National Mail Order Pharmacy, DoD

The National Mail Order Pharmacy saves money and time for military service members and their dependents, frees up Defense Department funds to improve other health programs and serves as a model for further innovation by the Defense Supply Center Philadelphia. DSCP is branching out of the wholesale supply business into direct customer relationships. The model for the expansion is a program that delivers prescription drugs by mail to military service members, retirees and their dependents. Traditionally, DSCP delivered bulk orders of food, clothing, medical and general and industrial supplies to distribution points operated all over the world by the military services.

Today it is running a mail order pharmacy for 7.2 million active-duty service members and their families, retirees under age 65 and those over 65 affected by base closures, and retirees' dependents. The program appears to be a slam dunk, giving DSCP an opportunity to serve a whole new class of customers while reducing beneficiaries' co-payments by $23 million on 1.3 million prescriptions in fiscal 1999 and saving the DoD an estimated $55 million.

Before the mail order program, those eligible for DoD drug benefits faced the choice of long drives to military pharmacies or trips to retail drug stores, where they paid co-payments of 15 percent to 25 percent of the commercial cost of pharmaceuticals. When they use the mail order pharmacy, active duty service members pay no co-payments. Their dependents pay a fixed $4 payment and retirees and their dependents pay $8 per prescription. What's more, beneficiaries can get up to a 90-day supply of drugs as opposed to the 30-day limit imposed by retail pharmacies. Medicines are delivered to beneficiaries' homes, making it easier for those who are homebound to comply with their physicians' orders-which improves their health and reduces costly doctor visits. Doctors can submit prescriptions by fax or mail and their patients can request refills by phone or over the Internet.

The program began in the early 1990s, when commercial drug suppliers had just begun offering mail-order systems and were pressing Congress for a shot at the government's business. Legislators ordered DoD to conduct two three-state regional pilots, and DSCP jumped at the chance to negotiate the deals, which took effect in 1993. The program was expanded in 1995 to cover more than a dozen sites that had lost medical facilities and pharmacies to base closure and realignment. The national contract began in October 1997. The mail order pharmacy is operated entirely by a private company, Merck-Medco Managed Care, which uses the Defense Department Enrollment and Eligibility Reporting System (DEERS) to verify the eligibility of every beneficiary submitting a prescription. The firm also makes sure participants are receiving the correct drugs in the right amounts, monitors drug interactions, verifies prescriptions, dispenses and mails the drugs, and operates a customer service center that provides access to pharmacists around the clock. DSCP developed an automated system to ensure that Merck-Medco complies with all contract requirements. "DoD laid on us an unprecedented requirement: Audit and verify every beneficiary and prescription under the program with 100 percent assurance we are getting the best price, beneficiaries are eligible, the clinical practices are appropriate and there is no possibility of drug diversion," says Stephen McManus, DSCP's deputy director for medical material. "The tool we developed . . . set the standard for audits of mail order suppliers."

By law, the government must get the lowest available price for drugs, and that's what Merck-Medco pays its supplier, Cardinal Healthcare. DSCP monitors drug prices continuously and sends Merck-Medco an automated pricing file each month to ensure DoD is getting the best possible prices. DSCP Deputy Director George Allen says he recently checked drug prices at a Philadelphia hospital. "We beat their prices by 30 percent to 75 percent across the board."

Beyond the savings it achieves and the improved services it provides, the pharmacy program exemplifies DSCP's innovative spirit and business orientation. DSCP attributes the pharmacy and other leading-edge acquisitions to a culture that encourages prudent risk-taking and cutting-edge contracting. DSCP staffers have become expert buyers of the commodities they supply, and they view their role as providing complete logistics solutions to customer agencies. "No longer cogs in a Rube Goldberg machine, they are now the linchpins of an enterprise that is constantly reinventing itself, delivering better products and services at lower cost to customers whose needs are ever increasing," according to DSCP's application for the Business Solutions in the Public Interest award. Today's smaller military services want to concentrate their manpower in warfighting positions instead of supply depots. In support of that goal, DSCP is becoming a supply chain manager, buying the services of suppliers who will distribute and stock goods as they are needed instead of buying supplies that military organizations must store and maintain. DSCP sold more than $4.8 billion in supplies worldwide in 1999, while reducing the amount of inventory it held by 19 percent over 1998. DSCP acquisition staffers work closely with experts in other disciplines, such as technical oversight and quality assurance, to ensure DSCP solutions fit users' needs. The center also works directly with users, involving them in all aspects of the acquisition process. For example, pharmacy users were involved in evaluating contractor proposals for the mail order drug program.

"Our core competency is brokering relationships," says Allen. "We've become adept at understanding the business interests and capabilities of all stakeholders." For the pharmacy program, DSCP took account of the needs of beneficiaries, military and retail pharmacies, vendors and DoD's Health Affairs office, DSCP's direct customer for the program. DSCP designed the program to allow Health Affairs to collect previously unavailable data about each prescription. DSCP also can report pharmacy expenditures by military service. Savings generated by the program will help Health Affairs extend pharmacy benefits to all retirees.

The funds generated by the mail order program will enable DoD to create a retail pharmacy network. DSCP will leverage DoD's $500 million in annual retail drug purchases to negotiate substantially lower prices than those the department is now paying under 12 regional drug contracts. Beneficiaries will be able to have prescriptions filled by any network pharmacy.

The mail order drug program has expanded DSCP's mission from delivering bulk quantities of goods to distribution points for some 20,000 organizations to directly serving individual customers. Instead of handling a piece of logistics for a narrowly defined customer base, DSCP, through the mail order pharmacy, negotiated a complete logistics solution for a heterogeneous, geographically dispersed set of customers with widely differing needs. Moreover, this customer base is likely to expand further. "Even as the services are getting smaller, the population of beneficiaries is not shrinking," says McManus. Indeed, pending legislation is likely to enable Medicare-eligible military retirees-those over age 65-to receive DoD prescription benefits.

As the military services have grown smaller, the need for many DSCP-provided commodities has diminished. The center's staff has been reduced from 7,000 in 1993 to 2,900 today. So the mail order pharmacy, with its 7.2 million beneficiaries and more on the way, has been a welcome addition to DSCP's lines of business. Mail order pharmacy program sales were $84 million in 1999 and are expected to reach $120 million this year. Overall pharmaceutical sales topped $1 billion in 1999 and were a key contributor to growth in DSCP's medical commodity area, which grew 24 percent last year to $1.5 billion in sales, the largest total of the center's four supply categories.

The mail order pharmacy also has sparked innovative thinking across DSCP. "The National Mail Order Pharmacy broke down a perceived barrier," McManus says, "Before it, we did no direct-to-consumer sales. Since then, it hasn't been an issue." DSCP has used the mail order pharmacy model to generate new products, such as home delivery of other health care products and military clothing ordered directly by service members, who can charge the purchases to their personal credit cards. The center is working on a similar approach to providing hardware products for military installations. "The next step is, not only will we sell you the paint, you can order the painter," says Paul Zebrowski, who directs DSCP's procurement directorate.