As of 04/19/23 11

DoD Pharmacoeconomics &

Pharmacy Benefit Conference

January 9th, 2006

Major Travis Watson, MS, USA

Deputy Director, DoD Pharmacy Programs

V5

As of 04/19/23 22

Overview

• DoD Pharmacy Benefit– Demographics

– Utilization

– Structure

• DoD Pharmacy Costs

• Pricing Differences

• Optimized Distribution Model

• Uniform Formulary: Points and Process

As of 04/19/23 33

DoD Pharmacy Program Objectives

• Uniformly, consistently, and equitably provide appropriate drug therapy to meet patients’ clinical needs in an effective, efficient, and fiscally responsible manner

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

As of 04/19/23 44

TRICARE Eligible BeneficiariesMonthly Average, FY05

Retirees & Family Members < 65

Retirees & Family Members ≥ 65

Active Duty Family Members

Active Duty

1.8M 1.8M

2.3M3.3M 25%36%

19% 19%

Other >1%

FY02 8.6 Million

FY03 8.9 Million

FY04 9.1 Million

FY05 9.2 Million

Source: M2

As of 04/19/23 55

Unique Users by Point of ServiceAll Ages, FY05

MTF

Retail

46% 19% 28%

Mail Order4%

1%

1%1%

Unique Users = 6.6M

Source: PDTS

As of 04/19/23 66

Unique Users - Point of ServiceBy Age, FY04

Retail

MTF

Mail Order

33%19% 25%

3%

14%5%

1%

Unique Users ≥ 65 = 1.3M

Retail

Mail OrderMTF

61%

21%

1%

<1% 1%

1%

15%

Unique Users < 65 = 5.0M

Source: PDTS

As of 04/19/23 77

DoD Pharmacy WorkloadRaw Number of Rx’s Filled

0

10000000

20000000

30000000

40000000

50000000

60000000

MTF Retail Mail

FY04

FY05

As of 04/19/23 88

DoD Pharmacy WorkloadNumber of Rx’s Filled – 30 day Equivalents

0

10000000

20000000

30000000

40000000

50000000

60000000

70000000

80000000

90000000

MTF Retail Mail

FY04

FY05

As of 04/19/23 99

TRICARE Pharmacy Benefit DesignPoint of Service Comparison

MTF(587 Pharmacies)

TMOP(Express – Scripts)

Retail network

(Express – Scripts> 53 K Pharmacies)

Non-network

FormularyMTF-specific(must include Basic

Core Formulary drugs)

TMOP formulary

None(Open)

None(Open)

Co-pay None$3 generic$9 brand (< 90 day supply)

$3 generic$9 brand(< 30-day supply)

Greater of $9 or 20%*(< 30 day supply)

Drug price Federal FederalTransition to

Federal?AWP less?

*Deductibles & point of service penalties also apply

As of 04/19/23 1010

Military Treatment Facility Pharmacy

• 536 DoD Dispensing Pharmacies in 121 MTFs• Beneficiaries have access to prescriptions without co-

pay• Formulary composed of Basic Core Formulary plus

MTF specific additions• Least costly option to patient • Least costly point of service for DoD• 47% Rx workload performed at MTF• 30% of dollars spent*

*Does not include inpatient costs

As of 04/19/23 1111

TRICARE Mail Order Pharmacy

• TMOP Contract awarded to Express Scripts, Inc. 11 Sep 02• Services began 1 Mar 03• Services via state-of-the-art facility in Tempe, AZ dedicated

to DoD workload• Product replenishment through Prime Vendor (McKesson)

at Federal Pricing • DoD Pharmacist as Contracting Officer Representative• Largest commercial mail order account transfer within

industry• 6% of Rx workload performed at TMOP• 12% of dollars spent

As of 04/19/23 1212

TRICARE Retail Pharmacy

• DoD Pharmacist as Contracting Officer Representative• Consolidated retail pharmacy services under a single

contract to optimize benefit management• Consistent benefit across all regions• Portability in 50 states, Guam, Puerto Rico, USVI• Pharmacy Help Desk Services 24 x 7 x 365• TRRx Dedicated Staff• Over 54,000 Retail Pharmacies Now Participate• 47% Rx workload performed at TRRx• 58% of total dollars spent

As of 04/19/23 1313

MHS Pharmacy Benefit UsersBy POS, Jul 01 – Sep 05

Source: PDTS

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Ju

l-01

Sep

-01

No

v-0

1

Ja

n-0

2

Ma

r-02

Ma

y-0

2

Ju

l-02

Sep

-02

No

v-0

2

Ja

n-0

3

Ma

r-03

Ma

y-0

3

Ju

l-03

Sep

-03

No

v-0

3

Ja

n-0

4

Ma

r-04

Ma

y-0

4

Ju

l-04

Sep

-04

No

v-0

4

Ja

n-0

5

Ma

r-05

Ma

y-0

5

Ju

l-05

Sep

-05

Mil

lio

ns

of

Us

ers

MTF

Retail

Mail Order

FY01 FY02 FY03 FY04 FY05

As of 04/19/23 1414

DoD Drug Expenditures thru FY 2005

$617 $662 $741 $797 $878 $1,034 $1,170 $1,388 $1,566 $1,703 $1,615$181 $193 $245 $283 $342$455

$681

$1,279

$1,848$2,430

$3,161$347

$429

$546

$629

$35$83

$106

$191

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Mail

Retail

MTFTRICARE Sr. Rx Implementation 1 Apr 2001

Overall 7% 15% 13% 17% 22% 28% 48% 28% 22% 15%

Mail 137% 27% 81% 82% 24% 27% 15%

Retail 7% 27% 16% 21% 33% 50% 88% 45% 32% 30%

MTF 7% 12% 8% 10% 18% 13% 19% 13% 9% -5%

Percent increase over prior year

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

* MTF costs do not Include dispensing costs

* TRRx and TMOP arenet cost to government

Source: PDTS

Millions

As of 04/19/23 1616

Brand Name Drug Acquisition Cost (Indexed to AWP)

AWP

TRRx

TRRx (w/refund)

TMOP

MTFs

$ 100.00

$ 61.00

$ 33.40

$ 40.60

Price Drug Cost

Source: PDTS, 1 Oct 04 – 30 Jun 05, Top 50 TRRx NDCs

FCP $ 50.50

As of 04/19/23 1717

DoD Pharmacy 2006 Program Objectives

• Focus on preserving the benefit• TMOP is the preferred point of service• Co-pays are structured to encourage patients

to make the most efficient choice (TMOP and MTF points of service)

• Expand Utilization Management efforts and data mining

• Ensure the Tpharm contract includes the tools needed to assist DoD to reduce the increase in pharmaceutical costs

As of 04/19/23 1818

Optimized Distribution Model

Mail Order

Preferred Point of Service

-Maintenance meds

- MTF refills

MTF’s

-First fills at MTF*

Retail Network

-Acute medications

*Active duty and their dependents may use MTF for both new and refills if they so choose

As of 04/19/23 1919

Uniform Formulary Is a Critical Management Tool

• Formulary management and tiered co-pays are industry standards and best commercial business practices used to manage a pharmacy benefit

• Historically, formulary management was not uniform across the Military Health System– TMOP: Had been determined by DoD Pharmacy

and Therapeutics Committee (P&T)– Direct Care: Had been Basic Core Formulary via

DoD P&T plus local Facility P&T decisions– TRRx: Had been an open formulary, except for

those excluded by law

As of 04/19/23 2222

Key Points Uniform Formulary

• Encourages use of more cost-effective POS• Influences beneficiary and provider choice• Permits tiered co-pays: Generic, Formulary, NF• Allows beneficiaries to obtain NF drugs that are

“clinically necessary” at the 2nd Tier co-pay• Permits Prior Authorization • Requires Non-formulary drug availability• New DoD P&T and UF Beneficiary Advisory Panel

As of 04/19/23 2323

Department of Defense Pharmacy & Therapeutics Committee

DoD P&TMakes

Recommendations

PECCollectsAnalyzesPresents

Minutes posted

BAPComments

TMA DirectorMakes Decisions

DoD P&TMakes Decisions

PECCollectsAnalyzesPresents

Minutes posted

Old

New

As of 04/19/23 2424

Committee Responsibilities

• Evaluate clinical effectiveness and cost effectiveness of pharmaceutical agents

• Recommend pharmaceutical agents for:– Uniform Formulary– Basic Core Formulary– Extended Core Formulary

• Medical necessity criteria for drugs classified as non-formulary (3rd tier)

• Restrictions / limitations– Prior authorization– Quantity limits– TRRx and TMOP

As of 04/19/23 2525

DoD P&T Committee Voting MembersYour Representatives

• Physician Chairman (HA/TMA)• Director, DoD Pharmacy Programs, TMA• Director, DoD PEC• Internal Medicine providers from each service• Pediatrician from one service (Army)• Family Practice from one service (Navy)• OB/Gyn from one service (AF)• One provider at large from each service• One pharmacist from each service• Coast Guard: one physician or pharmacist• Department of VA : one physician or pharmacist• TRRx COR• TMOP COR

As of 04/19/23 2626

DoD P&T Committee Non-Voting Members

• JRCAB (readiness folks)

• TMA General Counsel

• TMA Resource Management Directorate

• Defense Supply Center Philadelphia

As of 04/19/23 2727

Beneficiary Advisory Panel (BAP)

• Operates under Federal Advisory Committee Act (FACA) and provides new level of accountability and oversight for the UF process

• Purpose is to provide beneficiaries a voice and representation in the UF process

• Members consist of nominees from major beneficiary representative organizations such as MOAA, contractors, professionals

As of 04/19/23 2828

DoD Core Formularies(Ref: HA 04-032)

• All drug classes will fall under either– Basic Core Formulary (generally primary care)– Extended Core Formulary (all other classes,

generally specialized care)• Drugs are selected for the BCF or ECF because they

provide greater value than other drugs on the Uniform Formulary

• Where clinically appropriate, MTFs should maximize the use of BCF and ECF drugs over other UF drugs

As of 04/19/23 2929

MTF Formulary Management(Ref: HA 04-032)

• MTF Formularies must contain:– BCF drugs– ECF drugs in each ECF drug class that is included on the

MTF formulary• MTF Formularies may also contain:

– Other UF drugs: generic (1st tier) or formulary (2nd tier)– Drug used solely for inpatient services– Medications not covered by TRICARE pharmacy benefit that

are allowed to be covered by MTFs• OTCs, weight loss meds, smoking cessation, etc.

• MTF Formularies cannot contain:– Drugs classified as non-formulary on UF (3rd tier)

As of 04/19/23 3434

Non-formulary Agents(Ref: HA 04-032)

• $22 cost share per prescription at Mail Order and Retail - no questions asked

• $9 cost share if medical necessity is validated• Excluded from all MTF formularies

– Available only upon approval from non-formulary special order process that validates Medical Necessity criteria established by the DoD P&T Committee

• MTF non-formulary special order process can only be used by:– MTF providers – Prescriptions written by a civilian provider to whom the

patient was referred by the MTF

As of 04/19/23 3535

Chief of Pharmaceutical Operations

Chief of PharmaceuticalOperations

DirectorDoD Pharmacy

Programs and Operations(CDR Blanche)

HomelandSecurity

Immunizations/Vaccines

External Communications

Secretary1 Additional Billet