Military Brings Order To Formulary System

Congress told the Department of Defense to create a uniform formulary for all the services, and cover all FDA-approved drugs.

Tony Berberabe

Associate Editor

If an army does indeed move on its stomach, it is because many times it is crawling toward the medicine cabinet. Like the private sector, the Department of Defense is faced with rising pharmacy costs. Sound familiar? In 2001, the DoD spent more than $2 billion on pharmacy benefits. And much like the private health sector, the military health plan, also known as TriCare, has experienced explosive growth in pharmaceutical expenditures, which have increased an average of 17 percent a year over the past six years. To that end, Congress, through the National Defense Authorization Act, identified TriCare’s pharmacy benefit as an area for reform.

To carry out the congressional mandate, DoD decided to create a three-tier uniform formulary — uniform in that all the military branches will prescribe from one list. Essentially, the uniform formulary will take all the medications covered under TriCare and designate them as either generic, brand name, or nonformulary. These categories will correspond to first tier, second tier, and third tier, respectively.

Is there a lesson here for health plans?

Unity brings strength

Let’s begin with the similarities. The military formulary, which will cover 8.9 million beneficiaries, is going to be created in the same way that any commercial plan formulary is created. Before Congress acted, a two-tier formulary was in place.

The process to determine tier placement of each agent will be based on the clinical effectiveness and cost-effectiveness of the agent, when compared to other agents in that therapeutic class — just as in the case of commercial formularies. Drugs will be evaluated using the same processes, and allocated based on the same standards.

“It’s presumed that agents in the class are clinically effective and should be included in the class, unless the finding is made that the agent does not have a significant clinically meaningful therapeutic advantage,” says Air Force Col. James H. Young, director of DoD pharmacy programs in the office of the assistant secretary of defense. “Relative cost-effectiveness is not just cost to the government, but also includes cost of the agent in relation to safety, effectiveness, and clinical outcomes.”

Where the military health system and the civilian sector differ, however, is in nonformulary drug coverage and the type of provider delivering care.

Two types

“The uniform formulary will differ from commercial formularies in that nonformulary drugs are not excluded, but they are available at a higher copayment in the retail and mail order pharmacy program,” says Young.

In addition, there are two different types of providers in the military system: physicians in private practice who treat military personnel on a fee-for-service basis and physicians who practice at military-owned treatment facilities (MTFs).

“What needs to be understood is that there are two separate systems of care — the direct care system which is very organized in clinics and hospitals with a restricted provider base, and the purchased-care system, which relies on civilian providers all over the country who work in different types of practices,” says Terri Tanielian, a senior social research analyst and codirector of the Center for Military Health Policy Research for the Rand Corp. “So providers of military health care receive their information through different means, depending on the ‘system’ in which they practice. The purchased-care network is a less structured environment and it probably is more difficult to ensure that pharmacy management practices are communicated and then implemented consistently.”

To help improve communication with its purchased-care providers, and streamline pharmacy practice, TriCare launched one network of retail pharmacies on June 1, 2004, Young notes.

Providers working within these systems currently have very different perspectives on pharmacy management activities.

Different perspectives

The military polled its providers to determine their current prescribing practices and attitudes. TriCare hired the Rand Corp. to find out just what the military prescribers knew about prescribing practices. Rand conducted cross-sectional surveys of military and community prescribers that serve military beneficiaries, says Peter A. Glassman, a Rand researcher.

The researchers found profound differences in attitudes toward and perceptions of pharmacy management practices between the providers in the direct-care system (TriCare) and those in the purchased-care system.

“In TriCare, the prescribers were very satisfied in general,” says Glassman. “Among TriCare providers, 63 percent said they were ‘very familiar’ with the drugs available on formulary, and 64 percent said that the formulary helped ‘my ability to prescribe clinically appropriate drugs.'”

But in the purchased-care system, “only 23 percent were ‘very familiar’ with the drugs on the formularies that they use,” says Tanielian, a coinvestigator.

‘Multiple formularies’

“In the private sector, providers don’t just have one formulary to deal with,” says Tanielian. “Given that TriCare is only one insurer among several that they may accept, they have multiple formularies to consult and multiple preferred lists. In our sample, 40 percent of private providers were dealing with from 3 to 5 formularies, and 45 percent were dealing with 1 to 2 preferred lists, which offer discounts or lower copayments for preferred drugs. And many of them got their knowledge about the content of those formularies via feedback from the pharmacy.”

With regard to attitudes toward pharmacy management, 88 percent of TriCare providers reported confidence in their own P&T committee and its decisions about choosing drugs with the best value. In sharp contrast, only 20 percent of providers in the purchased-care programs reported confidence about the same P&T issues.

“It is likely that because direct-care providers operate in a very organized and controlled system, they are more comfortable with pharmacy management practices in general,” says Tanielian. “Providers in the purchased-care system may be much less likely to have any interaction with any given P&T committee and may be subject to the rules or decision making of multiple national or regional, versus local, committees.”

“Again, we did not ask survey participants why they felt this way about P&T committees; we can only speculate about the reasons why their attitudes differ across the two systems,” says Tanielian (see “Prescribers In Agreement With Statements About P&T Committees,” below).

Prescribers in agreement with statements about pharmacy management practices
Direct-care prescribers (%)
N = 382
Purchased-care prescribers (%)
N = 162
It is easy to keep track of changes to formularies/lists 47 10
Formularies/lists have done a good job keeping drugs up to date in the classes I would like to prescribe 67 15
It is important for health plans/Military treatment facilities to save money by choosing for the lists the best drug with the best value within its therapeutic class 87 40
The drug restrictions imposed by formularies/lists are necessary for containing costs in a health plan/MTF 80 33
Overall, I am satisfied with the nonformulary waiver approval process in my MTF 78 N/A
Prescribers in agreement with statements about P&T committees
Direct-care prescribers (%)
N = 305
Purchased-care prescribers (%)
N = 162
P&T committees are responsive to the concerns of providers 84 34
I have confidence in the ability of P&T committees to choose the safest and most clinically effective drugs 83 23
I have confidence in the ability of P&T committees to choose the drugs with the best value 88 20

Glassman says: “It is possible that some private physicians are going to see [the uniform formulary] as one more formulary to be added to the pile of things they need to keep in mind when prescribing medications to their patients.”

How will it work?

Under the Uniform Formulary Final Rule, the DoD will create a new Pharmacy and Therapeutics Committee that will:

  • Develop a uniform formulary of pharmaceutical agents based on relative clinical and cost-effectiveness.
  • Recommend placement of medications in one of the three cost-sharing tiers based on a drug’s clinical and cost-effectiveness relative to other drugs.
  • Determine when prior authorization for a medication is required.

The final rule also establishes the Uniform Formulary Beneficiary Advisory Panel that will review and comment on development of the uniform formulary and subsequent changes. Similar to commercial plans’ formularies, the military’s uniform formulary will create three tiers of copayment. The current pharmacy cost sharing structure is based on whether a prescription medication is a brand-name pharmaceutical or a generic equivalent.

The chart above outlines the costs and includes the new third tier. This copayment structure applies to all beneficiaries. Those on active duty do not pay copayments for medications; however, if they fill prescriptions at non-network pharmacies, they will be required to pay 100 percent of the cost and file a claim. They will be reimbursed 100 percent for covered products.

For any agent to be considered for third-tier designation, the following must be met:

  • The DoD P&T committee meets and evaluates drugs in accordance with the procedures outlined in the Uniform Formulary Rule.
  • The Beneficiary Advisory Panel has the opportunity to review and comment on recommendations made by the DoD P&T committee.
  • The director of TriCare Management Activity makes the final decision regarding recommendations made by the DoD P&T committee.

The pharmacy benefit will continue to include all pharmaceutical agents approved by the FDA that require an authorized provider’s prescription, unless excluded from TriCare coverage by law.

TriCare pharmacy copayments
Place of Service Tier 1 Tier 2 Tier 3
Military treatment facility pharmacy $0 $0 Tier 3 to be created
TriCare mail order pharmacy $3 $9 $22
Retail network pharmacy $3 $9 $22
Non-network retail pharmacy $9 or 20 percent of total cost, whichever is greater, is met. $22 or 20 percent of cost, whichever is greater, after deductible after deductible is met.

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