6mg/0.5ml statdose;
June 2004 price per unit: VA Leavenworth CMOP: $65.59;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$68.17;
June 2004 price per unit: Naval Medical Center San Diego: $68.21.
Drug: sumatriptan succinate 50mg;
June 2004 price per unit: VA Leavenworth CMOP: $9.73;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$4.44;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$4.47.
Drug: tacrolimus 1mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.79;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.85;
June 2004 price per unit: Naval Medical Center San Diego: $1.86.
Drug: tamoxifen citrate 10mg;
June 2004 price per unit: VA Leavenworth CMOP: $0.19;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$0.68;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$0.19;
June 2004 price per unit: Naval Medical Center San Diego: $0.19.
Drug: tamsulosin hydrochloride 0.4mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.08;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.03;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.04;
June 2004 price per unit: Naval Medical Center San Diego: $1.04.
Drug: tenofovir disoproxil fumarate 300mg;
June 2004 price per unit: VA Leavenworth CMOP: $7.84;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$8.09;
June 2004 price per unit: Naval Medical Center San Diego: $8.15.
Drug: topiramate 100mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.93;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.99;
June 2004 price per unit: Naval Medical Center San Diego: $2.01.
Drug: triamcinolone 100mcg 240 dose inhaler;
June 2004 price per unit: VA Leavenworth CMOP: $36.79;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$37.97;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$38.24;
June 2004 price per unit: Naval Medical Center San Diego: $38.26.
Drug: ursodiol 300mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.30;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.24;
June 2004 price per unit: Naval Medical Center San Diego: $1.25.
Drug: venlafaxine hydrochloride 75mg;
June 2004 price per unit: VA Leavenworth CMOP: $1.42;
June 2004 price per unit: Darnall Army Community Hospital, Ft. Hood:
$1.47;
June 2004 price per unit: 377th Medical Group, Kirtland Air Force Base:
$1.48;
June 2004 price per unit: Naval Medical Center San Diego: $1.48.
Source: GAO analysis of DOD and VA data.
Note: These prices are the average final prices paid by the Leavenworth
CMOP and three MTFs during June 2004, including prime vendor discounts
and fees for DOD's Defense Supply Center and VA's National Acquisition
Center. In some cases, drug prices do not appear in this table because
we eliminated them from our analysis for a number of reasons. For
example, the MTF did not dispense the drug through the fiscal year 2003
pilot, or DOD officials believed the drug price was erroneous.
[End of table]
[End of section]
Appendix III: Components of Administrative Costs:
Table 4: Estimated Annual Administrative Cost for MTF Outpatient Refill
Operations:
Naval Medical Center San Diego (estimates for fiscal year 2002):
Pharmacists and technicians;
Estimated annual cost: $928,661.
Naval Medical Center San Diego (estimates for fiscal year 2002):
Equipment lease;
Estimated annual cost: $192,000.
Naval Medical Center San Diego (estimates for fiscal year 2002):
Supplies (including containers and labels);
Estimated annual cost: $81,623.
Naval Medical Center San Diego (estimates for fiscal year 2002): Other:
Courier contract;
Estimated annual cost: $17,132.
Naval Medical Center San Diego (estimates for fiscal year 2002): Other:
Utilities;
Estimated annual cost: $57,016.
Naval Medical Center San Diego (estimates for fiscal year 2002): Other:
Housekeeping;
Estimated annual cost: $18,329.
Naval Medical Center San Diego (estimates for fiscal year 2002): Other:
Communications;
Estimated annual cost: $30,429.
Naval Medical Center San Diego (estimates for fiscal year 2002): Other:
Information services;
Estimated annual cost: $23,507.
377th Medical Group, Kirtland Air Force Base (estimates for fiscal year
2003): Pharmacist and technicians;
Estimated annual cost: $275,308.
377th Medical Group, Kirtland Air Force Base (estimates for fiscal year
2003): Equipment;
Estimated annual cost: $25,922.
377th Medical Group, Kirtland Air Force Base (estimates for fiscal year
2003): Supplies (including containers and labels);
Estimated annual cost: $1,671.
377th Medical Group, Kirtland Air Force Base (estimates for fiscal year
2003): Other: Utilities;
Estimated annual cost: $1,747.
377th Medical Group, Kirtland Air Force Base (estimates for fiscal year
2003): Other: Custodial maintenance;
Estimated annual cost: $2,192.
377th Medical Group, Kirtland Air Force Base (estimates for fiscal year
2003): Other: Fire and police;
Estimated annual cost: $312.
Darnall Army Community Hospital, Fort Hood (estimates for calendar year
2004): Pharmacy technicians;
Estimated annual cost: $588,482.
Darnall Army Community Hospital, Fort Hood (estimates for calendar year
2004): Equipment;
Estimated annual cost: $75,028.
Darnall Army Community Hospital, Fort Hood (estimates for calendar year
2004): Supplies (including containers and labels);
Estimated annual cost: $33,671.
Darnall Army Community Hospital, Fort Hood (estimates for calendar year
2004): Other: Utilities;
Estimated annual cost: $12,000.
Darnall Army Community Hospital, Fort Hood (estimates for calendar year
2004): Other: Administrative support;
Estimated annual cost: $24,500.
Total estimated annual cost of operations to dispense 1,036,549 refill
prescriptions;
Estimated annual cost: $2,389,530.
Average administrative cost to fill each prescription;
Estimated annual cost: $2.31.
Source: GAO analysis of DOD data.
Note: See appendix I for how we obtained these estimates.
[End of table]
Table 5: Average Administrative Cost Per Prescription for VA CMOP,
Fiscal Years 2003 and 2004:
Category: Personnel;
Average cost per prescription: October 2002-June 2003: Leavenworth
CMOP: $0.78;
Average cost per prescription: July 2003- September 2003: CMOP System:
$0.72;
Average cost per prescription: Fiscal year 2004: CMOP System: $0.71.
Category: General operation;
Average cost per prescription: October 2002-June 2003: Leavenworth
CMOP: $0.44;
Average cost per prescription: July 2003-September 2003: CMOP System:
$0.41;
Average cost per prescription: Fiscal year 2004: CMOP System: $0.42.
Category: Inventory upgrades;
Average cost per prescription: October 2002-June 2003: Leavenworth
CMOP: $0.12;
Average cost per prescription: July 2003-September 2003: CMOP System:
$0.11;
Average cost per prescription: Fiscal year 2004: CMOP System: $0.06.
Category: Information technology upgrades;
Average cost per prescription: Fiscal year 2004: CMOP System: $0.10.
Category: National initiatives;
Average cost per prescription: Fiscal year 2004: CMOP System: $0.01.
Average administrative cost to fill each prescription;
Average cost per prescription: October 2002-June 2003: Leavenworth
CMOP: $1.34;
Average cost per prescription: July 2003-September 2003: CMOP System:
$1.24;
Average cost per prescription: Fiscal year 2004: CMOP System: $1.31.
Mail;
Average cost per prescription: October 2002-June 2003: Leavenworth
CMOP: $1.02;
Average cost per prescription: July 2003- September 2003: CMOP System:
$1.03;
Average cost per prescription: Fiscal year 2004: CMOP System: $1.04.
Total cost to deliver each prescription;
Average cost per prescription: October 2002-June 2003: Leavenworth
CMOP: $2.36;
Average cost per prescription: July 2003-September 2003: CMOP System:
$2.27;
Average cost per prescription: Fiscal year 2004: CMOP System: $2.35.
Source: VA.
Note: These costs are the average costs charged to DOD in fiscal years
2003 and 2004. Before July 2003, the VA charged DOD based on costs at
the Leavenworth CMOP. Beginning in July 2003, the VA charged based on
the average costs of all seven CMOP facilities. Costs of individual
categories may not add to totals due to rounding.
[End of table]
[End of section]
Appendix IV: Services and Costs of VA's CMOP and DOD's TRICARE Mail
Order Pharmacy:
Operated by;
VA CMOP: VA;
DOD TRICARE Mail Order Pharmacy: Express Scripts, Inc.
Services provided;
VA CMOP: Under VA's system, the CMOP shares responsibility for pharmacy
services with VA medical centers; The CMOP dispenses and mails
prescriptions. VA medical centers provide other services, such as
verifying patients' eligibility, providing customer service, or
contacting providers and patients when necessary;
DOD TRICARE Mail Order Pharmacy: Under DOD's system, the TRICARE Mail
Order Pharmacy handles the entire prescription-filling process,
separate from pharmacies in DOD's military treatment facilities; In
addition to dispensing and mailing prescriptions, the TRICARE Mail
Order Pharmacy conducts activities such as verifying patients'
eligibility in DOD's computer system, providing customer service,
contacting providers or patients for additional information when
necessary, and converting paper prescriptions to electronic format.
Number of prescriptions;
VA CMOP: 77,876,597 (fiscal year 2003); 87,968,560 (fiscal year 2004);
DOD TRICARE Mail Order Pharmacy: 5,472,583 (March 2003 through February
2004).
Average administrative cost per prescription;
VA CMOP: $2.24 per prescription (fiscal year 2003); $2.35 per
prescription (fiscal year 2004);
DOD TRICARE Mail Order Pharmacy: $10.66 which included $10.20 per
prescription and an average of $0.46 per prescription for customer
service incentives (March 2003 through February 2004).
Estimated annual drug cost for 89 high-expenditure drugs, based on June
2004 prices and the quantities dispensed in the first year of TRICARE
Mail Order Pharmacy operation[A];
VA CMOP: $239 million;
DOD TRICARE Mail Order Pharmacy: $265 million.
Estimated drug cost per prescription for same 89 drugs based on
estimated annual cost[A];
VA CMOP: $107;
DOD TRICARE Mail Order Pharmacy: $118.
Copayment;
VA CMOP: For VA patients, $7 for up to 30 day supply; DOD beneficiaries
did not pay a copayment or any other charge for the drugs they received
from the CMOP, the same as if they had obtained the drugs at an MTF; VA
does not charge copayments for medications to treat service-connected
conditions, nor does it assign copayments to veterans with service-
connected conditions rated 50 percent disabling or greater;
DOD TRICARE Mail Order Pharmacy: $3 generic; $9 brand for up to 90 day
supply; Active duty service members do not pay copayments. DOD has
established a new copayment of $22 per prescription for drugs
designated "non-formulary." As of April 27, 2005, DOD had designated
three non-formulary drugs that are subject to the copayment.
Customer satisfaction;
VA CMOP: VA's fiscal year 2003 customer satisfaction surveys indicated
that 92 percent of all beneficiaries who responded rated the CMOP's
services as excellent or very good; In the same surveys, 97 percent of
DOD beneficiaries who responded rated the CMOP's services as excellent
or very good;
DOD TRICARE Mail Order Pharmacy: DOD conducted four surveys of TRICARE
Mail Order Pharmacy beneficiaries for the period of March 2003 through
February 2004. TRICARE Mail Order Pharmacy program satisfaction rates
for beneficiaries who responded ranged from 87 percent in the first of
the surveys to 97 percent in the most recent of the four surveys.
Accuracy rate;
VA CMOP: VA reports that the CMOP accuracy rate exceeded 99.9 percent
for fiscal year 2003;
DOD TRICARE Mail Order Pharmacy: Express Scripts reports that the
TRICARE Mail Order Pharmacy accuracy rate exceeded 99.9 percent for the
period from March 2003 through February 2004.
Source: GAO analysis of DOD and VA data.
[A] To estimate drug prices for the two programs, we selected the 100
drugs with the highest total costs dispensed during the first year of
the TRICARE Mail Order Pharmacy (March 2003-February 2004). Next, we
obtained June 2004 prices for these drugs for the CMOP and the TRICARE
Mail Order Pharmacy. We eliminated 11 drugs from our comparison because
prices were unavailable or due to inconsistencies in the data that we
could not explain. For each of the remaining 89 drugs, we adjusted for
differences in DOD's and VA's drug data, such as unit measurement
differences. To estimate annual costs for the drugs in our comparison,
we multiplied the June 2004 DOD and VA unit prices by the number of
units ordered for each drug during the first year of the TRICARE Mail
Order Pharmacy, from March 2003 to February 2004. For more information
on our scope and methodology, see app. I. CMOP and TRICARE Mail Order
Pharmacy drug prices can differ for a number of reasons, including
separate contracts or other agreements with manufacturers, different
prime vendor discounts negotiated by DOD and VA, and different DOD and
VA fees for procuring drugs.
[End of table]
[End of section]
Appendix V: Comments from the Department of Veterans Affairs:
THE DEPUTY SECRETARY OF VETERANS AFFAIRS:
WASHINGTON:
May 20, 2005:
Ms. Cynthia A. Bascetta:
Director, Health Care:
U. S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Bascetta:
The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, MAIL ORDER PHARMACIES:
DOD's Use of VA's Mail Pharmacy Could Produce Savings and Other
Benefits, (GAO-05-555). VA concurs with GAO's report and provides
additional comments in the enclosure.
VA appreciates the opportunity to comment on your draft report.
Sincerely yours,
Signed by:
Gordon H. Mansfield:
Enclosure:
Enclosure:
DEPARTMENT OF VETERANS AFFAIRS (VA) COMMENTS TO GOVERNMENT
ACCOUNTABILITY OFFICE (GAO) DRAFT REPORT, "MAIL ORDER PHARMACIES: DOD's
Use of VA's Mail Pharmacy Could Produce Savings and Other Benefits (GAO-
05-555)":
Comments:
The Department of Veterans Affairs (VA) concurs with the Government
Accountability Office's (GAO) report and appreciates the efforts of
GAO's staff in examining all aspects of the pilot program, including
prescription processing costs, dispensing quality, and patient
satisfaction.
It is important to note that of the 90 drug prices that GAO analyzed
during this review, there were a few cases where significant
differences existed on prices between what VA and the Department of
Defense (DoD) each paid for specific drugs during June 2004. These
differences do not reflect a failure by either department to purchase
drugs wisely, but rather they reflect rational choices made by each
department to use slightly different drugs within a therapeutic
category.
VA also notes that the market pressure that controls the cost of
generic drugs is a significant factor not discussed by GAO in the draft
report. Although a large portion of VA's costs are directed to the
purchase of single source pharmaceuticals, the report would benefit
from a discussion of these market pressures.
The Department is proud of the prescription fulfillment services at
VA's Consolidated Mail Outpatient Pharmacy (CMOPs) are providing to VA
and DoD beneficiaries. VA remains focused on continually improving the
ecomomic and technical quality of the CMOP program and for assuring
prescription fulfillment services continue to provide high quality and
cost effective service long into the future.
[End of section]
Appendix VI: Comments from the Department of Defense:
THE ASSISTANT SECRETARY OF DEFENSE:
HEALTH AFFAIRS:
WASHINGTON, D. C. 20301-1200:
Ms. Cynthia A. Bascetta:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
MAY 25 2005:
Ms. Bascetta:
This is the Department of Defense (DoD) response to the Government
Accountability Office (GAO) draft report GAO-05-555, "MAIL ORDER
PHARMACIES: DOD's Use of VA's Mail Pharmacy Could Produce Savings and
Other Benefits," dated May 4 (GAO Code 290368).
DoD has received and reviewed the draft report and has found it to be
technically accurate. Although the draft report has no recommendations,
DoD would like to comment on the following points.
On page five, table one, the cost shares in the different venues are
listed, however, they do not include the cost share for non-formulary
drugs in the retail non-network pharmacies and should be added. Also,
on the same page, footnote five says we have ..begun the process of
obtaining rebates from manufactures who supply drugs for the retail
pharmacy program.." but the term "rebate" should be changed to "refund"
and the statement should be clarified to state it is for network retail
pharmacies only. Furthermore, the footnote states, "..However,
officials expect that these rebates will cover only a small portion of
the difference in cost between retail and MTF prices.." This statement
is inaccurate and misleading in that the purpose of these refunds from
manufacturers is to reduce the difference between current prices
charged in the TRICARE retail network and the federal price for these
same drugs to which DoD is entitled.
On page eight and 11, the GAO discusses the difference in the
Department of Veterans Affairs (VA) and DoD prime vendor discounts and
the 1.7 percent fee charged to the DoD by Defense Logistics Agency
(DLA). It is important to point out that this fee supports the DoD
readiness mission which is accomplished by DLA. Reducing the amount of
drugs upon which DoD pays this fee may reduce this cost, but would cost
DoD somewhere else to support the mission and therefore should be
considered in context.
The GAO stated that DoD could achieve savings if it used VA's
Consolidated Mail Outpatient Pharmacy (CMOP) by taking advantage of
VA's "..generally lower drug prices.." Please note that the DoD and the
VA share the same pricing authority and utilize it similarly.
Therefore, it is not correct that DoD would always realize a savings on
the acquisition cost of the drug by using the VA CMOP. Additionally,
the GAO stated that the three military treatment facilities (MTFs)
participating in the CMOP pilot program in Fiscal Year 2003 could have
saved about $1.5 million if the MTFs moved all their refill
prescriptions to the CMOP. Please note it is unlikely "all" refills
could ever be moved to the CMOP, or any other venue. In fact, the VA
does not enjoy a 100 percent success rate in moving "all" VA refills
from their facilities to their CMOP.
The GAO stated that DoD paid administrative costs twice for refill
operations in that they paid the VA for the administrative costs to
operate the CMOP and a second time to maintain out-patient pharmacy
refill operations at the MTF. While this may be true, it must be noted,
as stated above, that DoD cannot expect to move "all" refill
prescriptions to the CMOP and must therefore maintain some refill
capability at the DoD MTF. Therefore, the GAO assertion that achieving
savings would require "..closing MTF outpatient pharmacy refill
operations to offset CMOP administrative expenses.." must be cautiously
evaluated. The GAO recommendation for closing all MTF refill services
and providing them only to active duty members may be flawed since some
portion of this staff and equipment needs to be maintained to support
initial prescriptions, whether or not they allow for a refill.
The GAO appropriately noted that, in addition to demonstrating that
financial savings are possible, "..the pilot produced non-monetary
benefits.." We agree that these are benefits associated with reduced
traffic congestion on the base and shorter waiting times overall, but
they may be difficult to accurately value. Please note that the
reference to "civilian beneficiaries" should not be misinterpreted to
include beneficiaries not currently covered but should be more clearly
identified as "retiree beneficiaries."
As a final comment, DoD agrees with GAO in recognizing the other
potential cost implications of attempting to close MTF outpatient
refill pharmacies. GAO commented that DoD allows its beneficiaries to
choose among various options. Please note that this patient choice as a
DoD pharmacy benefit and it's basic structure are lawful entitlements.
DoD cannot mandate DoD beneficiaries to utilize one option over
another. Such a restriction would require legislative action. The GAO
assumption that current options are more costly for DoD than having
beneficiaries obtain their drugs from the CMOP is a subjective
conclusion. In fact, all overhead costs, patient cost shares, and
discounted acquisition costs must be carefully computed to arrive at an
actual cost to both the patient and to the government. We must take an
overall look at the costs for the government and the Congressionally-
established pharmacy benefit as we make such far-reaching decisions
that will impact millions of beneficiaries.
In closing, DoD would like to thank the GAO for its in-depth look at
this issue and possibility of DoD's use of VA's mail pharmacy producing
savings and other benefits.
My points of contact on this action are Colonel James Young at (703)
681-0064 and Mr. Gunther Zimmerman (Audit Liaison) at (703) 681-3492.
Sincerely,
Signed by:
William Winkenwerder, Jr., MD:
[End of section]
FOOTNOTES
[1] In fiscal year 2004, DOD served about 9 million health care
beneficiaries, of which about 6 million received prescriptions.
[2] This figure includes service academy students, active duty
beneficiaries who are transitioning from active duty as part of the
Transitional Assistance Management Program, and foreign military
members.
[3] About 84 percent of DOD MTFs' 30-day outpatient pharmacy refills
were for retired military personnel (now civilians) and their
dependents, and 1 percent was for other civilians, such as non-active
duty Medal of Honor recipients, or their dependents. DOD reported that
the remaining 1 percent of recipients was unknown.
[4] For example, on May 25, 2000, the Subcommittee on Oversight and
Investigations, House Committee on Veterans' Affairs, conducted a
hearing on joint procurement of drugs by DOD and VA. In his closing
statement, the subcommittee chairman directed DOD and VA to explore the
possibility of DOD using VA's CMOP. See also, GAO, DOD and VA Health
Care: Jointly Buying and Mailing Out Pharmaceuticals Could Save
Millions of Dollars, GAO/T-HEHS-00-121 (Washington, D.C.: May 25, 2000)
and GAO, DOD and VA Pharmacy: Progress and Remaining Challenges in
Jointly Buying and Mailing Out Drugs, GAO-01-588 (Washington, D.C.: May
25, 2001).
[5] DOD has begun the process of seeking refunds from manufacturers who
supply drugs to DOD beneficiaries through retail network pharmacies. In
March 2005, the Coalition for Common Sense in Government Procurement,
which includes drug manufacturers, filed a petition with the United
States Court of Appeals for the Federal Circuit, seeking the court's
review of an October 2004 letter from the VA directing that refunds be
made to DOD.
[6] See 38 U.S.C. § 8126(a)(2) (2000). In addition to DOD and VA, the
Public Health Service and the Coast Guard have access to federal
ceiling prices. The nonfederal average manufacturer price, used to set
the federal ceiling price, is the weighted average price of a single
form and dosage unit paid by wholesalers to a manufacturer, taking into
account cash discounts or similar price reductions. Federal ceiling
prices, in general, do not apply to generic drugs.
[7] Both departments have negotiated these discounts, known as negative
distribution fees, with their prime vendors. The prime vendors can
offer DOD and VA these discounts because the vendors generate profits
in the following three ways: First, prime vendors generally can earn
interest on funds from the time they receive payment to when they pay
manufacturers. Second, combining purchases for their government and
commercial customers, prime vendors use leverage to negotiate discounts
from drug manufacturers. Third, according to a DOD official, prime
vendors sometimes purchase large quantities of drugs in advance of
manufacturer price increases, a practice that manufacturers are
beginning to limit.
[8] The Defense Supply Center Philadelphia, part of the Defense
Logistics Agency, supplies and manages drugs, medical supplies, food,
clothing, and textiles for DOD.
[9] The TRICARE Management Activity manages DOD's health care system.
[10] Before July 2003, the costs of individual CMOP facilities were
funded separately. In the case of the DOD pilot, the MTFs paid based on
the costs of only the Leavenworth CMOP. Beginning in July 2003, the
CMOP changed the way it allocated costs by charging a blended rate
based on the costs of all seven CMOP facilities.
[11] Since we could not obtain comparable cost information for fiscal
year 2003 from each of the pilot sites, we used different time periods
to estimate annual administrative costs for each of the three pilot
MTFs. We used San Diego cost information from fiscal year 2002,
Kirtland cost information from fiscal year 2003, and Fort Hood cost
information from calendar year 2004.
[12] If MTFs close their outpatient refill operations, MTFs could
continue to dispense outpatient refill prescriptions at their main
pharmacies or at other pharmacies at the facilities.
[13] 32 C.F.R. § 199.21(i) (2004).
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