Defense Health Care: Fully Integrated Pharmacy System Would Improve
Service and Cost-Effectiveness (Chapter Report, 06/12/1998,
GAO/HEHS-98-176).

The rapid rise in health care costs, the closure of military treatment
facilities, and the rising number of retired military beneficiaries have
prompted the Defense Department (DOD) to continually reengineer its
health care delivery system. DOD's TRICARE health care system provides
most of its care at Army, Navy, and Air Force facilities, supplemented
by civilian health care services arranged by regional TRICARE
contractors. Among health care services, the pharmacy benefit is most in
demand by military beneficiaries. As in the private sector, DOD's
pharmacy costs have continued to grow relative to total health care
costs. GAO estimates that DOD's pharmacy costs rose 13 percent between
1995 and 1997, while its overall health care costs increased two percent
during that same period. This report discusses (1) the adequacy of the
information that DOD and its contractors use to manage the pharmacy
benefit; (2) the merits and the feasibility of DOD and its contractors
applying commercial best practices, including a uniform formulary, in
managing its pharmacy programs; (3) the merits or limitations of recent
mail-order and retail pharmacy initiatives to secure discounted DOD drug
prices; and (4) the potential effects that military treatment facility's
funding and formulary management decisions can have on beneficiaries'
access to pharmacies and TRICARE contractors' costs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-176
     TITLE:  Defense Health Care: Fully Integrated Pharmacy System
	     Would Improve Service and Cost-Effectiveness
      DATE:  06/12/1998
   SUBJECT:  Private sector practices
	     Defense cost control
	     Pharmaceutical industry
	     Drugs
	     Managed health care
	     Data bases
	     Department of Defense contractors
	     Health care cost control
	     Health care programs
IDENTIFIER:  DOD TRICARE Program
	     Defense Health Program
	     Federal Employees Health Benefits Program
	     DOD Composite Health Care System
	     Medicare Program
	     CHCS

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GAO/HEHS-98-176

Cover
================================================================ COVER

Report to Congressional Committees

June 1998

DEFENSE HEALTH CARE - FULLY
INTEGRATED PHARMACY SYSTEM WOULD
IMPROVE SERVICE AND
COST-EFFECTIVENESS

GAO/HEHS-98-176

DOD Pharmacy Programs

(101604)

Abbreviations
=============================================================== ABBREV

  BCF - basic core formulary
  BRAC - Base Realignment and Closure Commission
  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  CHCS - Composite Health Care System
  DAPA - distribution and pricing agreement
  DOD - Department of Defense
  DSCP - Defense Supply Center-Philadelphia
  FDA - Food and Drug Administration
  FEHBP - Federal Employees Health Benefits Program
  HMO - health maintenance organization
  MTF - military treatment facility
  P&T - pharmacy and therapeutic
  PBM - pharmacy benefit manager
  PRODUR - prospective drug utilization review
  TMA - TRICARE Management Activity
  TSF - Tri-Service Formulary
  UP3 - Universal Pharmacy Patient Profile
  VA - Department of Veterans Affairs

Letter
=============================================================== LETTER

B-277613

June 12, 1998

The Honorable Dirk Kempthorne
Chairman
The Honorable Max Cleland
Ranking Minority Member
Subcommittee on Personnel
Committee on Armed Services
United States Senate

The Honorable Steve Buyer
Chairman
The Honorable Gene Taylor
Ranking Minority Member
Subcommittee on Military Personnel
Committee on National Security
House of Representatives

As required by the fiscal year 1998 National Defense Authorization
Act (P.L.  105-85), this report examines the Department of Defense's
pharmacy programs and opportunities to improve their
cost-effectiveness and beneficiary service quality.

As agreed with your offices, we are sending copies of this report to
the Secretary of Defense, the Director of the Office of Management
and Budget, and interested congressional committees.  We will also
make copies available to others upon request.

This work was performed under the direction of Stephen P.  Backhus,
Director, Veterans' Affairs and Military Health Care Issues, who can
be reached at (202) 512-7101 if you or your staff have any questions.
Other GAO contacts and staff acknowledgments are listed in appendix
VIII.

Richard L.  Hembra
Assistant Comptroller General

EXECUTIVE SUMMARY
============================================================ Chapter 0

   PURPOSE
---------------------------------------------------------- Chapter 0:1

The rapid rise in health care costs, the closure of military
treatment facilities (MTF), and the rising number of retired military
beneficiaries have required the Department of Defense (DOD) to
continually seek to reengineer its health care delivery system.
Today, modeled after civilian managed care, DOD's TRICARE health care
system provides most care in Army, Navy, and Air Force MTFs,
supplemented by civilian health care services arranged by regional
TRICARE contractors.  Among the health care services, the pharmacy
benefit is most in demand by military beneficiaries.  DOD currently
provides prescription drug benefits through three programs:  MTF
outpatient pharmacies, TRICARE contractors' retail pharmacies, and a
national contractor's mail-order service.  As in the private sector,
DOD's pharmacy costs have continued to grow relative to total health
care costs.  GAO estimates that DOD pharmacy costs increased 13
percent between 1995 and 1997, while its overall health care costs
increased 2 percent for that period.

During the past several years, the Congress has grown concerned about
the costs and quality of DOD's pharmacy benefit.  Beneficiaries have
complained that some of their prescribed medications are no longer
available at MTF pharmacies because of cost-cutting.  As a result,
the Congress, in the fiscal year 1998 National Defense Authorization
Act (P.L.  105-85), required GAO to evaluate 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,\1 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 the MTFs' funding and formulary management
decisions can have on beneficiaries' access to pharmacies and TRICARE
contractors' costs.  The act also requires the Secretary of Defense
to respond to GAO's findings and conclusions in a report to the
Congress 90 days after the GAO report's issuance.

--------------------
\1 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 on the basis
of medical value and price.

   BACKGROUND
---------------------------------------------------------- Chapter 0:2

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.  Pharmacy programs represent about 9 percent of the $14.7
billion Defense Health Program budget.  The largest DOD pharmacy
program is the outpatient pharmacies operated in the direct care
system of 587 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
(DSCP).  DSCP uses a contracted wholesale distributor to deliver
pharmaceutical products to individual MTFs.  In addition, DSCP
negotiates discounted drug prices through distribution and pricing
agreements (DAPA) with more than 200 drug manufacturers.  According
to DSCP, DAPA prices are from 24 to 70 percent below average
wholesale prices.

The MTF direct care system is supplemented by DOD's TRICARE managed
care support contracts, which also provide retail pharmacy benefits
to eligible military 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 the private sector, pharmacy benefit managers (PBM) administer
prescription drug coverage on behalf of health plan sponsors.  PBMs
are a relatively new type of firm whose objective is to provide
high-quality prescription drug services at the lowest possible cost.
PBMs provide their customers with services such 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 their customers has led to their
increasing involvement in private sector plans and the Federal
Employees Health Benefits Program (FEHBP).

   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

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.  Because of these problems, as well as formularies that differ
among its pharmacy programs, DOD is unable to fully apply proven PBM
commercial best practices that could save millions of dollars each
year.  Recent DOD mail-order and retail pharmacy initiatives aimed at
achieving savings by using DAPA drug prices could cause financial and
other problems for TRICARE contractors because pharmacy care would be
separated from the contractors' management of medical care.
Moreover, MTFs' efforts to hold down costs by restricting the
prescription drugs available on formularies could reduce
beneficiaries' access to certain prescription drugs at MTF pharmacies
and allegedly has increased TRICARE contractors' pharmacy costs.
Such efforts can be particularly hard financially on retirees over
age 64 with no prescription drug coverage under Medicare or any plan.

The significant problems DOD is experiencing in 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 entities, not taking into account, for example, the merits
of establishing a uniform DOD formulary and integrated databases, or
the effects that new initiatives, such as implementing a separate
mail service pharmacy program, will have on the other programs.  GAO
believes that unless DOD begins to manage the various components of
the pharmacy programs as a single system, the problems identified
will continue and potentially worsen in the future.  Accordingly, it
is making several recommendations to achieve this objective.

   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4

      DOD AND THE CONTRACTORS LACK
      INFORMATION NEEDED TO
      EFFECTIVELY MANAGE PHARMACY
      PROGRAMS
-------------------------------------------------------- Chapter 0:4.1

DOD lacks the comprehensive prescription drug cost and use data that
the private sector routinely tracks and analyzes to manage pharmacy
benefits and control costs.  MTF pharmacy cost and use data are
unreliable at both local and headquarters levels, and the limited
data TRICARE contractors are providing are not merged with MTF data
or used to manage pharmacy benefits.  For example, GAO had to piece
together data 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 587 MTFs, regional TRICARE contractors, and national
mail-order pharmacy contractor are not integrated, and patients'
complete medication histories are unknown.  DOD and contractor
pharmacy officials told GAO that because DOD cannot fully apply
automated drug utilization review techniques that require integrated
patient profiles, it is likely that millions of dollars in unneeded
costs are being incurred and patients are being exposed to
unnecessary safety risks.  Such automated review systems are widely
employed by FEHBP plans to reduce inappropriate prescription drug
use, which can cause adverse reactions leading to illness,
hospitalization, and even death.  While DOD plans to overhaul its
medical information systems by fiscal year 2003, it could immediately
install a readily available system--the Universal Pharmacy Patient
Profile (UP3)--that DOD pharmacy officials repeatedly have proposed.
DOD pharmacy officials said that at an estimated 10-year cost of $43
million, UP3 would save $424 million over the same period and
substantially reduce patient safety risks.

      APPLYING COMMERCIAL BEST
      PRACTICES COULD REDUCE COSTS
      AND ENHANCE CARE QUALITY
-------------------------------------------------------- Chapter 0:4.2

In addition to integrated databases, PBMs use other practices to
control costs and provide quality service.  For example, PBMs offer
health plan sponsors uniform formularies for beneficiaries as well as
help in designing standard beneficiary eligibility criteria and
cost-sharing to provide incentives for physicians to prescribe and
beneficiaries to use formulary drugs.  While DOD's goal is to provide
uniform pharmacy benefits, a number of barriers--regulatory, policy,
and contractual--have kept this from occurring.  MTF, TRICARE retail,
and national mail-order formularies do not include the same
prescription drugs.  And, although all military beneficiaries obtain
drugs from MTFs free of charge, the national mail-order and TRICARE
contractors' programs require copayments.  Also, most of DOD's 1.2
million Medicare-eligible beneficiaries lack a systemwide
prescription drug benefit and thus have a serious coverage gap
because Medicare does not cover outpatient prescriptions.\2 Such
problems prevent other PBM practices--referred to as physician and
pharmacist interventions--from being fully and systematically applied
in DOD's pharmacy programs.

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.  But,
for systemwide effectiveness, such a formulary may require MTF
prescription drug copayments that DOD believes it lacks the 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.  DOD and contractor
officials told GAO that a uniform formulary could save as much as $61
million to $107 million, and other PBM practices could save about
another $99 million to $197 million annually.

--------------------
\2 About 400,000 Medicare-eligible DOD beneficiaries have TRICARE
retail and national mail-order pharmacy benefits under separate
authorities for base closure actions and a Medicare-DOD demonstration
program beginning in 1998.

      MAIL-ORDER PROGRAM AND
      RETAIL PHARMACY PROPOSAL
      FURTHER FRAGMENT HEALTH CARE
      SERVICES AND RAISE COSTS
-------------------------------------------------------- Chapter 0:4.3

In 1998, DOD replaced the TRICARE contractors' mail-order pharmacy
services with a separate national contract to help control the
contractors' rising prescription drug costs.  The purpose was to
extend to contractors' mail-order services the DAPA drug prices
previously available only to MTF pharmacies' prescription drug
services.  The TRICARE contractors now pay for the new mail-order
contractor's costs.  Also, when the next round of TRICARE managed
care support contracts phases in between fiscal years 2000 and 2003,
DOD plans to carve out and provide under one national contract the
TRICARE contractors' retail pharmacy services.  These initiatives,
however, may further fragment DOD's health care services, add
nonintegrated databases, likely increase systemwide costs and offset
expected savings, pose added patient safety risks, and make TRICARE
contract management even more complex.  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.

      MTF FUNDING AND FORMULARY
      MANAGEMENT DECISIONS CAN
      AFFECT BENEFICIARY ACCESS
      AND OTHER PHARMACY COSTS
-------------------------------------------------------- Chapter 0:4.4

Following DOD's early 1990s downsizing efforts, which reduced medical
personnel and the number of MTF pharmacies, remaining MTFs began
experiencing funding reductions that made pharmacy services an
attractive target for cost-cutting.  At that time, the demand for
prescription drugs began increasing.  Also, policy changes required
that beneficiaries be treated alike in dispensing formulary drugs.
To control costs, MTFs dropped certain prescription drugs from their
formularies and did not add others.  This prevented beneficiaries
from obtaining certain drugs at MTFs.  According to TRICARE
contractors, many beneficiaries responded by buying their
prescription drugs at contractor pharmacies, thereby increasing the
volume of prescription drug purchases beyond what the TRICARE
contractors projected in their original bids.  Blaming their cost
overruns on MTF formulary changes, the contractors told GAO they
intend to seek additional compensation from DOD.  A DOD consultant
concluded that the contractors' drug use had risen at the same time
MTFs' use had dropped somewhat.  DOD and the contractors disagree
about the cause of the contractors' cost increases and continue to
study the matter.

   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:5

To help DOD establish a more systemwide approach to managing its
pharmacy benefit, the Congress may wish to consider directing DOD to
establish a uniform formulary across its pharmacy programs and, as
appropriate, using non-active duty copayments at MTFs to create
incentives for physicians to prescribe and beneficiaries to use
formulary drugs.  Also, the Congress may wish to provide systemwide
pharmacy eligibility for Medicare-eligible retirees not now entitled
to such benefits.

   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:6

GAO recommends that the Secretary of Defense direct the Assistant
Secretary of Defense (Health Affairs) to undertake a top-to-bottom
redesign of the prescription drug benefit across the MTF, TRICARE
contractors' retail, and national mail-order pharmacy programs.  In
undertaking this redesign, DOD should consider, among other elements,
implementing a uniform formulary; using copayments at MTFs to create
incentives for physicians to prescribe and beneficiaries to use
formulary drugs; integrating pharmacy patient databases to provide
for automated prospective drug utilization review (PRODUR) system
use; and providing systemwide eligibility for all Medicare-eligible
retirees not now entitled to such benefits.  Some changes may require
additional legislative authorities and, as appropriate, the Secretary
should seek such authorities from the Congress.

   AGENCY AND CONTRACTORS'
   COMMENTS
---------------------------------------------------------- Chapter 0:7

In commenting on a draft of this report, DOD agreed with the report
and each of its recommendations and described various actions planned
and under way to address the recommendations.  DOD also stated that
although MTF pharmacy copayments are valid and effective,
beneficiaries will resist them and perceive benefit erosion.  GAO
believes the benefit has already eroded because of MTF funding
reductions and formulary restrictions; that GAO's collective
recommendations will help reverse this troublesome course; and, as
advocacy group representatives told GAO, that beneficiaries would not
oppose reasonable copayments if assured they can reliably satisfy
their prescription drug needs through DOD's programs.  DOD also
stated that extending systemwide drug eligibility to
Medicare-eligible retirees will require added funding, but GAO
believes the savings from overhauling the pharmacy system will help
offset such costs.

The TRICARE contractors also agreed with the report's findings and
recommendations.  The national mail-order pharmacy contractor stated
that DOD should contract with PBMs rather than seeking to develop
MTFs' proficiency in applying best pharmacy practices, but GAO does
not have enough evidence that PBMs would cost less than the MTFs.
GAO believes DOD needs a system-oriented pharmacy management
structure in place and needs to acquire experience with best
practices before further "make or buy" decisions can prudently be
made.

DOD's and the contractors' comments are discussed further in chapter
6.

INTRODUCTION
============================================================ Chapter 1

In operating a system of military health care delivery, the
Department of Defense (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 their families as well as
retired military personnel and their families.  Today, the military
health care system provides coverage for about 8.2 million people;
more than half of those covered are retirees and their dependents and
survivors.  Under the terms of its authority (10 U.S.C.  1074 and
1076), DOD may provide health care to the families of active duty
military and retirees of any age in its medical facilities as long as
space and resources are available.  Beneficiaries receive such
space-available care at little or no cost.  The statute, however,
does not entitle these beneficiaries to that care.

   THE MILITARY HEALTH CARE SYSTEM
   AND ITS PHARMACY BENEFIT
---------------------------------------------------------- Chapter 1:1

Pharmacy programs represent about 9 percent of the $14.7 billion
Defense Health Program budget--about $1.3 billion.  Among the health
care services, the pharmacy benefit is most in demand by military
beneficiaries.  DOD currently provides prescription drug benefits
through three programs:  military treatment facility (MTF) outpatient
pharmacies, TRICARE contractors' retail pharmacies,\3

and a national contractor's mail order service.  The largest DOD
pharmacy program is the outpatient pharmacies operated in the direct
care system of 587 Air Force, Army, and Navy MTFs.  The program spent
an estimated $741 million for prescription drugs in fiscal year 1997.
About 4,000 military and civilian pharmacists and technicians run the
pharmacies, and in 1997 they dispensed about 55 million
prescriptions.

MTFs get most of their prescription drug supplies through the Defense
Supply Center in Philadelphia (DSCP).  DSCP provides over $3.4
billion in food, clothing, medicines, and medical supplies to
military personnel worldwide and other federal customers.  DSCP's
pharmaceuticals group, the single manager for DOD purchases and
supplies, had fiscal year 1996 sales of over $700 million.  DSCP uses
its prime vendor program to deliver medicines and other
pharmaceutical supplies to MTFs.  A prime vendor is a distributor
that has been awarded a contract to store and distribute
pharmaceutical products to individual MTFs, reducing the need for DOD
wholesale and retail systems.\4

Under this concept, DSCP negotiates prices for pharmaceutical
products directly with manufacturers.  DSCP then contracts with the
prime vendor to buy the products at these prices and distribute them
directly to the MTF within 24 hours of receiving an order.\5 DSCP
negotiates discounted drug prices through distribution and pricing
agreements (DAPA) with over 200 drug manufacturers.\6 According to
DSCP, DAPA prices have been between 24 and 70 percent less than
average wholesale prices.\7

The direct care system is supplemented by DOD's TRICARE managed care
support contracts, under which retail pharmacy benefits are provided
to eligible military beneficiaries.\8 TRICARE contractors offer both
network and nonnetwork retail pharmacy services.  A network pharmacy
contracts to fill prescriptions at the same discounted retail price
to anyone covered by TRICARE.  If beneficiaries have no other health
insurance, network pharmacies file claims on beneficiaries' behalf
for prescriptions filled.  Beneficiaries using nonnetwork pharmacies
pay full retail costs and submit claims to get reimbursed.  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 the private sector, pharmacy benefit managers (PBM) administer
prescription drug coverage on behalf of health plan sponsors.  Their
objective is to provide high-quality pharmaceutical care at the
lowest possible cost.  PBMs, a relatively new type of firm, became a
major market force only during the late 1980s.  Their precursors were
firms that provided prescription claims processing or mail-order
pharmacy service on behalf of insurers.  While PBMs continue to
provide these services, many provide additional services, such as
formulary development and management, development of pharmacy
networks to serve health plan enrollees, drug rebate negotiation with
manufacturers, generic substitution, therapeutic interchange, and
drug utilization review.  Many PBMs are also developing products
called "disease management" programs, which will attempt to provide
the most cost-effective treatments for specific diseases.\9

Like a growing number of health insurers who have experienced rapidly
rising prescription drug costs, the military health care system has
experienced prescription drug demand and cost increases.\10 DOD
pharmacy costs increased 13 percent between 1995 and 1997, compared
with DOD's overall health care cost increase of 2 percent for that
period.  While DOD pharmacy costs are estimated at less than 10
percent of health program spending, drug therapy can affect a larger
share of the total $14.7 billion defense health care costs.  That is,
drug treatment can sometimes help avoid the use of more costly
medical treatments involving hospitalizations and surgeries or reduce
other outpatient medical costs associated with chronic diseases.
Accordingly, DOD has taken steps to improve pharmacy program
management.  In 1993, for example, DOD Health Affairs established the
DOD Pharmacoeconomic Center (at Fort Sam Houston, San Antonio) to
improve the overall use of pharmaceuticals.  In 1995, Health Affairs
increased the Center's responsibilities\11 and created a Pharmacy
Board of Directors\12 to provide guidance to the Center.  Since
October 1997 the Board has been looking at ways to improve the
formulation of DOD pharmacy policies.

Before February 1998, no single DOD organization had overall
responsibility for all MTF and contractor-supported pharmacy programs
and operations (see fig.  1 for organization chart as of January
1998).  However, since January, Health Affairs has undergone
leadership changes and reorganized its TRICARE management group into
the new TRICARE Management Activity (TMA).\13

Whether and how overall pharmacy program responsibility will be
consolidated in the reorganized activity remain to be seen.

   Figure 1.1:  DOD Pharmacy
   Benefit Management
   Organizational Structure as of
   January 1998

   (See figure in printed
   edition.)

--------------------
\3 In June 1998, DOD replaced the remaining Civilian Health and
Medical Program of the Uniformed Services (CHAMPUS) in three regions
encompassing 20 states with TRICARE.  Before June, CHAMPUS reimbursed
beneficiaries for prescription drugs obtained at retail pharmacies.

\4 For more information on DOD's pharmaceutical distribution and
inventory management systems for MTFs, see our report, Inventory
Management:  DOD Can Build on Progress in Using Best Practices to
Achieve Substantial Savings (GAO/NSIAD-95-142, Aug.  4, 1995).

\5 In most cases, the prime vendor charges a distribution fee for
these services.  Once the products are delivered to the MTFs, DSCP
pays the prime vendor within 15 days.

\6 Under the Veterans Health Care Act of 1992, as amended,
manufacturers must sell brand-name drugs covered by the act to four
agencies--the Department of Veterans Affairs, DOD, the Public Health
Service, and the Coast Guard--at no more than 76 percent of the
nonfederal average manufacturer's price.  This price is the weighted
average price of each single form and dosage unit of a drug that is
paid by wholesalers to a manufacturer, taking into account any price
reductions (prices paid by the federal government are excluded from
this calculation).  For more information related to the act, see our
report, Drug Prices:  Effects of Opening Federal Supply Schedule for
Pharmaceuticals Are Uncertain (GAO/HEHS-97-60, June 11, 1997).

\7 Drug manufacturers suggest a list price that wholesalers charge
pharmacies.  The average of the list prices, collected for many
wholesalers, is called a drug's average wholesale price.

\8 Through seven multiregional contracts, TRICARE managed care
support contractors augment MTFs' capabilities by arranging for
civilian health care services.

\9 For more information on PBMs' services and cost-control practices,
see our reports, Pharmacy Benefit Managers:  Early Results on
Ventures With Drug Manufacturers (GAO/HEHS-96-45, Nov.  9, 1995) and
Pharmacy Benefit Managers:  FEHBP Plans Satisfied With Savings and
Services, but Retail Pharmacies Have Concerns (GAO/HEHS-97-47, Feb.
21, 1997).

\10 Demand and costs are increasing for several reasons.  Today, more
elderly beneficiaries are likely to be taking multiple prescription
drugs.  Promotional prescription drug advertising by drug companies
in the media may also be spurring consumer demand.  Also, new drugs
are increasingly becoming available to treat more diseases.

\11 The Pharmacoeconomic Center's role includes identifying
cost-effective drug therapies, providing educational and policy
guidance to MTF medical and pharmacy staff, assisting the DOD
Pharmacy Board of Directors, and updating the Tri-Service Formulary.
In fiscal year 1998, the Center has 14 active duty pharmacists,
physicians, and civilian employees and a $1.1 million budget.

\12 The Air Force, Army, and Navy surgeons general, as well as the
head of the Coast Guard, designate their most senior and experienced
officer pharmacists to serve as their respective service leaders in
DOD pharmacy benefit management.

\13 The Deputy Secretary of Defense, in his 1997 Defense Reform
Initiative, directed establishment of a TRICARE Management Activity
to strengthen TRICARE's oversight and performance.  The new
organization now includes several former offices of Health Affairs,
the Defense Medical Program Activity, and the TRICARE Support Office.

   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:2

Growing increasingly concerned about the costs and quality of DOD's
pharmacy benefit, the Congress, in the Fiscal Year 1998 National
Defense Authorization Act (P.L.  105-85), required us to 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
DOD's 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 MTF funding and formulary
management decisions can have on beneficiaries' access to pharmacies
and TRICARE contractors' costs.  The act also requires the Secretary
of Defense to report to the Congress no later than 90 days after our
report is issued on the feasibility and advisability of implementing
changes to DOD's pharmacy programs, based on our findings and
conclusions.

To do our work, we reviewed laws, regulations, and policies
applicable to DOD pharmacy programs and obtained cost and workload
data from relevant DOD sources and databases.  We interviewed and
obtained documents from DOD officials at the Office of the Assistant
Secretary of Defense (Health Affairs) and at TMA offices in
Washington, D.C.; Aurora, Colorado; and San Antonio, Texas; the
Deputy General Counsel (Personnel and Health Policy), Washington,
D.C.; DSCP; and TRICARE lead agent offices in San Antonio; Fairfield,
California; and Colorado Springs.  We also interviewed and obtained
documents from pharmacy consultants at the Army's Surgeon General's
Office, the Navy's Bureau of Medicine and Surgery, and the Air Force
Surgeon General's Office and from head pharmacists at 15 MTFs in
California, Colorado, Florida, Kansas, Louisiana, Maryland, Missouri,
Texas, and Washington, D.C.  We interviewed and obtained documents
from three TRICARE managed care support contractors:  Foundation
Health Federal Services, Inc.  (Rancho Cordova, Calif.), Humana
Military Healthcare Services (Louisville, Ky.), and TriWest
Healthcare Alliance (Phoenix, Ariz.).  We also interviewed and
obtained documents from the national mail-order pharmacy program
contractor (Merck-Medco Managed Care, L.L.C.) and its parent (Merck &
Co.) in Washington, D.C.  To obtain the perspectives of outside
affected parties, we interviewed representatives of two military
beneficiary groups and several pharmaceutical manufacturers.  We also
interviewed representatives of the Pharmaceutical Research and
Manufacturers of America.  DOD, three TRICARE contractors, and the
national mail-order pharmacy contractor commented on a draft of this
report.  We address their comments in chapter 6; their comments are
reprinted in appendixes IV through VII.  We conducted our review
between June 1997 and May 1998 in accordance with generally accepted
government auditing standards.

DOD AND THE CONTRACTORS LACK
INFORMATION NEEDED TO EFFECTIVELY
MANAGE PHARMACY PROGRAMS
============================================================ Chapter 2

Timely, accurate, and complete data on prescription drug use and
costs are essential to effectively manage pharmacy benefits.  But DOD
and its contractors lack such data, largely because their
computerized pharmacy patient databases are not integrated.  Thus,
their ability to manage the MTF, TRICARE retail, and national
mail-order pharmacy programs is significantly impaired.  In the
private sector, where PBMs manage more than 2.4 billion prescriptions
per year, computer databases connect thousands of retail and
mail-order pharmacies electronically.  Such on-line capabilities
enable PBMs to achieve cost-efficiencies and enhance patient care.
Currently, higher priority plans to upgrade DOD's Composite Health
Care System (CHCS)\14 --with planned fiscal year 2003
implementation--have kept DOD from installing a readily available
automated drug utilization review system known as the Universal
Pharmacy Patient Profile (UP3).

--------------------
\14 CHCS is a medical information system DOD developed, at an
estimated cost of $2.8 billion, to provide automated MTF support
(such as for patient registration and eligibility checking,
appointment scheduling, and physician prescription writing and
pharmacy dispensing).  Its upgrade, CHCS II, is envisioned as DOD's
"system of systems." DOD officials stated that when CHCS II is
completed, at an estimated cost of $7.2 billion, it will provide a
computer-based patient record for all beneficiaries.

   OVERALL PHARMACY COST AND USE
   DATA ARE NOT READILY AVAILABLE
---------------------------------------------------------- Chapter 2:1

DOD cannot readily access information on basics such as MTFs' and
contractors' drug costs and use, dispensing costs, MTF or civilian
physicians who frequently prescribe high-cost drugs, or beneficiaries
with large prescription drug expenses.  MTF pharmacy cost and use
data are generally unreliable, and the types of pharmacy data DOD
requires TRICARE contractors to report are not useful for management
purposes.  To estimate DOD's systemwide pharmacy program costs, we
pieced together data from several DOD entities.  In so doing, we
found conflicting pharmacy cost reports differing by millions of
dollars for the same activity.  For example, while the TMA Resource
Management Office reported to us that fiscal year 1996 Army pharmacy
program costs were about $198 million, the Army Pharmacy Consultant
(who is also a member of DOD's Pharmacy Board of Directors) reported
that such costs were about $249 million.  Also, some sources were and
others were not trying to account for MTFs' drug-dispensing costs,
including pharmacy personnel and other direct and indirect costs to
provide pharmacy services.

On the basis of fiscal year 1997 data provided by five separate DOD
pharmacy and budget management entities, we estimated that MTF
pharmacies spent between about $741 million and about $776 million
for drugs alone, and about $305 million on drug-dispensing costs--for
a fiscal year 1997 total of about $1 billion.  We obtained contractor
pharmacy costs from two other DOD organizations, which, when added to
estimated MTF costs, amounted to a systemwide fiscal year cost
estimate of about $1.3 billion.  Cost data are not available on
matters such as (1) over-the-counter drugs, (2) MTF prescriptions for
Medicare retirees, and (3) the top 50 drugs, in terms of DOD
expenditures or numbers of prescriptions dispensed.  Such information
could be used to make policy and managed care decisions needed to
address cost savings and service quality.  Table 2.1 contains our
estimates of DOD's pharmacy costs for fiscal years 1995 through 1997.

                               Table 2.1

                GAO's Estimate of DOD's Pharmacy Costs,
                    by Program, Fiscal Years 1995-97

                         (Dollars in millions)

Program                                           1995    1996    1997
----------------------------------------------  ------  ------  ------
Military treatment facilities
----------------------------------------------------------------------
Drug costs\a                                    $625.4  $728.1  $741.4
Other costs\b                                    347.3   337.8   305.2
Subtotal                                        $972.8  $1,065  $1,046
                                                            .9      .6

TRICARE/CHAMPUS
----------------------------------------------------------------------
TRICARE\c                                          3.4    68.3   162.6
CHAMPUS\c                                        165.2   123.4    70.7
Subtotal                                        $168.5  $191.7  $233.4

Mail order
----------------------------------------------------------------------
National mail-order pharmacy                        \d      \d      \d
Base Realignment and Closure Commission mail        \f     2.8     9.4
 order\e
Demonstration\e                                    6.6    15.0     2.4
Subtotal                                          $6.6   $17.8   $11.8
======================================================================
Total, all pharmacy programs                    $1,147  $1,275  $1,291
                                                    .9      .4      .8
Defense Health Program\g                        $14,34  $14,69  $14,65
                                                   6.0     4.0     8.0
Pharmacy programs' estimated share of Defense     8.0%    8.7%    8.8%
 Health Program budget
----------------------------------------------------------------------
Notes:  Totals may not add because of rounding.

Estimates are subject to the following limitations:  MTF drug costs:
Each MTF updates changing prices for thousands of drugs, a huge
data-entry task fraught with the potential for error.  MTF pharmacy
database updates lag drug price increases by months, contributing to
understated drug costs.  DOD organizations are discussing a
centralized mechanism for down-loading current drug prices systemwide
so that MTFs no longer have to update prices in individual databases.
MTF other costs:  Database source is the Medical Expense and
Performance Reporting System.  Other costs include pharmacy personnel
salaries, utilities, housekeeping, furniture, and other equipment.
To an unknown extent, data-entry or cost allocation errors by
reporting facilities, such as floor space for storing pharmaceutical
supplies, may overstate or understate actual facility costs related
to outpatient pharmacy services.  TRICARE/CHAMPUS costs:  Data for
fiscal years 1995 and 1996 are essentially complete, while data for
fiscal year 1997 (Oct.  1996 through Sept.  1997) are estimated to be
94-percent complete (with data collected through Dec.  1997).

\a Data sources are Army, Navy, and Air Force Pharmacy Consultants.

\b Data sources are TMA Office of Resource Management and Corporate
Executive Information Customer Service Office.

\c Data source is TMA Office of Acquisition Management and Support.

\d Not applicable.  This program did not start until fiscal year
1998.

\e Data source is DSCP.

\f Not applicable.  This program did not start until fiscal year
1996.

\g Data are from Budget of the United States Government:  Appendix
(fiscal years 1997, 1998, and 1999).

While DOD requires the TRICARE contractors to report monthly
prescription drug volume and claims costs for their retail pharmacy
programs, DOD uses the reports primarily to oversee "cash
disbursements" at the completion of the claims adjudication process.
Contractor officials told us, however, they would not recommend such
reports to their commercial clients for use in controlling pharmacy
costs.  For example, the reports do not include national drug codes,
physician identification numbers, or patient-level drug use.  Such
information is needed to target high-cost drugs, in terms of DOD
expenditures, that should be subject to utilization management
restrictions; prepare doctor "report cards" used to educate or
provide incentives to those who prescribe too many or nonformulary
drugs; and identify patients who are getting too many or the wrong
mix of medications.  One contractor's (Humana) officials told us they
successfully worked with regional DOD pharmacy managers to expand the
required reports' scope and detail.  But, they told us, those reports
were of far less management value than reports they provide their
commercial customers.

   LACK OF INTEGRATED PHARMACY
   DATABASES INCREASES
   PRESCRIPTION DRUG COSTS AND
   RISKS
---------------------------------------------------------- Chapter 2:2

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.  The hundreds of MTF pharmacy databases are not
linked, nor are the TRICARE contractors' retail pharmacies' and the
national mail-order pharmacy patient medication records linked
together or with the MTF databases.  Contractor and DOD pharmacy
officials told us that millions of dollars in unnecessary costs from
overutilization and patient safety problems from adverse reactions to
prescription drugs are likely occurring because DOD lacks the
databases needed to support automated prospective drug utilization
review (PRODUR) systems to review DOD prescriptions before they are
dispensed.  Such systems are widely used to reduce inappropriate
prescription drug use that can cause adverse reactions leading to
illness, hospitalization, and even death.\15 In addition to promoting
patient safety, PRODUR systems can be used to better identify
patterns of fraud, abuse (including overuse), or other inappropriate
or medically unnecessary care.

Such systems, moreover, are now used in some Medicaid programs and
the Federal Employees Health Benefits Program (FEHBP).\16 For
example, between 1994 and 1995, five state Medicaid programs saved $5
million by appropriately canceling early refill prescriptions.\17
Also, three FEHBP plans, with about 4.5 million beneficiaries,
estimated combined savings of about $19 million in 1995 by using
automated PRODUR systems.\18

Another PBM told us that, for the FEHBP plans it represents, 1997
savings from using PRODUR were $46 million.  While those savings were
significant, other major dollar savings may be achieved, in all
likelihood, by avoiding hospitalizations resulting from inappropriate
drug therapy.  (App.  I provides details on how PRODUR systems work.)

DOD's lack of integrated pharmacy patient databases, and thus its
inability to use PRODUR systemwide, are the most significant
cost-effectiveness and patient safety obstacles in its pharmacy
system.  Now, DOD's ability to use a PRODUR system is limited to
local systems at specific MTF pharmacies that do not have the
patient's complete history.  PRODUR would enable DOD, as is done in
FEHBP, the Medicaid program, and the private sector, to perform
cost-saving and safety-enhancing drug reviews with consistency
throughout the drug distribution system (MTFs, TRICARE retail, and
national mail order).  For example, each of these pharmacies, when
presented with a new or refill prescription by a DOD beneficiary,
could check the patient's complete medication profile to ensure that
the new drug will not adversely react with the patient's other drugs.
The review could also disclose whether the prescription is being
refilled too soon.  DOD pharmacy officials told us that integrated
program databases would allow MTFs to convert from an inefficient
manual third-party billing process to an electronic billing system,
annually saving an estimated $25 million.\19

Several DOD pharmacy officials told us that the lack of PRODUR has
allowed beneficiary prescription drug stockpiling to become so
pervasive among patients using 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.  To illustrate, they provided the following examples:

  -- During a 10-week period, a sickle cell anemia patient being
     treated at an Army base for chronic pain obtained 14
     prescriptions (a 1-year supply) of potentially addictive
     narcotics.  Several civilian and two Army and Navy doctors wrote
     the prescriptions, which were filled at the Army medical center
     pharmacy, a Navy hospital pharmacy, and several of the TRICARE
     contractor's regional retail pharmacies.  The lack of a common,
     computerized patient drug profile and PRODUR prevented the Army,
     the Navy, and the TRICARE contractor's PBM company from
     detecting the prescription abuse and drug stockpiling.  By
     happenstance, an Army medical center pharmacist came upon the
     problem during an unrelated regional pharmacy cost review.

  -- At an 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 compile the patient's medication
     profile from the hospital and clinic pharmacies to determine the
     extent of the mother's drug stockpiling.

  -- At another Air Force base, the clinic pharmacy collected old and
     unused prescription drugs from beneficiaries' houses as part of
     a poisonous waste cleanup project.  The pharmacy recovered
     several unopened drug packages, which suggested that these MTF
     prescriptions were not needed.  In three instances, for example,
     they recovered 12 packages of Proventil asthma inhalers; 7 tubes
     of Cyclocort anti-inflammatory ointment; and a 6-month supply of
     Norvasc (a drug used to treat high blood pressure).  All the
     drug packages were past their printed expiration dates.

  -- 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.

  -- On a Monday afternoon, 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.  He found that the couple had
     gotten a 90-day supply of each drug from that out-of-state base
     pharmacy the previous Friday, and, checking further, that they
     had gotten 90-day supplies of the drugs at another base pharmacy
     that same Monday morning.  The pharmacist refused to fill the
     prescriptions and alerted the other pharmacies.  The couple
     left, threatening to formally complain that the Air Force had
     denied them their duly prescribed and needed medications.

The dollar and safety consequences of DOD's pharmacy programs' lack
of integrated computer databases and PRODUR are likely significant.
DOD and contractor officials told us they believe that systemwide
drug use costs alone are a likely 10 to 20 percent higher than they
should be because of inappropriate drug therapy and stockpiling.
Applying similar percentages to the estimated 1997 total DOD drug
costs would mean that some $99 million to $197 million may be
unnecessary.  The officials also told us that inappropriate drug
therapy causes about 10 percent of hospitalization, emergency room,
and doctor visit costs.  According to a May 1998 Pharmacoeconomic
Center analysis, 55,000 MTF hospitalizations per year may be caused
by inappropriate drug therapy.  This means that at a $1,500 average
daily cost, about $83 million in MTF hospitalization expenses may be
preventable.\20 More importantly, patient safety is in jeopardy
without PRODUR.  Other studies likewise estimated that
hospitalizations caused by inappropriate drug therapy range from 3
percent of the general population to as high as 28 percent for the
elderly.\21

In November 1995, some DOD pharmacy officials proposed networking all
MTF pharmacies to create a centralized patient medication record
database so PRODUR could be applied.  This system was estimated
within DOD to save more than $100 million over a 10-year period--more
than offsetting the system's estimated $21 million cost\22 --and to
markedly improve patient health care and safety.  The proposed UP3
system would create for every patient a single electronic record of
all inpatient and outpatient drugs that would be accessible by all
pharmacies through a centralized database.  The UP3 system would
support automated functions such as prospective drug utilization
reviews, drug recalls, third-party claims adjudication, and inventory
control.  The DOD pharmacy officials' 1995 proposal focuses on first
integrating MTF pharmacies, but suggests eventual integration with
contractor-supported retail and mail-order pharmacy databases.  In
May 1998, Pharmacoeconomic Center staff incorporated new information
that substantially changes these earlier estimates:  $424 million in
savings over 10 years, about 10 times greater than the revised $43
million estimate of the system's cost over the same period.\23

The headquarters office responsible for finally approving all DOD
health information technology investments, however, has declined to
further fund the project.  TMA Office of Information, Technology, and
Reengineering officials told us that their aim is to avoid investing
in redundant and "stovepipe" technologies.  These officials told us
that the planned acquisition of the CHCS II system in fiscal year
2003 and alternative improvements to the current CHCS system\24
before 2003 will meet the same needs identified in the UP3 proposal.
But DOD pharmacy officials disagreed and told us that UP3 would
amount to a low-cost, high-return investment in readily available
commercial software.  They further asserted that such software will
be compatible with and required in capturing the pharmacy data
component of the future CHCS II computer-based patient record.  We
agree with the pharmacy officials' assessment and believe the
software application could also be immediately interfaced with
existing DOD health information systems used to purchase and
distribute pharmaceutical supplies--further ensuring future
compatibility with the planned CHCS II upgrade.

TRICARE retail pharmacy contractors told us that they were eager to
integrate their databases with MTF pharmacy databases.  Although they
routinely use PRODUR to manage their commercial health plan pharmacy
benefits, they are unable to do so with TRICARE or the national
mail-order programs because of the lack of automated linkage to MTF
pharmacy patient databases.  They told us that they supported the DOD
pharmacists' proposal to use PRODUR and would welcome collaborating
with DOD as they have done on other TRICARE matters.\25 Humana's
TRICARE program President and Chief Operating Officer told us that
Humana would like to negotiate a contract with DOD whereby Humana
would pay for setting up such interactive computer systems within its
regions' MTFs and share with DOD the consequent savings--so sure is
Humana of the cost-avoidance and patient safety advantages for all
parties.\26 In April 1998, we informed DOD officials of Humana's
proposal.  TMA's Acting Executive Director told us that TMA would
pursue the matter with Humana.

--------------------
\15 Patients may inadvertently be given a prescription for the wrong
drug or dosage, or for a drug that interacts adversely with another
they are taking.  Estimates of the extent of hospitalization from
inappropriate drug therapy range from 3 percent for the general
population to 28 percent for the elderly.  A Food and Drug
Administration (FDA)-sponsored, voluntary reporting system revealed
that about 5,700 of the about 176,000 cases of adverse drug reaction
reported between 1990 and 1992 resulted in death.

\16 Prescription Drugs and Medicaid:  Automated Review Systems Can
Help Promote Safety, Save Money (GAO/AIMD-96-72, June 11, 1996).  The
Office of Personnel Management contracts with almost 400 health plans
to operate FEHBP.  See Pharmacy Benefit Managers:  FEHBP Plans
Satisfied With Savings and Services, but Retail Pharmacies Have
Concerns (GAO/HEHS-97-47, Feb.  21, 1997).

\17 Early refills include prescriptions submitted (1) for the same
drug, (2) for the same person, and (3) by either the same or a
different pharmacy before a predetermined amount of the drug, such as
75 percent, has been consumed.  While a legitimate need may exist for
an early refill in some situations, early refills also include
duplicate prescriptions submitted for purposes of fraud or abuse.

\18 The Blue Cross and Blue Shield Association, Government Employees
Hospital Association, and Rural Carrier Health Benefit plans
estimated saving $10 million, $8 million, and $1 million,
respectively, by using PRODUR.

\19 According to DOD, only about 10 percent of MTFs pursue
third-party billing to collect payment for beneficiaries whose
prescription drug costs are covered by other health insurance plans.
The analysis indicates that the current manual process is
time-consuming and costly, and pharmacies typically do not bill for
prescriptions of less than $25.

\20 The Pharmacoeconomic Center estimated that an automated PRODUR
system would prevent only 10 percent of the 55,000 hospitalizations
caused by inappropriate drug therapy.  This amounts to an estimated
annual MTF hospital cost savings of $8.3 million.

\21 "Drug-Induced Illness Leading to Hospitalization," Journal of the
American Medical Association (May 1974) and "The Role of Medication
Noncompliance and Adverse Drug Reactions in Hospitalizations of the
Elderly," Archives of Internal Medicine (Apr.  1990).  See Selected
Bibliography at the end of this report for these and other studies
related to hospitalizations as a result of adverse drug events.

\22 The $103 million in measurable savings developed by the DOD
pharmacy workgroup's November 1995 economic analysis included just
two new programs that could be expanded--systemwide volume drug
purchase discounts from drug companies and third-party collections.
Not estimated were the potential savings from reducing inappropriate
prescription drug use and medication stockpiling or educating
physicians to choose less costly drugs.

\23 The Pharmacoeconomic Center updated DOD's 1995 economic analysis
of the UP3 project in order to submit it to TMA headquarters
officials to consider in approving project funding.  The $321 million
additional savings compared with the 1995 $103 million estimate
include third-party collections ($176 million increase) and avoided
hospitalizations ($83 million) and avoided MTF doctor visits to
rewrite refill prescriptions ($62 million).

\24 Alternatives to modify CHCS include integrating report-writing
capabilities and linking with a commercial third-party claims
processor.

\25 DOD is exploring new approaches with TRICARE contractors and
others to plan the next generation of TRICARE contracts, expected to
start in 2000.

\26 Humana officials estimated that the technology would cost less
than $0.50 per prescription in TRICARE regions 3 and 4.  If this
estimate is extended systemwide, we calculate a total estimated cost
based on a $0.50 unit price of about $27 million per year for MTF
pharmacies and about $4 million per year for TRICARE retail and
national mail- order pharmacies.

APPLYING COMMERCIAL BEST PRACTICES
COULD REDUCE COSTS AND ENHANCE
CARE QUALITY
============================================================ Chapter 3

Private sector fee-for-service and managed health care plans work
with PBMs to provide well-defined prescription drug benefits to
beneficiaries based on the coverage beneficiaries choose to purchase.
The PBMs and the plans then work to ensure that the beneficiaries
have easy access to their benefits, regardless of where they live.
DOD's goal likewise is to provide a uniform, consistent drug benefit
to the 8 million active duty personnel, retirees, and their families,
regardless of residence.  Despite DOD's intentions, however, this is
not taking place.  DOD's pharmacy policies and practices cause
beneficiaries nationwide to encounter different and changing rules
affecting their coverage and access to benefits.  Also, DOD and its
contractors are unable to fully apply widely used commercial best
practices, such as retrospective drug utilization reviews, to reduce
pharmacy costs, improve patient safety, and control other health care
costs caused by drug mishaps.

   PROGRAM REQUIREMENTS CREATE
   INCONSISTENT PHARMACY BENEFITS
---------------------------------------------------------- Chapter 3:1

Standard business practice in private sector and federal civilian
employee health plans is to devote considerable attention to
designing the pharmacy benefit's many details.  Details such as
copayments and nonformulary drug costs can create the incentives or
disincentives crucial to balancing the health plan's financial
soundness with beneficiaries' freedom to choose pharmacies and
drugs.\27 In contrast, DOD has not adopted such a systems view of its
pharmacy operations.  Rather, DOD's pharmacy programs are structured
in a way that creates benefit inconsistencies among the programs and
the various categories of military beneficiaries.

Lessons can be learned by contrasting DOD's requirements with those
provided under the world's largest employer-sponsored health
insurance program--FEHBP.  FEHBP provided voluntary health insurance
coverage for about 9 million federal civilian employees, retirees,
and dependents in 1997.  During that year, it spent about $16.3
billion to cover its members.\28 To differing degrees, all FEHBP
plans cover prescription drugs.  In 1995, pharmacy benefit payments
for five of the largest FEHBP plans were about $2 billion.  The
standard FEHBP plan brochure includes a prescription drug benefit
section reflecting various benefit design decisions that balance the
plan's need for cost control with employees' need for the widest drug
service selection.  Since the brochure's drug benefit section is
highly detailed, enrollees have a full explanation of benefits and
what to expect in gaining access to pharmacy care and in filing a
claim--no matter where they live.

In contrast, DOD's pharmacy 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.  Understanding the full
DOD pharmacy benefit requires a complex matrix displaying the eight
beneficiary eligibility categories across the three pharmacy
programs, as shown in table 3.1.  One special population--the 1.2
million Medicare-eligible retirees\29 --is about to be redivided into
three eligibility categories--space available, Medicare BRACs,\30 and
TRICARE Seniors.\31 With the rollout of the Medicare subvention
demonstration program later this year, an eighth category for TRICARE
Seniors will be added to the DOD matrix.  The Medicare program does
not provide coverage for prescription drugs, a major expense for
older people, who tend to use more prescriptions as they age.  Thus,
the lack of a DOD systemwide prescription drug benefit for most
Medicare-eligible retirees opens a major gap in their health care
coverage between Medicare and DOD.\32

                               Table 3.1

                   DOD Prescription Drug Benefits and
                    Eligible Beneficiary Categories

                             TRICARE retail pharmacy
                            --------------------------
                            Network       Nonnetwork
                            retail        retail        National mail-
              MTF           pharmacy      pharmacy      order pharmacy
------------  ------------  ------------  ------------  --------------
Drug coverage
----------------------------------------------------------------------
Formulary     Closed        Open          Open          Closed

Generic       Mandatory     Mandatory     Voluntary     Mandatory
substitution

Beneficiary eligibility category
(eligible population in millions)
----------------------------------------------------------------------
Active duty   $0 for up to  Not eligible  Not eligible  $0
(1.6\a)       90-day
              supply

Active duty   $0 for up to  $5 copayment  Point-of-     $4 for each
family        90-day        for each 30-  service       90-day supply
member        supply        day supply,   option: $300
enrolled in                 up to a 90-   individual
TRICARE                     day supply    deductible\c
Prime                                     plus 50% of
(0.9\b)                                   allowed
                                          charge for
                                          30-day
                                          supply

Active duty   $0 for up to  No            Deductible\c  $4 for each
family        90-day        deductible-   plus 20% of   90-day supply
member using  supply        -15% of       allowed
TRICARE                     negotiated    charge
Extra or                    retail drug
TRICARE                     price for
Standard                    each 30-day
(1.2\b)                     supply, up
                            to a 90-day
                            supply

Retirees and  $0 for up to  $9 copayment  Point-of-     $8 for each
their         90-day        for each 30-  service       90-day supply
dependents    supply        day supply,   option: $300
under age 65                up to a 90-   individual
enrolled in                 day supply    deductible\c
TRICARE                                   plus 50% of
Prime                                     allowed
(0.3\b)                                   charge for
                                          30-day
                                          supply

Retirees and  $0 for up to  No            Deductible\c  $8 for each
their         90-day        deductible-   plus 25% of   90-day supply
dependents    supply        -20% of       the allowed
under age 65                negotiated    charge
using                       retail drug
TRICARE                     price for up
Extra or                    to a 90-day
TRICARE                     supply
Standard
(2.7\b)

Medicare      $0 for up to  Not eligible  Not eligible  Not eligible
space-        90-day
available     supply
retirees and
their
dependents
aged 65 and
older
(1.2\d)

Medicare      $0 for up to  20% of        Not eligible  $8 for each
BRAC          90-day        negotiated                  90-day supply
retirees      supply        retail drug
(0.4\d)                     price for up
                            to a 90-day
                            supply

TRICARE       $0 for up to  $9 copayment  Point-of-     $8 for each
Seniors\d     90-day        for each 30-  service       90-day supply
              supply        day supply,   option: $300
                            up to a 90-   individual
                            day supply    deductible
                                          plus 50% of
                                          allowed
                                          charge for
                                          30-day
                                          supply
----------------------------------------------------------------------
Note:  DOD designed TRICARE as a triple-option program to give
beneficiaries a choice among a health maintenance organization (HMO)
(referred to as TRICARE Prime); preferred provider organization
(TRICARE Extra); and a fee-for-service benefit (TRICARE Standard).
TRICARE Prime is the only option for which beneficiaries must enroll
and select a "primary care manager," who will coordinate their health
care.  Except for active duty personnel, TRICARE Prime beneficiaries
may choose to enroll with an MTF or with the TRICARE contractor
(active duty personnel are automatically enrolled with an MTF).
TRICARE Extra offers lower costs when beneficiaries receive care from
network providers.  With TRICARE Standard, beneficiaries are
generally free to choose any provider.

\a Worldwide.

\b Continental United States only.

\c Deductibles:  Active duty family:  service categories E-1 through
E-4:  $ 50/person and $100/family; service categories E-5 and above:
$150/person and $300/family.  Retirees:  $150/individual and
$300/family.  Prime point-of-service option:  annual deductible
applies to all covered services.

\d 1.  2 million includes 400,000 Medicare BRACs worldwide and about
24,000 TRICARE Senior beneficiaries expected to enroll in the
Medicare subvention demonstration program in 1998.  Since DOD has not
finalized its guidance to TRICARE contractors regarding their retail
pharmacy services to TRICARE Seniors, this description is subject to
change.

As shown in table 3.1, all beneficiaries are eligible for the no-cost
MTF pharmacy program at any MTF, regardless of where they live.
Since 1994, however, DOD Health Affairs has issued several policies
governing MTF pharmacy services.  These policy changes affected how
each MTF determined its priorities in providing space-available
prescription drug services to families of military personnel as well
as to retired military beneficiaries.  For example, a June 1994 DOD
policy permitted MTF commanders, if necessary on the basis of
available resources, to limit pharmaceuticals to non-active duty
beneficiary classes in accordance with their priority for care
(first, active duty family members, followed by retirees and their
family members).  In July 1995, the Assistant Secretary of Defense
(Health Affairs) changed the MTF pharmacy support policy and required
MTFs to honor all prescriptions for formulary drugs regardless of
beneficiary category.

In April 1997, the Acting Assistant Secretary of Defense (Health
Affairs) issued a more explicit directive that MTF pharmacies not
give preference to active duty and TRICARE prime beneficiaries over
all other categories.  Instead, the still current April 1997 policy
requires that whatever prescription drugs are on the MTFs'
formularies must be made available to all beneficiaries.  Today, the
only basis for turning beneficiaries away from the MTF pharmacy is
when the medication is not on its formulary.

--------------------
\27 The rapid growth in PBM and health insurers working together to
apply managed care principles to prescription drug programs for
optimal, cost-effective drug prescribing and use is further described
in a September 1996 study for the Health Care Financing
Administration (K.  Gondek, Ph.D, and others, Assessment of the
Impact of Pharmacy Benefit Managers).  See also our reports, Pharmacy
Benefit Managers:  Early Results on Ventures With Drug Manufacturers
(GAO/HEHS-96-45, Nov.  9, 1995) and Pharmacy Benefit Managers:  FEHBP
Plans Satisfied With Savings and Services, but Retail Pharmacies Have
Concerns (GAO/HEHS-97-47, Feb.  21, 1997).

\28 FEHBP offers several health plan types, including many managed
care plans.  Nationwide, 374 plans were available in 1997, but the
number of plans offered to members varies by location.  Under FEHBP,
individual health plans establish their own relationships with
providers, process individual claims, develop benefits, and devise
marketing strategies.

\29 Military retirees lose their TRICARE coverage when they become
eligible for Medicare, the national health insurance program for
people 65 years and older, certain younger disabled people, and
people with kidney failure.

\30 The National Defense Authorization Act for Fiscal Year 1993
required DOD to provide retail and mail-order pharmacy services to
Medicare-eligible retirees and their families who reside where
military base downsizing closed an MTF pharmacy (Base Realignment and
Closure Commission [BRAC] actions).  Such retirees became eligible
for mail-order and retail pharmacy programs if they had used the MTF
pharmacy in the year preceding its closure.  As of March 1998, there
were about 386,000 Medicare-BRAC retirees.

\31 The Balanced Budget Act of 1997 authorizes DOD and the Department
of Health and Human Services to demonstrate a new option, "Medicare
subvention," for military retirees.  In general, the subvention
option allows Medicare-eligible military retirees to be treated in
MTFs, and DOD will be reimbursed by Medicare for medical care (but
not prescription drug) costs.  The demonstration sites are Biloxi,
Miss.; San Antonio and Wichita Falls, Tex.; Lawton, Okla.; Colorado
Springs, Colo.; Fort Lewis, Wash.; San Diego, Calif.; and Dover, Del.

\32 For more information on this issue, see Military Retirees' Health
Care:  Costs and Other Implications of Options to Enhance Older
Retirees' Benefits (GAO/HEHS-97-134, June 20, 1997).

   DIFFERENT FORMULARIES CREATE
   BENEFIT UNCERTAINTIES AND
   INCREASE COSTS
---------------------------------------------------------- Chapter 3:2

A key strategy private health plans and PBMs use to provide quality
pharmacy care and control costs is consistent, coordinated formulary
development.\33 A formulary is a list of prescription drugs, grouped
by therapeutic class, that the health plan prefers its physicians to
prescribe for its beneficiaries.  Drugs are chosen for a formulary on
the basis of medical value and price.\34 Formularies are used to help
control prescription drug costs by (1) limiting the number of drugs a
plan will cover; (2) encouraging the use of preferred drugs when
coupled, for example, with programs to inform doctors and
beneficiaries about the formulary drugs;\35 or (3) developing
financial incentives to encourage formulary drug use.

Formularies can be categorized in three ways:  open, incentive-based,
or closed.  Open formularies are most used by fee-for-service health
plans and are often referred to as "voluntary" because neither
beneficiaries nor doctors are penalized if nonformulary drugs are
prescribed.\36 Incentive-based (also referred to as managed)
formularies are becoming increasingly popular because they combine
flexibility and greater cost-control features than open formularies.
Generally, incentive-based formularies offer beneficiaries lower
copayments (if any) when their doctors prescribe the preferred
formulary or generic drugs.\37 A closed formulary limits coverage to
formulary drugs only.\38 In private health plans and FEHBP, closed
formularies are uncommon.  Recent studies have shown that such
formularies, which are thought by some health plans to provide
greater prescription drug cost control, may actually drive up other
health care costs.  For example, denying needed drugs could lead to
illness and cause higher dissatisfaction levels among patients and
doctors.\39

DOD's formularies vary depending on where the beneficiary gets his or
her prescription drugs.  This situation occurs because DOD's many
policies and requirements create different formularies for its
programs:  closed formularies for MTF pharmacies and the national
mail-order pharmacies, and open formularies for TRICARE retail.  As a
result, beneficiaries experience drug coverage and availability
uncertainties and they, DOD, and the TRICARE contractors experience
unnecessary costs.  Each of DOD's 587 MTF pharmacies devises and
maintains its own closed formulary.\40 Since 1993, in an effort to
improve pharmacy benefit uniformity across MTFs, DOD has required all
MTFs to include on their formularies at least those 120 products on
the Tri-Service Formulary (TSF).\41

However, there are no restrictions or incentives for physicians,
pharmacists, or beneficiaries to prescribe, dispense, or use TSF
products.

Since 1997, DOD has considered more restrictive policies and
centralized control over formulary decisions in response to
congressional and beneficiary complaints about the lack of a
consistent systemwide pharmacy benefit and nonstandardized MTF
formulary management.  However, DOD has not taken a systemwide
approach to proposed policy changes.  Instead, it has focused only on
policies governing the MTF and national mail-order programs, not the
TRICARE contractors' programs.\42 In July 1998, DOD will replace the
TSF policy with a more restrictive basic core formulary (BCF) policy
(see app.  II for the products included on the BCF).  Like the TSF
policy, the BCF would become the minimum list of products on each MTF
outpatient pharmacy formulary.  The policy calls for a DOD national
P&T committee to decide which drug products to add to or drop from
the BCF.\43 The BCF policy calls for potentially reducing the number
of drugs available in certain high-cost therapeutic classes.  These
therapeutic classes will be designated on the BCF as "closed"\44 (see
app.  III for a list of prescription drugs currently available in
therapeutic classes thus far targeted for closure).  Under the
policy, MTFs would not be allowed to dispense nonformulary products
in those BCF therapeutic classes, although case-by-case exceptions
would be allowed for medical necessity.  In this way, DOD seeks to
ensure that more doctors, pharmacists, and beneficiaries actually use
these formulary items.

The lack of a uniform formulary across MTF, TRICARE retail, and
national mail-order pharmacy programs has unintended consequences for
beneficiary costs and access as well as DOD and contractor costs.
Effects include the following:

  -- Different closed formularies in the MTF pharmacies cause
     unpredictable cost-shifting among MTFs and allegedly may be
     causing cost-shifting from MTF pharmacies to TRICARE
     contractors' retail pharmacy programs.  Both situations can
     create uncertain financial effects within the pharmacy programs
     and for beneficiaries, as well as cause overall program cost
     increases.

  -- TRICARE contractors' bid prices are unnecessarily inflated
     because, under their contract, they must use open formularies
     and thus have only limited influence over beneficiary
     prescription drug use.  As a result, the TRICARE contractors
     told us, they are less able to negotiate deeper price discounts
     from drug companies without the ability to provide preferred or
     favorable status on a closed or incentive-based drug formulary.
     If they could, one contractor estimated, their retail pharmacy
     drug costs could be reduced between 10 percent and 20 percent
     ($23 million to $47 million on the basis of 1997 retail drug
     costs of $233 million).

  -- Overall costs are higher than necessary for DOD because of its
     inability to share the TRICARE contractors' formulary savings
     through the applicable bid-price adjustment provisions of the
     contracts.\45

Despite the flexibility and cost-control advantages of
incentive-based formularies, such an approach faces various policy,
statutory, regulatory, and contractual barriers.  For example, DOD
believes it lacks authority to charge non-active duty beneficiaries
copayments for MTF outpatient prescription drugs.  Copayments at MTFs
would create incentives for physicians to prescribe and beneficiaries
to accept the formulary drugs.  At the same time, beneficiaries could
elect to make a copayment to obtain the nonformulary drugs at an MTF
rather than shop at the contractor's outlets or the mail-order
pharmacy with their copayments.  An example of a contractual barrier
is DOD's position on the formulary types to be used in the TRICARE
retail and mail-order pharmacy programs.  While DOD required that the
new national mail-order pharmacy program contractor use a closed
formulary, DOD's contracts with TRICARE contractors prohibit the use
of closed formularies, although they are apparently permitted under
TRICARE regulations.\46

DOD and contractor officials told us that a uniform, incentive-based
formulary for all pharmacy programs would be a significant "demand
management" and cost-control improvement over the current approaches.
The added revenue from MTF copayments, if retained by the affected
MTF, could be used to pay for more prescription drug services.
Copayments could be designed to create incentives for physicians to
prescribe and beneficiaries to use more cost-effective formulary
drugs.  Pharmacoeconomic Center officials told us that MTFs could
save an estimated $60 million each year in prescription drug costs
using, for example, a $15 MTF copayment for nonformulary products.
One of Foundation's TRICARE program officials estimated that MTF
prescription drug costs could drop about 5 percent under an
incentive-based formulary--a savings of $37 million based on 1997 MTF
drug costs of $741 million.\47 Including potential TRICARE retail
pharmacy program formulary savings, systemwide savings could amount
to between $61 and $107 million per year.

--------------------
\33 For more about private sector formulary development and
management, see GAO/HEHS-96-45, Nov.  9, 1995, and GAO/HEHS-97-47,
Feb.  21, 1997.

\34 In developing formularies, health plans or PBMs rely on pharmacy
and therapeutic (P&T) committees of pharmacists and doctors to
analyze prescription drug safety, efficacy, and substitutability.
They then rely on the P&T committee to recommend which drugs to
include on the formulary to provide physicians a sufficient number of
treatment options.

\35 To encourage compliance, health plans provide doctors with their
formularies, in print and electronic forms.  These often use dollar
sign designations to identify drugs according to their relative cost
within a therapeutic class.  For example, "$" can signify a low-cost
product, while "$$$$" signifies a high-cost product.

\36 In 1994, over 90 percent of PBM-managed formularies were open,
according to the American Pharmaceutical Association.  For example,
Blue Cross and GEHA, the fee-for-service plans covering about half of
FEHBP's 9 million civilian beneficiaries, both had open formularies
in 1998.  However, open formularies are less used by managed care
plans like health maintenance organizations (HMO).  According to the
Novartis Pharmacy Benefit Report:  1997 Trends & Forecasts (East
Hanover, N.J.:  Novartis Pharmaceuticals Corp., Apr.  1997), in 1996
only 33 percent of HMOs used open formularies.

\37 With incentive-based formularies, the health plan sponsor still
pays for nonformulary drugs but may require beneficiaries to make
higher copayments than for formulary or generic drugs.  Health plan
sponsors may separately use a range of incentives aimed at doctors
and pharmacists to promote preferred drugs' use.

\38 With a closed formulary, when a doctor prescribes a nonformulary
brand-name drug, the patient pays the full cost unless the doctor
determines that the nonformulary drug is medically necessary for that
patient.  In 1996, partially closed formularies were most used by
HMOs (39 percent).  This means that reimbursement is blocked for
certain nonformulary drugs, but payment is allowed for others, often
depending on medical necessity and cost.

\39 Susan D.  Horn and others, "Intended and Unintended Consequences
of HMO Cost-Containment Strategies:  Results From the Managed Care
Outcomes Project," The American Journal of Managed Care, Vol.  II,
No.  3 (Mar.  1996) and Richard A.  Levy and others, Component
Management Fails to Save Health Care System Costs:  The Case of
Restrictive Formularies (Reston, Va.:  National Pharmaceutical
Council, 1996).

\40 With over 4,000 medications on the pharmaceutical market, each
MTF-specific formulary represents several considerations, such as (1)
the site commander's budget and fiscal responsibility, (2) the
beneficiary population, (3) potential diagnoses, (4) mission and
scope of care, and (5) physician interests and specialization.  For
more information, see Lt.  Col.  Vincent Carr and others, "Formulary
Management in a Military Treatment Facility," Military Medicine, Vol.
162 (Mar.  1997).

\41 Developed and maintained by the DOD Pharmacoeconomic Center, the
TSF is a list of prescription and over-the-counter medications and
devices under 56 therapeutic classes selected for their
cost-effectiveness in treating certain diseases.

\42 A systemwide approach was proposed in May 1997 but has not been
acted upon.  At the Acting Assistant Secretary of Defense for Health
Affairs' request, the Pharmacoeconomic Center Director proposed a
"semiclosed" national formulary that would designate each therapeutic
class as closed or open.  If the therapeutic class was closed, all
three pharmacy programs would cover only the drugs listed on that
class's formulary.  Any drug not listed within a closed class would
be nonformulary and covered only by special request.  If the
therapeutic class was open, the programs would cover any drug in the
class.

\43 The P&T committee would be composed of voting and nonvoting
members, including DOD, Coast Guard, and Department of Veterans
Affairs (VA) physicians and pharmacists and representatives from DSCP
and a DOD medical standards board.

\44 The BCF policy includes initiating a joint venture with VA to
identify drug products to award "volume-based, committed use
requirements" contracts to drug companies.  DOD expects to receive
even cheaper prices from several drug companies competing to win some
or all of the military and veterans facility combined outpatient
pharmacy market share.  These drug products' therapeutic classes will
be designated on the BCF as closed so that the contracts will become
the mandatory source for all MTF pharmacies, regardless of doctors'
and beneficiaries' preferences for competing drugs.

\45 TRICARE contracts are fixed-price, at-risk contracts, with the
health care price subject to adjustments for changes in beneficiary
population, MTF workload, risk-sharing, and other factors.  The
risk-sharing adjustment is prorated for both gains and losses; the
government and the contractor share in underruns and overruns.

\46 DOD's regulations implementing the TRICARE managed care program
reforms replacing the CHAMPUS program (32 C.F.R.  199.17) allow DOD
to develop procedures for the contractors to use appropriate drug
formularies in managing retail and mail-order pharmacy programs.

\47 In commenting on a draft of this report, Foundation stated that
its estimated 5-percent reduction in costs under an incentive-based
formulary was just in utilization savings.  Foundation stated that
MTFs could also generate substantial revenue through requiring
beneficiary copayments.

   USE OF OTHER COST-SAVING,
   CARE-ENHANCING PBM STRATEGIES
   NOT FULLY POSSIBLE IN CURRENT
   ENVIRONMENT
---------------------------------------------------------- Chapter 3:3

In addition to formulary management and automated PRODUR systems,
private health plans use other PBM strategies to further control
prescription drug costs, curb inappropriate prescription drug
therapy, and identify physicians who prescribe too many or
nonformulary drugs so they can be educated about more appropriate,
cost-effective treatments for their patients.  Such strategies,
referred to as physician and pharmacist interventions, cannot be
fully and systematically applied in MTF, TRICARE retail, and national
mail-order pharmacy programs (see table 3.2 for a description).  DOD
and contractor officials cited barriers such as a lack of policies or
contract provisions permitting therapeutic interchange, along with
the need to integrate each program's pharmacy patient records into a
shared database to make managed pharmacy care decisions.  Along with
improving the quality of drug therapy, these strategies are routinely
used in private health plans to control costs and achieve large
direct and indirect cost-savings.  For example, three FEHBP plans,
covering 4.5 million beneficiaries, estimated saving about $60
million in 1995 using such strategies.  Another PBM told us that, in
the FEHBP plans it represents, 1997 savings resulting from prior
authorization alone were $66 million.

                                        Table 3.2

                          Pharmacy Benefit Management Strategies
                            Involving Physician and Pharmacist
                                      Interventions

Intervention                  Description
----------------------------  -----------------------------------------------------------
Retrospective drug            Retrospective drug utilization review programs analyze
utilization review            patterns of drug use to make prescription substitution
                              recommendations to physicians and inform plans and
                              physicians about physicians' prescribing patterns and
                              costs.

Generic substitution          Generic substitution interventions switch medications from
                              brand-name drugs to chemically and biologically equivalent
                              generic drugs. In some states, pharmacists can make this
                              switch if the physician does not indicate that the
                              prescription must be dispensed as written.

Therapeutic interchange       Therapeutic interchanges switch nonformulary medications to
                              preferred formulary drugs, usually with physician consent.
                              Such programs encourage patients to use, and physicians to
                              prescribe, less expensive brand-name formulary drugs
                              considered to be as safe and effective as other, more
                              expensive brand-name drugs.

Prior authorization           Prior authorization is required for medications that may be
                              used to treat conditions or illnesses that are not covered
                              by a plan, are outside the Food and Drug Administration or
                              manufacturer guidelines, have a high potential for abuse,
                              or are ordered in unusual quantities.

Disease management            Disease management programs try to improve the care
                              delivered to a specific group of patients, such as those
                              with diabetes, by recommending particular therapies or
                              patient self-management techniques. Programs use physician
                              and patient education materials to emphasize shared
                              responsibility and cost-effective approaches.
-----------------------------------------------------------------------------------------
Source:  GAO/HEHS-97-47, Feb.  21, 1997.

The consequences of not using these commercial best practices more
extensively in DOD pharmacy programs are likely significant.  For
example, higher costs are caused by using more expensive drug
therapies instead of less costly generic or therapeutic alternatives
and by not having doctor "report cards" that could be used to
encourage physicians to prescribe less costly prescription drugs.
According to DOD and contractor officials, systemwide costs likely
are 10 to 20 percent higher than necessary.  Applying such
percentages would mean that the total DOD 1997 pharmacy drug costs of
$987 million may include $99 million to $197 million in unnecessary
spending.\48

--------------------
\48 The range of estimated savings combines the outcomes of several
PBM strategies, including potential savings from automated PRODUR
systems discussed in the previous section.

MAIL-ORDER PROGRAM AND RETAIL
PHARMACY PROPOSAL FURTHER FRAGMENT
HEALTH CARE SERVICES AND RAISE
COSTS
============================================================ Chapter 4

Private sector pharmacy benefit managers use mail-order and network
retail pharmacy programs to control costs and optimize beneficiaries'
access and service.  Until recently, DOD procured mail-order and
retail pharmacy services as part of the TRICARE managed care support
contracts.  To secure DAPA drug prices and thus help control TRICARE
contractors' pharmacy cost increases, DOD replaced the contractors'
mail-order pharmacy programs with a separate national mail-order
contract service.\49 DOD is now considering a proposal to provide
retail pharmacy services under one new contract once the new TRICARE
managed care support contracts are phased in across the country.
Such initiatives separate pharmacy care from health care management,
will likely increase systemwide costs, pose additional patient safety
risks, and complicate TRICARE contract management.

--------------------
\49 In October 1997, Merck-Medco Managed Care, L.L.C.  began limited
services to beneficiaries across the country under its 5-year
contract with DSCP.  Fully implemented in April 1998, the program
fills prescriptions by mail for chronic health problems such as high
blood pressure, asthma, and diabetes.

   MAIL-ORDER PHARMACY PROGRAM
   FRAGMENTS SERVICES
---------------------------------------------------------- Chapter 4:1

During the past several years, DOD has used contractor-supported
mail-order pharmacy programs as a less costly way to dispense
medications to beneficiaries with chronic health conditions, such as
asthma and diabetes.  Mail order is easy and convenient for
beneficiaries to use and can control DOD's costs because prescription
drugs are purchased at DAPA prices previously available only to MTF
pharmacies.  In 1994, DOD contracted for two mail-order pharmacy
demonstration programs\50 and required TRICARE contractors to provide
mail-order pharmacy services starting in March 1995.  Also, after
consulting with VA, the federal agency responsible for implementing
the Veterans Health Care Act of 1992,\51 DOD decided to forgo seeking
authority under the act for TRICARE contractors to directly receive
DAPA prices for their mail-order and retail pharmacy services.
Instead, DSCP officials proposed and DOD Health Affairs agreed, upon
consulting with VA, that DSCP should issue a contract solicitation
for a separate national mail-order pharmacy program.

Under the national mail-order pharmacy program, which became
operational in October 1997, the new contractor--Merck-Medco--
dispenses prescription drugs purchased by a DSCP prime vendor
contractor.  DOD receives the DAPA prices for these drugs (see fig.
4.1).  To fully implement the new program, DOD modified the TRICARE
contracts\52 so that in April 1998 the TRICARE contractors ended
their mail-order pharmacy services and began paying Merck-Medco to
deliver the services.

   Figure 4.1:  National
   Mail-Order Program Flow Chart

   (See figure in printed
   edition.)

According to several DOD and TRICARE contractor officials, separating
mail-order pharmacy from TRICARE health care delivery increases
systemwide costs and creates contract administration and health care
management problems.  Some examples follow:

  -- 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.

  -- Merck-Medco is not linked to the TRICARE contractors' claims
     adjudication databases, which are used to track the amount each
     single beneficiary or family group spends on drugs to determine
     when the annual deductibles and out-of-pocket cost limits have
     been reached.  Thus, delays in paying claims and errors can be
     expected.  While Merck-Medco is to provide an accounting of
     beneficiary mail-order expenditures to each contractor, such
     data sharing is cumbersome and will be delayed by intermediary
     routing through several DOD offices.

  -- For the TRICARE contractors to pay for national mail-order
     pharmacy services, DOD has set up a new billing and payment
     system that may take months to reconcile.\53 Rather than having
     Merck-Medco directly bill the TRICARE contractors for the
     mail-order services, DOD plans to pay Merck-Medco for its
     mail-order services and, in its monthly TRICARE contractor
     payments, to subtract an amount to cover the contractor's share
     of the costs.  Each year, DOD and the TRICARE contractors will
     negotiate the monthly offset amount based on projected
     mail-order demand.  A DOD official told us this roundabout
     process will lead to unnecessary errors and disputes and further
     complicate and delay the contract bid price adjustment
     process.\54

  -- DOD is also requiring the MTFs to pay for Merck-Medco's
     mail-order pharmacy services provided to enrolled prime
     beneficiaries.  This will add financial pressure to MTF pharmacy
     budgets and could lead to further MTF formulary restrictions and
     consequent access problems for beneficiaries.

A significant problem related to the new mail-order program's
formulary was avoided shortly before the April 1998 changeover.
During the TRICARE contract modification negotiations, the
contractors objected to the new mail-order program's restrictiveness
compared with their retail pharmacies' formularies.  The contractors
pointed out to DOD that many of the drugs beneficiaries were used to
getting by mail order were excluded from the new program, arguing
that beneficiaries would flock to their pharmacies and their costs
would increase.  In February 1998, we also had alerted DOD to this
potential outcome.  In March 1998, shortly before the mail-order
contract changeover, DOD relaxed the new program's closed formulary
to allow nonformulary prescriptions on a case-by-case basis.\55

--------------------
\50 Starting in November 1994, Value Rx administered programs
targeting beneficiaries no longer able to get free prescription drugs
because of military base closures and those living where TRICARE
mail-order pharmacy services were not yet available.  In January
1998, the Merck-Medco program replaced the Value Rx programs.

\51 For more information on how VA administers the Veterans Health
Care Act of 1992, see Drug Prices:  Effects of Opening Federal Supply
Schedule for Pharmaceuticals Are Uncertain (GAO/HEHS-97-60, June 11,
1997).

\52 DOD modified its three Foundation contracts (regions 6; 11; and
9, 10, and 12), its Humana contract (regions 3 and 4), and its
TriWest contract (regions 7 and 8).

\53 Because the TMA Office and DSCP separately administer the TRICARE
and national mail-order pharmacy contracts, DOD decided not to allow
Merck-Medco to bill TRICARE contractors directly for its services.

\54 For more information on bid price adjustment and other TRICARE
contract financing matters, see our August 22, 1997, report, Defense
Health Care:  TRICARE Resource Sharing Program Failing to Achieve
Expected Savings (GAO/HEHS-97-130).

\55 Before April 1998, Merck-Medco was required to return
prescriptions unfilled if they were for nonformulary drug products.
This caused 25 percent of the prescriptions to be rejected in the
first few months of operation.  To avoid systemwide cost-shifting
caused by the program's closed formulary requirement, DOD modified
the contract's requirements.  Merck-Medco is now required to request
physician approval to substitute a formulary drug for a prescribed
nonformulary drug.  If no approval is given, nonformulary
prescriptions will be dispensed.

   RETAIL PHARMACY PROPOSAL MAY
   HAVE UNANTICIPATED SYSTEMWIDE
   COSTS AND OTHER CONSEQUENCES
---------------------------------------------------------- Chapter 4:2

Since February 1998, DOD has been developing a proposal that would
award a contract for a national retail pharmacy program.  As
currently proposed, the new program would replace retail pharmacy
services provided under the TRICARE contracts and would be phased in
nationwide as current TRICARE contracts expire and new contractors
begin delivering health care services.\56 Unlike the national
mail-order pharmacy program, the current TRICARE contracts would not
be affected.  It is unclear, however, whether future TRICARE
contractors would pay for such services from a separate contractor.
Like the mail-order pharmacy program, the proposed retail pharmacy
program would keep the national retail pharmacy network contractor
out of the DAPA price transaction between DOD and the drug companies.
DSCP is planning for a May 1999 contract award, but TMA officials
told us in April 1998 that no final decisions have been made to
proceed with a contract solicitation.  DSCP officials estimate, on
the basis of limited data, that retail pharmacy drug costs would be
reduced 50 to 60 percent under such a DAPA-priced retail pharmacy
program.\57

A key issue with respect to eligibility for DAPA prices from drug
companies to DOD is the respective roles of DOD and the national
retail pharmacy benefit manager under the proposed program.  Under
the Veterans Health Care Act, DAPA prices are available for
brand-name prescription drugs that DOD purchases under a "depot
contracting system."\58

DSCP's pharmaceuticals group director told us he believes DOD would
be eligible for the DAPA prices.  However, a VA national acquisition
center senior contract attorney told us in February 1998 that DOD had
not yet consulted with VA on that proposal.  TMA's Director of Health
Services and Operations Support told us in April 1998 that DOD plans
to consult with VA as part of its ongoing decision-making process.

Even if permissible, the retail pharmacy network proposal raises
several issues:

  -- Having two separate national contractors for mail-order and
     retail pharmacy services would further fragment DOD health care
     services and divorce TRICARE contractors' medical care
     management from pharmaceutical care.  One contractor official
     told us that utilization management would have to be extensively
     reengineered and that it would not be possible to adequately
     manage patients' medical care.  Another contractor told us that
     the prescription drugs are important in maintaining the
     beneficiary population's good health and that it is difficult to
     isolate the pharmacy benefit from the remaining medical benefit.
     All contractors would object to being financially responsible
     for retail and mail-order pharmacy contractors' costs since they
     would have no control over their formularies or operations.

  -- The proposal would involve a complicated and protracted series
     of financial transactions to distribute and reimburse millions
     of prescriptions among multiple organizations.  The added
     companies and DOD agencies that would need to share data systems
     just for payment purposes could further delay needed pharmacy
     database integration.  Also, the accounting and payment
     reconciliation complexities expected with the national
     mail-order program may be exacerbated for the proposed retail
     program.

  -- According to TRICARE contractor officials, savings from DAPA
     prices could be short-term.  These officials predicted that 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.\59

  -- It is unclear how the proposal would affect beneficiary
     cost-sharing under TRICARE Extra.  Currently, cost shares range
     from 15 to 20 percent of negotiated retail drug prices (see
     table 3.1).  Like DOD, beneficiaries could potentially
     experience 50 to 60 percent savings if their cost shares were
     based on DAPA prices rather than on higher commercial prices.
     However, DOD's proposal does not address that aspect.

  -- It is also unclear whether the proposal would end beneficiary
     access to nonnetwork retail pharmacies, which is currently
     allowed under TRICARE contracts, or lead to a more fragmented
     subsystem managed by separate contractors.  Under TRICARE
     Standard, beneficiaries who choose to use nonnetwork retail
     pharmacies must pay higher out-of-pocket costs and submit paper
     claims to TRICARE contractors for reimbursement of covered
     benefits.  DOD's proposal does not address which contractors, if
     any, would be required to accommodate claims for nonnetwork
     retail pharmacy services.

We asked DOD officials why they had not considered allowing TRICARE
contractors to provide the information needed for DAPA prices paid
directly to DOD.  In April 1997, Foundation's Senior Vice President
for TRICARE Program Management proposed a method for TRICARE
contractors to provide DOD with the data it needs to obtain DAPA
prices from drug companies.  Foundation estimated that the proposal
would save $250 million throughout the lives of its three TRICARE
contracts.  Such an approach, if permissible under the Veterans
Health Care Act, would avoid the various issues that would be created
if a separate national PBM retail pharmacy contractor took over and
might offer savings in addition to those that could be achieved from
integrating patient databases and implementing other commercial best
practices in existing programs, including TRICARE retail.  TMA
headquarters officials told us this approach was not considered
because in 1997 they believed the only way to extend DAPA pricing to
a retail pharmacy program was through a separate contract.  Another
official told us that under the TRICARE contractor approach, other
conflicts likely would arise, such as that between TMA's Office of
Acquisition Management and Support overseeing TRICARE contracts and
DSCP, which administers DAPA prices.  DSCP, which developed the
subject proposal and is its chief sponsor, has a somewhat competing
mission with TMA.  DSCP would gain financially\60 for example, if its
DOD drug market share expanded by replacing existing services with
its own retail and mail-order pharmacy contracts.  On the other hand,
DSCP views the new retail pharmacy contract as a natural extension of
its current DOD market to supply MTFs with pharmaceuticals.

--------------------
\56 The current proposal calls for the national retail pharmacy
contractor to stagger its start of services as new TRICARE contracts
are initiated region to region.  Thus, the program could start in
region 11 (Mar.  2000), followed by region 6 (Nov.  2000); regions 9,
10, and 12 (Apr.  2001); regions 3 and 4 (July 2001); regions 7 and 8
(Apr.  2002); regions 2 and 5 (May 2003); and region 1 (June 2003).

\57 DSCP officials told us they are unable to estimate potential
dollar savings because they lack TRICARE contractors' commercial drug
price data.  In commenting on a draft of this report, Humana
estimated potential savings of between $56 million and $70 million
annually, since the DAPA discount would be in addition to current
discounts below average wholesale prices in TRICARE contractors'
network pharmacies.

\58 38 U.S.C.  8126.  The Veterans Health Care Act defines a depot
system as a centralized commodity management system through which
pharmaceuticals procured by a federal agency are received, stored,
and delivered, using a federal or commercially contracted warehouse.
Pharmaceuticals may also be delivered directly by the commercial
source to the entity using them.

\59 In 1994, the Congress sought to extend discounted drug prices for
DOD, VA, the Public Health Service, and the Coast Guard to other
government purchasers through a cooperative purchasing program.  We
examined the potential effects of this on federal prices in
GAO/HEHS-97-60, June 11, 1997.

\60 DSCP's operations are funded by surcharges on its government
sales.  The retail pharmacy network program surcharges have not been
determined yet, so DSCP could not estimate how much revenue Health
Affairs' payments would generate.  According to DSCP officials, since
DOD's basic mission is to win wars, it follows that its primary
health care mission is to support military readiness.  DSCP's
strategic goal is to capture all of DOD's pharmaceutical supply
market.  Officials noted that shrinking DOD medical budgets are
reducing the MTF pharmaceutical market at the same time DOD is moving
more toward contract-supported "peace-time" health care for
non-active duty beneficiaries.  As such, they believe their agency is
the organization best suited to supervise DOD's national pharmacy
program contracts, given DSCP's established relationships and success
working with drug companies and military units in support of medical
readiness.

MTF FUNDING AND FORMULARY
MANAGEMENT DECISIONS CAN AFFECT
BENEFICIARY ACCESS AND OTHER
PHARMACY PROGRAM COSTS
============================================================ Chapter 5

In the 1990s, as military beneficiaries' demand for prescription
drugs increased, the number of MTF pharmacies decreased and funding
was tightened.  To balance service demand with decreasing resources,
MTF pharmacies began regularly adjusting their formularies without
considering the systemwide effects on beneficiaries' access and
overall DOD pharmacy program costs.  Such actions, particularly at
smaller MTF pharmacies, have resulted in certain drugs becoming
unavailable at some MTFs.  The consequent shifting of affected
beneficiaries to larger MTF pharmacies has caused inconvenience and
driven up systemwide costs.  Recognizing these outcomes, in July 1998
DOD will impose a standardized BCF for all MTFs to control such ad
hoc formulary adjustments.  Since late 1996, both DOD and the TRICARE
contractors have been examining why the contractors' drug costs have
increased at higher-than-expected rates, allegedly causing
significant losses for the contractors.\61 The contractors cited MTF
formulary restrictions as the cause and told us they plan to seek
additional compensation from DOD.  DOD disagrees, and the matter is
currently being studied.

--------------------
\61 A complicating factor is that, according to DOD, neither
Foundation (regions 11 and 12) nor Humana (regions 3 and 4)--the
complaining parties--separately estimated pharmacy costs from overall
health care costs in their formal contract bid prices.  Thus, each
contractor's pharmacy cost baseline may need to be analytically
derived.  Foundation did separate pharmacy costs in its region 6, 9,
and 10 contracts.

   MTF FUNDING AND FORMULARIES
   AFFECT BENEFICIARIES' ACCESS
---------------------------------------------------------- Chapter 5:1

According to DOD pharmacy officials, the closing of one-third of MTFs
since 1988 has significantly increased pharmacy workload and costs at
the remaining 587 MTFs.  Meanwhile, according to DOD pharmacy
officials, pharmacy costs are the largest discretionary cost in the
MTF budget.  As such, MTFs closely monitor and frequently
change--usually monthly--their formularies to balance prescription
drug demand and volume against costs and funds available.  The MTFs
define space-available care, for pharmacy purposes, by the drugs
carried on the formulary.  If a patient's drug is carried there, in
effect, space for the patient is deemed to be available.  Also,
formulary drugs must be equally available to all beneficiary
categories.  As a result of the budget limitations, MTF commanders
have to manage their formularies in a way that limits access to some
beneficial medications.\62 However, neither DOD Health Affairs nor
the service medical commands centrally oversee MTF formulary
decisions.  Our discussions with pharmacy officials and review of 15
MTFs' frequent formulary management decisions between 1995 and 1998
indicated that cost was the prevailing reason for adding or dropping
drugs.\63 The following are some examples:

  -- In 1995, the MacDill Air Force hospital near Tampa, Florida,
     decided to add to its formulary the newly available pill form of
     Imitrex, which is used to treat migraine headaches.  However, to
     limit utilization and thus beneficiaries' access to this
     high-cost drug in pill form, the pharmacy would accept
     prescriptions only for patients who had previously responded
     well to Imitrex injections.  Although the pharmacy no longer
     applies this particular restriction, it applies an Imitrex
     dispensing restriction to control utilization and costs.  Under
     this restriction, MacDill will dispense only one package per
     prescription containing nine Imitrex tablets.  In the past,
     physicians would prescribe, and MacDill would dispense, 30 to 60
     tablets per prescription.  In 1997, at $12 to $15 a pill,
     Imitrex cost the MacDill pharmacy $103,000.

  -- In 1996, the Pensacola, Florida, Navy hospital 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 therapeutic class, MTF
     officials decided that the high demand for Zyrtec at other Navy
     MTFs made it cost-prohibitive.

  -- In 1997, to include Allegra, a widely advertised, nonsedating
     antihistamine, on their formularies, the McConnell Air Force
     clinic (Wichita, Kans.) and Eglin Air Force hospital (Fort
     Walton Beach, Fla.) imposed dispensing restrictions.  Both
     facilities cut the amount in half by dispensing 30 tablets
     instead of the full 60 tablets for a 1-month supply.  Eglin's
     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.

  -- In 1997, the Lackland Air Force medical center in San Antonio,
     Texas, dropped Allegra from its formulary because too much of
     its $28 million pharmacy budget was spent to make Allegra
     available for all beneficiaries.  Instead, the MTF pharmacy
     carries Allegra as a nonformulary drug obtainable only under
     special order, primarily for military pilots.

  -- In 1997, to save $98,000 annually, the Sheppard Air Force
     hospital in Wichita Falls, Texas, dropped Zocor, a
     cholesterol-lowering drug, from its formulary.  Sheppard
     patients on Zocor at that time were switched to the cheaper
     formulary brand, Pravachol.

  -- The Fort Carson Army hospital in Colorado Springs, 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 (saving about 5
     percent), and (3) is developing physician guidance on the best
     use of Prilosec and Prevacid.

These unilateral formulary decisions represent MTF commanders'
attempts to exercise prudent fiscal management and control their
rising pharmacy costs.  Such actions, particularly at smaller MTF
pharmacies, have resulted in certain drugs becoming unavailable at
some MTFs and the consequent shifting of affected beneficiaries to
larger MTF pharmacies--causing inconvenience and driving up costs
elsewhere in the system.  DOD pharmacy officials told us that reduced
MTF pharmacy funding and downsizing, coupled with increased demand
spurred by the availability of free drugs to the beneficiary whether
enrolled in the MTF or not, have created a nearly unmanageable
situation for MTF pharmacy personnel.  These officials told us that
current policy should be changed to limit space-available care to
active duty and MTF prime enrollees (that is, the beneficiaries who
have selected an MTF military doctor as their primary care physician
under the TRICARE Prime option).  They acknowledged that this "lock
out" may shift many unenrolled beneficiaries to the contractors'
retail and mail-order programs, or shift Medicare-eligible retirees
out of DOD's system altogether.  DOD officials agreed that under the
current nonintegrated program structure, such a policy would enable
MTF pharmacy costs to stabilize and potentially decline, but it would
drive up contractors' and beneficiaries' costs.  In our view, MTF
formulary decisions under the existing space-available policy may be
having the same consequences.  These include decreased beneficiary
access, and hence greater inconvenience, and the potential shifting
of beneficiaries to other system sources such that costs can be
driven up systemwide.  These conditions prompted DOD to approve the
BCF policy's more centralized and restrictive approaches to
standardize MTF formularies, which will be implemented in July 1998.

--------------------
\62 According to an October 1997 memorandum from DOD's Pharmacy Board
of Directors to a retiree health care task force, "These medications
may be beneficial to patients and more cost-effective for the health
care system, but the requirement to provide space available care
poses a financial burden that the MTF cannot accommodate under
current budgeting processes."

\63 Cost-cutting considerations included whether new FDA-approved
drugs should be added to the formulary, high-cost brand-name drugs
should be replaced with less expensive drugs in the same therapeutic
class, special physician-prescribing restrictions should be used to
limit demand for high-cost drugs, or dispensing restrictions would
cut drug costs.

   CONTRACTORS ALLEGE THEIR
   PHARMACY COSTS ARE INCREASING
   AS A RESULT OF MTF FORMULARY
   MANAGEMENT
---------------------------------------------------------- Chapter 5:2

In September 1996, Foundation informally asked DOD for additional
compensation from unanticipated pharmacy cost increases in its three
contract service areas.  Foundation initially began delivering
TRICARE services in March 1995 in region 11.\64 According to
Foundation, the rate of retail prescriptions per 1,000 enrollees in
region 11 more than doubled between May 1995 and May 1996.  In
Foundation's view, this increase was caused by MTF physicians
prescribing drugs no longer carried in the local MTF formularies.
Also, in 1997, Humana began complaining to DOD of similar pharmacy
cost increases in regions 3 and 4, likewise caused by MTF formulary
restrictions shifting beneficiary costs to Humana's retail
pharmacies.\65 As alleged by the TRICARE contractors, many
beneficiaries are responding to MTF formulary management 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.  Responding to these current,
escalating contract issues, DOD is studying the potential causes of
the pharmacy cost increases and whether, as the contractors have
alleged, MTF formulary management is at fault and equitable financial
settlements with the contractors may be in order.

DOD's studies, moreover, are focusing on trends in pharmacy costs and
use in Foundation's and Humana's service areas, compared with general
MTF pharmacy use trends.  Also, DOD is studying pharmacy cost and use
trends in retail pharmacies versus MTF pharmacy use in areas in which
TRICARE had not yet been implemented.\66 DOD's study has shown that,
in the 3-year period ending in fiscal year 1997, the contractors'
retail pharmacy use surged by 43 percent, while MTF pharmacy use
declined 5 percent.  Moreover, DOD found these differences most
pronounced in TRICARE areas.

Notwithstanding these preliminary findings, DOD, Foundation, and
Humana disagree on cause.  Preliminarily, DOD is asserting that
TRICARE retail pharmacy services' ease of access and low cost may
have attracted beneficiaries away from MTF pharmacies and to
contractors' programs, and thus the consequent cost-shifting may not
be due to restrictive MTF formulary management.  Of course, if DOD
and the contractors had used interactive pharmacy databases during
the periods in question, establishing cause and effect for the
contractors' allegations could have been greatly facilitated.  In
March 1998, moreover, contractor officials told us they disagree with
DOD's assertions and are considering submitting formal requests for
millions of dollars in additional compensation.  DOD's contract
administrators told us they know that Humana and Foundation are
contemplating formal actions, but until such actions are taken, they
are not able to comment further on the matter.

--------------------
\64 Foundation's three contracts cover Arkansas, California, Hawaii,
parts of Louisiana, Oklahoma, Oregon, parts of Texas, and Washington.

\65 Humana's contract covers Alabama, Florida, Georgia, parts of
Louisiana, Mississippi, South Carolina, and Tennessee.

\66 In 20 states, DOD did not have TRICARE in place until June 1998.
In those states, the CHAMPUS program reimbursed beneficiaries for
their retail pharmacy claim costs after deductibles and copayments.

CONCLUSIONS, RECOMMENDATIONS, AND
AGENCY COMMENTS
============================================================ Chapter 6

   CONCLUSIONS
---------------------------------------------------------- Chapter 6:1

As pharmaceuticals play a larger role in DOD's health care system,
both the demand for prescription drugs and their costs are growing.
In response, DOD has sought ways to contain costs and improve how it
manages the $1.3 billion pharmacy programs.  Nonetheless, DOD and its
contractors lack adequate prescription drug cost and use information
as well as integrated pharmacy patient databases needed to
effectively manage beneficiaries' pharmaceutical benefits.  Because
of such problems as well as formularies that differ among its
pharmacy programs, DOD is unable to fully apply proven PBM practices
that could save hundreds of millions of dollars each year.  The
recent DOD mail-order program and retail pharmacy initiative, aimed
at achieving savings by using DAPA prices, could cause financial and
other problems for TRICARE contractors because pharmacy care would be
separated from the contractors' management of medical care.  Also,
efforts to cut MTF costs by dropping some prescription drugs from
formularies could reduce beneficiaries' MTF pharmacy access and
increase other MTFs' and potentially the TRICARE contractors'
pharmacy costs.  Such efforts can be particularly hard financially on
retirees aged 65 and older who have no outpatient prescription drug
coverage under Medicare or any plan.

In our view, the problems DOD is experiencing delivering its pharmacy
benefit stem largely from the way it manages its $1.3 billion
pharmacy programs.  Although the MTF and 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 cost and beneficiary consequences.  Although
DOD has taken steps to create a Pharmacy Board of Directors and
Pharmacoeconomic Center 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, DOD must 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 worsen in the future.

   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 6:2

To help DOD establish a more systemwide approach to managing its
pharmacy benefit, the Congress may wish to 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 to create incentives for physicians to prescribe
and beneficiaries to use formulary drugs.  Also, the Congress may
wish to provide systemwide eligibility for Medicare-eligible retirees
not now eligible for such benefits.

   RECOMMENDATIONS TO THE
   SECRETARY OF DEFENSE
---------------------------------------------------------- Chapter 6:3

We recommend that the Secretary of Defense direct the Assistant
Secretary of Defense (Health Affairs) to undertake a top-to-bottom
redesign of the prescription drug benefit across the MTF, contractor
retail, and national mail-order pharmacies' 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 should seek those authorities from the Congress.

Actions should include the following:

  -- Develop an approach for effectively involving affected
     stakeholders such as the DOD Pharmacy Board of Directors and
     Pharmacoeconomic Center, TMA Office of Acquisition Management
     and Support, DSCP, and TRICARE and national mail-order
     contractors in decisions bearing on the system.  A starting
     point may be allowing the TRICARE and national mail-order
     contractors to be represented on the national DOD P&T committee.

  -- Expeditiously integrate the existing MTF, TRICARE retail, and
     national mail-order pharmacy patient databases and provide for
     automated PRODUR system use, rather than waiting for CHCS II
     implementation 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 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 contractors.

  -- 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 policies.

  -- 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.

   AGENCY AND OTHER COMMENTS AND
   OUR EVALUATION
---------------------------------------------------------- Chapter 6:4

In commenting on a draft of this report, DOD agreed with the report
and each of its recommendations and described various actions planned
or under way to address the recommendations.  DOD also stated that,
although valid and effective, such practices as MTF pharmacy
copayments will incur beneficiary resistance and the perception of
benefit erosion.  We believe, on the other hand, that the pharmacy
benefit, particularly for Medicare-eligible retirees, has already
eroded and continues to do so because of MTF funding pressures and ad
hoc formulary management.  Moreover, we believe that our
recommendations taken together will significantly help to reverse
this troublesome course.  Also, representatives of military retiree
advocacy groups told us that beneficiaries would not oppose
reasonable MTF copayments if assured they could reliably satisfy
their prescription drug needs through DOD's programs.  Furthermore,
beneficiaries' general acceptance of MTF pharmacy copayments will
critically depend, in our view, on DOD's bringing about and promoting
marked improvements in its overall pharmacy service efficiency,
cost-effectiveness, and quality.

DOD also stated, with respect to extending systemwide drug
eligibility to Medicare-eligible retirees, that legislation will be
required to fund such services above this population's current MTF
space-available services.  We believe that if our recommendations are
implemented promptly and strategically, the resulting savings would
help to defray such added costs.  As our report points out,
implementing automated PRODUR 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.  Also, collecting copayments for
nonformulary drugs from all non-active duty beneficiaries would yield
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 in controls to help 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.  DOD's
comments in their entirety are included in appendix IV.

We also obtained comments on a draft of the report from the TRICARE
contractors--Foundation, TriWest, and Humana.  Each agreed with the
report and its recommendations.  Foundation also stated that the DOD
pharmacy system should not be fragmented further by carving out the
contractors' retail pharmacy services because pharmacy is an integral
part of a patient's total care.  TriWest stated that the recommended
top-to-bottom redesign of the prescription drug benefit should focus
on improving patient access to appropriate pharmaceutical care and
containing and better managing DOD and the TRICARE contractors'
costs.  TriWest affirmed our report's position that unless immediate,
collaborative action is taken to fix the problems we identified,
DOD's pharmacy programs will likely worsen and costs will continue to
hemorrhage.  Foundation's and TriWest's comments appear in appendixes
V and VI, respectively.

Finally, Merck-Medco, the national mail-order pharmacy contractor,
stated that DOD should contract with such PBMs as Merck-Medco rather
than seeking to develop its proficiency at MTFs in applying best
pharmacy practices.  We disagree.  The TRICARE contractors and
Merck-Medco already provide commercial PBM services that supplement
DOD's direct care system's capacity.  Moreover, we do not have enough
evidence that PBMs would cost less than the MTFs.  Thus, we believe
DOD needs a system-oriented pharmacy management structure in place
and operational experience with best practices before further "make
or buy" decisions can prudently be made.  Furthermore, Merck-Medco,
citing the legislative provision requiring us to study DOD's pharmacy
programs, stated that the report does not review the cost impacts of
TRICARE contractors' using PBM best practices to provide pharmacy
benefits.  We disagree.  The report identifies barriers preventing
TRICARE contractors from fully applying PBM best practices, and
provides estimates of the cost and service quality effects on TRICARE
contractors, DOD, and beneficiaries.  The report also discusses
systemwide problems with using PBMs to carve out TRICARE mail-order
and retail pharmacy services to extend DAPA pricing to these
programs.  As a result, the report recommends that DOD postpone
action on the retail pharmacy DAPA-pricing proposal and makes several
other recommendations aimed at removing barriers to the contractors'
fully applying best PBM practices.  Merck-Medco's comments appear in
appendix VII.

DOD and the contractors also provided technical comments, which we
incorporated as appropriate.

DRUG THERAPY PROBLEMS SCREENED BY
AUTOMATED PROSPECTIVE DRUG
UTILIZATION REVIEW SYSTEMS
=========================================================== Appendix I

When a patient submits a prescription to be filled, the pharmacist
transmits patient identification and prescription information to a
central database via the computerized prospective drug utilization
PRODUR system.  In an on-line, real-time environment, the system
screens the prescription against the patient's known medical and
prescription history.  The system then sends the pharmacy a message
indicating whether any potential drug therapy problem, such as a drug
interaction, exists.  If so, the pharmacist consults with the
patient, the physician, or both.  Afterward, the pharmacist may fill
the prescription, but with a different drug than prescribed by the
physician, or cancel the prescription.  Pharmacies that do not use
PRODUR systems are generally limited to comparing the prescription
presented with the patient's prescription data maintained at that
specific pharmacy.  Such a local system would not have the benefit of
the patient's complete history.  Table I.1 describes the types of
drug therapy problems that automated PRODUR systems screen for and
the messages that are sent to pharmacies when they are in the process
of dispensing a patient's prescription.

                               Table I.1

                   Drug Therapy Problems Screened by
                        Automated PRODUR Systems

Drug therapy alert condition        Description
----------------------------------  ----------------------------------
Above maximum dose range            Incorrect drug dosage--lying
                                    outside the standard daily dosage
                                    range necessary to achieve
                                    therapeutic benefit.

Additive side effect                This medication and others on the
                                    patient's profile cause side
                                    effects that are additive (for
                                    example, both cause sedation).

Below minimum dose range            Incorrect drug dosage--lying
                                    outside the standard daily dosage
                                    range necessary to achieve
                                    therapeutic benefit.

Current Rx applies to 90-day        90-day quantity limit on the
therapy                             medication.

Current Rx exceeds 90-day therapy   Exceeds 90-day quantity limit.

Current Rx initiates 90-day         90-day quantity limit, and this is
therapy                             patient's first fill that will be
                                    applied toward the limit.

Drug-age conflict                   Use of a drug that is not
                                    recommended for use in the age
                                    group of the patient. This can
                                    occur when the patient is too old
                                    or too young for the given
                                    medication (for example, Retin-A
                                    prescription--used to treat acne-
                                    -for an adult older than a
                                    designated age limit).

Drug-allergy interaction            The significant potential for, or
                                    the occurrence of, an allergic
                                    reaction as a result of drug
                                    therapy.

Drug-disease interaction            The potential for, or occurrence
                                    of, an undesirable alteration of
                                    the therapeutic effect of a given
                                    prescription because of the
                                    presence of an existing disease
                                    (for example, an ulcer drug
                                    exacerbates a patient's high blood
                                    pressure).

Drug-drug interaction               The potential for, or the
                                    occurrence of, an adverse medical
                                    effect as a result of the
                                    patient's using two or more drugs
                                    together (for example, an antacid
                                    drug will cause a blood-thinning
                                    drug to be absorbed too slowly).

Drug-gender conflict                The medication is not indicated
                                    for the gender of the patient (for
                                    example, birth control pills for a
                                    man).

Drug-indicated disease conflict     The patient has an "inferred"
                                    disease based on the other
                                    medications the patient is
                                    receiving, and the new medication
                                    is contraindicated (for example, a
                                    patient receives Flovent and
                                    Albuterol for asthma and the new
                                    Rx is for Timoptic for glaucoma).

Excessive daily dose                Incorrect drug dosage--lying
                                    outside the standard daily dosage
                                    range necessary to achieve
                                    therapeutic benefit.

Excessive daily dose/children       Incorrect drug dosage--lying
                                    outside the standard daily dosage
                                    range necessary to achieve
                                    therapeutic benefit.

Excessive daily dose/over age 65    Incorrect drug dosage--lying
                                    outside the standard daily dosage
                                    range necessary to achieve
                                    therapeutic benefit.

Excessive quantity dispensed        Quantity attempting to be
                                    dispensed exceeds standard dosing
                                    guidelines.

Indicated for prior drug's side     Prompt to pharmacist that this
effect                              medication is being used to treat
                                    side effect of prior drug.

Insufficient daily dose for age     Incorrect drug dosage--lying
                                    outside the standard daily dosage
                                    range necessary to achieve
                                    therapeutic benefit.

Noncovered item                     Not part of the pharmacy benefit.

Overutilization/                    Use of a drug in quantities or for
early refill                        durations that put the patient at
                                    risk of an adverse medical result.

Pregnancy conflict                  Use of the prescribed drug is not
                                    recommended during pregnancy.

Significant side effect             Fatal edit--causes prescription to
                                    be canceled. The pharmacist should
                                    contact the physician.

Therapeutic duplication             The prescribing and dispensing of
                                    two or more drugs in the same
                                    therapeutic class, such as
                                    analgesics (pain relievers),
                                    resulting in a combined daily dose
                                    that puts the patient at risk of
                                    an adverse medical condition, or
                                    that incurs additional program
                                    cost and no therapeutic benefit.

Underutilization                    Use of a drug in insufficient
                                    quantity to achieve a desired
                                    therapeutic goal.
----------------------------------------------------------------------
Source:  Prescription Drugs and Medicaid:  Automated Review Systems
Can Help Promote Safety, Save Money (GAO/AIMD-96-72, June 11, 1996).

(See figure in printed edition.)Appendix II
DRUG PRODUCTS INCLUDED ON THE
BASIC CORE FORMULARY
=========================================================== Appendix I

http://www.pec.ha.osd.mil/Basiccor.htm (cited June 1, 1998).

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

THERAPEUTIC CLASSES PROPOSED FOR
CLOSURE ON THE BASIC CORE
FORMULARY
========================================================= Appendix III

DOD's basic core formulary (BCF) policy calls for potentially
reducing the number of drugs available in certain therapeutic classes
that account for much of the military treatment facilities' (MTF)
outpatient pharmacy expenditures.  These therapeutic classes will be
designated on the BCF as "closed," and MTFs would not be allowed to
dispense nonformulary products except on a case-by-case basis when
determined to be medically necessary.  Classes will be closed as
committed use requirements contracts are awarded by the Defense
Supply Center at Philadelphia (DSCP) or VA's National Acquisition
Center.  According to DOD, the joint DOD and VA contracts are
intended to increase uniformity and improve the clinical and economic
outcomes of drug therapy.

Table III.1 lists the prescription drugs currently available in
therapeutic classes that the DOD Pharmacoeconomic Center has
preliminarily identified for closure.  If DOD implements the policy
just in its MTF pharmacy program, the policy could affect other DOD
pharmacy programs costs as well as where beneficiaries obtain
prescriptions.  For example, once DOD closes the therapeutic class
for treating high cholesterol, it is possible that the brand-name
drug Zocor may be dropped from all MTF formularies.  Military and
civilian physicians currently treating patients with Zocor would have
to switch the patients to a formulary brand, such as Pravachol, if
they are to continue obtaining their prescriptions through MTF
pharmacies.  If DOD implements the policy just for its MTF pharmacy
program, it is also possible that the patients would have to get
Zocor prescriptions filled at non-MTF pharmacy sources, such as
TRICARE contractors.

                              Table III.1

                 Prescription Drugs Currently Available
                  in Therapeutic Classes Proposed for
                                Closure

Generic name                        Brand name
----------------------------------  ----------------------------------
Antilipemic agents (Hmg-CoA reductase inhibitors). Used to treat high
bloo Estimated MTF costs per year: $40 m $50 million.
----------------------------------------------------------------------
Pravastatin                         Pravachol

Fluvastatin                         Lescol

Lovastatin                          Mevacor

Simvastatin                         Zocor

Atorvastatin                        Lipitor

Cerivastatin                        Baycol

Miscellaneous gastrointestinal agents (proton pump inhibitors). Used
to treat gast peptic ulcer, esophageal reflux. Est costs per year: $30
million.
----------------------------------------------------------------------
Lansoprazole                        Prevacid

Omeprazole                          Prilosec

Miscellaneous gastrointestinal agents (H2 receptor antagonists). Used
to treat ulcer, peptic ulcer, esophageal reflu Estimated MTF costs per
year: $19 mi
----------------------------------------------------------------------
Cimetidine                          Tagamet

Ranitidine                          Zantac

Famotadine                          Pepcid

Nizatidine                          Axid

Hyopotensive agents (angiotensin converting enzyme (ACE) inhibitors).
Used to tr blood pressure. Estimated MTF costs $20 million.
----------------------------------------------------------------------
Benazepril                          Lotensin

Fosinopril                          Monopril

Quinapril                           Accupril

Lisinopril                          Prinivil, Zestril

Captopril                           Capoten

Cardiac drugs (calcium-channel-blockers). Used to treat high blood
pressure. E MTF costs per year: $36 million.
----------------------------------------------------------------------
Nifedipine                          Adalat, Procardia

Diltiazem                           Cardizem, Dilacor, Tiazac

Verapamil                           Calan, Isoptin, Verelan

Amlodipine                          Norvasc

Felodipine                          Plendil

Isradipine                          Dynacirc

Nicardipine                         Cardene

Nisoldipine                         Sular

Hypotensive agents (alpha-adrenergic-blockers). Used to blood
pressure.
Estimated MTF costs $9 million.
----------------------------------------------------------------------
Prazosin                            Minipress

Terazosin                           Hytrin

Doxazosin                           Cardura

Antidepressant agents (selective serotonin reuptake inhibitors). Used
to treat Estimated MTF costs per year: $24 m
----------------------------------------------------------------------
Fluoxetine                          Prozac

Sertraline                          Zoloft

Paroxetine                          Paxil

Glucose test strips. Use: diabetes diagnostic agent. Estimated MTF
cost $10 million.
----------------------------------------------------------------------
Not applicable                      Precision QID

Not applicable                      Accu-Chek

Not applicable                      Advantage

Not applicable                      One Touch

Sympathomimetic (adrenergic) agents (beta agonist inhalers). Used to
treat ast Estimated MTF costs per year: $5 mil
----------------------------------------------------------------------
Albuterol                           Proventil, Ventolin, other generic
                                    forms

Salmeterol                          Serevent

Anti-inflammatory agents (nasal). Used to treat allergies, chronic
sinus conges Estimated MTF costs per year: $4.5 mi
----------------------------------------------------------------------
Beclomethasone                      Vancanase pockethaler

Mometasone                          Nasonex

Fluticasone                         Flonase

Triamcinolone                       Nasacort
----------------------------------------------------------------------
Note:  The Pharmacoeconomic Center estimated $198 million to $208
million in annual MTF pharmacy expenditures based on 1996-97 sales
data from DSCP suppliers.  According to Pharmacoeconomic Center
officials, the costs in this table underestimate actual MTF
expenditures by about 10 percent because of data errors and not
accounting for MTF purchases from VA suppliers.

(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================= Appendix III

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)Appendix V
COMMENTS FROM FOUNDATION HEALTH
FEDERAL SERVICES, INC.
========================================================= Appendix III

(See figure in printed edition.)Appendix VI
COMMENTS FROM TRIWEST HEALTHCARE
ALLIANCE
========================================================= Appendix III

(See figure in printed edition.)

(See figure in printed edition.)Appendix VII
COMMENTS FROM MERCK-MEDCO MANAGED
CARE, L.L.C.
========================================================= Appendix III

(See figure in printed edition.)

GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
======================================================== Appendix VIII

GAO CONTACTS

Daniel P.  Brier, Assistant Director, (202) 512-6803
Carolyn R.  Kirby, Evaluator-in-Charge, (202) 512-9843

STAFF ACKNOWLEDGMENTS

In addition to those named above, the following individuals made
significant contributions to the preparation of this report:  Janice
S.  Raynor and Arthur D.  Trapp, who evaluated the adequacy of
information that DOD and its contractors have to manage the pharmacy
programs; James D.  Espinoza, who evaluated the merits and
limitations of separate national mail-order and retail pharmacy
programs to secure DAPA prices; Cheryl A.  Brand, who evaluated the
potential systemwide effects of MTF funding and formulary management
decisions; John C.  Hansen and Joel A.  Hamilton, who provided
technical advice on lessons learned from pharmacy benefit managers
and private sector best practices in pharmacy benefit management;
Joseph T.  McDermott, who provided technical advice in evaluating DOD
health care system information technology proposals and management;
and Dayna K.  Shah, who provided legal analysis and support in
evaluating DOD pharmacy program authorities and requirements.

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*** End of document. ***