Report | Nov. 20, 2017

Defense Health Agency Controls Over High-Risk Pharmaceutical Payments DODIG-2018-033


We determined whether the Defense Health Agency (DHA) developed controls to identify health care pharmaceutical payments at high risk of fraud or abuse. We focused on controls to prevent and detect potentially fraudulent or abusive claims for pharmaceuticals. The DHA defines “abuse” as any practice that is inconsistent with accepted practice which results in a claim, unnecessary costs, or payment for services or supplies not medically necessary and appropriate, or that fail to meet professionally recognized standards for health care providers. “ Abuse” includes deception or misrepresentation by a provider in relation to a TRICARE claim. We also reviewed the process for approving and implementing new controls.


The DHA is responsible for ensuring the effective implementation of the DoD Pharmacy benefit, taking into consideration beneficiary satisfaction, cost effectiveness, and evidence-based best practices. DHA personnel analyze claims data to identify rising pharmacy costs and develop controls, such as prior authorization requirements or quantity limits, to contain rising costs. Prior authorization controls require the health care provider to validate the need for a specific drug before approval of a prescription claim and quantity limit controls restrict the beneficiary to a maximum amount of a drug unless a health care provider certifies that the beneficiary requires additional quantities.

In May 2015, in response to rapidly increasing costs for compound drugs, the DHA implemented an expedited process to place new prior authorization requirements for drugs used as compound ingredients. Compound drugs result from combining or altering two or more ingredients to create a customized medication. As a result of the new requirements, costs for compound drug claims dropped from $497 million in April 2015 to $10 million in June 2015. In addition, the DHA reported in 2016 it recovered over $106 million in civil settlements and criminal judgments due to compound drug fraud.

The prior authorization requirements for compound ingredients did not apply to individual drugs when not used in a compound. We initiated this audit to determine if DHA had adequate controls to identify individual drugs at high risk of fraud or abuse and prevent potential losses like those that occurred with compound drugs.

This report is a result of Project No. D2016-D000CJ-0166.000.