Accusations Include ‘Steering,’ Excluding Small Pharmacies
U.S. Army Pfc. Giselle Aranda retrieves medication from the pharmacy shelves at Walter Reed National Military Medical Center in Bethesda, MD, earlier this year. Pharmacy providing services for military beneficiaries are under fire because of a contract with Express Scrips. (DOD photo by Ricardo J. Reyes)
WASHINGTON, DC — Lawmakers are calling for an independent audit of TRICARE’s pharmacy program amid concerns that the contractor tasked with managing the program is pushing servicemembers toward its own pharmacies and driving out smaller retailers.
Since 2003, DoD has awarded its TRICARE pharmacy contract to Express Scripts, the nation’s largest pharmacy benefits manager (PBM), with the latest contract worth $4.7 billion over seven years. In return, Express Scripts decides which retail pharmacies are in the TRICARE network, negotiates reimbursements and processes pharmacy claims. It also runs two mail-order pharmacies, Express Scripts Pharmacy and Accredo Specialty Pharmacy. It’s this last item that has had some lawmakers calling for an investigation into Express Scripts’ practices.
“Express Scripts both decides the reimbursement rates for its competitors and provides its own pharmacy services—and all of it gets billed to TRICARE. That is a clear conflict of interest. And yet, DoD actually requires the TRICARE pharmacy contractor to own both a PBM and a pharmacy,” said Sen. Elizabeth Warren (D-MA) at a recent Senate Armed Services Committee hearing. “I don’t know who talked them into that, but it is an open invitation for Express Scripts to milk the federal government, kick out competitors and steer big bucks to itself.”
It would be easy, Warren said, for a PBM to leverage vertical integration to charge insurers more for a drug than what they reimburse pharmacies, a practice known as spread pricing, while simultaneously steering customers away from competitors.
“This squeeze play isn’t hard to pull off,” she declared.
Express Scripts has been accused of spread pricing before. In February, the company settled a lawsuit from the Federal Trade Commission alleging that it and two other large PBMs had artificially inflated the price of insulin in order to pocket portions of the manufacturer rebates. Asked directly by Warren whether Express Scripts engages in this practice in the TRICARE contract or whether all savings are sent back to DoD, the company’s president, Dr. Adam Kautzner, would not give a direct answer.
DoD and Express Scripts have clarified that the TRICARE pharmacy contract isn’t a traditional PBM but rather a pharmacy benefits administration (PBA) contract.
“The defining feature of the PBA model is that [the Defense Health Agency] pays the contractor a fixed administrative fee per prescription filled at retail or [TRICARE Mail Order Pharmacy]. The contractor cannot generate revenue from the price of the drugs themselves at either retail or mail order outlet,” David Smith, MD, MS, DHA deputy director told the committee. “A civilian PBM model can also control formulary placement as another mechanism to drive revenue streams, which cannot happen under the [TRICARE pharmacy] contract due to the government’s uniform formulary process.”
Critics argue that, even under this arrangement, there are opportunities for Express Scripts to enrich itself at the expense of competitors and customers. Since 2022, the TRICARE pharmacy network has shed 13,000 retail pharmacies, some of which have described being forced out by Express Scripts.
“We filled 7,000 prescriptions through TRICARE in 2022,” testified Micah Lansford, PharmD, pharmacist and owner of the Roden-Smith Pharmacy in Clovis, NM. “[In 2023, Express Scripts] drastically reduced reimbursement rates such that I would have lost $9 on every prescription I filled. Before overhead, before any other expense. That would have been catastrophic. No pharmacy can continue serving patients under a contract that requires it to lose money on the very care it provides.”
According to Smith, this contraction of the network is the result of shifts in geographic location of its users, as well as DHA preferring mail order over retail as a whole. Mail order, Smith said, is “dramatically cheaper,” at least when it comes to more expensive, brand-name and specialty drugs.
“Most of what Express Scripts is doing is how we’ve told them to set it up,” he explained.
If Express Scripts’ management of the TRICARE contract was aboveboard, both the company and DoD should be happy to cooperate with lawmakers’ inquiries, Warren argued.
“For three years, I have repeatedly asked for the terms of DoD’s contract with Express Scripts, only to be told that what DoD pays for prescription drugs is either ‘proprietary’ or ‘trade secret,’ and people like the [committee chairman] and me, whose job it is to conduct oversight over exactly this issue, are not allowed to see it,” she said.
Tired of waiting for DoD to act, the committee inserted a requirement into the current Senate draft of the National Defense Authorization Act requiring an independent audit of the TRICARE pharmacy contract.
“We may well find that Express Scripts is playing the same [spread pricing] games with TRICARE or [we may] not, but we can’t tell without an independent audit,” Warren said.