DoD TRICARE Looking At PBMs To Negotiate Drug Pricing Contracts

The Department of Defense expects to decide within the next three months whether it will turn to a private pharmacy benefit management company to negotiate pharmaceutical contracts for its TRICARE health plan.

DoD is considering contracting with a PBM to "help us negotiate discounts with the pharmaceutical manufacturers," DoD Assistant Secretary for Health Affairs William Winkenwerder, MD, told the Senate Armed Services/Personnel Subcommittee March 13.

"The bottom line is that here the government has to take on a role in that negotiation or a benefit management company will do it."

DoD and the Department of Veterans Affairs, which both have access to Federal Supply Schedule prices for drugs, recently have been trying to work together more closely on joint national procurement contracts for drugs (¹ (Also see "DoD/VA Allegra Price Is One-Third Of AWP; Joint Procurement Expands" - Pink Sheet, 4 Jun, 2001.), p. 3).

Winkenwerder's previous experience as a health insurance executive may have influenced his consideration of using PBMs.

The assistant secretary, who was sworn in to his position in October, previously served as vice-chairman and exec VP-healthcare services for Blue Cross Blue Shield of Massachusetts.

Asked when DoD would make a decision on whether it would negotiate drug contracts through a PBM or in-house, Winkenwerder said the department is conducting a "financial and economic evaluation and looking at our own employees and assets."

He added that he hopes a decision will be made "within the next two to three months."

Committee members expressed some reservations about DoD's planned expansion of private sector contracts.

"I'm always concerned when I hear about changes to TRICARE," Chairman Max Cleland (D-Ga.) said. Ranking minority member Tim Hutchinson (R-Ark.) agreed, adding, "I personally would like to be a part of your decision making process on the use of PBMs."

DoD has been considering the use of PBMs to administer its retail pharmacy network since fall 2001. Merck-Medco currently runs TRICARE's mail-order pharmacy, although DoD issued a national solicitation for bids on the mail-order pharmacy contract March 1.

DoD is also likely to issue a solicitation for its national retail pharmacy services, for which multiple contracts may be awarded.

Pharmacy is an area where DoD sees "an opportunity for improvement in service and improvement in cost management" through contracting with PBMs, Winkenwerder said. "Our view is that there is an opportunity there to improve the TRICARE program both in terms of customer satisfaction, capability, technology and cost management."

TRICARE provides healthcare for active duty and retired members of the uniformed services, plus their families and survivors. Prescription drugs are provided free of charge to TRICARE members through military facilities or for a copay through mail-order or a retail pharmacy.

TRICARE also added a senior pharmacy program for beneficiaries 65 or older in April 2001. As of Feb. 15, the senior program processed 8.6 mil. prescriptions through mail-order and the retail network, a sales volume of $539 mil.

New health care contracts will likely include risk-sharing agreements, Winkenwerder said.

"Financial incentives are a powerful tool to enhance contractor performance," he said. "It might make sense to have some portion of the amount of money that they would receive at the end of the day at risk."

"The next set of contracts I expect will contain some form of financial risk sharing that rewards outstanding performance," Winkenwerder continued.

"However, we will also look at fee-based rewards for achieving certain performance targets" such as beneficiary satisfaction.

The issues of risk-sharing and the form and extent of risk-sharing have also arisen in the context of PBMs' involvement in a Medicare Rx benefit.