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

Published by the Government Accountability Office on 1999-03-10.

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

                            United States General Accounting Office

GAO                         Testimony
                            Before the Subcommittee on Military Personnel,
                            Committee on Armed Services, House of Representatives

For Release on Delivery

Expected at 1:00 p.m. EST

Wednesday, March 10, 1999
                            DEFENSE HEALTH CARE

                            Need for Top-to-Bottom
                            Redesign of Pharmacy
                            Statement of Stephen P. Backhus, Director
                            Veterans’ Affairs and Military Health Care Issues
                            Health, Education, and Human Services Division

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

              Mr. Chairman and Members of the Subcommittee:

              We are happy to be here today to discuss our report on the Department of

              Defense’s (DOD) $1.3 billion pharmacy programs and efforts under way to
              redesign DOD’s pharmacy benefit.                         As you may know, DOD and its

              managed care support contractors provide prescription drug benefits to

              about 8.1 million active-duty personnel, their families, and retired

              beneficiaries. The pharmaceuticals are dispensed through three programs:

              591 military treatment facility (MTF) outpatient pharmacies, 5 TRICARE

              managed care support contractors’ retail pharmacies, and a national
              contractor’s mail-order service.                    Without question, pharmacy is the health

              care benefit most in demand by beneficiaries.

              During the past several years, the Congress has grown concerned about the

              costs and quality of DOD’s pharmacy benefit, and beneficiaries have

              complained that some prescribed medications are no longer available at

              MTF pharmacies because of cost-cutting. As a result, the fiscal year 1998

              National Defense Authorization Act (P.L. 105-85) required that we review

              DOD’s pharmacy programs, focusing on (1) the adequacy of the

              information that DOD and its contractors have to manage the pharmacy

              benefit; (2) the merits and feasibility of DOD and its contractors applying
              commercial best practices, including a uniform formulary,                                   in managing its

              pharmacy programs; (3) the merits and limitations of recent mail-order and

              retail pharmacy initiatives to secure discounted DOD drug prices; and (4)

              the potential effects MTFs’ funding and formulary management decisions

              may have on beneficiaries’ access to pharmacies and TRICARE

              contractors’ costs.

              In summary, we found that the significant problems DOD is experiencing

              delivering its pharmacy benefit result largely from the way DOD manages

              its three pharmacy programs. Rather than viewing the programs as integral

              parts of a single pharmacy system, DOD manages the programs as separate

                  Defense Health Care: Fully Integrated Pharmacy System Would Improve Service and Cost-Effective-

              ness (GAO/HEHS-98-176, June 12, 1998).

                  TRICARE represents a redesign of the DOD health system during an era of military downsizing and

              budgetary concerns. Under TRICARE, beneficiary health care is coordinated and managed on a

              regional basis using MTFs, supplemented by managed care support contractors. TRICARE contractors

              administer three types of health plans—health maintenance organization (TRICARE Prime), preferred

              provider network (TRICARE Extra), and fee-for-service (TRICARE Standard).

                  A formulary is a list of prescription drugs, grouped by therapeutic class, that a health plan prefers its

              physicians and beneficiaries to use. Drugs are chosen for a formulary for medical value and also price.

              Page 1                                                                                      GAO/T-HEHS-99-75
             Defense Health Care: Need for
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             entities, not taking into account, for example, the merits of establishing a

             uniform DOD formulary and integrated databases or the effects that

             initiatives, such as implementing a separate mail-service pharmacy

             program, will have on the other programs. Unless DOD begins to manage

             the various components of the pharmacy programs as a single system, the

             problems we identified will continue and potentially worsen.       Specifically,

             we found the following:

             •   Despite ongoing efforts to improve its pharmacy benefit programs, DOD

                 and its contractors lack basic prescription drug cost and beneficiary use

                 information as well as integrated pharmacy patient databases needed to

                 effectively manage military beneficiaries’ pharmaceutical care.

             •   Without cost and use information and integrated databases, coupled

                 with formularies that differ among its pharmacy programs, DOD is

                 unable to apply proven pharmacy benefit management (PBM)

                 commercial best practices that could save hundreds of millions of

                 dollars each year.

             •   Last year’s DOD mail-order and retail pharmacy initiatives aimed at

                 achieving savings by using discounted DOD drug prices could cause

                 financial and patient safety problems for TRICARE contractors because

                 these initiatives divorce contractors’ medical care management from

                 their pharmaceutical care, and this integration is important in

                 maintaining the beneficiary population’s good health.

             •   MTFs’ efforts to hold down costs by restricting the drugs available on

                 formularies could reduce beneficiaries’ access to prescription drugs and

                 according to contractors has increased their retail pharmacy costs.

                 Such efforts can be particularly hard financially on retirees aged 65 and

                 over, who have no prescription drug coverage under Medicare.

             DOD currently is seeking to acquire the technology that will enable it to

             integrate its pharmacy databases by March 2000. Also, as mandated by the

             fiscal year 1999 Strom Thurmond National Defense Authorization Act (P.L.

             105-261), DOD is developing a plan for redesigning its pharmacy programs

             and initiating a two-site pharmacy redesign program for Medicare-eligible

             beneficiaries. We have not yet been given a copy or access to this plan and

             thus cannot comment on it.

Background   In operating a system of military health care delivery, DOD has twin

             missions: care and treatment of military personnel where and when they

             need it and cost-effective and accessible health care benefits for active-

             duty families and retired military personnel and their families.    The largest

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                        DOD pharmacy program is the outpatient pharmacies operated in the

                        “direct care system” of Air Force, Army, and Navy MTFs. In fiscal year

                        1997, these pharmacies dispensed about 55 million prescriptions at an

                        estimated cost of $1 billion. MTFs get most of their prescription drug

                        supplies through the Defense Supply Center in Philadelphia. This DOD

                        agency negotiates discounted drug prices through distribution and pricing

                        agreements (DAPA) with over 200 drug manufacturers. DAPA prices are

                        between 24 and 70 percent less than average wholesale prices.

                        The MTF direct care system is supplemented by 5 TRICARE managed care

                        support contractors, which, among other services, provide retail pharmacy

                        benefits to eligible beneficiaries. DOD’s national mail-order pharmacy

                        program contractor is another way DOD augments MTF pharmacy

                        services. This program delivers 30- to 90-day supplies of medications taken

                        for longer-term, chronic health problems to eligible beneficiaries’ homes.

                        In 1997, DOD’s contractor-supported retail and mail-order pharmacy

                        programs cost about $245 million.

                        In contrast, in the private sector, PBMs administer prescription drug

                        coverage on behalf of health plan sponsors. PBMs are a type of managed

                        care firm whose objective is to provide high-quality prescription drug

                        services at the lowest possible cost. PBMs offer their customers such

                        services as (1) formulary development and management, (2) retail

                        pharmacy networks and mail service, (3) drug rebate negotiation with

                        manufacturers, (4) generic substitution, (5) therapeutic interchange

                        programs, (6) claims processing, and (7) drug utilization review. PBMs’

                        ability to control pharmacy benefit costs for customers has led to their

                        increasing involvement in private sector plans, including the Federal

                        Employees’ Health Benefits Program (FEHBP).

DOD and the             DOD lacks the comprehensive prescription drug cost and use data that

Contractors Lack
                        PBMs and their health plan sponsors routinely track and analyze to manage

                        pharmacy benefits and control costs. MTF pharmacy cost and use data are

Information Needed to   unreliable at both local and headquarters levels, and the limited data

Effectively Manage      TRICARE contractors do provide are not merged with MTF data or used to

                        manage pharmacy benefits. For example, we had to piece together data

Pharmacy Programs       from multiple sources to estimate DOD’s fiscal year 1997 total pharmacy

                        costs--$1.3 billion—because summary cost data were not available.

                        A root cause of the problem is that existing pharmacy patient databases at

                        the MTFs, regional TRICARE contractors, and the national mail-order

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pharmacy contractor are not integrated. Although most military

beneficiaries regularly obtain prescription drugs from multiple dispensing

outlets across DOD’s three programs, no centralized computer database

exists with each patient’s complete medication history. Millions of dollars

in unneeded costs from overutilization and patient safety problems from

adverse reactions to prescription drugs are likely occurring because DOD

and its contractors lack the databases needed to support automated

prospective drug utilization review systems to review prescriptions before

they are dispensed. PBMs widely use such systems to reduce inappropriate

prescription drug use that can cause adverse reactions leading to illness,

hospitalization, and even death. In addition, automated drug utilization

systems are used to better identify patterns of fraud, abuse, or other

inappropriate or medically unnecessary care.

In DOD’s programs, for example, the lack of such systems has allowed

beneficiary prescription drug stockpiling to become so pervasive among

MTF pharmacies that pharmacists commonly refer to the problem as

“polypharmacy”—or the practice of visiting multiple pharmacies to

accumulate more prescription drugs than needed. Three cases illustrate

this phenomenon:

•   A patient and his wife tried to fill prescriptions worth $400 at an Air

    Force base pharmacy. Somewhat suspicious, the pharmacist called the

    out-of-state base that wrote the prescriptions and found that the couple

    had gotten a 90-day supply of each drug from that pharmacy 3 days

    earlier and, checking further, that they had gotten 90-day supplies of the

    drugs at a third base pharmacy that morning. The pharmacist refused to

    fill the prescriptions.

•   Upon her husband’s death from chronic lung disease, a widow returned

    several boxes of inhalant drugs and supplies to an Army base’s

    pharmacy. Obtained from several MTF pharmacies over a 2-year period,

    the drugs were valued at about $5,000. In responding to why she and her

    husband obtained drugs that were not used, the widow pointed out that

    her husband was entitled to them, he feared his benefits might be

    curtailed, and so they stocked up.

•   At another Air Force base, a young patient’s mother obtained 260

    prescriptions in 15 months from several on-base doctors. The

    prescriptions were filled at the base hospital and clinic pharmacies.     In

    effect, she amassed a 5-year supply of inhalant asthma drugs (Proventil

    and Ventolin) and inhalation devices. When an investigation was

    conducted as a result of the mother’s aggressive behavior toward

    pharmacy staff, the base hospital pharmacy staff had to manually

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                          compile the patient’s medication profile from the hospital and clinic

                          pharmacies to determine the extent of the mother’s drug stockpiling.

                       Since we issued our report, DOD has stepped up its efforts to plan, acquire,

                       and install an estimated $5 million pharmacy patient data system by March

                       2000 that will support automated drug utilization reviews on a limited

                       basis.   At the same time, DOD continues to study alternative information

                       technology approaches to implement a comprehensive pharmacy patient

                       management system, and it may have a cost estimate and timeline for

                       completing such an overhaul later this summer. Last year, DOD pharmacy

                       officials estimated the 10-year cost of a similar comprehensive system to be

                       $43 million but that such a system would save $424 million over the same

                       period and substantially reduce patient safety risks.

Applying Commercial    In addition to integrated databases, PBMs use other practices to control

Best Practices Could
                       costs and provide quality service. For example, PBMs offer health plan

                       sponsors uniform formularies for beneficiaries as well as help in designing

Reduce Costs and       standard beneficiary eligibility criteria and cost-sharing to provide

Enhance Care Quality   incentives for physicians to prescribe and beneficiaries to use formulary

                       drugs. Features such as copayments for nonformulary drugs, for example,

                       can create the incentives or disincentives crucial to balancing the health

                       plan’s financial soundness with beneficiaries’ freedom to choose

                       pharmacies and drugs. While DOD’s goal is to provide uniform pharmacy

                       benefits, its programs operate under a complicated and confusing array of

                       policies, regulations, and contractual requirements governing key benefit

                       design elements such as eligibility, drug coverage, and cost-sharing.   For

                       example, DOD’s formularies vary depending on where the beneficiary gets

                       the drugs. As a result, beneficiaries experience drug coverage and

                       availability uncertainties and unnecessary costs. The lack of a uniform

                       formulary drives up costs in other ways such as causing cost-shifting

                       among MTFs when pharmacy patients “shop around” for prescriptions.

                       And, although all military beneficiaries obtain drugs from MTFs free of

                       charge, the national mail-order and TRICARE contractors’ programs

                       require copayments regardless of whether the drugs are formulary or

                       generic. Finally, most of DOD’s 1.4 million Medicare-eligible beneficiaries

                       lack a systemwide prescription drug benefit and thus have a serious

                       coverage gap because Medicare does not cover outpatient prescriptions.

                       Such problems prevent other PBM practices from being fully and

                       systematically applied in DOD’s pharmacy programs.

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                       Establishing a uniform formulary with incentives for physicians to

                       prescribe and beneficiaries to use formulary drugs could help reduce

                       current benefit variability and increase cost-effectiveness. With an

                       incentive-based formulary, DOD and its contractors could provide

                       nonformulary drugs but require beneficiaries to make higher copayments

                       than for formulary or generic drugs. Also, like private sector plans and

                       PBMs, DOD could negotiate deeper price discounts from drug companies

                       seeking formulary approval for their products.    But, for systemwide

                       effectiveness, such a formulary may require MTF prescription drug

                       copayments that DOD believes it lacks authority to impose. Nonetheless,

                       the existing pharmacy benefit variation combined with nonintegrated

                       databases prevents DOD from (1) controlling costs through formulary

                       management; (2) fully analyzing drug use to curb inappropriate use and

                       introduce less costly generic and therapeutic substitutes; and (3)

                       identifying and, as appropriate, educating physicians who prescribe too

                       many or nonformulary drugs. Such approaches have enabled private

                       sector health plans to reduce their costs by an estimated 10 to 20 percent.

                       On this basis, a uniform, incentive-based formulary could save an estimated

                       $61 million to $107 million annually, and other PBM practices could save

                       another $99 million to $197 million annually.

Mail-Order Program     In April 1998, DOD replaced the TRICARE contractors’ mail-order

and Retail Pharmacy
                       pharmacy services with a separate, national contract to help control the

                       contractors’ rising prescription drug costs. Mail-order is easy and

Proposal Further       convenient for beneficiaries to use and can help control DOD’s costs

Fragment Health Care   because prescription drugs are purchased at DAPA prices previously

                       available only to MTF pharmacies. The TRICARE contractors now pay for

Services and Raise     the mail-order contractor’s costs. Also, when the next round of TRICARE

Costs                  managed care support contracts phases in, DOD plans to carve out and

                       provide under one national contract the TRICARE contractors’ retail

                       pharmacy services. These initiatives, however, may further fragment

                       health care services and raise costs, as the following illustrate:

                       •   While the TRICARE contractors continue providing retail pharmacy

                           services, neither they nor the mail-order pharmacy contractor will have

                           a complete computerized history of each patient’s retail and mail-order

                           medications. This presents potential health risks for patients.

                       •   Having two separate national contractors—one for mail-order and one

                           for retail pharmacy services—would further fragment DOD health care

                           services and divorce TRICARE contractors’ medical care management

                           from pharmaceutical care. Contractors would be unable to adequately

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                            manage patients’ medical care since the prescription drugs are

                            important in maintaining the beneficiary population’s good health and it

                            would be difficult for contractors to isolate the pharmacy benefit from

                            the remaining medical benefit.

                        •   Savings from DAPA prices could be short-term because drug companies

                            may be motivated to raise DAPA prices to avoid losses from an

                            expanded DOD discounted market. Although these marketplace

                            adjustments are difficult to project because of the many factors that

                            influence drug prices, expanding the size of the market that could have

                            access to DAPA prices could put upward pressure on DAPA prices.

                        An alternative would allow TRICARE contractors to continue providing

                        beneficiaries with retail pharmacy services, while providing DOD the data

                        it needs to obtain DAPA prices from the drug companies. This approach

                        would keep pharmaceutical and medical care administration together

                        under existing contracts. And such an approach may offer savings in

                        addition to those achievable by integrating patient databases to support

                        drug utilization review and applying other commercial best practices in

                        MTF, TRICARE retail, and national mail-order pharmacy programs.

                        Another alternative would be that, once MTFs and TRICARE contractors

                        integrate their pharmacy patient databases, they also could institute

                        electronic billing and reimbursement. With electronic billing and

                        reimbursement, MTFs could continue and possibly increase the volume of

                        pharmacy services they provide to TRICARE contractors’ beneficiaries. By

                        reimbursing MTFs, TRICARE contractors potentially could save money by

                        directing their beneficiaries to the MTFs to obtain medications at DAPA

                        drug prices, rather than using retail pharmacies.

MTF Funding and         Following DOD’s downsizing efforts in the early 1990s, which reduced

                        medical personnel and the number of MTF pharmacies, remaining MTFs

                        began experiencing funding reductions that made the pharmacy benefit an

Management Decisions    attractive target for cost-cutting. At the same time, the demand for

Can Limit Beneficiary   prescription drugs began increasing. Also, policy changes required that

                        beneficiaries be treated alike in dispensing formulary drugs. To control

Access to Drugs and     costs, MTFs dropped certain prescription drugs from their formularies and

Affect Other Pharmacy   chose not to add others. This prevented beneficiaries from obtaining

Costs                   certain drugs at MTFs. Examples follow:

                        •   In 1997, to include Allegra, a widely advertised, nonsedating

                            antihistamine, on their formularies, two Air Force pharmacies in Kansas

                        Page 7                                                       GAO/T-HEHS-99-75
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    and Florida cut dispensing to 30 tablets instead of the full 60 tablets for a

    1-month supply. One pharmacy chief told us this should save about

    $60,000 each year. Both facilities justified restricting Allegra, estimated

    by MTF officials to cost 25 to 50 times more than other antihistamines

    with major sedative side-effects, on the basis that it was unwarranted

    for overnight use. Similarly, an Air Force medical center in Texas

    dropped Allegra from its formulary because it was costing too much of

    the medical center’s $28 million pharmacy budget to make it available

    for all beneficiaries. Instead, this MTF pharmacy carried Allegra as a

    nonformulary drug obtainable only under special-order, primarily for

    military pilots.

•   In 1996, a Navy hospital in Florida decided not to add Zyrtec (a new

    allergy drug for upper respiratory symptoms) to the formulary. While

    recognizing Zyrtec’s therapeutic edge over other formulary drugs in the

    same class, MTF officials decided that the high demand for Zyrtec at

    other Navy MTFs made it cost-prohibitive.

•   An Army hospital in Colorado regularly reviews for reduction the 50

    formulary drugs on which it expends the most money. In 1997, the

    pharmacy spent more than $350,000 dispensing Prilosec (a widely

    prescribed ulcer drug). To cut costs, the pharmacy now (1) urges use of

    the less-costly formulary drug Prevacid; (2) requires that physicians

    justify Prilosec prescriptions in writing, and (3) is developing physician

    guidance on the best uses of Prilosec and Prevacid.

According to TRICARE contractors, many beneficiaries responded to

formulary restrictions by buying their prescription drugs at contractor

pharmacies, thereby increasing the volume of prescription drug purchases

beyond what the contractors projected in their original bids. Blaming their

cost overruns on MTF formulary changes, the contractors told us they

intended to seek additional compensation from DOD. A DOD consultant

concluded that the contractors’ pharmacy use had risen at the same time

MTFs’ use had dropped somewhat. DOD and the contractors disagreed

about the cause of the contractors’ cost increases and continue to study the

matter.   Of course, if DOD and the contractors had used integrated

pharmacy patient databases during the periods in question, establishing

cause and effect for the contractors’ allegations could have been greatly


Page 8                                                          GAO/T-HEHS-99-75
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Conclusions,         In our June 1998 report, we concluded that the problems DOD is

                     experiencing in delivering its pharmacy benefit stem largely from the way it

                     manages its $1.3 billion pharmacy programs. Although the MTF and

and Agency Actions   contractor retail and mail-order pharmacy programs share patient

                     populations and are otherwise highly interrelated, DOD has adopted a

                     program-by-program focus rather than a systemwide view of these

                     operations. As a result, changes made to one program inevitably affect the

                     others, and cross-program problems such as nonintegrated databases and

                     different formularies, eligibility, and copayment requirements are having

                     substantial, unintended consequences for DOD and contractor costs and

                     for beneficiaries’ quality of and access to health care. Although DOD has

                     taken steps to help improve pharmacy management, a more fundamental

                     overhaul is needed. We believe DOD needs a top-to-bottom redesign of its

                     pharmacy programs that effectively involves the programs’ major

                     stakeholders. Also, we believe DOD needs to commit itself to managing

                     pharmacy programs as a system and bringing needed reforms to the

                     system. Otherwise, DOD’s pharmacy problems will continue and likely


                     To help DOD establish a more systemwide approach to managing its

                     pharmacy benefit, we suggested that the Congress consider directing DOD

                     to establish a uniform, incentive-based formulary across its pharmacy

                     programs and, as appropriate, to use non-active-duty beneficiary

                     copayments at MTFs as incentives for physicians to prescribe and

                     beneficiaries to use formulary drugs. Also, we suggested that the Congress

                     may wish to give systemwide eligibility to Medicare-eligible retirees not

                     now eligible for such benefits.   In response, language in the fiscal year 1999

                     Strom Thurmond National Defense Authorization Act (P.L. 105-261)

                     directed DOD to submit this month a plan for a systemwide redesign of the

                     military pharmacy system and implement its planned redesigned pharmacy

                     system at two sites for Medicare-eligible beneficiaries by October 1999.

                     Also, we made a series of recommendations to DOD to undertake a

                     thorough redesign of the prescription drug benefit across the MTFs’ and

                     contractors’ retail and national mail-order pharmacy programs. This effort

                     should identify and act on policy, oversight, managed care support,

                     regulatory, and contractual changes needed to make the programs as

                     uniform, integrated, and cost-effective as possible. Some changes may

                     require additional legislative authorities and, as appropriate, the Secretary

                     of Defense should seek such authorities from the Congress.

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Specific action areas identified in our report included the following:

•   Develop an approach for effectively involving affected stakeholders

    such as the TRICARE contractors in decisions bearing on the system. A

    starting point may be allowing the TRICARE contractors to be

    represented on the national DOD pharmacy and therapeutics


•   Expeditiously integrate the existing MTF, TRICARE retail, and national

    mail-order pharmacy patient databases and providing for automated

    prospective drug utilization review, rather than waiting for the planned

    large-scale overhaul of DOD’s health care information system in 2003.

•   Establish a uniform, incentive-based formulary for MTF, TRICARE

    retail, and national mail-order pharmacies’ programs. This should

    include using non-active-duty beneficiary copayments at MTFs to

    encourage the use of formulary drugs at MTF, contractor retail, and

    mail-order pharmacies.

•   Extend systemwide prescription drug eligibility to Medicare-eligible

    retirees not entitled to prescription drug benefits under the Medicare

    subvention demonstration and pharmacy base closure programs.

•   Review national FEHBP and other private sector prescription drug

    benefits for lessons learned in establishing new DOD program criteria

    and revising prescription drug benefits. A guiding principle should be to

    provide DOD beneficiaries with uniform and geographically convenient

    access to DOD prescription drug services no matter where they reside.

•   Upon integrating the existing pharmacy patient databases, institute

    electronic billing and claims reimbursement among MTFs and TRICARE


•   Upon integrating the MTF pharmacy patient databases, institute

    mandatory third-party insurer billing for MTF prescription drugs

    provided to beneficiaries who have other health insurance for

    prescription drugs.

•   Direct and ensure that MTF pharmacies and TRICARE contractors

    routinely apply accepted PBM practices such as prior authorization,

    early refill edits, duplicate therapy edits, and physician-approved

    therapeutic interchange—consistent with DOD pharmacy benefit


•   Postpone awarding a separate national retail pharmacy PBM contract

    until the subject reforms have been implemented for current TRICARE

    retail pharmacy programs and until cost-savings from those reforms can

    be compared with potential cost-savings under a separate retail

    pharmacy contract.

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DOD and the TRICARE contractors agreed with each of the

recommendations, but DOD made certain points. With respect to extending

systemwide drug eligibility to Medicare-eligible retirees, DOD said that

legislative authority would be required to fund such services above this

population’s current MTF space-available services. We believe that if our

recommendations were implemented promptly and strategically, the

resulting savings would help to defray such added costs. Also,

implementing automated prospective drug utilization review systems; a

uniform, incentive-based formulary; and other PBM best practices could

save DOD and its contractors hundreds of millions of dollars annually by

substantially lowering prescription drug costs. And collecting copayments

for nonformulary drugs from all non-active-duty beneficiaries would save

millions more, as would applying safer drug therapies to reduce general

health care costs. Likewise, extending the systemwide drug benefit to

Medicare-eligible retirees will result in better management of their care,

and major dollar savings may be achieved with drug utilization review,

which helps avoid excessive use and adverse drug reactions that can cause

illness, hospitalization, and even death. In short, the financial and other

health benefits to be derived from overhauling the system can be applied

against the costs of a military retirees’ systemwide drug benefit.

Also, DOD stated that although MTF pharmacy copayments are valid and

effective, beneficiaries will resist them and perceive benefit erosion. We

believe the MTF pharmacy benefit already has eroded as a result of funding

reductions and formulary restrictions and that our collective

recommendations will help reverse this troublesome course. Furthermore,

beneficiaries’ general acceptance of MTF pharmacy copayments will

critically depend on DOD’s bringing about and promoting marked

improvements in its overall pharmacy efficiency, cost-effectiveness, and


Lastly, DOD is in the process of planning its pharmacy program redesign

and expects to implement the redesigned retail and mail-order pharmacy

programs for Medicare-eligible beneficiaries at two yet-to-be selected sites

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                   by October 1999. We have not yet been provided a copy of or access to

                   DOD’s plan for redesigning its pharmacy benefit. Thus, we have no


                   Mr. Chairman, this concludes my prepared statement. We will be happy to

                   respond to any questions you or other Subcommittee members may have.

                   We look forward to continuing to work with the Subcommittee as it

                   exercises its oversight of DOD’s redesign of the military pharmacy system.

(101624)   Leter   Page 12                                                    GAO/T-HEHS-99-75
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