TRICARE 

PHARMACY PILOT

Improved Monitoring 

Needed with 

Expansion of Pilot 

Requirements

Report to Congressional Committees

September 2015

GAO-15-768

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-15-768, a report to 

congressional committees

September 2015

TRICARE PHARMACY PILOT

Improved Monitoring Needed with Expansion of Pilot 

Requirements

Why GAO Did This Study

DOD offers a pharmacy benefit to 

TRICARE beneficiaries who may 

obtain prescriptions from TRICARE’s 

mail-order program, MTF pharmacies, 

or retail pharmacies. In 2013, the DOD 

Inspector General reported it was more 

cost efficient to fill prescriptions 

through mail order than retail 

pharmacies. To reduce costs, the 

National Defense Authorization Act 

(NDAA) for Fiscal Year 2013 required 

DOD to implement a pilot for certain 

TRICARE beneficiaries to obtain 

covered brand maintenance 

medications through mail order or MTF 

pharmacies. Under NDAA 2015, the 

pilot terminates at the end of fiscal year 

2015, after which the pilot 

requirements are to be expanded to all 

eligible TRICARE beneficiaries.

The NDAA 2015 included a provision 

for GAO to examine the pilot. This 

report examines the extent to which 

DOD has (1) monitored whether 

covered brand maintenance 

medications were available, and 

prescriptions were filled on time and 

accurately, (2) monitored the 

satisfaction of participating 

beneficiaries, (3) achieved expected 

cost savings, and (4) prepared for the 

expansion. GAO reviewed and 

analyzed pilot performance and 

beneficiary satisfaction data, and cost 

savings estimates, and interviewed 

DOD officials and other stakeholders.

What GAO Recommends

GAO recommends that DOD develop a 

monitoring plan as part of its expansion 

planning documents. DOD concurred 

with GAO’s recommendation. 

What GAO Found

For covered brand maintenance medications—those medications that are taken 

on a regular and recurring basis—the Department of Defense (DOD) has not fully 

monitored availability or the timeliness and accuracy of prescriptions filled for the 

TRICARE for Life Pharmacy Pilot. Specifically, GAO found that for the

• mail-order program: DOD has monitored the availability of medications. It 

has also established and monitored performance standards on the timeliness 

and accuracy of prescriptions filled through mail order for all of TRICARE, but 

has not separately monitored performance through mail order for the pilot.

• military-treatment-facility (MTF) pharmacies: DOD has not established or 

systematically monitored performance standards for the pilot on the 

availability of covered medications, or the timeliness and accuracy of 

prescriptions filled across MTF pharmacies.

Federal internal control standards suggest that agencies establish and review 

performance standards and monitor performance data to assess the quality of 

performance over time. Without fully monitoring the pilot’s performance, DOD 

does not know whether it is working as intended, information that would be 

beneficial given the upcoming expansion of its requirements to all eligible 

TRICARE beneficiaries.

DOD has not monitored the extent to which beneficiaries were satisfied with the 

transfer of prescriptions to mail order or MTF pharmacies for the pilot. DOD 

officials said they relied on the results from a quarterly survey of TRICARE mailorder users to assess the satisfaction of pilot beneficiaries. However, other DOD 

officials who monitor the survey data said they do not know how representative 

the respondents are of pilot beneficiaries making the use of these data for this 

purpose questionable. Moreover, DOD has not monitored satisfaction of pilot 

beneficiaries across MTF pharmacies. Federal internal control standards require 

agencies to obtain information from external stakeholders to assess if they are 

achieving their goals, and to monitor and assess the quality of performance over 

time to ensure that issues are resolved. Without this stakeholder input, DOD 

lacks important information as to whether pilot beneficiaries faced any difficulties, 

including with obtaining their medications.

DOD appears to have achieved its expected cost savings based on estimates 

GAO reviewed. For the first year of the pilot, DOD’s estimated cost savings were 

approximately $123 million based on the prescriptions for covered medications 

filled through mail order. This was comparable to DOD’s projected cost savings 

of $120 million, an estimate that DOD developed prior to the start of the pilot.

DOD has issued regulations, but not finalized planning documents for the 

expansion of the pilot requirements. Officials said that they are in the process of 

developing planning documents, which will generally model those that were 

developed for the pilot. Given the limited monitoring conducted during the pilot, 

as it finalizes its planning documents for the expansion of the pilot to all eligible 

TRICARE beneficiaries, DOD would benefit from developing a robust monitoring 

process of affected beneficiaries, including the availability of medications, the 

timeliness and accuracy of prescriptions filled, and beneficiary satisfaction.

View GAO-15-768. For more information, 

contact Debra A. Draper at (202) 512-7114 or 

draperd@gao.gov. 
Page i GAO-15-768 TRICARE for Life Pharmacy Pilot

Letter 1

Background 5

DOD Has Not Fully Monitored the Availability of Covered 

Medications or the Timeliness and Accuracy of Prescriptions 

Filled for the Pilot 7

DOD Has Not Monitored Beneficiary Satisfaction with the Pilot 11

DOD’s Estimated Cost Savings for the First Year of the Pilot Were 

Generally Comparable to Projected Cost Savings 14

DOD Has Issued Regulations, but Has Not Finalized Planning 

Documents for the Expansion of the Pilot Requirements 15

Conclusions 17

Recommendation for Executive Action 18

Agency Comments and Our Evaluation 18

Appendix I Methodologies to Develop the TRICARE for Life Pharmacy Pilot’s 

Cost Savings Estimates 22

Appendix II Comments from the Department of Defense 25

Appendix III GAO Contact and Staff Acknowledgments 27

Related GAO Products 28

Table

Table 1: Cost Savings Estimates for Prescription Transfers from 

Retail to Mail Order or Military Treatment Facility (MTF) 

Pharmacies for the TRICARE for the Life Pharmacy Pilot 15

Contents
Page ii GAO-15-768 TRICARE for Life Pharmacy Pilot

Abbreviations

DOD Department of Defense

DODIG Department of Defense Inspector General

ESI Express Scripts, Inc.

MOAA Military Officers Association of America

MTF military treatment facility

NDAA National Defense Authorization Act

TREA The Retired Enlisted Association

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Page 1 GAO-15-768 TRICARE for Life Pharmacy Pilot

441 G St. N.W.

Washington, DC 20548

September 30, 2015

Congressional Committees

The Department of Defense’s (DOD) military health system offered 

comprehensive health care coverage—including a pharmacy benefit—to 

an estimated 9.5 million eligible beneficiaries through its TRICARE 

program in fiscal year 2015.1 TRICARE beneficiaries may obtain 

prescription medications from: (1) military-treatment-facility (MTF) 

pharmacies operated by DOD; (2) TRICARE’s mail-order pharmacy 

program; or (3) network or nonnetwork retail pharmacies.2 We previously 

reported that pharmacy benefit costs have been one of the fastest 

growing cost areas within the military health system and that retail 

prescription spending drove most of the growth, comprising 63 percent of 

overall prescription drug spending from fiscal years 2000 through 2006.3

We also reported that retail prescription spending remained over half of 

DOD’s overall prescription drug spending in fiscal year 2011.4

The DOD Inspector General (DODIG) reported in 2013 that it was 

generally more cost efficient for DOD to have TRICARE beneficiaries 

obtain prescription medications through mail order than through retail 

pharmacies.5

 

1

Eligible beneficiaries of TRICARE include active duty personnel and their dependents, 

Reserve and National Guard personnel and their dependents, and retirees and their 

dependents and survivors.

Specifically, the DODIG highlighted that the government 

pays about 17 percent less on average for maintenance medication 

2

MTFs are DOD-operated hospitals and clinics located on military bases throughout the 

United States and overseas.

3

GAO, DOD Pharmacy Program: Continued Efforts Needed to Reduce Growth in 

Spending at Retail Pharmacies, GAO-08-327 (Washington, D.C.: April 2008).

4

In fiscal year 2011, DOD’s prescription drug spending totaled about $7.48 billion; about 

$3.9 billion (53.2 percent) of which was for prescription drugs that beneficiaries obtained 

at retail pharmacies. See GAO, Prescription Drugs: Comparison of DOD, Medicaid, and 

Medicare Part D Retail Reimbursement Prices, GAO-14-578 (Washington, D.C.: June 

2014).

5

Department of Defense, Office of Inspector General, The TRICARE Mail Order Pharmacy 

Program Was Cost Efficient and Adequate Dispensing Controls Were in Place, DODIG2013-108 (Alexandria, Va: July 2013).

Letter
Page 2 GAO-15-768 TRICARE for Life Pharmacy Pilot

prescriptions (those taken on a regular and recurring basis) filled through 

mail-order pharmacies than for those filled through retail pharmacies. 

DOD also encourages beneficiaries to fill prescriptions through MTF 

pharmacies as another lower-cost option for the government. Moreover, 

beneficiaries have lower copayments when filling brand maintenance 

medications through mail order than at retail pharmacies and have no 

copayments when filling prescriptions for these medications at MTF 

pharmacies.6

To reduce costs, DOD implemented a pilot aimed at shifting the volume of 

TRICARE prescriptions for brand maintenance medications from retail 

pharmacies to less expensive options. DOD implemented the TRICARE 

for Life Pharmacy Pilot under a provision in the National Defense 

Authorization Act (NDAA) for Fiscal Year 2013 that required particular 

TRICARE beneficiaries to obtain prescriptions for brand maintenance 

medications covered for the pilot (hereafter referred to as covered 

medications) through mail order or MTF pharmacies rather than through 

retail pharmacies.7 The pilot specifically focused on TRICARE for Life 

beneficiaries—TRICARE beneficiaries enrolled in a “Medicare 

wraparound coverage option”—because they are high users of 

maintenance medications who typically fill a high percentage of 

prescriptions through retail pharmacies.8

 

6

A brand medication is a non-generic medication marketed under a proprietary, 

trademark-protected name. Copayments for brand medications were $17 for a 30-day 

supply filled at a retail pharmacy and $13 for a 90-day supply through mail order, during 

the first year of the pilot (February 2014 through February 2015). Starting Feb. 1, 2015, 

copayments increased to $20 for a 30-day supply filled at a retail pharmacy and $16 for a 

90-day supply through mail order.

Of the 70 million prescriptions 

dispensed to TRICARE beneficiaries through retail pharmacies in fiscal 

year 2012 at a cost of $3.8 billion, 47 percent were filled for TRICARE for 

7

National Defense Authorization Act for Fiscal Year 2013, Pub. L. No. 112-239, § 716, 

126 Stat. 1632, 1804 (Jan. 2, 2013). Covered medications include those prescribed for a 

chronic, long-term condition taken on a regular recurring basis and that DOD selected to 

include as part of the pilot. See www.health.mil/TFLDrugList for those medications 

covered for the pilot.

8

Specifically, TRICARE for Life beneficiaries are entitled to Medicare Part A and enrolled 

in Medicare Part B. In general, Medicare Part A provides benefits for services provided in 

inpatient settings, such as hospitals and Medicare Part B provides benefits for services 

provided in outpatient settings, such as physician offices. TRICARE for Life beneficiaries 

eligible for the pilot are those who have filled covered medications at a retail pharmacy. 

According to DOD officials, TRICARE for Life beneficiaries who are active duty 

servicemembers or their dependents are excluded from the pilot.
Page 3 GAO-15-768 TRICARE for Life Pharmacy Pilot

Life beneficiaries at a cost of $2.2 billion, according to DOD.9 In the 

implementing regulations for the pilot, DOD reported that it expected the 

shift from retail pharmacies to mail order or MTF pharmacies would save 

the department approximately $120 million during the first year.10 The 

pilot began in February 2014 and terminates at the end of fiscal year 

2015, after which the requirements that were for the pilot are to be 

expanded to all eligible TRICARE beneficiaries pursuant to the NDAA for 

Fiscal Year 2015.11

The NDAA for Fiscal Year 2015 included a provision for GAO to examine 

the pilot.12

To determine the extent to which DOD has monitored whether covered 

medications were available and prescriptions were filled on time and 

accurately for the pilot, we examined the performance data that Express 

Scripts, Inc. (ESI)—the pharmacy benefits manager that DOD contracts 

with to manage its network of retail pharmacies and its mail-order 

program—reports to DOD for all prescriptions filled through mail order. 

The data included the extent to which medications were out of stock, and 

the timeliness and accuracy of prescriptions filled. We also requested this 

performance data from DOD and ESI specific to the pilot for covered 

medications for the first year of the pilot from February 2014 through 

This report examines the extent to which DOD has (1) 

monitored whether covered medications were available and prescriptions 

were filled on time and accurately for the pilot, (2) monitored the 

satisfaction of participating beneficiaries, (3) achieved its expected cost 

savings for the first year of the pilot, and (4) prepared for the expansion of 

the pilot requirements to all eligible TRICARE beneficiaries.

 

9

CHAMPUS/TRICARE: Pilot Program for Refills of Maintenance Medications, DOD interim 

final rule, 78 Fed. Reg. 75245, 75246 (Dec. 11, 2013) (regulations codified at 32 C.F.R. 

Part 199.21(r)).

1078 Fed. Reg. 75246. The regulations implementing the pilot became effective on Feb. 

14, 2014.

11Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal 

Year 2015, Pub. L. No. 113-291, § 702(c), 128 Stat. 3292, 3410-3411 (Dec. 19, 2014). 

According to DOD, the expansion of the pilot requirements will save the department 

approximately $88 million per year. See 80 Fed. Reg. 46796 (Aug. 6, 2015). Pilot 

beneficiaries will be included in the expansion, along with other eligible TRICARE 

beneficiaries, such as dependents of active duty servicemembers.

12Pub. L. No. 113-291, § 702(d), 128 Stat. 3292, 3410-3411 (Dec. 19, 2014).
Page 4 GAO-15-768 TRICARE for Life Pharmacy Pilot

February 2015.13 We compared ESI’s performance data for the pilot to 

the performance standards ESI was expected to meet in its contract with 

DOD for the mail-order program. In addition, we requested performance 

standards and data from DOD specific to the pilot for MTF pharmacies, 

but according to DOD officials, these standards and data were not 

available.14

To determine the extent to which DOD has monitored the satisfaction of 

participating beneficiaries, we requested information and data on 

communications that DOD made with pilot beneficiaries regarding 

satisfaction. We reviewed DOD’s quarterly survey data on beneficiary 

satisfaction with TRICARE’s mail-order program that overlapped with the 

first year of the pilot from February 2014 through February 2015.15 We 

also requested information and data on communications made with pilot 

beneficiaries regarding satisfaction with MTF pharmacies; however, this

information and data were not available according to DOD officials. We 

also spoke with officials from two military service organizations about their 

members’ experiences and satisfaction with the pilot.16

To determine the extent to which DOD achieved its expected cost savings 

for the first year of the pilot, we compared the projected cost savings that 

DOD reported prior to the start of the pilot and ESI’s estimate of cost 

savings for the first year (February 2014 through February 2015).17

 

13Data collection for the pilot began on Feb. 15, 2014, according to an ESI official.

We 

reviewed the methodology for both of these estimates.

14For the purposes of this report, unless otherwise noted, “DOD officials” refer to those 

officials from DOD’s Defense Health Agency’s Pharmacy Operations Division who are 

responsible for monitoring the pilot.

15The survey methodology includes a target response of 402 responses each quarter. To 

achieve this target, 4,500 unique beneficiaries who used the mail-order program in the 

previous three months are randomly selected to be contacted.

16We spoke with officials from the Military Officers Association of America (MOAA) and 

The Retired Enlisted Association (TREA). MOAA is a professional association that 

provides transition services (e.g., military benefits counseling and career transition 

assistance) to military officers and their families. TREA is a nonprofit retired military 

veterans association that represents enlisted retirees.

17For the purpose of this report, DOD’s estimate that was developed prior to the start of 

the pilot will be referred to as the “projected cost savings.” ESI’s estimate will be referred 

to as the “estimate of cost savings for the first year of the pilot.”
Page 5 GAO-15-768 TRICARE for Life Pharmacy Pilot

To determine the extent to which DOD has prepared for the expansion of 

the pilot requirements to all eligible TRICARE beneficiaries, we 

interviewed DOD officials and requested documents evaluating the pilot 

and planning documents for the expansion. We also reviewed DOD’s 

contract with ESI to determine if it included requirements specific to the 

expansion.

For each of our research objectives, we interviewed DOD officials and, as 

appropriate, ESI officials. These interviews included discussion about 

how DOD assessed the quality of the data and about the data systems 

that generate the reports provided to DOD. Based on our review of the 

information describing the data collection, analysis, cost saving estimates, 

and systematic checks of the data provided by DOD and ESI, we 

determined the data were sufficiently reliable for our purposes. In 

addition, we reviewed the relevant standards for internal control in the 

federal government.18

We conducted this performance audit from March 2015 to September 

2015 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

In February 2014, DOD began mailing notices to TRICARE for Life 

beneficiaries eligible for the pilot informing them of the pilot requirements 

for filling covered medications through mail order or MTF pharmacies, 

rather than retail pharmacies. In its contract with DOD, ESI is responsible 

for implementing the mail-order component of the pilot, which includes 

operating a call center through which beneficiaries may ask questions 

about the pilot and transfer prescriptions from a retail pharmacy to mail 

order. According to DOD officials, individual MTF pharmacies are 

responsible for implementing the MTF pharmacy component of the pilot. 

DOD’s Defense Health Agency’s Pharmacy Operations Division is 

 

18GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: Nov. 1999).

Background
Page 6 GAO-15-768 TRICARE for Life Pharmacy Pilot

responsible for monitoring both the mail-order and MTF-pharmacy 

components of the pilot.

After receiving DOD’s notice, beneficiaries are allowed two 30-day supply 

refills at a retail pharmacy as a courtesy. The courtesy refills give 

beneficiaries time to transfer their prescriptions to mail order or an MTF 

pharmacy, according to DOD officials.19

Eligible beneficiaries may waive participation in the pilot. Specifically, 

beneficiaries may obtain blanket waivers for medications needed for 

acute care or covered by other health insurance. Beneficiaries may also 

qualify for waivers in certain special circumstances, such as living in a 

nursing home. These waivers are granted on a case-by-case basis. 

Additionally, under the law and implementing regulations, beneficiaries 

may opt out of the pilot after participating for 1 year.

After each of these two refills, 

ESI contacts the beneficiary by letter to remind them about the options for 

obtaining future refills—either through mail order, through an MTF 

pharmacy, or by paying 100 percent of the cost at a retail network 

pharmacy. Requests for coverage for a third refill at a retail pharmacy are 

denied.

20

ESI reported to DOD that there were about 317,000 TRICARE for Life 

beneficiaries eligible to participate in the pilot from February 15, 2014 

through February 28, 2015.21

 

19A 90-day supply of medication is generally provided through mail order and MTF 

pharmacies.

Of those beneficiaries who were eligible, 

about 186,000 (59 percent) transferred their prescriptions from a retail 

pharmacy to mail order for medications covered for the pilot. DOD did not 

have data on the number of eligible pilot beneficiaries who transferred 

their prescriptions from a retail pharmacy to an MTF pharmacy. 

Beneficiaries who did not participate in the pilot did so for reasons such 

as obtaining an override, which is an approval to refill a prescription for a 

covered medication at a network retail pharmacy when not available 

through mail order.

20As of February 2015, ESI reported that 29 beneficiaries had opted out of the pilot after 

meeting this one-year participation requirement.

21ESI reports these numbers at the end of each month to DOD and updates them as 

prescriptions are processed for the pilot. The numbers shown were reported as of March 

2015.
Page 7 GAO-15-768 TRICARE for Life Pharmacy Pilot

The NDAA for Fiscal Year 2013 included a provision for the pilot to run for 

5 years expiring by December 31, 2017. However, the NDAA for Fiscal 

Year 2015 terminated the pilot effective September 30, 2015 and 

expanded the requirements for the pilot to all eligible TRICARE 

beneficiaries beginning October 1, 2015. For the expansion, the 

requirements for filling prescriptions through mail order and MTF 

pharmacies are to generally remain the same as for the pilot; however, 

the option to opt out after participating for 1 year will not be permitted, 

according to DOD officials.22 Although the NDAA for Fiscal Year 2015 

also increased the copayments for all TRICARE prescriptions filled at 

retail pharmacies and through mail order, they continue to be less through 

mail order than at retail pharmacies. Additionally, there continues to be no 

copayment for prescriptions filled at MTF pharmacies.23

DOD has monitored the availability of covered medications, but has not 

separately tracked the timeliness and accuracy of prescriptions filled for 

the pilot through mail order. DOD also has not systematically tracked any 

of this information for the pilot across MTF pharmacies. 

 

22Pub. L. No. 113-291, § 702(c), 128 Stat. 3292, 3410-3411 (Dec. 19, 2014).

23Pub. L. No. 113-291, § 702(b), 128 Stat. 3292, 3410-3411 (Dec. 19, 2014).

DOD Has Not Fully 

Monitored the 

Availability of 

Covered Medications 

or the Timeliness and 

Accuracy of 

Prescriptions Filled 

for the Pilot
Page 8 GAO-15-768 TRICARE for Life Pharmacy Pilot

In the contract in effect at the start of the pilot, DOD required ESI to 

monitor the availability of covered medications for the pilot through mail 

order.24 According to DOD officials, there have been some overall issues 

with availability in mail order due to a medication being out of stock 

because of a manufacturer shortage.25 For the pilot, when a covered 

medication is not available through mail order, the affected beneficiary 

may receive an override to obtain the medication from a retail pharmacy. 

ESI officials told us that the affected beneficiary must receive an override 

for each prescription for a covered medication that is out of stock. From 

March 2014 through February 2015, these officials told us that 5,069 pilot 

beneficiaries (approximately 3 percent of those that participated) received 

5,611 overrides. This represented less than 1 percent of the prescriptions 

filled through mail order for the pilot, and was comparable to the 

availability experience of the entire TRICARE mail-order program. ESI 

officials said that of the 5,611 total overrides approved, only 1,448 were 

actually used by beneficiaries to obtain covered medications from a retail 

pharmacy. DOD officials offered possible explanations for this low use, 

including that the physician may have changed the medication or that the 

beneficiary may have decided to fill the prescription at an MTF pharmacy 

instead of a retail pharmacy. Another potential explanation for not using 

the override may be the higher copayment to fill a covered medication at 

a retail pharmacy.

 

24The pharmacy contract between DOD and ESI that was in effect at the start of the 

pilot was modified to include requirements specific to the pilot. This contract ended on 

April 30, 2015. Full performance under the current pharmacy contract became effective 

on May 1, 2015, which includes requirements specific to the pilot.

25DOD officials told us they reviewed the list of covered medications for the pilot and 

updated it in February 2015 due to availability and manufacturer issues in providing some 

of the medications on the original list. While DOD officials told us they generally prefer not 

to make many changes, it is their practice to review the medication list every quarter and 

examine whether each medication is still applicable to the mail-order program.

DOD Has Monitored 

Availability of Covered 

Medications for the Pilot 

through Mail Order
Page 9 GAO-15-768 TRICARE for Life Pharmacy Pilot

In the contract in effect at the start of the pilot, DOD required ESI to report 

monthly on the timeliness and accuracy of all TRICARE prescriptions 

filled through mail order, but not separately for the pilot. Prescriptions 

filled by pilot beneficiaries represented about 3 percent—about 785,000 

prescriptions—of the approximately 25 million total prescriptions filled 

through mail order from February 2014 through February 2015.26

Because separate reports on the pilot’s performance were not available, 

we reviewed the monthly timeliness and accuracy reports that ESI 

provided to DOD for all TRICARE mail-order prescriptions from February 

2014 through February 2015. We found that ESI did not meet one of the 

four timeliness performance standards—shipping 95 percent of 

prescriptions within 2 calendar days if a clarification or intervention, such 

as a consultation from a pharmacist, is not required—for June and July 

2014.

DOD 

officials said that since they expected the performance standards and the

process for the mail-order program to be the same for the pilot, they did 

not require separate reports to monitor the timeliness and accuracy of 

prescriptions filled for the pilot. Absent such separately tracked data for 

the pilot, however, it may not be clear to what extent any issues identified 

through DOD’s monitoring efforts may have affected prescriptions filled 

for the pilot differently than for all TRICARE prescriptions. Federal internal 

control standards suggest that agencies should monitor performance data 

to assess the quality of performance over time. Monitoring is particularly 

important during transitions of care, such as for medications. Without 

monitoring performance data separately for the pilot, DOD does not know 

what, if any, problems beneficiaries may have experienced filling their 

prescriptions. As a result, DOD lacks potentially important information to 

help inform the upcoming expansion of the pilot requirements, which is 

slated for October 1, 2015.

27

 

26ESI is contractually required to report monthly the number of prescriptions filled for the 

pilot.

During these 2 months, some pilot beneficiaries may have 

27In the contract in effect at the start of the pilot, DOD required ESI to meet four timeliness 

performance standards monthly for mail order prescriptions: 1) ship 95 percent of 

prescriptions within 2 calendar days of receipt if a clarification or intervention is not 

required; 2) ship 100 percent of prescriptions within 4 calendar days of receipt if a 

clarification or intervention is not required; 3) ship 95 percent of prescriptions within 

7 calendar days of receipt if a clarification or intervention is required; and 4) ship 

100 percent of prescriptions within 10 calendar days of receipt if a clarification or 

intervention is required. In the current pharmacy contract, the performance standard for 

timeliness has been revised; specifically, DOD requires ESI to ship mail order 

prescriptions within 10 calendar days of receipt.

DOD Has Monitored the 

Timeliness and Accuracy 

of Prescriptions Filled 

through Mail Order for All 

of TRICARE, but Not 

Separately for the Pilot
Page 10 GAO-15-768 TRICARE for Life Pharmacy Pilot

reached their limit of two courtesy refills at a retail pharmacy and may 

have been in the process of transferring their prescriptions to mail order. 

Therefore, to determine if there were any differences in meeting the 

timeliness performance standards for the pilot compared to all mail-order 

prescriptions, we requested ESI create separate reports specifically for 

the pilot. However, the information ESI provided was for all prescriptions 

filled by pilot beneficiaries, not just those for covered medications.28

The information ESI provided to us showed that, similar to performance 

results for all mail-order prescriptions, for 2 months of the pilot ESI did not 

meet one of the four timeliness standards. As with all mail-order 

prescriptions, ESI did not meet the standard that 95 percent of 

prescriptions be shipped within 2 calendar days of receipt if a clarification 

or intervention is not required. For June and July 2014, ESI shipped 

84 percent of all prescriptions filled by pilot beneficiaries within 2 days, 

compared to 86 percent for the entire mail-order program. DOD reported 

that in June 2014, ESI experienced a system-wide issue—not specific to 

the pilot—with an automatic refill process that was operating improperly 

and was not processing prescriptions, which caused a backlog during 

June and July 2014. However, because data were not separately tracked 

for the pilot, DOD does not know whether pilot beneficiaries were 

disproportionately affected for covered medications.

For the accuracy of prescriptions filled, ESI reported meeting the 

performance standard of 100 percent accuracy each month for all 

TRICARE prescriptions, including those for the pilot, for the entire period 

from February 2014 through February 2015. DOD officials said ESI has 

an internal process to identify potential errors during the prescriptionfilling process, such as a pharmacist checking after a technician enters 

prescription information into its data system; or weighing the contents of a 

prescription to verify that the correct number of units was dispensed. 

Once a prescription is dispensed to a beneficiary, DOD officials told us 

that prescription accuracy is measured as the percent of prescriptions 

dispensed that did not have a validated error, such as a shipping error, 

 

28The data ESI provided reflected all the prescriptions filled by pilot beneficiaries, including 

covered medications for the pilot required to be transferred from retail, medications that 

were not required to be transferred from retail, and medications that were already being 

filled through mail order. In total, about 3.3 million prescriptions were filled through mail 

order by pilot beneficiaries from February 2014 through February 2015, which included the 

approximately 785,000 prescriptions for covered medications.
Page 11 GAO-15-768 TRICARE for Life Pharmacy Pilot

having two different medications mixed in a bottle, or incorrect drug, 

strength, form, patient name, or address. ESI is notified of dispensing 

errors when a beneficiary contacts them regarding the error and shipping 

errors are identified when the medication is returned through the mail.

For the pilot, DOD has not systematically monitored the availability of 

covered medications, or the timeliness and accuracy of prescriptions filled 

across MTF pharmacies. According to the standards for internal control in 

the federal government, agencies should establish and review 

performance standards, and then monitor these data to assess the quality 

of performance over time. DOD has not established performance 

standards across MTF pharmacies for ensuring that covered medications 

are available and prescriptions are filled in a timely and accurate manner 

for pilot beneficiaries. Additionally, while some individual MTF pharmacies 

may collect and monitor performance data on their own, DOD has not 

systematically collected and monitored this information for the pilot 

because the department does not have a central data system for doing 

so.29 As a result, DOD is unable to assess the availability of covered 

medications and whether these prescriptions were filled in a timely and 

accurate manner across MTF pharmacies. DOD also does not know if 

beneficiaries encountered difficulties in obtaining covered medications. 

This information would be beneficial in assisting DOD with the expansion 

of the pilot requirements.

DOD has not monitored the extent to which beneficiaries who participated 

in the pilot were satisfied with the transfer of prescriptions to mail order or 

MTF pharmacies. Federal internal control standards suggest that 

agencies obtain information from external stakeholders who may have a 

significant impact on the agency achieving its goals. Communications—

such as through a survey—with pilot beneficiaries regarding their 

satisfaction with obtaining medications through mail order and MTF 

pharmacies are mechanisms that may have assisted DOD in assessing 

whether it was achieving its goal for beneficiaries to transfer prescriptions 

from retail to mail order and MTF pharmacies. Additionally, a satisfaction 

survey of pilot beneficiaries may have provided information about how 

 

29DOD officials also told us that during the first year of the pilot ESI did not have access to 

prescription data to track a beneficiary that transferred a prescription from a retail 

pharmacy to an MTF pharmacy.

DOD Has Not 

Systematically Monitored 

the Availability of Covered 

Medications or the 

Timeliness and Accuracy 

of Prescriptions Filled for 

the Pilot across MTF 

Pharmacies

DOD Has Not 

Monitored Beneficiary 

Satisfaction with the 

Pilot
Page 12 GAO-15-768 TRICARE for Life Pharmacy Pilot

well the pilot is being implemented, served as a tool for DOD to assess 

the performance of ESI and individual MTF pharmacies, and provided 

senior management information to determine what they could do to 

improve the pilot’s effectiveness. Federal internal control standards also 

require agencies to monitor and assess the quality of performance over 

time in order to ensure that findings are promptly resolved. By not 

separately surveying pilot beneficiaries’ satisfaction with mail order or 

MTF pharmacies, DOD does not know whether beneficiaries faced any 

difficulties obtaining their covered medications, which is particularly 

important to monitor during transitions of care. Consequently, DOD lacks 

assurance that the pilot is working for participating beneficiaries as 

intended, and is missing important information that may be useful to help 

inform the expansion of the pilot’s requirements to all eligible TRICARE 

beneficiaries.

For mail order, DOD officials who monitor the pilot told us they have relied 

on the results from a quarterly survey of all TRICARE mail-order 

pharmacy users— the TRICARE Mail-Order Pharmacy Satisfaction 

Survey—to assess the satisfaction of pilot beneficiaries.30 DOD has not 

separately monitored beneficiary satisfaction for the pilot through mail 

order because DOD officials said the mail-order process is the same for 

pilot and non-pilot beneficiaries, and therefore the results of the TRICARE 

Mail-Order Pharmacy Satisfaction Survey would also be applicable to 

pilot beneficiaries. However, other DOD officials who monitor the survey 

results said they do not recommend generalizing the survey results to the 

overall TRICARE mail-order population or to pilot beneficiaries, thus 

making the use of these data for this purpose questionable. These 

officials said they do not know how representative the survey respondents 

are of the TRICARE mail-order population or pilot beneficiaries.31

 

30The results of this survey along with other performance measures, such as program cost 

control, are used to determine a quarterly performance bonus to ESI for operating the 

mail-order program, according to DOD officials.

Pilot 

beneficiaries may have different characteristics than those of all mailorder beneficiaries. Officials told us that DOD does not collect 

demographic information of survey respondents (e.g., age, regional 

information) and has never compared the information on the survey 

respondents to the overall mail-order population to assess similarities 

31DOD officials who monitor the satisfaction survey results are from DOD’s Defense 

Health Agency’s Decision Support Division.
Page 13 GAO-15-768 TRICARE for Life Pharmacy Pilot

between the two groups. Moreover, DOD has not compared the 

characteristics of beneficiaries who responded to the survey to those that 

did not, and consequently, is therefore unable to determine 

representativeness and how these characteristics may be related to 

satisfaction.

DOD also has not monitored beneficiary satisfaction with the pilot based 

on calls to ESI’s call center. DOD officials told us that beneficiaries could 

use the call center to express complaints with the pilot. ESI reported at 

least two significant increases in call volume during March and May of 

2014, which DOD and ESI officials said they thought was due largely to 

beneficiaries seeking assistance in transferring prescriptions from a retail 

pharmacy to mail order. For example, according to DOD and ESI officials, 

the increase in call volume in March 2014 could have been due to eligible 

beneficiaries having received their initial letters to transfer their 

prescriptions for the pilot. In May 2014, beneficiaries who used courtesy 

refills may have started to reach their two-refill limit at a retail pharmacy 

and would therefore need to transfer prescriptions to mail order or MTF 

pharmacies. However, DOD officials told us that ESI is not required to 

track the details of these calls, including whether beneficiaries expressed 

any complaints with the pilot. According to these officials, ESI provided 

general feedback about the pilot during monthly meetings with DOD.

Additionally, DOD officials told us they have not monitored beneficiary 

satisfaction with the pilot across MTF pharmacies. DOD officials said 

because they do not have a central data system to track pilot 

beneficiaries that transferred prescriptions from a retail pharmacy to an 

MTF pharmacy, they are unable to assess beneficiary satisfaction for the 

pilot. However, DOD officials said that individual MTF pharmacies may 

assess beneficiary satisfaction.

Although DOD did not assess pilot beneficiary satisfaction, two military 

service organizations—the Military Officers Association of America 

(MOAA) and The Retired Enlisted Association (TREA)—reported 

informally collecting information from members about their experience 

with the pilot. A TREA representative told us that some of their members 

reported having problems with the initial enrollment, but said that once the 

pilot started the organization stopped receiving complaint calls and 

surmised the pilot was working well. Similarly, a MOAA representative 

reported their members having an issue with the “roll out” of the pilot. This 

representative also reported contacting members who participated in the 

pilot, and found that a little more than half of 40 members contacted 

indicated they were better off having received their medications through 
Page 14 GAO-15-768 TRICARE for Life Pharmacy Pilot

the pilot, thus illustrating that while some are satisfied with the pilot, there 

may be varying levels of satisfaction among participating beneficiaries.

As of February 2015, ESI estimated that DOD saved approximately 

$123 million based on prescriptions processed through mail order for the 

first year of the pilot.32 This number was comparable to DOD’s projected 

cost savings of approximately $120 million that was estimated prior to the 

start of the pilot (see table 1).33

The estimated cost savings for the first year of the pilot did not reflect 

prescriptions transferred to MTF pharmacies because DOD has not 

tracked these prescriptions for the pilot, according to DOD officials. 

Rather, these officials said they expected that most beneficiaries 

participating in the pilot would transfer their prescriptions from retail 

pharmacies to mail order rather than to MTF pharmacies based on a 

model the department developed. This model examines workload at 

retail, mail order, and MTF pharmacies, and shows that most 

prescriptions have moved from retail to mail order over time. Cost savings 

may have been greater than the estimated $123 million had prescription 

transfers from retail pharmacies to MTF pharmacies been included 

because MTF pharmacies are a lower-cost option than retail pharmacies.

 

32DOD is required to periodically report to the congressional defense committees on the 

pilot. For example, DOD reported estimated cost savings of $106 million for the pilot for 

the period Feb. 15, 2014 through Dec. 31, 2014—representing slightly over 

10 months of the first year of the pilot. However, the $106 million reflects estimated cost 

savings before DOD paid an administrative fee to ESI to transfer prescriptions from retail 

to mail order through its call center. After deducting that administrative fee, the cost 

savings would have been about $97 million.

33Appendix I provides a description of the methodologies used to determine the cost 

savings estimates.

DOD’s Estimated 

Cost Savings for the 

First Year of the Pilot 

Were Generally 

Comparable to 

Projected Cost 

Savings
Page 15 GAO-15-768 TRICARE for Life Pharmacy Pilot

Table 1: Cost Savings Estimates for Prescription Transfers from Retail to Mail Order or Military Treatment Facility (MTF) 

Pharmacies for the TRICARE for the Life Pharmacy Pilot

Source Estimate Time period

Mail order or MTF 

pharmacy transfers Methodology

DOD’s regulations 

implementing the pilot 

(effective February 2014)a

$120 million 

projection

A projected calendar 

year

 Mail order

 MTF pharmacy

Used data from the 4th quarter 2012 

to determine the difference in the cost 

of filling brand maintenance 

medications through mail order or an 

MTF pharmacy instead of a retail 

pharmacy and projected those

savings for one calendar year.

Express Scripts, Inc. report 

to DOD (March 2015)

$123 million 

estimated cost 

savings

February 15, 2014 – 

February 28, 2015b  Mail order

 MTF pharmacyc

Used data from February 15, 2014 – 

February 28, 2015 to determine the 

difference in the cost of filling a 

covered medicationd through mail 

order instead of a network retail 

pharmacy and then subtracted an 

administrative fee DOD pays Express 

Scripts, Inc. to facilitate the transfer of 

the prescription from retail to mail

order through its call center.

Source: GAO analysis of information from DOD and Express Scripts, Inc. | GAO-15-768

a

See 78 Fed. Reg. 75246 (regulations became effective February, 2014).

b

This time period represents 2 weeks more than a calendar year.

c

Transfers to MTF pharmacies have not been included in the savings; if they had, the savings would 

be expected to have been greater.

d

See www.health.mil/TFLDrugList for those medications covered for the pilot.

As of August 6, 2015, DOD issued an interim final rule implementing the 

expansion of the pilot requirements to all eligible TRICARE 

beneficiaries.34

 

3480 Fed. Reg. 46796 (Aug. 6, 2015). Comments on the interim final rule will be accepted 

through Oct. 5, 2015 and will be considered during the second year of the expansion.

DOD officials told us that they are in the process of 

developing planning documents for the expansion of the pilot 

requirements to all eligible TRICARE beneficiaries, but have not finalized 

these documents. Officials explained that they will use planning 

documents prepared for the pilot (e.g., a plan to communicate the 

requirements of the program) to guide them in developing these 

documents for the expansion. Similarly, officials said that they generally 

plan to follow the same processes used for the pilot. For example, they 

will mail notices to eligible beneficiaries that they are required to obtain 

their covered medications through mail order or from an MTF pharmacy.

DOD Has Issued 

Regulations, but Has 

Not Finalized 

Planning Documents 

for the Expansion of 

the Pilot 

Requirements
Page 16 GAO-15-768 TRICARE for Life Pharmacy Pilot

DOD officials also stated that they are drafting contractual requirements 

for the expansion that will be added to the current pharmacy contract with 

ESI. Officials said these contract requirements will likely model those that 

were developed for the pilot, including requiring ESI to report monthly 

cost savings estimates.35

DOD officials told us that they do not have plans to conduct a systematic 

evaluation of the pilot to prepare for the expansion. Officials explained 

that because the NDAA for Fiscal Year 2015 required that the pilot end 

2 years earlier than expected, there is not enough time to conduct an 

evaluation prior to the expansion of the requirements to all eligible 

TRICARE beneficiaries. They also told us that the NDAA for Fiscal Year 

2013, which established the pilot, did not require that they conduct such 

an evaluation. However, officials said they have performed ongoing 

assessments during the pilot and identified some lessons learned that will 

be incorporated during the implementation of the expansion, such as 

ensuring that beneficiaries have sufficient time to transfer their covered 

medications so as to not disrupt their medication regimens.

While not specific to the expansion, DOD also 

added in new requirements to ESI’s current pharmacy contract including 

assisting with the transfer of prescriptions from a select number of MTF 

pharmacies to mail order, a service that ESI previously did not provide. A 

DOD official told us that the ability to transfer a prescription from a retail 

pharmacy to mail order has been helpful for beneficiaries and key to 

expanding TRICARE’s mail-order program. The official added that these 

new requirements will give ESI the ability to provide the same support to 

beneficiaries who want to transfer prescriptions from MTF pharmacies to 

mail order.

Additionally, DOD does not know how the expected increase in the 

number of beneficiaries with the expansion may affect the capacity of mail 

order and MTF pharmacies. As of March 2015, ESI estimated that about 

416,000 additional beneficiaries will be required to transfer prescriptions 

from retail to mail order or MTF pharmacies when the expansion is 

implemented.36

 

35Other requirements included reporting the number of covered medications, number of 

unique pilot beneficiaries, and the number of pilot beneficiaries who received an override.

DOD officials told us that ESI officials verbally assured 

36ESI officials explained that because the number of eligible beneficiaries is based on data 

that are available at a specific time, they plan to recalculate this estimate closer to the time 

that the expansion occurs.
Page 17 GAO-15-768 TRICARE for Life Pharmacy Pilot

them that the company has sufficient capacity to handle the increased 

volume when the expansion is implemented. DOD did not conduct its own 

assessment of ESI’s ability to handle the additional capacity because 

DOD officials said they expect ESI to meet the contractual requirements 

related to availability, timeliness and accuracy for all mail order 

prescriptions, including the additional prescriptions resulting from the 

expansion.

DOD officials also stated that MTF pharmacies should be able to handle 

the additional capacity for the expansion because they expect most 

prescriptions to be transferred to mail order based on the workload model

previously discussed. However, according to DOD officials, this model is 

not specific to the pilot and does not track pilot beneficiaries’ use of MTF 

pharmacies to predict how the expansion could affect MTF pharmacies’ 

workload. Additionally, because DOD has not monitored the availability, 

timeliness or accuracy of prescriptions filled for covered medications, 

beneficiary satisfaction, or cost savings for the pilot across MTF 

pharmacies, it does not know how the expansion may impact the capacity 

of MTF pharmacies. 

We recognize that NDAA for Fiscal Year 2015 shortened the period of the 

pilot; however, the lack of systematic monitoring that we identified and 

discussed earlier in the report suggests that DOD, in planning for the 

expansion of the pilot requirements, would benefit from enhanced 

emphasis on the monitoring of the availability of covered medications, the 

timeliness and accuracy of prescriptions filled through mail order and 

MTF pharmacies, and beneficiary satisfaction. This would be consistent 

with federal standards for internal controls, which supports monitoring to 

be performed continually and ingrained in an agency’s operations.

While DOD’s monitoring of the effects of the pilot on participating 

beneficiaries has been limited, the pilot appears to have yielded 

substantial cost savings for the government and lower copayments for 

beneficiaries during its first year. These savings are expected to grow 

once the requirements of the pilot are expanded to all eligible TRICARE 

beneficiaries. As DOD implements the expansion of pilot requirements, 

the agency would benefit from improved monitoring of affected 

beneficiaries, including the availability of covered medications, the 

timeliness and accuracy of prescriptions filled, and satisfaction. 

Particularly in light of the absence of a systematic evaluation of the pilot 

and its implications for the full expansion, such monitoring is important in 

identifying and addressing problems that may occur as beneficiaries 

Conclusions
Page 18 GAO-15-768 TRICARE for Life Pharmacy Pilot

transition their covered medications from retail to mail order or MTF 

pharmacies.

To be able to identify and address problems that may occur and thus help 

ensure a smooth transition, we recommend that the Secretary of Defense 

require the Defense Health Agency ensure that planning documents for 

the expansion include specific requirements to continuously monitor 

affected beneficiaries, including whether

• covered medications are available and filled in a timely and accurate 

manner through mail order and across MTF pharmacies; and

• beneficiaries are satisfied with the transition to mail order and MTF 

pharmacies.

In commenting on a draft of this report, DOD concurred with our audit 

findings and conclusions, as well as our recommendation that planning 

documents for the expansion should include requirements to monitor 

affected beneficiaries, including the availability of covered medications, 

the timeliness and accuracy of prescriptions filled, and the satisfaction of 

beneficiaries with mail order and MTF pharmacies. DOD’s comments are 

reprinted in Appendix II. 

DOD commented that the experience and lessons learned from the pilot 

were included in developing the pharmacy contract requirements to 

expand the program. Subsequent to sending the draft report to DOD for 

comment, the pharmacy contract was modified on September 3, 2015 to 

include requirements for the expansion. Upon our review of the modified 

contract, we found that the requirements related to the expansion did not 

require the separate monitoring of the timeliness and accuracy of 

prescriptions filled for beneficiaries directly affected by the expansion who 

are transitioning from retail to mail order. We maintain that DOD would 

benefit from monitoring performance separately for these affected 

beneficiaries. This population, which takes maintenance medications for 

chronic conditions, may represent a different profile of prescriptions than 

for all mail-order beneficiaries. Therefore, this population may experience 

timeliness and accuracy differently than do all mail-order beneficiaries. 

Without monitoring performance data separately, it may not be clear to 

what extent any issues identified through DOD’s monitoring efforts may 

be different for this population, especially during the initial transition from 

retail to mail order.

Recommendation for 

Executive Action

Agency Comments 

and Our Evaluation
Page 19 GAO-15-768 TRICARE for Life Pharmacy Pilot

DOD also commented that after the expansion occurs beneficiary 

satisfaction with mail order will continue to be measured as it was done 

previously through a survey of all TRICARE mail-order pharmacy users. 

However, as we reported, the results of this survey of all TRICARE mailorder pharmacy users may not represent well the satisfaction of subpopulations, such as affected beneficiaries. Also, as we reported, DOD 

officials who monitor this satisfaction survey said they do not recommend 

generalizing the survey results for multiple reasons, such as being unable 

to determine representativeness of the survey respondents. We maintain 

that DOD should separately survey the satisfaction of affected 

beneficiaries with mail order given that this population may have different 

characteristics than those of all mail-order beneficiaries generally, and 

those differences may be associated with satisfaction. Without assessing 

the satisfaction of affected beneficiaries, DOD will not know whether 

these beneficiaries faced any difficulties in obtaining their covered 

medications, which is important to know during transitions of care.

Finally, DOD commented, that there is no indication based on workload 

data, that affected beneficiaries will choose to use MTF pharmacies once 

the expansion occurs. In addition, DOD commented that MTF pharmacies 

will continue to individually monitor their own performance and beneficiary 

satisfaction according to individual performance standards. However, as 

we discuss in the report, DOD officials told us that the workload model 

does not specifically track pilot beneficiaries’ use of MTF pharmacies to 

predict how the expansion could affect MTF pharmacies’ workload. Given

that there are 416,000 additional beneficiaries expected to be affected by 

the expansion and that their use of MTF pharmacies could be different 

than the use for all TRICARE beneficiaries generally, we maintain that 

DOD would benefit from systematically monitoring affected beneficiaries, 

including across MTF pharmacies. Without doing so, DOD will not know if 

affected beneficiaries encountered difficulties in obtaining covered 

medications.
Page 20 GAO-15-768 TRICARE for Life Pharmacy Pilot

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Defense, and other interested parties. In 

addition, the report is available at no charge on the GAO website at 

http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-7114 or at draperd@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix III.

Debra A. Draper

Director, Health Care
Page 21 GAO-15-768 TRICARE for Life Pharmacy Pilot

List of Committees

The Honorable John McCain

Chairman

The Honorable Jack Reed

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Thad Cochran

Chairman

The Honorable Richard Durbin

Ranking Member

Committee on Appropriations

Subcommittee on Defense

United States Senate

The Honorable Mac Thornberry

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable Rodney Frelinghuysen

Chairman

The Honorable Pete Visclosky

Ranking Member

Committee on Appropriations

Subcommittee on Defense

House of Representatives
Appendix I: Methodologies to Develop the 

TRICARE for Life Pharmacy Pilot’s Cost 

Savings Estimates

Page 22 GAO-15-768 TRICARE for Life Pharmacy Pilot

The estimated cost savings for the first year of the pilot of $123 million 

were generally comparable to the projected cost savings of approximately 

$120 million that the Department of Defense (DOD) reported prior to the 

start of the pilot. The $120 million estimate represented projected cost 

savings from the transfer of prescriptions for brand maintenance 

medications from retail pharmacies to either TRICARE’s mail-order 

pharmacy program or a military treatment facility (MTF) pharmacy.1 The 

$123 million estimate represented cost savings from the transfer of 

prescriptions for covered brand maintenance medications (hereafter 

referred to as covered medications) from retail pharmacies to TRICARE’s 

mail-order program for the period February 15, 2014 through 

February 28, 2015.2

DOD’s projected cost savings for the pilot. DOD officials told us that 

they made some assumptions about the transfer of prescriptions for 

brand maintenance medications from retail pharmacies to mail order or 

MTF pharmacies in calculating the projected cost savings of $120 million 

for a calendar year. DOD assumed that cost savings would be the same if 

they repriced these retail prescriptions to reflect the cost at mail order or 

at MTF pharmacies because the average cost of a brand maintenance 

medication was about the same at both, based on a model that DOD 

developed.3

 

1

A brand medication is a non-generic medication marketed under a proprietary, 

trademark-protected name. DOD officials told us that at the time of developing the 

projected cost savings they used a list of brand maintenance medications that were 

suitable for mail order. They used this list as proxy for the covered medications for the 

pilot since the list had not yet been developed.

For the purposes of calculating projected cost savings, DOD 

officials told us that they assumed that 100 percent of the retail 

prescriptions would transfer to mail order, but told us the projected cost 

savings would have been about the same if they assumed that less than 

100 percent of retail prescriptions were transferred to mail order (e.g., if 

90 percent were transferred to mail order and 10 percent were transferred 

to MTF pharmacies).

2

Covered medications include those prescribed for a chronic, long-term conditions taken 

on a regular recurring basis and that DOD selected to include as part of the pilot. See 

www.health.mil/TFLDrugList for those medications covered for the pilot.

3

DOD officials said they developed a model to estimate cost savings across all DOD 

initiatives, including the pilot, and to examine workload at retail, mail order, and MTF 

pharmacies.

Appendix I: Methodologies to Develop the 

TRICARE for Life Pharmacy Pilot’s Cost 

Savings Estimates
Appendix I: Methodologies to Develop the 

TRICARE for Life Pharmacy Pilot’s Cost 

Savings Estimates

Page 23 GAO-15-768 TRICARE for Life Pharmacy Pilot

To develop the projected cost savings of $120 million, DOD officials 

explained that they

• used data from the fourth quarter of 2012 to determine that 

approximately 800,000 prescriptions for brand maintenance 

medications were filled by beneficiaries aged 65 years and older at 

retail pharmacies,

• determined the retail cost for each of these prescriptions, typically 

filled for a 30-day supply, including ingredient cost, dispensing fees 

and administrative fees,4

• converted the retail cost of these prescriptions from a 30-day supply 

to the cost for a 90-day supply (e.g., the ingredient cost for a 30-day 

supply at a retail pharmacy of $10 would have been $30 for a 90-day 

supply at a retail pharmacy),

• determined what the cost would have been for these prescriptions if 

they had been filled through mail order, typically filled for a 90-day 

supply,

• calculated the difference in the copayment that a beneficiary paid at a 

retail pharmacy to the copayment for mail order,

• calculated the total cost savings for filling these 800,000 prescriptions 

at mail order instead of at retail pharmacies: retail cost less mail-order 

cost and copayment difference. Any manufacturer refunds for brand 

maintenance medications filled through retail pharmacies also were 

taken into account. This yielded a savings of about $40 million per 

quarter.

DOD officials explained that after accounting for factors such as 

beneficiaries using the courtesy refills at retail and receiving waivers to 

not participate in the pilot, they assumed that about 75 percent of the 

$40 million quarterly savings would be achieved. Therefore, they 

projected that the pilot would save about $30 million per quarter, or 

$120 million for a calendar year.

 

4

Ingredient cost reflects the price of a drug negotiated for the TRICARE program. A 

dispensing fee is the amount paid to the pharmacy for dispensing a medication. An 

administrative fee is paid to Express Scripts Inc., DOD’s pharmacy-benefits-management 

contractor, for a prescription dispensed through its network of retail pharmacies and the 

mail-order program.
Appendix I: Methodologies to Develop the 

TRICARE for Life Pharmacy Pilot’s Cost 

Savings Estimates

Page 24 GAO-15-768 TRICARE for Life Pharmacy Pilot

Express Scripts Inc.’s estimate of cost savings for the first year of 

the pilot. DOD requires Express Scripts, Inc. (ESI)—the pharmacy 

benefits manager that DOD contracts with to manage its network of retail 

pharmacies and mail-order program—to calculate and report a monthly 

cost savings estimate for mail-order prescriptions specific to the pilot.

To develop the cost savings estimate of $123 million for the first year of 

the pilot (February 15, 2014 through February 28, 2015), ESI officials 

explained that they

• used data from February 15, 2014 through February 28, 2015 to 

determine that approximately 785,000 prescriptions for covered

medications were filled through mail order for the pilot,

• determined the mail-order cost of these prescriptions, typically filled 

for a 90-day supply, including ingredient cost, dispensing fees, and 

administrative fees,

• converted the mail-order cost of each of these prescriptions from a 

90-day supply to the cost for a 30-day supply (e.g., the ingredient cost 

for a 90-day supply at mail order of $30 would have been $10 for a 

30-day supply at a retail pharmacy),

• determined what the cost would have been for these prescriptions if 

they had been filled at a retail pharmacy, typically filled for a 30-day 

supply,

• calculated the difference between the copayments at mail order to the 

copayments that beneficiaries would pay at retail pharmacies,

• calculated the total cost savings for filling these 785,000 prescriptions 

through mail order instead of at retail pharmacy: total ingredient cost 

difference plus dispensing fee difference plus administrative fee 

difference less copayment difference. Any manufacturer refunds 

for brand maintenance medications filled through retail pharmacies 

were also taken into account. This resulted in a savings of about 

$132 million.

• subtracted an administrative fee DOD pays ESI to transfer each 

prescription from retail pharmacy to mail order through its call center. 

According to a DOD official, the administrative fee to transfer 

prescriptions from retail pharmacies to mail order is an initial 

discretionary cost that DOD chose to incur to ensure a smooth 

transition for beneficiaries. After subtracting the $9 million 

administrative fee related to the transfer of prescriptions through ESI’s 

call center, the net cost savings for the pilot through mail order was 

$123 million.
Appendix II: Comments from the Department 

of Defense

Page 25 GAO-15-768 TRICARE for Life Pharmacy Pilot

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 26 GAO-15-768 TRICARE for Life Pharmacy Pilot
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 27 GAO-15-768 TRICARE for Life Pharmacy Pilot

Debra A. Draper, (202) 512-7114 or draperd@gao.gov. 

In addition to the contact name above, Rashmi Agarwal, Assistant 

Director; Jennie F. Apter; Jacquelyn Hamilton; Deitra H. Lee; 

Eric Wedum; and Joanna Wu made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Related GAO Products

Page 28 GAO-15-768 TRICARE for Life Pharmacy Pilot

Compounded Drugs: TRICARE’s Payment Practices Should Be 

More Consistent with Regulations. GAO-15-64. Washington, D.C.: 

October 2, 2014.

Prescription Drugs: Comparison of DOD, Medicaid, and Medicare 

Part D Retail Reimbursement Prices. GAO-14-578. Washington, D.C.: 

June 30, 2014.

Defense Health Care: Evaluation of TRICARE Pharmacy Services 

Contract Structure Is Warranted. GAO-13-808. Washington. D.C.: 

September 30, 2013.

Prescription Drugs: Overview of Approaches to Control Prescription 

Drug Spending in Federal Programs. GAO-09-819T. Washington, D.C.: 

June 24, 2009.

DOD Pharmacy Program: Continued Efforts Needed to Reduce Growth 

in Spending at Retail Pharmacies. GAO-08-327. Washington, D.C.: 

April 4, 2008.

DOD Pharmacy Benefits Program: Reduced Pharmacy Costs Resulting 

from the Uniform Formulary and Manufacturer Rebates. GAO-08-172R. 

Washington, D.C.: October 31, 2007.

TRICARE: Enrollment of the Department of Defense’s TRICARE 

Beneficiaries in Medicare Part B. GAO-06-489R. Washington, D.C.: 

June 30, 2006.

Mail Order Pharmacies: DOD’s Use of VA’s Mail Pharmacy Could 

Produce Savings and Other Benefits. GAO-05-555. Washington, D.C.: 

June 22, 2005.

Defense Health Care: Need for Top-to-Bottom Redesign of Pharmacy 

Programs. GAO/T-HEHS-99-75. Washington, D.C.: March 10, 1999.

Defense Health Care: Fully Integrated Pharmacy System Would Improve 

Service and Cost-Effectiveness. GAO/HEHS-98-176. Washington, D.C.: 

June 12, 1998.

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