Pharmacoeconomic CenterConference

January 8, 2007

RADM Tom McGinnis, U.S.P.H.S.Chief, DoD Pharmaceutical Operations

Directorate

V5

Scope of DoD Pharmacy Benefit

• 9.2M Beneficiaries– 6.7M users of pharmacy benefit

• 115M prescriptions dispensed in FY06• 536 dispensing pharmacies across 3 military

services in 121 MTFs• 1 Nation-wide TRICARE Mail Order Pharmacy

(TMOP) • 58,650 retail pharmacies (TRRx) managed by

one PBM• Nation-wide Uniform Formulary

Key Points of Uniform Formulary

• All drugs on UF unless TMA Director approves DoD P&T recommendation of non-formulary (3rd Tier) Status

• Preserves access:

– Beneficiary access to all covered drugs• Encourages use of more cost-effective POS (Co-pays

and Amount Dispensed)• Influences beneficiary and provider choice• Preserves competitive market for best prices to gain

market share• Allows beneficiaries to obtain non-formulary drugs

that are “clinically necessary” at the 2nd Tier co-pay

Military Treatment Facility Pharmacy

• 536 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 – no co-pays • Least costly point of service for DoD• 44% Rx workload performed at MTF• 25% of dollars spent*

*Does not include inpatient costs

TRICARE Mail Order Pharmacy

• TMOP Contract awarded to Express Scripts, Inc. (Sep 02)

• Services began 1 Mar 03 – contract expires 2007• Services via state-of-the-art facility in Tempe, AZ • Product replenishment through Prime Vendor

(McKesson) at Federal Pricing • Largest commercial mail order account within

industry• 7% of Rx workload performed at TMOP• 12% of dollars spent

TRICARE Retail Pharmacy

• 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,

American Samoa, Northern Mariana Islands• Pharmacy Help Desk Services 24 x 7 x 365• TRRx Dedicated Staff• 58,650 Retail Pharmacies Now Participate• 49% Rx workload performed at TRRx• 63% of total dollars spent

Unique Users - Point of Service- All Ages

Source: PDTS

Unique Users FY05 = 6.6M

FY06 = 6.7M

Retail46% 19% 28%

Mail Order

4%1%MTF

2%

1%

42% FY06 30% FY06

5%

Unique Users - Point of Service

Source: PDTS

Retail

MTF

Mail Order

Unique Users ≥ 65 = 1.5M

15%

36%25%13%

38%24%

1%

16%5%

1% 15%2%

54%

25%

2%

<1%

17%

<1%

1%

Mail OrderMTF

Unique Users < 65 = 5.2M

2%

<1% <1%

1%51%

18%

27%

Retail

Source: PDTS

72%

9,210,547

6,612,378

112,572

288,287

45,569

1,253,612

61,343

1,820,899

3,031,537

FY05

70%

9,154,440

6,390,103

101,110

256,927

42,791

1,104,689

64,605

1,500,504

3,319,477

FY04

73% 69%66%% of Eligible

Beneficiaries Using Pharmacy Benefit

9,177,5488,929,0718,671,727Eligible Beneficiaries

6,685,709

121,180

331,587

45,752

1,297,796

55,076

1,992,616

2,833,312

FY06

6,187,185

101,119

206,748

37,777

927,717

83,654

1,264,787

3,574,200

FY03

5,714,063Total Unique Users

96,130MTF, Mail Order & Retail

814,048MTF & Retail only

54,885MTF & Mail Order only

FY02Point of Service

181,881Retail & Mail Order only

79,124Mail Order only

1,033,576Retail only

3,454,419MTF only

Unique User Trends

Prevalence of Pharmacy Benefit Use

FY02 – FY06

FY02 FY03 FY04 FY05 FY06

< 65 64.0% 67.7% (5.8%)

67.8% (0.2%)

69.5% (2.5%)

70.1% (.55%)

≥ 65 73.9% 76.3% (3.2%)

78.3% (2.6%)

81.5% (4.1%)

84.3% (2.9%)

Total 65.9% 69.3% (5.2%)

69.8% (0.7%)

71.8% (2.9%)

72.9% (1.1%)

Prevalence # Users

=# Beneficiaries

Proportion of beneficiaries who fill one or more Rxs during a

given period of time=

Sources: PDTS

MHS PHARMACY BENEFIT USERS

Source: PDTS

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Retail

MTF

Mail Order

Mil

lio

ns

of

Us

ers

FY01 FY02 FY03 FY04 FY05 FY06

DoD Pharmacy WorkloadRaw Number of Rx’s Filled

0

10000000

20000000

30000000

40000000

50000000

60000000

MTF Retail Mail

FY05

FY06

DoD Pharmacy Market ShareBy Point of Service – 30 Day Equivalents

0

10

20

30

40

50

60

MTF Retail Mail

FY2005 FY2006

Percent

DoD Drug Expenditures thru FY 2006

0 0 0 35 83 106 191 347 429 546 629 721181 193 245 283 342 455

681

12781848

2423

3097

3923

617 662 741 797878

1034

1170

1388

1565

1765

1634

1536

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mail Retail MTF

.

Millions

DoD PharmacyDoD Pharmacy

YesterdayYesterday

Pharmacy Data Transaction Service (PDTS)• A centralized data repository that records information

about prescriptions filled for beneficiaries through Military Treatment Facilities, the Retail Pharmacy network and the TRICARE Mail Order Pharmacy

– Provides Drug-Drug interaction checking of the complete patient medication profile from all points of service (101 Legacy Data Centers, Mail Order, & Retail)

– Monitoring utilization and costs to support policy and formulary decisions

– Prevents same drug from being obtained from multiple sources

– Utilizes industry standard messaging (NCPDP 5.1)

Military Hospitals101 Legacy Data Centers

700+ Dispensing Sites

Mail Retail58,650+ Locations

Military Provider Civilian Network Provider

Electronic

DoD Pharmacy Points of Service

PDTS

Paper

Paper

AudioCARE

Military Hospitals Mail Retail

Military Provider Civilian Network Provider

PDTS

RxCOTS

ePrescribing

ePharmacy

TOL

Pharmacy Commercial Off the Shelf (RxCOTS)• Commercial Product

– Acquired October 2005– Will be integrated with Military Electronic

Health Record• Enterprise order portability

– Refills anywhere • Standard drug information across Enterprise• Policy implementation at an Enterprise and

Local Level• Immediate tracking of inventory and

dispensing

T-Pharm Contract

• RFP released 2006 • $50B value• What it does

– Consolidates mail and retail under one contract

– Decreases duplication of effort; simplifies contract administration

– Optimizes distribution model• VA participating in a limited way

Current Strategies

• Contain the growth at the retail point of service– Adjust co-pays to encourage use of mail order

pharmacy over retail pharmacies– Educate and market the benefits of mail order to

our beneficiaries– Expand program to allow voluntary price

reductions at retail by drug companies– Provide tools to MTF’s to monitor costs

• Expand Utilization Management efforts and data mining

• Promote generic drugs

Utilization Management Program

• Maximize use of:– Most cost effective agents– Most cost effective point of service

• Maximize use of:– Generic vice brand– Formulary vice non-formulary– Retail network vice non-network pharmacies– MOP vice retail pharmacies

Long Term Strategies• E-Pharmacy Initiatives• Contain the growth and costs at the retail

point of service– Pay MTF pharmacies for the ingredient cost plus

a co-pay• MTF Commanders should look at pharmacy as

a revenue source rather than a cost center• Will result in more open MTF formularies –

less need for patients to seek Rx in the retail network

– Expand number of military pharmacies • On base and off base• Full service formularies

MTF Pharmacies and Clinics– Today and Tomorrow?

Today Tomorrow?Formulary Closed Open

Staffing Individual Services Purple

Refills Local Central

Inventory ManagementEnterprise Data

Minimal - CHCS Extensive - Centricity

Clinical Opportunities Limited Unlimited

Defense Health Budget

• 2001 --- $18 Billion

• 2006 --- $38 Billion (8% of DoD budget today)

• 2015 --- $64 Billion (estimate) (12% of DoD budget)

Retirees Health Care Costs

• 2006 --- 58% DoD Health Care Dollars

• 2016 --- 66% DoD Health Care Dollars

Projections to 2015

• At current growth projections (11%) and under current benefit structure by 2015:

– MTFs - $4.68B– TRRx - $4.70B– TMOP - $0.38B– >age 65 using all points of service - $7.80B

TOTAL $17.50B (6.18B in FY2006)

Or 27.34% of the Defense Health Budget in 2015

Up from the 16.26% of DHP budget in 2006

Cost Increases Driven By:

• Benefit Expansions, including TRICARE for Life and TRICARE Reserve Select

• No changes in TRICARE fees the past ten years

• More beneficiaries attracted to low cost, expanded benefits, and quality of the program

• High inflation in the health care industry• Employers provided incentives for

beneficiaries to use TRICARE

Questions?