DOD and VA Health Care:

Jointly Buying and Mailing Out Pharmaceuticals Could Save Millions of Dollars

T-HEHS-00-121: Published: May 25, 2000. Publicly Released: May 25, 2000.

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Stephen P. Backhus
(202) 512-3000


Office of Public Affairs
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Pursuant to a congressional request, GAO discussed what the Department of Veterans Affairs (VA) and Department of Defense (DOD) have done and what more they could do to reduce drug prices and dispensing costs, focusing on the: (1) extent of joint DOD and VA drug contracting thus far and the prospects for further contracting; (2) prospects of DOD using VA's consolidated mail outpatient pharmacy (CMOP) centers to handle its hospital outpatient pharmacy refill workload; and (3) possible need for measures to facilitate such joint actions to bring about further improvements.

GAO noted that: (1) by April 2000, VA and DOD had awarded 18 joint, national committed-use contracts amounting to about 2 percent of their combined drug expenditures; (2) the joint contracts largely were due to a 1999 VA/DOD agreement to work toward combining their like medical supply needs; (3) the departments also have separate national contracts amounting to about 17 percent of their combined expenditures; (4) the remainder, or about 81 percent of their combined expenditures, are for drugs they buy at negotiated, noncompeted, supply schedule prices, at far smaller discounts than the contracts afford; (5) while the drug discounts DOD and VA have gotten are impressive, only about 19 percent of their combined purchases are now made through the most cost-effective mechanism--national, committed-use contracting with a supplier; (6) if DOD and VA could do most of their drug spending through such contracts, preferably joint contracts, GAO estimates they could save from about $150 million to $300 million, or about 6 to 12 percent of their annual combined drug spending; (7) the departments would need some time to clinically plan and award the contracts to achieve this annual savings level; (8) of course, GAO acknowledges the variability of drug market pricing and that drug makers may have discount limits and may or may not choose to bid on such contracts; (9) VA and DOD officials believe that the prospects for more joint contracting are limited because their patient populations differ and their drug needs vary widely; (10) however, GAO's analysis showed that about 30 high-dollar drug classes now comprise about 66 percent of VA's and DOD's combined annual drug purchases; (11) the officials stated that DOD lacks a national formulary; (12) the lack of such a formulary limits DOD's ability to enter into and thus commit to a particular drug's usage under such contracts so that the higher discounts can be achieved; (13) DOD is exploring commercial contracts as a way to handle its hospital outpatient pharmacy refill workload that could be mailed to beneficiaries; (14) VA's CMOPs now perform most of VA's drug refill functions in a highly efficient, low-cost way; (15) also, based on VA information, CMOPs would likely cost DOD less than a commercial mail-service pharmacy and may save an estimated $45 million in dispensing costs; (16) however, VA and DOD officials have had a number of discussions to date, to little effect, about using the CMOPs for DOD's refill needs; and (17) interventions by Congress may be needed to bring about successful agency interaction through joint contracting.

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