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Uniform Uniform

Formulary, An Formulary, An OverviewOverview

DoD PharmacoeconomicsDoD Pharmacoeconomics&&

Pharmacy Benefit ConferencePharmacy Benefit Conference10 January 200510 January 2005

Colonel James H. Young

Director, DoD Pharmacy Programs

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Learning Objectives

• Describe the evolution of the Uniform Formulary (UF)• Describe how UF will affect the MTF formulary process• Understand Recent Updates in DoD Pharmacy Programs• Know UF Benefits to DoD and Beneficiaries

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Vision

Provide a World-Class Pharmacy Benefit with a seamless interface between all three points of service

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How Can We Realize Our Vision

• Clearly define the roles for DoD Pharmacy and individual Service Pharmacy Operations

• Provide coordinated program oversight, benefit management, open and effective communication, and policy support to optimize delivery of pharmacy benefit

• Improve management of resources, based on metrics, that include both administrative overhead and drug acquisition costs comparing all three venues

• Ensure appropriate, safe, uniform, consistent, and equitable drug therapy to meet patients’ clinical needs in effective, efficient, and fiscally responsible manner

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But know also, man has an inborn craving for medicine. Generations of heroic dosing have given his tissues such a thirst…for drugs. As I once before remarked, the desire to take medicine is one feature that which distinguishes man, the animal, from his fellow creatures. It is really one of the most serious difficulties with which we have to contend. Even in minor ailments, which would yield to dieting or to simple home remedies, the doctor’s visit is not thought to be complete without the prescription.

Sir William Osler, MD, Teaching and Thinking, 1895

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DoD PharmacyDoD Pharmacy

YesterdayYesterday

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DoD Pharmacy Yesterday

• We used typewriters and sometimes desktop computers• FAX became a common method of transmitting prescriptions• Providers were writing prescriptions on paper• Patients stood in long lines…some places they still do• We filled prescriptions using counting trays and spatulas• Patient safety was an issue and remains an issue today• Pharmacy was MTF-centered with limited DoD policy role• DoD looked to commercial arena to augment and replace

pharmacy operations lost by the closure of many DoD facilities• Response to evolving needs included expanded access, improved

automation, robust marketing initiatives, and standardization

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DoD PharmacyDoD Pharmacy

TodayToday

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DoD Pharmacy Today

• Computers “communicate”• Workflow has been significantly automated• 6.4 million Unique Users of 9.1 million beneficiaries (70%)• 536 DoD Dispensing Facilities in 121 MTFs• Over 54,000 TRICARE Retail Network Pharmacies• One of the nation’s largest Mail Order Pharmacies• $5,000,000,000 Pharmacy Benefit Program (100M Rx last yr)• Pharmacy Data Transaction Service (PDTS) evolving• Uniform Formulary and Beneficiary Advisory Panel in place• RxCOTS Contract Award brings us into the future• Largest drug distribution/pharmacy operation in the world

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Numbers You Should Know

1 = 1911 = 570,77699.96 < 54000 = 121

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TRICARE Eligible BeneficiariesFY04

Retirees & Family

Members < 65

Retirees & Family Members ≥ 65

Active Duty Family Members

Active Duty

1.7M 1.8M

2.4M3.1M26%

34%

19% 20%

Other 1%

FY02 8.6 Million

FY03 8.9 Million

FY04 9.1 Million

Source: DEERS

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What The Numbers Mean

• In 1 min, DoD fills 191 Rxs

• In 1 hr, we spend $570,776.00

• We process 99.96% Retail Network transactions electronically in < 5 sec

• Just over 1000 pharmacists and almost 3000 technicians serve 121 DoD MTFs worldwide

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Unique Users - Point of ServiceAll Ages, FY04

MTF

Retail

52% 17% 23%

Mail Order

4%2%

1%1%

Unique Users = 6.4M

Source: PDTS

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Unique Users - Point of ServiceBy Age, FY04

Retail

MTF

Mail Order

33%19% 25%

3%

14%5%

1%

Unique Users ≥ 65 = 1.3M

Retail

Mail OrderMTF

61%

21%

1%

<1% 1%

1%

15%

Unique Users < 65 = 5.0M

Source: PDTS

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MHS Pharmacy Benefit UsersBy POS, Jul 01 – Sep 04

Mil

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MTF

Retail

Mail Order

FY01 FY02 FY03

Source: PDTS

FY04

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“Per member per year ingredient costs continued to rise, increasing by 14.5% in 2003 for non-specialty drugs and 38.7% for specialty drugs. It is projected that

without active management of the pharmacy benefit, per member per year drug costs will increase by 125% over

the next five years.”

Drug Trend Report 2003ESI, June 2004

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Cost per Beneficiary by AgeFY02 – FY04

FY02 FY03 FY04

< 65 $245 $282 (15.1%) $326 (15.5%)

≥ 65 $791 $1,070 (35.3%) $1,309 (22.4%)

All Ages $347 $430 (23.9%) $511 (18.9%)

Source: M2, PDTS, and Prime Vendor data

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MHS Outpatient Drug Spend($Millions)

FY02 FY03 FY04

MTF* $1,388 $1,565 (12.7%) $1,704 (8.9%)

Retail** $1,278 $1,847 (44.6%) $2,430 (31.6%)

Mail Order** $347 $429 (23.4%) $546 (27.3%)

Total $3,013 $3,841 (27.5%) $4,680 (21.8%)

Sources: PDTS and Prime Vendor data

Note:

1. The Focus here is Outpatient

2. 1997 DoD Drug Expenditures was just short of $1B, today it is $5B

3. * Does not include overhead costs of filling prescription

4. ** and ** does include dispensing and processing fees

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Military Treatment Facility Pharmacy

• 536 DoD 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 • Possibly least costly option for DoD• 56% Rx workload performed at MTF

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TRICARE Mail Order Pharmacy

• TMOP Contract awarded to Express Scripts, Inc. 11 Sep 02• Services began 1 Mar 03• Services via state-of-the-art facility in Tempe, AZ dedicated

to DoD workload• Product replenishment through Prime Vendor (McKesson)

at Federal Pricing • DoD Pharmacist as Contracting Officer Representative• Largest commercial mail order account transfer within

industry• 13% of Rx workload performed at TMOP

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TRICARE Retail Pharmacy

• TRRx Contract Awarded to Express Scripts, Inc. 26 Sep 03• Services began 1 Jun 04• DoD Pharmacist as Contracting Officer Representative• Consolidated retail pharmacy services under a single

contract to optimize benefit management– Streamlined claim processing/network management– Consistent benefit across all regions

• Portability in 50 states, Guam, Puerto Rico, US Virgin Islands• Pharmacy Help Desk Services 24 x 7 x 365• TRRx Dedicated Staff• Over 54,000 Retail Pharmacies Now Participate• 31% Rx workload performed at TRRx

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“I am all for progress—it’s just change that I don’t like”

Mark Twain

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FY 2000 National Defense Authorization Act

• Established new DoD P&T Committee

• Established UF Beneficiary Advisory Panel

• Established Uniform Formulary parameters

– Prior authorization for cost-effectiveness or clinical considerations

– Permits tiered co-pays (generic, formulary, and non-formulary)

– Requires availability of non-formulary drugs through at least one point of service (we proposed available through both the mail order and retail points of service)

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Why the new Co-Pays?

• Co-pays are all about influencing choices and moving market share in order to negotiate the best prices possible for beneficiaries and government

– Potential non-formulary status of medications is a tool for negotiating better prices from Drug Manufacturers

• Tiered co-pays are best business practices; used to preserve access and encourage use of most cost-effective venue and pharmaceutical agent unlike closed formularies that achieve good prices but restrict access

• The better the prices DoD can negotiate, the more likely DoD can continue to maintain this comprehensive benefit while challenged to control sky-rocketing expenditures

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Retail networks (up to 30 days)

Commercial MCO*

Medicare HMO* TRICARE FEHBP**

Generic $8.93 $7.56 $3.00 $10.00 Formulary-Brand $18.77 $19.61 $9.00 $25.00 Non-formulary $32.53 $38.95 $22.00 $40.00 Mail Order (up to 90 days)

Generic $14.58 $17.25 $3.00 $20.00 Formulary-Brand $31.18 $37.22 $9.00 $50.00 Non-formulary $60.68 $73.45 $22.00 $80.00

*Average copays charged within Managed Care Organizations and Medicare HMOs, respectively. Source: “2002 Average Co-payments by Formulary Type and Lines of Business”, Novartis Pharmacy Benefit Report: 2003 Facts and Figures, Emron Publications, Wayne, New Jersey ** CareFirstBlueChoice Health Plan 2004, beneficiary must also pay $285 per month premiums for health plan.

Pharmacy Copay Comparison

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Uniform Formulary Rx Co-Pays

Point of Service

Tier 1 (Generic)

Tier 2 (Formulary)

Tier 3 (Non-formulary)

MTF $0 $0 NA

TMOP (< 90 day supply)

$3

$9

$22

Retail network pharmacies

(<30 day supply)

$3

$9

$22

Non-network pharmacies

$9 or 20% of total cost (whichever is greater)

Deductibles and point of service

penalties also apply

$22 or 20% (whichever is greater) Deductibles and point of service penalties also apply

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Uniform Formulary Is a Critical Management Tool

• Formulary management and tiered co-pays are industry standards and best commercial business practices used to manage a pharmacy benefit

• Historically, formulary management was not uniform across the Military Health System– TMOP: Has been determined by DoD

Pharmacy and Therapeutics Committee (P&T)– Direct Care: Has been Basic Core Formulary

via DoD P&T plus local Facility P&T decisions– TRRx: Has been an open formulary, except for

those excluded by law

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Uniform Formulary Benefits

• Uniform access to all medications– Non-formulary access provided through 2 points of

service although legislation required “at least one”• Provides the tool needed to manage the whole benefit

– Co-pay structure encourages use of TMOP over retail and network over non-network, especially for non-formulary products

– Increases standardization among MTF formularies with BCF and ECF while preserving some flexibility

• Provides beneficiary input to formulary process through the Beneficiary Advisory Panel

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FY 2004 National Defense Authorization Act

• Redefined DoD P&T and UF BAP membership • Moved Non-Gov Employees from P&T to BAP

• Moved Network Providers to BAP• Moved USFHP representative to BAP• Moved TMOP/TRRx representatives to BAP

• Provided DoD P&T relief from Federal Advisory Committee Act

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Key Points Uniform Formulary

• Encourages use of more cost-effective POS• Influences beneficiary and provider choice• Permits tiered co-pays: Generic, Formulary, NF• Allows beneficiaries to obtain NF drugs that are

“clinically necessary” at the 2nd Tier co-pay• Permits Prior Authorization • Requires Non-formulary drug availability• New DoD P&T and UF BAP

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• Established process for DoD to determine formulary status• Established the DoD P&T Committee as the mechanism to

identify agents for the third tier and prior authorizations• Established the BAP as a means for beneficiary

representatives to comment on P & T recommendations

• Proposed Rule was published 12 Apr 2002

• Comment period closed 11 Jun 2002

• 3311 comments received – Paper - 1,621 Email - 1,690

• Comments compiled, considered. and Final Rule prepared

• Final Rule published 1 April 2004 including responses

• Implementation

Uniform Formulary Rule

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Public Comment

• Speculation that UF and the new co-pay is DoD’s response to the high cost of TSRx– Congress passed a law in October 1999 establishing the UF

and 3 tiered co-pays. The TSRx law was passed a full year later.

– Implemented two tiered co-pays in conjunction with TSRx in April 01, to simplify co-pay structure.

– There is no relationship between the cost of TSRx and the new co-pays.

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Public Comment

• UF will cause doctors excessive paperwork– Intent is to implement an expedited process for medical

necessity determinations – Validation of medical necessity is required only to reduce co-

pays, does not prevent beneficiary from getting medication– Medical necessity determination can be retroactive,

paperwork/justification not required prior to dispensing

• Non-Formulary co-pay ($22)– Response: Law requires non-formulary cost sharing be

consistent with “common industry practice” and not in excess of amounts generally comparable to 20 – 25%.

– Literature shows a $12-$15 difference between formulary co-pays and non-formulary co-pays is common industry practice to influence beneficiary choice

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DoD Uniform Formulary Process

• Identify classes for consideration• Clinical and cost effective analysis performed by PEC

(data collection, pricing, etc.)• P&T deliberation and evaluation• Prepare P&T Minutes for BAP and Director, TMA• BAP meets and provides comments for Dir, TMA• Recommendations from P&T and comments from the

BAP are forwarded to Executive Director, TMA• Decision on recommendations, minutes signed

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Department of Defense Pharmacy & Therapeutics Committee

DoD P&TMakes

Recommendations

PECCollectsAnalyzesPresents

Minutes posted

BAPComments

TMA DirectorMakes Decisions

DoD P&TMakes Decisions

PECCollectsAnalyzesPresents

Minutes posted

Old

New

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Committee Responsibilities

• Evaluate clinical effectiveness and cost effectiveness of pharmaceutical agents

• Recommend pharmaceutical agents for:– Uniform Formulary– Basic Core Formulary– Extended Core Formulary

• Medical necessity criteria for drugs classified as non-formulary (3rd tier)

• Restrictions / limitations– Prior authorization– Quantity limits– TRRx and TMOP

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DoD P&T Committee Voting MembersYour Representatives

• Physician Chairman (HA/TMA)• Director, DoD Pharmacy Programs, TMA• Director, DoD PEC• Internal Medicine providers from each service• Pediatrician from one service (Army)• Family Practice from one service (Navy)• OB/Gyn from one service (AF)• One provider at large from each service• One pharmacist from each service• Coast Guard: one physician or pharmacist• Department of VA : one physician or pharmacist• TRRx COR• TMOP COR

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DoD P&T Committee Non-Voting Members

• JRCAB (readiness folks)• TMA General Counsel• TMA Resource Management Directorate• Defense Supply Center Philadelphia

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Beneficiary Advisory Panel (BAP)

• Operates under Federal Advisory Committee Act (FACA) and provides new level of accountability and oversight for the UF process

• Purpose is to provide beneficiaries a voice and representation in the UF process

• Members consist of nominees from major beneficiary representative organizations such as MOAA, contractors, professionals

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DoD Formulary Management Policy

• HA 04-032 – TRICARE Pharmacy Benefit Program Formulary Management – 22 Dec 04– Describes UF, BCF, ECF & MTF Formulary management

• Replaces previous HA formulary policies– HA 98-034 – Policy for Basic Core Formulary and

Committed Use Requirements Contracts – 27 Apr 1998– HA 98-025 – Policy for Implementation of the DoD

Pharmacy and Therapeutics Committee – 23 Mar 1997– HA Memo – Policy for Dispensing Prescriptions in

Outpatient Military Pharmacies – 8 Dec 1999

• Note: Portion of 8 Dec 99 policy still relevant

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DoD Core Formularies(Ref: HA 04-032)

• All drug classes will fall under either– Basic Core Formulary (generally primary care)– Extended Core Formulary (all other classes, generally

specialized care)

• Drugs are selected for the BCF or ECF because they provide greater value than other drugs on the Uniform Formulary

• Where clinically appropriate, MTFs should maximize the use of BCF and ECF drugs over other UF drugs

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MTF Formulary Management(Ref: HA 04-032)

• MTF Formularies must contain:– BCF drugs– ECF drugs in each ECF drug class that is included on

the MTF formulary

• MTF Formularies may also contain:– Other UF drugs: generic (1st tier) or formulary (2nd tier)– Drug used solely for inpatient services– Medications not covered by TRICARE pharmacy benefit

that are allowed to be covered by MTFs• OTCs, weight loss meds, smoking cessation, etc.

• MTF Formularies cannot contain:– Drugs classified as non-formulary on UF (3rd tier)

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MHS Drug Universe

UF

Drugs not covered by TRICARE(i.e., OTCs, weight loss meds, smoking cessation meds, etc.)

BCF drugsECF drugs

Other UF drugs

Nonformulary drugs

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MHS Drug Universe

UF

Drugs not covered by TRICARE(i.e., OTCs, weight loss meds, smoking cessation meds, etc.)

BCF drugsECF drugs

Other UF drugs

Nonformulary drugs

Smallest Possible

MTF Formulary

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MHS Drug Universe

UF

Drugs not covered by TRICARE(i.e., OTCs, weight loss meds, smoking cessation meds, etc.)

BCF drugsECF drugs

Other UF drugs

Nonformulary drugs

Largest Possible

MTF Formulary

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MHS Drug Universe

UF

Drugs not covered by TRICARE(i.e., OTCs, weight loss meds, smoking cessation meds, etc.)

BCF drugsECF drugs

Other UF drugs

Nonformulary drugs

Typical MTF

Formulary

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Non-formulary Agents(Ref: HA 04-032)

• $22 cost share per prescription at Mail Order and Retail - no questions asked

• $9 cost share if medical necessity is validated• Excluded from all MTF formularies

– Available only upon approval from non-formulary special order process that validates Medical Necessity criteria established by the DoD P&T Committee

• MTF non-formulary special order process can only be used by:– MTF providers – Prescriptions written by a civilian provider to whom the

patient was referred by the MTF

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Cost Saving Opportunities

1. Realign pharmacy budget process for centralized funding or place greater emphasis on accountability & cost shift

2. Educate providers on costs differences of all venues and possibly modify prescribing habits

3. Re-evaluate co-pays and recommend possible adjustments4. Consider benefits and costs for co-pays in the MTF5. Determine costs and advantages of OTC usage in the MTF6. Consider pros and cons of migrating TRRx workload to TMOP7. Educate beneficiaries on advantages of generic drug use8. Educate providers on costs, consequences of cost-shift

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Contact Information

JAMES H. YOUNG, Col, USAF, BSC

Director, DoD Pharmacy Programs

Office of the Assistant Secretary of Defense (HA)

TRICARE Management Activity (OD)

5111 Leesburg Pike, Suite 810

Falls Church VA 22041-3206

703-681-0064   FAX 703-681-1242   DSN 761-0064

 

James.Young@tma.osd.mil