Higher pharmacy fees remain a possibility by October 2005.

The Office of Management and Budget’s plan, which was sent to the Pentagon Dec. 16 as a "draft Program Budget Decision" for fiscal 2005, would have raised fees on retirees and their families. Co-pays under the TRICARE mail order and TRICARE retail benefit would climb to $20, up from $9, for name-brand drugs, and to $10, up from $3, for generic drugs.

Also, the same $20 or $10 fees would be charged retirees using military pharmacies, breaking a long-tradition that all prescriptions filled on base on free to eligible beneficiaries. The OMB plan would have taken effect Oct. 1, 2004.

"The bigger news is it’s not going to happen," said a senior DoD official Dec. 31. "We won’t do anything in [the] ‘05 [budget]. We may study it and look at whether or not we should do something in ‘O6."

Administration sources first alerted the Air Force Sergeants Association to the OMB plan before Christmas. AFSA sounded an alarm with other associations. OMB documents obtained by AFSA said imposing higher drugs co-pays on retirees, their spouses and survivors "could generate significant revenues," from $728.3 million in fiscal 2005 up to $954.7 million by 2009, a five-year defense budget gain of $4.2 billion.

James D. Staton, AFSA’s executive director, warned President Bush in a Dec. 29 letter that the plan would break faith with "those who sacrificed a good portion of their lives for this nation" and sends "an awful signal" to "those currently serving and considering a military career."

Staton warned Bush too that "military veterans and retirees are beginning to waiver in their support of this administration in light of repeated gestures of indifference and disrespect."

Other associations also reacted vigorously and by New Year’s Eve the OMB plan had been withdrawn, at least as part of the 2005 defense budget, which will be delivered to Congress by late January.

"This was one of those ideas that got a little bit ahead of rational-thinking people and is back in the box," said the DoD official. "We said, `Look, we planned to look at this issue in a very deliberate way. Give us that opportunity.’ And that’s where we’re going to come out on it."

Department officials, "at the highest level," he said, agreed "it was not the right thing to do, nor the right time to do it."

Behind the OMB idea is concern that pharmacy costs "are rising everywhere," including in DoD, and co-payments have proven effective in the civilian healthcare industry for controlling costs. While imposing fees for prescriptions on base is controversial, the Defense official said it will remain among options to be weighed in the year ahead.

"That might be a good idea but I haven’t seen the data that tells me it is," the official said. He added, "[W]e clearly need to help guide people to mail order and generic drugs," less costly alternatives. Higher co-pays, he said, "is one way to guide people to that…It’s not about making money. It’s about implementing best business practices. My personal view at this point is that [Military Treatment Facilities] should remain just as they are. But for the many people who shop in the retail market, we ought to incentivize them to use mail order."

The OMB document said proposed $20 and $10 co-pays for military retirees would match fees at VA hospitals. That’s incorrect, unless OMB also plans to order higher fees for VA prescriptions in fiscal 2005. Currently, VA facilities provide drugs at no charge for service-related conditions and charge $7 on other prescriptions.

James E. Lokovic, director of government relations for AFSA, rejected the administration’s notion of applying business strategies to earned benefits.

"Damn it, these people earned it and the government owes them," he said, referring to free lifetime benefits including for drugs on base. "It’s disgusting that they would even float this notion. This government has a debt to [military retirees] and ought to be budgeting for it….You cannot run military benefit programs like a business."

With the start of the TRICARE Senior Pharmacy Program in April 2001, and the rising popularity of the TRICARE retail benefit, DoD drug costs rose from $855 million in 1996 to more than $3 billion in 2002. They are expected to hit $7.6 billion by 2010.

Defense officials still plan soon to unveil a "uniform formulary," perhaps this April when the new TRICARE support contracts take effect. The plan will broaden the list of drugs stocked at base pharmacies and available by mail, but will adopt a new three-tier co-pay scheme to curb growth in the TRICARE retail benefit. Drugs not included in the expanded uniform formulary still would be available in the retail network but at higher "non-formulary" co-pay of $22 for a 30-day supply. Proponents say that’s still below the more than $30 average charged under commercial plans for non-formulary drugs. But service associations view $22 as too high, even for non-formulary drugs, and will fight it, with congressional action if necessary.