Summary

The rapid rise in health care costs, the closure of military treatment facilities, and the rising number of retired military beneficiaries have prompted the Defense Department (DOD) to continually reengineer its health care delivery system. DOD's TRICARE health care system provides most of its care at Army, Navy, and Air Force facilities, supplemented by civilian health care services arranged by regional TRICARE contractors. Among health care services, the pharmacy benefit is most in demand by military beneficiaries. As in the private sector, DOD's pharmacy costs have continued to grow relative to total health care costs. GAO estimates that DOD's pharmacy costs rose 13 percent between 1995 and 1997, while its overall health care costs increased two percent during that same period. This report discusses (1) the adequacy of the information that DOD and its contractors use to manage the pharmacy benefit; (2) the merits and the feasibility of DOD and its contractors applying commercial best practices, including a uniform formulary, in managing its pharmacy programs; (3) the merits or limitations of recent mail-order and retail pharmacy initiatives to secure discounted DOD drug prices; and (4) the potential effects that military treatment facility's funding and formulary management decisions can have on beneficiaries' access to pharmacies and TRICARE contractors' costs.

GAO noted that: (1) despite ongoing efforts to improve its pharmacy benefit programs, DOD and its contractors lack basic prescription drug cost and beneficiary use information as well as integrated pharmacy patient databases needed to effectively manage military beneficiaries' pharmaceutical care; (2) because of these problems, as well as formularies that differ among its pharmacy programs, DOD is unable to fully apply proven pharmacy benefit manager commercial best practices that could save millions of dollars each year; (3) recent DOD mail-order and retail pharmacy initiatives aimed at achieving savings by using distribution and pricing agreement drug prices could cause financial and other problems for TRICARE contractors because pharmacy care would be separated from the contractors' management of medical care; (4) moreover, MTFs' efforts to hold down costs by restricting the prescription drugs available on formularies could reduce beneficiaries' access to certain prescription drugs at MTF pharmacies and allegedly has increased TRICARE contractors' pharmacy costs; (5) such efforts can be particularly hard financially on retirees over age 64 with no prescription drug coverage under Medicare or any plan; (6) the significant problems DOD is experiencing in delivering its pharmacy benefit result largely from the way DOD manages its three pharmacy programs; (7) rather than viewing the programs as integral parts of a single pharmacy system, DOD manages the programs as separate entities, not taking into account, for example, the merits of establishing a uniform DOD formulary and integrated databases, or the effects that new initiatives, such as implementing a separate mail service pharmacy program, will have on the other programs; and (8) unless DOD begins to manage the various components of the pharmacy programs as a single system, the problems identified will continue and potentially worsen in the future.