Drug Procurement Systems of Federal Agencies

Published by the Government Accountability Office on 1971-01-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)




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                                      United    Slates General Accounting            Office
                                                 Washington, D.C, 20548

                                                                             For Release on Delivery
                                                                             Expected at 10 AM EST
                                                                             January 19, 1971

                                k--.  SELECT COMMITTEEON SMALL BUSINESS        -.
                                             UNITED STATES SENATE

                               Mr. Chairman and Members of the Subcommittee, I am
                     "._ pleased to appear here today in response to your request to
                         discuss the drug procurement systems of Federal agencies,
                               As you requested, we plan to discuss the efficacy,  econ-
                         omy, and rationality   in the,drug procurement activities of
                         the Federal Government.   Specifically you asked that we dis-
                         cuss the methods of procurxzment, the degree of competition
                         obtained, participation     by small business and the use of sec-
                         tion 1498, of title     28 of the United States Code to procure
                         drugs covered    by patents.
                               Our discussion   today will focus upon the systems through
                         which the Federal Government directly      procures drugs from
                         manufacturers   and other suppliers.     We would like to mention,
(jG. 3                   however, that since our'last     appearance before this Subcom-
 '1                      mittee in May 1967, we have conducted reviews of and issued

                         reports   on other    aspects         of the Government's   drug-related
         activities.        We have attached         as Appendix A to my statement
         digests     of these reports       for your information,
                  There is a growing       involvement     by the Federal       Govern-
         ment in drug procurement,           encompassing     its     substantial   role
         both as a direct       provider     of medical     care and treatment          to
         certain     classes   of persons     and as a supporter         of federally
         financed     programs which include the provision    of drugs for
         eligible     beneficiaries.   During the three fiscal years 1967
         through     1969, the total estimated Federal expenditures    for
         drugs increased from $514 to $975 million,                    A substantial
         portion of these expenditures were indirect                   in that they con-
         sisted     of the Federal    share of the costs            of drugs provided
         to beneficiaries       under the Medicare        and Medicaid       and certain
         other programs,   Drug costs under the Medicare and Medicaid
         programs increased from an estimated $350 million  in fiscal
         year 1967 to $750 million   in fiscal year 1969.
                 Although the major portion of Federal drug expenditures
         are indirect,     the expenditures    for direct procurements have
         increased from $161 million        in 1967 to $203 million   in fis-
         cal year 1969.
                 Three Federal agencies account for most of the direct
         drug procurement-- the Defense Personnel Support Center'; an                        "
    ,I   activity     under the Defense Supply Agency; the Public Health                     '
         Service of the Department of Health, Education, and Welfare;
         and the Veterans Administration.         Each of these agencies op-
         erates its own drug supply system.
                 The Defense Personnel Support Center centrally      manages
         about 1,100 drug items and in fiscal year 1969 procured an
\        estimated $103 mihion  in ---.
                                     drugS,, The Public Health Service

    centrally    manages about 600 drug items and in fiscal             year
    1969 spent an estimated        $6 million     for drugs,   about 86 per-=
    cent of which were obtained          under contractual  arrangements
    made by Veterans       Administration,     The Veterans Administra-
    tion   centrally   manages about 450 drug items and centrally
    procured    an estimated     $25 million     in drugs infiscalyearl969.
           The Veterans     Administration      also administers    Federal
    Supply Schedule contracts     under which Federal agencies can
    satisfy    their drug requirements  through direct purchase from
    drug manufacturers.      Purchases under these contracts  for fis-
    cal year 1969 were estimated at $56 million.
            In addition to drug procurements which are centrally
    managed or administered, medical facilities   of each of the
    three agencies can, in certain circumstances,   locally pro-
    cure their drug needs.
           Previous testimony before this Subcommittee has high-
,   lighted the drug procurement system as an activity     support-
    ing physicians ' decisions on the most appropriate    drug ther-
    apy for their patients.      Such a system has as its base the
    professional    selection  of drugs and, in support of that se-
    lection,    a complementary supply activity.
           The objective       of Government drug procurement        should be
    to obtain at fair and, reasonable prices, and in a timely
    manner, the proper and needed quantities        of drugs that are of
    a satisfactory      quality,
          Specifically,      we believe that a drug procur
    should, provide for:
          --a selection      process which emphasizes drug quality,
             safety, and efficacy      and gives appropriate considera-
             tion to drug cost,
     --comprehensive    and accurate drug usage data to facili-
        tate the selection   of the most appropriate     and econom-
        ical method of supply with appropriate      corresponding
        restrictions  on all other available   supply sources.

     --the development of product specifications   which insure
        that drugs are capable of producing the desired thera-
        peutic effect while encouraging the widest possible
        competition  and lowest possible cost.

     --effective    negotiation as the alternative     contracting
        method in instances where competitive      procurement is
        not possible,    tind

     --inspection       and testing to establish  manufacturer    re-
         sponsibility     and capability to produce quality    drugs.

     We have surveyed       Federal   drug procurement      systems in the
light of these criteria       and would like   to briefly      describe
our observations.

     I would like to emphasize that these observations     are
based on preliminary    studies of the systems involved and can-
not be considered as a complete review of such systems.       Our
work is continuing,    however, and we will undoubtedly have
more observations    and suggestions to offer at a later time,
 Drug selection
       With respect to the drug selection         process, we obtained
 information   at the local level for five        Federal medical fa-
 cilities.  Each of the facilities visited has established     its
 own system for judging which drugs are appropriate   for use.
 Each system is under the administration    of a central group,
 the name of which varies but may commonly be referred       to as
 the Pharmacy and Therapeutics--the    P and T--Committee.
      The P and T committee's membership generally      consists of
 the directors of the various professional   services of the med-
 ical facility and the chief pharmacist who acts as secretary.
Some committees           also have special           non-voting       members, such as
supply      specialists        and nursing         personnel,      whose functions
range from that           of obs'erver      to advisor          in their     areas of ex-
         A principal         function    of the P and T committees                is to ad-
minister       the system for evaluating               and selecting          from among
numerous drugs those considered most useful in patient care.
The committee's selections  are reflected in a continuously  re-
vised      compilation        of drugs approved          for use within          the med-
ical     facility--   the station formulary.    In carrying                      out this
function,        the P and T committees generally   receive                      some as-
sistance       from headquarters           level     in the form of policy              guide-
lines,    regulations,          and information          published         by various     pro-
fessional    medical          service groups.          Agency policy          statements
and regulations,where available,    are generally limited to
setting out the scope and authority    of the P and T committees.
Headquarters may provide recall and adverse reaction      informa-
tion about specific  drugs,and furnish data on the commercial
availability and prices of drugs.     However, the selection    of
drugs for        inclusion       in the station         formulary      is reserved        to
the P and T committees.                 At military       hospitals,         the hospital
commander is responsible for approval                      or disapproval          of drugs
recommended by P and T Committees.
        Most of the information              on specific          drugs which is made
available to members of the P and T committees in their con-
sideration  of changes to,the station formulary comes from two
sources; professional     journals and the drug manufacturers.
The drug companies supply most of their information       to indi-
vidual physicians    through sales representatives  (detailmen)
and by direct          mail advertising.

              Recently      a series    of actions      impacting    upon the opera-
    tion      of P and T committees             and the formulary        system have been
    taken or are planned within                  each of the major Federal          drug
    procurement          agencies, For example each of the agencies has
    directed      the distribution    of the Food and Drug Administration's
    recently      published      list    of !'ineffective"      drugs to their        local
    medical      facilities      with    the recommendation         or requirement         that
    the drugs no longer              be used.

           Public     Health     Service     has also taken action           to more fully
    develop possible approaches to effective  drug utilization                             re-
    views, as recommended in the report of the Department of
    Health,     ,Education,      and Welfare's         Task Force on Prescription
r   Drugs,       A research      study of the methodology           and feasibility              of
    this   technique is currently  underway.
           We believe that the recent actions                  related     to the drug
    selection       process,     if properly        implemented,    should      improve
    control      over drug operations   at the local level.                   In imple-
    menting      such actions we believe that emphasis should be placed
    on providing         physicians      employed by the Federal           Government
    with   appropriate         information       concerning    available      drugs to as-
    sist   them in making decisions    relating to drug therapy.
           Keeping physicians   informed is most important because the
    physicians'decisions              guide the drug selection           process.     Unless
    this process is based on the best information      available,    even
    an otherwise efficient  supply function may be uneconomical.
          During our visits to local medical facilities       we noted
    specific      actions      by P and T committees          which we believe        are

    appropriate      for wider         application.     Examples noted were (1) the
    dissemination          of information        on drug studies including drug
    costs      and (2) dissemination            of information     on adverse     drug re-
    Procurement          and supply     system

             Once determinations           have been made through       the selection
    process      of the drugs which will              be used, the drug supply ac-
    tivity      must operate      effectively         to furnish   the required     items
    in the most economical manner. Requirements for frequently
    used drugs are generally  met through a central stock system
    which allows for quantity  purchases,
<        Veterans Administration      and the Department of Defense
    both have reporting    systems for identifying   drugs for inclu-
    sion in their centralized     stock systems,
          In the Department of Defense, each of the three services
    has its own system and criteria   for reporting,   and they vary
    from each other.    One result of this is that Defense-wide
    usage of a specific   drug does not become known until one of
    the services recommends a drug for inclusion     in the central
    stock      system.      Approval      of only one service       is needed to add
    a drug to the central supply system, but all                      services must
    concur in removing an item from the system,                       In fiscal  year
    1970, 66 drug items were added to the system                      and action taken
    to delete or discontinue  procuring 106 drug                    items on a cen-
    tralized   basis,
           We believe that under the current reporting    systems, drug
    items that merit consideration   for inclusion   in the central

stock       system may not be included       in the items identified      for
review and evaluation.   This possibility could be removed and
the reporting  system improved by the use of standard criteria
by the three services.

        The Veterans Administration's      primary source of informa-
tion    in its continuing effort      to capture data on drug usage
outside       of its   central   stock   system is a quarterly     drug re-
port based on reports from each of its medical facilities.
This report is characterized     by the Veterans Administration
as an important tool in the management of its drug program
and shows all procurements from sources other than central
stock.   The Veterans Administration     uses this report to
identify  drugs which    qualify   for inclusion  in the central
 stock system,
        We believe that the Veterans Administration              could make
its    comprehensive report more useful by requiring              more uni-
form adherence to its regulations   on reporting nomenclature
and by providing  for the compiling of certain summarizations
and exception reports which would make the identification     of
drugs for central stock management much easier.
     Also, available  data indicates that the Veterans                 Admin-
istration       and the Department       of Defense could take advantage
of higher quantity drug procurements which could possibly re-
sult in lower prices by combining their needs for procurement
purposes.    For example, the Veterans Administration   contracted
for 1,404 units of Lincocin at a unit price of $22.30--five
days=        the Defense Personnel Support Center contracted
 for !,464 units of the same drug from the same manufacturer       at
 a unit price of $19.95,     In another instance the Veterans Ad-
ministration    con&d      for 3,000 units of Tylenol at $6.14
each--about          one-month earlier      the Defense Personnel          Support
Center contracted          with*the      same manufacturer      for     10,176 units
of the same drug,at $3.28 a. unit.
     At least 150 drugs, centrally                  procured   by the Defense
Personnel       Support Center during          calendar    years 1968 and 1969,
were also centrally           procured     by the Veterans      Administration
during      fiscal     years 1968 and 1969,
         Both the Veterans         Administration      and the Department          of
Defense have established  required priorities     of supply sources
to be used by their medical facilities.       These priorities  re-
flect      a policy     of using    the most economical        supply     source
available.           Such a policy is important because the commercial
unit prices          of drugs available at the wholesale level are
generally higher than prices               established   under Federal        SUPPlY
Schedule indefinite  quantity              contracts   which, in turn,        are
generally    higher than definite     quantity procurements.
      To illustrate      this fact, we compared prices listed  on
the Federal Supply Schedule with the highest prices paid un-
der definite     quantity contracts    for 68 drug items over a re-
cent two year period and found that the Schedule prices aver-
aged 63 percent higher.        We recognize that procurements under
indefinite    quantity contracts    have inherently   higher manufac-
turers costs of warehousing and administration         which would
account for some part of the difference        between definite
quantity   procurements.    Also additional    warehousing costs are
incurred by the Government on procurements for central stock
under definite     quantity contracts,   but considering    all these
factors,      a 63 percent difference     seems significant     in any
event.       The average price differential     is particularly     sig-
nificant      considering  the amount of total purchases made under

Schedule contracts           and the fact          that   many centrally       stocked
drugs are also available            under the Schedule contracts,
         We see no reason .why Federal               agencies    should    indepen-
dently     procure   drugs from the same manufacturer                  and lose the
possible     price   advantages      resulting            from high quantity      pur-
chases.      We believe       consideration          should be given       to improv-
ing Federal drug procurement practices  by providing for an
exchange of information  between the Department of Defense and
the Veterans Administration   as to the estimated annual volume
of drugs to be procured in order that consideration   can be
given to combining quantities   of certain drugs for procure-
ment purposes, using the most economical method of procure-
ment for     each drug item,

Product     specifications
      Another key requirement to an efficient    supply system is
its ability   to provide, wherever possible,   purchase descrip-
tions or product specifications    which permit more than one
manufacturer   to bid effectively.
      Both the Defense Personnel Support Center and the Vet-
erans Administration        establish  their own specifications     on
drugs.      Both agencies require compliance with the applicable
standards of the United States Pharmacopeia and the National
Formulary to which each agency adds its own additional             re-
quirements.        The professional   personnel assigned this respon-
sibility     within the Defense Personnel Support Center and the
Veterans Administration         are chemists or pharmacists.
         The Veterans Administration      develops a specification     when
the demand for a generic product is sufficient           to warrant cen-
tral management or administration    and when no patent exists
or the patent has expired,     The Veterans Administration   has
established  specifications   for about 100 of its centrally
managed drugs procured              cpn a generic        basis,      In addition,
 specifications         have been developed             on 46 drug products            ad-
ministered        under Federal         Supply Schedule contracts.

       The Defense Personnel             Support Center establishes                 a spee-
ification      or purchase        description         on every drug item in its
central      stock    system,
       Both agencies         informed       us that     they use a number of
sources      in constructing        their     specifications.            In addition         to
the monographs of the United                 States     Pharmacopeia       and National
Formulary, other sources for                 constructing         specifications
include      the Food and Drug Administration,                    drug manufacturers,
the National         Institutes      of Health,        and the American Chemical
      When a drug is standardized                 for    the military        supply
system, the manufacturer   is contacted and requested                              to supply
sufficient information   so that the item's essential                              eharac-
teristics      can be prepared.
          We explored     with    Defense Personnel          Support Center offi-
cials the question of whether, because of the substantial      re-
liance upon information obtained from manufacturers,   military
specifications          or purchase      descriptions        are restrictive           and,
in effect,   result in a proprietary   specification.   These offi-
cials contend that the specifications      and purchase descrip-
tions are constructed    in such a manner that any firm knowledge-
able in the drug industry could manufacture the drugs.        With-
out a detailed    study of the matter, we have no basis upon which
to either dispute or validate     this contention.

Competition            and negotiation
         It    is clear          that    the     degree       of    competition        obtained          in
the drug procurement                    area is less than competition                       obtained
for     many other         Government supply                  items.         The total      dollar
value     of drug procurements                    for      central         stock    by the Veterans
Administration             and the Defense Personnel                         Support      Center       in
fiscal        year 1970, amounted to about$94million,                                     About 7 per-
cent or $6.4 million                    of the central              stock procurements             were
made under contracts                    awarded pursuant               to formal       advertising
procedures.             The remainder             were made under contracts                     nego-
tiated        with     the sole source of supply                       or under contracts
awarded after             the solicitation                 of proposals.
         Among the reasons                for     the limited              amount of competitive
procurement            are of course,             the fact          that     many drugs are pat-
ented products             and the fact             that      legal        and administrative               re-
quirements            must be met in order                   to obtain        Food and Drug Admin-
istration            approval.          Also,     many procurements                 are made by brand-
name either            because only             one brand of a particular                   drug is
available            or because of the prescribing                          physicians'        preference.
For example,            about 70 percent                of the drug items centrally
stocked        by the Veterans             Administration               have been designated                      for
procurement            on a sole-source              basis         in order        to obtain     specified
brand-name drugs.
         In addition,             competitive           contract           awards account        for        about
25 percent            of the procurements                 under the Federal               Supply Sched-
ules.         Most of the other                 contracts,         which are included              for        the

purpose     of making manufacturerse                   product       lines     available          to
the Government at prices                  less than market,            are negotiated              with-
out the benefit               of competition.
         The Defense Personnel              Support Center            sought to increase
competition          on their       centrally        managed drug items when, in Jan-
uary 1969, approximately                  1,000 firms       were invited              to indicate
their     interest           in bidding    on 401 items,           290 of which were clas-
sified     as single-source.               Replies      were received           from 104 com-
panies.       Fourteen          companies requested           to be added to the bid-
ders list      for      35 of the 401 drug items.                   Two other          companies
requested      to be added to the bidders                   list      for     eight     drug items
not included          in the solicitation.                The other          88 responding             com-
panies     either       did not produce          the item;         reaffirmed          their     inter-
est in supplying               the drug items         for which they were already                       on
the bidders          list;      or expressed         no interest       in supplying             any of
the products          to the Government.
         Some of the reasons              advanced with          respect       to the absence
of competition               on a large    number of drug items                include
         --restrictions  imposed by law or regulation,                                such as pat-
            ents on new drug applications;
         --inadequate    plant facilities and no desire to make the
            required  investment to upgrade the facilities;

         --the lack of qualified                personnel          to make many drugs;

         --the expense of introducing                    a new product with no assur-
            ance of reasonable return                  through sustained contract
         The advantages           of seeking         the widest      possible          competition
in drug procurement               can be demonstrated              by available          data from
which we identified               9 drugs procured          over a comparable                  period
of time both competitively                  and on a sole-source                basis.
drugs purchased              from sole-source          suppliers       by the Veterans

Administration              are estimated               to be 60 percent         higher      than the
average price           obtained           after        formal    advertisin        or the solici-
tation      of competitive             proposals             by the Department         of Defense,
Appendix       B of my statement                   shows the 9 drugs and comparative
prices.        It     should      be noted that               the quantities        purchased         by
the    two agencies           are different               which may account           for    some
part      of the price          differences.
          We see no reason why different                          Federal      agencies      should
independently           procure        the same drug in a different                       manner,
and possibly           from the same manufacturer,                        and lose the advan-
tages associated              with procurement of larger                       quantities      and,
where possible,              increase competition,
          Without      effective           competition,           there     is a question        of the
Government assuring                 itself         that    the prices         being obtained          are
fair      and reasonable            under negotiated                procurements.           Public     in-
formation        is available              on selected           areas of drug pricing--an
example would be wholesale                         prices.        In determining  whether              the
negotiated          price      is the best attainable                     by the Government,
comparison    of the bid with these prices reflects  reasonableness
by inference.     Although there is no assurance that these prices

are reasonable, our survey indicates  that these prices serve as
the basis for most of the price reasonableness  determinations
made by the Veterans                   Administration              and the Defense Personnel
Support Center.
Small business              participation
          Competition          through        formally           advertised      procurements         seems
to have a decided                 effect      on the participation                of drug man-
ufacturers           classified         as small          business,      When drug supply
contracts           are awarded competitively,                      small business is often
able to effectively                 compete,   For example, in fiscal year
1970 more than half                 of the dollar volume of the Veterans Ad-
ministration's              formally         advertised          procurements       of centrally

stocked      drugs      were     awar      ed to     drug     manufac‘t~re~~         @hssiffed
as small business               concerns.           Only 3 percent          of the negotiated
procurements          for      centrally      stocked         drugs were awarded to small
business      concerns.             Since negotiated             procurements             constituted
more than 96 percent                 of the total,            small business              received
only about 4 percent                 of the total            procurements          of centrally
stocked      drugs.
          During     fiscal      year      1970 the Defense Personnel                      Support
Center      initiated          1,076 procurement              actions,      each having             a
value      of $10,000          or more, with          domestic       drug manufacturers.
Small business           was involved              in 137 of these actions--represent-
ing about 7 percent                 of the total            procurement         dollars      of about
$71.6 million.                For contracts          amounting       to $19 million                awarded
under advertised               procedures         or negotiated          with     competition             by
the Defense Personnel                   Support      Center during          fiscal        year      1970,
small      business         received       about 17 percent              of the dollar           volume
or a total         of $3.3 million.

Drug Procurements      From
                       .-_ Foreign
                                 .~                    Sources
          The absence of satisfactory                       prices    from domestic              drug
manufacturers           has led both the Veterans                     Administration               and
the Defense Personnel            Support Center to the procurement of
certain      drugs      from foreign  sources.  However, neither  the
‘Veterans Administration                   nor the Defense Personnel                      Support        Cen-
ter arecurrently               making extensive              use of foreign           sources           for
their      drug procurements.
          In recent         years    the Veterans            Administration          has bought
only one drug from a foreign                        source and does not actively                         so-
licit      foreign      bids in its          procurements.
          The Defense Personnel                Support        Center furnished              this        Sub-
committee with              information        relative         to its     foreign         procurem
of five      drug items during               1968 and 1969.               During      1970 only               one

of these items, tetracycline                 hydrochloride,       has been procured
from a fsreign         source,       Another      of these itas       has been ob-
tained     during     1970 from a domestic           manufacturer      because        the
bid by the foreign sources were not considered Pow after con-
sidering the Buy American Act provisions  and related poli-
cies.      The remaining         three   items were not procured             from any
source during         1970.
         One factor      in the small use of foreign              sources     is the
Government's        exposure       to possible      action    under section      1498 of
title     28, United      States     Code,     This section       provides     that     when-
ever an invention          described      in and covered by a patent             of the
United     States     is used or manufactured             by or for    the United
States without         license      of the owner, the owner's           remedy shall
be by action against the United States in the Court of Claims
for the recovery of his reasonable and entire compensation for
such use and manufacture.
      Since our last report to you on this subject, dated
July 12, 1967, in which we explained the background and pur-
pose of section 1498 of title  28,there have been two suits
against the Government by drug patent holders for infringe-
ment of their patents rights.    One of these suits involving
purchases of nitrofurantoin   was settled by the parties for
$192,500 in September 1969 and the other                      one involving      pur-
chases of meprobamate is still                 pending.

Federal     inspection        and testing      programs
     An an kntegral part of their drug procurement systems
both the Veterans Administration  and the Defense Personnel
Support Center have established     programs for assuring the ea-
pability  of Government contractors     to supply a drug product
of acceptable quality.   These programs vary somewhat ?n their
approach     but have a common objective.
     The quality  assurance program at the Defense Personnel
Support Center includes an evaluation,   through pre-award sur-
veys of the plant         and pre-award testing of product samples,
of the contractor's         ability  to supply a specific drug item.
         Pre-award     surveys     and pre-award         samples may be generally
required when (1) the contractor  has never before furnished
the item being procured;  (2) a doubt exists as to the quality
control,     housekeeping        procedures,         or financial        position     of
the prospective  contractor; or (3) the item is to be furnished
from or manufactured in a different   plant.
         The Defense Contract         Administration           Service     has about 80          '
quality   assurance representatives,   who are either chemists,
chemical engineers,    or pharmacists,  and function  as drug in-
spectors.    They perform pre-award surveys at the request of
the Defense Personnel            Support Center and are charged with                       the
responsibility         for inspecting  and approving all drug items
manufactured         underDefense contracts.In   performing their in-
spections the quality  assurance                   representatives        are required
to inspect each drug lot.
     During fiscal year 1969 a total of 168 pre-award surveys
were made--l49 of which were performed on domestic manufac-
turers     which were classified  as either small or large busi-
ness.      Sixty-two small business firms were subjected to
90 surveys.          Forty-seven     of these surveys           resulted       in dis-
qualifications.          Twenty-six large businesses were subjected
to 59 surveys,         25 of which resulted in disqualifications.
Reasons for disqualification       included poor quality    control;
poor housekeeping;     sample failure;      unacceptable subcontrac-
torf and inadequate capacity.
     The Veterans Administration         inspects each contractor
plant      with regard     to its    entire        operation    and for      its    entire

    product         line.       This is done prisr            to the contractor          being
    awarded any contracts so that the Veterans Administration   can
    be assured that the supplier  is suitable for any of the prod-
    ucts it may offer               to the Government.            These initial contrac-
    tor plant             inspections      represent        about 60 percent of all in-
              The remaining             inspections        are reinspections      on a cycle
    basis.          All     inspections  evaluate such areas of contractor
    operations             as the adequacy of quality  control, test facili-
    ties,      and sanitation.
              All    plant inspections            are made by two Veterans               Adminis-
    tration         pharmacists.
           Durkng fiscal year 1970, the two pharmacists performed
    134 inspections     at 122 contractorss     plants.     The inspections
    resulted    in 37 disapprovals,    the most common reason being %he
    lack of following     adequate quality     control procedures.        Vet-
    erans Administration      does not u$ilize     military   inspections     of
    domestic plants except as a supplement to its own inspec%ion.
    Veterans Administration      does rely-upon Department of Defense
    inspections             of foreign
              The Food and Drug Administration                     performs    testing      of
    selected drug samples for the Veterans Administration,                                   Brand-
          /'   items which are centrally  stocked are tested on a
    sample basis once a year,   Each order of generic drug items
9   which are centrally     managed is tested,
           Drug items under Federal Supply Service Contracts ad-
    ministered    by the Veterans Administration are rarely tested
    exce$t that the products of any new contractor    under Sched-
    ule contracts    are tested*

          A compilation          of testing       reports         received      by the Vet-
erans Administration                from the Food and Drug Administration
for     1970 through          December 29th shows a total                    of 784 tests
made--254         brand-name and 530 generic.                      The total      rejections
were 29 for          a rate      of 3.7 percent.            All     rejections          were on
generic      drug items.
          The Department          of Defense and the Veterans                    Administra-
tion      exchange inspection             information         only upon specific                re-
quest.       The Department             of Defense previously                supplied       the
Veterans      Administration             with    a list     of plants         inspected         by
it     but this      practice      was discontinued               about 2 years ago.                 At
present      there     is no routine            exchange of inspection                  informa-
          We believe      that     consideration           should      be given         to estab-
lishing      appropriate          guidelines          to facilitate          the routine          ex-
change of contractor                inspection         and product          testing      informa-
tion      among Government agencies                   involved      with     the control          or
procurement          of drug products.                Also we believe           that     sonsid-
eration      should be given             to the possibility                of eventually
turning      over the entire             responsibility            to the Food and Drug
Administration          for      drug contractor           plant      inspections         and
product      testing      including         testing       of contract         quality       con-
trol      procedures      in order        to satisfy         each procuring             agency"s
requirements          and take the greatest                advantage         of the food and
drug inspection           system that           has been established,
          Mr. Chairman,          this    concludes        my statement.               I shall     be
happy to answer any questions                     that     you or other          members of
this      Subcommittee may have,

                                                                        Appendix   A

     TO THZ CO~i'GRZSS                  Iti OHIO NEED IWROVEMENT
                                        Social end Rehabilitation   Service
                                        Department of Health, &ducation,and
                                        Welfare B-163031(3)       .

------                                                   t;

         Under Medicaid, the Department of Wealth, Education, and Welfare (HEN)
         shares with the States the costs of providing medical care to persons
         unable to pay. Because Medicaid expenditures for drugs, nationally,
         amounted to about $307 million in fiscal year 1969, the General Ac-
         counting Office {GAO) reviewed the Medicaid drug program. About
         $14 million of that amount was spent in Ohio where GAOmade its re-

         GAO sought answers to three basic questions:

           --Are recipients  of drugs eligible under Medicaid?
           --Are drugs reasonably priced?
           --Are controls over drugs adequate?

         On the basis of a statistical      samples GAO estimates that, duri,ng the
         year ended March 31, 1969, the welfare recipients       comprising at least
         4,300, and possibly as many as 9,300, welfare cases in Ohio were in-
         eligible     for Medicaid services, inctuding drugs. That situation     is
         attributable     primarily to a need for more timely and accurate deter-
         minations of eligibility,      on a continuing basis, by the county welfare
         departments.      (See pp. 7 to 11.1

         Certain drugs purchased under Ohio? Medicaid program were not reason-
         ably priced because of several factors.

            --The State's policy of paying pharmacies for drugs on a cost-plus-
               a-percentage-of-cost  basis is contrary to Federal and HEWpolicy
               because it gives the pharmacies an incentive to sell high-cost
               drugs to obtain a greater prc$it.    GAO noted that 11 other States
               and.the Virgin Islands paid for drugs on that basis.    (See pp* 12
               and 13.)

            --The State’s controls were not adequate for ensuring that prices
               billed to the State conformed to its formula for determini,ng

r’ear   Sheet

                            0                                                  Appendix      A

           paymm    for drugs, tha’i is, cosi; plus 50 percent. For example,
           average markups were 158 percen-I for Lanoxin I 233 percent for milk
           of magnesia, and 248 percent for digoxin. The State’s policy of
           permitting pharmacies to charge a minimumof $1 for each prescrip-
           tion increased the difficulty of controlling costs. (See ppO 13
           to 20.)

      --Nursing homeswere not obtaining long-term maintenance drugs in
        economical quanti ties, because the State limits to a 30-day supply
        the drugs prescribed for welfare patients in nursing homes. (See
        pp. 23 and 24.)
    Also   there is a need for HEW,in its studies of drug efficacy, to give
    priority to certain lower cost, frequently used drugs identified by the
    HElrJTask Force on Prescription Drugs as offering potential for consider-
    able savings. (See pp. 20 t0 22.)
    Ohio’s controls over drugs under its Medicaid pro ram were inadequate
    for either the State or HEl:rto determine whether “r1) drugs obtained by
    nursing homeswere administered to welfare patients and were effective
    in their treatment, (2) drugs dispensed and billed by pha’macies were
    actually received by welfare recipients,  and (3) only needed drugs were
    provided to we1fare recipients a For example:
      --At four of six nursing homes visited, controls were not adequate
        for ensuring that drugs paid for by the State had been authorized
        by a physician. (See pp* 26 to 29.1
      --At five of 14 pharmacies visited by GAO,controls were not ade-
        quate for ensuring that prescriptions were complete as to quanti-
        ties; dosages, forms, strengths, or dates. (See pp. 29 to 32,)
      --The     State had not given county welfare         departments adequate informa-
           tion for determining whether recfpients          were receiving   only   needed
           drugs.    (See pp. 33 and 34.)

             OR SUGGESTIONS

    GAO is recomending          that   the Secretary   of Health, Education, and Mel-

      --Provide assistance to Ohio and other States in revisin their drug-
        payment policies to conform to HEWpolicy. (See p. 243
      --Give   priority    in the conduct of HEM’s drug-efficacy studies to
         those drugs      identifiedby the HE’rlTask Force on Prescription Drugs
           as having considerable potential for savings and furnish physicans
           wj th information on the results of the studies s (See ‘pa 24.)

                           a                                                     Appendix   A

             --Issue guidelines for utilization  reviews of drugs so that the
                States will have a uniform system for accumulating, analyzing, and
                reporting data for use by HEWand the States in evaluating i-ha’s
                t%pt~t of the Medfcaid program.  (See p. 34.)
             --Monitor the implementation of these guidelines and give assistance
                to Ohio and other States, as needed. (See p. 34)



             --that guidelines for payments of reasonable charges for prescribed
                drugs were expected to be issued in the next several months; Ohio
                planned to abolish the $1 minimumfor each prescription;   and the
                States not in conformity with HEWregulations  on drug prices had
                adopted, or were working toward adoption of, policies to bring
                them into conformity.   (See pp. 24 and ?5.)

             --that it agreed that its effScacy studies of brand-name and chemi-
                cally equivalent drugs should be completed and the results should
                be given to physi ci ans 0 HEW, however, must make certain of the
                safety and effectiveness    of all available drugs. GAO believes
                that giving priority,    in HEW's drug-efficacy    studies ) to rel ati vely
                low-cost, chemically equivalent drugs would not be inconsistent          w=ith
                HEW‘s responsibility    and could result in. significant    economies in
                Medicaid drug costs.     (See p. 25.)

             --that utilization       review guideli'nes would be issued in the near
                 future; contracts had been awarded to four States for a pl"lot medi-
                 cal surveillance     and utilization      review program which was expected
                 to strengthen the ability        of States to plan, administer,    and moni-
                tor the Medicaid program; and, the model system developed through
                the pilot program would 'be made avai lab1 e for adoption by al 1 par-
                ticipating    States.     (See pa 35.)
                                                                                         . .'
             --that it planned to institute           a closer monitoring and liaison pro==
                 gram in each regional office to bring about a closer relationship
                with State agencies and to include more frequent visits and de-
                 tatled revi'ews of State Medicai'd operations.          (See p* 35.)


      GAO is sending this report to the Congress because of congressional
      interest in the Medicaid program. The report should. be useful to the
      Congress in considering legislative changes to the program.                                :

Tear Sheet

                    0                              *            Appendix        A
                                    PHARMACYITEMS AND CONSOLIDATIONOF BULK
                                    COMPOUNDING FACILITIES
                                    Veterans Administration B-133Q44



      The General Accounting Office (GAO) reviewed certain operations of the
      Veterans Administration    (VA) pharmacies in the Los Angeles, Chicago,
      and New York metropolitan    areas to determine whether the economies and
      improved pharmacy service realized from pharmacy bulk compounding opera-
      tions could be increased by greater standardization    of drugs and medic-
      inals for patient treatment and by consolidatiqnof     such pharmacy ac-
      tivities at centralized   facilities.

     Although each VA station where GAOmade its review had a therapeutic
     agent committee, only the stations in the Los Angeles area had formed
     an interstation   therapeutic agent committee to increase the standardiza-
     tion of medications commonly used for patient treatment and had estab-
     lished a centralized    facility for the bulk compounding of drugs.
     GAObelieves that there are opportunities      for reducing the costs of
     drugs used by VA stations in metropolitan     areas by the establishment
     of interstation therapeuticagent   and pharmacy committees and central-
     ized bulk compounding and purchasing facilities.
     On the basis of the Los Angeles experience, GAO believes also that a
     centralized  facility would contribute to improved patient care by pro-
     viding needed medications not commercially available,   more assurance of
     the quality of drugs compounded, and better support for research and
     training activities.

     I.t is GAO's opinion that the use of interstation    committees to encourage
     coordination   and cooperation in pharmacy operations has applicability    in
     many metropolitan   areas; such as Boston, Chicago, New York, Philadelphia,
     and San.Francisco, each of which has several VA medical facilities.


     GAO is recorrsnending that the Administrator of Veterans Affairs require
     the formation of interstation   therapeutic agent and pharmacy conanittees
     in geographical areas which have several VA medical facilities.
                                                               Appendix   A
    GAOis recomJr;ending al so that the comnittees, when esta51 i shed, and
    with the encouragement and assistance of the VA Central Off-ice, study
    the feasibility  of estab? ishing centralized bulk compounding and pur-
    chasing operations within their respective geographical areas.


    VA stated that it concurred in GAO’srecommendationsand would estab-
    lish such interstation committees.


    GAOis reporting this matter to inform the Congress of the action
    planned by VA to provide better medical service to veterans and to
    effect economies in the pharmacy program.

                        0                                             0                     Appendix    A

GEN?RAL ACCOlrNTIf?G OFFICE                              OP30RTUNITIES FO8 ECONO:4IES
REPORT TO THE SECRETARY OF                               IN DaMi ~~O~~~~i~~T IN
HEALTH, EDUCATIO~JJ AN WELFi2&$                          IkBDIAil HEALTH PWOGR&!



     The   Divl'sion of Indian Heal%h (DIf.0,   of the Wealth Sewices                       and Men%al
     Health Administration     has the wspsnsibili%y    for providing                      heal%h ser-
     vices to Indians and to Af *ska ns%i vcs,
     PrevSous reports issued by %heGzneral Accounting Office (GAO)on                               drug
     purchases by Federal and S%a%eagencies with Federal funds showed                              %ha%
     there were opportunities           for   reducing   drug   qjs%s by r2vising            pwxwe-
     merit procedures.

     Since there appzwed to be a similar  qppo~%unf%yfor econcrks Jn the
     program providing heal %hcare to inda”aq benef-P”
                                                    c.iarrles ) GAOrw~ewed
     the drug   procu~enent'polfcies           and prqc,$f,ces of DIH.         Pn kisc~i yew
     -!g58, %heDEH purchdsed $2.7 mi’l$qq              I!Jor%h q.9 drugs     for %he benefit           of


     GAOfound %ha%DIH could reali;:   qconomies by                  makjng       Several    imgrowe-
     rents in i%s managemznlof druj~ p~ocur~~~nt.
            %ies exi s t
     QppoT%uni                for      savings if DIM     places greate,r enphasl’s on            the
     bencfl%s of centralked            and compcti%ive     buying    throug!],     %he Pub>lic
     Weal*tfh Service (PHS)supply center 6~ through Weterwik Adnin-$stra%ion
    (VA) supply depo%so GAObe1Ieves that ‘ihi. “v,olumaof drug p~ducts.
    purchased by fi e9d i ms%aV1a%icrrs‘di ~&zLly“-Ptim nsnufac%~~~.+sand lac;t
    wholesale e%%ab9ishrr,?n%;S--h~ch 3s ‘~~~~oac~~~g$1 mil\jo~p a year-can
    be tiduced, (See p*.S.‘)                -a 1 ‘-&‘”

    DIH has not adop%eda system for dz%ermining which drug p.~.duc%sare,
    or could be, commonly used at ffeld     i~s%alla%ions,     f'$Q belaieves %hat
    there is a need for cons3dering the betiefits      f6'b.g der!ved tin     tRe
    establishment of a program-G de drug formulary #$.ch, %oge%herwi%h.
    be%%er informa%ion   on drug usagE by Field in~$alla%ions       ‘wqu”id.help in
    de%ewninjng %he drugs %hqt could be procur2d.central‘Iy        QPI.a competi-
    %ive basis and generally   ‘at lower prices %hG. fw, &g,gs: p.q.rc,h.as.ed
    directly  by field ins%alla%Sons.    (See p. 6. and: ps Q

                                0                                                      *            Appendix         A

    DWCJ   PriCifig   ElihOdS   iii   SOL o contriicl~        Hi t;1    pri   wste     pharmacies          wh i ch
    Furnish prescriptions to Indian bewficiaries were based on cost-
    p7us-pzrcentagz-of-cos.~ i”e~LLES that GAObe1ieves ai-2 not coriducive
    to ecoi?omkal  drug purchasfng.   This pricing  ,r-ethod may encowage the
    dispenss’ng OF higher cost drug products than may be needed to rzet
    the requi rermts of prescriptions bzcme the amount of markup by a
    pham~~y is contincpt     upon its acquisition  cost of the drugs, (See
    p. 12.)

    In scmz locations,        recurring      or repetitive-type      prescriptions       for
    Indjan patients           -*ad
                          treabL      outsida   DIW   facititSes    have   not   bwn   filled
    by Indian health pha*mnacies.             Present policy     established      by the DEH
    centrai    office    pemits p but does not I--equire, that this method of
    Furnishing      needed wadications be used to achieve the benefit                  of
    iIoxer cost than obtainab?e fpoz~ private pharmacies. (See pa 16.)

               OR SUGGESTIO~9S

    GAO recorxnds    that actson be taken to strengthen     controls   over                                 drug
    prow-ergi@    by requiring  officials responsible   for administering                                    the
    Indian health program to

      --makimize    the use of centralized  and competitive                            buying of drugs by
         purchasing    them through the FYS supply center                            or Vcsisupp’iy depots.

      --astablish     a progxm-wide      system, and consdder adoption of a
         program-wide    drug formulzry,      to determine    which drug products  are,
         or could be, co~~n’ly      used by field     %nstallatio8s    and could be pur-
         chased at ~GWC prices       through the supply depots.

      --revise     p'ricing     rrzthods in contk?xts    with private pharmacies by ree
         quiring     that the refmh.vscm2nt        to the pharmacies be based on actual
         acquisition        cost of the d?ug pl.tls a fixed pvwfessional fee; and

      ~-use DIH pharmacies, whenever feasible,                         to fill        recurring       or
         rep&i ti ve-type pmscri ptiox 0

    Durring -the rwiew,   GAO discussed its Pizdings with DIH ofr”ica’a’ls who
    Indicated   that consideration  would be given to the above recoxmznda-



Total   Actual   VA Amount                              $VQ1,459

Total Potential  VA Amount
 Using DPSC Average Unit
 Price At VA Quantity                                      887,185

Total Difference in VA Actual
 Amount and VA Potential Amount                          $534,274

Tctal   Percentage   Difference                                 60%
                                   0                                             e          APPENDIX B

                                  COMPARISON OF DRUG PROCUREMENTS

 Date of         Procurement         Quantity    Purchased             Unit    Price                   Amount of Contract
 Contract        Method              VA            -DPSC               VA              DPSC            VA       DPSC

                               GLYCERYL GUAIACOLATE SYRUP

  I-17-68      Negotiated       40,824                                 $ .35                           $14,288
  5-29-68      Negotiated       16,224                                   .35                             5,678
  7-29-68      Negotiated       14,256                                   .35                             4,940
 10-25-68      Negotiated        6,312                                   .35                             2,209
 12- 9-68      Negotiated       24,456                                   .35                             8,560
  l-30-69      Negotiated       25,200                                   .35                             8,820
  4- 2-69      Negotiated       45,912                                   .35                            16,069
  6- 3-59      Negotiated       77,712                                   .35                            27,199
  4-10-G       Negotiateda                    120,304                                   $ .32                     $54,497
  7- 3-m       Negotiateda                    123,840                                     .28                      34,675
  8-15-65    Formal Advertised                174,528                                     .25                      42,759
  8-15-68      Optionb                         87,264                                     ,25                      21,380
  2- 5-69    Formal Advertised                197,568                                     .22                      43,084
  4-25-69    Formal Advertised                345,600                                     .18                      60,760
  5-21-69    Formal Advertised                175,680                                     .21                      36,014
  6- 2-69    Negotia.teda                     376,320                                     .16                      59,241
 Total                         250,896     1,601,104                                                   $87,763   $352,410
 Average Unit Price                                                    $ .35       $ .22
 Potential  VA Amount Using DPSC Average Unit Price                 at VA Quantity    $55 197
 Difference  in VA Amount and VA Potential                                           $32,566
 Percentage Difference                                                                     59%
                               GLYCERYL GUAIACOLATE SYRUP

11-13-67        Negotiated      1,032                                 $11.99                           $12,374
12-11-67        Negotiated         864                                 11.99                            10,359
 2-16-68        Negotiated      1,456                                  11.99                            17,457
 5- I-68        Negotiated      1,680                                  11.99                            20,143
  7-29-68       Negotiated         760                                 11.99                             9,112
 .1-30-59       Negotiated         156                                 11.99                             1,870
 4- 2-69        Negotiated      1,272                                  11.99                            15,251
  2- 6-6a       Negotiateda                           3,000                             $ll.lA                    $33,420
  3-29-60       Negotiateda                           5,200                              10.86                     56,446
  7- 3-68       Negotiateda                           7,424                                7.33                    54,414
  7- 3-68       Optionb                               3,712                                7.33                    26,355
  7-16-68       Negotiateda                                                                7.75                    39,773
Total                           7,220                                                                  $86,568   $210,408
Average Unit Price                                                    $11.99            $ 8.60
Potential   VA Amount Using DPSC Average         Unit    Price     at VA Quantity        $62,092
Different 4 in VA Amount and VA Potential                                                 _24,476
Percentage Difference                                                                           -39%

a Competition      solicited    - one or more bids      received
b Option    exercised      under preceding contract

.                                                                                   APPElNDIXB
                              0  COHPARISONOF DRUGPROCURE S            mT
                    VA SOLE-SOURCE
    Date of     Procurement       Quantity    Purchased       Unit Price       Amount of Contract
    Contract     Method            VA            DPSC         VA
                                                              -     -DPSC        VA       DPSC

    10-23-68    Negotiated      3,3=                          $1.25            $4,140
     n-23-68    Negotiateda                      16,780               $;*$                 17,451
     1-23-68    Optionb                          10,320                                    10,733
     6-13-68    Negotiateda                      49,752                 :go                k&237    /
                Negotiateda                      58,752                 .86                50,527
       m e
     ;-22-i;    opti*nb                          739440
                                                 43,968                 .86                ;:'81g
     3-28-69    Optionb
     8-28-69    Formal Advertised                                       .81                43'546
     Total                     3,312                                           sTm-140*
     Average Unit Price                              $1.25 $ J37
     Potential VA Amount Using DPSCAverage Unit Price at VA Quantity           $ 2,881
     Difference in VA Amount and VA Potential                                  $ 1,259
     Percentage Drfference                                                          44%
     B-29-67      Negotiated         1,656            $9.31                   $15,417
    n-8-67        Negotiated         ii632                                     15,194
    yyi&          Negotiated         1,440                                     13,406
                  Negotiated            8%                                      7,951
      5124168 Negotiated             2,160                                     13,262
      V-11-68                                                                  16,652
     lo-zg- 68
                                     2,568              6:14  Et               15,768
      3-21-69     Negotiated         6,456              6.14                   39&o
      6-13-68     Negotiated"                                                             W,874
      8-19-68     Negotiated=                   $ ;;:         4.20
                                                              4.45                         14,918
     10-15-68     Negotiated&                   51760 ~       3.45                         19,872
      I- y-69     Forma Advertised             10,176
      2-17-69     Optionlb                      5,088                                      :Ei;
      9- 9-69     Form1    Advertised           6,816                                      19:766
     10-10-69     Negotiateda                G%%-             2-75                         18,216
      Total                       m             190    I_    I .              $155,710    139,712
      Average Unit Price                              $6.93 $3034
    -,Potential VA Amount Using DPSCAverage Unit Price at VA QuantitJ         $75,077
      Difference in VA Amount and VA Potential                                $80,633
      Percentage Difference                                                        107%

     a Competition solicited - one or more bids received
     b Option exercised under preceding contract

                                                                                              APPENDIX B

                                        COMPARISON OF DRUG PROCUREMENTS

  Date of          Procurement                Quantity     Purchased           Unit   Price        Amount of Contract
  Contract         Method                     &J     '    DPSC
                                                          -                    --VA    DPSC        JJA-     DPSC

                                                   AMPICILLIN CAPSULES

  7-14-67      Negotiated       5,400                                       $12.48                 $ 67,392
  8-31-67      Negotiated       9,600                                        12.48                  119,808
 lo-sp57       Negotiated      11,400                                         9.97                  113,658
 U- 7-67       Negotiated      16,800                                         9.97                  167,496
  5-23-68      Negotiated      17,568                                         9.77                  171,639
  7-23-68      Negotiated      15,168                                         9.19                  139,394
  l- 9-68      Negotiateda                   4,800                                      $ 9.62                 $ 46,176
  l- 9-68      Negotiateda                   9,600                                        9.45                     90,720
  3- 6-68      Negotiateda                  24,000                                        9.24                 ' 221,736
  4-23-68      Negotiateda                  22,752                                        8.86                   201,559
  4-23-68       Optionb                     11,376                                        8.86                   100,780
  9-25-68      Negotiateda                  26,112                                        7.18                   187,484
 11-14-68       op tionb                    52,224                                        7.18                   374,968
  4-23-69    Formal Advertised              31,128                                        5.95                   185,212    1
  7-22-69    Formal Advertised              23,346                                        5.40                   126,068    i
 10-21-69    Formal Advertised              26;784                                        5.23                  !140,054
 Total                         75,936      232,122                                                $779,387    $$674,757
 Average Unit Price                                                         $10.26       $ 7.22
 Potential  VA Amount Using DPSC Average Unit Price                       at VA Quantity    $ $48,258
 Difference  in VA Amount and VA Potential                                                  $ 211?129
 Percentage Difference                                                                              42%

a Competition      solicited       - one or more bids          received
b Option     exercised         under   preceding    contract
                                                                       0              APPENDIX B
                                               OF DRUGPROCURES
                       VA SOLE-SOURCE
                                    PROCUREMENT VS DPSCCOMPEYiITIVFPRomEMENTs
 Date of         Procurement     Quantity     Purchased       Unit Price     Amount of Contract
 Contract          Method         VA            DPSC          VA    DPSC      VA          DPSC

                           10,800                  1.52
m- 8-67      Negotiated    11,520                  1.52             17:510
 2- 19-68    Negotiated    12,432                  1.52             18,896
  5- 9-68    Negotiated    14,640                  1.52             22,253
 7-31-68     Negotiated    12,768                  1.52             19,407
 g- 18-68    Negotiated    18,184                  1.52             27,640
10-29-68     Negotiated     4,560                  1.52              6,931
 2-18-69     Negotiated    22,320                  1.52             87,905
n-1.5-68     Negotiateda               71,040
 azb6g       Optionb                  106,560                                               e$w;;
12- 8&g      Negotiated&                                  -37
 Total                              *                             $W
 Average Unit Price                               $1.52 i&85
 Potential VA Amount Using DPSCAverage Unit Price at VA Q&nt%ty     93,588
 Difference in VA Amount and VA Potential                       $- 127,748
 Percentage Difference                                                  136%~
                                            KAOLIN MIXTUREWITJJPECTIN
 8-u-67           Negotiated        756                       $5.50         s;, ;;;
 i-17-68         Negotiated        756                         5.50
 9-24-68          Negotiated       750                         5.50          p;
12-12-68          Negotiated       750                         5.50
 4- l-69         Negotiated      1,510                         5.30          8:003
  I- x9-68       Form&Advertised             22,162                 $2.30                   $50,973
 Total                      4,$22.-                                  $W                    FGGY--
 Average Unit Price                               $5.43 $2.30
 Potential VA Amount Using DPSCAverage Unit Price at VA Quantity$lS1,4Gl
 Difference in VA Amount and VA Potential                       $u
 Percentage Difference                                                i.36 4

 a Competition  solicited - one or more bids received
 b Option exercised under preceding contract

                                                     OF DRUG PROCURE
                                                       VS COMPETITI

  Date    of     Procurement            Quantity    Purchased            Unit Price        Amount     of   Contract
  Contract        Method                 VA            DPSC               VA
                                                                          --     DPSC        VA              DPSC

                                                      DIBUCAINE OlBTMEBT
   10-16-67      Negotiated        12,480                           $.22                   $9 w&
': l2-D-67       Negotiated        l2,ooo                             .22
      5-22-68    Negotiated          7,956                           .22                     1:750
      9- 6-68    Negotiated                                          .22
'li 10-24-68     Negotiated         %!?I:                            .22                     %z
    l2- 5-68     Negotiated         6:480                            .22                     11426
      3-26-69    Negotiated        21,612                            .22                     4,755
      2-27-68    Formal Advertised                       vi’, 896                 .14                        $21,316
      3-14-68    Formal   AdvertisedC                    157,896                  .14
  Total                                    315,792   .                $m
  Average Unit Price                                $.22   $.14
  Potential VA Amount Using DPSCAverage Unit Price at VA Quantity$10,589
  Difference in VA Amount and VA Potential                         $ 6,052
  Percentage Difference                                                  57%
                                                         INHAMTION, USP

    9- 1-67      Negotiated              11,232                                            $7,525
   m-13-67       Negotiated               lj440                           -67                 - 965
   12-11-67      Negotiated              =,W                              067               8,104
    5- 8-68      Negotiated              10,656
    9-24-68      Negotiated              11,376                           l067
                                                                            67               $%~
                 Negotiated               8,496                           967                5:@2
   l-?-2;-:;     Negotiated              =,384                            967                8,297
    s: 3-68      Formal Advertised                        S-0~                   $045                        $24,415
    I- 3-68      Optionb                                  27,432                   .45                        12,207
    4-16-68      Negotiateda                              46,224                   .41                        &859
   xz-x8-Gg     Nego t ia teda                          i$$%-                      .41
  Total                        m                     t M                          I *     $J?zG--
  Avera.ge Unit Price                               $067                         $943
  Potential VA Amount Using DPSCAverage Unit Price at VA Quantity                        $29,102
  Difference in VA Amount and VA Potential                                               $TZZi3
  Percentage Difference                                                                       5ti

   a Conpc"Li.tion solicited     - one or more bids           received
   b Op'iLotl exercised  under preceding           contract
   ' Se-: nside for small business