DOD Pharmacy Benefits Program: Reduced Pharmacy Costs Resulting from the Uniform Formulary and Manufacturer Rebates

GAO-08-172R Published: Oct 31, 2007. Publicly Released: Oct 31, 2007.
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Rising pharmacy costs have been a long-standing issue for the Department of Defense (DOD). In 1998, we reported that DOD's fiscal year 1997 total pharmacy costs were $1.3 billion--a 13 percent increase from fiscal year 1995. In fiscal year 2006, DOD dispensed 115 million prescriptions to about 6.5 million beneficiaries at a cost of about $6 billion. One effort to control pharmacy costs is through the use of a uniform formulary, which is a list of preferred drugs that are generally available to beneficiaries. The National Defense Authorization Act for Fiscal Year 2000 directed DOD to establish a pharmacy benefits program that included a uniform formulary. DOD implemented the uniform formulary in 2005. Drugs on the uniform formulary are generally available at military treatment facilities (MTF), the TRICARE Mail Order Pharmacy (TMOP), and retail pharmacies. Each quarter, DOD reviews drugs for inclusion on the uniform formulary. DOD's decision to designate a drug as either formulary or nonformulary is based on the drug's clinical and cost-effectiveness relative to the other drugs in its therapeutic class. In its decision-making process, DOD considers information such as the drug's indications, clinical outcomes, and the price a manufacturer is willing to charge DOD if the drug is selected for placement on the uniform formulary. DOD's costs for a drug may vary depending on whether the drug is dispensed at an MTF, the TMOP, or a retail pharmacy. In exchange for formulary placement, manufacturers can offer DOD prices below those otherwise available through statutory federal pricing arrangements for drugs dispensed at MTFs and the TMOP, and voluntary rebates for drugs dispensed at retail network pharmacies. The John Warner National Defense Authorization Act for Fiscal Year 2007 required that we examine DOD's pharmacy benefits program. In September 2007, we briefed your staff on the status of our work. This report responds to your request for information specifically on DOD's estimate of reduced pharmacy costs (1) resulting from drug costs avoided through its uniform formulary, and (2) from manufacturer rebates for drugs dispensed at retail network pharmacies.

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