Factors Contributing to Reduced Pharmacy Costs

		Drug Formularies Help to Reduce Drug Costs

VA and DOD have been able to reduce spending on drugs by establishing formularies. Departments Use Several Purchasing Arrangements to Obtain Lower Drug Prices

VA and DOD have been successful in using a number of purchasing arrangements to obtain substantial discounts on prescription drugs (see table 1). For the bulk of their pharmaceutical purchases, VA and DOD obtain favorable prices through the Federal Supply Schedule (FSS). Consolidated Mail Outpatient Pharmacies Reduce Drug Refill Costs

VA has used consolidated mail outpatient pharmacy (CMOP) centers to reduce dispensing costs. In addition to reducing dispensing costs, additional benefits could result because VA’s CMOPs have reduced the pharmacy workload of VA hospital and clinic pharmacies. Generic drug contracts do not require drug class reviews—since competing products are already known to be chemically and therapeutically alike— and, therefore, take less effort and time—about 120 days. One of the most important challenges is the joint procurement of brand name drugs. As discussed earlier, garnering clinical support and provider acceptance on certain brand name drugs is more difficult because of the scientific reviews needed to gain clinical agreement on therapeutic equivalence of competing drugs. As a result, most VA and DOD joint procurements have been for low-cost generic drugs. The joint purchase of brand name drugs is further complicated due to the significant differences between the VA and DOD health care systems. One of these challenges is to increase joint purchasing of brand name drugs, which account for most pharmacy costs. To do this, the two departments need to address how differences in their respective patient populations, national formularies, and practice patterns among prescribers, some of whom are private physicians, can be managed to facilitate joint purchasing.
What GAO Found

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.