Defense Health Care: Pharmacy Copayments

Published by the Government Accountability Office on 1999-06-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      June 8, 1999
      The Honorable Don Nickles
      United States Senate
      Subject: Defense Health Care: Pharmacy Copavments

      Dear Senator Nickles:
      This responds to your March 17, 1999, referral to us of a letter that several
      constituents sent you regarding our recent report and testimony on Department of
      Defense (DOD) pharmacy programs.' The letter expressed concern about what was
      referred to as a "GAO proposed plan that urges copayments for medications now
      provided without fee to military retirees." It characterizes copayments as erosion of
      benefits and degradation in medical care. While we certainly can appreciate this
      concern, we believe it is important to recognize that benefit erosion and quality-of-
      care concerns exist with the current system. Our June 1998 report included a dozen
      recommendations (see pp. 53-55) aimed at improving the current situation facing
      military retirees by reversing a troubling trend in the military pharmacy system. In
      our view, the system has been mismanaged for some time, has already seen a
      significant reduction in benefits, and has seen its costs skyrocket. Stated simply, the
      system needs an overhaul.
      Based on a thorough analysis of available data and extensive discussions with experts
      within DOD and the private sector, our work showed that, in recent years, military
      beneficiaries' demand for prescription drugs has increased, while the number of
      military treatment facility (MTF) pharmacies and related funding has decreased. MTF
      prescription drug costs became a cost-cutting target because no uniform drug
      formulary existed across the DOD pharmacy programs, and MTF commanders had
      discretion in deciding which drugs were made available. As a result, MTF pharmacies
      began to regularly drop costlier drugs from their formularies, and affected

      ' We have enclosed copies of Defense Health Care: Fully Integrated Pharmacy System Would ImDrove Service and Cost-
      Effectiveness (GAO/HEHS-98-176, June 12, 1998) and Defense Health Care: Need for Too-to-Bottom Redesien of Pharmacy
       Proerams (GAO/r-HEHS-99-75, Mar. 10, 1999).

                                                                 GAO/EHS-99-134R DOD Pharmacy Copayments
beneficiaries had to "shop" multiple MTF pharmacies and go to retail and mail-order
pharmacies to fill their prescriptions. Thus, beneficiaries' access to pharmacy care
was diminished and their, DOD's, and the contractors' overall costs increased.
We concluded that a uniform, incentive-based formulary used for all DOD pharmacy
programs would help to control costs while allowing more consumer choice than
DOD's current, more restrictive policies. Also, we expressed the view that reasonable
copayments for nonformulary prescription drugs, a common practice in the private
sector and in the Federal Employees Health Benefits Program, would create
important physician and consumer incentives to prescribe and use less costly drugs
when they meet patient needs. In turn, we said that such actions should help dampen
rising drug costs. Restrictive formularies that erode the benefit-the direction DOD's
pharmacy programs have taken--could then be avoided. Also, under our
recommendations, MTFs could retain the copayment revenue and use it to enhance
prescription drug services. We estimated that the overall DOD pharmacy savings
from adopting such measures could range from about $61 million to $107 million per
year. Other benefits would include greater convenience, choice, and consistent
benefit access by beneficiaries.
Perhaps most adversely affected by DOD's pharmacy programs are beneficiaries ages
665 and older. About 1million of DOD's 1.4 million Medicare-eligible beneficiaries are
eligible for the no-cost MTF pharmacy program but not the TRICARE retail pharmacy
or national mail-order pharmacy programs-which have varying copayments. Thus,
when MTF pharmacies drop certain drugs and choose not to add others, many
Medicare-eligible retirees must pay full retail pharmacy costs because Medicare does
not cover outpatient prescriptions. Cost savings from an incentive-based formulary,
including revenue from copayments and other reforms we recommended such as the
use of prospective drug utilization review, 2 could be used to enhance Medicare-
eligible retirees' systemwide drug benefit.
In summary, the recommendations in our report were designed to correct serious
problems in DOD's pharmacy benefit programs and at the same time enable a more
flexible and richer benefit package at the lowest possible cost. We believe that the
introduction of incentive-based copayments is an essential element in the overall plan
to provide stable, high-quality pharmacy benefits over the long term. Medicare-
eligible retirees should be better off with a pharmacy benefit that covers the drugs

'Millions of dollars in unneeded costs are likely being incurred from overutilization and patient safety problems from adverse
 reactions to prescription drugs because DOD and its contractors lack the databases to support automated prospective drug
utilization review systems to review prescriptions before they are dispensed. Such systems are widely used in the private sector
 to reduce inappropriate drug use that can cause adverse reactions leading to illness, hospitalization, and even death.

2                                                            GAO/E:EHS-99-134R DOD Pharmacy Copayments
they need with a reasonable copayment compared with a copayment-free benefit that
does not include many of those drugs.
If we can further assist you or your staff, please call me at (202) 512-7101 or Dan
Brier, Assistant Director, at (202) 512-6803.
We will make copies of this correspondence available to interested parties on request.

Sincerely yours,

Stephen P. Backhus
Director, Veterans' Affairs and
   Military Health Care Issues

Enclosures - 2


3                                         GAO/HEHS-99-134R DOD Pharmacy Copayments