VA Health Care: VA's Management of Drugs on Its National Formulary
(Letter Report, 12/14/1999, GAO/HEHS-00-34).

Pursuant to a congressional request, GAO reviewed how the Department of
Veterans' Affairs' (VA) manages its national formulary and how drugs
other than those on the formulary are made available to veterans.

GAO noted that: (1) VA's national formulary is administered by the
Pharmacy Benefits Management Strategic Healthcare Group (PBM), a
strategy modeled after one commonly used in private health care systems;
(2) 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 contributions they can make in treating veterans; (3)
PBM also performs drug class reviews that determine which drugs are
therapeutically interchangeable--essentially equivalent in terms of
efficacy, safety, and outcomes; (4) this determination allows VA to
obtain better prices for one or more of these drugs by using
competitively bid contracts; (5) 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; (6) in other cases, PBM requires consultation with a
specialist before a drug can be prescribed; (7) 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; (8) these formularies are designed to provide
local facilities flexibility by giving physicians access to additional
drugs that meet the special needs of their patients; (9) if prescribers
believe that a patient needs a drug that is not on the national, VISN,
medical center formulary, they may request a nonformulary drug waiver,
which would allow the prescriber to provide the nonformulary drug; (10)
new drugs may be added to VISN and medical center formularies
immediately upon Food and Drug Administration approval; (11) 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; and
(12) this potentially allows veterans treated in some facilities to
benefit from new drugs before veterans in other locations, but it may
also expose them to any side effects that are identified within the
first year of a drug's general use.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-00-34
     TITLE:  VA Health Care: VA's Management of Drugs on Its National
	     Formulary
      DATE:  12/14/1999
   SUBJECT:  Pharmaceutical industry
	     Veterans
	     Veterans benefits
	     Health care services
	     Pharmacological research
	     Health care cost control
	     Drugs
	     Health insurance
	     Managed health care
	     Health services administration
IDENTIFIER:  VA Veterans Integrated Service Network

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Cover
================================================================ COVER

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

VA Drug Formulary Management

(406180)

Abbreviations
=============================================================== ABBREV

  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

Letter
=============================================================== LETTER

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. 

--------------------
\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. 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

VA's national formulary is administered by the Pharmacy Benefits
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 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. 

   BACKGROUND
------------------------------------------------------------ Letter :2

In fiscal year 1999, VA's Veterans Health Administration (VHA)
provided 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. 

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
      PERCENTAGE OF VHA'S BUDGET
      NEARLY DOUBLED IN LAST 9
      YEARS
---------------------------------------------------------- Letter :2.1

VHA's cost of providing pharmacy services to veterans has more than
doubled over the past 9 years and has accounted for an increasing
share of 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 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 1990-99

                                                                Percen
                                                                  tage
                                                                    of
                                              Total   Pharmacy   total
                                                VHA  expenditu     VHA
Fiscal year                                  budget        res  budget
-------------------------------------------  ------  ---------  ------
1990                                         $11,49   $715,879       6
                                              9,879
1991                                         12,400    795,114       6
                                               ,326
1992                                         13,682    881,593       6
                                               ,060
1993                                         14,612    912,531       6
                                               ,138
1994                                         15,400    924,482       6
                                               ,526
1995                                         16,125  1,054,961       7
                                               ,957
1996                                         16,372  1,101,056       7
                                               ,856
1997                                         17,149  1,337,487       8
                                               ,463
1998                                         17,441  1,548,424       9
                                               ,079
1999                                         17,306  1,844,742      11
                                               ,000
----------------------------------------------------------------------
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. 

      VA'S USE OF FORMULARIES
---------------------------------------------------------- Letter :2.2

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. 

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. 

--------------------
\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. 

\4 The list of drugs on VA's national formulary is available at
Internet address www.dppm.med.va.gov

   NATIONAL FORMULARY MANAGEMENT
   PROCESS
------------------------------------------------------------ Letter :3

In September 1995, before implementing a national formulary, VA
established its PBM, modeled after a strategy commonly used in the
private 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. 

--------------------
\5 Therapeutic interchange is the clinically appropriate replacement
of one drug with another drug having the same pharmacological or
therapeutic effect. 

      PROCESS FOR ADDING AND
      DELETING DRUGS
---------------------------------------------------------- Letter :3.1

VA's process for considering the addition and deletion of drugs on
its 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. 

--------------------
\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. 

      DETERMINATION OF THERAPEUTIC
      INTERCHANGE ALLOWS VA TO
      OBTAIN BETTER PRICES
---------------------------------------------------------- Letter :3.2

Drugs on the national formulary are assigned to one of VA's 251 drug
classes--groups of drugs similar in chemistry, method of action, or
purpose of use.  After performing drug class reviews, VA decided that
some drugs in 4 of its 251 drug classes are therapeutically
interchangeable and 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. 

                                Table 2
                
                 National Formulary Closed Classes and
                   Drugs With Committed-Use Contracts

                                                Drug(s) with
Drug class (VA class                            committed-use
code)                   Disease treated         contracts
----------------------  ----------------------  ----------------------
Antineoplastic          Prostate cancer         Goserelin acetate
Hormones                                        implant syringe
(AN500)

Antilipemic Agents      High cholesterol        Gemfibrozil,
(CV350)                                         Lovastatin,
                                                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
      PROTECT VETERANS FROM
      INAPPROPRIATE DRUG USE
---------------------------------------------------------- Letter :3.3

Because of the unique characteristics of certain drugs, VA's national
formulary places some restrictions or controls on their use.  VA has
applied 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 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. 

   ACCESS TO DRUGS NOT LIMITED TO
   THOSE ON THE NATIONAL FORMULARY
------------------------------------------------------------ Letter :4

The effect of a formulary on the prescribers' choice of drugs depends
on how difficult it is to provide drugs that are not listed on the
formulary.  Formularies that do not impose additional charges on
their patients if their physicians prescribe drugs other than those
on the formulary are often described as open.\8 Open formularies
are often used in conjunction 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 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. 

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

      VISN AND MEDICAL CENTER
      FORMULARIES SUPPLEMENT THE
      NATIONAL FORMULARY
---------------------------------------------------------- Letter :4.1

Each of VA's 22 VISNs is allowed to add drugs to its formulary in
addition to the drugs on the national formulary.  Although each VISN
may make 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. 

                                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 total\a                               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 Celexa\R , 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. 

VA's process 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 ACCESS
      TO NONFORMULARY DRUGS
---------------------------------------------------------- Letter :4.2

If a prescriber believes that a patient needs a drug that is not
included on the national, VISN, or local formularies, he or she may
request the use of a 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). 

      NEWLY APPROVED DRUGS ARE
      TREATED DIFFERENTLY IN
      NATIONAL AND VISN
      FORMULARIES
---------------------------------------------------------- Letter :4.3

VA's national formulary policy states that it will consider a new
drug for addition to the national formulary only after it has been on
the U.S.  market 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 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 Redux\R (a drug used to treat obesity) and
Posicor\R (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 Rezulin\R (for
diabetes) and Viagra\R (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. 

   AGENCY COMMENTS
------------------------------------------------------------ Letter :5

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

---------------------------------------------------------- Letter :5.1

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

GLOSSARY
============================================================ Chapter 0

      CLINICAL GUIDELINES
-------------------------------------------------------- Chapter 0:0.1

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
-------------------------------------------------------- Chapter 0:0.2

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
-------------------------------------------------------- Chapter 0:0.3

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

      FORMULARY
-------------------------------------------------------- Chapter 0:0.4

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
-------------------------------------------------------- Chapter 0:0.5

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
-------------------------------------------------------- Chapter 0:0.6

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 CENTER
      (NAC)
-------------------------------------------------------- Chapter 0:0.7

The Office of Acquisition and Materiel Management's National
Acquisition 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 supplies and high
technology medical equipment; and just-in-time distribution programs
(also known as Prime Vendor Distribution Programs). 

      NONFORMULARY MEDICATIONS
-------------------------------------------------------- Chapter 0:0.8

Medications not listed on a particular formulary. 

      NONFORMULARY WAIVER PROCESS
-------------------------------------------------------- Chapter 0:0.9

A process that VA requires at each VISN or medical center allowing a
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
------------------------------------------------------- Chapter 0:0.10

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 THERAPEUTICS
      COMMITTEE
------------------------------------------------------- Chapter 0:0.11

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

      PHARMACY BENEFITS MANAGEMENT
------------------------------------------------------- Chapter 0:0.12

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

      PHARMACY BENEFITS MANAGEMENT
      STRATEGIC HEALTHCARE GROUP
      (PBM)
------------------------------------------------------- Chapter 0:0.13

Established in September 1995, VA's PBM is modeled after a strategy
commonly used in the private sector, to manage the cost, use,
outcomes, and distribution of pharmaceuticals. 

      PRIOR AUTHORIZATION
------------------------------------------------------- Chapter 0:0.14

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
------------------------------------------------------- Chapter 0:0.15

Medications that require close monitoring to ensure appropriate use. 
Restrictions may include implementing evidence-based guidelines and
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
      (SHG)
------------------------------------------------------- Chapter 0:0.16

A multidisciplinary group of personnel and programs within VA
organized 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
------------------------------------------------------- Chapter 0:0.17

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

      THERAPEUTIC INTERCHANGE
------------------------------------------------------- Chapter 0:0.18

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
------------------------------------------------------- Chapter 0:0.19

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
------------------------------------------------------- Chapter 0:0.20

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
------------------------------------------------------- Chapter 0:0.21

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. 

RELATED GAO PRODUCTS
============================================================ Chapter 1

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). 

VA Health 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). 

*** End of document. ***