‘Huge’ TRICARE savings expected from higher drug co-pays

February 23, 2012

by Tom Philpott

The biggest knife for slicing TRICARE costs off future defense budgets is not new and higher enrollment fees or deductibles proposed for retirees and their families whouse one of the military’s health insurance options of TRICARE Prime, Standard, Extra or, for the elderly, TRICARE for Life.

Those phased increases, as detailed here last week, would save a total of $23 billion over 10 years, mostly by sticking retirees with higher costs.

But even more dollars -- $28 billion over 10 years -- would be saved in TRICARE pharmacy costs alone under a separate proposed plan to revise co-payments forprescriptions filled at retail outlets and through mail order.

These changes might be more palatable to beneficiaries because a lot of the drug dollars saved would come out of the pockets of drug manufacturers and retailers. Beneficiaries still would be hit but the hardest impact would be felt by those unable or unwilling to shift their prescriptions from retail outlets to the more efficient choice of mail order, or to base pharmacies where drugs will continue to be dispensed free of charge.

"Driving [them] to the lowest cost-point venues – military pharmacies and home delivery– and increasing their use of generic drugs are the two overarching goals" of revising the co-payment structure, explained Rear Adm. Thomas J. McGinnis, chief of pharmaceutical operations for TRICARE.

Congress must pass legislation to raise TRICARE enrollment fees and deductibles under TRICARE insurance plans. But Defense officials already have authority to raise drug co-pays in the retail network and at mail order. Lawmakers only need to get out of the way, as they did last year, when the first modest changes occurred to co-pays at retail and mail order in 10 years.

McGinnis said Congress didn’t interfere most likely because the Oct. 1 co-pay changes included removing a $3 charge on generic drugs at mail order. Military associations had lobbied for that for several years, McGinnis said, so their protests were muted on raising co-pays at retail from $3 to $5 for generic drugs, and from $9 to $12 for brand name drugs.

Unless Congress intervenes this year, however, co-pay increases for brand name drugs at retail will not be modest this October. Retirees, their families and active duty family members would begin paying $26 per drug for brand names at their local pharmacies, up from $12. The co-pay thereafter would climb by $2 more each year until reaching $34 in October 2016. After that, co-pays would be adjusted yearly based on overall medical inflation.

Co-pays for brand name drugs at mail order also would jump to $26 from $9, for a 90-day supply, and then climb slowly to $34 by October 2016.

The intent, said McGinnis, is "to gradually increase these co-pays to a more realistic level" after a decade of no change before last year’s increases. Through the war years, drug expenditures rose dramatically at retail outlets, the most costly venue for TRICARE. In 2002, prescriptions filled at retail cost $1.28 billion, less than half of annual drug expenditures of $3 billion. By 2009, retail drug costs for TRICARE had almost quadrupled, to $4.76 billion, equally to two thirds of total annual pharmacy cost of $7.24 billion.

The cost to TRICARE for brand name medications filled at retail is 27 percent higher, on average, than the same prescriptions filled on base or through mail order. The average cost to TRICARE for ayear’s worth of a brand name medication at retail is $1156 versus $840 through mail order. If generic drugs are substituted, the average falls to $200 a year, whether the drug is dispensed at retail, through mail order or base pharmacies.

Raising co-pays is effective, McGinnis explained. After the modest co-pay hikes drugs at retail last fall, and after generic drugs became free at mail order, "we saw significant shift to home delivery," said the pharmacy chief.

The switch is most appropriate for patients on maintenance medications such as cholesterol-lowering drugs, blood pressure pills and proton pump inhibitors to prevent gastric reflux. And McGinnis predicts "huge savings" if the department can move beyond modest co-pay increases.

Rep. Joe Wilson (R-S.C.), chairman of the armed services personnel subcommittee, told me he will oppose any plan to raise TRICARE drug co-pays, regardless of projected savings in shifting away from retail outlets.

"My view is persons need these pharmaceuticals and they should be convenient. And what’s convenient is to go to a neighborhood pharmacy," Wilson said. "So I don’t want to discourage that anymore than has been."

"There is also a security issue, which I think is real, with regard to mail order," Wilson added. "People in some areas feel their mail could be intercepted. That’s not everybody, obviously. But they have a legitimate concern that pharmaceuticals by mail could be stolen."

Also opposing these changes for their members who stand to lose a lot business are the National Association of Chain Drug Stores and the National Community Pharmacists Association. In a joint press release, however, their complaints focused on limiting "pharmacy choice" for military beneficiaries and losing the special services only neighborhood pharmacists can provide.

Military association aren’t pleased either. A major disappointment for them is that TRICARE plans to end cost-free generics at mail order by October 2016. A 90-day supply of generic drugs would cost $9, which by then would match the co-pay for a 30-day supply of generic drugs at retail.

"What’s driving that rationale, to have zero co-pay for mail order generic drugs for the next few years and then it jumps to $9? Why $9," asked Joseph Barnes, national executive director of the Fleet Reserve Association. "We’ve been advocating eliminating co-pays as an incentive for using what’s now called home delivery. So this is a fairly drastic change."

Asked about this, TRICARE officials released a statement to explain their intention to reset a co-payment on mail-order generic drugs by 2016. The $9 will still be 66 percent cheaper than at retail because mail order prescriptions are for 90 days, they said, and it still will be "a great deal compared to other government insurance plans." Also, the added revenue "from all co-pay increases is needed to make budget projections."

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