VA and DOD Health Care:

Factors Contributing to Reduced Pharmacy Costs and Continuing Challenges

GAO-02-969T: Published: Jul 22, 2002. Publicly Released: Jul 22, 2002.

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The Department of Veterans Affairs (VA) and the Department of Defense (DOD) pharmacy expenditures have risen significantly, reflecting national trends. The increase in pharmacy costs would have been even greater if not for the efforts taken by VA and DOD. GAO identified four important factors that have contributed to reduced pharmacy spending by VA and DOD. First, the two departments have used formularies to encourage the substitution of a lower-cost drug that is determined to be just as effective as a higher-cost drug. Second, VA and DOD have been able to effectively employ different arrangements to pay for or purchase prescription drugs at substantial discounts. Third, VA has significantly reduced the cost of dispensing prescription refills by using highly automated and less expensive consolidated mail outpatient pharmacy (CMOP) centers to handle a majority of the pharmacy workload instead of VA hospital and clinic pharmacies. Fourth, VA and DOD have reduced costs by leveraging their combined purchasing power by jointly buying prescription drugs. Nevertheless, one of the most important challenges is the joint procurement of brand name drugs. Although brand name drugs account for the bulk of prescription drug expenditures, most of VA/DOD joint contracts have been for generic drugs. Generic drugs are easier to contract for because these products are already known to be chemically and therapeutically alike. Contracting for brand name drugs is more difficult because of the scientific reviews needed to gain clinical agreement on therapeutic equivalence of competing drugs. Joint purchasing of brand name drugs is also more difficult due to the significant differences between the VA and DOD health care systems in patient populations; national formularies; and prescribing patterns of providers, some of whom are private physicians.

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