Consolidated Pharmacy Services in New DHA to Save $2B by 2019

By Annette M. Boyle

dha graphicWASHINGTON — The consolidation of 10 functions that have been performed separately by the Army, Navy and Air Force under the Defense Health Agency is projected to save $2 billion by 2019. A sizable percentage of those savings will come from pharmacy operations.

Already, facility planning, logistics, health information technology, the TRICARE Health Plan, budget and resource management, as well as procurement processing have been brought under the new DHA umbrella. By October 2014, medical education and training and research and development will as well, according to Allen Middleton, DHA acting deputy director. While the bulk of the seven consolidated programs have transferred over to DHA, “some product lines still need to be brought in, like maintenance, under facilities. There’s definitely still more work to go on,” Middleton noted.

Spc. Amber Young, U.S. Army Aeromedical Center, refills pharmaceuticals at the Lyster Army Health Clinic Pharmacy in Fort Rucker, AL. Consolidation under the Defense Health Agency is projected to save DoD $2 billion in pharmacy costs by 2019.

Spc. Amber Young, U.S. Army Aeromedical Center, refills pharmaceuticals at the Lyster Army Health Clinic Pharmacy in Fort Rucker, AL. Consolidation under the Defense Health Agency is projected to save DoD $2 billion in pharmacy costs by 2019.

Bringing public health into the DHA created some unexpected challenges. “We have had to work through some permissions there. As we’ve undertaken the consolidation, we’ve started to uncover some special circumstances. For instance, you can’t eliminate an executive agency” such as public health, Middleton said.

So far, the DoD plan for savings through consolidation is on track. By reducing the cost of updating and maintaining separate systems, the unified health information technology is expected to cover the investment required to bring together the currently homegrown systems specific to each branch.

For example, using only one agency for the construction and renovations at Fort Belvoir in Alexandria, VA, and Walter Reed National Military Medical Center on the other side of the Washington Beltway in Bethesda, MD, saved 10% on the initial outfitting, according to Middleton.

Standardization also will drive cost savings by increasing buying power and reducing maintenance costs. In addition, as the services move toward more joint facilities, standardization enables clinicians to move seamlessly between clinics and major medical centers.

“If a physician at Portsmouth [Naval Medical Center] wants to do part-time clinical work at Langley [Air Force Base] to tee up patients for surgery, it will make it easier if both facilities have the same equipment,” he said.

Standardization will extend only so far, though. “We don’t want to stand in clinicians’ way. We want to make sure they’re fully supported as they’re the ones at the pointy end of the spear,” Middleton added. “We’re not trying to tell a surgeon which scalpel to use, but to standardize where we can. When the balloon goes up again and we have to go to war, it will be easier if the garrison has the same equipment our 150,000 people in MHS trained on and used here.”

“So far, we’ve seen some good news in logistics and health plan costs,” Middleton said. “We know the agency can save $2 billion over the next five years, and we’re well on our way to do that. We hope we can do more.”

Enterprise Management


Rear Adm. Thomas McGinnis

The new structure under DHA brings major changes for pharmacy operations. “TRICARE didn’t focus on delivery, but this aligns all aspects of pharmacy operations,” said Rear Adm. Thomas McGinnis, former director of pharmacy operations.

In 2013, pharmacy accounted for approximately $7.3 billion in annual operating costs and employed more than 4,400 full-time equivalents across the MHS. Drug costs were responsible for about 96% of the total pharmacy costs — and driving that number down is a key component of the restructuring of pharmacy operations.

“If we can get prescriptions moved from retail pharmacies to mail-order or medical-treatment facility [MTF] pharmacies, we save about 20%. To do that in the past was difficult. On the MTF side, a pharmacy chief was given a budget by the commander and there was no mechanism to get more help if they did more work or get more money if they bought more drugs,” McGinnis noted. With a “centralized checkbook,” pharmacy operations run more like a commercial enterprise with policy, direction and dollars all coming from the same source.

To align incentives properly, the pharmacy operation division established baselines of work at each MTF pharmacy. “If more work moves to the MTF, we will make them whole. In the future, if they go over budget, it will be a good thing,” McGinnis said. At certain increments of increased work, the pharmacies would get an additional technician; at a higher increment, they would get another pharmacist.

Capturing prescriptions for chronic conditions ranks as the No. 1 priority for the pharmacy division. “If we get blood pressure, cholesterol and other medications that beneficiaries take every month for life transferred to MTFs or mail order, we will save almost $10 million per month,” McGinnis said.

The plans call for several initiatives to make it even easier to use mail-order pharmacy services. Already, “when beneficiaries go to mail order, very few leave. We have a 95% satisfaction rating,” McGinnis noted. Patients get a call or an email two weeks before they are scheduled to receive a refill that reminds them to call in if they don’t want a refill. If they do nothing, it automatically ships — and goes a long way to ensuring compliance and continuous treatment.

Soon, the automatic renewals will go one step farther. “All prescriptions in all states are only good for one year. At 10 or 11 months into the prescription, we’ll call the doctor and ask whether the medication should be renewed. About 20% will say that they need to see the patient. For the other 80%, we will save the beneficiary a trip to the doctor and save the system the money paid for an unnecessary visit,” McGinnis added.

Beyond bringing in more prescriptions, the consolidated pharmacy operations will focus on implementing uniform practices across all services for dealing with patients, monitoring drug therapies and establishing operating procedures. Each service will have a pharmacy consultant working in the pharmacy operations division (POD) to craft best practices and determine what drugs will be on formulary. They will also provide feedback to MTFs on drug purchasing practices.

In total, DHA expects to save $1.38 billion from 2014 to 2019 from six major initiatives in the pharmacy division. While the groundwork is in place now, the next 18 months will see the organization pull together, according to McGinnis. “It’s what CVS would do to if they purchased a direct-care organization to align it with purchasing from the top. As with any acquisition, there will be little things to work through over the next year and a half to get up and running and moving in the right direction.”

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