An aggressive marketing campaign by some compound drug manufacturers has taken its toll on the Defense Department's health budget, prompting Pentagon officials to ask Congress for permission to shift $900 million within its budget to cover costs.
At the end of 2014 and in the first four months of this year, some compounded pharmacies — companies that make individualized medications for patients — directly targeted Tricare beneficiaries to sell them prescriptions such as pain creams, wound ointments and erectile dysfunction medications.
They did so in advance of a Tricare policy change May 1 that called for screening all ingredients in the prescriptions and rejecting any that contained non-FDA approved ingredients.
In the first four months of 2015, the Defense Health Agency spent nearly $1 billion on compounded prescriptions. In 2004, it paid about $5 million for these medicines for the entire year.
Defense health officials on July 16 wrote the House and Senate Armed Services and Appropriations committees to inform them of a projected $2 billion budget shortfall for the year.
The officials, including Assistant Secretary of Defense for Health Affairs Dr. Jonathan Woodson and Air Force Lt. Gen. Douglas Robb, director of the Defense Health Agency, say the Defense Department has offset most of the costs but still needs to move nearly $900 million.
"Without your support, we run the real risk of exhausting funds needed to pay private-sector care [Tricare] costs in late July 2015, which could also have negative spillover effects in the direct system [military hospitals and clinics]," they wrote.
Jon Rychalski, deputy assistant secretary of defense for health resources, management and policy, said that about 75 percent of the reprogramming request is related to high pharmacy costs, mainly compounded prescriptions, with the rest due to medical inflation.
Rychalski added that despite the reallocation request, beneficiaries should not worry that their health services will be interrupted as the end of the fiscal year approaches Sept. 30.
"We would move existing funds around within our Tricare program to cover costs for as long as possible," he said. "Thankfully, members of Congress have been very supportive of our reprogramming requests, and we anticipate those will be approved before we reach a cash flow crisis."
Members of the House and Senate Appropriations committees moved swiftly to approve the reallocation request. The House committee's defense panel approved the movement of $866 million July 31 for the health budget while the Senate Appropriations Committee agreed Aug. 4.
According to Rep. Rodney Frelinghuysen, R-N.J., chairman of the House Appropriations Committee's defense panel, his committee was informed earlier in the year of the likelihood of shortfalls.
"In total, the House Appropriations Committee has approved the transfer of just under $1.4 billion this year to make sure our military families get the medical treatment they need and have earned," Frelinghuysen wrote in an email to Military Times. "I commend the Department of Defense for implementing policies to ensure similar shortfalls do not occur in the future."
In addition to the new screening measures for assessing compounded medications, DoD, along with the FBI and the Justice Department have pursued compounded pharmacies suspected of unscrupulous marketing and billing.
U.S. Attorney A. Lee Bentley announced July 15 that the Justice Department had settled allegations of improper prescriptions with Blanding Health Mart Pharmacy of Jacksonville, Florida, which paid $8.4 million to resolve the charges.
Blanding had been accused of seeking reimbursement for compounded prescriptions "that were not medically necessary and were written by physicians that had never seen the patients," according to the Justice Department.
The claims resolved by the settlement were for allegations; no determination of liability was made.
"This settlement highlights another step forward by the Defense Criminal Investigative Service and its law enforcement partners to protect the integrity of the Department of Defense health care program," said Special Agent in Charge John Khin. "Fraud and abuse by pharmacies and medical providers which bill for compounded pain prescriptions is a significant threat to the DoD health care system."
The Justice Department said the government has recovered more than $15.3 billion since 2009 under the False Claims Act in cases of fraud against federal health care programs, including DoD, the Veterans Affairs Department and Medicare.
Patricia Kime is a senior writer covering military and veterans health care, medicine and personnel issues.