DOD Pharmacy Program: Continued Efforts Needed to Reduce Growth in Spending at Retail Pharmacies
Published: 2008-04-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Estimated to reach $15 billion by 2015, the Department of Defense's (DOD) prescription drug spending has been a growing concern for the federal government. The John Warner National Defense Authorization Act (NDAA) for Fiscal Year 2007 required GAO to examine DOD's pharmacy benefits program. Specifically, as discussed with the committees of jurisdiction, GAO examined DOD's prescription drug spending trends from fiscal years 2000 through 2006 and DOD's key efforts to limit its prescription drug spending. To conduct this work, GAO analyzed DOD's data on spending trends, including trends in beneficiary pharmacy use. GAO also assessed DOD's cost avoidance data and the agency's efforts to limit spending through its uniform formulary, which is a list of preferred drugs available to all beneficiaries. GAO interviewed DOD officials about these and other efforts to limit spending.
section_title: What GAO Found
paragraphs: Collectively, DOD's drug spending at retail pharmacies, military treatment facilities (MTF), and the TRICARE Mail Order Pharmacy (TMOP) more than tripled from $1.6 billion in fiscal year 2000 to $6.2 billion in fiscal year 2006. Retail pharmacy spending drove most of this increase, rising almost ninefold from $455 million to $3.9 billion and growing from 29 percent of overall drug spending to 63 percent. The growth in retail spending reflects the fact that federal pricing arrangements, which generally result in prices lower than retail prices, were not applied to drugs dispensed at retail pharmacies during this time. In addition, beneficiaries' increased use of retail pharmacies over the less costly options of MTFs or the TMOP exacerbated the effect of these higher prices. For example, 2 million beneficiaries used only retail pharmacies in fiscal year 2006--double the number in fiscal year 2002. However, future growth in retail pharmacy spending may slow as the NDAA for Fiscal Year 2008 now requires that federal pricing arrangements be applied to drugs dispensed at retail pharmacies. DOD's key efforts to limit its prescription drug spending have included its use of the uniform formulary and beneficiary outreach to encourage use of the TMOP. By leveraging its uniform formulary, which was implemented in fiscal year 2005, the agency avoided about $447 million in drug costs in fiscal year 2006 and $916 million in fiscal year 2007, according to DOD's data. In exchange for formulary placement, manufacturers can offer DOD prices below those otherwise available through federal pricing arrangements, which at the time of our review were applied only to drugs dispensed at MTFs and the TMOP. To compensate, in August 2006, DOD began obtaining voluntary manufacturer rebates for formulary drugs dispensed at retail network pharmacies. As of October 1, 2007, DOD collected about $28 million in rebates for fiscal year 2007. Also in 2006, DOD began beneficiary outreach--through quarterly newsletters and other materials--emphasizing the TMOP's convenience and cost savings. To help beneficiaries transfer their prescriptions to the TMOP, DOD launched the Member Choice Center in August 2007 and plans to target related outreach toward beneficiaries who frequently obtain high-cost drugs from retail pharmacies. DOD's ongoing efforts are important to limit future prescription drug spending. In addition, DOD has the recommendations of a congressionally mandated task force to consider--that copayment policies be changed to encourage beneficiaries to purchase preferred drugs from cost-effective sources. The agency is also undertaking a fundamental reform--the NDAA for Fiscal Year 2008 requirement to apply federal pricing arrangements to drugs dispensed at retail pharmacies--that could have an even greater impact on spending. DOD will need to carefully monitor the impact of this new requirement along with its ongoing efforts in order to assess the progress in controlling spending. DOD will also need to determine what types of additional efforts, if any, will be necessary to ensure the fiscal sustainability of its pharmacy benefits program.

section_title: Letter
paragraphs: As part of our efforts to identify major challenges facing the nation in the  21st century, we reported that prescription drug spending was one of the  fastest-growing segments of health care spending in both the public and  private sectors. The Department of Defense (DOD) provides pharmacy  benefits to about 9 million beneficiaries through TRICARE, its health care  program. Estimated to reach $15 billion by 2015, DOD’s prescription drug  spending has been a growing concern for the federal government. How the  agency can best limit its drug spending has been a focus of recent debate.
Health plans use various strategies to control their drug costs. These  strategies include having a formulary, which is a list of preferred drugs  that are generally available to beneficiaries; requiring the use of less  expensive generic drugs when available; having higher prescription  copayments for drugs purchased at pharmacies not in an established  network; and offering strong financial incentives to use mail-order  pharmacies. DOD instituted some of these strategies in response to a  provision in the National Defense Authorization Act (NDAA) for Fiscal  Year 2000. The NDAA required the agency to create a pharmacy benefits  program that included a uniform formulary, which is a formulary of drugs  available to all TRICARE beneficiaries, and authorized the establishment  of beneficiary copayments for drug purchases. Furthermore, DOD can use  statutory federal pricing arrangements to purchase drugs. These  arrangements typically result in prices lower than those otherwise  available. During our review, federal pricing arrangements were applied  to drugs dispensed only at military treatment facilities (MTF) and the  TRICARE Mail Order Pharmacy (TMOP). However, the recently enacted  NDAA for Fiscal Year 2008 requires federal pricing arrangements to be  applied to drugs dispensed at retail pharmacies as of January 28, 2008.
The John Warner National Defense Authorization Act for Fiscal Year 2007  directed us to examine DOD’s pharmacy benefits program. Specifically, as  discussed with the committees of jurisdiction, we examined DOD’s   (1) prescription drug spending trends from fiscal year 2000 through fiscal  year 2006; (2) key efforts to limit its prescription drug spending;   (3) process for choosing which drugs to include on the uniform formulary;  and (4) related quality assurance, beneficiary feedback, and disease  management efforts.
To provide information on DOD’s prescription drug spending trends from  fiscal year 2000 through fiscal year 2006, we obtained and reviewed data  provided by DOD’s Pharmacoeconomic Center. The data were not  adjusted for inflation and included information DOD uses to track drug  spending at MTFs, the TMOP, and network and nonnetwork retail  pharmacies. The data reviewed also included information on beneficiary  use of these points of service and beneficiary prescription drug use by age  group.
To describe DOD’s efforts to limit its prescription drug spending, we  obtained and reviewed DOD data on the costs the agency had avoided at  MTFs, the TMOP, and retail network pharmacies for fiscal years 2006 and  2007 that were used to demonstrate the financial impact of its formulary  decisions. We also obtained data from DOD that were used to calculate  the amount of rebates the agency had collected from drug manufacturers  through its Voluntary Agreements for TRICARE Retail Network Rebates  (VARR) for fiscal year 2007, and we interviewed 10 drug manufacturers to  obtain their perspective on why they did or did not use the VARRs. In  addition, we interviewed DOD officials about the agency’s efforts to limit  spending and reviewed reports by DOD’s Task Force on the Future of  Military Health Care, which was directed by Congress to assess ways to  sustain DOD health care services.
To describe DOD’s process for choosing which drugs to include on the  uniform formulary, we reviewed relevant federal law and regulations, DOD  policy guidance for implementing the process, and minutes from regular  meetings at which formulary issues were discussed. We also interviewed  officials from the Pharmacoeconomic Center and the TRICARE  Management Activity (TMA) to obtain further information.
To identify DOD’s quality assurance and beneficiary feedback  mechanisms, we interviewed DOD officials and obtained information on  specific electronic systems used at the MTFs, the TMOP, and retail  network pharmacies. We identified and reviewed surveys DOD uses to  obtain beneficiary feedback on its pharmacy program, and we interviewed  DOD officials about how DOD uses those surveys and other mechanisms  to obtain beneficiary satisfaction data and feedback on the pharmacy  benefit. Finally, we reviewed DOD’s disease management program policies  and information on how beneficiaries are identified for the program.
We obtained the most current data available at the time of our review on  DOD’s prescription drug spending, cost avoidance, and rebates. We  interviewed officials from the Pharmacoeconomic Center and TMA about  the methodology used to generate the data and the data’s use and  limitations. Through these interviews, we determined that the data were  sufficiently reliable for our purposes, but we did not independently verify  the data. We conducted our review from April 2007 through February 2008  in accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: 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 nonnetwork retail pharmacies.
The pharmacy benefits law, as passed in October 1999, directed the  Secretary of Defense to establish a pharmacy benefits program. The  program is, among other things  required to include a uniform formulary that should ensure drugs are  available in the complete range of therapeutic classes; required to make drugs on the uniform formulary available to beneficiaries  at MTFs, the TMOP, and retail pharmacies; and   authorized to establish copayment requirements for generic, formulary,  and nonformulary drugs.
The pharmacy benefits law also directed the Secretary of Defense to  establish the P&T Committee to develop the uniform formulary, and the  BAP to review and comment on the development of the uniform  formulary. Finally, the Secretary of Defense was to implement the use of  the Pharmacy Data Transaction Service (PDTS) at designated MTFs, the  TMOP, and retail network pharmacies. The PDTS is an electronic service  that DOD uses to maintain prescription drug information for all TRICARE  beneficiaries worldwide.
In 2001, DOD established the current pharmacy copayment structure,  which is based on whether a drug is classified as formulary generic   (tier 1), formulary brand-name (tier 2), or nonformulary (tier 3). The  copayment also depends on where the beneficiary chooses to fill his or her  prescription. (See table 1.)
The NDAA for Fiscal Year 2007 directed DOD to establish the Task Force  on the Future of Military Health Care to assess health care services  provided to members of the military, retirees, and their families and to  make recommendations for sustaining those services. In addition to other  aspects of DOD’s health care system, the task force reviewed DOD’s  pharmacy benefits program. It issued an interim report in May 2007 and a  final report in December 2007 to the Secretary of Defense on its findings  and recommendations. The Secretary of Defense may comment on the  recommendations provided in the task force’s final report and, within   90 days of its issuance, must forward the report to the Committees on  Armed Services of the Senate and the House of Representatives.
section_title: DOD’s Prescription Drug Spending More Than Tripled from Fiscal Years 2000 through 2006, with Retail Pharmacies Accounting for the Largest Increase
paragraphs: DOD’s spending on prescription drugs more than tripled from $1.6 billion  in fiscal year 2000 to $6.2 billion in fiscal year 2006. Retail pharmacy  spending accounted for the greatest increase, rising almost ninefold from  $455 million to $3.9 billion. It also grew from 29 percent of DOD’s overall  drug spending to 63 percent—the largest increase of the points of service.  TMOP spending rose from $106 million to $721 million and increased from  7 percent of total spending to 12 percent. MTF pharmacy spending rose  from $1 billion in fiscal year 2000 to $1.7 billion in fiscal 2004, but declined  slightly to $1.5 billion in fiscal year 2006. In fiscal year 2000, MTF spending  accounted for 65 percent of DOD’s overall drug spending but declined to  25 percent in fiscal year 2006. (See fig. 1.)
Three overarching factors influenced these trends. First, because federal  pricing arrangements that generally result in lower prices were not applied  to drugs dispensed at retail pharmacies during this time period, these  drugs were generally more expensive for both DOD and its beneficiaries  than the drugs dispensed at MTFs or the TMOP. However, the NDAA for  Fiscal Year 2008 requires that federal pricing arrangements now be applied  to TRICARE prescriptions filled at retail pharmacies.
Second, the increased use of retail pharmacies has exacerbated the effect  of higher retail prices. More beneficiaries are using only retail pharmacies  to obtain their prescriptions—about 2 million in fiscal year 2006, up from  about 1 million in fiscal year 2002 (see fig. 2). Further, beneficiaries are  obtaining more maintenance drugs—drugs for long-term conditions, such  as high blood pressure or cholesterol—at retail pharmacies (see fig. 3).  From fiscal year 2004 through fiscal year 2006, the number of maintenance  drug prescriptions dispensed at retail pharmacies increased by more than  11.6 million. Those dispensed at the TMOP increased much less, by about  1.5 million, while those at MTFs decreased by about 2.5 million. DOD  officials cited additional reasons that they believed contributed to the  increased use of retail pharmacies, though they could not quantify the  effect of these reasons. These reasons included: base closures, which have  decreased the number of MTF pharmacies; deployment of MTF personnel,  which limits MTF appointment availability, resulting in more beneficiaries  going to civilian providers and filling their prescriptions at retail  pharmacies; the vast TRICARE retail network of about 59,000 pharmacies,  which has become more convenient for beneficiaries; and the prescription  copayment structure, which does not discourage beneficiaries from using  the more costly retail pharmacies.
Third, according to DOD officials, TRICARE expansions have led to a  growing population of aging beneficiaries, who use more drugs. By fiscal  year 2006, about 1.7 million beneficiaries, age 65 or older, were eligible for  the pharmacy benefit through TRICARE benefit expansions that began in  2001. According to DOD data, retail pharmacy spending for beneficiaries  age 65 or older increased by about 207 percent from fiscal year 2002  through fiscal year 2006—slightly higher than the 184 percent increase for  beneficiaries under age 65. (See fig. 4.) DOD officials told us that the  average cost per beneficiary at retail pharmacies in fiscal year 2006 was  about $1,277 for beneficiaries age 65 or older, compared with about   $368 for those under age 65. MTF spending declined slightly for both age  groups as TMOP spending increased. Those under age 65 were more  likely to use MTFs, while those age 65 or older were more likely to use the  TMOP.
section_title: DOD Has Efforts Under Way to Limit Prescription Drug Spending through the Uniform Formulary, Beneficiary Outreach, and Other Proposed Changes
paragraphs: DOD has efforts under way to limit its prescription drug spending through  the use of its uniform formulary and through beneficiary outreach for the  TMOP. In an attempt to further limit its drug spending, both DOD and its  Task Force on the Future of Military Health Care have recommended  changes to the beneficiary copayment structure intended to encourage  beneficiaries to use more cost-effective points of service. However, the  NDAA through Fiscal Year 2008 prohibits any increase to retail  copayments through fiscal year 2008.
subsections: section_title: DOD’s Uniform Formulary Has Limited Prescription Drug Spending
paragraphs: According to DOD officials, the agency has limited its prescription drug  spending primarily through costs avoided through the use of its uniform  formulary, which was implemented during 2005. DOD data show that the  agency avoided about $447 million in drug costs in fiscal year 2006 and  $916 million in drug costs in fiscal year 2007.
MTFs accounted for most of DOD’s cost avoidance, while retail network  pharmacies accounted for the least. Cost avoidance is affected by the  following factors that result from DOD’s formulary decisions:    The prices DOD obtains for drugs. In exchange for including a  manufacturer’s drug on the uniform formulary, manufacturers can offer  DOD prices below those otherwise available through statutory federal  pricing arrangements, which applied only to drugs dispensed at MTFs and  the TMOP during the time of our review. According to DOD officials, the  agency had obtained prices for drugs dispensed at MTFs and the TMOP  that are about 30 percent to 50 percent lower than the prices it obtained  for drugs dispensed at network and nonnetwork retail pharmacies. This  difference in price can be attributed to savings achieved through the  discounts obtained for uniform formulary placement as well as the lower  prices obtained through federal pricing arrangements for drugs dispensed  at MTFs and the TMOP.
Changes in beneficiaries’ use of formulary and nonformulary drugs within  a therapeutic class. Once a drug is designated nonformulary, its use may  be substituted with a formulary drug, which results in lower copayments  for the beneficiary and lower costs to DOD. Because MTFs are generally  limited to dispensing formulary drugs, cost avoidance attributed to the use  of formulary drugs over nonformulary drugs is higher at this point of  service than at the TMOP and retail network pharmacies, where  beneficiaries can obtain more costly nonformulary drugs.
Changes in beneficiaries’ use of generic and brand-name drugs within a  therapeutic class. For both formulary and nonformulary drugs, DOD  requires the substitution of generic drugs for brand-name drugs at MTFs,  the TMOP, and retail pharmacies when a generic equivalent is available.  A brand-name drug having a generic equivalent may be dispensed only if  the prescribing physician establishes medical necessity for its use. A  beneficiary’s use of a generic drug in place of a brand-name drug results in  lower costs to the beneficiary and to DOD.
Changes in beneficiaries’ use of MTFs, the TMOP, and retail pharmacies as  a result of formulary designations. For example, a beneficiary may shift  from obtaining a 30-day supply of a formulary drug at a retail pharmacy,  where the beneficiary’s copayment would be higher, to an MTF where the  beneficiary can obtain a 90-day supply of the drug without a copayment.
To calculate cost avoidance, DOD first determines the costs it incurred at  MTFs, the TMOP, and retail network pharmacies for each drug as a result  of its designation as either formulary or nonformulary. DOD then subtracts  these incurred costs from the estimated costs it would have incurred at  MTFs, the TMOP, and retail network pharmacies if the designation had not  been made. Cost avoidance is the difference between the incurred and  estimated costs.
In addition to costs avoided, DOD has obtained voluntary manufacturer  rebates for some of the formulary drugs dispensed at retail network  pharmacies—though these rebates are a much smaller proportion of  overall savings. Because federal pricing arrangements were not previously  applied to drugs dispensed at retail pharmacies, DOD implemented the  VARR in August 2006 to allow manufacturers to offer rebates for these  drugs. There are two types of VARRs: the Uniform Formulary VARR and  the Utilization VARR. The Uniform Formulary VARR is an agreement  between DOD and a manufacturer that is contingent on the manufacturer’s  drug being selected for the uniform formulary. DOD officials told us that  as of October 1, 2007, the agency had collected about $28 million through  Uniform Formulary VARRs for fiscal year 2007. As manufacturers  continue to enter into these agreements, DOD expects the amount it  collects to increase over time. The Utilization VARR allows manufacturers  to offer a rebate to DOD for drugs that are not on the uniform formulary.  According to DOD, this includes drugs that have not yet been reviewed for  the uniform formulary and drugs that have been reviewed and designated  nonformulary. Unlike the Uniform Formulary VARR, the Utilization VARR  does not secure formulary placement. As of October 2007, no  manufacturers had entered into a Utilization VARR with DOD.
In our discussions with 10 drug manufacturers about the VARR program, 7  of them told us that they had submitted Uniform Formulary VARRs for  DOD’s consideration. Of these 7 manufacturers, 5 indicated that their  participation was driven by the possibility that their drug would be  selected for the uniform formulary. With regard to the Utilization VARR, 8  of the 10 manufacturers we spoke with indicated that there was little or no  incentive provided to manufacturers to enter into these rebate agreements  with DOD.
section_title: DOD Has Beneficiary Outreach Efforts Under Way
paragraphs: DOD has outreach efforts under way intended to help encourage  beneficiaries to use the TMOP instead of retail pharmacies. In 2006,  according to DOD officials, the agency began to expand its outreach for  the TMOP through quarterly newsletters, news releases, and other  materials emphasizing its convenience and cost savings for beneficiaries.  DOD partnered with, for example, beneficiary organizations and family  support groups to help distribute these outreach materials. DOD also  encouraged health care providers to promote the use of the TMOP among  the TRICARE beneficiaries they serve. MTF pharmacists also participated  in these efforts by posting signs advertising the TMOP in their facilities.
In addition, DOD launched its Member Choice Center in August 2007, the  goal of which is to help beneficiaries transfer their prescriptions from  retail pharmacies to the TMOP. To educate beneficiaries about the center’s  availability, DOD included information about it in newsletters and other  outreach materials. According to DOD officials, the center transferred  about 60,000 prescriptions from retail pharmacies to the TMOP as of late  December 2007. In addition to these efforts, DOD intended to specifically  target those beneficiaries who frequently obtained high-cost drugs from  retail pharmacies. DOD officials told us that, as of January 2008, this  aspect of the program had not yet begun and that DOD was working with  the contractor for the TMOP to develop a letter to be sent to these  beneficiaries.
section_title: DOD and Its Task Force on the Future of Military Health Care Have Proposed Other Changes to Limit Spending
paragraphs: DOD has proposed changes to beneficiary copayments for fiscal years  2007 and 2008 in an effort to encourage beneficiaries to obtain  prescriptions from more cost-effective points of service. Specifically, DOD  proposed to eliminate copayments for generic drugs dispensed at the  TMOP and to increase retail pharmacy copayments from $3 for formulary  generic drugs to $5, and from $9 for formulary brand-name drugs to   $15. DOD first proposed these changes for fiscal year 2007, but Congress  prohibited any increase to retail pharmacy copayments for that fiscal  year. DOD repeated the proposal for the next fiscal year, but the NDAA  for Fiscal Year 2008 prohibits any increase to retail copayments through  the fiscal year.
In addition, the Task Force on the Future of Military Health Care  concluded in its final report that DOD’s copayment policies and formulary  tier structure do not create effective incentives to stimulate compliance  with clinical best practices or the most cost-effective points of service for  obtaining drugs. It recommended that DOD’s pharmacy tier and  copayment structures be revised based on clinical and cost-effectiveness  standards to promote greater incentive to use preferred medications and  cost-effective points of service. Specifically, the task force stated that a  four-tier formulary could encourage beneficiaries to use less costly drugs  and use them more appropriately. It also stated that when a formulary  includes more tiers, it is easier to lower out-of-pocket costs for drugs that  treat certain chronic diseases and remove compliance barriers.
section_title: DOD’s Process for Choosing Drugs for Its Uniform Formulary Is Based on Clinical and Cost- Effectiveness Reviews
paragraphs: DOD decides which drugs to include on the uniform formulary based on  reviews in which the clinical and cost-effectiveness of a drug is compared  with other drugs in its class. This process, established by DOD under the  requirements of the pharmacy benefits law, involves three entities:    The Pharmacy and Therapeutics (P&T) Committee recommends drugs to  be added to the uniform formulary based on clinical and cost-effectiveness  reviews. (For P&T Committee membership, see app. I.)
The BAP comments on the P&T Committee’s recommendations from a  beneficiary perspective. (For BAP membership, see app. I.)
The Director of TMA makes final decisions after considering both the P&T  Committee’s recommendations and the BAP’s comments. (See fig. 5.)
The P&T Committee meets quarterly and generally reviews two to four  drug classes at each meeting. The priority for therapeutic class reviews is  determined by various factors, such as the conversion of a drug from  brand-name to generic and the rate of utilization among beneficiaries. The  P&T Committee first reviews the clinical effectiveness of the drugs in a  class. It considers such information as indications for which the drug has  been approved by the Food and Drug Administration, the incidence and  severity of adverse effects, and the results of studies on effectiveness and  clinical outcomes. Using this information, the committee determines  whether the drugs are therapeutically equivalent. It then reviews the cost- effectiveness of the drugs, considering such information as the price and  rebate quotes submitted by manufacturers and the estimated financial  effect of possible formulary decisions. The committee then determines the  relative cost-effectiveness of each drug in the class.
On the basis of the outcomes of both the clinical and cost-effectiveness  reviews, the committee recommends that each drug in the class be  designated as either formulary or nonformulary. If the committee finds  that the drugs in a class are therapeutically equivalent, it generally  recommends that the lower-cost drugs be designated as formulary.  However, the committee has recommended that certain higher-cost drugs  it believed offered additional clinical benefits be designated as formulary.
For example, the committee recommended that two drugs used to treat  breakthrough pain in cancer patients, 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 of TMA 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 of TMA had approved 188 out of the 190 P&T  Committee recommendations. Uniform formulary decisions become  effective on the date decision papers are signed by the Director, and the  papers are made publicly available on the TRICARE Web site. As of  October 2007, 28 drug classes representing 322 drugs had been reviewed  for the formulary. Of the 322 drugs reviewed, 249 were designated as  formulary.
section_title: DOD Has Several Methods for Quality Assurance and Beneficiary Feedback and Uses Pharmacy Data to Inform Its Disease Management Programs
paragraphs: DOD uses electronic systems, which detect potential problems related to  prescribed drugs, for quality assurance at MTFs, the TMOP, and retail  network pharmacies. It also takes steps to obtain beneficiary feedback  through surveys and by obtaining beneficiaries’ comments. In addition,  DOD uses pharmacy data to identify beneficiaries who might benefit from  participating in a disease management program.
subsections: section_title: Electronic Systems Provide Quality Assurance for Prescriptions
paragraphs: AHLTA, a global electronic health information system, alerts MTF  providers to duplicate drug treatments, therapeutic overlap, drug  interactions, and drug allergies when a prescription is entered into the  system. MTF providers are required to use AHLTA when prescribing  drugs. If, for example, AHLTA identifies a drug allergy, the provider  receives an alert and can prescribe an alternative drug.
The Composite Health Care System (CHCS) provides similar alerts to staff  at MTF pharmacies. When a patient’s prescription is processed, the CHCS  informs the staff of duplicate treatments, therapeutic overlap, drug  interactions, and drug allergies. DOD officials stated that CHCS acts as a  redundant quality assurance mechanism, allowing the pharmacists to  double-check prescriptions written by MTF providers. If a beneficiary  brings a prescription to the MTF pharmacy from a contract provider  (outside of the MTF), CHCS will still inform the pharmacy staff of  potential problems when they enter the prescription information into the  system.
The PDTS detects duplicate drug treatments, therapeutic overlap, and  drug interactions at the TMOP and retail network pharmacies. From these  points of service, the prescription information is electronically submitted  to the PDTS, which verifies the individual’s TRICARE enrollment and  provides information on duplicate treatments, therapeutic overlap, and  drug interactions. The TMOP and retail network pharmacies are  responsible for obtaining drug allergy information from the beneficiary,  because the PDTS does not contain that information. Beneficiaries are  asked to provide drug allergy information when they sign up to receive  prescriptions through the TMOP. At retail pharmacies, the pharmacist is  supposed to ask the beneficiary about their drug allergies and check their  local pharmacy system for this information. Prescriptions filled at  nonnetwork retail pharmacies are input into the PDTS when DOD receives  a claim submitted by the beneficiary.
section_title: DOD Obtains Feedback on Its Pharmacy Benefit through Beneficiary Surveys and Comments
paragraphs: 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. In August 2007, DOD launched the  Member Choice Center, where beneficiaries can call for assistance,  register online for the TMOP, and transfer their prescriptions from retail  pharmacies. The center contacts the beneficiary’s physician, at the  beneficiaries’ request, to obtain new prescriptions and forward them to the  TMOP for processing.
section_title: DOD Uses Pharmacy Data to Identify Beneficiaries for Disease Management Programs
paragraphs: 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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendation for Executive Action
paragraphs: To help ensure the fiscal sustainability of DOD’s pharmacy benefits  program and complement more fundamental reforms recently enacted or  recently proposed, we recommend that the Secretary of Defense direct the  Assistant Secretary of Defense for Health Affairs to    monitor the effect of federal pricing arrangements for drugs dispensed at  retail pharmacies along with ongoing efforts to limit pharmacy spending to  determine the extent to which they reduce the growth in retail pharmacy  costs, and  identify, implement, and monitor other efforts, as needed, to reduce the  growth in retail pharmacy spending.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, DOD stated that it concurred with  our findings and recommendations and that it remains diligent in its  efforts to curtail retail pharmacy costs. DOD noted that its recently  implemented outreach program to encourage beneficiaries to transfer  prescriptions from retail pharmacies to the less expensive TMOP has had  an unanticipated level of participation.
Specifically, in response to our recommendation to monitor the impact of  federal pricing arrangements for drugs dispensed at retail pharmacies,  DOD stated that it has requested additional resources to implement this  NDAA for Fiscal Year 2008 requirement. DOD acknowledged that, when  fully implemented, this authority will have a significant impact on  controlling the growth in retail pharmacy costs. While this may likely be  the case, we reiterate the need for DOD to monitor the extent to which the  federal pricing reduces growth in pharmacy spending in order to  determine whether additional efforts to reduce spending are warranted.  With regard to our recommendation to implement other efforts, as needed,  to reduce growth in retail pharmacy spending, DOD responded that the  recommendations of its task force would have an impact on overall DOD  pharmacy costs in general and retail pharmacy costs in particular.  However, DOD stated that congressional action is necessary for these  measures to be implemented and that it stands ready to implement them if  granted the authority to do so. Nonetheless, our recommendation was not  limited solely to the task force recommendations. DOD could explore  other cost saving initiatives, similar to its outreach efforts to encourage  beneficiaries’ use of the TMOP, which do not require congressional action.  DOD’s comments are reprinted in appendix II.
We are sending copies of this report to the Secretary of Defense and other  interested parties. We will also make copies available to others on request.  In addition, the report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Major contributors to this report were Bonnie Anderson,  Assistant Director; Keyla Lee; Lesia Mandzia; and Tim Walker.
section_title: Appendix I: The DOD P&T Committee and the Uniform Formulary BAP
subsections: section_title: Composition of the Department of Defense Pharmacy and Therapeutics Committee
paragraphs: The Department of Defense Pharmacy and Therapeutics Committee  consists of both voting and nonvoting members.
Physician Chairman, Health Affairs/TRICARE Management Activity    Director, Department of Defense Pharmacy Programs, TRICARE    Director, Department of Defense Pharmacoeconomic Center    The Army, Navy, and Air Force Surgeons General Internal Medicine    One Army, Navy, or Air Force Surgeon General Pediatric specialty    One Army, Navy, or Air Force Surgeon General Family Practice specialty    One Army, Navy, or Air Force Surgeon General Obstetric/Gynecology    One physician or pharmacist from the United States Coast Guard    The Army, Navy, and Air Force Pharmacy specialty consultants or    One provider at large from the Army, Navy, and Air Force    One physician or pharmacist from the Department of Veterans Affairs    The Contracting Officer’s Representative for the TRICARE Retail    The Contracting Officer’s Representative for the TRICARE Mail Order  The Pediatric, Family Practice, and Obstetric/Gynecology positions on the  P&T Committee are rotated among the services every 3 years.
section_title: Composition of the Uniform Formulary Beneficiary Advisory Panel
section_title: Appendix II: Comments from the Department of Defense