1. Pharmacoeconomic Center Conference January 8, 2007 RADM Tom McGinnis, U.S.P.H.S. Chief, DoD Pharmaceutical Operations Directorate V5

2. 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

3. Key Points of Uniform Formulary All drugs on UF unless TMA Director approves DoD P&T recommendation of non-formulary (3 rd 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 2 nd Tier co-pay

4. 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

5. 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

6. 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

7. Unique Users - Point of Service- All Ages Source: PDTS Unique Users FY05 = 6.6M FY06 = 6.7M Retail 46% 19% 28% Mail Order 4% 1% MTF 2% 1% 42% FY0630% FY06 5%

8. 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 Order MTF Unique Users < 65 = 5.2M 2% <1% 1% 51% 18% 27% Retail

9. Source: PDTS Unique User Trends

10. Prevalence of Pharmacy Benefit Use FY02 – FY06 FY02FY03FY04FY05FY06 < 6564.0% 67.7% (  5.8%) 67.8% (  0.2%) 69.5% (  2.5%) 70.1% ( .55%) ≥ 6573.9% 76.3% (  3.2%) 78.3% (  2.6%) 81.5% (  4.1%) 84.3% (  2.9%) Total65.9% 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

11. MHS PHARMACY BENEFIT USERS Source: PDTS

12. DoD Pharmacy Workload Raw Number of Rx’s Filled

13. DoD Pharmacy Market Share By Point of Service – 30 Day Equivalents Percent

14. DoD Drug Expenditures thru FY 2006. Millions

15. DoD Pharmacy Yesterday

16. 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)

17. Military Hospitals 101 Legacy Data Centers 700+ Dispensing Sites MailRetail 58,650+ Locations Military ProviderCivilian Network Provider Electronic DoD Pharmacy Points of Service PDTS Paper AudioCARE

18. Military HospitalsMail Retail Military Provider Civilian Network Provider PDTS RxCOTS ePrescribing ePharmacy TOL

19. 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

20. 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

21. 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

22. 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

23. 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

24. MTF Pharmacies and Clinics – Today and Tomorrow? TodayTomorrow? FormularyClosedOpen StaffingIndividual ServicesPurple RefillsLocalCentral Inventory Management Enterprise Data Minimal - CHCSExtensive - Centricity Clinical OpportunitiesLimitedUnlimited

25. Defense Health Budget 2001 --- $18 Billion 2006 --- $38 Billion (8% of DoD budget today) 2015 --- $64 Billion (estimate) (12% of DoD budget)

26. Retirees Health Care Costs 2006 --- 58% DoD Health Care Dollars 2016 --- 66% DoD Health Care Dollars

27. 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

28. 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

29. Questions?