Program’s Pharmacy Benefit Has Evolved Over Two Decades

The National Defense Authorization Act for fiscal year 2000 included a directive for the secretary of defense to establish an integrated pharmacy benefits. Since that time, the pharmacy benefit from TRICARE, the military’s healthcare program, has changed significantly, creating new benefits, strengthening the safety of the drugs it prescribes and having a direct impact on how patients manage their healthcare. Now, changes in copayments, enrollment fees, deductibles and catastrophic caps have been put into place this year in hopes of lowering pharmacy spending, which made up more than half the cost of military healthcare in 2018.

U.S. Air Force Tech. Sgt. Tyrone Rocha, 8th Medical Support Squadron NCO in charge of pharmaceutical services, checks inventory at Kunsan Air Base, Republic of Korea, May 6, 2020. The pharmacy team provides medical support to over 2,500 members of the Wolf Pack to keep them fit to fight. (U.S. Air Force photo by Tech. Sgt. Joshua Arends)

WASHINGTON — TRICARE now serves 9.4 million beneficiaries, spending more than $7 billion annually on prescription medications through its pharmacy benefit. For the past 15 years the benefit has helped lower costs and standardize formularies at military treatment facilities nationwide.

Over that time, it also has changed significantly, creating new benefits, strengthening the safety of the drugs it prescribes, and having a direct impact on how those covered by TRICARE interact with the system and their healthcare.

In 2001, the military health system (MHS) had approximately 8.7 million eligible beneficiaries—a population that included active duty servicemembers and their families, retired military and family, as well as surviving family of deceased military personnel. That year, DoD spent a little over $2 billion on pharmacy benefits, a number that had been increasing an average of 17% each year for the prior six years.

With DoD and Congress looking to slow down the rising cost of prescriptions for its MHS beneficiaries, the National Defense Authorization Act for FY 2000 included a directive to the secretary of defense to establish an integrated pharmacy benefits program. At the time, each facility operated under its own formulary, and it was felt that a uniform formulary would not only cut costs but also provide centralized guidance on medications that would have a positive impact on the health of patients across the system.

“The pharmacy benefits program shall include a uniform formulary of pharmaceutical agents in the complete range of therapeutic classes,” the legislation stated. “The selection for inclusion on the uniform formulary … shall be based on the relative clinical and cost effectiveness of the agents.”

The provision in the bill also included a directive to the secretary to establish the first pharmacy and therapeutics committee to help decide what would be included on the formulary. Ninety days after the establishment of the committee, the committee members would have their first meeting and be tasked with beginning the process of deciding what would be included in the TRICARE uniformed formulary.

DoD recognized that the TRICARE system was bifurcated in terms of who was doing the prescribing and that its new formulary design would need to take that into account. There were the providers at military health facilities and the providers at nonmilitary facilities that TRICARE purchased care from.

To better understand the prescribing practices of both of these groups, TRICARE hired the Rand Corp. to study how each group interacted with formularies. Using a series of surveys, Rand polled MHS providers to discover not only how they prescribed drugs but how they felt about formularies in general.

The surveys found that purchased care providers were very formulary-literate, having kept track of formularies for multiple insurance providers, but did not consider formulary management to greatly impact quality of care. Direct-care providers at military treatment facilities felt very differently. While they were usually only familiar with the formularies at their own facility, they considered formulary management to have a direct impact on quality of care and believed controlling costs through management was important.

Recognizing that communicating formulary changes to purchased-care providers would be challenging at best, TRICARE established a three-tier formulary: brand name drugs, generic drugs and nonformulary drugs. The third tier included drugs not included in the formulary but were FDA approved and were available for a higher copay.

Three-tier Formulary

The three-tier TRICARE Uniform Formulary went live in 2005. Also established in 2005 was the Uniformed Formulary Beneficiary Advisory Panel, or BAP. Comprised of nongovernmental organizations that represent beneficiaries, pharmacy contractors and TRICARE network providers, the panel meets regularly to publicly discuss recommendations made by the P&T committee.

In its first three years, the panel held 12 quarterly meetings to discuss 343 medications spread over 32 drug classes, resulting in the addition of 166 drugs in tier 1, 92 drugs in tier 2 and 85 drugs in tier 3. The panel provides transparency to what in other systems can be a mystifying process, while giving beneficiaries a voice in what medications are included into the formulary.

Since its creation, the formulary has shifted and grown considerably. In 2008, TRICARE implemented a pilot program that included coverage of select over-the-counter medications with a doctor’s prescription. After years of extending the pilot, it was made a permanent benefit in 2016. In 2010, the formulary began making vaccines available through its retail pharmacy network at a $0 copay, expanding the program the following year to include all CDC-recommended vaccines.

2015 was a hallmark year for TRICARE’s pharmacy, with a number of high-impact changes going into effect. That year, TRICARE announced that moving forward all branded medications for chronic diseases—commonly called maintenance medications—would need to be filled at a military treatment facility or through mail order. This was done to push beneficiaries toward mail order, if possible. An inspector general report had found that the mail order program cost 16.7% less than prescribing at retail pharmacies and that mail order was 99.997% free of clinical errors, while retail pharmacies were only 98.5% error-free.

Mail order also was less expensive for beneficiaries. Generic drugs filled at a retail pharmacy cost beneficiaries $60 a year in copays. Generic drugs received through mail order were free through home delivery. Use of mail order has increased more or less regularly since it was included as an option, and just under seven million prescriptions were filled through mail in FY 2018.

In 2015, TRICARE also made changes to how newly-approved innovator drugs were included in its formulary. New regulations defaulted the drugs to the nonformulary tier 3 and gave the P&T committee 120 days to recommend whether the drug would be placed higher in the formulary.

That same year, TRICARE made changes to address the skyrocketing costs of compound drugs. In 2010, compound medications made up about $24 million of the $6.6 billion spent on outpatient pharmacy orders. In 2014, they made up over $500 million and were on track to quadruple to $2 billion in 2015. In April 2015, compound prescriptions made up only .5% of prescriptions but accounted for 20% of costs.

TRICARE uncovered rampant cases of fraud when it came to compounding drugs, specifically in the prescribing of creams to treat pain and scar tissue. Some compound drug manufacturers were taking advantage of a loophole in the pharmacy program that allowed them to bill TRICARE for each ingredient in the cream and so were including as many expensive ingredients as they could in their creams and billing TRICARE accordingly.

One study found that such compounded creams performed no better than placebos.

To plug the loophole, in May 2015 TRICARE began screening each clinical ingredient in a compound drug. By October 2018, costs dropped until compound drugs made up only 14% of total benefit costs. However, the fallout of these fraud cases is still ongoing, with criminal cases and lawsuits against compound drug manufacturers still rolling through courts in 2020.

Finally, in 2015, TRICARE rolled out its e-prescribing, or eRx, program. The rollout began in October 2014 and by March 2015 was available at over 150 dispensing locations across the military healthcare system. The goal was to reduce the number of transcription and translation errors, reduce wait times and allow the pharmacy to address prescription errors before the beneficiary arrives to pick them up.

The program was an unqualified success and by 2018, more than half of prescriptions filed at MTFs were done electronically, exceeding the Defense Health Agency’s original goal with the program. DHA has now set its sights higher and is aiming for filling 75% of prescriptions at MTFs electronically.

In 2018, the NDAA directed TRICARE to add a fourth tier to its formulary. Designed to encourage the use of pharmaceutical agents that provide the best clinical effectiveness, the bill required TRICARE to begin dropping agents that were shown to have little clinical effectiveness, creating a tier of completely excluded drugs.

This tier also includes drugs used for cosmetic purposes, drugs used to treat a noncovered condition, homeopathic and herbal preparations, multivitamins, weight loss products and non-covered OTC products. While the drugs are still available, beneficiaries must pay full out-of-pocket costs.

And while TRICARE managed to keep copayment increases steady and small for much of the last 15 years, the 2017 NDAA included a provision that raised some by as much as 50%. It also made adjustments to enrollment fees, deductibles and catastrophic caps. The changes were made in the hope of lowering pharmacy spending, which in 2018 made up 52% of the total cost of military healthcare.

The increases went into effect in January 2020.