DoD's $1.73B TRICARE contract to Express Scripts Inc. for pharmacy services shows significant cost overruns

Contract Overview

Contract Amount: $639,725,069 ($639.7M)

Contractor: Express Scripts Inc

Awarding Agency: Department of Defense

Start Date: 2002-09-09

End Date: 2009-11-03

Contract Duration: 2,612 days

Daily Burn Rate: $244.9K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 3

Pricing Type: FIXED PRICE REDETERMINATION

Sector: Healthcare

Official Description: 200212!020707!9700!ZD06 !TRICARE SUPPORT OFFICE !MDA90602C0013 !A!N! !Y! !20020909!20070909!173490459!173490459!173490459!N!EXPRESS SCRIPTS, INC !14000 RIVERPORT DR !MARYLAND HEIGH !MO!63043!73000!013!04!TEMPE !MARICOPA !ARIZONA !+000001620000!N!N!000000000000!Q201!GENERAL HEALTH CARE SERVICES !S1 !SERVICES !1000!NOT DISCERNABLE OR CLASSIFIED !446110!E! !3!A!S! ! !D!20070808!B! ! !B! !A!N!A!2!003!B! !Z!N!Z! ! !N!C!N! ! ! !A!A!A!A!000!A!C!N! ! ! !Y! ! !0001!

Place of Performance

Location: TEMPE, MARICOPA County, ARIZONA, 85281

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $639.7 million to EXPRESS SCRIPTS INC for work described as: 200212!020707!9700!ZD06 !TRICARE SUPPORT OFFICE !MDA90602C0013 !A!N! !Y! !20020909!20070909!173490459!173490459!173490459!N!EXPRESS SCRIPTS, INC !14000 RIVERPORT DR !MARYLAND HEIGH !MO!63043!73000!013!04!TEMPE !MARIC… Key points: 1. The contract's total value significantly exceeded initial estimates, indicating potential issues with cost forecasting or scope creep. 2. Express Scripts Inc. has a substantial presence in the federal healthcare market, suggesting established relationships and potential for future awards. 3. The contract's duration and value present a notable financial commitment for the Department of Defense. 4. Performance context is limited, but the contract's scale implies a critical role in military healthcare. 5. This contract falls within the broader healthcare sector, specifically focusing on pharmaceutical services for beneficiaries.

Value Assessment

Rating: questionable

The final award value of $1.73 billion is substantially higher than the initial estimated value of $73,000, representing a massive increase. While the contract type is fixed-price with redetermination, the magnitude of the increase raises concerns about initial pricing accuracy and potential cost escalation. Benchmarking against similar large-scale pharmacy benefit management contracts is difficult without more granular data on services provided and market conditions at the time of award.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders were likely considered. The presence of three bidders suggests a competitive environment, which should theoretically lead to better pricing. However, the significant cost growth over the contract's life may suggest that initial competitive pressures did not fully account for long-term service costs or that the winning bid was not as cost-effective as initially anticipated.

Taxpayer Impact: Taxpayers benefit from competition, which aims to secure the best value. However, the substantial cost growth in this contract suggests that the initial competitive process may not have fully captured the long-term financial implications, potentially leading to higher overall expenditure than planned.

Public Impact

Beneficiaries of the TRICARE program, including active duty military personnel, retirees, and their families, directly benefit from the pharmacy services provided. The contract delivers essential pharmaceutical services, ensuring access to prescription medications for a large population. The geographic impact is nationwide, covering all TRICARE beneficiaries. Workforce implications include the employment of pharmacists, technicians, and administrative staff by Express Scripts Inc. and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Significant cost growth from initial estimates to final award value.
Long contract duration (over 7 years) increases exposure to potential cost escalations.
Fixed-price redetermination contract type can lead to cost uncertainty if not managed closely.

Positive Signals

Awarded under full and open competition, suggesting a robust bidding process.
Contract addresses a critical healthcare need for military beneficiaries.
Express Scripts Inc. is a major player in pharmacy benefit management, implying experience.

Sector Analysis

This contract falls within the healthcare sector, specifically the sub-sector of pharmaceutical benefit management (PBM). The PBM market is characterized by large, established players managing prescription drug benefits for major payers, including government programs. The scale of this contract, exceeding $1.7 billion, is indicative of the significant spending within this sector to provide essential healthcare services to a large beneficiary population.

Small Business Impact

The contract data indicates that small business participation was not a primary set-aside component, as the award was made to a large corporation, Express Scripts Inc. There is no explicit information regarding subcontracting plans for small businesses within this specific award. The impact on the small business ecosystem is likely minimal unless Express Scripts Inc. actively engages small pharmacies or service providers as subcontractors.

Oversight & Accountability

Oversight for this contract would typically fall under the TRICARE Management Activity and the Department of Defense's contracting oversight bodies. Accountability measures would include performance reviews, audits, and adherence to contract terms. Transparency is generally facilitated through contract databases like FPDS, though detailed performance metrics and cost breakdowns may not always be publicly available. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

TRICARE Pharmacy Program
Department of Defense Healthcare Contracts
Pharmacy Benefit Management Services
Federal Healthcare Spending

Risk Flags

Significant Cost Growth
Potential Underestimation of Scope
Long Contract Duration Risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $639.7 million to EXPRESS SCRIPTS INC. 200212!020707!9700!ZD06 !TRICARE SUPPORT OFFICE !MDA90602C0013 !A!N! !Y! !20020909!20070909!173490459!173490459!173490459!N!EXPRESS SCRIPTS, INC !14000 RIVERPORT DR !MARYLAND HEIGH !MO!63043!73000!013!04!TEMPE !MARICOPA !ARIZONA !+000001620000!N!N!000000000000!Q201!GENERAL HEALTH CARE SERVICES !S1 !SERVICES !1000!NOT DISCERNABLE OR CLASSIFIED !446110!E! !3!A!S! ! !D!20070808!B

Who is the contractor on this award?

The obligated recipient is EXPRESS SCRIPTS INC.

Which agency awarded this contract?

Awarding agency: Department of Defense (Tricare Management Activity).

What is the total obligated amount?

The obligated amount is $639.7 million.

What is the period of performance?

Start: 2002-09-09. End: 2009-11-03.

What were the primary drivers for the significant cost increase from the initial estimated value to the final award value of this contract?

The provided data indicates an initial estimated value of $73,000 and a final award value of $1.73 billion. This massive discrepancy suggests potential issues with the initial cost estimation process, possibly underestimating the scope of services required or the market rates for pharmacy benefit management. Alternatively, the contract's fixed-price redetermination structure allowed for adjustments based on actual costs incurred, which may have escalated significantly due to factors like increased prescription volumes, changes in drug pricing, or unforeseen operational complexities. Without more detailed contract documentation, it is difficult to pinpoint the exact drivers, but it points to a substantial gap between initial projections and final expenditure.

How does the per-unit cost of services under this contract compare to industry benchmarks for pharmacy benefit management?

Determining a precise per-unit cost for this contract is challenging due to its broad scope encompassing pharmacy services for a large beneficiary population over several years. The contract value of $1.73 billion covers a wide array of services, including prescription fulfillment, formulary management, and potentially mail-order pharmacy operations. To establish a meaningful per-unit benchmark, one would need to analyze specific metrics such as cost per prescription filled, cost per member per month, or administrative fees as a percentage of drug spend. Given the scale and nature of TRICARE, it is likely that the government negotiates rates that aim for efficiency, but direct comparison to commercial PBM benchmarks requires detailed cost breakdowns not available in the summary data.

What is the track record of Express Scripts Inc. in managing large federal healthcare contracts, particularly those involving pharmacy services?

Express Scripts Inc. is a major player in the pharmacy benefit management industry and has a significant history of managing large-scale contracts, including those with federal agencies. While this specific TRICARE contract shows substantial cost growth, it also represents a long-term engagement (2002-2009) that delivered essential services. The company's extensive experience in managing complex formularies, negotiating drug prices, and operating large pharmacy networks suggests a strong capability. However, the cost escalation in this particular contract warrants scrutiny and suggests that even experienced contractors can face challenges in controlling costs over extended periods, especially in dynamic healthcare markets.

What were the key performance indicators (KPIs) for this contract, and how did Express Scripts Inc. perform against them?

The provided data does not include specific Key Performance Indicators (KPIs) or performance evaluation details for this contract. Typically, large federal contracts for healthcare services would include metrics related to prescription fulfillment rates, drug cost savings, beneficiary satisfaction, formulary compliance, and operational efficiency. The significant cost overrun suggests that either the initial KPIs were not sufficiently robust to control costs, or performance against them was not adequately monitored or enforced. A thorough review of contract performance reports and any associated award or incentive fees would be necessary to assess Express Scripts Inc.'s performance comprehensively.

How has federal spending on pharmacy benefit management services evolved since this contract was awarded, and what lessons can be learned?

Federal spending on pharmacy benefit management has continued to grow, driven by factors such as an aging population, increasing drug costs, and expanding healthcare coverage. Since this contract (2002-2009), there has been a greater emphasis on value-based contracting, transparency in pricing, and managing specialty drug costs. Lessons learned from contracts like this include the critical importance of accurate initial cost estimations, robust contract oversight to manage scope creep and cost escalations, and the need for flexible contract structures that can adapt to changing market dynamics while protecting taxpayer interests. Increased scrutiny on PBMs' pricing practices and rebates has also become more prominent.

What is the potential impact of this contract's cost growth on future TRICARE pharmacy procurements?

The substantial cost growth observed in this TRICARE pharmacy contract could influence future procurements by leading to more rigorous cost estimation processes, stricter performance monitoring, and potentially different contract structures. Agencies may seek greater transparency in pricing, demand more detailed justifications for cost increases, and place a higher emphasis on fixed-price elements or performance-based incentives designed to mitigate financial risk to the government. Lessons learned from such significant overruns often inform the development of new solicitations and evaluation criteria to ensure better value and cost predictability for taxpayer-funded programs.

Industry Classification

NAICS: Retail Trade › Health and Personal Care Stores › Pharmacies and Drug Stores

Product/Service Code: MEDICAL SERVICES › GENERAL HEALTH CARE SERVICES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 3

Pricing Type: FIXED PRICE REDETERMINATION (A)

Evaluated Preference: NONE

Contractor Details

Address: 14000 RIVERPORT DR, MARYLAND HEIGH, MO

Business Categories: Category Business, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Contract Characteristics

Cost or Pricing Data: NO

Timeline