VA Testimony of Anthony J. Principi before Congress on July 24, 2001

United States Department of Veterans Affairs

STATEMENT OF
THE HONORABLE
ANTHONY J. PRINCIPI
SECRETARY
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
COMMITTEE ON VETERANS' AFFAIRS
UNITED STATES SENATE

July 24, 2001

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 and delivery. 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 since 1988.

VETERANS HEALTH ADMINISTRATION'S (VHA) PHARMACY BENEFITS MANAGEMENT (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 VANF) Process through the use of a Medical Advisory Panel ( MAP) and a committee representing each of the 22 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. 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. The process is clinically driven with a goal of standardization of product. The process is grass-roots in nature, is driven from the 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. From 1996 through February 2001, VA officials estimate $540 million in accumulated cost-avoidance from such contracts. As explained elsewhere in this statement, the average unit cost of outpatient prescriptions is not the key driver of increased 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 $13.48 in January 2001. An increased number of patients treated and the increased utilization of pharmaceuticals are the primary drivers of increased expenditures.

Utilization & Expenditures:

Outpatient prescription workload increased from 56 million prescriptions in FY 1990 to an estimated 100 million prescriptions in FY 2001. While the 56 million figure for FY 1990 is predominantly 30-day quantities, the 100 million figure for FY 2001 represents multi-month prescriptions, which actually equate to approximately 160 million 30-day prescriptions. Thus, over 11 years, the number of 30-day equivalent prescriptions has increased by almost 200 percent.

Expenditures for pharmaceuticals for both outpatients and inpatients have increased from $715 million in FY 1990 to an estimated $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 will represent 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.

One 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 health care 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. A portion 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 the providers who treat patients are actively involved in formulary decisions; best clinical practices are employed; and volume-based and committed-use contracting are used when clinically feasible.

VA/ DOD Joint Pharmaceutical Activities:

As of July 2001, VA and DOD have 46 Joint National Contracts, three Joint Blanket Purchase Agreements, 23 pending, and 29 proposed joint contracts. Additionally, VA currently has 52 unilateral contracts and DOD has six. Some of these 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.

Pharmaceutical Copayment:

The proposed increase to the medication co-payment was initiated after passage of Public Law 106-117, The Veterans Millennium Health Care Act. This law gave the Secretary of the Department of Veterans Affairs the authority to increase the medication co-payment amount. VA has proposed to increase the co-payment amount from $2.00 to $7.00 per 30-day prescription supply with an annual cap of $840.00 for priority 2 through 6 veterans. The proposed regulation was published in the Federal Register on July 16, 200, for the initial 60-day public comment period. We believe that the proposed medication co-payment is reasonable when compared to most medication co-payments levied in the private health care industry.

CONCLUSION

Mr. Chairman, VA has many lessons to share in the area of drug contracting, drug utilization management, drug distribution and achieving positive 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 disease. 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. 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 of veterans enrolled in the VA health care system.

In closing, one example illustrates our efforts to date. Specifically, the use of atypical anti-psychotics in treating mental health conditions has resulted in significant utilization and expenditures for these products. However, a significant number of veterans receiving treatment with these products lead productive lives, contribute to society by holding jobs, and experience fewer visits and hospital stays due to their underlying condition. The number of VA patients treated with atypical anti-psychotics has doubled from 35,000 in October 1998 to approximately 70,000 in March 2001. The number of prescriptions dispensed for atypical anti-psychotics has increased from 700,000 in FY 1999 to a level of 1.1 million annually in FY 2001.

I am also pleased to report that VA mental health professionals are contributing to providing quality medical care at an affordable price in those instances where no medical consensus or evidence exists that one product has more clinical value than another. While prescribing decisions are made by VA psychiatrists based on individual patients' clinical needs, history of medication response and potential vulnerability to side effects, they do so with an eye towards cost-effective therapy. VA's psychiatrists clearly recognize not only their commitment to patients and patient care, but also to their ethical mandate to recommend/prescribe the most cost-effective treatments, considering that some patients will respond to relatively less costly drugs, while others will require more costly drugs. Reliance on less costly drugs whenever practical frees up scarce resources, which can then be used when more costly therapy is necessary.

I recently shared with you my concern that responsible prescribing guidelines for atypical anti-psychotics developed by VA practitioners were being mischaracterized as a barrier that would prevent physicians from prescribing drugs they believe will best meet patients' clinical needs. Opponents of VA's guidelines have unfairly portrayed them as preventing physicians from prescribing drugs they believe will best meet patients' clinical needs, i.e., they have referred to the guideline as a "fail-first policy". VA does not have a fail-first policy. Any inference that one exists is simply untrue. VA physicians are free to prescribe any medication included on the VA formulary. What is being inaccurately described as a fail-first policy is nothing more or less than sound, cost-effective, clinical decision-making, with a mechanism for beginning treatment with an effective, less expensive agent.

Mr. Chairman, I believe VA is in the forefront of health care providers in integrating the provision of pharmaceuticals in its patient treatment programs. By placing first priority on patient needs; by emphasizing disease prevention; by implementing best clinical practices; by assessing validated evidence of a pharmaceutical product's effectiveness; and by employing national procurement strategies whenever clinically possible -- VA is providing high quality care and doing so in a cost effective manner. We are proud of our successes and the contributions these efforts are making to the Nation's understanding of health care delivery.

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