Pharmacy Use and Costs in Employer-provided Health Plans: Insights for TRICARE Benefit Design from the Private Sector

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The military health system (MHS) has approximately 8.6 million eligible beneficiaries, including active-duty military personnel and their family members, retired military personnel and their family members, and surviving family members of deceased military personnel. In 2002, the Department of Defense (DoD) spent about $3 billion on outpatient pharmacy benefits. Like the private health care sector, the MHS has experienced a rapid growth in pharmaceutical expenditures. At the request of DoD, the RAND Corporation has undertaken two studies designed to help DoD shape their pharmacy benefit policy to control costs. The U.S. Congress has identified the TRICARE pharmacy benefit as an area for reform. Section 701 of the National Defense Authorization Act for Fiscal Year 2000 requires the Secretary of Defense to establish an effective, efficient, and integrated pharmacy benefits program. As part of a program redesign effort, which will result in the establishment of a Uniform Formulary (UF), the DoD is considering moving from a two-tiered copayment system to a three-tiered copayment system, which will increase the copayment for some classes and brands of medications. It is hoped that this move will give providers (acting in the interest of their patients) an incentive to prescribe lower-tier, less-costly options. To assist the DoD in assessing the potential implications of this policy change, RAND used an existing data resource to examine how beneficiaries with private drug coverage responded to similar changes in pharmacy benefits. The findings from this analysis, presented in this report, can inform the DoD of the potential costs and benefits of adopting the proposed Uniform Formulary.

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