Through its  acquisition process, DOD contracts with a pharmacy benefit manager— currently Express Scripts—to provide access to a retail pharmacy network  and operate a mail order pharmacy for beneficiaries, and to provide  administrative services. 2.) Acquisition planning. In addition, we have  previously reported that sound acquisition planning includes an  assessment of lessons learned to identify improvements. DOD Used Market Research to Align the Requirements for Its Upcoming Pharmacy Services Contract with Industry Best Practices and Promote Competition

DOD solicited information from industry during its acquisition planning for  the upcoming pharmacy services contract through the required market  research process, including issuing RFIs and a draft RFP for industry  comment, to identify changes to requirements for its pharmacy services  contract. DOD has also used the RFI process to  obtain information on promoting competition. For example, DOD’s December  2011 RFI asked for industry perspectives on the length of the  contract period. DOD officials told us  that the responses they received confirmed that potential offerors  would prefer a longer contract period because it would allow a  non-incumbent more time to recover any capital investment made  as part of implementing the contract. The RFP for the upcoming  contract includes a contract period of 1 base year and 7 option  years. DOD Identified Changes to Requirements for its Upcoming and Current Pharmacy Services Contracts in Response to Legislation, Efforts to Improve Service Delivery, and Contractor Performance

Since the start of the current pharmacy services contract in 2009, DOD  has identified changes to the contract requirements in response to  legislative changes to the pharmacy benefit, efforts to improve service  delivery to beneficiaries, and improvements identified through monitoring  of the current contractor’s performance. A third legislative  change to the pharmacy benefit was the mail-order pilot for  maintenance drugs for TRICARE for Life beneficiaries. DOD  officials incorporated this change in the requirements for the  upcoming pharmacy services contract, as outlined in the RFP. DOD Has Not Conducted an Assessment of Its Pharmacy Services Contract that Includes an Evaluation of the Costs and Benefits of Alternative Structures

Since retail pharmacy services were carved out about 10 years ago, DOD  has not conducted an assessment of the appropriateness of its current  pharmacy services contract structure that includes an evaluation of the  costs and benefits of alternative structures. Alternative structures can  include a carve-in of all pharmacy services into the managed care support  contracts, or a structure that carves in a component of pharmacy  services, such as the mail-order pharmacy, while maintaining a carve-out  structure for other components. DOD officials told us they believe that  DOD’s current pharmacy services contract structure continues to be  appropriate, as it affords more control over pharmacy data and allows for  more detailed data analyses and increased transparency about costs. The managed care support contractors  we spoke with expressed similar concerns. While DOD officials believe the current structure is appropriate, there  have been significant changes in the pharmacy benefit management  market in the past decade. These changes include mergers, as well as  companies offering new services that may change the services and  options available to DOD. We have also reported that a comparative  evaluation of the costs and benefits of alternatives can provide an  evidence-based rationale for why an agency has chosen a particular  alternative (such as a decision to maintain or alter the current pharmacy  services contract structure). Without such an evaluation, DOD  cannot effectively demonstrate to Congress and stakeholders that it has  chosen the most appropriate contract structure, in terms of costs to the  government and services for beneficiaries. Recommendations for Executive Action

To provide decision makers with more complete information on the  continued appropriateness of the current pharmacy services contract  structure, and to ensure the best value and services to the government  and beneficiaries, we recommend that the Secretary of Defense direct the  Assistant Secretary of Defense (Health Affairs) to take the following two  actions:  conduct an evaluation of the potential costs and benefits of alternative  contract structures for the TRICARE pharmacy services contract; and  incorporate such an evaluation into acquisition planning.
Why GAO Did This Study

DOD offers health care coverage--medical and pharmacy services--to eligible beneficiaries through its TRICARE program. DOD contracts with managed care support contractors to provide medical services, and separately with a pharmacy benefit manager to provide pharmacy services that include the TRICARE mail-order pharmacy and access to a retail pharmacy network. This is referred to as a carve-out contract structure. DOD's current pharmacy contract ends in the fall of 2014. DOD has been preparing for its upcoming contract through acquisition planning, which included identifying any needed changes to contract requirements.
Senate Report 112-173, which accompanied a version of the NDAA for fiscal year 2013, mandated that GAO review DOD's health care contracts. For this report, GAO examined: (1) how DOD identified changes needed, if any, to requirements for its upcoming pharmacy services contract; and (2) what, if any, assessment DOD has done of the appropriateness of its current contract structure. GAO reviewed DOD acquisition planning documents and federal regulations, and interviewed officials from DOD and its pharmacy services contractor.

What GAO Found

The Department of Defense (DOD) used various methods to identify needed changes to requirements for its upcoming pharmacy services contract. During acquisition planning for the upcoming TRICARE pharmacy services contract, DOD solicited feedback from industry through its market research process to align the contract requirements with industry best practices and promote competition. For example, DOD issued requests for information (RFI) in which DOD asked questions about specific market trends, such as ensuring that certain categories of drugs are distributed through the most cost-effective mechanism. DOD also issued an RFI to obtain information on promoting competition, asking industry for opinions on the length of the contract period. DOD officials told us that responses indicated that potential offerors would prefer a longer contract period because it would allow a new contractor more time to recover any capital investment made in implementing the contract. The request for proposals for the upcoming contract, issued in June 2013, included a contract period of 1 base year and 7 option years. DOD also identified changes to contract requirements in response to legislative changes to the TRICARE pharmacy benefit. For example, the National Defense Authorization Act (NDAA) for fiscal year 2013 required DOD to implement a mail-order pilot for maintenance drugs for beneficiaries who are also enrolled in Medicare Part B. DOD officials incorporated this change in the requirements for the upcoming pharmacy services contract.
DOD has not conducted an assessment of the appropriateness of its current pharmacy services contract structure that includes an evaluation of the costs and benefits of alternative structures. Alternative structures can include incorporating all pharmacy services into the managed care support contracts--a carve-in structure--or a structure that incorporates certain components of DOD's pharmacy services, such as the mail-order pharmacy, into the managed care support contracts while maintaining a separate contract for other components. DOD officials told GAO they believe that DOD's current carve-out contract structure continues to be appropriate, as it affords more control over pharmacy data that allows for detailed data analyses and cost transparency, meets program goals, and has high beneficiary satisfaction. However, there have been significant changes in the pharmacy benefit management market in the past decade, including mergers and companies offering new services that may change the services and options available to DOD. GAO has previously reported that sound acquisition planning includes an assessment of lessons learned to identify improvements. Additionally, GAO has reported that a comparative evaluation of the costs and benefits of alternatives can provide an evidence-based rationale for why an agency has chosen a particular alternative. Without this type of evaluation, DOD cannot effectively demonstrate that it has chosen the most appropriate contract structure in terms of costs to the government and services for beneficiaries.

What GAO Recommends

GAO recommends that DOD conduct an evaluation of the potential costs and benefits of alternative structures for the TRICARE pharmacy services contract, and incorporate such an evaluation into acquisition planning. DOD concurred with GAO's recommendations.