Report | July 1, 2016

Controls Over Compound Drugs at the Defense Health Agency Reduced Costs Substantially, but Improvements Are Needed



Our objective was to determine whether the Defense Health Agency (DHA) implemented adequate controls over payments for compound drugs.Compound drugs are pharmaceutical products that result from combining, mixing, or altering two or more ingredients to create a customized medication for an individual patient.


After costs for compound drugs rapidly increased, DHA personnel implemented controls in May 2015 to screen compound ingredients, which reduced costs from approximately $497 million in April 2015, to $10 million in June 2015.

However, we determined that DoD’s pharmacy benefit manager (PBM) (Express Scripts, Inc.) incorrectly paid 40 of 47 compound drug claims1 we reviewed which had non-covered ingredients, even after the new controls were implemented. This occurred because PBM personnel did not follow their standard operating procedures, and their claims adjudication system inappropriately allowed claims with prior authorizations and claims where beneficiaries had both Medicare and TRICARE coverage to bypass screening against a list of non-covered ingredients.

  • For 4 of the 40 compound drug claims, PBM personnel did not follow their recently implemented standard operating procedures for not issuing a prior authorization for compound refills requested early.
  • For 2 of the 40 compound drug claims, the PBM’s claims adjudication system did not recognize whether the prior authorization was for a compound drug prescription or single ingredient.
  • For 1 of the 40 compound drug claims, the PBM’s claims adjudication system did not differentiate between a prior authorization for one compound drug prescription versus another.
  • For 33 of the 40 compound drug claims, the PBM’s claims adjudication system allowed compound drug claims covered by Medicare to automatically bypass the controls for checking ingredients against the exclusion list when a pharmacist entered the override code to accept payment for covered ingredients only.

As a result, DHA, through the PBM, made at least $99,468.80 in potential improper payments for 40 of 47 compound drug claims, valued at $146,061.43, with excluded ingredients. See Appendix B for a summary of potential monetary benefits.


We recommend the Director, DHA:

  • Require the PBM to ensure its personnel are properly trained in the standard operating procedures for compound drug claims requested to be filled before the approved refill date.
  • Verify that controls are effective to ensure that prior authorizations issued for single ingredients do not automatically authorize other compounds with those ingredients.
  • Require the PBM to perform a clinical prior authorization review for all new compound drug prescriptions submitted with excluded ingredients.
  • Require the PBM to ensure that they screen all compound Medicare claims through the controls for excluded ingredients.
  • Review and pursue appropriate action on the claims in our sample where we identified potential improper payments.
  • Review all paid compound drug claims with prior authorizations, and paid claims with Medicare coverage, and initiate action to collect improper payments if necessary.

Management Comments and Our Response

The Director, DHA, agreed with all six recommendations. However, the comments from the Director partially addressed or did not address two of the recommendations, and the Director did not respond to potential monetary benefits. Therefore, we request the Director DHA, provide additional comments to this report by August 1, 2016.

1 We nonstatistically selected 47 compound drug claims, valued at $146,061.43, out of 61,543 compound drug claims, valued at $16.6 million, with excluded ingredients.  

This report is a result of Project No. D2015-D000CJ-0219.000.