1 TRICARE MANAGEMENT ACTIVITY Uniform Formulary, An Overview DoD Pharmacoeconomics & Pharmacy Benefit Conference 10 January 2005 Colonel James H. Young Director, DoD Pharmacy Programs

2 TRICARE MANAGEMENT ACTIVITY 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

3 TRICARE MANAGEMENT ACTIVITY Vision Provide a World-Class Pharmacy Benefit with a seamless interface between all three points of service

4 TRICARE MANAGEMENT ACTIVITY 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

5 TRICARE MANAGEMENT ACTIVITY 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

6 TRICARE MANAGEMENT ACTIVITY DoD Pharmacy Yesterday

7 TRICARE MANAGEMENT ACTIVITY 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

8 TRICARE MANAGEMENT ACTIVITY DoD Pharmacy Today

9 TRICARE MANAGEMENT ACTIVITY 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

10 TRICARE MANAGEMENT ACTIVITY Numbers You Should Know 1 = = 570, < = 121

11 TRICARE MANAGEMENT ACTIVITY TRICARE Eligible Beneficiaries FY04 Retirees & Family Members < 65 Retirees & Family Members ≥ 65 Active Duty Family Members Active Duty 1.7M 1.8M 2.4M 3.1M 26% 34% 19% 20% Other 1% FY028.6 Million FY038.9 Million FY049.1 Million Source: DEERS

12 TRICARE MANAGEMENT ACTIVITY What The Numbers Mean In 1 min, DoD fills 191 Rxs In 1 hr, we spend $570, We process 99.96% Retail Network transactions electronically in < 5 sec Just over 1000 pharmacists and almost 3000 technicians serve 121 DoD MTFs worldwide

13 TRICARE MANAGEMENT ACTIVITY Unique Users - Point of Service All Ages, FY04 MTF Retail 52% 17% 23% Mail Order 4% 2% 1% Unique Users = 6.4M Source: PDTS

14 TRICARE MANAGEMENT ACTIVITY Unique Users - Point of Service By Age, FY04 Retail MTF Mail Order 33% 19% 25% 3% 14% 5% 1% Unique Users ≥ 65 = 1.3M Retail Mail Order MTF 61% 21% 1% <1% 1% 15% Unique Users < 65 = 5.0M Source: PDTS

15 TRICARE MANAGEMENT ACTIVITY MHS Pharmacy Benefit Users By POS, Jul 01 – Sep 04 Millions of Users MTF Retail Mail Order FY01FY02FY03 Source: PDTS FY04

16 TRICARE MANAGEMENT ACTIVITY “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 2003 ESI, June 2004

17 TRICARE MANAGEMENT ACTIVITY Cost per Beneficiary by Age FY02 – FY04 FY02FY03FY04 < 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

18 TRICARE MANAGEMENT ACTIVITY MHS Outpatient Drug Spend ($Millions) FY02FY03FY04 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 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

19 TRICARE MANAGEMENT ACTIVITY 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

20 TRICARE MANAGEMENT ACTIVITY 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

21 TRICARE MANAGEMENT ACTIVITY 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

22 TRICARE MANAGEMENT ACTIVITY “I am all for progress—it’s just change that I don’t like” Mark Twain

23 TRICARE MANAGEMENT ACTIVITY 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)

24 TRICARE MANAGEMENT ACTIVITY 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

25 TRICARE MANAGEMENT ACTIVITY Pharmacy Copay Comparison

26 TRICARE MANAGEMENT ACTIVITY Uniform Formulary Rx Co-Pays

27 TRICARE MANAGEMENT ACTIVITY 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

28 TRICARE MANAGEMENT ACTIVITY 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

29 TRICARE MANAGEMENT ACTIVITY 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

30 TRICARE MANAGEMENT ACTIVITY 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 2 nd Tier co-pay Permits Prior Authorization Requires Non-formulary drug availability New DoD P&T and UF BAP

31 TRICARE MANAGEMENT ACTIVITY 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 comments received –Paper - 1, ,690 Comments compiled, considered. and Final Rule prepared Final Rule published 1 April 2004 including responses Implementation Uniform Formulary Rule

32 TRICARE MANAGEMENT ACTIVITY 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.

33 TRICARE MANAGEMENT ACTIVITY 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

34 TRICARE MANAGEMENT ACTIVITY 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

35 TRICARE MANAGEMENT ACTIVITY Department of Defense Pharmacy & Therapeutics Committee DoD P&T Makes Recommendations PEC Collects Analyzes Presents Minutes posted BAP Comments TMA Director Makes Decisions DoD P&T Makes Decisions PEC Collects Analyzes Presents Minutes posted Old New

36 TRICARE MANAGEMENT ACTIVITY 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

37 TRICARE MANAGEMENT ACTIVITY DoD P&T Committee Voting Members Your 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

38 TRICARE MANAGEMENT ACTIVITY DoD P&T Committee Non-Voting Members JRCAB (readiness folks) TMA General Counsel TMA Resource Management Directorate Defense Supply Center Philadelphia

39 TRICARE MANAGEMENT ACTIVITY 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

40 TRICARE MANAGEMENT ACTIVITY DoD Formulary Management Policy HA – TRICARE Pharmacy Benefit Program Formulary Management – 22 Dec 04 –Describes UF, BCF, ECF & MTF Formulary management Replaces previous HA formulary policies –HA – Policy for Basic Core Formulary and Committed Use Requirements Contracts – 27 Apr 1998 –HA – 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

41 TRICARE MANAGEMENT ACTIVITY DoD Core Formularies (Ref: HA ) 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

42 TRICARE MANAGEMENT ACTIVITY MTF Formulary Management (Ref: HA ) 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 (1 st tier) or formulary (2 nd 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 (3 rd tier)

43 TRICARE MANAGEMENT ACTIVITY MHS Drug Universe UF Drugs not covered by TRICARE (i.e., OTCs, weight loss meds, smoking cessation meds, etc.) BCF drugs ECF drugs Other UF drugs Nonformulary drugs

44 TRICARE MANAGEMENT ACTIVITY MHS Drug Universe UF Drugs not covered by TRICARE (i.e., OTCs, weight loss meds, smoking cessation meds, etc.) BCF drugs ECF drugs Other UF drugs Nonformulary drugs Smallest Possible MTF Formulary

45 TRICARE MANAGEMENT ACTIVITY MHS Drug Universe UF Drugs not covered by TRICARE (i.e., OTCs, weight loss meds, smoking cessation meds, etc.) BCF drugs ECF drugs Other UF drugs Nonformulary drugs Largest Possible MTF Formulary

46 TRICARE MANAGEMENT ACTIVITY MHS Drug Universe UF Drugs not covered by TRICARE (i.e., OTCs, weight loss meds, smoking cessation meds, etc.) BCF drugs ECF drugs Other UF drugs Nonformulary drugs Typical MTF Formulary

47 TRICARE MANAGEMENT ACTIVITY Non-formulary Agents (Ref: HA ) $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

48 TRICARE MANAGEMENT ACTIVITY 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 adjustments 4.Consider benefits and costs for co-pays in the MTF 5.Determine costs and advantages of OTC usage in the MTF 6.Consider pros and cons of migrating TRRx workload to TMOP 7.Educate beneficiaries on advantages of generic drug use 8.Educate providers on costs, consequences of cost-shift

49 TRICARE MANAGEMENT ACTIVITY 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 FAX DSN