How TPharm Bought the Farm
.jpg)
The TRICARE Management Activity (TMA) of the Department of Defense pulled a major contract solicitation from the bidding process last December after learning that it could not count on the pharmaceutical prices it was hoping to set in the contract. Since then, TMA has been reviewing its options and plans to deliver a revised solicitation to industry by the summer.
TMA learned last October that First DataBank, a firm that provides the pharmaceutical industry with its most widely used drug database to set the average wholesale price (AWP) of pharmaceutical products, potentially could go away within the lifetime of the TRICARE Pharmacy (TPharm) contract due to litigation against First DataBank, U.S. Public Health Service Rear Admiral Thomas J. McGinnis, chief pharmacy officer in the Office of the Assistant Secretary of Defense for Health Affairs, told Military Medical Technology.
“When we talked to some people about this issue, we saw some consensus that AWP was in jeopardy of actually going away within five years,” McGinnis revealed. “So we brought the solicitation down in December and asked any interested party in industry to contact us and to have a discussion with us so that we could try to establish what benchmark we should peg the TPharm pricing to—a benchmark that would hopefully be around for the full five years of the contract. These contracts are very expensive to bring up, especially if you have to change contractors. You have to let the beneficiaries know the new name and number of the contractor. It’s very laborintensive and costly to the government to bring these contracts up.”
DoD had put out a notice to parties within industry interested in discussing the matter with defense health officials last December. As of press time, officials had held perhaps 16 substantive conversations with industry about their views on First DataBank and what might happen with price benchmarking.
AWP IN JEOPARDY
The First DataBank AWP covers every drug approved by the Food and Drug Administration and the pharmaceutical industry has long depended on the list to provide price benchmarks for drugs that it has sold.
A lawsuit against the firm alleged that First DataBank had improperly set the AWP for about 95 percent of all retail drugs on the market. Health care plans and state Medicaid programs depend on the AWP list to determine the fair price of drugs they need when purchasing them from pharmacies. First DataBank settled the lawsuit, and in so doing agreed to adjust its wholesale acquisition cost mark-up in its AWP measure on 95 percent of the pharmaceutical drugs sold in the United States.
First DataBank agreed that the adjusted wholesale acquisition cost on pharmaceutical products would not exceed a measure of 1.2, which generates a 4 percent reduction in price for all retail drugs. In addition, the firm agreed to stop publishing its AWP list for pharmaceutical products after providing industry with a two-year notice.
Unfortunately for TMA, the TPharm request for proposals had instructed interested bidders to project their proposed costs for pharmaceutical products in retail pharmacies based upon that AWP list. Once a judge in U.S. District Court in Boston approves the settlement, the benchmark in question would no longer exist after the two-year period. As such, TPharm contract standards for the price of retail drugs would suddenly cease to exist as well. TRICARE would face similar problems in its retail pharmacies in the future should it simply extend current contracts indefinitely, although medications within the TRICARE Mail Order Pharmacy Program or the military treatment facilities, as they receive federal pricing.
“The industry seems to be in the same quandary that we are in. Everybody agrees that First DataBank AWP is in jeopardy, depending on what that Boston court does, but nobody knows what comes next,” McGinnis reflected.
NEW SOLICITATION
A TPharm contract award would have the goal of combining operations of both the TRICARE Mail Order Pharmacy (TMOP) and its retail pharmacy (TRRx) under a single contract. At present, Express Scripts Inc. of St. Louis, Mo., manages two separate contracts—one for TMOP and one for TRRx. A company called Medco Health Solutions Inc., based in Franklin Lakes, N.J., received the original TMOP contract, but Express Scripts took it over when it came up for renewal in 2002. Express Scripts then proceeded to win the TRRx contract in a separate competition in 2003.
Combining the operations would save money for DoD while streamlining processes. The original TPharm solicitation had projected that the winning pharmacy benefits manager would implement the combined services in 2008.
DoD must now move that target back as it struggles to develop a plan for what happens with the TPharm pricing when the First DataBank AWP list disappears.
“The industry has not established a new benchmark yet,” McGinnis stated. “Nobody can tell us how long First DataBank AWP will be around. Most agree that there will be a new benchmark sometime down the road, but there is no consensus on when that might be or what that might be. That’s the quandary we are in now, yet we still have to move forward with our TPharm contract. “So our decision now is to pick a benchmark and to try to establish how we get to that new benchmark in a fair and an equitable manner to the government and the contractor should we lose our pricing benchmark within the five years of our TPharm contract,” he added.
So a new contract must contain language that would establish a new benchmark once the AWP list goes away. That is particularly challenging, McGinnis said. DoD contract specialists must craft the new TPharm language in such a way that ensure the government will not suddenly be paying more at some point during the life of the contract while also ensuring that the pharmacy benefits managing company does not receive any less money.
“There is an outside shot that the First DataBank benchmark could be around for the full five years of our contract, but there is an equal chance that it won’t be. We have to protect ourselves with some language to get to the new benchmark should we have to within five years. That’s protecting the taxpayers,” McGinnis noted.
The new TPharm solicitation, which McGinnis hopes to release by the summer of this year, will look much like the old one, the admiral acknowledged, but DoD will use the extra time it has gained because of the AWP snafu to introduce a few changes.
“There are probably going to a few tweaks that we have done since we have had a little bit more time and gotten a little bit more information from some of our phone calls from some of our industry folks,” McGinnis said, but he declined to elaborate on what those tweaks might entail. ♦