DOD Paid a Higher Average Direct Purchase Price Than VA across the Entire Sample but Paid Less Than VA for Brand- Name Drugs

DOD paid a higher average unit price than VA across the entire sample of  83 drugs and for the subset of generic drugs, but paid a lower average  price than VA for the subset of brand-name drugs. Specifically, DOD’s  average unit price for the entire sample was 31.8 percent higher than  VA’s average price, and DOD’s average unit price for the subset of 40  generic drugs was 66.6 percent higher than VA’s average price. However,  VA’s average unit price for the subset of 43 brand-name drugs was   136.9 percent higher than DOD’s average price. 1.) These results were  consistent with each agency obtaining better prices on the type of drugs  that made up the majority of its utilization: generic drugs accounted for  the majority (83 percent) of VA’s utilization of drugs in the sample for the  first quarter of 2012, and brand-name drugs accounted for the majority  (54 percent) of DOD’s utilization of the sample drugs during the same  period. DOD officials told us that in certain circumstances they are able to  obtain competitive prices for brand-name drugs—even below the prices  for generic equivalents—and therefore will often preferentially purchase  brand-name drugs. Specifically,  DOD paid a higher price for 32 of the 40 generic drugs in our sample,  while VA paid a higher average price for the remaining 8 generic drugs. Concluding Observations

DOD and VA face continued challenges in controlling drug costs. Our  findings suggest that there may be opportunities for savings with directly  purchased drugs. DOD and VA paid different prices for the drugs in our  sample; for 11 of the 83 drugs, one agency paid at least 100 percent  more than the other agency. While the prescription  drug market is complex and there are many factors affecting the prices  DOD and VA are able to obtain for directly purchased drugs, differences  in prices paid for specific drugs may provide insights into opportunities for  each agency to obtain additional savings on at least some of the drugs  they purchase. DOD generally agreed with our methodology and findings. DOD also  described additional factors beyond those mentioned in our findings that  may contribute to differences in prices paid by DOD and VA.
VA expressed concerns with the content of the report and suggested  additional analyses. While we agree that such analyses could  be useful, the scope of our work was targeted to a comparison of prices  paid by each agency for a sample of high-utilization and high-expenditure  drugs and was not intended to capture all factors that can affect  pharmaceutical spending. Further, our report acknowledges the limitations involved  with estimating potential cost savings in this complex area. Nonetheless,  we maintain that comparing unit prices paid for selected generic and  brand-name drugs by different federal agencies has value in identifying  specific drugs with price differences that may warrant further  consideration for potential savings. DOD and VA also provided technical comments, which we incorporated  as appropriate. We  obtained prime vendor data for the first calendar quarter of 2012 for drugs  dispensed to DOD and VA beneficiaries through the agencies’ own  medical facilities and mail order pharmacies. After  accounting for drugs that were in both the high-expenditure group and the  high-utilization group, the final sample contained 43 brand-name drugs  and 40 generic drugs and accounted for 37.0 percent of DOD utilization,  31.7 percent of DOD expenditures, 27.7 percent of VA utilization, and  34.8 percent of VA expenditures for directly purchased prescription drugs  in the first calendar quarter of 2012. After selecting the sample, we calculated average unit prices paid by  DOD and VA for all individual drugs by dividing total expenditures by total  utilization for each drug. In order to maintain the confidentiality of drug  prices, in each case we converted from absolute prices to relative prices  by assigning 100.0 to the lowest price and determining the higher price as  a percentage above the lowest price. We compared the average unit  prices obtained by DOD and VA for each drug to the Federal Supply  Schedule (FSS) and Big Four prices available to these agencies. We  interviewed DOD and VA officials about drug purchasing approaches they  use and factors affecting the prices they are able to obtain. Appendix II: Relative Prices Paid by DOD and VA for the 83 Drugs in the Direct Purchase Sample

Figure 3 shows the 55 drugs (out of 83 drugs in our sample) for which the  Department of Defense (DOD) paid a higher average unit price than the  Department of Veterans Affairs (VA) and the percentage by which the  DOD price exceeded the VA price. Prescription Drugs: Overview of Approaches to Control Prescription Drug  Spending in Federal Programs. Private Payers and Federal Programs.
Why GAO Did This Study

In fiscal year 2012, DOD and VA spent a combined $11.8 billion to purchase drugs on behalf of about 18.5 million beneficiaries. Both agencies purchase drugs directly from manufacturers via prime vendors--intermediaries that provide the drugs at a discount off the lowest price that would otherwise be available. The agencies dispense these drugs to beneficiaries through their medical facilities and pharmacies, including their mail order pharmacies.
GAO was asked to compare prices paid for prescription drugs across federal programs. This report describes direct purchase prices paid by DOD and VA for a sample of prescription drugs. GAO will compare drug prices paid using other approaches and by other federal programs in future work. Using prime vendor data provided by these agencies for the first quarter of 2012, GAO selected a sample of high-utilization and high-expenditure drugs important to both DOD and VA and compared average unit prices paid by these agencies for those drugs. The sample contained 43 brand-name and 40 generic drugs and accounted for 37 percent of DOD utilization, 32 percent of DOD expenditures, 28 percent of VA utilization, and 35 percent of VA expenditures for directly purchased drugs in that quarter. GAO calculated average unit prices by dividing total expenditures by total utilization for each drug, the entire sample, and the subsets of brand-name and generic drugs. GAO also compared DOD and VA average unit prices to the FSS and Big Four prices for each drug. GAO interviewed DOD and VA officials about their drug purchasing approaches and factors affecting the prices they are able to obtain.

What GAO Found

When GAO compared prices paid by the Department of Defense (DOD) and the Department of Veterans Affairs (VA) for a sample of 83 drugs purchased in the first calendar quarter of 2012, DOD's average unit price for the entire sample was 31.8 percent ($0.11 per unit) higher than VA's average price, and DOD's average unit price for the subset of 40 generic drugs was 66.6 percent ($0.04 per unit) higher than VA's average price. However, VA's average unit price for the subset of 43 brand-name drugs was 136.9 percent ($1.01 per unit) higher than DOD's average price. These results were consistent with each agency obtaining better prices on the type of drugs that made up the majority of its utilization: generic drugs accounted for 83 percent of VA's utilization of the sample drugs and brand-name drugs accounted for 54 percent of DOD's utilization of the sample drugs. DOD officials told GAO that in certain circumstances they are able to obtain competitive prices for brand-name drugs--even below the prices for generic equivalents--and therefore will often preferentially purchase brand-name drugs.
At the individual drug level, DOD paid higher average unit prices than VA for 32 of the 40 generic drugs and for 23 of the 43 brand-name drugs in the sample, while VA paid higher average unit prices for the remaining 8 generic drugs and 20 brand-name drugs. In nearly every case, substantially higher prices paid by one agency were correlated with substantially lower utilization by that agency. Specifically, for 10 of the 11 drugs for which one agency paid more than 100 percent above the price paid by the other agency, the agency that paid a substantially higher price also had substantially lower utilization. However, even when one agency paid a substantially higher price than the other, in all 11 cases both agencies paid less than the highest of the Federal Supply Schedule (FSS) prices available to all direct federal purchasers or the Big Four prices available to the four largest government purchasers. Additionally, in most cases (9 out of 11 drugs) both agencies paid less than the lowest of these prices. The lower prices obtained by one agency may be due to factors such as differences in the agencies' formulary design and prescription practices, price and rebate negotiations with manufacturers that may not be available more broadly to the other agency, and differences in utilization practices between the agencies based on differences in their beneficiary populations.
DOD and VA face continued challenges in controlling drug costs. While the prescription drug market is complex and there are many factors affecting the prices DOD and VA are able to obtain for directly purchased drugs, differences in prices paid for specific drugs may provide insights into opportunities for each agency to obtain additional savings on at least some of the drugs they purchase.
In commenting on a draft of this report, DOD generally agreed with GAO's findings and described additional factors that may contribute to differences in prices paid by DOD and VA. VA expressed concerns with the content of the report. VA suggested additional analyses and highlighted the impact of program design on each agency's use of prescription drugs. GAO maintains that its analyses have value in identifying opportunities for savings and the report acknowledges the limitations involved with estimating potential cost savings in this complex area. DOD and VA also provided technical comments that GAO incorporated as appropriate.