Preserve the Benefit: An Overview of DoD Pharmacy

Economics and Policy

January 9, 2007

Thomas A. Bacon, Lt Col, USAF, BSC Director, DoD Pharmacy Utilization Management

TRICARE Management Activity

Learning Objectives

• Understand the DoD Pharmacy program objectives

• Describe the efforts to control the pharmacy benefit costs since 1994

• Describe current initiatives to preserve the pharmacy benefit while increasing the quality

DoD Pharmacy Program Objectives

• Uniformly, consistently, and equitably provide cost-effective drug therapy to meet patients’ clinical needs

• Provide a World-Class Pharmacy Benefit with a seamless interface between all three points of service

• Bottom line – Preserve the Benefit

DoD Pharmacy Health Policy/Economic Focus

• To preserve the DoD pharmacy benefit we must manage the Total Cost

• Total Cost = Volume x Price• Total Cost = Direct care + Purchased care

– Direct care = Military Treatment Facilities (MTFs)– Purchased care = Retail (TRRx) + Mail Order (TMOP)

• Total Cost = (Ingredient cost – rebate) + Dispensing fee – Co-pay

Total Cost

• FY 2002– Total Cost = $3.01B– Cost / beneficiary = $347

• FY 2006– Total Cost = $6.17B– Cost / beneficiary = $672

• FY 2010 (projected)– Total Cost = $10.60B

Volume

• Eligible beneficiaries have increased– FY02 = 8.6M– FY06 = 9.2M

• Pharmacy Benefit Users have increased– FY02 = 5.7M– FY06 = 6.7M

Volume

• Are all pharmacy users created equal? NO

• As a rule, older patients require more health care therefore more dollars

• Patients age 65 and older on average cost approx. $1,000 per person per year more than patients younger than 65 years old

• FY06 (Retired and family members)> 65 = 1.8M or 19% of DoD pharmacy users

Volume

• Keys to remember– The FY01 National Defense Authorization Act

extended retail and mail order benefits to all DoD beneficiaries age 65 and over as of 1 April 2001

– TRICARE Reserve Select (Apr 2005) Included all Guard and Reserve (plus family members) brought on active duty for > 90 days

– As “other health insurance” (OHI) costs are shifted to the employees from their employers more and more DoD eligible beneficiaries will drop OHI and become DoD pharmacy benefit users

– 66% of eligibles used the benefit in FY02 versus 73% in FY06

Volume Summary

• We have little ability to (nor do we want to) manage the number of beneficiaries (like our civilian counterparts)– We cannot selectively insure the healthy or young– We cannot shift our > 65 year olds to Medicare Part D– We cannot charge patients based on their benefit use– We cannot cap our expenditures to FY 2006 numbers

• We are asked to sustain the benefit for all beneficiaries

Price

• Ingredient Cost– Varies by point-of-service

• Example: Top 50 Branded Drugs (by cost)

MTFs $169 vs. TMOP $178 vs. TRRx $376

– Varies by drug• Brand vs. generic• Generic vs. generic

– Varies by therapeutic class– Varies by disease state

Efforts to Manage Price

• Points-of-service– Mail Order (FCP & FSS apply)

• Demonstration Project: 1994-1996• National Mail Order Pharmacy Program (NMOP): 1997-2002• TRICARE Mail Order Pharmacy Program (TMOP): 2003-

present• Comprehensive TMOP Marketing Program: 2006

– TRICARE Retail Pharmacy carve out: 2004• Created transparency of pricing and consolidated benefit

management under one contract• Met legal criteria for access to federal pricing under the

Veteran’s Healthcare Act 1992 (Federal Court ruled against DoD in 2006)

Efforts to Manage Price

• Drug Management– Defense Supply Center Philadelphia (DSCP) contract

negotiation and compliance– DoD/VA Joint Contracting 1998-present– Mandatory Generic Policy: NMOP 1996 and Retail 1999

• Formulary– Basic Core Formulary: 1999 (MTFs only)– Uniform Formulary: Implemented 2004 (all points-of-service;

DoD P&T; 3 tiers; prior authorization; quantity limits)– DoD Pharmacoeconomic Center: Therapeutic class reviews,

Economic/contract analysis for tier placement, Data analysis/reports, PACER development

Efforts to Manage Price

• Federal Pricing– Federal Pricing Initiative for TRICARE Retail

Pharmacy (TRRx): 2006 (under legal review)– Proposed legislation for TRRx Federal

Pricing: 2006 (Congress rejected the proposed legislation)

• Implementation of Voluntary Agreements for TRICARE Retail Pharmacy Rebates (VARR): 2006

Efforts to Manage Price

• Dispensing fees– Retail is able to keep dispensing fees relatively low

because they make up margin in the ingredient cost– Ingredient cost at TMOP is FCP / FSS therefore

administrative costs and profit is incorporated in the dispensing fee

– MTF = $8 (estimate) / prescription• Co-pays

– TRICARE Senior Pharmacy: 2001 (2 tiers)– Uniform Formulary: 2004 (3rd tier added)– Efforts to increase beneficiary cost share (2006) by

increasing co-payments was rejected by Congress and a freeze was placed on co-pays until late 2007

Price

• Keys to Remember– Inflation – Product mix

• Brands going generic – decrease cost• Brand medications that treat diseases better or

more safely than before (ex. Biotech drugs) – increase cost (based on narrow point-of-view)

Total Cost = Direct Care + Purchased Care

• Direct Care (MTFs)– 49% of workload (30-day equivalent in Sep 06)– 25% of the cost (Prime Vendor data)

• Purchased Care (TMOP & TRRx)– TMOP

• 14% of workload (30-day equivalent in Sep 06)• 12% of cost (PDTS data)

– TRRx• 37% of workload (30-day equivalent in Sep 06)• 63% of cost (PDTS data)

Purchased Care Usage

• Base Realignment and Closure (BRAC)– MTF closures led to a significant increase in the

numbers of DoD beneficiaries utilizing the retail pharmacy point-of-service

• FY01 NDAA opened TMOP & TRRx to Seniors• 11 Sep 2001 – War on Terrorism

– Addition of Guard and Reserve (plus families)– Lack of MTF staff due to deployments have pushed

patients to the Managed Care Support Contractors and the retail venue

Total Cost = Direct Care + Purchased Care

• Direct care (MTFs)– Advantages

• Costs• Restrictive formulary• Tighter control of provider staff

– Disadvantages• Not convenient• Location not based on beneficiary demographics• Restrictive formulary• Lack of capacity in some locations• Manpower issues (deployment & recruiting)

Efforts to Manage DoD Pharmacy Benefit

• DoD Pharmacy Board of Directors: 1997• Pharmacy Benefit Redesign Project: 1998-1999• Pharmacy Resource Reallocation Project: 2000• Advances in Medical Practice: 2000• Pharmacy Data Transaction Service (PDTS):

2001• Pharmacy Commercial Off the Self (RxCOTs)

award: 2004 (Centricity)

Current Congressional Requirement

• Demonstration project: Selected over-the-counter drugs place on Uniform Formulary– Program to begin May 2007– At least 2 venues and at least 5 sites in each

TRICARE region– Length: Shorter of two options

• At least as long as current pharmacy contracts• Five years

– Report to Congress NLT 2 years after implementation• Costs and benefits of the demonstration project• Recommendations on whether permanent authority should

be provided

Current Strategies to Manage the Benefit

• Contain growth at retail point-of-service– Educate and market the benefits of mail order

to our beneficiaries– Expand the VARR program ASAP

• TRICARE Pharmacy (T-Pharm): 2007(?)

• Managed Care Support Contract (T-III): 2008(?)

• Expand utilization management efforts

TMA Pharmacy Utilization Management

• Data Integrity– PDTS, M2, Prime Vendor

• Data Analysis Point-of-Contact– Supply to Congress, DoD leadership, TMA

Directorates, Contractors, and Audit agencies– Review analyses accomplished by outside sources

• Develop pilots & measure outcomes– Polypharmacy pilot– Provider profiling pilot

• Educate beneficiary groups on Pharmacy benefit• Keep abreast of healthcare policy and research

Long Term Strategies

• E-Pharmacy Initiatives• Contain growth & costs at retail point-of-service• Pay MTF pharmacies for the ingredient cost plus

a dispensing fee (Prospective Payment System)– MTF Commanders should look at pharmacy as a

revenue source rather than a cost center– Will result in more open MTF formularies – less need

for patients to utilize retail network• Expand number of military pharmacies

– On base and off base– Full service formularies

Wildcards?

• Congress– Republican to Democratic power swing– 2008 Elections

• Unified Medical Command

• Lobbyists– PHARMA– Military Beneficiary Groups– National Association of Chain Drug Stores

Questions?