Testimony

Before the Committee on Veterans' Affairs, U.S. Senate

United States General Accounting Office

GAO

For Release on Delivery

Expected at 2:30 p.m.

Tuesday, July 24, 2001 VA HEALTH CARE

Continuing Oversight

Needed to Achieve

Formulary Goals

Statement of Cynthia A. Bascetta

Director, Health Care—Veterans’

 Health Care and Benefits Issues

GAO-01-998T
Page 1 GAO-01-998T

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss the Department of Veterans

Affairs (VA) management and oversight of its national drug formulary.

VA’s national formulary is intended, in part, to control costs and better

ensure that veterans have access to the same drugs regardless of which VA

medical center they visit. VA medical centers were directed to make all

national formulary drugs available to prescribers—health care providers

who have VA prescription-writing privileges.1

 To meet local patient needs,

VA allows its 22 networks to add drugs to supplement the national

formulary.2 VA also requires each network to establish an approval

process for obtaining drugs not listed in its formulary.

My testimony addresses problems we identified in two recent reports

regarding implementation and standardization of the formulary and the

approval process for nonformulary drugs at each network.3

 In conducting

our work, we reviewed the formulary policies and activities of VA’s

headquarters and its 22 networks, analyzed nationwide VA prescription

data, conducted site visits and interviewed VA officials at three medical

centers located in three different networks, and surveyed 2,000

prescribers. We also updated this statement to reflect VA’s most recent

actions to implement our recommendations for improving its management

and oversight.

In summary, while VA has made significant progress establishing a

national formulary that has generally met with prescribers’ and patients’

acceptance, VA’s oversight has not been sufficient to fully ensure

standardization of its drug benefit nationwide. In our January 2001 report,

we found that the three medical centers we visited were not in compliance

with the national formulary. Specifically, two of three medical centers

omitted more than 140 required national formulary drugs, and all three

facilities inappropriately modified the national formulary list of required

 1

Veterans Health Administration’s Directive 97-047, VA National Formulary Directive, Oct.

16, 1997.

2

In 1995, VA began transforming its delivery and management of health care to expand

access to care and increase efficiency. VA decentralize decisionmaking and budgeting

authority to 22 regional Veterans Integrated Service Networks (VISN), which became

responsible for managing all VA health care.

3

VA Health Care: VA’s Management of Drugs on Its National Formulary (GAO/HEHS-00-34,

Dec. 14, 1999) and VA Drug Formulary: Better Oversight Is Required, but Veterans Are

Getting Needed Drugs (GAO-01-183, Jan. 29, 2001).
Page 2 GAO-01-998T

drugs for certain drug classes by adding or omitting some drugs. In

addition, as VA policy allows, VISNs added drugs to supplement the

national formulary ranging from 5 drugs at one VISN to 63 drugs at

another. However, VA lacked criteria for determining the appropriateness

of the actions networks took to add these drugs.

In addition to problems standardizing the national formulary, we identified

weaknesses in the nonformulary approval process. While the national

formulary directive requires certain criteria for approving nonformulary

drugs, it does not prescribe a specific nonformulary approval process. As a

result, the processes health care providers must follow to obtain

nonformulary drugs differ among VA facilities regarding how requests are

made, who receives them, who approves them, and how long it takes to

obtain approval. We found that the length of time to approve nonformulary

drugs averages 9 days, but can be as short as a few minutes in some

medical centers. In addition, some VISNs have not established processes

to collect and analyze data on nonformulary requests. As a result, VA does

not know if approved requests meet its established criteria or if denied

requests are appropriate.

In our January 2001 report, we made several recommendations to VA to

improve its management and oversight of its national formulary. VA

concurred with all of our recommendations and has taken, or plans to

take, steps to implement them. Although these are clearly steps in the right

direction, it is too early to tell how successful VA will be in establishing

the continuous oversight needed to improve formulary management.

In fiscal year 2000, VA’s pharmacy benefit provided approximately 86

million prescriptions at a cost of approximately $2 billion—or about 12

percent of VA’s total health care budget, compared to 6 percent of VA’s

total health care budget a decade ago. VA provides outpatient pharmacy

services free to veterans receiving medications for treatment of serviceconnected conditions and to low-income veterans. Other veterans who

Background
Page 3 GAO-01-998T

have prescriptions filled by VA may be charged a copayment for each 30-

day supply of medication.4

Like many health care organizations, VA uses several measures in an effort

to improve quality of care and control pharmacy costs. These include (1)

implementing a national formulary, which standardizes the list of drugs

available; (2) developing clinical guidelines for prescribing drugs; and (3)

using compliance programs, such as prior authorization, to encourage or

require physicians to prescribe formulary drugs.

VA medical centers individually began using formularies as early as 1955

to manage their pharmacy inventories. However, it was not until 40 years

later in September 1995, that VA established a centralized group to manage

its pharmacy benefit nationwide. In November 1995, when VISNs were

established, VA’s Under Secretary for Health directed each VISN to

develop and implement a VISN-wide formulary. To develop their

formularies, the VISNs generally combined existing medical center

formularies and eliminated rarely prescribed drugs. In 1996, VA was

required to improve veterans’ access to care regardless of the region of the

United States in which they live. As part of its response, VA implemented a

national drug formulary on June 1, 1997, by combining the core set of

drugs common to the newly developed VISN formularies. VA’s formulary

meets the Joint Commission for the Accreditation of Health Care

Organizations’ requirements for developing and maintaining an

appropriate selection of medications for prescribers to use in treating their

patient populations.

VA’s formulary lists more than 1,100 unique drugs in 254 drug classes—

groups of drugs similar in chemistry, method of action, or purpose of use.

After performing reviews of drug classes representing the highest costs

and volume of prescriptions, VA decided that some drugs in 4 of its 254

drug classes were therapeutically interchangeable—that is, essentially

equivalent in terms of efficacy, safety, and outcomes. This determination

allowed VA to select one or more of these drugs for its formulary so that it

 4

Section 201 of the Veterans Millennium Health Care and Benefits Act (P.L. 106-117)

authorized the Secretary of the Department of Veterans Affairs to prescribe regulations to

increase the copayment for each 30-day supply of medication for outpatient treatment of

non-service-connected disabilities or conditions and to establish maximum monthly and

maximum annual pharmaceutical copayments for veterans who have multiple outpatient

prescriptions. In response, the Secretary has proposed regulations that, among other

things, increases the copayment from $2 to $7. (Fed. Reg., Vol. 66, No. 136, July 16, 2001,

pp. 36960-63.)
Page 4 GAO-01-998T

could seek better prices through competitively bid committed-use

contracts.5

 Other therapeutically equivalent drugs in these classes were

then excluded from the formulary. These four classes are known as

“closed” classes. VA has not made clinical decisions regarding therapeutic

interchange in the remaining 250 drug classes, and it does not limit the

number of drugs that can be added to these classes. These are known as

“open” classes.

To manage its pharmacy benefit nationwide, VA established the Pharmacy

Benefits Management Strategic Healthcare Group (PBM). PBM is

responsible for managing the national formulary list, maintaining

databases that reflect drug use, and monitoring the use of certain drugs.

PBM also facilitates the addition and deletion of drugs on the national

formulary on the basis of safety and efficacy data, determines which drugs

are therapeutically interchangeable in order to purchase drugs through

competitive bidding, and develops safeguards to protect veterans from the

inappropriate use of certain drugs. VISN directors are responsible for

implementing and monitoring compliance with the national formulary and

ensuring that a nonformulary drug approval process is functioning at each

of their medical centers. Although VISN and medical center directors are

held accountable in annual performance agreements for meeting certain

national and local goals, attaining formulary goals has not been part of

their performance standards.

While VA has made significant progress in establishing a national

formulary, its oversight has not been sufficient to ensure that it is fully

achieving its national formulary goal of standardizing its drug benefit

nationwide. In our January 2001 report, we found three factors that have

impeded formulary standardization: (1) medical centers we visited omitted

some national formulary drugs from their local formularies, (2) VISNs

varied in the number of drugs they added to local formularies to

supplement the national formulary without appropriate oversight, and (3)

medical centers inappropriately added or deleted drugs in closed classes.

Nevertheless, most prescribed drugs were on the national formulary, and

prescribers and patients were generally satisfied with the national

formulary.

 5

Under committed-use contracts, VA commits to using primarily the contract drug, instead

of other therapeutically interchangeable drugs, to guarantee drug companies a high volume

of use in exchange for lower prices.

National Formulary

Standardization Not

Yet Achieved
Page 5 GAO-01-998T

The first factor impeding standardization is that medical centers omitted

some national formulary drugs from their local formularies. Almost 3 years

after VA facilities were directed to make all national formulary drugs

available locally, two of the three medical centers we visited in spring of

2000 omitted required drugs from the formularies used by their

prescribers. At one medical center, about 25 percent (286 drugs) of the

national formulary drugs were not available as formulary choices. These

included drugs used to treat high blood pressure, mental disorders, and

women’s medical needs. At the second medical center, about 13 percent

(147 drugs) of the national formulary drugs were omitted, including drugs

used to treat certain types of cancer and others used to treat stomach

conditions.

From October 1999 through March 2000, health care providers at these

two medical centers had to obtain nonformulary drug approvals for over

22,000 prescriptions for drugs that should have been available without

question because they are on the national formulary. Our analysis showed

that at the first center, over 14,000 prescriptions were filled as

nonformulary drugs for 91 drugs that should have been on the formulary.6

At the other medical center, over 8,000 prescriptions for 23 national

formulary drugs were filled as nonformulary drugs. If the national

formulary had been properly implemented at these medical centers,

prescribers would not have had to use extra time to request and obtain

nonformulary drug approvals for these drugs, and patients could have

started treatment earlier.

The second factor impeding standardization is the wide variation in the

number of drugs added by VISNs to their local formularies. VA’s policy

allowing VISNs to supplement the national formulary locally has the

potential for conflicting with VA’s goal of achieving standardization if it is

not closely managed. From June 1997 through March 2000, the 22 VISNs

added a total of 244 unique drugs to supplement the list of drugs on the

national formulary. As figure 1 shows, the number of drugs added by each

VISN varies widely, ranging from as many as 63 to as few as 5. Adding

drugs to supplement the national formulary is intended to allow VISNs to

be responsive to the unique needs of their patients and to allow quicker

formulary designation of new drugs approved by the Food and Drug

 6

After our visit, we were informed by a pharmacy official that the medical center adopted

the national formulary as its own on June 30, 2000.
Page 6 GAO-01-998T

Administration (FDA).7 VA officials have acknowledged that this variation

affects standardization and told us they plan to address it. For example,

PBM plans to more quickly review new drugs when approved by FDA to

determine if they should be added to the national formulary.

 7

VA national formulary policy provides that a new drug must be on the market for a

minimum of 1 year before it can be added to the national formulary.
Page 7 GAO-01-998T

Figure 1: Variation in Number of Unique Drugs VISNs Added to Supplement VA’s

National Formulary, June 1997—March 2000

Source: GAO analysis of PBM data.

The third factor is that medical centers we visited inappropriately

modified the national formulary list of drugs in the closed classes.

Contrary to VA formulary policy, two of three medical centers added two

different drugs to two of the four closed classes, and one facility did not

make a drug in a closed class available. Moreover, the Institute of

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

VISN

Number of drugs added

Numbered areas specify VISN designations

5

4 3

2

1

11

12

13

14

17

18

19

20

21

16

15

16

9

6

7

8

10

8

21

22

0

10

20

30

40

50

60

70

0 to 10

11 to 25

26 to 50

More than 50

Number of drugs added

20
Page 8 GAO-01-998T

Medicine (IOM) found broad nonconformity at the VISN level.8

Specifically, IOM reported that 16 of the 22 VISNs modified the list of

national formulary drugs for the closed classes.9

 This also undermines VA’s

ability to achieve cost savings through its committed-use contracts.

While VA has not yet fully achieved national formulary standardization,

most prescribed drugs were on the national formulary. From October 1999

through March 2000, 90 percent of VA outpatient prescriptions were

written for national formulary drugs. The percentage of national formulary

drug prescriptions filled by individual VISNs varied slightly, from 89

percent to 92 percent. We found wider variation among medical centers

within VISNs—84 percent to 96 percent.

Of the remaining 10 percent of prescriptions filled systemwide, VA’s

national database could not distinguish between nonformulary drugs and

drugs added to local formularies by VISNs and medical centers to

supplement the national formulary. VA’s PBM and the IOM estimate that

drugs added to supplement the national formulary probably account for

about 7 percent of all prescriptions filled, and nonformulary drugs account

for approximately 3 percent of all prescriptions filled. VA officials told us

that they are modifying the database to enable them to identify which

drugs are added to supplement the national formulary and which are

nonformulary. This will allow them to better oversee the balance between

local needs and national standardization.

Prescribers we surveyed reported they were generally satisfied with the

national formulary. Seventy percent of VA prescribers in our survey

reported that the formulary includes the drugs their patients need either to

a “great extent” or to a “very great extent.” Approximately 27 percent

reported that the formulary meets their patients’ needs to a “moderate

extent,” with 4 percent reporting that it meets their patients’ needs to a

lesser extent. No VA prescribers reported that the formulary meets their

patients’ needs to “very little or no extent.” This is consistent with IOM’s

conclusion that the VA formulary “is not overly restrictive.”

 8

In June 2000, IOM issued a report on the effect VA’s national formulary has had on the cost

and quality of VA health care, the restrictiveness of VA’s national formulary, and how the

national formulary compares with private and other government formularies. (IOM,

Description and Analysis of the VA National Formulary [Washington, D.C.: IOM, June

2000].)

9

IOM, Description and Analysis of the VA National Formulary, pp. 32-33.
Page 9 GAO-01-998T

Veterans also appear satisfied with their ability to obtain the drugs they

believe they need. At the VA medical centers we visited, patient

advocates10 told us that veterans made very few complaints concerning

their prescriptions. In its analysis of patient complaints, IOM found that

less than one-half of 1 percent of veterans’ complaints were related to drug

access.11 IOM further reported that complaints involving specific

identifiable drugs often involved drugs that are marketed directly to

consumers, such as Viagra.12 Our review also indicated that the few

prescription complaints made were often related to veterans trying to

obtain “lifestyle” drugs or refusals by VA physicians and pharmacists to fill

prescriptions written by non-VA health care providers.13 VA may fill

prescriptions written by non-VA health care providers only under limited

circumstances, for example, when the veteran is housebound and receives

additional compensation because of a service-connected disability.14

While the national formulary directive requires certain criteria for

approval of nonformulary drugs, it does not prescribe a specific

nonformulary approval process. As a result, the processes health care

providers must follow to obtain nonformulary drugs differ among VA

facilities regarding how requests are made, who receives them, who

approves them, and how long it takes to obtain approval. In addition, some

VISNs have not established processes to collect and analyze data on

nonformulary requests. As a result, VA does not know if approved requests

meet its established criteria or if denied requests are appropriate.

 10Patient advocates are VA employees who are responsible for receiving and acting on

complaints from veterans.

11IOM obtained formulary-related complaints from a nationwide database of veteran

complaints for over 90 percent of all VA facilities representing all 22 VISNs. IOM

determined that only 2,385 of 570,937 veteran complaints were attributed to the national

formulary. No VISN had significantly more complaints than any other. (IOM, Description

and Analysis of the VA National Formulary, p. 145.)

12Viagra (sildenafil), which is used to treat erectile dysfunction, is available within VA only

through the nonformulary drug approval process.

13We asked prescribers in our survey how often in 1999 their patients asked them to rewrite

prescriptions from non-VA prescribers so that they could be filled by VA. Thirty-one

percent said “often” or “very often,” 34 percent reported that it occurred “occasionally,”

and 21 percent said “seldom.” Fourteen percent said that they never received such

requests.

14See 38 U.S.C. §1712(d); 38 C.F.R. §17.96, and Op. VA Gen. Coun. 41-91 (1991).

Approval Processes

for Nonformulary

Drugs Have

Weaknesses
Page 10 GAO-01-998T

Both the people involved and the length of time to approve nonformulary

drugs varied. The person who first receives a nonformulary drug approval

request may not be the person who approves it. For example, 61 percent of

prescribers reported that nonformulary drug requests must first be

submitted to facility pharmacists, 14 percent said they must first be

submitted to facility pharmacy and therapeutics (P&T) committees, and 8

percent said they must first be sent to service chiefs. In contrast, 31

percent of prescribers reported that facility pharmacists approve

nonformulary drug requests, 26 percent said that facility P&T committees

approve them, and 15 percent told us that facility chiefs of staff approve

them. The remaining 28 percent reported that various other facility

officials or members of the medical staff approve nonformulary drug

requests. The time required to obtain approval for use of a nonformulary

drug also varied depending on the local approval processes. The majority

of prescribers we surveyed (60 percent) reported that it took an average of

9 days to obtain approval for use of nonformulary drugs.15 But many

prescribers also reported that it took only a few hours (18 percent) or

minutes (22 percent) to obtain such approvals.

During our medical center visits, we observed that some medical center

approval processes are less expeditious than others. For example, to

obtain approval to use a nonformulary drug in one facility we visited,

prescribers were required to submit a request in writing to the P&T

committee for its review and approval. Because the P&T committee met

only once a month, the final approval to use the requested drug was

sometimes delayed as long as 30 days. The requesting prescriber, however,

could write a prescription for an immediate 30-day supply if the

medication need was urgent.

In contrast, another medical center we visited assigned a clinical

pharmacist to work directly with health care providers to help with drug

selection, establish dose levels, and facilitate the approval of nonformulary

drugs. In that facility, clinical pharmacists were allowed to approve the

use of nonformulary drugs. If a health care provider believed that a patient

should be prescribed a nonformulary drug, the physician and pharmacist

could consult at the point of care and make a final decision with virtually

no delay.

 15In emergencies, exceptions are made to allow the patient to obtain the drug more quickly.
Page 11 GAO-01-998T

Prescribers we surveyed were almost equally divided on the ease or

difficulty of getting nonformulary drug requests approved. (See table 1.)

Table 1: Ease of Obtaining Nonformulary Drug Approvals Reported by Prescribers

Response categories Percentage reporting

“Easy” or “very easy” 29

“About as easy as difficult” 40

“Difficult” or “very difficult” 32

Note: Percentages do not total 100 because of rounding.

Source: GAO survey.

Regardless of whether the nonformulary drug approval process was

perceived as easy or difficult, the majority of prescribers told us that their

requests were generally approved. According to our survey results, 65

percent of prescribers sought approval for nonformulary drugs in 1999.

These prescribers reported that they made, on average, 25 such requests

(the median was 10 requests). We estimated that 84 percent of all

prescribers’ nonformulary requests were approved.

When a nonformulary drug request was disapproved, 60 percent of

prescribers reported that they switched to a formulary drug. However,

more than one-quarter of the prescribers who had nonformulary drug

requests disapproved resubmitted their requests with additional

information.

For patients moving from one location to another, the majority of

prescribers we surveyed told us that they were more likely to convert VA

patients who were on a nonformulary drug obtained at another VA facility

to a formulary drug than to request approval for the nonformulary drug.

(See table 2.)

Table 2: Likelihood of Prescribers’ Converting Patients From Nonformulary Drug

Prescriptions to Formulary Drug Prescriptions

Response categories Percentage reporting

“Likely to convert” or “very likely to convert” 64

“As likely to convert as to seek approval for the nonformulary

drug”

18

“Likely to seek approval for the nonformulary drug” or “very

likely to seek approval of nonformulary drug”

18

Source: GAO survey.
Page 12 GAO-01-998T

Contrary to the national formulary policy, not all VISNs have established a

process for collecting and analyzing data on nonformulary requests at the

VISN and local levels. Twelve of VA’s 22 VISNs reported that they do not

collect information on approved and denied nonformulary drug requests.

Three VISNs reported that they collect information only on approved

nonformulary drug requests, and seven reported that they collect

information for both approved and denied requests. Such information

could help VA officials to determine the extent to which nonformulary

drugs are being requested and whether medical center processes for

approving these requests meet established criteria. In its report, IOM noted

that inadequate documentation on such matters could diminish confidence

in the nonformulary process.

We are encouraged by VA’s actions, but it is too early to tell how

successful it will be in addressing our recommendations for improving its

management and oversight of the national formulary. To improve

standardization of its formulary, we recommended that VA establish (1) a

mechanism to ensure that VISN directors comply with VA’s national

formulary policy and (2) criteria that VISNs should use to determine the

appropriateness of adding drugs to supplement the national formulary and

monitor the VISNs’ application of these criteria. VA’s PBM has developed

changes to its database that will provide comparative national data on

VISN, nonformulary, and national formulary drug use. PBM also plans to

share these data, including identification of outliers, with all 22 VISNs and

coordinate with VISN formulary leaders to facilitate consistent compliance

with national formulary policy. In addition, VA (1) drafted criteria for

VISNs to use to determine the appropriateness of adding drugs to

supplement the national formulary list, which it intends to include in a

directive; (2) is developing a template for VISNs to document all VISN

formulary additions; and (3) intends to review more quickly all new FDAapproved drugs for inclusion in the national formulary.

To improve its nonformulary drug approval process, we recommended

that (1) VA establish a process to ensure timely and appropriate decisions

by medical centers and (2) veterans be allowed continued access to

previously approved nonformulary drugs, regardless of where they seek

care in VA’s health care system. In addressing these recommendations, VA

plans to incorporate into its revised formulary directive the fundamental

steps that all medical centers must take in establishing and reporting their

nonformulary activities. VA also plans to include in its revised formulary

directive a specific requirement that approved nonformulary medications

will continue if a veteran changes his or her care to a different VA facility.

Plans for Improving

Oversight Are

Progressing
Page 13 GAO-01-998T

We also recommended that VA enforce existing requirements that VISNs

collect and analyze the data needed to determine that nonformulary drug

approval processes are implemented appropriately and effectively in their

medical centers, including tracking both approved and denied requests. VA

plans to establish steps for reporting its nonformulary approval activities.

PBM has begun initial discussions with VA’s Information Management

Office about planning for the changes.

Mr. Chairman, this concludes my prepared statement. I would be happy to

answer any questions you or other members of the Committee may have.

For more information about this statement, please call me at (202) 512-

7101, or Walter Gembacz, Assistant Director, at (202) 512-6982. A key

contributor to this statement was Mike O’Dell.

GAO Contacts and

Acknowledgments

(290100)