DoD PHARMACY
Unsustainable Growth in Costs is Driving Changes in Current and Future Programs.
by John E. Dicken
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. TRICARE beneficiaries can obtain prescription drugs directly from MTFs, the TMOP, and network and non-network retail pharmacies.
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.
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 a recent Government Accountability Office 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.
UNIFORM FORMULARY DECISION PROCESS
DoD’s process for choosing which drugs to include on the uniform formulary is based on reviews in which the clinical and costeffectiveness 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 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 costeffectiveness 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 costeffectiveness 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, Fentora and Actiq, be designated as formulary despite a more than a fortyfold 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 makes the final decision, no drug may be designated as nonformulary unless the P&T Committee has recommended the nonformulary designation. As of October 2007, the director had approved 188 out of the 190 P&T Committee recommendations. Of the 322 drugs reviewed, 249 were designated as formulary. As of October 2007, 28 drug classes representing 322 drugs had been reviewed for the formulary.
QUALITY MONITORING
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. 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.
Since the August 2007 launch of the Member Choice Center, beneficiaries can call for assistance, register online for the TMOP, in addition to transferring 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.
DISEASE MANAGEMENT
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. 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. 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.
LOOKING TO THE FUTURE
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.
RECOMMENDATIONS
To help ensure the fiscal sustainability of DoD’s pharmacy benefits program and complement more fundamental reforms recently enacted or recently proposed, The GAO has recommended 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. •
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.
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 a recent Government Accountability Office 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.
UNIFORM FORMULARY DECISION PROCESS
DoD’s process for choosing which drugs to include on the uniform formulary is based on reviews in which the clinical and costeffectiveness 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 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 costeffectiveness 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 costeffectiveness 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, Fentora and Actiq, be designated as formulary despite a more than a fortyfold 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 makes the final decision, no drug may be designated as nonformulary unless the P&T Committee has recommended the nonformulary designation. As of October 2007, the director had approved 188 out of the 190 P&T Committee recommendations. Of the 322 drugs reviewed, 249 were designated as formulary. As of October 2007, 28 drug classes representing 322 drugs had been reviewed for the formulary.
QUALITY MONITORING
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. 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.
Since the August 2007 launch of the Member Choice Center, beneficiaries can call for assistance, register online for the TMOP, in addition to transferring 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.
DISEASE MANAGEMENT
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. 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. 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.
LOOKING TO THE FUTURE
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.
RECOMMENDATIONS
To help ensure the fiscal sustainability of DoD’s pharmacy benefits program and complement more fundamental reforms recently enacted or recently proposed, The GAO has recommended 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. •
John E. Dicken is the director of health care at the Government Accountability Office.
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