# Presentation: 168589

## VA Pharmaceutical Prime Vendor Contract Modification Update

- January 27, 2003

## VA Pharmaceutical Prime Vendor 

- The VA Pharmaceutical Prime Vendor
-    (VA PPV) is the wholesaler the VA has contracted with to provide medications to VA facilities.  VA negotiates low distribution rates due to volume buying.  VA allows Department of Defense, IHS, Bureau of Prisons and select other entities to order medications through the  VA PPV.

## VA PPV Contract Modification

- IHS and Tribes (through an IHS intermediary for services to those eligible under the ISDA contract or compact) have access to the VA PPV.  Recent legislation proposed allowing Tribes direct access to the VA PPV without using an IHS intermediary.  IHS has been working with the VA and the VA PPV to modify their current VA PPV contract to allow Tribes to order Federally discounted drugs directly from the VA PPV.

## VA PPV Contract Modification

- The VA PPV contract modification is under
- development with many issues needing to
- be addressed before implementation.
- Contract Modification Steps
- Tribal Consultation
- Tribal Issues
- Additional Administrative Issues

## Contract Modification Steps

- IHS requests Tribal Consultation
- IHS provides comments on draft to VA
- IHS meets with VA to discuss changes
- VA and PPV finalize contract modification
- IHS and VA modify interagency MOU
- Tribes wanting direct access sign contracts with VA PPV (AmerisourceBergen)

## Tribal Consultation

- First Dear Tribal Leader Letter
- Sent to Tribes on Sept. 18, 2002.
- Responses requested by Oct. 15, 2002.
- 13 Tribes provided comments.
- IHS reviewed the responses.
- IHS comments sent to VA Jan. 13, 2003.

## Tribal Issues

- Tribes wanted the ability to choose whether or not to order directly from the
-    VA PPV or to use an IHS intermediary.
- Tribes wanted to be treated “just like
-    IHS” related to pricing, distribution
-    fees and delivery schedules.

## Tribal Issues (Continued)

- Tribes felt that the minimum order quantity of $5,000 per month should be reduced.
- Tribes were concerned about hardware and software repair or replacement after the warranty period.

## Tribal Issues (Continued)

- Tribes wanted disputes settled in Tribal or Federal Court, not State Courts.
- Indemnification and Insurance issues need to be addressed as they relate to FTCA coverage.

## Tribal Issues (Continued)

- Tribes felt the contract modification lacked detail in many areas.
- Tribes were concerned that the VA PPV contractor has the ability to terminate the contract or refuse to ship medications without a stated appeals process.

## Tribal Consultation

- Second Dear Tribal Leader Letter
- To be sent out the week of Jan. 28, 2003
- Issues to be addressed
- Additional changes proposed by VA & PPV
- IHS comments to VA
- IHS Access to Purchase Data
- IHS Contract Management Fee
- Response requested by end of Feb 2003.

## Additional changes proposed byVA and AmerisourceBergen

- Payments to be received through Electronic Funds Transfer.
- A section on receipt of goods and reporting of shorted or damaged goods.

## Additional changes proposed byVA and AmerisourceBergen

- Clarification on deliveries being Monday through Friday and how this affects the
-    24 and 48 hour delivery period.
- Handheld ordering devices will be available for a $25/month rental fee.

## Additional changes proposed byVA and AmerisourceBergen

- Access to ordering mechanisms – PPV will make a “reasonable best effort” to ensure an effective ordering method.
- Customer qualifications – customers must meet commercially reasonable credit standards.

## IHS Comments to the VA - General

- The contract modification should state that each Tribe choosing this option must sign a separate contract with VA PPV.
- The contract would reference the terms and conditions in the VA PPV contract modification as the basis for Tribal
-    direct-access to the VA PPV services.

## IHS Comments to the VA - General

- It should be clear that in carrying out an ISDA agreement a Tribe is deemed an Executive Agency and part of IHS for purposes of eligibility to the VA discount program and the VA PPV.
- However, the Tribe does not enter into the agreement as part of the IHS and IHS has no contractual or other liability.

## IHS Comments to VA - Section 1

- To avoid confusion, the modification should specifically re-state current contract language that the “Average Monthly Volume” applies to each delivery location (rather than each entity).  If a Tribe wants to reduce the distribution fee, they would need to pool their local orders and have them shipped to a single location.

## IHS Comments to VA - Section 1

- The grandfather clause should explicitly state that Tribes that have been using an IHS intermediary will have the benefit of the IHS pricing and distribution fees.
- The modification should reference the contract sections that pertains to credit for shortages, damaged good and prepayment terms.

## IHS Comments to VA - Section 2

- VA and VA PPV are asked to review the minimum monthly order dollar amount for ways to reduce this amount so additional Tribes may participate in the program.
- Tribes should be referred to an IHS intermediary as part of the 30-day written notice when the agreement is being terminated.

## IHS Comments to VA - Section 3

- Clarify the delivery process for orders less than $50,000 per month.  What happens when there is only one delivery per week?
- The grandfather clause should explicitly state that Tribes that have been using an IHS intermediary will have the benefit of the IHS delivery schedule.

## IHS Comments to VA - Section 6

- Reference the section of the VA PPV contract that states the conditions under which hardware is originally received.

## IHS Comments to VA - Section 7

- Reference the VA PPV contract sections that provide for fixing or replacing defective software or hardware beyond the warranty period.

## IHS Comments to VA - Section 9

- Add a reference to Section 105(k) of the Indian Self-Determination and Education Assistance Act in the first sentence.
- Identify any additional reasons for contract termination or refusal to ship medication orders.

## IHS Comments to VA-Section 10

- Additional discussion is needed on the indemnification section.  IHS does not believe FTCA is applicable for the intent of this section.

## IHS Comments to VA-Section 12

- Tribes need to be notified when the
-    VA PPV plans to terminate the contract and withhold shipment of medications due to insolvency.  Tribes should be referred to an IHS intermediary to ensure there is a means of acquiring needed medications.

## IHS Comments to VA-Section 13

- This section requires Tribes to carry professional liability insurance to protect the VA PPV.  While many Tribes carry wraparound liability insurance that supplements their FTCA coverage, the exact intent of this section is unclear.  Further discussion is needed.

## IHS Comments to VA-Section 15

- The modification needs to state that all “explanations” (e.g., definitions, etc.) referenced in the original contract also apply to the modification.

## IHS Comments to VA-Section 19

- The VA PPV would prefer disputes be resolved in State court.  Tribes want disputes heard in Tribal or Federal courts.  Application of Federal law under this type of contract is questionable.  IHS suggests further discussion with binding arbitration being explored as a possible option.

## Additional Items Proposed by IHS

- IHS would like to propose two additional
- items as part of the contract modification.
- Tribes will be informed for these issues in
- the second Dear Tribal Leader Letter.
- These items are:
- IHS Access to Purchase Data
- IHS Contract Management Fee

## IHS Access to Purchase Data

- IHS is proposing adding a section stating  that Tribes or their intermediaries agree to allow the VA PPV to release pharmaceutical purchase data to the IHS.
- Data uses
- Annual budget formulation
- National Drug Contract usage monitoring
- Cost savings/avoidance reviews

## Annual Budget Formulation

- IHS uses data from the VA PPV and other sources to determine actual drug purchases by IHS and the Tribes.  These data help determine growth in IHS and Tribal pharmaceutical costs.  This information is used in annual budget formulation to show Congress the need for additional funds for pharmaceuticals.

## National Drug Contract Usage Monitoring

- When VA negotiates a National Drug Contract, in most cases VA agrees to purchase a certain amount of the drug to get a reduced price.  Additionally, for closed class medications the VA agrees to use one drug in preference to all others in the class.  IHS and Tribes agree to these conditions when participating in these contracts.  When new contracts are being considered, IHS must provide VA drug usage data.  These data come from VA PPV reports.

## Cost Savings/Avoidance Reviews

- The VA PPV provides IHS with purchase data to allow examination of usage practices.  One of the roles of the National P&T Committee will be to review data to see where pharmaceutical costs can be reduced.  An example is using simvastatin instead of atorvastatin in the treatment of hyperlipidemia.  This has the potential to save $1.6 million in one year, nationwide.

## IHS Contract Management Fee

- IHS is proposing IHS and Tribal sites who use the VA PPV be assessed a 0.3 percent contract management fee ($3,000 for every $1 million spent on drugs) to fund IHS contract management activities related to the VA PPV.
- Need for the Contract Management Fee
- VA Uses a Contract Management Fee
- IHS Contract Management
- National Core Formulary & National P&T Committee
- Cost Breakdown

## VA Uses a Contract Management Fee

-    VA uses a contract management fee charged to all non-VA users to conduct contract management activities ranging from contract development and negotiations to formulary management to research and development of National Drug Contracts.

## IHS Contract Management

- There are a number of reasons for an IHS
- contract management fee.  These include:
- Managing the VA PPV contract is not a residual Federal function.
- Current funds are no longer available when Tribes order directly from PPV.
- Contract Management Activities.

## Not a Residual Federal Function

- The management of the VA PPV contract and National Drug Contracts (NDCs) is a vital function for the IHS and Tribes to assure that medication can be purchased at greatly reduced cost.  While using VA PPV and NDCs save IHS and Tribes over 50% in drug costs annually, this is not a “residual function” and therefore must be funded from other sources.

## Current Funds are No Longer Available When Tribes Order Directly From PPV

- Currently, contract management activities are being funded by fees charged to facilities that use IHS intermediaries to process medication orders.  As Tribes begin to order directly from the PPV, they will no longer use IHS intermediaries and funds will not be collected that are currently being used for contract management.

## Contract Management Activities

- Contract management activities benefiting
- both IHS and the Tribes include:
- Working with the VA to ensure IHS and Tribes are included in the PPV contract solicitation.  The VA PPV contract is solicited every 5 years and approximately 12 to 18 months before each solicitation IHS staff begin meeting with VA to make sure that IHS and Tribes are included and that our issues are addressed.

## Contract Management Activities (Continued)

- Provided professional advice and assistance to the VA on questions and matters related to IHS and Tribal pharmaceutical usage and requirements during contract solicitation, selection, award, and administration periods.

## Contract Management Activities (Continued)

- Working with the VA National Acquisition Center to ensure that IHS and Tribes are included on all National Drug Contracts.  This requires providing to the VA purchase history information and commitment documents, for each ordering facility.

## Contract Management Activities (Continued)

- Identifying and reporting overcharges on drug prices and ensuring that if IHS and Tribal customers have been overcharged, that they receive rebates or credits from manufacturers or the VA PPV.  For example, when McKesson was the PPV, they had computer problems and IHS identified millions of dollars in overcharges and recovered those overcharges through intensive interactions with the VA.

## Contract Management Activities (Continued)

- IHS has a single point of contact for VA and the VA PPV, per their request, to relay contract information or concerns to IHS and Tribal sites.  Additionally, this point of contact serves as the IHS and Tribal  contact with VA and the VA PPV to work on IHS and Tribal problems related to errors, billing, medication availability, delivery and other issues.  IHS conducts conference calls with IHS and VA representatives to discuss PPV issues, concerns, and problems.

## Contract Management Activities (Continued)

- Facilitates pooling of accounts for Tribal facilities that do not meet the $60,000 annual minimum for VA PPV purchases so that they have access to the VA PPV.
- Assure that up to date IHS and Tribal DEA certificates are kept on file with the VA and the VA PPV.

## Contract Management Activities (Continued)

- Assure that medication ordering programs (e.g., Echo and iEcho) are operating correctly and that facilities are satisfied with VA PPV customer service.
- Respond to questions from IHS and Tribes related to National Drug Contracts, prices, terms, substitution, pricing discrepancies, lock-out over-ride procedures, etc.

## Contract Management Activities (Continued)

- Work with the IHS National Pharmacy and Therapeutics Committee to relay to VA which pharmaceuticals IHS and the Tribes would like considered for National Drug Contracts.
- Review drug contract solicitations to assure that bioequivalence and therapeutic classifications meet IHS and Tribal needs.

## Contract Management Activities (Continued)

- Research, gather, consolidate, and provide pharmaceutical purchase history information (including information for Tribal facilities) to IHS Headquarters, National Core Formulary Committee, and other groups as appropriate.

## National Core Formulary & National P&T Committee

- One of the new IHS functions related to managing the VA PPV contract is the implementation of a National Core Formulary and a National Pharmacy and Therapeutics Committee.
- Need for the
- National Core Formulary
- National P&T Committee

## National Core Formulary (NCF)

- The NCF was developed to address several
- needs including:
- Standards of Practice
- Patient Access
- Safety
- Cost Shifting
- Cost Savings

## Standards of Practice

- The IHS NCF is not a comprehensive drug formulary.  Its purpose is to specify a core set of drugs that must be made available to IHS beneficiaries in order to maintain appropriate standards of care for common medical conditions. This first edition of the NCF includes about 50 drug entities used to treat six high prevalence, high risk and high cost disease categories.

## Standards of Practice (Continued)

- Sites may keep additional drugs on their local formulary.
- While almost all sites currently have all the NCF drugs on their local formularies, some sites have  eliminated these standard of care drugs from their local formularies.  This was done solely as a strategy for managing costs.

## Patient Access

- A second benefit to the NCF is to make the drug benefit “portable” for patients.  Whether a person travels or simply cannot get to the same facility all the time due to transportation issues, a NCF will increase the likelihood that patients on typical medical regimens will be able to get their medications without switching drugs.

## Patient Access (Continued)

- The NCF also assists health care providers whether they are local providers, consultants or CHS providers.  Since these NCF medications will be available at all sites, providers will know that a patient who is treated at one facility and transferred to another will be able to get the prescribed medication.

## Safety

- A NCF can play an important role in improving patient safety.  If all facilities have the same core medications, a patient transferring care from another location will not have to switch medications.  This will obviate the need for additional monitoring and follow-up often necessitated by such changes.

## Safety (Continued)

- Additionally, a NCF encourages providers to use a relatively small set of drugs for most prescriptions, leading to increase familiarity with these medications on the part of the provider and pharmacist.  Additionally, the consistent utilization of disease state management guidelines will promote appropriate drugs use and reduce the likelihood of errors.

## Cost Shifting

- Drug costs are increasing at a rate  several times that of the core rate of inflation. As some sites eliminate needed drugs from their formulary, patients move to other facilities to continue to receive their medications. With a NCF, everyone should have the essential medications and patients will be less likely to move from site to site solely for medication reasons.

## Cost Savings

- While the NCFs main purpose is improving patient outcomes, cost savings are also possible.  As sites implement the NCF and use these medications preferentially to non-NCF drugs, sites should see reductions in overall cost.  This is because NCF medications tend to be on NDCs and while being just as effective as other drugs, they are much less expensive.

## Cost Savings (Continued)

- Not all sites will see a cost savings. Those few sites that have eliminated some NCF medications from their local formulary due to cost reasons will need to make these medications available to their patients.  While this may pose a financial hardship at first, it is hoped that overall costs can be reduced at these sites by medication usage reviews done by the NPTC.

## National Pharmacy & Therapeutics Committee (NPTC)

- The NPTC is essential to the contract
- management process and the NCF.
- The NPTC will be responsible for:
- Updating the NCF
- Serving as a resource to local P&T committees
- Recommending Clinical Care Protocols
- Reviewing data for potential Cost Savings

## Updating the NCF

- Clinical practice standards are constantly changing as new information on disease states and medications becomes available.  For the NCF to be a useful tool for IHS and Tribal providers, it must be regularly reviewed and updated by the NPTC to include the latest information and clinical protocols.

## Serving as a Resource toLocal P&T Committees

- NPTC members, in addition to working on the NCF, will serve as expert resources to  clinical staff working on local formularies  or who want to do drug utilization reviews or other types of pharmaceutical-related evaluations.

## Clinical Care Protocols

- The NPTC will develop clinical care protocols or refer providers to nationally recognized protocols for various disease states.  While use of these clinical care protocols will be voluntary, it is well recognized that use of good clinical protocols can improve patient outcomes and may reduce overall costs.

## Reviewing Data for Potential Cost Savings

- As mentioned previously, one of the major functions of the NPTC will be to examine the usage of medications by IHS and Tribes.  The NPTC will look for ways to improve clinical outcomes and reduce or avoid costs.  Facilities will be informed of actions they can take, such as changing from one drug to another, that may substantially reduce their overall drug costs.

## Cost Breakdown

- Because the management percentage is tied to the amount of drugs purchased through the PPV, costs are roughly proportional to the size of the facility and the population served, and directly proportional to the facility’s drug expenditures.  Facilities that are successful in managing the rate of increase of their drug costs, through observance of NCF recommendations or other means, will reduce their contribution to the surcharge.  This provides a small but real incentive to manage drug costs.

## Contract Management Cost (Including the NCF and NPTC) 

- The overall budget for contract management is approximately $480,000 per year.  This is 0.3 percent of the approximately $160 million/year that IHS and Tribes spend on pharmaceuticals.  Funding pays for staff costs, travel expenses, website development and maintenance and printing costs.

## Contract Management Cost (Continued)

- Staffing
- 1 full-time Pharmacist for contract mgmt
- 1 full-time Support Staff for contract mgmt
- 1 half-time Physician Chairperson for NPTC
- 1 full-time Pharmacist Vice-Chair for NPTC
- 12 field IHS and Tribal Physician and Pharmacists NPTC members (only travel costs are paid for these positions).

## Contract Management Cost (Continued)

- Travel
- The NPTC will hold at least two face-to-face meetings annually with conference calls at least quarterly.
- Members will attend national and regional meetings
-    to discuss issues and promote use of the NCF
- Travel to IHS and Tribal sites to work with local P&Ts
- Travel to VA and DoD formulary committee meetings
- Website
- A NCF and NPTC website will be developed and maintained.

## Summary

- While the contract management fee is necessary to maintain the VA PPV contract, its cost is minimal compared to the potential cost savings.  As mentioned previously, aggressive efforts in managing the treatment hyperlipidemia has the potential to save $1.6 million in one year, nationwide.  This alone is more than three times the cost of the 0.3% surcharge, recovered by observing the NCF for just one drug class.  Even modest improvements in this prescribing practice will more than pay for the surcharge.

## Summary (Continued)

- Similar, though less dramatic, cost reduction will be seen through comparable efforts to change prescribing practices for other drug classes, such as calcium channel blockers and SSRI antidepressants.  Overall, on a national scale, observance of National Core Formulary recommendations and requirements will produce savings far exceeding the cost of the surcharge.  This should be true for every facility that implements and observes the NCF.