The Pharmacy Benefit

Sept. 1, 2000

Insurance coverage for the cost of prescription drugs has become one of the most important health benefits that the Defense Department offers. Like civilians, members of the armed services, their families, and military retirees have been hit hard by the skyrocketing costs of prescription drugs.

That price pressure is not likely to go down on its own. Predictions are that pharmaceuticals will only become more vital to modern medicine in the years ahead.

Thus, the Pentagon is moving to expand and simplify its sometimes confusing patchwork of pharmacy coverage. Most of those tweaks are relatively small. Example: Making sure all DoD military pharmacies have at least the same core formulary, or list of carried drugs.

That’s not all that’s happening, however.

Congress appears to be on the verge of ordering the biggest change in military drug coverage in years. Absent any new and unforeseen problem, this year’s defense authorization legislation appeared virtually certain to open the Pentagon’s prescription drug coverage programs to Medicare-eligible retirees.

Such a move could greatly assist many hard-pressed ex-military seniors and go a long way toward fulfilling the promise of health care for life that was extended decades ago to military personnel when they entered their nation’s service.

Said Frank Rohrbough, deputy director of government relations at The Retired Officers Association and speaking on behalf of The Military Coalition: “This is probably the single most important health care benefit that our members want and need, so we’re very excited.”

Massive By Any Measure

By any measure, the DoD pharmacy program is massive. The system serves more than eight million beneficiaries. Spending on drugs and medications accounts for at least $1.3 billion of the military health system’s $16 billion annual cost. And that cost is fast rising, as it is in the civilian world. Pharmacy spending in DoD is increasing at about 13 percent per year, according to the General Accounting Office. That’s comparable to what’s happening in the private sector, which is seeing annual cost increases of 15 percent.

Increases in costs of existing medicines have not been unreasonably high. The problem, rather, stems from introduction of new varieties. According to a recent study conducted by the Kaiser Family Foundation, patients more and more are switching to newly approved pharmaceuticals, which are more expensive. Also, today’s doctors simply whip out their prescription pads much more often than they did a generation ago.

For the Pentagon, the effect of these two changes has been dramatic. DoD drug expenditures in the 1995-99 period rose by an astounding 63 percent, while its overall health costs went up 5 percent, according to the GAO.

The largest portion of the Pentagon’s pharmacy costs is generated at the outpatient pharmacies maintained in DoD’s direct care system of Military Treatment Facilities at US bases around the world. In 1997 (the last year for which complete data are available), these military pharmacies received and filled about 55 million prescriptions costing about $1 billion. The Pentagon buys its drug supplies through the Defense Supply Center in Philadelphia, negotiating discounts of 24 to 70 percent off list price as a result of DoD’s vast buying power.

All active and retired military personnel and their families are entitled to military pharmacy services. Retirees 65 and over, however, have access to MTF pharmacies on a space-available basis. What space available means, in practical terms, is that older retirees can obtain medicines and medical supplies only if they routinely are stocked. However, for special-order medications not carried in the MTF’s basic formulary, they must go elsewhere.

Tricare’s five managed care support contractors supplement this system. They provide retail pharmacy benefits to eligible beneficiaries. Prescriptions are available from local drug stores in a preferred provider network, at some discount, and through non-network pharmacies.

Finally, the Pentagon’s National Mail Order Pharmacy program delivers 30- to 90-day supplies of drugs to a beneficiary’s home or temporary address. The NMOP is run by a sixth contractor, Merck-Medco.

Pentagon officials want to provide uniform pharmacy benefits, but, as a result of the stitched-together nature of the drug delivery system, it has not been able to do so. For example, all beneficiaries receive free prescriptions at MTFs; Tricare contractors and the NMOP require co-payments. Nor are the co-pays consistent. For instance, active duty family members using NMOP pay $4 per prescription; retirees and family members pay $8. And not all MTF pharmacies carry the same drug formulary.

There are other problems. Until recently, DoD has not even attempted to put in place a data system to track a patient’s drug usage throughout the system. This is viewed as a requirement to guard against inadvertent and dangerous drug combinations and to prevent abuses such as stockpiling years’ worth of a particular prescription.

Chief Shortcoming

Then comes the biggest shortcoming of all: Most of the 65-and-over military retiree population has no drug benefit at all, other than the inadequate space-available option. These retirees are thrown into the federal Medicare system, which has no pharmacy benefit of its own.

Nobody, it seems, is happy with the current setup. The Air Force Association, in a recent position paper on the subject, had this to say: “A lack of basic prescription drug cost and beneficiary use information, multiple pharmaceutical formularies that complicate management, and the absence of an integrated patient database have … plagued DoD’s pharmacy system.”

Echoing AFA is the GAO, which reported that the DoD 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.”

Things could be getting better soon. A test Pharmacy Data Transaction System went into operation this spring at Wright-Patterson AFB, Ohio. Officials hope to expand it to cover the whole Pentagon prescription system by the end of this year.

This system is intended as a data repository for all prescription information about individual DoD patients. It would provide to pharmacists computerized red-flag alerts to problems such as patient allergies or dangerous drug interactions.

It also will help put a halt to drug stockpiling-a problem that the GAO has called “pervasive.” It occurs when individual patients visit multiple pharmacies to accumulate more drugs than they need. A GAO report cites the case of a military retiree’s widow who returned $5,000 worth of inhalant drugs to a nearby MTF upon the death of her husband. “In responding to [questions about] 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,” said GAO.

Pentagon officials are also working toward establishing a uniform formulary, or list of drugs to be stocked, that would be applicable to all pharmacies in the DoD system. Per Congressional guideline, the uniform formulary is supposed to take effect Oct. 1.

That deadline may not be met, however. Drawing up the list and getting it reviewed by both pharmacy groups and beneficiary advisors has simply taken lots of time, said DoD officials.

Pentagon health officials also said they are working toward a more comprehensive reform of their complicated pharmacy structure in the future. Their biggest problem is simply that they have so many drug-dispensing systems gathered under one umbrella.

The situation, as explained by Capt. Charles Hostettler, USN, director of pharmacy programs in the Office of the Assistant Secretary of Defense for Health Affairs: “We have five managed care contractors that take care of the [11] Tricare regions. Each has its own pharmacy benefit management. Each has a retail pharmacy network set up, and they have firewalls set up between them.”

In addition to the National Mail Order Pharmacy program, under yet another contractor, there are the more than 500 MTF pharmacies run by some 120 different management systems.

Clumsy System

The system is so clumsy that mobile military patients sometimes find it hard to take a prescription from one area and get it filled in another. Sometimes, their easiest course of action is to pay out of pocket for prescriptions and then start the time-consuming process of seeking reimbursement.

“You end up having to work around the system, instead of the system working for you,” said Hostettler.

DoD plans call for eventually combining the contractor, MTF, and mail order systems into one pharmacy management operation. Officials are now studying how that might be done.

The complexity and length of Tricare management contracts could slow this consolidation, but it will happen in time because it makes sense, said DoD officials. “We want to optimize our resources as much as we can and maintain quality,” said Hostettler. “The more efficient a plan is, the more the plan can do for beneficiaries.”

Currently, DoD counts approximately 1.4 million military retirees age 65 and older. All are eligible for space-available services at military facility pharmacies, and less than a third of those have access to current Tricare test programs and mail-order systems.

As many retirees point out, the space-available benefit isn’t what it once was. The combination of a growing retiree population, shrinking military infrastructure, and limited formulary stocks has begun sharply limiting the flexibility and access that Medicare-eligible retirees once enjoyed.

The Air Force Association, in its position paper on the matter, said some MTFs have dropped more expensive, less widely used drugs from stock. Others have restricted access by honoring only those prescriptions written by military doctors.

“Many of the drugs they [older retirees] need are not routinely stocked,” said Rohrbough. “As a generalization, only two in five [older retiree] prescriptions are being filled by military pharmacies.”

Those Medicare-eligible beneficiaries who live near a military installation closed by the Base Realignment and Closure Commission can order drugs through Tricare, per legislation passed by Congress in 1993. And two years ago Congress ordered DoD to begin an experimental program to test making the National Mail Order Pharmacy program available to older retirees and their families.

DoD selected two test sites–Okeechobee, Fla., and Fleming County, Ky.–and began running the pilot program July 1. To the disappointment of retiree organizations, the Pentagon is charging enrollees a $200 annual fee on top of cost shares of $8 for each 90-day supply delivered through the mail and 20 percent for each 30-day supply ordered through a nearby retail outlet.

“The program should not be funded on the back of the beneficiary,” said Rohrbough.

“Extremely Robust Benefit”

Even with the cost sharing, the program should attract upward of 6,000 participants, according to Defense Department estimates. Then, as far as the Pentagon is concerned, the next step would be to assess the feedback from the pilot program and see whether it merits an expansion of this approach to 65-and-over health care. Progress reports are due in October 2000 and again in April and October 2001, per legislative order.

In Hostettler’s view, this Pentagon program will provide those 65-and-older retirees “an extremely robust benefit” with a relative low enrollment fee and low cost share. It’s much better than civilian plans currently being proposed for Medicare recipients, said Hostettler, who pointed out that a recent Clinton Administration plan proposed a 50 percent cost share for prescriptions and a $1,000 annual cap.

Congress appears to have other, grander ideas. It may supersede the test that lawmakers themselves mandated with an expansion order of its own.

As the Pentagon budget legislation cycle moved in late summer toward a conclusion, both the House and Senate versions of the Fiscal 2001 defense authorization bills included provisions to open all DoD pharmacy programs to all Medicare-eligible beneficiaries, without enrollment fees or special deductibles.

The language of both bills is virtually identical, indicating to officials that some sort of prescription benefit is assured of emerging from the final legislative conference. It is highly unlikely that the Administration would object to the expansion of drug coverage, considering the popularity of the issue on a larger national effort and President Clinton’s efforts to add just such a benefit to Medicare.

The legislative step likely will produce the biggest change in Medicare-eligible military retiree health benefits in years.

Said Bob Pipkin, an aide to Rep. David Vitter (R-La.), a staunch supporter, “It’s pretty solid. It’s very popular.”

Pipkin said his boss became interested in the issue after he discovered that many military retirees in his district were driving two hours to an MTF in Biloxi for their prescription needs–without assurance what they needed would be in stock.

If either provision remains intact, 65-and-over military retirees should be able to go to retail pharmacies in their communities and get prescriptions filled with at most a 25 percent co-payment. That would be reduced to no more than 20 percent if the retiree uses a Tricare network pharmacy–generally a major chain drugstore.

And stocks of drugs needed for maintenance medication would be available through NMOP at $8 for a 90-day supply.

“That’s a real time saver and a real valued benefit that most older retirees need,” said Rohrbough.

Expansion to Medicare-eligible military retirees and their families likely would cost $400 million to $600 million a year, according to Defense Department estimates. While that is a considerable amount, it may represent a relatively inexpensive way to greatly ease the health care burden on older retirees at a time when members of Congress are searching for ways to live up to the promise, made by military recruiters, of health care for life.

Stephen P. Backhus, director of GAO veterans’ affairs and military health care issues, told Congress this spring, “The most significant gap in military health care coverage is a pharmacy benefit for those older retirees who do not have access to military pharmacies. Targeting benefit enhancement to this need may provide the most benefit for the least cost in the short term.”

If all proceeds as planned, and adequate funds are included in defense appropriations legislation, this benefit could be in place as early as April 2001.

Peter Grier, a Washington editor for the Christian Science Monitor, is a longtime defense correspondent and regular contributor to Air Force Magazine. His most recent article, “The Changing World of Air Force Medicine,” appeared in the April 2000 issue.