VA Testimony of John E. Ogden before Congress on July 22, 2002

United States Department of Veterans Affairs

STATEMENT OF
JOHN E. OGDEN
CHIEF CONSULTANT FOR PHARMACY BENEFITS MANAGEMENT
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
COMMITTEE ON GOVERNMENT REFORM,
SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS AND
INTERNATIONAL RELATIONS
UNITED STATES HOUSE OF REPRESENTATIVES
BOSTON, MASSACHUSETTS

July 22, 2002

Mr. Chairman and Members of the Committee:

I am pleased to have this opportunity to address the significant accomplishments that the Department of Veterans Affairs ( VA) has made since 1988 towards effective and efficient management of pharmaceuticals.

BACKGROUND

In the 1980's, VA officials recognized the need to direct significant attention to the cost and utilization of pharmaceuticals within the system. In that decade, several forces converged on VA and led us to build an infrastructure that allows VA to successfully manage pharmaceutical procurement, delivery and utilization. First, the 1980's witnessed a steadily increasing prescription workload and expenditures for pharmaceuticals. Second, the demand for drugs was infinite in an era of finite resources. Third, the tradition and culture in the procurement and storage of pharmaceuticals within VA was no longer contemporary.

VA's pharmacy benefits management initiatives have resulted in significant enhancements in the quality, consistency, and cost effectiveness of pharmacy services provided to our patients. The attached chronology describes significant milestones achieved since 1988.

VETERANS HEALTH ADMINISTRATION'S (VHA) PHARMACY BENEFITS MANAGEMENT PROGRAM (PBM)

The mission of VHA's PBM is to enhance the appropriate use of pharmaceuticals in the veteran population. The five major core functions of the PBM are (1) drug use management, (2) managing the distribution of drugs and related services, (3) managing the costs of pharmaceuticals, (4) outcomes research, and (5) education. The PBM facilitates VHA's National Formulary ( VANF) Process through the use of a Medical Advisory Panel (MAP) and a Veterans Integrated Service Network (VISN) Formulary Leaders committee (VFL) representing each of the 21 Veterans Integrated Service Network (VISN) Formulary Committees. The MAP is composed of field-based practicing VA physicians, one Department of Defense physician, and a senior physician from VHA's Office of Quality and Performance. The VFL Committee is comprised of pharmacist and physician chairs and co-chairs of each VISN's formulary committee. These two groups are the primary decision-makers concerning the drugs listed on the VANF and are also responsible for identifying and fostering the development of pharmacologic treatment guidelines that reflect best practices associated with treating a particular disease state and the dissemination of that information.

The business strategy for managing pharmacy benefits within VA is a simple one. Leveraged national contracts are used whenever clinically possible in contracting for high-volume, high-cost pharmaceuticals. In addition, VA has a long-standing policy of using generic pharmaceuticals whenever they are a clinically acceptable choice. The contracting process is clinically driven with a goal of product standardization. The process is grass-roots in nature, is driven by clinicians in the field, employs evidenced-based drug class reviews (including data in the VA population where it exists), and involves evaluating products and groups of products based on efficacy, outcomes, safety, compliance, VA patient needs, and pharmacy factors. VA has been very successful in these types of contracts and other similar contracting strategies.

Utilization & Expenditures:

Outpatient prescription workload increased from 56 million prescriptions in FY 1990 to 98 million prescriptions in FY 2001. While the 56 million figure for FY 1990 is predominantly 30-day quantities, the 98-million figure for FY 2001 represents multi-month prescriptions, which actually equate to 167 million 30-day prescriptions. Thus, over 11 years, the number of 30-day equivalent prescriptions has increased nearly 200 percent.

Expenditures for pharmaceuticals for both outpatients and inpatients have increased from $715 million in FY 1990 to $2.5 billion in FY 2001. As a percent of VA's medical care appropriation, pharmaceuticals expenditures averaged 6 percent from FY 1980 through FY 1995. Beginning in 1996, the percent has increased each year and represented approximately 12.5 percent of the medical care appropriation in FY 2001. These percentages are less than those seen in health care organizations in the private sector even though the pharmacy benefit in VA is generally broader in scope than is the pharmacy benefit in most private sector plans.

The reasons for the increased utilization of pharmaceuticals in VA include an increased number of patients served by VA (700,000 more patients in FY 2000 than in the four prior years); a shift from treating patients in the acute care setting of the hospital to ambulatory care with a focus on disease prevention and amelioration; more aggressive therapy for common diseases among the VA population (e.g., hyperlipidemia and diabetes); medical inflation; and the introduction of new and more effective drug products. More patients treated and the introduction of new drug products stand considerably above the other drivers as reasons for increased pharmaceutical utilization and expenditures.

In VA, the increasing number of patients treated is the primary driver for increasing pharmaceutical expenditures. The increased utilization of pharmaceuticals per patient and use of the newer pharmaceuticals are only of minor importance as major cost drivers. From 1996 through June 2002, VA officials estimate $943 million in accumulated cost-avoidance has been realized from its formulary management activities. The increases seen in VA for average unit cost of outpatient prescriptions is not the key driver of increased pharmaceutical expenditures. VA drug cost and utilization data show that the average cost per 30-day equivalent prescription in July 1999 was $12.68, increasing to only $13.50 through April 2002. The increased utilization of pharmaceuticals and the introduction of new drug entities drive prescription costs upward, while contracting and utilization management strategies help keep costs down. VA's average prescription costs demonstrate that a managed formulary process can serve as the framework for an affordable, robust drug benefit.

However, the financial impact of new drug therapies should not be completely overlooked as a cost driver. In fact, it is expected that new drugs are likely to have a more profound effect on drug spending in the future as compared to the present. An example of the impact of a new therapy on VA expenditures is the drug imatinib (Gleevecâ). Imatinib is used in the treatment of Chronic Myeloid Leukemia ( CML), which can occur at any age, but which more commonly affects middle-aged and older individuals. We have determined that there are currently 160 patients with this diagnosis enrolled in the VA healthcare system who potentially could be prescribed this medication. The estimated annual cost of treatment for patients receiving this therapy is between $20,000 and $30,000. Due to the high cost of the annual therapy, we plan to track the number of new patients who are being treated with this drug. In the absence of a Medicare drug benefit, eligible veterans over age 65 with a diagnosis of CML who have never accessed VA for medical care could be highly motivated to enroll in the VA health care system solely as a means to gain affordable access to imatinib.

Lack Of Medicare Benefit and Impact on VA Expenditures:

While it is difficult to quantify the impact on increased utilization and related expenditures for pharmaceuticals due to the lack of a Medicare drug benefit, VA staff report anecdotal cases where dual eligible veterans have chosen to access VA for the drug benefit that is a part of our overall health care system. Some of these veterans indicate a desire to have VA serve as a pharmacy only. We do not believe that VA should only provide pharmacy services, nor do we believe Congress, in enacting provisions of Title 38, contemplated that VA act only as a pharmacy. We believe that when such veterans become aware of the positive patient outcomes associated with VA's continuum of care delivery model and the safety and health risks inherent in a fragmented pharmacy-only benefit, they will want their care coordinated and managed by VA health providers. From a financial and clinical perspective, the important lesson learned from VA's experiences concerning pharmaceuticals is that effectiveness and efficiency can be achieved when providers who treat patients are actively involved in formulary decisions; when best clinical practices are employed; when volume-based and committed-use contracting are used when clinically feasible; and when clinical pharmacists are fully integrated into the medication use process.

VA/ DoD Joint Pharmaceutical Activities:

As of July 2002, VA and DoD have awarded 63 Joint National Contracts, 3 Joint Blanket Purchase Agreements, 36 pending Joint National Contracts, and 21 proposed Joint National Contracts. Additionally, VA currently has 30 unilateral contracts and DOD has four. Some of the unilateral contracts are for high volume/high dollar items and will be considered for joint contracting as they expire. VA and DOD have built the necessary clinical and logistic infrastructure to support ongoing joint contracting activities that will benefit taxpayers and most importantly, our nations veterans, active duty and dependent personnel. VA is committed to the goal of leveraging VA and DoD purchasing power whenever clinically feasible.

CONCLUSION

Mr. Chairman, one expert in pharmacy benefits management recently commented that prudent pharmacy benefit business practice suggests that pharmacy benefits provided by an organization answer four fundamental questions: (1) are patients receiving effective medications at competitive prices; (2) are benefits comparable to similar offerings within their respective industry; (3) are payors and their patients receiving value for their pharmacy benefit dollar; and (4) have all unnecessary expenses been avoided, including potential fraud and abuse?

VA has many lessons learned to share in the area of drug contracting, drug utilization management, drug distribution and achieving positive clinical outcomes from drug therapy. While significant milestones have been reached in achieving cost avoidance through contracting activities within VA and jointly with DoD, even greater cost avoidance has been achieved by identifying and encouraging best practices, developing and promulgating drug treatment guidelines and through recognizing the value of pharmaceuticals in the treatment of diseases. It is gratifying to know that our cost avoidance efforts have been accomplished while improving the consistency of drug therapy across the VA health care system. Indeed, as a result of our clinically driven cost avoidance efforts, VA has been able to partially offset the cost of providing care to the large number if veterans enrolled in the VA health care system.

Mr. Chairman, in closing, I believe VA is one of the leading health care providers in the United States in integrating the provision of pharmaceuticals in its patient treatment programs. In responding to the questions about an organization's pharmacy benefit I cited above, I can attest that VA is providing high quality health care at an affordable price by placing the highest priority on patient needs; emphasizing disease prevention; implementing best clinical practices; assessing validated evidence of a pharmaceutical product's effectiveness; and employing national procurement strategies whenever clinically possible. We are proud of our successes and the contribution these efforts are making to the Nation's understanding of health care delivery.

This completes my statement. I will happy to respond to questions from the Committee.

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