United States General Accounting Office

GAO 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

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

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.

Results in Brief 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

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.

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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 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.

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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

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

Dollars in thousands

Fiscal year

Total VHA

budget

Pharmacy

expenditures

Percentage

of total

VHA

budget

1990 $11,499,879 $715,879 6

1991 12,400,326 795,114 6

1992 13,682,060 881,593 6

1993 14,612,138 912,531 6

1994 15,400,526 924,482 6

1995 16,125,957 1,054,961 7

1996 16,372,856 1,101,056 7

1997 17,149,463 1,337,487 8

1998 17,441,079 1,548,424 9

1999 17,306,000 1,844,742 11

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.

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VA’s Use of Formularies 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.

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.

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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.

National Formulary

Management Process

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.

4

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

5

Therapeutic interchange is the clinically appropriate replacement of one drug with another drug

having the same pharmacological or therapeutic effect.

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Process for Adding and

Deleting Drugs

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.

Determination of

Therapeutic Interchange

Allows VA to Obtain Better

Prices

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

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.

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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.

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Table 2: National Formulary Closed

Classes and Drugs With

Committed-Use Contracts Drug class (VA class code) Disease treated

Drug(s) with

committed-use contracts

Antineoplastic Hormones

(AN500)

Prostate cancer Goserelin acetate implant

syringe

Antilipemic Agents

(CV350)

High cholesterol Gemfibrozil, Lovastatin,

Simvastatin

ACE Inhibitors

(CV800)

High blood pressure Captopril, Fosinopril,

Lisinopril

Gastric Medications

(GA900)

Stomach ulcers Lansoprazole

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

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

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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

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

8

Prescription Drug Benefits: Implications for Beneficiaries of Medicare HMO Use of Formularies

(GAO/HEHS-99-166, July 20, 1999).

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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.

VISN and Medical Center

Formularies Supplement

the National Formulary

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.

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Table 3: Drugs Added to VISN

Formularies, 1998 and 1999

VISN 1998

Jan.-June

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 totala 215 53 268

Note: No drugs were added to VISN formularies in 1997.

aRepresents 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 CelexaR, 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.

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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

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).

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Newly Approved Drugs Are

Treated Differently in

National and VISN

Formularies

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 ReduxR (a drug used to treat obesity) and PosicorR (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 RezulinR (for diabetes) and ViagraR (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.

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Agency Comments 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.

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

Page 14 GAO/HEHS-00-34 VA Drug Formulary Management
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Contents

Letter 1

Glossary 18

Related GAO Products 21

Tables Table 1: Total VHA Budget and Pharmacy Expenditures, Fiscal

Years 1990-99

3

 Table 2: National Formulary Closed Classes and Drugs With

Committed-Use Contracts

8

Table 3: Drugs Added to VISN Formularies, 1998 and 1999 11

Abbreviations

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

Page 16 GAO/HEHS-00-34 VA Drug Formulary Management
Page 17 GAO/HEHS-00-34 VA Drug Formulary Management
Glossary

Clinical Guidelines 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 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 A group of drugs that are similar in chemistry, method of action, or

purpose.

Formulary 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 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 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)

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

Page 18 GAO/HEHS-00-34 VA Drug Formulary Management
Glossary

supplies and high technology medical equipment; and just-in-time

distribution programs (also known as Prime Vendor Distribution

Programs).

Nonformulary Medications Medications not listed on a particular formulary.

Nonformulary Waiver

Process

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 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

A committee of physicians, pharmacists, and other health care

professionals that addresses formulary issues and establishes drug

treatment policies.

Pharmacy Benefits

Management

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)

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 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 Medications that require close monitoring to ensure appropriate use.

Restrictions may include implementing evidence-based guidelines and

Page 19 GAO/HEHS-00-34 VA Drug Formulary Management
Glossary

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)

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

prescribed.

Therapeutic Interchange 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 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 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 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.

Page 20 GAO/HEHS-00-34 VA Drug Formulary Management
Related GAO Products

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).

(406180) Page 21 GAO/HEHS-00-34 VA Drug Formulary Management
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