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Research Questions

  1. How are tiered formularies used as tools to describe and implement prescription drug benefits and to control costs?
  2. How are pharmacy networks used to control costs?
  3. How are mail-order pharmacies used to control costs and improve adherence?

The Military Health System provides health coverage — including prescription drug benefits — through the TRICARE program, which served an estimated 9.5 million beneficiaries in fiscal year 2018. Like commercial insurance and other sources of drug coverage, TRICARE uses formularies and other policies and tools to strike a balance between access to prescription drugs — in terms of which drugs are covered and where enrollees can receive drugs — and spending. Spending on prescription drugs typically increases as drug access becomes more generous. Unlike other sources of prescription drug coverage, TRICARE must also balance direct acquisition and distribution of drugs via military treatment facilities and mail-order pharmacies with payment for drugs dispensed in retail pharmacies. This report describes the TRICARE pharmacy benefit and the trade-offs in TRICARE pharmacy policies between increasing access and controlling costs. It presents six approaches that TRICARE should explore further to improve access, control costs, or both, including a more selective formulary, narrower pharmacy networks, and further harmonization with other federal purchasers, such as the Veterans Health Administration (VHA). These approaches are worth exploring in light of the recompetition of the TRICARE pharmacy contract and the ongoing consolidation of authority and management for purchased care under the Defense Health Agency.

Key Findings

  • TRICARE could realize significant savings by steering prescribers and patients to generic alternatives within broader therapeutic classes.
  • There is broad overlap in the classes of drugs used in TRICARE and the Veterans Health Administration (VHA). Increased formulary and acquisition harmonization between TRICARE and the VHA could lead to cost savings.
  • Adopting TRICARE's narrower specialty pharmacy network for all prescription drugs would allow for further price reductions through lower dispensing fees, although the trade-offs between savings and access would have to be carefully studied.
  • The U.S. Department of Defense (DoD) should take full advantage of lower prices when drugs are acquired directly by DoD. DoD should explore whether it is possible to dispense directly acquired drugs (when purchased at unit prices) through retail pharmacies and to shift specialty drug dispensing and administration to military treatment facilities under TRICARE's medical benefit.

Recommendations

  • TRICARE should move forward with a more-nuanced formulary with preferred and non-preferred brand tiers and more aggressive utilization management for brand-name drugs.
  • TRICARE should expand its application of this new authority to more aggressively exclude drugs that offer little or no value to TRICARE enrollees from the formulary.
  • In addition to these drugs, TRICARE should consider reducing or eliminating the cost-sharing for additional classes of drugs used to treat chronic conditions.
  • TRICARE should consider adopting the narrower specialty network for all drugs.
  • TRICARE should assess the cost and access implications of transitioning to a narrower formulary through harmonization with the existing Department of Veterans Affairs formulary.
  • In terms of direct acquisition, VHA and DoD should negotiate together to leverage deeper negotiated discounts on drugs.
  • DoD should explore whether it is possible to dispense directly acquired drugs (purchased at these lower unit prices) through retail pharmacies.
  • Given the growth in specialty drug spending and the extremely high price tags for some specialty drugs, TRICARE should estimate the cost of obtaining specialty drugs through different channels and explore whether there are opportunities to shift specialty drug administration toward the direct care system if, in fact, costs are lower in that setting.
  • Several recommendations in this report may face significant implementation challenges. Therefore, TRICARE should explore the feasibility and potential impact of these approaches.

This research was sponsored by the Office of the Secretary of Defense and conducted within the Forces and Resources Policy Center of the RAND National Security Research Division (NSRD).

This report is part of the RAND Corporation research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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