Formulary Management in the Department of Defense

BACKGROUND: The U.S. Department of Defense (DoD) health care benefit (TRICARE) provides 9.2 million active-duty and retired uniformed services personnel and their family members with access to a comprehensive pharmacy benefit with low out-of-pocket costs. DoD's Uniform Formulary is available worldwide at DoD's 3 pharmacy points of service (military pharmacies, contracted mail order, and community [network and non-network] pharmacies). Community pharmacies, military pharmacies, and mail order accounted for 64%, 23%, and 13%, respectively, of DoD's $6.5 billion total drug expenditures during fiscal year (FY) 2007 (October 1, 2006, through September 30, 2007). OBJECTIVES: To describe the DoD formulary management process and estimate cost savings associated with implementation of DoD's 3-tier formulary. SUMMARY: DoD implemented its 3-tier Uniform Formulary in 2005. This implementation required the development of a transparent formulary management process that (a) assesses medications for formulary status based on an evidence-based clinical evaluation and assessment of relative cost-effectiveness using pharmacoeconomic and budget impact modeling, (b) allows open and equitable price competition among pharmaceutical manufacturers based on formulary status, and (c) provides a public forum for beneficiaries and beneficiary organizations to comment on formulary changes. Through April 16, 2008, Uniform Formulary decisions had been implemented in 32 drug classes representing 53% of FY 2007 total drug expenditures. The 32 classes containing 343 drugs were reviewed at 12 quarterly meetings of the DoD Pharmacy and Therapeutics (P&T) Committee and the Beneficiary Advisory Panel, resulting in the classification of 85 drugs (24.8%) in tier 3, 92 drugs (26.8%) in tier 2, and 166 drugs (48.4%) in tier 1. Implementation of the 3-tier formulary was associated with an estimated $926 million in cost avoidance in FY 2007, primarily due to price reductions at military pharmacies and mail order, tier 3 copayments at community pharmacies and mail order, and change in product mix and pharmacy type (point of service). An additional $60 million in rebates were obtained in FY 2007 through the Voluntary Agreements for TRICARE Retail Pharmacy Refunds (UF VARR) program for prescriptions filled at community pharmacies; the UF VARR program first became available for drug classes reviewed in August 2006. The total of $986 million in cost avoidance and rebates represents an approximate 13% reduction, compared with what DoD otherwise would have paid in FY 2007 ($7.5 billion, compared with actual drug expenditures of $6.5 billion). CONCLUSIONS: As in most private-sector health plans, the DoD formulary management process (a) includes rigorous decision making that is informed by clinical literature evaluations and pharmacoeconomic analyses, (b) results in drug formulary changes that require considerable effort in communication with providers and beneficiaries, and (c) produces drug cost savings derived from increased price competition among drug manufacturers. Unlike private sector health plans, the DoD uses more disclosure of the results of evaluation of the evidence, solicits provider opinions before P&T committee deliberation, and provides the opportunity for beneficiaries to have input before implementation of formulary changes.