PharmacoEconomic Center
MMT recently interviewed Rear Admiral Thomas J. McGinnis, the chief of the Pharmaceutical Operations Directorate, responsible for pharmacy operations of the TRICARE Management Activity, for a look at pharmacies present and future.
by Kelly Fodel, MMT Correspondent
As the price of medications continues to rise, the Department of Defense is looking for the best ways to increase the value, quality and access to medical care and pharmacotherapy, while keeping costs low. The PharmacoEconomic Center (PEC) is dedicated to pharmacoeconomic analysis to find that balance for TRICARE beneficiaries. Military Medical Technology interviewed Rear Admiral Thomas J. McGinnis, the chief of the Pharmaceutical Operations Directorate, responsible for pharmacy operations of the TRICARE Management Activity. McGinnis spoke about the many roles of the PEC, as well as his views on the future of prescription benefit management.
The PharmacoEconomic Center was established to look at drug utilization and how the DoD utilizes drugs for its 9.2 million beneficiaries. Currently about 7 million of those use the pharmacy benefit. The center was originally set up as an Army executive agency, with members from Army, Navy and Air Force, as well as civil servants and contract personnel. The center was transferred to TRICARE in October 2007 because it represents all services. The PEC monitors drug usage and cost trends and performs pharmacoeconomic analyses to support DoD formulary management, national pharmaceutical contracts and clinical practice guidelines.
The PEC evaluates and analyzes economic trend issues, including the way beneficiaries get their prescriptions. There are four ways to obtain medications: military treatment facilities, network pharmacies and clinics, the mail order pharmacy and the retail pharmacy. McGinnis said there are not many pharmacies that are not part of the network; virtually all pharmacies in the country are members of the network. Co-pays for prescriptions are as follows:
- Tier One (generic medications): $3.00
- Tier Two (brand-name drugs): $9.00
- Tier Three (nonformulary drugs): $22.00
The co-pay covers a 30-day supply from member pharmacies and a 90-day supply from the mail order pharmacy. There are no co-pays in the military treatment facilities. “One of the things we have been trying to do for the past few years is use our most efficient cost point, which has been the mail order pharmacy and the military treatment facility,” said McGinnis. “Because we have federal pricing at those facilities, we generally pay about 50 percent more for brand name drugs in the retail network than we do at the treatment facility or mail order pharmacy.”
Just this year, Congress passed a law in the National Defense Authorization Act, authorizing federal pricing for the retail pharmacy network. The PEC did analysis for TRICARE, projecting how much money could be saved due to this new law, assuming beneficiaries continued using the same amount of medication. It also determined that approximately $700 million would be saved in just the first year that the law is in effect.
The retail network has been growing over the years and seems to be where beneficiaries like to go, even though it is a more costly option. The mail order pharmacy offers a savings of 66 percent to the consumer. In the past few years, the use of the mail order pharmacy has been going up, accounting for about 10 million prescriptions per year. “It is a win-win situation. The beneficiary saves, and DoD saves 50 percent,” McGinnis said. “Even after federal pricing is fully implemented sometime early in 2009, there will still be about a 24 percent difference.”
Cost savings is a continual focus of the PEC “in order to sustain the benefit, when drug prices have gone up precipitously over the last five or six years.” Just two years ago, over $5 billion was spent each year. This year, McGinnis said they are close to $7 billion for the pharmacy benefit. He said it the fastest growing cost point TRICARE deals with. “It is estimated that by 2015, that will more than double. We will be close to spending $15 billion for the pharmacy benefit,” said McGinnis. “It is a concern to the DoD that we do whatever we can to sustain the benefit and try to keep those costs within a reasonable range.” Last year, beneficiaries filled 120 million prescriptions and are on track to fill even more in 2008. The PEC is charged with evaluating the use of these drugs and determining if they are appropriately used. It also looks at outcome studies to make sure the military is in line with benchmarks set by the commercial sector or other government agencies like Medicare.
Oversight and analysis by the PEC leads to cost avoidance—trimming the fat that can lead to huge amounts of money saved. To that end, the Government Accountability Office estimated that the Pharmaceutical Operations Directorate was able to avoid $916 million in costs in 2007, thanks to different policies and procedures implemented at that time.
The PharmacoEconomic Center works closely with the Pharmacy Operations Center (POC), which is jointly housed with the PEC. The POC helps the retail pharmacy network and the mail order pharmacy in adjudicating claims regarding medical necessity or coverage. It supports users of the Pharmacy Data Transaction Service, a centralized prescription data repository that provides a single, comprehensive patient drug profile for DoD beneficiaries across the Military Health System. The system can capture transactions in real time, at all three points of service. When a beneficiary gets a prescription filled, an electronic network will check to make sure the individual is eligible for the benefit within six seconds.
“What the computer also does is look up the patient’s profile and use sophisticated software to make sure there will not be a therapeutic duplication or interaction with this new medication. If there is a possible [issue], an electronic message is sent back to the pharmacist, giving them a warning,” McGinnis said.
PEC provides extensive administrative and technical support for the DoD Pharmacy and Therapeutics Committee, which manages the DoD Basic Core Formulary and the Mail Order Pharmacy Formulary. The committee meets quarterly to look at the different classes of drugs. The committee also asks pharmaceutical companies for bid prices on those drugs. Through market competition, they avoid many costs and tap into refunds from the industry. “By the end of this year, we will have refunds in the amount of $220 million to $240 million, and that is substantial,” McGinnis said.
“We are using the data to make policy decisions. We look at where we spend most of our money, on what drug classes. Those are the classes we target first for the P&T [pharmacy and therapeutics] committee. We have received such a low bid from AstraZeneca that for Nexium we can charge a $3.00 co-pay. That is our generic co-pay. We shared the cost savings with the beneficiary population.”
“Our formulary is a little different from most commercial formularies,” McGinnis said. “Meaning when the FDA approves a product, it immediately goes on our formulary at Tier Two [and is immediately available]. When we take a class of drugs and put it before the P&T committee, that is when we look at the price of the drug, and if it is cost effective,” McGinnis said. If it is deemed that a drug can be replaced by a cheaper medication that produces the same result, the more expensive drug is moved to third tier status. Third tier medications are not stocked at the military treatment facilities, to encourage the use of more cost-effective options. If it is deemed necessary to use a third tier drug, a physician can fill out a medical necessity form to obtain it. McGinnis says this process encourages the industry to bid low and avoid that third tier.
In the future, the study of the utilization of drugs will continue to be at the forefront of the PEC’s work. “One of the concerns we have is that future drugs will be very costly. Specialty type drugs will be very expensive, and we will rely on the PEC to take a look at utilization at how to best position them and what policies will be needed to utilize them effectively,” McGinnis said. “We will be setting up our own specialty pharmacy next year, staying in sync with private insurance companies and what they are doing to handle these high-cost drugs.”
“Our most important task is to follow the best commercial practices. We try to copy those practices. The PEC is always out at professional meetings, sharing talks and learning what other insurance companies are doing. We need to stay on the cutting edge as we manage this evergrowing pharmacy benefit.” ♦