Key Issues > Duplication & Cost Savings > GAO's Action Tracker > VA-DOD Drug Joint Contracting
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Health: VA-DOD Drug Joint Contracting

The Department of Veterans Affairs and Department of Defense need to control drug costs and increase joint contracting wherever it is cost-effective.

Action:

The Department of Veterans Affairs (VA) and the Department of Defense (DOD) should analyze whether greater cost savings could be achieved through joint contracting for brand name drugs than are currently achieved through their independent strategies, and determine whether it would be cost-effective to take steps to resume joint contracting for brand name drugs.

Progress:

VA and DOD have conducted an analysis of their joint contracting strategies, as GAO suggested in March 2011.Both VA and DOD have reported that differences in the designs of VA’s and DOD’s pharmacy benefits programs make cost-effective opportunities for brand-name drug joint contracts less common than they were prior to DOD’s fiscal year 2005 implementation of its uniform formulary process.1 As a result of these differences, VA reported in November 2013 that the departments have not entered into any joint contracts for brand-name drugs since November 2011. According to DOD, the VA/DOD Joint Executive Council, which is responsible for coordinating pharmacy activities across VA and DOD, continues to review both new and existing drugs for opportunities for cost-effective joint contracting. The council contracted with a firm to conduct an evaluation of each agency’s formulary process, including exploring barriers to joint contracting and assessing whether there are opportunities to improve the cost and quality of one or both systems by adopting identified best practices. This evaluation was completed in February 2013, but both VA and DOD identified problems with the analysis, and DOD indicated that the analysis did not determine whether there were additional opportunities for joint contracting of brand-name drugs. In June 2013, VA and DOD reported on the results of their own formulary analysis, which supported their ongoing efforts to evaluate joint contracts on a case-by-case basis, but neither agency indicated that its own analysis identified additional joint contracting opportunities for brand-name drugs. Consistent with the analysis and VA’s and DOD’s decision to evaluate joint contracting opportunities on a case-by-case basis, VA reported in November 2013 that it was developing requirements for a brand-name national contract in which DOD would be invited to participate. VA and DOD report that they will continue to pursue joint contracts whenever possible and economically feasible. Doing so could allow them to purchase drugs more cost-effectively. However, while the departments expect numerous joint contracts for generic drugs, there will likely continue to be significantly fewer joint contracts for brand-name drugs than prior to DOD’s implementation of its uniform formulary process.

[1] Formularies are lists of medications that health care organizations encourage or require providers to prescribe for patients. VA and DOD each have had centralized formularies since 1997, but DOD implemented its current uniform formulary in fiscal year 2005. DOD was required by the National Defense Authorization Act for Fiscal Year 2000 to establish a uniform formulary. Pub. L. No. 106-65, § 701, 113 Stat. 512, 677-80 (1999).

Implementing Entity:

Department of Defense, Department of Veterans Affairs

Action:

The Department of Defense (DOD) should identify, implement, and monitor efforts to control retail pharmacy spending, an area for which drug spending is increasing and cannot be controlled through joint contracting efforts.

Progress:

DOD reported that a number of initiatives to control retail pharmacy costs had been identified and implemented, and that it continues to monitor its cost control efforts.

  • As a result of applying federal pricing arrangements – which generally result in prices lower than retail prices – to drugs dispensed at retail pharmacies, DOD reported that as of July 31, 2011, DOD had received $2.7 billion in manufacturer refunds for fiscal years 2009, 2010, and 2011.
  • DOD reported that its uniform formulary process has ensured use of the most clinically- and cost-effective agents at all three points of pharmacy service through the use of formulary management tools such as step therapy.1 For example, DOD reported that step therapy for cholesterol lowering agents implemented in May 2010 enabled DOD to save approximately $82.8 million in the first year after implementation. The 3-year cost avoidance projection for this class of drugs is $141.6 million.
  • Also, in January 2010, DOD implemented an in-depth communications plan to promote the use of a less costly pharmacy option. DOD officials told GAO that this effort has resulted in higher use of the less expensive TRICARE Mail Order Pharmacy venue and savings to the government, which they estimate to be over $30 million in 2010. Additionally, DOD reports that an adjustment to prescription drug copayments, effective October 1, 2011, will further encourage the use of the TRICARE Mail Order Pharmacy and should result in additional savings.

1 Formularies are lists of medications that health care organizations encourage or require providers to prescribe for patients. DOD was required by the National Defense Authorization Act for Fiscal Year 2000 to establish a uniform formulary, which it implemented in 2005. Pub. L. No. 106-65, § 701, 113 Stat. 512, 677-80 (1999).

Implementing Entity:

Department of Defense

Action:

The Department of Veterans Affairs (VA) and the Department of Defense (DOD) should continue their efforts to jointly contract for generic drugs, and look for opportunities to increase joint contracting efforts as generic versions of existing brand name drugs become available.

Progress:

VA continues to collaborate with DOD to identify opportunities for joint contracting for generic drugs through the Federal Pharmacy Executive Steering Committee. Additionally, DOD noted in January 2012 that joint contracts had been awarded for several generic drugs that had previously been “blockbuster” brand name drugs, and additional joint contract negotiations were under way.

Implementing Entity:

Department of Defense, Department of Veterans Affairs