oversight

VA Health Care: VA's Management of Drugs on Its National Formulary

Published by the Government Accountability Office on 1999-12-14.

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

                 United States General Accounting Office

GAO              Report to the Ranking Minority Member,
                 Committee on Veterans’ Affairs, U.S.
                 Senate


December 1999
                 VA HEALTH CARE
                 VA’s Management of
                 Drugs on Its National
                 Formulary




GAO/HEHS-00-34
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Health, Education, and
                   Human Services Division

                   B-283993

                   December 14, 1999

                   The Honorable John D. Rockefeller IV
                   Ranking Minority Member
                   Committee on Veterans’ Affairs
                   United States Senate

                   Dear Senator Rockefeller:

                   The Department of Veterans Affairs (VA) spent over $1.8 billion (11 percent
                   of its health care budget) to provide pharmacy benefits to veterans in
                   fiscal year 1999. To help manage its pharmacy benefit, VA maintains a list
                   of drugs that its physicians are expected to use when prescribing drugs for
                   veterans, known as the national formulary. A formulary is a list of drugs,
                   grouped by therapeutic class, that a health care organization prefers that
                   its physicians prescribe. VA provides outpatient pharmacy services free to
                   veterans receiving medications for the treatment of service-connected
                   conditions and to veterans whose income does not exceed the maximum
                   VA pension, regardless of the drugs’ formulary status. Other veterans may
                   be charged $2 for each 30-day supply of medication.

                   You expressed interest in knowing how VA manages its national formulary
                   and how drugs other than those on the national formulary are made
                   available to veterans.1 In performing our work to address these issues, we
                   met with VA officials responsible for managing the national formulary,
                   reviewed program guidance and operating procedures, and visited with
                   pharmacy managers in two VA medical centers. We also spoke with
                   officials from the Institute of Medicine concerning their study of VA’s
                   formulary. We performed our work between April 1999 and
                   November 1999 in accordance with generally accepted government
                   auditing standards.


                   VA’snational formulary is administered by the Pharmacy Benefits
Results in Brief   Management Strategic Healthcare Group (PBM), a strategy modeled after
                   one commonly used in private health care systems. PBM adds drugs to, and
                   deletes drugs from, the national formulary on the basis of a review of
                   current literature related to drugs’ safety and efficacy and the

                   1
                    We are continuing to examine how VA’s national formulary may affect providers’ ability to prescribe
                   needed medications and other formulary issues and will report on these matters at a later date. In
                   addition, the Institute of Medicine has work under way to address (1) the effect of the national
                   formulary on the cost and quality of VA’s health care, (2) the restrictiveness of VA’s national formulary,
                   and (3) how the national formulary compares with private and other government formularies. These
                   issues will not be part of our continuing evaluation.



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             contributions they can make in treating veterans. The PBM also performs
             drug class reviews that determine which drugs are therapeutically
             interchangeable—essentially equivalent in terms of efficacy, safety, and
             outcomes. This determination allows VA to obtain better prices for one or
             more of these drugs by using competitively bid contracts. Finally, PBM
             safeguards against inappropriate use by requiring that clinical guidelines
             be followed when some drugs are used; limiting prescribing privileges in
             certain cases to specially trained physicians; and, in other cases, requiring
             consultation with a specialist before a drug can be prescribed.

             Drugs not on the national formulary may be available to veterans through
             independent formularies maintained by Veterans Integrated Service
             Networks (VISN) and some medical centers. These formularies are
             designed to provide local facilities flexibility by giving physicians access to
             additional drugs that meet the special needs of their patients. In addition,
             if prescribers believe that a patient needs a drug that is not on the national,
             VISN, or medical center formulary, they may request a nonformulary drug
             waiver, which would allow the prescriber to provide the nonformulary
             drug. New drugs may be added to VISN and medical center formularies
             immediately upon Food and Drug Administration (FDA) approval.
             However, VA policy states that new drugs generally may not be added to
             the national formulary until they have been on the U.S. market for at least
             1 year because VA believes veterans may be exposed to potential side
             effects that are not identified during the drug review and approval process.
             This potentially allows veterans treated in some facilities to benefit from
             new drugs before veterans in other locations, but, according to some VA
             officials, it may also expose them to any side effects that are identified
             within the first year of a drug’s general use.


             In fiscal year 1999, VA’s Veterans Health Administration (VHA) provided
Background   primary and specialty medical care to about 3.3 million veterans at a cost
             of approximately $17 billion. A pharmacy benefit that provides
             prescriptions, medically necessary over-the-counter drugs, and medical
             and surgical supplies is an important component of this care. VA provides
             outpatient pharmacy services free to veterans receiving medications for
             treatment of service-connected conditions and to veterans whose incomes
             do not exceed the maximum VA pension, regardless of the drugs’ formulary
             status. Other veterans who have prescriptions filled by VA may be charged
             $2 for each 30-day supply of medication.




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                                      Formularies are generally used in the health care industry to help control
                                      pharmacy costs and improve quality of care by (1) limiting the number of
                                      drugs available; (2) using financial incentives such as variable copayments
                                      to encourage the use of formulary drugs; (3) using compliance programs,
                                      such as prior authorization, that encourage or require physicians to
                                      prescribe formulary drugs; and (4) developing clinical guidelines for
                                      prescribing drugs.


Pharmacy Costs as a                   VHA’s cost of providing pharmacy services to veterans has more than
Percentage of VHA’s                   doubled over the past 9 years and has accounted for an increasing share of
Budget Nearly Doubled in              total costs. As table 1 shows, in fiscal year 1990, VHA spent approximately
                                      $716 million, or 6 percent of its total budget, on pharmacy services, but by
Last 9 Years                          fiscal year 1999, the amount had climbed to $1.8 billion, or about
                                      11 percent of its budget.

Table 1: Total VHA Budget and
Pharmacy Expenditures, Fiscal Years   Dollars in thousands
1990-99                                                                                                  Percentage
                                                                                                             of total
                                                                                  Total VHA    Pharmacy         VHA
                                      Fiscal year                                    budget expenditures     budget
                                      1990                                      $11,499,879      $715,879              6
                                      1991                                       12,400,326       795,114              6
                                      1992                                       13,682,060       881,593              6
                                      1993                                       14,612,138       912,531              6
                                      1994                                       15,400,526       924,482              6
                                      1995                                       16,125,957     1,054,961              7
                                      1996                                       16,372,856     1,101,056              7
                                      1997                                       17,149,463     1,337,487              8
                                      1998                                       17,441,079     1,548,424              9
                                      1999                                       17,306,000     1,844,742          11

                                      VHA officials believe that the more rapid cost increase in VHA’s pharmacy
                                      benefit from 1996 to the present is attributable, in part, to VHA’s shift from
                                      primarily inpatient care to outpatient care, the high cost of new drugs
                                      entering the market, and the growing need for expensive drug treatments
                                      for chronic diseases such as heart disease and chronic obstructive
                                      pulmonary disease. These upward cost trends are expected to continue,
                                      and pharmacy costs are expected to consume an increasing percentage of
                                      the VHA budget over the foreseeable future.




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VA’s Use of Formularies   VA medical centers began using formularies as early as 1955 to manage
                          their pharmacy inventories, and until recently each of VA’s 173 medical
                          centers maintained its own formulary. Because of the mobility of VA
                          patients, VHA officials believed that moving from uncoordinated,
                          facility-specific formularies to a national formulary should improve
                          veterans’ continuity of care. In September 1995, VA established the PBM, a
                          centralized group to manage its pharmacy benefit nationwide.

                          In November 1995, in concert with the establishment of VISNs,2 the Under
                          Secretary of Health directed each VISN to develop and implement a
                          networkwide formulary and a mechanism for ensuring integration of
                          medical center and VISN formulary decisions. The process for developing
                          these formularies was left to the discretion of VISN directors, assisted by
                          VISN formulary leaders.3 However, on the basis of suggested guidance from
                          a VHA directive, networks generally combined existing medical center
                          formularies. VISN formularies became effective on April 30, 1996.

                          In 1996, also recognizing the effect of veterans’ increasing mobility on their
                          access to care, the Congress required VA to improve veterans’ access to
                          care regardless of the region of the United States in which they live. As
                          one response, on June 1, 1997, VA implemented a national drug formulary
                          by combining the core set of drugs common to the newly developed VISN
                          formularies. The national formulary contained only drug items until
                          December 1997, when VA added medical and surgical supplies. By virtue of
                          an item’s listing on the national formulary, VA requires that it be made
                          available to veterans throughout VA’s health care system, if the item is
                          medically appropriate.

                          The benefits of establishing a national formulary in VA include
                          (1) standardizing drug availability among its facilities, (2) increasing
                          continuity of care by decreasing variations in practice among VA facilities
                          by using clinical guidelines, (3) standardizing the processes for evaluating
                          evidence on safety and efficacy in selecting drugs, and (4) helping to
                          manage the cost growth in the pharmacy benefit. VA also uses its formulary
                          to comply with Joint Commission for the Accreditation of Health Care
                          Organizations standards that require VA to develop and maintain an
                          appropriate selection of medications prescribers may use in treating their
                          patient populations.

                          2
                           In fiscal year 1996, VA shifted management authority for basic decision-making and budgetary duties
                          from its headquarters to 22 new regional networks called VISNs.
                          3
                           VISN formulary leaders appointed by VISN directors are the liaisons between VISN management and
                          VA officials responsible for managing the national formulary.



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                     Drugs are usually grouped by class, depending on their mechanism of
                     action and therapeutic effect. VA’s national formulary is composed of 304
                     classes of drugs and supplies used to treat similar illnesses or conditions.
                     Of the 304 classes, 251 include drugs used to treat a wide variety of
                     illnesses. The remaining 53 classes include medical and surgical supply
                     items, such as diabetic supplies and bandages. Approximately 1,100
                     different drugs are included in VA’s 251 drug classes. When counting all
                     forms and dosage levels of all drugs represented, the national formulary
                     includes approximately 7,500 drug items. About 125 items are included in
                     VA’s 53 medical and surgical supply classes.4


                     VISNs and their associated medical centers are allowed to maintain and
                     manage their own independent formularies, which include drugs in
                     addition to those on the national formulary. VISNs may add or delete drugs
                     on their formularies without seeking approval from VA headquarters. While
                     PBM does not track the contents of VISN formularies, PBM estimates that the
                     22 VISN formularies include approximately 5,500 forms and dosages of
                     medications that are not on the national formulary. The only prohibition
                     placed on VISNs and medical centers in adding or deleting drugs on their
                     formularies is that they may neither delete drugs listed on the national
                     formulary nor add drugs to those classes for which there are national
                     committed-use contracts—contracts for drug purchases that require VA to
                     agree to use primarily the products chosen in exchange for lower prices.


                     In September 1995, before implementing a national formulary, VA
National Formulary   established its PBM, modeled after a strategy commonly used in the private
Management Process   sector, to manage the cost, use, outcomes, and distribution of
                     pharmaceuticals. PBM centralized the management of VA’s pharmacy
                     benefit and, working in conjunction with VA’s National Acquisition Center
                     (NAC), seeks to obtain the drugs needed to treat veterans at the best price.
                     PBM (1) facilitates the addition and deletion of drugs on the national
                     formulary on the basis of safety and efficacy data; (2) determines which
                     drugs are therapeutically interchangeable,5 in order to purchase drugs
                     through competitive bidding; and (3) develops safeguards to protect
                     veterans from the inappropriate use of certain drugs.




                     4
                      The list of drugs on VA’s national formulary is available at Internet address www.dppm.med.va.gov
                     5
                      Therapeutic interchange is the clinically appropriate replacement of one drug with another drug
                     having the same pharmacological or therapeutic effect.



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Process for Adding and       VA’s process for considering the addition and deletion of drugs on its
Deleting Drugs               national formulary begins with a request from a senior official in one of
                             VA’s Strategic Healthcare Groups (an organizational unit within VA
                             responsible for a particular continuum of care for a specific patient
                             population), a PBM consultant, or a recommendation from the Medical
                             Advisory Panel.6 Requests may also come from VISN formulary committees
                             that, in turn, may have originated from requests made to those committees
                             by medical center pharmacy and therapeutics committees.7

                             A request for formulary review is submitted to PBM. A clinical pharmacist
                             then evaluates the current literature on the drug and prepares a document
                             reviewing the pharmacology, indications for use, a comparison with drugs
                             currently on the formulary, adverse effects, and cost and utilization data.
                             This document is forwarded to the Medical Advisory Panel for its
                             consideration. After receiving input from other clinicians, the Panel makes
                             the final decision about whether the drug should be added to the national
                             formulary. VA has added 26 and deleted 6 drugs on the national formulary
                             since it was established in 1997.

                             According to PBM officials, cost is not a major consideration during the
                             initial phase of reviewing a drug. Decisions to add or delete drugs on the
                             national formulary are made using criteria similar to those used by
                             pharmacy benefit managers in the private sector—safety and
                             effectiveness. Purchasing the drug at the lowest price possible is the
                             responsibility of VA’s NAC, which uses several purchasing techniques,
                             including competitive bidding for drugs available from multiple sources. VA
                             officials believe this two-phased process ensures that the drugs on the
                             national formulary include those representing the “best value”—the most
                             effective treatment at the least cost—rather than simply the least
                             expensive drug available.


Determination of             Drugs on the national formulary are assigned to one of VA’s 251 drug
Therapeutic Interchange      classes—groups of drugs similar in chemistry, method of action, or
Allows VA to Obtain Better   purpose of use. After performing drug class reviews, VA decided that some
                             drugs in 4 of its 251 drug classes are therapeutically interchangeable and
Prices
                             6
                              The Medical Advisory Panel is a working group made up of 11 practicing physicians who are currently
                             on staff at VA medical centers and 1 practicing Department of Defense physician. Members are
                             appointed for a 2-year term. Its mission is to help manage VA’s national formulary and to assist in
                             developing evidence-based clinical practice guidelines. The Medical Advisory Panel is organizationally
                             part of the PBM.
                             7
                              Pharmacy and therapeutics committees are composed of physicians, pharmacists, and other health
                             care professionals who address formulary issues and establish drug treatment policies.



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therefore limited the number of similar drugs in these classes. These four
classes are known as “closed” classes. VA has not made a clinical decision
regarding therapeutic interchange in the remaining 247 drug classes, and it
does not limit the number of drugs that can be added to these classes.
These are known as “open” classes.

A closed class usually contains drugs that either have a high volume of use
or are high cost; this therefore presents an opportunity to obtain a lower
price through competitive bidding. To close a class, VA evaluates the
clinical evidence to determine whether the drugs in that class are basically
equivalent in terms of efficacy, safety, and outcomes and therefore
generally have the same therapeutic effect. The clinician responsible for
the review prepares a report on the extent to which the drugs in the class
are therapeutically interchangeable and, in conjunction with a Medical
Advisory Panel representative, makes a recommendation as to whether the
class should be closed and competitive contracts considered. The drug
class report is submitted to the Panel for its deliberation, comments, and
modification. The report then goes to VISN directors and pharmacy officials
in the VISNs and medical centers for comment. The final report,
incorporating all agreed-upon changes, is returned to the Panel, which
makes a final decision.

Once VA has determined that a class will be closed, the drugs that have
been determined therapeutically interchangeable are referred to NAC for
contracting purposes. VA then contracts for one or more of these
therapeutically interchangeable drugs using competitively bid national
committed-use contracts. By committing to use these drugs to treat
veterans throughout its health care system, VA can assure the drug
companies a high volume of use and drug companies in turn are more
likely to offer a lower price.

VA’s four closed classes may also contain drugs that are not therapeutically
interchangeable. These drugs have different mechanisms of action and
represent alternative agents for treating the same conditions. Table 2 lists
the four closed classes, the diseases the drugs in the classes generally
treat, and the specific drug(s) in the classes for which VA has awarded
committed-use contracts.




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Table 2: National Formulary Closed
Classes and Drugs With                                                                      Drug(s) with
Committed-Use Contracts              Drug class (VA class code)   Disease treated           committed-use contracts
                                     Antineoplastic Hormones      Prostate cancer           Goserelin acetate implant
                                     (AN500)                                                syringe
                                     Antilipemic Agents           High cholesterol          Gemfibrozil, Lovastatin,
                                     (CV350)                                                Simvastatin
                                     ACE Inhibitors               High blood pressure       Captopril, Fosinopril,
                                     (CV800)                                                Lisinopril
                                     Gastric Medications          Stomach ulcers            Lansoprazole
                                     (GA900)

                                     In fiscal year 1999, prescriptions for the drugs in the closed classes
                                     represented 10 percent of all filled prescriptions written by VA prescribers
                                     and 13 percent of VA’s pharmaceutical expenditures. VA reports that
                                     compliance with national committed-use contracts exceeds 94 percent.
                                     Once the class has been designated closed, VISNs and medical centers are
                                     not allowed to add items to those classes on their own formularies.

                                     VA’s remaining 247 drug classes are designated as open, meaning that VA
                                     has not made a decision to award committed-use contracts for drugs in
                                     these classes. Open classes may contain several drugs, and VA may
                                     purchase the drugs in these classes using a variety of contracting
                                     instruments to obtain the best possible price. If a class is open, VISNs and
                                     medical centers may add items to it on their own formularies.


Safeguards Developed to              Because of the unique characteristics of certain drugs, VA’s national
Protect Veterans From                formulary places some restrictions or controls on their use. VA has applied
Inappropriate Drug Use               restrictions to 123 drugs listed on the national formulary. Restrictions are
                                     generally placed on the use of a drug if it has the potential for
                                     inappropriate use, making it ineffective or high risk. For example,
                                     restrictions are placed on the use of antibiotics because organisms can
                                     develop resistance to them, making them ineffective in treating disease.
                                     Because they are high-risk drugs, acyclovir, used to treat HIV/AIDS, and
                                     interferon, used to treat hepatitis C, are restricted by guidelines
                                     established by subject matter experts.

                                     Controls to restrict drug use include applying clinical guidelines, limiting
                                     prescribing privileges to specially trained physicians, and requiring the
                                     prescriber to consult with a specialist before a drug can be prescribed. VA
                                     has adopted clinical guidelines for the treatment of 10 common diagnoses
                                     associated with its patient population. These guidelines assist



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                      practitioners in making decisions about the diagnosis, treatment, and
                      management of specific clinical conditions, such as congestive heart
                      failure, depression, and hypertension. Clinical experts inside, as well as
                      outside, VA developed these guidelines. Recommendations for the use of
                      certain drugs as a part of the management of these clinical conditions are
                      identified in each guideline. The use of these drugs may be restricted to
                      comply with these guidelines.

                      In addition, VA has adopted clinical guidelines to assist practitioners in
                      making decisions about the appropriate use of specific drugs. These
                      guidelines help standardize treatment, improve the quality of patient care,
                      and promote the cost-effectiveness of prescriptions. The guidelines
                      specifically address the role of the drug in managing VA patients and
                      include appropriate dosing guidelines and monitoring parameters.


                      The effect of a formulary on the prescribers’ choice of drugs depends on
Access to Drugs Not   how difficult it is to provide drugs that are not listed on the formulary.
Limited to Those on   Formularies that do not impose additional charges on their patients if their
the National          physicians prescribe drugs other than those on the formulary are often
                      described as “open.”8 Open formularies are often used in conjunction
Formulary             with compliance programs that are used to make physicians aware of
                      which drugs are on the formulary. Open formularies are often referred to
                      as “voluntary” because beneficiaries are not penalized financially if their
                      physicians prescribe nonformulary drugs.

                      In addition to drugs listed on VA’s national formulary, physicians may also
                      prescribe drugs listed on formularies developed and maintained
                      independently by VISNs and some medical centers. VISN and medical center
                      formularies are designed to provide flexibility and allow physicians to
                      meet the special needs of their patients. In addition, if a prescriber
                      believes that a patient needs a drug that is not included on the national,
                      VISN, or medical center formularies, he or she may request a waiver, which,
                      if approved, allows the nonformulary drug to be prescribed. Although new
                      drugs may be added to VISN and medical center formularies immediately
                      upon FDA approval, such drugs generally may not be added to the national
                      formulary until they have been on the U.S. market for 1 year. This creates
                      discrepancies across VA’s health care system, allowing veterans treated in
                      some VA facilities to possibly benefit from new drugs sooner than veterans
                      treated in other locations. At the same time, these veterans are exposed to

                      8
                       Prescription Drug Benefits: Implications for Beneficiaries of Medicare HMO Use of Formularies
                      (GAO/HEHS-99-166, July 20, 1999).



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                          the risk of possible side effects that may be identified within the first year
                          of general use of a drug, while other veterans are provided a greater
                          margin of safety, according to VA officials.


VISN and Medical Center   Each of VA’s 22 VISNs is allowed to add drugs to its formulary in addition to
Formularies Supplement    the drugs on the national formulary. Although each VISN may make
the National Formulary    formulary decisions on the basis of slightly different steps and procedures,
                          VISNs generally follow processes similar to the one used to add drugs to the
                          national formulary. Requests for a drug’s consideration may come from a
                          VISN’s pharmacy and therapeutics committee or from such committees
                          located in any of the VISN’s individual facilities. VA requires the VISN
                          committee members to review literature and evidence from clinical trials
                          to assess efficacy, safety, and outcomes before the VISN may add a drug to
                          its formulary.

                          VISNs have reported to VA’s PBM that they have added 268 drugs to open
                          classes on their individual formularies since the national formulary began
                          in June 1997. These formulary drugs are available for use by medical
                          center prescribers only in the VISNs where they were added. Between
                          June 1997 and June 1999, VISNs added drugs to their formularies at varying
                          rates, ranging from as few as 2 (VISN 8—Bay Pines) to as many as 87 (VISN
                          20—Portland) (see table 3). During that same period, 26 drugs were added
                          to the national formulary. VISN formularies have been a significant source
                          of growth in the number of drugs available for VA prescribers and their
                          patients.




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Table 3: Drugs Added to VISN
Formularies, 1998 and 1999                                                                          Jan.-June
                               VISN                                                         1998         1999           Total
                               1 (Boston)                                                       8             5              13
                               2 (Albany)                                                      10             6              16
                               3 (Bronx)                                                       20             2              22
                               4 (Pittsburgh)                                                  21             0              21
                               5 (Baltimore)                                                    6            10              16
                               6 (Durham)                                                      22             6              28
                               7 (Atlanta)                                                     50             9              59
                               8 (Bay Pines)                                                    2             0               2
                               9 (Nashville)                                                   15             0              15
                               10 (Cincinnati)                                                 12             3              15
                               11 (Ann Arbor)                                                  10             9              19
                               12 (Chicago)                                                    13             9              22
                               13 (Minneapolis)                                                30             3              33
                               14 (Omaha)                                                       5             1               6
                               15 (Kansas City)                                                13            18              31
                               16 (Jackson)                                                     6             3               9
                               17 (Dallas)                                                     18             8              26
                               18 (Phoenix)                                                     7             1               8
                               19 (Denver)                                                     16             3              19
                               20 (Portland)                                                   52            35              87
                               21 (San Francisco)                                              19             5              24
                               22 (Long Beach)                                                 36            18              54
                               Total                                                         391            155              546
                               Unduplicated totala                                           215             53              268
                               Note: No drugs were added to VISN formularies in 1997.
                               a
                                Represents total unduplicated count of drugs (more than one VISN could have added the same
                               drug to its formulary).



                               In some cases, medical centers also add drugs to their formularies if the
                               drugs are needed to meet the special needs of their patients. For example,
                               a medical center that has a large population of patients with mental illness
                               added CelexaR, a new medication used to treat depression, to its
                               formulary. Just as VISN formulary drugs are only available in the applicable
                               VISN, medical center formulary drugs are only available at that facility.




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                         VA’sprocess for moving drugs from VISN formularies to the national
                         formulary has relied primarily on requests from VISN formulary leaders.
                         However, VISN formulary leaders have little incentive to request that drugs
                         on their formularies be added to the national formulary because their
                         prescribers already have access to those drugs.

                         Without a process for systematically reviewing the drugs added to VISN
                         formularies and considering their addition to the national formulary, the
                         proportion of prescriptions written for national formulary drugs could
                         decline over time, while the proportion written for VISN formulary drugs
                         could increase. Consequently, the benefits of a national formulary—more
                         standardized drug availability and review processes, for example—could
                         be eroded. Moreover, opportunities for savings that VA might realize in
                         contracting for larger drug purchases could be reduced.

                         In October 1999, with the approval of the formulary leaders, PBM
                         announced that it was implementing a process whereby any drug that has
                         been added to 10 or more VISN formularies will be considered
                         automatically for inclusion on the national formulary. However, as of that
                         date, only 1 of the 268 different drugs that VISNs had added to their
                         formularies was listed by 10 or more VISNs.


Waiver Process Allows    If a prescriber believes that a patient needs a drug that is not included on
Access to Nonformulary   the national, VISN, or local formularies, he or she may request the use of a
Drugs                    nonformulary drug. Each VA medical facility is required to have a process
                         in place, known as a nonformulary waiver, for prescribers to obtain
                         approval for the use of nonformulary drugs. Waivers are generally
                         approved if there are contraindications to the use of formulary drugs; a
                         patient has an adverse reaction to a formulary drug; all formulary
                         alternatives are therapeutic failures; no formulary alternative exists; or a
                         patient previously responded to a nonformulary drug, and risk is
                         associated with a change to a formulary drug. The process for approving
                         waivers varies among medical facilities and VISNs in terms of the review
                         steps required, who approves the waiver, and the time needed to obtain
                         approval. In a report to the Congress in February 1999,9 VA stated that VISNs
                         received an average of 109 requests to use nonformulary drugs each month
                         in 1998 and that 88 percent of these requests were approved. Nationally,
                         nonformulary drugs account for approximately 3 percent of all VA
                         prescriptions.


                         9
                          VA, VHA, Non-Formulary Drug Use Process (Washington, D.C.: VA, Feb. 1999).



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Newly Approved Drugs Are   VA’s national formulary policy states that it will consider a new drug for
Treated Differently in     addition to the national formulary only after it has been on the U.S. market
National and VISN          for 1 year, unless the FDA designates the product as a unique therapeutic
                           entity. PBM officials told us that a 1-year delay in adding these drugs to the
Formularies                national formulary was imposed because of concerns about potential
                           complications that may accompany the use of some newly approved
                           drugs. They noted that because clinical trials are conducted with relatively
                           small numbers of people and in controlled environments, they might not
                           accurately reflect drug usage and side-effect rates found in VA’s population.
                           In addition, side effects and interactions for newly approved drugs might
                           be identified only after the drugs come into wider use. For example,
                           several new products were removed from the market after they received
                           FDA approval because of concerns about serious side effects. These
                           products included ReduxR (a drug used to treat obesity) and PosicorR (a
                           calcium channel blocker used to treat heart disease). In addition, several
                           new drugs had to be relabeled to highlight their potential for serious
                           adverse effects, including RezulinR (for diabetes) and ViagraR (for erectile
                           dysfunction). As a result, PBM officials believe that the delay in adding
                           newly approved drugs to the national formulary gives veterans an
                           additional margin of safety.

                           VISNs, however, are not restricted in their ability to add newly approved
                           drugs and may add them to their formularies immediately upon FDA
                           approval. PBM officials stated that VISNs are allowed to add these new drugs
                           to provide flexibility in cases in which VISN leaders believe they need to
                           provide quick access to an important new drug. Of the drugs added to VISN
                           formulary lists between June 1997 and June 1999, nearly a quarter were
                           added within 1 year of FDA’s approval.

                           Because VHA’s policy uses different criteria for adding newly approved
                           drugs to the national and VISN formularies, discrepancies exist across the
                           VA health care system in veterans’ access and in their possible exposure to
                           side effects. Veterans seeking health care in VISNs that have added new
                           drugs to their formularies soon after FDA approval have access to, and may
                           obtain benefit from, those drugs before veterans seeking care in other
                           VISNs. On the other hand, some VA officials are concerned that veterans
                           treated with newly approved drugs in such VISNs may be exposed to
                           potential side effects that are identified within the first year of their
                           general use.




                           Page 13                            GAO/HEHS-00-34 VA Drug Formulary Management
                  B-283993




                  In commenting on a draft of this report, PBM officials in VA generally
Agency Comments   concurred with the factual content. They also provided technical
                  comments, which we incorporated where appropriate.


                  We are sending copies of this report to the Honorable Togo West,
                  Secretary of Veterans Affairs, and other congressional committees having
                  interest in this issue. We will make copies available to others on request.

                  Major contributors to this report were George Poindexter, Stuart
                  Fleishman, Mike O’Dell, and Kathie Kendrick. Please call me at
                  (202) 512-7101 if you have any questions or need additional assistance.

                  Sincerely yours,




                  Stephen P. Backhus
                  Director, Veterans’ Affairs
                    and Military Health Care Issues




                  Page 14                             GAO/HEHS-00-34 VA Drug Formulary Management
Page 15   GAO/HEHS-00-34 VA Drug Formulary Management
Contents



Letter                                                                                          1


Glossary                                                                                       18


Related GAO Products                                                                           21


Tables                 Table 1: Total VHA Budget and Pharmacy Expenditures, Fiscal              3
                         Years 1990-99
                       Table 2: National Formulary Closed Classes and Drugs With                8
                         Committed-Use Contracts
                       Table 3: Drugs Added to VISN Formularies, 1998 and 1999                 11




                       Abbreviations

                       FDA       Food and Drug Administration
                       NAC       National Acquisition Center
                       PBM       Pharmacy Benefits Management Strategic Healthcare Group
                       VA        Department of Veterans Affairs
                       VHA       Veterans Health Administration
                       VISN      Veterans Integrated Service Network


                       Page 16                         GAO/HEHS-00-34 VA Drug Formulary Management
Page 17   GAO/HEHS-00-34 VA Drug Formulary Management
Glossary


Clinical Guidelines        Treatment procedures arrived at and agreed upon by a medical committee
                           or group for certain common medical conditions; a guideline provides the
                           clinician with specific treatment options or steps when faced with a
                           particular set of clinical symptoms, signs, or laboratory data.


Closed Class               A drug class for which VA has made a clinical decision to limit the number
                           of drugs listed and subsequently has awarded a national committed-use
                           contract. VISNs may not place additional drugs on their formularies in these
                           classes; however, nonformulary drugs may be obtained by using a waiver
                           process.


Drug Class                 A group of drugs that are similar in chemistry, method of action, or
                           purpose.


Formulary                  A list of drugs or classes of drugs a health care system or other
                           organization has identified as appropriate for treating patients.


Medical Advisory Panel     VHA’s Medical Advisory Panel is a working group of 11 practicing
                           physicians who are currently on staff at VA medical centers and 1 physician
                           practicing in the Department of Defense. Members are appointed to serve
                           for a 2-year term. The Panel’s mission is to help manage VA’s national
                           formulary and to assist in developing evidence-based clinical guidelines.
                           The Panel is organizationally part of the PBM.


Medical Center Formulary   A list of drugs and medical and surgical supplies that includes all items
                           listed on the VA national formulary, the VISN formulary, and any other items
                           that the medical center requires to meet the special needs of its patient
                           population. Not all VISNs allow medical centers to maintain their own
                           formularies.


National Acquisition       The Office of Acquisition and Materiel Management’s National Acquisition
Center (NAC)               Center is the largest combined contracting activity within VA. NAC is
                           responsible for purchasing drugs and medical supplies for VA as well as
                           other government agencies. It administers VA’s Federal Supply Schedule
                           and National Contract Programs, including the acquisition and direct
                           delivery of pharmaceuticals; purchases of medical, surgical, and dental



                           Page 18                            GAO/HEHS-00-34 VA Drug Formulary Management
                           Glossary




                           supplies and high technology medical equipment; and just-in-time
                           distribution programs (also known as Prime Vendor Distribution
                           Programs).


Nonformulary Medications   Medications not listed on a particular formulary.

Nonformulary Waiver        A process that VA requires at each VISN or medical center allowing a
Process                    physician to request a nonformulary medication to meet patient care
                           needs. Nonformulary drugs may be approved under the following
                           circumstances: (1) when there are contraindication(s) to formulary drugs,
                           (2) if a patient experiences adverse reactions to formulary drugs, (3) when
                           all formulary drugs are therapeutic failures, or (4) when no formulary
                           alternative exists.


Open Class                 A drug class for which VA has not made a clinical decision to limit the
                           number of drugs listed on the VA national formulary. VISNs may place
                           additional drugs on their formularies in these classes.


Pharmacy and               A committee of physicians, pharmacists, and other health care
Therapeutics Committee     professionals that addresses formulary issues and establishes drug
                           treatment policies.


Pharmacy Benefits          Pharmacy benefits management is the design, implementation, and
Management                 administration of outpatient drug benefit programs for employers and
                           managed care organizations.


Pharmacy Benefits          Established in September 1995, VA’s PBM is modeled after a strategy
Management Strategic       commonly used in the private sector, to manage the cost, use, outcomes,
Healthcare Group (PBM)     and distribution of pharmaceuticals.

Prior Authorization        The approval a provider must obtain prior to using certain medical
                           products or drugs so that services will be covered by the health plan.


Restricted Medications     Medications that require close monitoring to ensure appropriate use.
                           Restrictions may include implementing evidence-based guidelines and




                           Page 19                            GAO/HEHS-00-34 VA Drug Formulary Management
                             Glossary




                             giving prescribing privileges to providers with certain expertise. In the
                             absence of national guidelines, reasonable restrictions may be imposed at
                             the VISN level and, in some instances, by medical centers.


Strategic Healthcare Group   A multidisciplinary group of personnel and programs within VA organized
(SHG)                        to support the provision of a continuum of care to a specific population of
                             patients or the provision of care in a particular setting. The SHG functions
                             by integrating data, skills, and best practices into systemwide policy,
                             planning, and service delivery through the development of clinical care
                             strategies (for example, practice guidelines or critical pathways) and
                             decision support mechanisms.


Therapeutic Effect           The way a drug works to cure or heal the condition for which it is
                             prescribed.


Therapeutic Interchange      The authorized substitution of one drug for another that is essentially
                             equivalent in terms of efficacy, safety, and outcomes. Therapeutic
                             interchange interventions follow established guidelines or protocols and
                             may involve switching nonformulary medications to formulary drugs.


Therapeutic Substitution     The substitution of a prescribed drug for a different drug in the same class
                             without the prior authorization of the individual prescriber.


VA National Formulary        A list of drugs and medical and surgical supplies that VA has determined
                             are appropriate for use in treating veterans. Although a physical inventory
                             of these items is not required, they must be available at all VA facilities. If a
                             clinical need for a formulary product arises in the course of treating a
                             patient, then the formulary product must be made available to the patient.


VISN Formulary               A list of drugs and medical and surgical supplies that includes all items
                             listed on the VA national formulary and any other items that the VISN has
                             determined are required to meet the special needs of the patient
                             population treated in the VISN.




                             Page 20                              GAO/HEHS-00-34 VA Drug Formulary Management
Related GAO Products


              Prescription Drug Benefits: Implications for Beneficiaries of Medicare
              HMO Use of Formularies (GAO/HEHS-99-166, July 20, 1999).

              Defense Health Care: Fully Integrated Pharmacy System Would Improve
              Service and Cost-Effectiveness (GAO/HEHS-98-176, June 12, 1998).

              VAHealth Care: Opportunities to Significantly Reduce Outpatient
              Pharmacy Costs (GAO/HEHS-97-15, Oct. 11, 1996).

              Pharmacy Benefit Managers: Early Results on Ventures with Drug
              Manufacturers (GAO/HEHS-96-45, Nov. 9, 1995).




(406180)      Page 21                           GAO/HEHS-00-34 VA Drug Formulary Management
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