Tricare Pharmacy Pilot: Improved Monitoring Needed with Expansion of Pilot Requirements
Released: 2015-10-01T00:00:00

Letter

Background

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 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. 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.

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.

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. 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.

ESI 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.

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. 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.

DOD Has Not Fully Monitored the Availability of Covered Medications or the Timeliness and Accuracy of Prescriptions Filled for the Pilot

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.

DOD Has Monitored Availability of Covered Medications for the Pilot through Mail Order

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. 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. 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.

DOD Has Monitored the Timeliness and Accuracy of Prescriptions Filled through Mail Order for All of TRICARE, but Not Separately for the 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. 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.

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. During these 2 months, some pilot beneficiaries may have 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.

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 prescription- filling 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, 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.

DOD Has Not Systematically Monitored the Availability of Covered Medications or the Timeliness and Accuracy of Prescriptions Filled for the Pilot across MTF Pharmacies

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. 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 Beneficiary Satisfaction with the Pilot

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 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. 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.beneficiaries may have different characteristics than those of all mail- order 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 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 the pilot, thus illustrating that while some are satisfied with the pilot, there may be varying levels of satisfaction among participating beneficiaries.

DOD’s Estimated Cost Savings for the First Year of the Pilot Were Generally Comparable to Projected Cost Savings

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. 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).

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.

DOD Has Issued Regulations, but Has Not Finalized Planning Documents for the Expansion of the Pilot Requirements

As of August 6, 2015, DOD issued an interim final rule implementing the expansion of the pilot requirements to all eligible TRICARE beneficiaries.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 officials told us that they are in the process of 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. 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.

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.

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. DOD officials told us that ESI officials verbally assured 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.

Conclusions

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 transition their covered medications from retail to mail order or MTF pharmacies.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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.

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 mail- order pharmacy users may not represent well the satisfaction of sub- populations, 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.

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.

Appendix I: Methodologies to Develop the TRICARE for Life Pharmacy Pilot’s Cost Savings Estimates

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. 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.

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. 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).

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, 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.

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

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

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

Staff Acknowledgments

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.

Related GAO Products

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.