DOD and VA Pharmacy:

Progress and Remaining Challenges in Jointly Buying and Mailing Out Drugs

GAO-01-588: Published: May 25, 2001. Publicly Released: May 25, 2001.

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The Department of Veterans Affairs (VA) and the Department of Defense (DOD) have made important progress, particularly during the past year, in their efforts to jointly procure drugs to help control spiraling prescription drug costs. Although their collaborative efforts have been impressive, the two agencies have largely targeted generic drugs, which comprise less than 10 percent of their combined expenditures. More dramatic cost reductions could be achieved through procurements of high-cost brand-name drugs, although doing so can be more complex and time consuming to garner the necessary clinical support and provider acceptance on therapeutic interchangeability. Nonetheless, DOD's greatly expanded retiree drug benefit and the formularies being developed by both agencies should provide added joint procurement opportunities for such drugs. Also, VA and DOD have shown that flexible approaches to developing joint solicitations can take into account differences in their health systems while still maximizing drug discounts. In GAO's view, their joint activities could be further enhanced by periodically conferring with private managed care pharmacy experts and reporting to Congress on their joint procurement activities. Top management at DOD and VA need to stay focused on their joint procurement and distribution activities as leadership changes continue at the two agencies. VA and DOD have also made progress in their efforts to conduct a consolidated mail outpatient pharmacy pilot. The sooner the pilot proves feasible, the sooner DOD can begin to realize the financial and quality of care benefits associated with the transfer of its refill workload.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD concurs with the recommendation. DOD noted that it and VA have established a substantial infrastructure through the Federal Pharmacy Executive Steering Committee. The Committee's efforts are expected by DOD to continue their joint procurement successes into the future. DOD states its commitment to sustaining and enhancing these efforts where clinically appropriate and cost-effective. The amount of VA and DOD joint procurement efforts for drugs has steadily increased from $62 million in 2000 to $230 million in 2002, and is projected to be $264 million in 2003.

    Recommendation: In view of the leadership changes underway at DOD and VA, the Departments should sustain the momentum made this past year by jointly procuring all brand-name and generic drugs for which doing so is clinically appropriate and cost effective.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: VA and DOD submitted a joint report to Congress in June 2003 on VA/DOD sharing. In response to GAO's recommendation, this report provided information on ongoing and planned joint procurements, as well as progress toward implementing a CMOP pilot.

    Recommendation: To help build on the Departments' progress with joint drug procurement and distribution activities, the Secretaries of Defense and Veterans Affairs should, as part of the Departments' annual reporting to Congress on resource sharing activities, provide information on ongoing and planned joint procurements--including the volume and expenditures relative to the Departments' top-ranking drug classes and total drug expenditures and the consequent annual cost avoidance--as well as on progress toward implementing a CMOP pilot.

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Implemented

    Comments: VA and DOD submitted a joint report to Congress in June 2003 on VA/DOD sharing. In response to GAO's recommendation, this report provided information on ongoing and planned joint procurements, as well as progress toward implementing a CMOP pilot.

    Recommendation: To help build on the Departments' progress with joint drug procurement and distribution activities, the Secretaries of Defense and Veterans Affairs should, as part of the Departments' annual reporting to Congress on resource sharing activities, provide information on ongoing and planned joint procurements--including the volume and expenditures relative to the Departments' top-ranking drug classes and total drug expenditures and the consequent annual cost avoidance--as well as on progress toward implementing a CMOP pilot.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: DOD concurs with the recommendation. On April 1, 2004, notice was published in the Federal Register (69 FR, page 17048) that 32 CFR 199 was amended to implement a uniform formulary for the Department of Defense's Military Health Care System, as a requirement of section 1074g of title 10, U.S. Code enacted by section 701 of the Fiscal Year 2000 National Defense Authorization Act. The amendment states that the pharmacy benefits program, which includes the uniform formulary and its associated tiered co-payment structure, is applicable to all of the uniformed services. Active duty members of the uniformed services do not pay cost-shares. 30-day drug prescriptions obtained from retail pharmacies for all other beneficiaries are subject to a $9 co-payment for formulary drugs, a $3 co-payment for generic drugs, and a $22 co-payment for non-formulary drugs. This simplification of cost shares for all other beneficiaries to a formulary-based structure with a tiered co-payment structure will provide an incentive to use generics and the most cost-effective source of pharmacy services.

    Recommendation: The Secretary of Defense should require that the Acting Assistant Secretary of Defense (Health Affairs) complete the development and implementation of a uniform formulary of preferred brand-name drugs applicable to military hospital, TRICARE retail, and mail order pharmacy program, including the use of tiered retail and mail order pharmacy copayments to encourage providers and beneficiaries to use formulary drugs.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: VA concurs with the recommendation. On November 27, 2001, VA and DOD met with representatives from large private sector managed care organizations. Differences in pricing were discussed. One of the meeting participants stated "VA wrote the book on contracting," meaning VA is the industry leader in contracting for pharmaceuticals. Private sector pricing is largely driven by market share (incentive driven) contracts that may be less effective in obtaining lower prices. VA and DOD prices are driven by Public Law 102-585 and mandatory national contracts. Bar coding and drug shortages were identified as areas that present opportunities for mutual benefit. In December 2001, VA met with representatives of managed care to discuss bar coding, and decided to let the FDA handle the bar coding issue. On July 11, 2002, VA met with the private sector to discuss drug shortages. A list of options for discussion is forthcoming. On July 27, 2002, VA met with private sector representatives, drug manufacturers, and the FDA to discuss bar coding requirements. A report from that meeting is pending.

    Recommendation: To help build on the Departments' progress with joint drug procurement and distribution activities, the Secretaries of Defense and Veterans Affairs should consider the benefits of periodically conferring with private, managed care pharmacy experts to exchange information, experiences, and lessons learned relevant to the Departments' joint drug procurement activities.

    Agency Affected: Department of Veterans Affairs

  6. Status: Closed - Implemented

    Comments: DOD concurs with the recommendation. On November 27, 2001, VA and DOD met with representatives from several private sector pharmacy experts in large health care organizations. At this meeting, DOD discussed its pharmacy operations and exchanged information, experiences, and lessons learned about contracting for drugs.

    Recommendation: To help build on the Departments' progress with joint drug procurement and distribution activities, the Secretaries of Defense and Veterans Affairs should consider the benefits of periodically conferring with private, managed care pharmacy experts to exchange information, experiences, and lessons learned relevant to the Departments' joint drug procurement activities.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: VA concurs with the recommendation. VA has worked closely with DOD to develop an interagency agreement (MOA appendix), which was signed on August 8, 2002. VA and DOD officials continue to discuss and test the technical details on the electronic interface developed between DOD's military pharmacies' and VA CMOPs' computer systems. VA has designated the CMOP-Leavenworth (Leavenworth, KS) as the test CMOP facility, and DOD has designated three Military Treatment Facilities (MTFs) as their pilot sites. The electronic interface is currently communicating between CMOP and the three MTFs with plans for initial processing of prescription workloads for 10-15 OTC items to begin in late August, 2002. Those pilot prescription workloads from the three MTFs are planned to be expanded to additional items in October, 2002, with an estimated workload volume up to 500,000 Rx/year.

    Recommendation: To help build on the Departments' progress with joint drug procurement and distribution activities, the Secretaries of Defense and Veterans Affairs should work together to move ahead promptly on the CMOP pilot and develop an interagency agreement governing the pilot's operation including actions needed to provide added CMOP capacity should DOD decide to use the CMOPs systemwide.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: DOD concurs with the recommendation. DOD has worked closely with VA to develop an interagency agreement (MOA appendix) which was signed on August 8, 2002, regarding the CMOP pilot. This interagency agreement details DOD's and VA's separate and joint operational responsibilities for the CMOP pilot. VA and DOD officials continue to discuss and test the technical details on the electronic interface developed between DOD's military pharmacies and VA CMOPs' computer systems. VA has designated the CMOP-Leavenworth (Leavenworth, KS) as the test CMOP facility, and DOD has designated three Military Treatment Facilities (MTFs) as their pilot sites. The electronic interface is currently communicating between CMOP and the three MTFs with plans for initial processing of prescription workloads for 10-15 OTC items to begin in late August, 2002. Those pilot prescription workloads from the three MTFs are planned to be expanded to additional items on October, 2002, with an estimated workload volume up to 500,000 Rx/year.

    Recommendation: To help build on the Departments' progress with joint drug procurement and distribution activities, the Secretaries of Defense and Veterans Affairs should work together to move ahead promptly on the CMOP pilot and develop an interagency agreement governing the pilot's operation including actions needed to provide added CMOP capacity should DOD decide to use the CMOPs systemwide.

    Agency Affected: Department of Defense

  9. Status: Closed - Implemented

    Comments: VA concurs with the recommendation. VA stated that it remains committed to the joint procurement of drugs and pharmaceuticals whenever clinically appropriate and sustaining the current momentum. DOD and VA have established a substantial infrastructure through the Federal Pharmacy Executive Steering Committee. The amount of VA and DOD joint procurement efforts for drugs has steadily increased from $62 million in 2001 to $230 million in 2002, and is projected to be $264 million in 2003.

    Recommendation: In view of the leadership changes underway at DOD and VA, the Departments should sustain the momentum made this past year by jointly procuring all brand-name and generic drugs for which doing so is clinically appropriate and cost effective.

    Agency Affected: Department of Defense

  10. Status: Closed - Implemented

    Comments: In a 2001 report we recommended that the Secretary of Defense work with TRICARE contractors to better inform DOD non-military providers and their patients about the uniform formulary toward the goal of encouraging providers to prescribe and beneficiaries to use less costly formulary drugs throughout the military health care system. DOD concurred with the recommendation. On April 1, 2004, notice was published in the Federal Register (69 FR, page 17048) that 32 CFR 199 was amended to implement a uniform formulary for the Department of Defense's Military Health Care System. The amendment states that the pharmacy benefits program, which includes the uniform formulary and its associated tiered co-payment structure, is applicable to all of the uniformed services. In its comments, DOD stated that it and its contractors mounted an extensive marketing campaign targeting the benefits of simplified cost shares. TRICARE fact sheets on the TRICARE Pharmacy Program and the TRICARE Senior Pharmacy Program note the agency's requirement to use generic drugs and their associated lower co-payment cost. According to DOD, this marketing effort encourages the use of the most cost-effective source of pharmacy services for both the beneficiary and the military health care system.

    Recommendation: The Secretary of Defense should require that the Acting Assistant Secretary of Defense (Health Affairs) work with TRICARE contractors to better inform DOD non-military providers and their patients about the uniform formulary toward the goal of encouraging providers to prescribe and beneficiaries to use less costly formulary drugs throughout the military health care system.

    Agency Affected: Department of Defense

 

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