1. As of 9/3/2015 1 1 DoD Pharmacoeconomics & Pharmacy Benefit Conference January 9 th, 2006 Major Travis Watson, MS, USA Deputy Director, DoD Pharmacy Programs V5

2. As of 9/3/2015 2 2 Overview DoD Pharmacy Benefit –Demographics –Utilization –Structure DoD Pharmacy Costs Pricing Differences Optimized Distribution Model Uniform Formulary: Points and Process

3. As of 9/3/2015 3 3 DoD Pharmacy Program Objectives Uniformly, consistently, and equitably provide appropriate drug therapy to meet patients’ clinical needs in an effective, efficient, and fiscally responsible manner Provide a World-Class Pharmacy Benefit with a seamless interface between all three points of service

4. As of 9/3/2015 4 4 TRICARE Eligible Beneficiaries Monthly Average, FY05 Retirees & Family Members < 65 Retirees & Family Members ≥ 65 Active Duty Family Members Active Duty 1.8M 2.3M 3.3M 25% 36% 19% Other >1% FY028.6 Million FY038.9 Million FY04 9.1 Million FY05 9.2 Million Source: M2

5. As of 9/3/2015 5 5 Unique Users by Point of Service All Ages, FY05 MTF Retail 46% 19% 28% Mail Order 4% 1% Unique Users = 6.6M Source: PDTS

6. As of 9/3/2015 6 6 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

7. As of 9/3/2015 7 7 DoD Pharmacy Workload Raw Number of Rx’s Filled

8. As of 9/3/2015 8 8 DoD Pharmacy Workload Number of Rx’s Filled – 30 day Equivalents

9. As of 9/3/2015 9 9 TRICARE Pharmacy Benefit Design Point of Service Comparison MTF (587 Pharmacies) TMOP (Express – Scripts) Retail network (Express – Scripts > 53 K Pharmacies) Non- network Formulary MTF-specific (must include Basic Core Formulary drugs) TMOP formulary None (Open) None (Open) Co-payNone $3 generic $9 brand (< 90 day supply) $3 generic $9 brand (< 30-day supply) Greater of $9 or 20%* (< 30 day supply) Drug priceFederal Transition to Federal? AWP less? *Deductibles & point of service penalties also apply

10. As of 9/3/2015 10 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 Least costly point of service for DoD 47% Rx workload performed at MTF 30% of dollars spent* *Does not include inpatient costs

11. As of 9/3/2015 11 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 6% of Rx workload performed at TMOP 12% of dollars spent

12. As of 9/3/2015 12 TRICARE Retail Pharmacy DoD Pharmacist as Contracting Officer Representative 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 Pharmacy Help Desk Services 24 x 7 x 365 TRRx Dedicated Staff Over 54,000 Retail Pharmacies Now Participate 47% Rx workload performed at TRRx 58% of total dollars spent

13. As of 9/3/2015 13 MHS Pharmacy Benefit Users By POS, Jul 01 – Sep 05 Source: PDTS

14. As of 9/3/2015 14 DoD Drug Expenditures thru FY 2005 $617 $662 $741$797 $878 $1,034 $1,170 $1,388 $1,566 $1,703$1,615 $181 $193 $245 $283 $342 $455 $681 $1,279 $1,848 $2,430 $3,161 $347 $429 $546 $629 $35 $83 $106 $191 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 19951996199719981999200020012002200320042005 Mail Retail MTF TRICARE Sr. Rx Implementation 1 Apr 2001 Overall 7%15%13% 17%22%28%48%28%22%15% Mail137%27%81%82%24%27%15% Retail7%27%16% 21%33%50%88%45%32%30% MTF7%12% 8% 10%18%13%19%13% 9% -5% Percent increase over prior year 19951996199719981999200020012002200320042005 * MTF costs do not Include dispensing costs * TRRx and TMOP are net cost to government Source: PDTS Millions

15. As of 9/3/2015 15 Prescription Cost Analysis by POS Averages for 90-day supply of Brand Name Drugs MTFTMOPTRRx Drug Cost$ 142$ 173$ 358 Refundn/a - $ 99 Net Drug Cost$ 142$ 173$259 FCP = $ 210 Dispensing Fee/Cost+ $ 8 (estimate) + $ 11+ $ 6 Copayn/a- $ 9- $ 27 Net Rx Cost$ 150$ 175$ 233 Source: PDTS, 1 Oct 04 – 30 Jun 05, Top 50 TRRx NDCs

16. As of 9/3/2015 16 Brand Name Drug Acquisition Cost (Indexed to AWP) AWP TRRx TRRx (w/refund) TMOP MTFs $ 100.00 $ 61.00 $ 33.40 $ 40.60 PriceDrug Cost Source: PDTS, 1 Oct 04 – 30 Jun 05, Top 50 TRRx NDCs FCP $ 50.50

17. As of 9/3/2015 17 DoD Pharmacy 2006 Program Objectives Focus on preserving the benefit TMOP is the preferred point of service Co-pays are structured to encourage patients to make the most efficient choice (TMOP and MTF points of service) Expand Utilization Management efforts and data mining Ensure the Tpharm contract includes the tools needed to assist DoD to reduce the increase in pharmaceutical costs

18. As of 9/3/2015 18 Optimized Distribution Model Mail Order Preferred Point of Service -Maintenance meds - MTF refills MTF’s -First fills at MTF* Retail Network -Acute medications *Active duty and their dependents may use MTF for both new and refills if they so choose

19. As of 9/3/2015 19 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: Had been determined by DoD Pharmacy and Therapeutics Committee (P&T) –Direct Care: Had been Basic Core Formulary via DoD P&T plus local Facility P&T decisions –TRRx: Had been an open formulary, except for those excluded by law

20. As of 9/3/2015 20 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 Final Rule

21. As of 9/3/2015 21 Uniform Formulary Benefits 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 Uniform access to all medications –Non-formulary access provided through 2 points of service although legislation required “at least one” Provides beneficiary input to formulary process through the Beneficiary Advisory Panel

22. As of 9/3/2015 22 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 Beneficiary Advisory Panel

23. As of 9/3/2015 23 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

24. As of 9/3/2015 24 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

25. As of 9/3/2015 25 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

26. As of 9/3/2015 26 DoD P&T Committee Non-Voting Members JRCAB (readiness folks) TMA General Counsel TMA Resource Management Directorate Defense Supply Center Philadelphia

27. As of 9/3/2015 27 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

28. As of 9/3/2015 28 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

29. As of 9/3/2015 29 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 (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)

30. As of 9/3/2015 30 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

31. As of 9/3/2015 31 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

32. As of 9/3/2015 32 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

33. As of 9/3/2015 33 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

34. As of 9/3/2015 34 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

35. As of 9/3/2015 35 Chief of Pharmaceutical Operations Chief of Pharmaceutical Operations Director DoD Pharmacy Programs and Operations (CDR Blanche) Homeland Security Immunizations/ Vaccines External Communications Secretary 1 Additional Billet