DOD Pharmacy Program
Continued Efforts Needed to Reduce Growth in Spending at Retail Pharmacies Gao ID: GAO-08-327 April 4, 2008Estimated to reach $15 billion by 2015, the Department of Defense's (DOD) prescription drug spending has been a growing concern for the federal government. The John Warner National Defense Authorization Act (NDAA) for Fiscal Year 2007 required GAO to examine DOD's pharmacy benefits program. Specifically, as discussed with the committees of jurisdiction, GAO examined DOD's prescription drug spending trends from fiscal years 2000 through 2006 and DOD's key efforts to limit its prescription drug spending. To conduct this work, GAO analyzed DOD's data on spending trends, including trends in beneficiary pharmacy use. GAO also assessed DOD's cost avoidance data and the agency's efforts to limit spending through its uniform formulary, which is a list of preferred drugs available to all beneficiaries. GAO interviewed DOD officials about these and other efforts to limit spending.
Collectively, DOD's drug spending at retail pharmacies, military treatment facilities (MTF), and the TRICARE Mail Order Pharmacy (TMOP) more than tripled from $1.6 billion in fiscal year 2000 to $6.2 billion in fiscal year 2006. Retail pharmacy spending drove most of this increase, rising almost ninefold from $455 million to $3.9 billion and growing from 29 percent of overall drug spending to 63 percent. The growth in retail spending reflects the fact that federal pricing arrangements, which generally result in prices lower than retail prices, were not applied to drugs dispensed at retail pharmacies during this time. In addition, beneficiaries' increased use of retail pharmacies over the less costly options of MTFs or the TMOP exacerbated the effect of these higher prices. For example, 2 million beneficiaries used only retail pharmacies in fiscal year 2006--double the number in fiscal year 2002. However, future growth in retail pharmacy spending may slow as the NDAA for Fiscal Year 2008 now requires that federal pricing arrangements be applied to drugs dispensed at retail pharmacies. DOD's key efforts to limit its prescription drug spending have included its use of the uniform formulary and beneficiary outreach to encourage use of the TMOP. By leveraging its uniform formulary, which was implemented in fiscal year 2005, the agency avoided about $447 million in drug costs in fiscal year 2006 and $916 million in fiscal year 2007, according to DOD's data. In exchange for formulary placement, manufacturers can offer DOD prices below those otherwise available through federal pricing arrangements, which at the time of our review were applied only to drugs dispensed at MTFs and the TMOP. To compensate, in August 2006, DOD began obtaining voluntary manufacturer rebates for formulary drugs dispensed at retail network pharmacies. As of October 1, 2007, DOD collected about $28 million in rebates for fiscal year 2007. Also in 2006, DOD began beneficiary outreach--through quarterly newsletters and other materials--emphasizing the TMOP's convenience and cost savings. To help beneficiaries transfer their prescriptions to the TMOP, DOD launched the Member Choice Center in August 2007 and plans to target related outreach toward beneficiaries who frequently obtain high-cost drugs from retail pharmacies. DOD's ongoing efforts are important to limit future prescription drug spending. In addition, DOD has the recommendations of a congressionally mandated task force to consider--that copayment policies be changed to encourage beneficiaries to purchase preferred drugs from cost-effective sources. The agency is also undertaking a fundamental reform--the NDAA for Fiscal Year 2008 requirement to apply federal pricing arrangements to drugs dispensed at retail pharmacies--that could have an even greater impact on spending. DOD will need to carefully monitor the impact of this new requirement along with its ongoing efforts in order to assess the progress in controlling spending. DOD will also need to determine what types of additional efforts, if any, will be necessary to ensure the fiscal sustainability of its pharmacy benefits program.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-327, DOD Pharmacy Program: Continued Efforts Needed to Reduce Growth in Spending at Retail Pharmacies
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Report to Congressional Committees:
United States Government Accountability Office: GAO:
April 2008:
DOD Pharmacy Program:
Continued Efforts Needed to Reduce Growth in Spending at Retail
Pharmacies:
GAO-08-327:
GAO Highlights:
Highlights of GAO-08-327, a report to congressional committees.
Why GAO Did This Study:
Estimated to reach $15 billion by 2015, the Department of Defense‘s
(DOD) prescription drug spending has been a growing concern for the
federal government. The John Warner National Defense Authorization Act
(NDAA) for Fiscal Year 2007 required GAO to examine DOD‘s pharmacy
benefits program. Specifically, as discussed with the committees of
jurisdiction, GAO examined DOD‘s prescription drug spending trends from
fiscal years 2000 through 2006 and DOD‘s key efforts to limit its
prescription drug spending. To conduct this work, GAO analyzed DOD‘s
data on spending trends, including trends in beneficiary pharmacy use.
GAO also assessed DOD‘s cost avoidance data and the agency‘s efforts to
limit spending through its uniform formulary, which is a list of
preferred drugs available to all beneficiaries. GAO interviewed DOD
officials about these and other efforts to limit spending.
What GAO Found:
Collectively, DOD‘s drug spending at retail pharmacies, military
treatment facilities (MTF), and the TRICARE Mail Order Pharmacy (TMOP)
more than tripled from $1.6 billion in fiscal year 2000 to $6.2 billion
in fiscal year 2006. Retail pharmacy spending drove most of this
increase, rising almost ninefold from $455 million to $3.9 billion and
growing from 29 percent of overall drug spending to 63 percent. The
growth in retail spending reflects the fact that federal pricing
arrangements, which generally result in prices lower than retail
prices, were not applied to drugs dispensed at retail pharmacies during
this time. In addition, beneficiaries‘ increased use of retail
pharmacies over the less costly options of MTFs or the TMOP exacerbated
the effect of these higher prices. For example, 2 million beneficiaries
used only retail pharmacies in fiscal year 2006”double the number in
fiscal year 2002. However, future growth in retail pharmacy spending
may slow as the NDAA for Fiscal Year 2008 now requires that federal
pricing arrangements be applied to drugs dispensed at retail
pharmacies.
DOD‘s key efforts to limit its prescription drug spending have included
its use of the uniform formulary and beneficiary outreach to encourage
use of the TMOP. By leveraging its uniform formulary, which was
implemented in fiscal year 2005, the agency avoided about $447 million
in drug costs in fiscal year 2006 and $916 million in fiscal year 2007,
according to DOD‘s data. In exchange for formulary placement,
manufacturers can offer DOD prices below those otherwise available
through federal pricing arrangements, which at the time of our review
were applied only to drugs dispensed at MTFs and the TMOP. To
compensate, in August 2006, DOD began obtaining voluntary manufacturer
rebates for formulary drugs dispensed at retail network pharmacies. As
of October 1, 2007, DOD collected about $28 million in rebates for
fiscal year 2007. Also in 2006, DOD began beneficiary outreach”through
quarterly newsletters and other materials”emphasizing the TMOP‘s
convenience and cost savings. To help beneficiaries transfer their
prescriptions to the TMOP, DOD launched the Member Choice Center in
August 2007 and plans to target related outreach toward beneficiaries
who frequently obtain high-cost drugs from retail pharmacies.
DOD‘s ongoing efforts are important to limit future prescription drug
spending. In addition, DOD has the recommendations of a congressionally
mandated task force to consider”that copayment policies be changed to
encourage beneficiaries to purchase preferred drugs from cost-effective
sources. The agency is also undertaking a fundamental reform”the NDAA
for Fiscal Year 2008 requirement to apply federal pricing arrangements
to drugs dispensed at retail pharmacies”that could have an even greater
impact on spending. DOD will need to carefully monitor the impact of
this new requirement along with its ongoing efforts in order to assess
the progress in controlling spending. DOD will also need to determine
what types of additional efforts, if any, will be necessary to ensure
the fiscal sustainability of its pharmacy benefits program.
What GAO Recommends:
GAO recommends that DOD (1) monitor the impact of federal pricing
arrangements for drugs dispensed at retail pharmacies along with
ongoing efforts to limit pharmacy spending to determine the extent to
which they reduce the growth in retail pharmacy spending and (2)
identify, implement, and monitor other efforts, as needed, to reduce
the growth in retail pharmacy spending. In its comments, DOD concurred
with GAO‘s recommendations.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-327. For more
information, contact John E. Dicken at (202) 512-7114 or
dickenj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD's Prescription Drug Spending More Than Tripled from Fiscal Years
2000 through 2006, with Retail Pharmacies Accounting for the Largest
Increase:
DOD Has Efforts Under Way to Limit Prescription Drug Spending through
the Uniform Formulary, Beneficiary Outreach, and Other Proposed
Changes:
DOD's Process for Choosing Drugs for Its Uniform Formulary Is Based on
Clinical and Cost-Effectiveness Reviews:
DOD Has Several Methods for Quality Assurance and Beneficiary Feedback
and Uses Pharmacy Data to Inform Its Disease Management Programs:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: The DOD P&T Committee and the Uniform Formulary BAP:
Appendix II: Comments from the Department of Defense:
Table:
Table 1: Current Pharmacy Copayments for DOD Civilian Beneficiaries:
Figures:
Figure 1: DOD Prescription Drug Spending for Fiscal Year 2000 through
Fiscal Year 2006, by Point of Service:
Figure 2: Trends in the Number of Beneficiaries Obtaining Drugs from a
Single Point of Service:
Figure 3: Trends in the Number of Maintenance Drug Prescriptions Filled
for DOD Beneficiaries, by Point of Service:
Figure 4: Pharmacy Spending by Age Group and Point of Service for
Fiscal Years 2002 through 2006:
Figure 5: Key Steps of DOD's Uniform Formulary Decision Process:
Abbreviations:
AHLTA: Armed Forces Health Longitudinal Technology Application:
BAP: Uniform Formulary Beneficiary Advisory Panel:
CHCS: Composite Health Care System:
DOD: Department of Defense:
MTF: military treatment facility:
NDAA: National Defense Authorization Act:
PDTS: Pharmacy Data Transaction Service:
P&T: Pharmacy and Therapeutics Committee:
TMA: TRICARE Management Activity:
TMOP: TRICARE Mail Order Pharmacy:
VA: Department of Veterans Affairs:
VARR: Voluntary Agreements for TRICARE Retail Network Rebates:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
April 4, 2008:
Congressional Committees:
As part of our efforts to identify major challenges facing the nation
in the 21st century, we reported that prescription drug spending was
one of the fastest-growing segments of health care spending in both the
public and private sectors.[Footnote 1] The Department of Defense (DOD)
provides pharmacy benefits to about 9 million beneficiaries through
TRICARE, its health care program. Estimated to reach $15 billion by
2015, DOD's prescription drug spending has been a growing concern for
the federal government. How the agency can best limit its drug spending
has been a focus of recent debate.
Health plans use various strategies to control their drug costs. These
strategies include having a formulary, which is a list of preferred
drugs that are generally available to beneficiaries; requiring the use
of less expensive generic drugs when available; having higher
prescription copayments for drugs purchased at pharmacies not in an
established network; and offering strong financial incentives to use
mail-order pharmacies. DOD instituted some of these strategies in
response to a provision in the National Defense Authorization Act
(NDAA) for Fiscal Year 2000.[Footnote 2] The NDAA required the agency
to create a pharmacy benefits program that included a uniform
formulary, which is a formulary of drugs available to all TRICARE
beneficiaries, and authorized the establishment of beneficiary
copayments for drug purchases. Furthermore, DOD can use statutory
federal pricing arrangements to purchase drugs. These arrangements
typically result in prices lower than those otherwise
available.[Footnote 3] During our review, federal pricing arrangements
were applied to drugs dispensed only at military treatment facilities
(MTF) and the TRICARE Mail Order Pharmacy (TMOP).[Footnote 4] However,
the recently enacted NDAA for Fiscal Year 2008 requires federal pricing
arrangements to be applied to drugs dispensed at retail pharmacies as
of January 28, 2008.[Footnote 5]
The John Warner National Defense Authorization Act for Fiscal Year 2007
directed us to examine DOD's pharmacy benefits program.[Footnote 6]
Specifically, as discussed with the committees of jurisdiction, we
examined DOD's (1) prescription drug spending trends from fiscal year
2000 through fiscal year 2006; (2) key efforts to limit its
prescription drug spending; (3) process for choosing which drugs to
include on the uniform formulary; and (4) related quality assurance,
beneficiary feedback, and disease management efforts.
To provide information on DOD's prescription drug spending trends from
fiscal year 2000 through fiscal year 2006, we obtained and reviewed
data provided by DOD's Pharmacoeconomic Center. The data were not
adjusted for inflation and included information DOD uses to track drug
spending at MTFs, the TMOP, and network and nonnetwork retail
pharmacies. The data reviewed also included information on beneficiary
use of these points of service and beneficiary prescription drug use by
age group.
To describe DOD's efforts to limit its prescription drug spending, we
obtained and reviewed DOD data on the costs the agency had avoided at
MTFs, the TMOP, and retail network pharmacies for fiscal years 2006 and
2007 that were used to demonstrate the financial impact of its
formulary decisions.[Footnote 7] We also obtained data from DOD that
were used to calculate the amount of rebates the agency had collected
from drug manufacturers through its Voluntary Agreements for TRICARE
Retail Network Rebates (VARR) for fiscal year 2007, and we interviewed
10 drug manufacturers to obtain their perspective on why they did or
did not use the VARRs.[Footnote 8] In addition, we interviewed DOD
officials about the agency's efforts to limit spending and reviewed
reports by DOD's Task Force on the Future of Military Health Care,
which was directed by Congress to assess ways to sustain DOD health
care services.
To describe DOD's process for choosing which drugs to include on the
uniform formulary, we reviewed relevant federal law and regulations,
DOD policy guidance for implementing the process, and minutes from
regular meetings at which formulary issues were discussed. We also
interviewed officials from the Pharmacoeconomic Center and the TRICARE
Management Activity (TMA) to obtain further information.
To identify DOD's quality assurance and beneficiary feedback
mechanisms, we interviewed DOD officials and obtained information on
specific electronic systems used at the MTFs, the TMOP, and retail
network pharmacies. We identified and reviewed surveys DOD uses to
obtain beneficiary feedback on its pharmacy program, and we interviewed
DOD officials about how DOD uses those surveys and other mechanisms to
obtain beneficiary satisfaction data and feedback on the pharmacy
benefit. Finally, we reviewed DOD's disease management program policies
and information on how beneficiaries are identified for the program.
We obtained the most current data available at the time of our review
on DOD's prescription drug spending, cost avoidance, and rebates. We
interviewed officials from the Pharmacoeconomic Center and TMA about
the methodology used to generate the data and the data's use and
limitations. Through these interviews, we determined that the data were
sufficiently reliable for our purposes, but we did not independently
verify the data. We conducted our review from April 2007 through
February 2008 in accordance with generally accepted government auditing
standards.
Results in Brief:
DOD's prescription drug spending more than tripled from $1.6 billion in
fiscal year 2000 to $6.2 billion in fiscal year 2006. Retail pharmacy
spending drove most of this increase, rising from $455 million to $3.9
billion and growing from 29 percent of DOD's overall drug spending to
63 percent. TMOP spending likewise rose, from $106 million to $721
million, but increased from only 7 percent of total drug spending to 12
percent. MTF spending increased from $1 billion to $1.5 billion, but
its share of total drug spending decreased from 65 percent to 25
percent. Three overarching factors influenced these trends. First,
federal pricing arrangements, which generally result in lower drug
prices, were not applied to drugs dispensed at retail pharmacies during
this time, so these drugs were generally more expensive for both DOD
and its beneficiaries. Second, increased use of retail pharmacies has
exacerbated the effect of higher retail prices. For example, 2 million
beneficiaries used only retail pharmacies in fiscal year 2006--double
the number in fiscal year 2002. DOD officials cited base closures
reducing access to MTFs, MTF personnel deployments, and the convenience
of retail pharmacies as reasons for this trend. Third, according to DOD
officials, TRICARE expansions beginning in 2001 led, by fiscal year
2006, to 1.7 million eligible beneficiaries age 65 or older, who use
more drugs.
DOD's key efforts to limit its prescription drug spending include its
use of the uniform formulary, beneficiary outreach to encourage use of
the TMOP, and proposed changes to beneficiary copayments. As a result
of its uniform formulary decisions, DOD's data show that it avoided
about $447 million in drug costs in fiscal year 2006 and $916 million
in fiscal year 2007. In exchange for formulary placement, manufacturers
can offer DOD lower prices than those otherwise available through
statutory federal pricing arrangements, which, at the time of our
review, were applied only to drugs dispensed at MTFs and the TMOP.
MTFs, which are generally limited to dispensing formulary drugs,
accounted for most of DOD's cost avoidance. To compensate, in August
2006, DOD began obtaining voluntary manufacturer rebates for formulary
drugs dispensed at retail network pharmacies. As of October 1, 2007,
DOD collected about $28 million through its voluntary manufacturer
rebates for fiscal year 2007. Also in 2006, DOD began beneficiary
outreach--through quarterly newsletters, news releases, and other
materials--emphasizing the TMOP's convenience and cost savings. To help
beneficiaries transfer their prescriptions to the TMOP, DOD launched
the Member Choice Center in August 2007 and plans to target outreach
about the center toward beneficiaries who frequently obtain high-cost
drugs from retail pharmacies. DOD also proposed for fiscal years 2007
and 2008 to eliminate copayments at the TMOP and increase copayments at
retail pharmacies to encourage beneficiaries to use the TMOP. However,
DOD has been prohibited from increasing copayments at retail pharmacies
through fiscal year 2008. Nonetheless, the Task Force on the Future of
Military Health Care recommended in December 2007 that DOD's copayment
policies be changed to create more incentive for beneficiaries to use
preferred drugs and cost-effective points of service.
DOD's process for choosing which drugs to include on the uniform
formulary is based on reviews in which the clinical and cost-
effectiveness of a drug is compared with other drugs in its therapeutic
class. This process, established by law, involves three entities. The
Pharmacy and Therapeutics (P&T) Committee recommends drugs to be added
to the formulary based on clinical and cost-effectiveness reviews. The
Uniform Formulary Beneficiary Advisory Panel (BAP) comments on the P&T
Committee's recommendations from a beneficiary perspective. The
Director of TMA makes final decisions after considering both the P&T
Committee's recommendations and the BAP's comments. As of October 2007,
28 drug classes representing 322 drugs had been reviewed for the
uniform formulary. Of the 322 drugs reviewed, 249 were designated as
formulary.
DOD has several methods for quality assurance and beneficiary feedback
and uses pharmacy data to inform its disease management programs. DOD
provides quality assurance in its pharmacy program at MTFs, the TMOP,
and retail network pharmacies through the use of several electronic
systems that detect potential problems related to prescribed drugs. For
example, the Armed Forces Health Longitudinal Technology Application
(AHLTA) alerts MTF providers of duplicate treatments, therapeutic
overlap, drug interactions, and drug allergies when a prescription is
entered into the system. The agency obtains beneficiary feedback
through surveys with questions about pharmacy access and utilization
and satisfaction with the TMOP. DOD also reviews beneficiary comments
obtained at meetings with military beneficiary associations. It uses
beneficiary feedback to make improvements to the pharmacy program--for
example, to simplify and encourage the use of the TMOP, including
transferring prescriptions from retail pharmacies--an outreach effort
that would help limit retail pharmacy spending. DOD also uses its
pharmacy data to identify beneficiaries for its asthma, diabetes, and
congestive heart failure disease management programs.
To help ensure the fiscal sustainability of DOD's pharmacy benefits
program and complement more fundamental reforms recently enacted or
being considered, we recommend that the Secretary of Defense direct the
Assistant Secretary of Defense for Health Affairs to:
* monitor the effect of federal pricing arrangements for drugs
dispensed at retail pharmacies along with ongoing efforts to limit
pharmacy spending to determine the extent to which they reduce the
growth in retail pharmacy spending; and:
* identify, implement, and monitor other efforts, as needed, to reduce
the growth in retail pharmacy spending.
In its written comments on a draft of this report, DOD concurred with
our findings and recommendations.
Background:
TRICARE, DOD's health care program, has 9.1 million eligible
beneficiaries that include active duty, certain reservists, and retired
members of the uniformed services, as well as their families and
survivors. Beneficiaries may generally obtain care from either MTFs or
civilian providers.[Footnote 9] TRICARE beneficiaries can obtain
prescription drugs directly from MTFs, the TMOP, and network and
nonnetwork retail pharmacies.[Footnote 10]
The pharmacy benefits law, as passed in October 1999, directed the
Secretary of Defense to establish a pharmacy benefits program.[Footnote
11] The program is, among other things:
* required to include a uniform formulary that should ensure drugs are
available in the complete range of therapeutic classes;[Footnote 12]
* required to make drugs on the uniform formulary available to
beneficiaries at MTFs, the TMOP, and retail pharmacies; and:
* authorized to establish copayment requirements for generic,
formulary, and nonformulary drugs.
The pharmacy benefits law also directed the Secretary of Defense to
establish the P&T Committee to develop the uniform formulary, and the
BAP to review and comment on the development of the uniform formulary.
Finally, the Secretary of Defense was to implement the use of the
Pharmacy Data Transaction Service (PDTS) at designated MTFs, the TMOP,
and retail network pharmacies. The PDTS is an electronic service that
DOD uses to maintain prescription drug information for all TRICARE
beneficiaries worldwide.
In 2001, DOD established the current pharmacy copayment structure,
which is based on whether a drug is classified as formulary generic
(tier 1), formulary brand-name (tier 2), or nonformulary (tier 3). The
copayment also depends on where the beneficiary chooses to fill his or
her prescription. (See table 1.)
Table 1: Current Pharmacy Copayments for DOD Civilian Beneficiaries:
Delivery option: Military treatment facility (MTF);
Supply: up to 90 days;
Copayments: Formulary generic (tier 1): $0;
Copayments: Formulary brand (tier 2): $0;
Copayments: Nonformulary (tier 3): $0[A].
Delivery option: TRICARE Mail Order Pharmacy (TMOP);
Supply: up to 90 days;
Copayments: Formulary generic (tier 1): $3;
Copayments: Formulary brand (tier 2): $9;
Copayments: Nonformulary (tier 3): $22.
Delivery option: Retail network pharmacy;
Supply: up to 30 days;
Copayments: Formulary generic (tier 1): $3;
Copayments: Formulary brand (tier 2): $9;
Copayments: Nonformulary (tier 3): $22.
Delivery option: Retail nonnetwork pharmacy, TRICARE Extra and
Standard[B];
Supply: up to 30 days;
Copayments: Formulary generic (tier 1): Greater of $9 or 20 percent of
total cost;
Copayments: Formulary brand (tier 2): Greater of $9 or 20 percent of
total cost;
Copayments: Nonformulary (tier 3): Greater of $22 or 20 percent of
total cost.
Delivery option: Retail nonnetwork pharmacy, TRICARE Prime[B];
Supply: up to 30 days;
Copayments: Formulary generic (tier 1): 50 percent;
Copayments: Formulary brand (tier 2): 50 percent;
Copayments: Nonformulary (tier 3): 50 percent.
Source: DOD.
Notes: Active duty service members are not required to pay copayments
at MTFs, the TMOP, or retail network pharmacies. Active duty service
members who fill prescriptions for covered medications under the
pharmacy benefit at nonnetwork retail pharmacies are required to pay
the total cost of the prescription and then file a claim for
reimbursement with Express Scripts, Inc., a private pharmacy benefits
management company that operates DOD's retail pharmacy program and the
TMOP.
[A] MTFs can only dispense nonformulary drugs if medically necessary.
Proof of medical necessity is not required for nonformulary drugs to be
dispensed at the TMOP or retail pharmacies.
[B] Under TRICARE, beneficiaries can choose among three benefit
options: a health maintenance organization option called TRICARE Prime,
a preferred-provider organization option called TRICARE Extra, and a
fee-for-service option called TRICARE Standard.
[End of table]
The NDAA for Fiscal Year 2007 directed DOD to establish the Task Force
on the Future of Military Health Care to assess health care services
provided to members of the military, retirees, and their families and
to make recommendations for sustaining those services.[Footnote 13] In
addition to other aspects of DOD's health care system, the task force
reviewed DOD's pharmacy benefits program.[Footnote 14] It issued an
interim report in May 2007 and a final report in December 2007 to the
Secretary of Defense on its findings and recommendations. The Secretary
of Defense may comment on the recommendations provided in the task
force's final report and, within 90 days of its issuance, must forward
the report to the Committees on Armed Services of the Senate and the
House of Representatives.
DOD's Prescription Drug Spending More Than Tripled from Fiscal Years
2000 through 2006, with Retail Pharmacies Accounting for the Largest
Increase:
DOD's spending on prescription drugs more than tripled from $1.6
billion in fiscal year 2000 to $6.2 billion in fiscal year 2006. Retail
pharmacy spending accounted for the greatest increase, rising almost
ninefold from $455 million to $3.9 billion. It also grew from 29
percent of DOD's overall drug spending to 63 percent--the largest
increase of the points of service. TMOP spending rose from $106 million
to $721 million and increased from 7 percent of total spending to 12
percent. MTF pharmacy spending rose from $1 billion in fiscal year 2000
to $1.7 billion in fiscal 2004, but declined slightly to $1.5 billion
in fiscal year 2006. In fiscal year 2000, MTF spending accounted for 65
percent of DOD's overall drug spending but declined to 25 percent in
fiscal year 2006. (See fig. 1.)
Figure 1: DOD Prescription Drug Spending for Fiscal Year 2000 through
Fiscal Year 2006, by Point of Service:
[See PDF for image]
This figure is a stacked vertical bar graph depicting the following
data:
DOD Prescription Drug Spending for Fiscal Year 2000 through Fiscal Year
2006, by Point of Service (dollars in billions):
Fiscal year: 2000;
Retail: $0.46;
TMOP: $0.11;
MTF: $1.03;
Total: $1.6.
Fiscal year: 2001;
Retail: $0.68;
TMOP: $0.19;
MTF: $1.17
Total: $2.04.
Fiscal year: 2002;
Retail: $1.28;
TMOP: $0.35;
MTF: $1.39;
Total: $3.02.
Fiscal year: 2003;
Retail: $1.85;
TMOP: $0.43
MTF: $1.57;
Total: $3.85.
Fiscal year: 2004;
Retail: $2.43;
TMOP: $0.55;
MTF: $1.77;
Total: $4.75.
Fiscal year: 2005;
Retail: $3.10;
TMOP: $0.63;
MTF: $1.63;
Total: $5.36
Fiscal year: 2006;
Retail: $3.92;
TMOP: $0.72;
MTF: $1.54;
Total: $6.28.
Source: DOD.
Note: Data were not adjusted for inflation.
[End of figure]
Three overarching factors influenced these trends. First, because
federal pricing arrangements that generally result in lower prices were
not applied to drugs dispensed at retail pharmacies during this time
period, these drugs were generally more expensive for both DOD and its
beneficiaries than the drugs dispensed at MTFs or the TMOP. However,
the NDAA for Fiscal Year 2008 requires that federal pricing
arrangements now be applied to TRICARE prescriptions filled at retail
pharmacies.
Second, the increased use of retail pharmacies has exacerbated the
effect of higher retail prices. More beneficiaries are using only
retail pharmacies to obtain their prescriptions--about 2 million in
fiscal year 2006, up from about 1 million in fiscal year 2002 (see fig.
2).[Footnote 15] Further, beneficiaries are obtaining more maintenance
drugs--drugs for long-term conditions, such as high blood pressure or
cholesterol--at retail pharmacies (see fig. 3). From fiscal year 2004
through fiscal year 2006, the number of maintenance drug prescriptions
dispensed at retail pharmacies increased by more than 11.6 million.
Those dispensed at the TMOP increased much less, by about 1.5 million,
while those at MTFs decreased by about 2.5 million. DOD officials cited
additional reasons that they believed contributed to the increased use
of retail pharmacies, though they could not quantify the effect of
these reasons. These reasons included: base closures, which have
decreased the number of MTF pharmacies; deployment of MTF personnel,
which limits MTF appointment availability, resulting in more
beneficiaries going to civilian providers and filling their
prescriptions at retail pharmacies; the vast TRICARE retail network of
about 59,000 pharmacies, which has become more convenient for
beneficiaries; and the prescription copayment structure, which does not
discourage beneficiaries from using the more costly retail pharmacies.
Figure 2: Trends in the Number of Beneficiaries Obtaining Drugs from a
Single Point of Service:
[See PDF for image]
This figure is a multiple line graph depicting the following data:
Trends in the Number of Beneficiaries Obtaining Drugs from a Single
Point of Service:
Fiscal year: 2002;
TMOP: 0.79 million;
Retail: 1.03 million;
MTF: 3.45 million.
Fiscal year: 2003;
TMOP: 0.83 million;
Retail: 1.26 million;
MTF: 3.57 million.
Fiscal year: 2004;
TMOP: 0.64 million;
Retail: 1.50 million;
MTF: 3.31 million.
Fiscal year: 2005;
TMOP: 0.61 million;
Retail: 1.82 million;
MTF: 3.03 million.
Fiscal year: 2006;
TMOP: 0.55 million;
Retail: 1.99 million;
MTF: 2.83 million.
Source: GAO analysis of DOD data.
Notes: Full-year data were available beginning in fiscal year 2002.
Data exclude beneficiaries who obtain drugs from more than one point of
service. Most beneficiaries who use multiple points of service use
retail pharmacies in addition to another point of service.
[End of figure]
Figure 3: Trends in the Number of Maintenance Drug Prescriptions Filled
for DOD Beneficiaries, by Point of Service:
[See PDF for image]
This figure is a multiple line graph depicting the following data:
Trends in the Number of Maintenance Drug Prescriptions Filled for DOD
Beneficiaries, by Point of Service:
Fiscal year: 2004;
TMOP: 5 million;
Retail: 28 million;
MTF: 31 million.
Fiscal year: 2005;
TMOP: 6 million;
Retail: 35 million;
MTF: 30 million.
Fiscal year: 2006;
TMOP: 7 million;
Retail: 39 million;
MTF: 29 million.
Source: GAO analysis of DOD data.
Note: Data were available beginning in fiscal year 2004.
[End of figure]
Third, according to DOD officials, TRICARE expansions have led to a
growing population of aging beneficiaries, who use more drugs. By
fiscal year 2006, about 1.7 million beneficiaries, age 65 or older,
were eligible for the pharmacy benefit through TRICARE benefit
expansions that began in 2001.[Footnote 16] According to DOD data,
retail pharmacy spending for beneficiaries age 65 or older increased by
about 207 percent from fiscal year 2002 through fiscal year 2006--
slightly higher than the 184 percent increase for beneficiaries under
age 65. (See fig. 4.) DOD officials told us that the average cost per
beneficiary at retail pharmacies in fiscal year 2006 was about $1,277
for beneficiaries age 65 or older, compared with about $368 for those
under age 65. MTF spending declined slightly for both age groups as
TMOP spending increased.[Footnote 17] Those under age 65 were more
likely to use MTFs, while those age 65 or older were more likely to use
the TMOP.
Figure 4: Pharmacy Spending by Age Group and Point of Service for
Fiscal Years 2002 through 2006:
[See PDF for image]
This figure is a multiple line graph depicting the following data:
Pharmacy Spending by Age Group and Point of Service for Fiscal Years
2002 through 2006:
Fiscal year: 2002;
Retail, Under age 65: $0.65 billion;
Retail, Age 65 and older: $0.627 billion;
MTFs, Under age 65: No data;
MTFs, Age 65 and older: No data;
TMOP, Under age 65: $0.114 billion;
TMOP, Age 65 and older: $0.232 billion.
Fiscal year: 2003;
Retail, Under age 65: $0.874 billion;
Retail, Age 65 and older: $0.973 billion;
MTFs, Under age 65: $1.04 billion;
MTFs, Age 65 and older: $0.516 billion;
TMOP, Under age 65: $0.125 billion;
TMOP, Age 65 and older: $0.303 billion.
Fiscal year: 2004;
Retail, Under age 65: 1.147 billion;
Retail, Age 65 and older: 1.275 billion;
MTFs, Under age 65: $1.16 billion;
MTFs, Age 65 and older: $0.605 billion;
TMOP, Under age 65: $0.154 billion;
TMOP, Age 65 and older: $0.39 billion.
Fiscal year: 2005;
Retail, Under age 65: $1.5 billion;
Retail, Age 65 and older: $1.587 billion;
MTFs, Under age 65: $1.05 billion;
MTFs, Age 65 and older: $0.577 billion;
TMOP, Under age 65: $0.185 billion;
TMOP, Age 65 and older: $0.443 billion.
Fiscal year: 2006;
Retail, Under age 65: $1.84 billion;
Retail, Age 65 and older: $1.929 billion;
MTFs, Under age 65: $0.99 billion;
MTFs, Age 65 and older: $0.55 billion;
TMOP, Under age 65: $0.207 billion;
TMOP, Age 65 and older: $0.512 billion.
Source: GAO analysis of DOD data.
Note: Full-year data were available beginning in fiscal year 2002 for
retail pharmacies and the TMOP and in fiscal year 2003 for MTFs. Data
were not adjusted for inflation.
[End of figure]
DOD Has Efforts Under Way to Limit Prescription Drug Spending through
the Uniform Formulary, Beneficiary Outreach, and Other Proposed
Changes:
DOD has efforts under way to limit its prescription drug spending
through the use of its uniform formulary and through beneficiary
outreach for the TMOP. In an attempt to further limit its drug
spending, both DOD and its Task Force on the Future of Military Health
Care have recommended changes to the beneficiary copayment structure
intended to encourage beneficiaries to use more cost-effective points
of service. However, the NDAA through Fiscal Year 2008 prohibits any
increase to retail copayments through fiscal year 2008.
DOD's Uniform Formulary Has Limited Prescription Drug Spending:
According to DOD officials, the agency has limited its prescription
drug spending primarily through costs avoided through the use of its
uniform formulary, which was implemented during 2005. DOD data show
that the agency avoided about $447 million in drug costs in fiscal year
2006 and $916 million in drug costs in fiscal year 2007.
MTFs accounted for most of DOD's cost avoidance, while retail network
pharmacies accounted for the least. Cost avoidance is affected by the
following factors that result from DOD's formulary decisions:
* The prices DOD obtains for drugs. In exchange for including a
manufacturer's drug on the uniform formulary, manufacturers can offer
DOD prices below those otherwise available through statutory federal
pricing arrangements, which applied only to drugs dispensed at MTFs and
the TMOP during the time of our review. According to DOD officials, the
agency had obtained prices for drugs dispensed at MTFs and the TMOP
that are about 30 percent to 50 percent lower than the prices it
obtained for drugs dispensed at network and nonnetwork retail
pharmacies. This difference in price can be attributed to savings
achieved through the discounts obtained for uniform formulary placement
as well as the lower prices obtained through federal pricing
arrangements for drugs dispensed at MTFs and the TMOP.
* Changes in beneficiaries' use of formulary and nonformulary drugs
within a therapeutic class. Once a drug is designated nonformulary, its
use may be substituted with a formulary drug, which results in lower
copayments for the beneficiary and lower costs to DOD. Because MTFs are
generally limited to dispensing formulary drugs, cost avoidance
attributed to the use of formulary drugs over nonformulary drugs is
higher at this point of service than at the TMOP and retail network
pharmacies, where beneficiaries can obtain more costly nonformulary
drugs.[Footnote 18]
* Changes in beneficiaries' use of generic and brand-name drugs within
a therapeutic class. For both formulary and nonformulary drugs, DOD
requires the substitution of generic drugs for brand-name drugs at
MTFs, the TMOP, and retail pharmacies when a generic equivalent is
available.[Footnote 19] A brand-name drug having a generic equivalent
may be dispensed only if the prescribing physician establishes medical
necessity for its use. A beneficiary's use of a generic drug in place
of a brand-name drug results in lower costs to the beneficiary and to
DOD.
* Changes in beneficiaries' use of MTFs, the TMOP, and retail
pharmacies as a result of formulary designations. For example, a
beneficiary may shift from obtaining a 30-day supply of a formulary
drug at a retail pharmacy, where the beneficiary's copayment would be
higher, to an MTF where the beneficiary can obtain a 90-day supply of
the drug without a copayment.
To calculate cost avoidance, DOD first determines the costs it incurred
at MTFs, the TMOP, and retail network pharmacies for each drug as a
result of its designation as either formulary or nonformulary. DOD then
subtracts these incurred costs from the estimated costs it would have
incurred at MTFs, the TMOP, and retail network pharmacies if the
designation had not been made.[Footnote 20] Cost avoidance is the
difference between the incurred and estimated costs.
In addition to costs avoided, DOD has obtained voluntary manufacturer
rebates for some of the formulary drugs dispensed at retail network
pharmacies--though these rebates are a much smaller proportion of
overall savings. Because federal pricing arrangements were not
previously applied to drugs dispensed at retail pharmacies, DOD
implemented the VARR in August 2006 to allow manufacturers to offer
rebates for these drugs. There are two types of VARRs: the Uniform
Formulary VARR and the Utilization VARR. The Uniform Formulary VARR is
an agreement between DOD and a manufacturer that is contingent on the
manufacturer's drug being selected for the uniform formulary. DOD
officials told us that as of October 1, 2007, the agency had collected
about $28 million through Uniform Formulary VARRs for fiscal year
2007.[Footnote 21] As manufacturers continue to enter into these
agreements, DOD expects the amount it collects to increase over time.
The Utilization VARR allows manufacturers to offer a rebate to DOD for
drugs that are not on the uniform formulary. According to DOD, this
includes drugs that have not yet been reviewed for the uniform
formulary and drugs that have been reviewed and designated
nonformulary. Unlike the Uniform Formulary VARR, the Utilization VARR
does not secure formulary placement. As of October 2007, no
manufacturers had entered into a Utilization VARR with DOD.
In our discussions with 10 drug manufacturers about the VARR program, 7
of them told us that they had submitted Uniform Formulary VARRs for
DOD's consideration. Of these 7 manufacturers, 5 indicated that their
participation was driven by the possibility that their drug would be
selected for the uniform formulary. With regard to the Utilization
VARR, 8 of the 10 manufacturers we spoke with indicated that there was
little or no incentive provided to manufacturers to enter into these
rebate agreements with DOD.
DOD Has Beneficiary Outreach Efforts Under Way:
DOD has outreach efforts under way intended to help encourage
beneficiaries to use the TMOP instead of retail pharmacies. In 2006,
according to DOD officials, the agency began to expand its outreach for
the TMOP through quarterly newsletters, news releases, and other
materials emphasizing its convenience and cost savings for
beneficiaries. DOD partnered with, for example, beneficiary
organizations and family support groups to help distribute these
outreach materials. DOD also encouraged health care providers to
promote the use of the TMOP among the TRICARE beneficiaries they serve.
MTF pharmacists also participated in these efforts by posting signs
advertising the TMOP in their facilities.
In addition, DOD launched its Member Choice Center in August 2007, the
goal of which is to help beneficiaries transfer their prescriptions
from retail pharmacies to the TMOP. To educate beneficiaries about the
center's availability, DOD included information about it in newsletters
and other outreach materials. According to DOD officials, the center
transferred about 60,000 prescriptions from retail pharmacies to the
TMOP as of late December 2007. In addition to these efforts, DOD
intended to specifically target those beneficiaries who frequently
obtained high-cost drugs from retail pharmacies. DOD officials told us
that, as of January 2008, this aspect of the program had not yet begun
and that DOD was working with the contractor for the TMOP to develop a
letter to be sent to these beneficiaries.
DOD and Its Task Force on the Future of Military Health Care Have
Proposed Other Changes to Limit Spending:
DOD has proposed changes to beneficiary copayments for fiscal years
2007 and 2008 in an effort to encourage beneficiaries to obtain
prescriptions from more cost-effective points of service. Specifically,
DOD proposed to eliminate copayments for generic drugs dispensed at the
TMOP and to increase retail pharmacy copayments from $3 for formulary
generic drugs to $5, and from $9 for formulary brand-name drugs to $15.
DOD first proposed these changes for fiscal year 2007, but Congress
prohibited any increase to retail pharmacy copayments for that fiscal
year.[Footnote 22] DOD repeated the proposal for the next fiscal year,
but the NDAA for Fiscal Year 2008 prohibits any increase to retail
copayments through the fiscal year.[Footnote 23]
In addition, the Task Force on the Future of Military Health Care
concluded in its final report that DOD's copayment policies and
formulary tier structure do not create effective incentives to
stimulate compliance with clinical best practices or the most cost-
effective points of service for obtaining drugs. It recommended that
DOD's pharmacy tier and copayment structures be revised based on
clinical and cost-effectiveness standards to promote greater incentive
to use preferred medications and cost-effective points of service.
Specifically, the task force stated that a four-tier formulary could
encourage beneficiaries to use less costly drugs and use them more
appropriately. It also stated that when a formulary includes more
tiers, it is easier to lower out-of-pocket costs for drugs that treat
certain chronic diseases and remove compliance barriers.[Footnote 24]
DOD's Process for Choosing Drugs for Its Uniform Formulary Is Based on
Clinical and Cost-Effectiveness Reviews:
DOD decides which drugs to include on the uniform formulary based on
reviews in which the clinical and cost-effectiveness of a drug is
compared with other drugs in its class.[Footnote 25] This process,
established by DOD under the requirements of the pharmacy benefits law,
involves three entities:
* The Pharmacy and Therapeutics (P&T) Committee recommends drugs to be
added to the uniform formulary based on clinical and cost-effectiveness
reviews. (For P&T Committee membership, see app. I.)
* The BAP comments on the P&T Committee's recommendations from a
beneficiary perspective. (For BAP membership, see app. I.)
* The Director of TMA makes final decisions after considering both the
P&T Committee's recommendations and the BAP's comments. (See fig. 5.)
Figure 5: Key Steps of DOD's Uniform Formulary Decision Process:
[See PDF for image]
This figure is an illustration of key steps of DOD's Uniform Formulary
Decision Process, as follows:
P&T:
The Pharmacy & Therapeutics (P&T) Committee meets and makes
recommendations based on its clinical and cost-effectiveness reviews of
drugs;
Time: T.
BAP:
The Uniform Formulary Beneficiary Advisory Panel (BAP) meets and
comments on the P&T Committee‘s recommendations;
Time: T plus 45 days.
TMA:
The Director of TRICARE Management Activity (TMA) makes final
decisions;
Time: No more than T plus 240 days.
Source: GAO analysis of DOD data.
Note: "T" refers to the day of the P&T Committee meeting. Steps are
listed as the number of days from "T."
[End of figure]
The P&T Committee meets quarterly and generally reviews two to four
drug classes at each meeting. The priority for therapeutic class
reviews is determined by various factors, such as the conversion of a
drug from brand-name to generic and the rate of utilization among
beneficiaries. The P&T Committee first reviews the clinical
effectiveness of the drugs in a class. It considers such information as
indications for which the drug has been approved by the Food and Drug
Administration, the incidence and severity of adverse effects, and the
results of studies on effectiveness and clinical outcomes. Using this
information, the committee determines whether the drugs are
therapeutically equivalent. It then reviews the cost-effectiveness of
the drugs, considering such information as the price and rebate quotes
submitted by manufacturers and the estimated financial effect of
possible formulary decisions. The committee then determines the
relative cost-effectiveness of each drug in the class.
On the basis of the outcomes of both the clinical and cost-
effectiveness reviews, the committee recommends that each drug in the
class be designated as either formulary or nonformulary. If the
committee finds that the drugs in a class are therapeutically
equivalent, it generally recommends that the lower-cost drugs be
designated as formulary. However, the committee has recommended that
certain higher-cost drugs it believed offered additional clinical
benefits be designated as formulary. For example, the committee
recommended that two drugs used to treat breakthrough pain in cancer
patients,[Footnote 26] Fentora and Actiq, be designated as formulary
despite a more than a forty-fold increase in cost over the two most
cost-effective drugs in the class. While therapeutically equivalent to
the other drugs in the class, both Fentora and Actiq can be dissolved
orally, which the committee valued for patients who have difficulty
swallowing drugs in tablet form. In addition to recommending that a
drug be designated as formulary or nonformulary, the P&T Committee
recommends an implementation period to inform pharmacies and
beneficiaries of formulary decisions. Its recommendations are then
provided to the BAP.
Once the BAP receives the P&T Committee's recommendations, it provides
comments on behalf of beneficiaries. It reviews each recommendation and
determines whether it agrees or disagrees with the P&T Committee. As of
October 2007, the BAP and the P&T Committee disagreed about 17 percent
of the time, mostly about the length of implementation periods. For
example, the P&T Committee recommended that formulary and nonformulary
designations for drugs used to treat overactive bladder conditions
become effective about 60 days after the final formulary decision was
made. The BAP stated that additional time was needed to notify
beneficiaries currently using drugs within the class, suggesting that
the formulary designations become effective about 120 days after the
final formulary decision was made. Finally, the BAP's comments are
documented and submitted to the Director of TMA for consideration when
making final formulary decisions.
After reviewing both the P&T Committee's recommendations and the BAP's
comments, the Director of TMA makes final formulary decisions. In a
decision paper, the director approves or disapproves of the P&T
Committee's recommendations and may provide written comments explaining
his decision. Although the Director of TMA makes the final decision, no
drug may be designated as nonformulary unless the P&T Committee has
recommended the nonformulary designation.[Footnote 27] As of October
2007, the Director of TMA had approved 188 out of the 190 P&T Committee
recommendations. Uniform formulary decisions become effective on the
date decision papers are signed by the Director, and the papers are
made publicly available on the TRICARE Web site.[Footnote 28] As of
October 2007, 28 drug classes representing 322 drugs had been reviewed
for the formulary.[Footnote 29] Of the 322 drugs reviewed, 249 were
designated as formulary.
DOD Has Several Methods for Quality Assurance and Beneficiary Feedback
and Uses Pharmacy Data to Inform Its Disease Management Programs:
DOD uses electronic systems, which detect potential problems related to
prescribed drugs, for quality assurance at MTFs, the TMOP, and retail
network pharmacies. It also takes steps to obtain beneficiary feedback
through surveys and by obtaining beneficiaries' comments. In addition,
DOD uses pharmacy data to identify beneficiaries who might benefit from
participating in a disease management program.
Electronic Systems Provide Quality Assurance for Prescriptions:
AHLTA, a global electronic health information system, alerts MTF
providers to duplicate drug treatments, therapeutic overlap, drug
interactions, and drug allergies when a prescription is entered into
the system. MTF providers[Footnote 30] are required to use AHLTA when
prescribing drugs. If, for example, AHLTA identifies a drug allergy,
the provider receives an alert and can prescribe an alternative drug.
The Composite Health Care System (CHCS) provides similar alerts to
staff at MTF pharmacies. When a patient's prescription is processed,
the CHCS informs the staff of duplicate treatments, therapeutic
overlap, drug interactions, and drug allergies. DOD officials stated
that CHCS acts as a redundant quality assurance mechanism, allowing the
pharmacists to double-check prescriptions written by MTF providers. If
a beneficiary brings a prescription to the MTF pharmacy from a contract
provider (outside of the MTF), CHCS will still inform the pharmacy
staff of potential problems when they enter the prescription
information into the system.
The PDTS detects duplicate drug treatments, therapeutic overlap, and
drug interactions at the TMOP and retail network pharmacies. From these
points of service, the prescription information is electronically
submitted to the PDTS, which verifies the individual's TRICARE
enrollment and provides information on duplicate treatments,
therapeutic overlap, and drug interactions. The TMOP and retail network
pharmacies are responsible for obtaining drug allergy information from
the beneficiary, because the PDTS does not contain that information.
Beneficiaries are asked to provide drug allergy information when they
sign up to receive prescriptions through the TMOP. At retail
pharmacies, the pharmacist is supposed to ask the beneficiary about
their drug allergies and check their local pharmacy system for this
information. Prescriptions filled at nonnetwork retail pharmacies are
input into the PDTS when DOD receives a claim submitted by the
beneficiary.
DOD Obtains Feedback on Its Pharmacy Benefit through Beneficiary
Surveys and Comments:
DOD administers two surveys that ask specific questions about the
TRICARE pharmacy benefit. The Health Care Survey of DOD Beneficiaries
is administered quarterly, but questions specific to the pharmacy
benefit are asked once a year. The survey asks beneficiaries who had
prescriptions filled during the last 90 days about pharmacy access and
utilization. The second survey, the TMOP Satisfaction Survey, is a
telephone survey administered quarterly. Survey participants are
selected randomly among beneficiaries who used the TMOP in the last 90
days. The purpose of this survey is to determine whether Express
Scripts, the contractor that administers the TMOP, will receive an
incentive payment. Express Scripts is provided this payment when the
level of beneficiary satisfaction with the TMOP is 90 percent or
greater.[Footnote 31] Express Scripts has scored 90 percent or greater
for 17 of the 18 quarters since March 2003.
DOD officials stated that they also obtained beneficiary comments on
the pharmacy benefits program during meetings with representatives of
military associations that represent many TRICARE beneficiaries. At the
local level, MTFs also collect information about beneficiary experience
with the MTF pharmacy on such issues as hours of operation, waiting
times, and service provided by the pharmacy technicians. These issues
are usually addressed at the individual MTFs.
DOD generally uses the results of the Health Care Survey of DOD
Beneficiaries to tailor articles in newsletters about the pharmacy
program and to make improvements to it--for example, to simplify and
encourage the use of the TMOP. DOD officials stated that on the basis
of the results of the 2006 survey and feedback from military
associations, they learned DOD beneficiaries wanted an easy method to
transfer their prescriptions from retail pharmacies to the TMOP. In
August 2007, DOD launched the Member Choice Center, where beneficiaries
can call for assistance, register online for the TMOP, and transfer
their prescriptions from retail pharmacies. The center contacts the
beneficiary's physician, at the beneficiaries' request, to obtain new
prescriptions and forward them to the TMOP for processing.
DOD Uses Pharmacy Data to Identify Beneficiaries for Disease Management
Programs:
According to DOD officials, DOD uses PDTS data to identify
beneficiaries who might benefit from participating in DOD's disease
management program, an organized effort to achieve desired health
outcomes in populations with prevalent, often chronic diseases, for
which care practices may be subject to considerable variation.[Footnote
32] The PDTS contains data on specific drugs, dosages, and dispensing
dates. So, for example, DOD uses PDTS data on drugs dispensed for
asthma to identify beneficiaries who have asthma. DOD uses this
information and other criteria to determine whether a beneficiary is a
candidate for the asthma disease management program. Once identified,
DOD provides patient lists to the managed care support contractors, who
also provide the information to MTFs. Providers are encouraged to
support their patient's active participation in the disease management
program and to facilitate care, such as needed laboratory tests or
screening examinations.
DOD implemented disease management programs for congestive heart
failure and asthma in September 2006 and diabetes in June 2007, which
are administered by the managed care support contractors. MTFs are
required to provide disease management programs for asthma, diabetes,
and screening mammograms. DOD conducts annual comprehensive analyses to
quantify the effect of the disease management programs. The NDAA for
Fiscal Year 2007 required that DOD's disease management program
address, at a minimum: diabetes, cancer, heart disease, asthma, chronic
obstructive pulmonary disorder, and depression and anxiety
disorders.[Footnote 33] DOD is working to expand its disease management
program to include all of the specific diseases and conditions mandated
and plans to report to Congress in March 2008 on the program's design,
development, and implementation plan.
Conclusions:
DOD's pharmacy spending increased at an unsustainable rate from fiscal
year 2000 through fiscal year 2006. Retail pharmacy spending drove most
of the increase, primarily due to the lack of federal pricing
arrangements and increased beneficiary utilization at these pharmacies.
In contrast, increases in pharmacy spending at MTFs and the TMOP,
typically the more cost-effective points of service, were less
pronounced. DOD has taken steps to curtail its rising pharmacy
spending, including using its uniform formulary to obtain lower drug
prices and creating a rebate program for retail pharmacies--efforts
that have saved the agency hundreds of millions of dollars. More
recently, DOD established an outreach program to encourage
beneficiaries to transfer their prescriptions from retail pharmacies to
the TMOP, which has been a less costly option for both DOD and its
beneficiaries.
DOD's ongoing efforts are important to limit future prescription drug
spending. In addition, the agency has its task force's proposals to
consider, which include changes to the copayment and tier structures
aimed at shifting beneficiary utilization away from retail pharmacies.
The agency is also undertaking a fundamental reform--the NDAA for
Fiscal Year 2008 requirement to apply federal pricing arrangements to
drugs dispensed at retail pharmacies--that could have an even greater
effect on spending. DOD will need to carefully monitor the effect of
this new requirement along with its ongoing efforts in order to assess
the progress in controlling spending. DOD will also need to determine
what types of additional efforts, if any, will be necessary to ensure
the fiscal sustainability of its pharmacy benefits program.
Recommendation for Executive Action:
To help ensure the fiscal sustainability of DOD's pharmacy benefits
program and complement more fundamental reforms recently enacted or
recently proposed, we recommend that the Secretary of Defense direct
the Assistant Secretary of Defense for Health Affairs to:
* monitor the effect of federal pricing arrangements for drugs
dispensed at retail pharmacies along with ongoing efforts to limit
pharmacy spending to determine the extent to which they reduce the
growth in retail pharmacy costs, and:
* identify, implement, and monitor other efforts, as needed, to reduce
the growth in retail pharmacy spending.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, DOD stated that it concurred
with our findings and recommendations and that it remains diligent in
its efforts to curtail retail pharmacy costs. DOD noted that its
recently implemented outreach program to encourage beneficiaries to
transfer prescriptions from retail pharmacies to the less expensive
TMOP has had an unanticipated level of participation.
Specifically, in response to our recommendation to monitor the impact
of federal pricing arrangements for drugs dispensed at retail
pharmacies, DOD stated that it has requested additional resources to
implement this NDAA for Fiscal Year 2008 requirement. DOD acknowledged
that, when fully implemented, this authority will have a significant
impact on controlling the growth in retail pharmacy costs. While this
may likely be the case, we reiterate the need for DOD to monitor the
extent to which the federal pricing reduces growth in pharmacy spending
in order to determine whether additional efforts to reduce spending are
warranted. With regard to our recommendation to implement other
efforts, as needed, to reduce growth in retail pharmacy spending, DOD
responded that the recommendations of its task force would have an
impact on overall DOD pharmacy costs in general and retail pharmacy
costs in particular. However, DOD stated that congressional action is
necessary for these measures to be implemented and that it stands ready
to implement them if granted the authority to do so. Nonetheless, our
recommendation was not limited solely to the task force
recommendations. DOD could explore other cost saving initiatives,
similar to its outreach efforts to encourage beneficiaries' use of the
TMOP, which do not require congressional action. DOD's comments are
reprinted in appendix II.
We are sending copies of this report to the Secretary of Defense and
other interested parties. We will also make copies available to others
on request. In addition, the report will be available at no charge on
GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Major contributors to this report were
Bonnie Anderson, Assistant Director; Keyla Lee; Lesia Mandzia; and Tim
Walker.
Signed by:
John E. Dicken:
Director, Health Care:
[End of section]
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan L. Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: The DOD P&T Committee and the Uniform Formulary BAP:
Composition of the Department of Defense Pharmacy and Therapeutics
Committee:
The Department of Defense Pharmacy and Therapeutics Committee consists
of both voting and nonvoting members.
Voting Members:
* Physician Chairman, Health Affairs/TRICARE Management Activity:
* Director, Department of Defense Pharmacy Programs, TRICARE Management
Activity:
* Director, Department of Defense Pharmacoeconomic Center:
* The Army, Navy, and Air Force Surgeons General Internal Medicine
specialty consultants or designees:
* One Army, Navy, or Air Force Surgeon General Pediatric specialty
consultant or designee:
* One Army, Navy, or Air Force Surgeon General Family Practice
specialty consultant or designee:
* One Army, Navy, or Air Force Surgeon General Obstetric/Gynecology
specialty consultant or designee:
* One physician or pharmacist from the United States Coast Guard:
* The Army, Navy, and Air Force Pharmacy specialty consultants or
designees:
* One provider at large from the Army, Navy, and Air Force:
* One physician or pharmacist from the Department of Veterans Affairs:
* The Contracting Officer's Representative for the TRICARE Retail
Pharmacy Program:
* The Contracting Officer's Representative for the TRICARE Mail Order
Pharmacy:
The Pediatric, Family Practice, and Obstetric/Gynecology positions on
the P&T Committee are rotated among the services every 3 years.
Nonvoting Members:
* Representative(s) of the Joint Readiness Clinical Advisory Board:
* Representative(s) of the TRICARE Management Activity Office of
General Counsel:
* Representative(s) of the TRICARE Management Activity Resource
Management Directorate:
* Representative(s) of the Defense Supply Center Philadelphia:
Composition of the Uniform Formulary Beneficiary Advisory Panel:
The Uniform Formulary Beneficiary Advisory Panel consists of the
following members:
* members of nongovernment organizations and associations that
represent the views and interests of TRICARE beneficiaries:
* contractors for the TRICARE Retail Pharmacy Program:
* contractors for the TRICARE Mail Order Pharmacy:
* TRICARE network providers:
[End of section]
Appendix II: Comments from the Department of Defense:
The Assistant Secretary Of Defense:
Health Affairs:
1200 Defense Pentagon:
Washington, DC 20301-1200:
March 19, 2008:
Mr. John E. Dicken:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Dicken:
This is the Department of Defense (DoD) response to the Government
Accountability Office (GAO) draft report, GAO-08-327, "DoD Pharmacy
Program: Continued Efforts Needed to Reduce Growth in Spending at
Retail Pharmacies," dated February 25. 2008 (GAO Code 290604).
Thank you for the opportunity to review and comment on the Draft
Report. Overall, I concur with the report (enclosed). In addition, I
have received concurrence from the three Uniformed Services. As stated
in the report, DoD has taken numerous steps to curtail rising pharmacy
spending including using the DoD Uniform Formulary to leverage
negotiations for lower drug prices and creating a voluntary rebate
program that has saved the agency hundreds of millions of dollars. In
addition, the recently implemented outreach program to encourage
beneficiaries to transfer their prescriptions from the retail program
to the less expensive mail order program has had an unanticipated level
of participation.
The Department remains diligent in its efforts to curtail retail
pharmacy costs. We will continue to employ outcomes research, best
business practices and pharmacy benefit management principles,
including formulary management, step-therapy, coordination of benefits,
and incentives through co-pay adjustments. Furthermore, the National
Defense Authorization Act for Fiscal Year 2008, Section 703, extends
federal discounts to the
purchase of pharmaceuticals used in the TRICARE retail pharmacy
network. When fully implemented, this authority will have a significant
impact on controlling the growth in retail pharmacy costs.
My points of contact on this issue are RADM Thomas McGinnis
(Functional) and Mr. Gunther Zimmerman (Audit Liaison) who may be
reached (703) 681-2890 and (703) 681-4360 respectively.
Sincerely,
Signed by:
S. Ward Casscells, MD:
Enclosure: As stated:
Government Accountability Office Draft Report Dated February 26, 2008
(Government Accountability Office Code 290604):
"DoD Pharmacy Program: Continued Efforts Needed to Reduce Growth in
Spending at Retail Pharmacies"
Department Of Defense Comments To The Recommendation:
To help ensure the fiscal sustainability of the Department of Defense's
(DoDs) pharmacy benefits program and complement more fundamental
reforms recently enacted or recently proposed, we recommend that the
Secretary of Defense direct the Assistance Secretary of Defense (Health
Affairs) to:
Recommendation #1: Monitor the impact of federal pricing arrangements
for drugs dispensed at retail pharmacies along with ongoing efforts to
limit pharmacy spending to determine the extent to which they reduce
the growth in retail pharmacy costs.
DOD Response: Concur. We have requested additional resources to make
the federal mandate operational.
Recommendation #2: Identify, implement, and monitor other efforts, as
needed, to reduce the growth in retail pharmacy spending.
DOD Response: Concur. Implementing the recommendations of the recent
DoD Task Force on the Future of Military Health Care include adjusting
pharmacy co-pays, excluding non-formulary medication out-of-pocket
costs from the catastrophic cap, include selected over-the-counter
drugs to the Uniform Formulary, and mandating a point of service for
selected medications will all require Congressional action through
legislative relief. Each of these actions would have impact on overall
DoD pharmacy costs in general and retail pharmacy costs in particular.
The Department stands ready to implement any or all of these efforts if
granted the authority to do so.
[End of section]
Footnotes:
[1] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP]
(February 2005).
[2] See Pub. L. No. 106-65, § 701, 113 Stat. 512, 677-80 (1999)
(codified as amended at 10 U.S.C. § 1074g).
[3] Federal pricing arrangements refer to prices made available under
38 U.S.C. § 8126. The Federal Supply Schedule price is generally
available to all federal purchasers through contracts administered by
the Department of Veterans Affairs. The law also requires drug
manufacturers to provide brand-name drugs to the four large federal
purchasers of drugs, including DOD, at a price that does not exceed a
federal ceiling price. If the Federal Supply Schedule price for a given
brand-name drug exceeds the federal ceiling price, manufacturers must
offer another price to the four large agencies that is at or below the
federal ceiling price. The federal ceiling price does not apply to
generic drugs.
[4] In 2004, the Department of Veterans Affairs(VA)--the federal agency
responsible for maintaining the Federal Supply Schedule--issued a
letter instructing manufacturers to issue refunds to DOD for drugs
dispensed at retail pharmacies. These refunds were meant to reflect the
difference between the price DOD paid and the price it would have been
entitled to under federal pricing arrangements. However, in 2006, the
Court of Appeals for the Federal Circuit ruled that VA's letter was
insufficient to impose a new substantive rule on the drug
manufacturers. The court did not rule on the issue of whether VA could
impose federal pricing on manufacturers if it used a rulemaking
procedure. See Coalition for Common Sense in Government Procurement v.
Secretary of Veterans Affairs, 464 F.3d 1306 (Fed. Cir. 2006).
[5] See Pub. L. No. 110-181, § 703, 122 Stat. 3, 188 (to be codified at
10 U.S.C. § 1074g(f)).
[6] See Pub. L. No. 109-364, § 718, 120 Stat. 2083, 2292-93 (2006).
[7] Cost avoidance refers to the drug costs DOD would have otherwise
incurred if a formulary decision had not been made.
[8] VARRs are used by DOD to obtain rebates specifically for drugs
dispensed at TRICARE retail network pharmacies.
[9] TRICARE is a regionally structured program that uses contractors to
maintain provider networks to complement health care provided at MTFs.
[10] DOD contracts with Express Scripts, Inc., a private pharmacy
benefits management company, to operate DOD's retail pharmacy program
and the TMOP. Express Scripts has a network of about 59,000 retail
pharmacies where DOD beneficiaries can pick up prescriptions;
beneficiaries can also use nonnetwork retail pharmacies--that is, any
retail pharmacy not in Express Scripts' network.
[11] See Pub. L. No. 106-65, § 701, 113 Stat. 512, 677-80 (1999)
(codified as amended at 10 U.S.C. § 1074g).
[12] A therapeutic class is a group of drugs that are similar in
chemical structure, pharmacological effect, or clinical use.
[13] See Pub. L. No. 109-364, § 711, 120 Stat. 2083, 2284-87 (2006).
[14] During a meeting on April 18, 2007, the Comptroller General
testified before the task force and provided information on DOD's
overall health care spending and its pharmacy copayments. He suggested
that the task force consider whether TRICARE's copayment structure
should be brought into parity with those of other public and private
payers. See GAO, DOD's 21st Century Health Care Spending Challenges,
Presentation for the Task Force on the Future of Military Health Care,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-766CG]
(Washington, D.C.: Apr. 18, 2007).
[15] Full-year data for beneficiaries were available beginning in
fiscal year 2002.
[16] Implemented in April 2001, the TRICARE Senior Pharmacy Program
allowed beneficiaries and their dependents, all of whom must be age 65
or older, to obtain prescriptions from the TMOP and retail pharmacies.
See Pub. L. No. 106-398, § 711, 114 Stat. 1645A-175 through 1645A-176
(2000). Before this program, these beneficiaries could fill their
prescriptions only at MTFs. The TRICARE Senior Pharmacy Program has
been absorbed into TRICARE for Life, the program that began in October
2001 and provides medical benefits to beneficiaries who are eligible
for Medicare Part A and are enrolled in Medicare Part B on the basis of
age, disability, or end-stage renal disease. In fiscal year 2005,
Congress authorized the TRICARE Reserve Select program. Eligible
reservists that enroll in the program may obtain prescriptions
similarly to other TRICARE beneficiaries. See 10 U.S.C. § 1076d.
According to DOD officials, more than 485,000 reservists became
eligible for the pharmacy benefit, but over 11,000 had enrolled as of
December 2006.
[17] Full-year MTF data were available beginning in fiscal year 2003.
[18] MTFs can dispense nonformulary drugs if medically necessary. Proof
of medical necessity is not required for nonformulary drugs to be
dispensed at the TMOP or retail pharmacies.
[19] If no generic equivalent exists or if using a brand-name drug is
medically necessary when a generic equivalent is available, the brand-
name drug will be dispensed at no copayment at MTFs and at the brand-
name copayment at the TMOP and retail pharmacies. If a beneficiary
insists on obtaining a brand-name drug that is not considered medically
necessary when a generic equivalent is available, the beneficiary is
responsible for the full cost of the prescription.
[20] DOD determines these estimated costs using utilization and price
data for each drug before formulary placement was determined.
[21] DOD projected that it would collect at least $120 million through
Uniform Formulary VARRs for fiscal year 2008. This projection was based
on rebates that it collected in fiscal year 2007 and did not account
for new rebate agreements that would be implemented for drugs reviewed
in fiscal year 2008. DOD officials noted that these rebate projections
are contingent on assumptions, for example, about changing market
conditions, and the potential for rebate agreements to be terminated.
This projection was determined prior to the enactment of the NDAA for
Fiscal Year 2008. DOD officials stated that the amount in rebates that
the agency expected to collect for fiscal year 2008 may vary given the
requirement that federal pricing arrangements be extended to drugs
dispensed at retail pharmacies.
[22] See NDAA for Fiscal Year 2007, Pub. L. No. 109-364, § 704(a), 120
Stat. 2280 (2006).
[23] See Pub. L. No. 110-181, § 702, 122 Stat. 3, 188.
[24] The following formulary categories were suggested: (1) Preferred
drugs, including generic, cost-effective brand-name, and selected over-
the-counter drugs; (2) other formulary drugs; (3) nonformulary drugs;
and (4) "Special Category" drugs, such as specialty, very expensive,
and biotechnology drugs. The task force recommended specific copayments
for the first three tiers of its proposed formulary structure and
suggested that Congress grant DOD the authority to mandate the most
cost-effective point of service where "Special Category" drugs can be
obtained.
[25] Until a drug has been reviewed for the uniform formulary, it is
made available to TRICARE beneficiaries at either the formulary generic
or brand-name copayment depending on the type of drug and where the
beneficiary chooses to obtain it.
[26] Breakthrough pain refers to the intermittent flares of severe pain
that can occur in patients taking medications for chronic pain control
on a fixed schedule.
[27] See 10 U.S.C. § 1074g(a)(2)(D).
[28] See "DOD Pharmacy and Therapeutics Committee," [hyperlink,
http://www.tricare.mil/pharmacy/PT_Cmte/default.htm], downloaded
December 3, 2007.
[29] The 322 drugs reviewed for the uniform formulary include multiple
forms of a single drug classified by such factors as its various dosage
forms, strengths, and manufacturers.
[30] MTF providers include physicians, nurse practitioners,
podiatrists, and others.
[31] Express Scripts can receive payment in each quarter based on
beneficiaries' satisfaction rates: $250,000 at 90 percent; $500,000 at
92 percent; $750,000 at 94 percent; $1 million at 96 percent; $1.25
million at 98 percent; and $1.5 million at 100 percent.
[32] Disease management programs are interventions that are evidence-
based to direct the patient's plan of care. Programs also equip the
patient with information and a self-care plan to self-manage wellness
and prevent complications that may result from poor control of the
disease process.
[33] See Pub. L. No. 109-364, § 734, 120 Stat. 2083, 2299-301 (2006).
[End of section]
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