Senate lawmakers are pushing for an independent audit of the Defense Department’s multibillion-dollar TRICARE pharmacy program amid concerns that its longtime contractor, which acts as a pharmacy benefit manager, may also be steering business toward its own pharmacies.
The Senate Armed Services Committee’s version of the fiscal 2027 defense policy bill includes a provision that would require the comptroller general to examine how Express Scripts, the contractor that manages the TRICARE pharmacy program while also operating its own mail-order and specialty pharmacies that participate in the network, reimburses its own pharmacies and their competitors.
As TRICARE’s pharmacy benefit manager, Express Scripts both decides which pharmacies can participate in the Tricare network and negotiates reimbursement rates. The company also operates two mail-order pharmacies — Express Scripts Pharmacy and Accredo Specialty Pharmacy — putting it in direct competition with other pharmacies participating in the TRICARE network.
“That seems to me to be a pretty clear conflict of interest,” Sen. Elizabeth Warren (D-Mass.) said during the Senate Armed Services Committee on Wednesday.
Express Scripts has been administering TRICARE pharmacy benefits since 2003. In 2021, it was awarded an eight-year contract worth up to $4.3 billion.
The Defense Department’s new contract with Express Scripts allowed the contractor to reduce the minimum number of in-network pharmacies from 50,000 to 35,000. Since then, Express Scripts proposed drastically reduced reimbursement rates, and approximately 15,000 independent and community pharmacies — most in underserved rural and urban areas — left the TRICARE network.
“After ESI was awarded the [TRICARE’s 5th Generation Pharmacy Contract], they drastically reduced their reimbursements rates, such that I would have lost almost $9 on every prescription I filled before overhead, before any other expense,” Dr. Micah Lansford, pharmacist and owner of Roden-Smith Pharmacy in Clovis, New Mexico, told the committee.
“No contractor should be allowed to referee a game while also competing in it. Military families experience the consequences while the contractor reports that the system is working just fine,” he added.
Warren said during the hearing that while the Defense Department has repeatedly refused to provide Congress with the terms of its contract with Express Scripts, arguing that the information is proprietary, she obtained a copy of the contract that pharmacies were required to sign in 2022 in order to remain in the TRICARE network and continue receiving reimbursement for prescriptions.
One provision of the contract states that Express Scripts maintains the right to “aggregate reimbursement reconciliation and offset methodology,” meaning the contractor could adjust what they pay pharmacies after a claim has been processed.
“In about 20 years of practicing law, that might be the biggest smoking gun document I’ve seen in a hearing. Because what that means is they get to do post-adjudication offsets. So what they reimburse a pharmacy at the point of sale, they get to move it around,” Greg Reybold, vice president of the American Pharmacy Cooperative, said during the hearing.
“When you take that provision, which gives them the right to move money around after the fact across plans, we are essentially talking about a complex shell game,” he added.
Warren noted that inspector general audits have previously identified issues involving spread pricing practices in other federal health programs administered by Express Scripts. Spread pricing occurs when a pharmacy benefit manager charges payers more for a prescription than it pays the pharmacy to fill it, keeping the difference. In 2024, the Office of Personnel Management inspector general found that Express Scripts overcharged the American Postal Workers Union Health Plan and the federal government by roughly $45 million.
“In other words, they have already been caught with their hand in the cookie jar on this,” Warren said.
Adam Kautzner, president of Express Scripts and Evernorth Care Management, said the contractor “does not engage in spread pricing.”
“DoD and Express Scripts say there is no spread pricing in the TRICARE contract, but the same language that Express Scripts used to milk other government plans out of millions of dollars is also present in TRICARE. We may well find that Express Scripts is playing the same games in TRICARE or not, but we can’t tell without an independent audit,” Warren said.
Assistant Secretary of Defense for Health Affairs Keith Bass promised the committee to conduct an annual review of the contract and to disclose the differences in reimbursement rates and fees between the retail pharmacies and Express Scripts’ affiliated pharmacies, but Congress has yet to receive that information.
DoD, however, requires the contractor administering the TRICARE pharmacy benefit to also operate its own pharmacy services.
“I don’t know who talked them into that, but it is an open invitation for Express Scripts to milk the federal government, to kick out the competition and to steer a lot of money its own way,” Warren said.
DoD has already begun planning for the next-generation TRICARE pharmacy contract. Warren urged DoD to “flatly prohibit vertical integration” in the next contract.
“A vertically integrated PBM has every incentive to line its own pockets, and DoD should not be using taxpayer dollars to fund these schemes. If DoD wants to use a PBM, then get one that works exclusively for DoD and American taxpayers, and not one that is simultaneously trying to increase profits for its parent insurance company,” Warren said.
Defense officials pushed back, arguing that the Tricare pharmacy program operates differently from commercial PBM models since the Defense Department controls pricing while Express Scripts provides administrative services under the contract.
“We are essentially the PBM,” David Smith, acting director of the Defense Health Agency, told the committee.
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