The government’s cost of providing brand-name drugs to military beneficiaries through TRICARE’s vast retail pharmacy network is falling by 25 percent as new law forces drug manufacturers to expand price discounts.
The change won’t affect co-payments charged military family members and retirees who have 60 million prescriptions a year filled in retail drug outlets. But Department of Defense pharmacy costs will be cut by more than $700 million next year and by higher amounts in following years.
The cost savings flow from a provision in the fiscal 2008 Defense Authorization Act that requires drug makers to extend federal pricing discounts to brand-name medicines dispensed to military beneficiaries through drug stores, supermarkets and other commercial outlets.
For years, pharmaceutical companies have been required to grant federal discounts only for drugs dispensed on base, through TRICARE’s mail-order option or through Department of Veterans Affairs’ pharmacies.
Defense officials tried administratively to get the same discounts for the retail pharmacy network, but that effort was blocked in 2006 through a successful industry lawsuit. A short time later, when TRICARE officials sought a legislation solution, White House politicos quietly sided with the Pharmaceutical Research and Manufacturers Association in opposing imposition of discounts on prescriptions through retail outlets.
Meanwhile, the administration has pressed Congress over the last three years to raise beneficiary co-payments at retail pharmacies to entice greater use of mail order and base pharmacies where federal prices do apply.
In passing the 2008 defense bill, the Democratic-led Congress left beneficiary co-payments unchanged, and directed that federal price discounts be expanded to brand name drugs filled in the TRICARE retail network.
The projected pharmacy savings for fiscal 2009, which total $719 million, exceed the savings estimate used by Bush administration to argue for higher drug co-payments in the retail network. Only time will tell whether expansion of manufacturer discounts relieves budgetary pressure for raising retail pharmacy co-pays for beneficiaries.
Under the new law, drug companies that refused to extend discounts to TRICARE retail outlets risk seeing their drugs removed from the military’s approved list. Drugs left off the list for “not honoring federal ceiling price,” said Rear Adm. Thomas McGinnis, won’t be dispensed without a phone call to confirm the specific drug is medically necessary. Then the co-payment will be $22 per prescription rather than $9.
“No firm is going to want that for their product,” McGinnis said.
Military drug spending more than tripled from fiscal 2000 through 2006, rising to $6.2 billion from $1.6 billion. Most of the increase was in the convenient retail network where annual costs jumped ninefold, from $455 million to $3.9 billion. McGinnis estimates that the cost of drugs dispensed through retail outlets will reach close to $4.5 billion in the fiscal year.
One reason officials eased up on their push for federal price discounts in the retail network was the level of savings being realized through voluntary agreements with drug manufacturers for base pharmacies and the mail-order program. In establishing a list of approved drugs, military officials began studying whole classes of drugs to determine what medicines are both clinically effective and cost effective. Through last October, 322 drugs had been reviewed and 249 were kept on the list.
The rest were bumped, many of them for being too costly with no evidence that they were more effective. McGinnis said during this review process the cost of some drugs fell sharply because manufacturers wanted to ensure that their drugs were on the formulary.
“The industry has been bidding prices below the federal ceiling price, both at the military treatment facility and at the mail-order pharmacy,” McGinnis explained. “It will take awhile until we see whether they bid some of these retail pharmacy prices below federal ceiling prices.”
To comment, e-mail milupdate@aol.com, write to Military Update, P.O. Box 231111, Centreville, VA, 20120-1111 or visit militaryupdate.com.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
