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Statement of Need: This rule implements congressionally directed changes to adopt state-of-the art pharmacy benefit management practices to encourage greater use of the TRICARE Mail Order Pharmacy Program (TMOP), generic drugs, formulary drugs, and over-the-counter drugs.

Summary of the Legal Basis: This rule implements several changes enacted by the John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. 109-364, and accompanying recommendations of the Conference Committee, set forth in H. Conf. Rept. 109-702. Legal authority includes 10 U.S.C. § 1074g.

Alternatives: The Department is initiating the changes consistent with Congressional direction and the recommendations from the Task Force on the Future of Military Health Care. Current statutory restrictions, including a cap on retail pharmacy co-payments, limit available alternatives.

Anticipated Costs and Benefits: The rule is part of an overall strategy to encourage the use of value-based pharmaceutical agents and cost-effective dispensing venues. Allowing beneficiaries to receive non-formulary pharmaceutical agents through only the TMOP allows the Department to reinforce the encouragement to use more cost-effective pharmaceutical agents. The overall effect of the rule is expected to be a degree of moderation in the rapid growth of the TRICARE Pharmacy Benefits Program.

Risks: The primary risk this rule seeks to address is what the GAO recently called “the fiscal sustainability of” DoD’s pharmacy benefits program. Pharmacy benefits, particularly retail pharmacy benefits, represent the segment of the TRICARE program that has experienced the most uncontrolled increase in costs. The GAO said retail pharmacy costs from FY-2000 to FY-2006 rose “almost ninefold from $455 million to $3.9 billion.” The rule will address this problem, to an extent, by encouraging greater use of more cost-effective drugs, particularly formulary drugs, generic drugs, and, when appropriate, over-the-counter drugs.