Medical Devices and the Veterans

Administration

February 1985

NTIS order #PB87-117677
Recommended Citation:

Medical Devices and the Veterans Administration—A Technical Memorandum (Washington, DC: U.S. Congress, Office of Technology Assessment, OTA-TM-H-16, February 1985).

Library of Congress Catalog Card Number 85-600509

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Preface

This technical memorandum is part of a larger assessment of Federal policies and the medical devices industry, requested by the Senate Committee on Labor and Human Resources. In

its endorsement of the overall assessment, the Senate Committee on Veterans’ Affairs requested

the Office of Technology Assessment (OTA) to address specifically the activities of the Veterans Administration (VA) regarding device development and procurement. The VA is an important provider of medical devices and services for diagnosis, treatment, and rehabilitation

of the veteran population.

OTA found that the VA’s current system of medical device-related research, development,

evaluation, procurement, and use has a number of weaknesses. Better analytical methods for

evaluating and procuring the most appropriate devices at least cost could be applied at various

points in technology development and use. In addition, VA research and development, evaluation, and procurement could be better integrated. Several new VA programs and committees

may improve the evaluation and procurement processes and help to integrate the functions, especially the purchase of major new medical technologies.

Valuable guidance was provided by the advisory panel for the OTA assessment on Federal

Policies and the Medical Devices Industry, chaired by Richard R. Nelson, Professor of Economics, Yale University. A large number of persons in the VA and in the medical devices industry

were consulted. John C. Langenbrunner, analyst, is the principal author of this technical memo- . .

randum. Other key OTA staff involved in its development

E. Locke, and Jane E. Sisk.

.

JOHN H.

Director

were Cynthia P. King, Katherine

GIBBONS

. .

Ill
Advisory Panel for Federal Policies and the Medical Devices Industry

Richard R. Nelson, Chair

Institute for Social and Policy Studies, Yale University

New Haven, CT

William F. Ballhaus

International Numatics, Inc.

Beverly Hills, CA

Ruth Farrisey

Massachusetts General Hospital

Boston, MA

Peter Barton Hutt

Covington & Burling

Washington, DC

Alan R. Kahn

Consultant

Cincinnati, OH

Grace Kraft

Kidney Foundation of the Upper Midwest

Cannon Falls, MN

Joyce Lashof

School of Public Health

University of California

Berkeley, CA

Penn Lupovich

Group Health Association

Washington, DC

Victor McCoy

Paralyzed Veterans of America

Washington, DC

Robert M. Moliter

Medical Systems Division

General Electric Co.

Washington, DC

Louise B. Russell

The Brookings Institution

Washington, DC

Earl J. Saltzgiver

Foremost Contact Lens Service, Inc.

Salt Lake City, UT

Rosemary Stevens

Department of History and Sociology of Science

University of Pennsylvania

Philadelphia, PA

Allan R. Thieme

Amigo Sales, Inc.

Albuquerque, NM

Eric von Hippel

Sloan School

Massachusetts Institute of Technology

Cambridge, MA

Edwin C. Whitehead

Technicon Corp.

Tarrytown, NY
OTA Project Staff: Medical Devices and the Veterans Administration

Roger Herdman, Assistant Director, OTA

Health and Life Sciences Division

Clyde J. Behney, Health Program Manager

Jane E. Sisk, Project Director

Cynthia P. King, Study Director-’

John C. Langenbrunner, Study Director’

Katherine E. Locke, Research Assistant

Ann Covalt, Editor

Virginia Cwalina, Administrative Assistant

Rebecca I. Erickson, P. C./Word Processor Specialist

Brenda L. Miller, P. C./Word Processor Specialist

Jennifer Nelson, Secretary3

Principal Contractor

Ralph Bradburd, Williams College

I From December 1983.

‘Until November 1983

‘Until January 1984.
Glossary of Acronyms

AMVETS—American Veterans of World War II,

BVA

CID

CT

DAV

DM&S

DOD

DRGs

ETIP

FDA

FSS

GAO

GRECC

HSR&D

Korea, and Vietnam

—Blinded Veterans Association

—Commercial Item Description

—computed tomography

—Disabled American Veterans

—Department of Medicine and Surgery

—Department of Defense

—diagnosis-related groups

—Experimental Technology Incentives

Program

—Food and Drug Administration,

Department of Health and Human

Services

–Federal Supply Schedule

—General Accounting Office

—Geriatric Research, Education, and

Clinical Centers

—Health Services Research and Development Service

MEDIPP —Medical District Initiated Program

Planning

MR&A —Marketing Research and Analysis

NAS —National Academy of Sciences

NMR —nuclear magnetic resonance

NSO —National Service Officer

OTA —Office of Technology Assessment

PSAS —Prosthetics and Sensory Aids Service

PTEC —Prosthetic Technology Evaluation

Committee

PVA —Paralyzed Veterans of America

R&D —research and development

Rehabilitation R&D— Rehabilitation Research and

Development Service

T&E –Testing and Evaluation Staff

VA —Veterans Administration

VAMKC —VA Marketing Center

VAPC —VA Prosthetics Center

VFW —Veterans of Foreign Wars

States

of the United

vi
Contents

Chapter Page

1.

2.

3.

4.

5.

6.

Introduction and Summary . . . . . . . . . . . . . . . . . . . . 3

Background and Scope of This Study . . . . . . . . . . . 3

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Veterans and the VA Health Care Delivery System 4

Research and Development . . . . . . . . . . . . . . . . . . 5

Testing and Evaluation . . . . . . . . . . . . . . . . . . . . . 5

Marketing, Procuring, and Supplying Devices . 6

Adopting, Using, and Financing Devices . . . . . . 8

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Organization of This Technical Memorandum ... 9

The Veterans Administration and Health Care:

An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Historical Perspective . . . . . . . . . . . . . . . . . . . . . . . . . 13

VA Health Care Services . . . . . . . . . . . . . . . . . . . . . . 15

Acute Care Services . . . . . . . . . . . . . . . . . . . . . . . . 15

Long-Term Care Services . . . . . . . . . . . . . . . . . . . . 16

Ambulatory Care . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

The Veteran Patient Population . . . . . . . . . . . . . . . . 18

Veterans’ Service Organizations . . . . . . . . . . . . . . . . 18

Research and Development of Devices . . . . . . . . . . 23

Medical Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Research Programs . . . . . . . . . . . . . . . . . . . . . . . . 23

Other Medical Research . . . . . . . . . . . . . . . . . . . . . 24

Health Services Research and Development . . . . . . 24

Rehabilitation Research and Development . . . . . . . 25

Rehabilitation R&D Centers . . . . . . . . . . . . . . . . . 25

Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . 27

Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Testing and Evaluating Devices . . . . . . . . . . . . . . . 33

Prototype Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Commercially Available Devices . . . . . . . . . . . . . . . 35

The VA Prosthetics Center . . . . . . . . . . . . . . . . . . 35

Testing and Evaluation Staff, VA Marketing

Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Marketing, Procuring, and Supplying Devices . . . 45

Prototype Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Commercially Available Devices . . . . . . . . . . . . . . . 47

Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Procurement and Supply . . . . . . . . . . . . . . . . . . . . 48

Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Adopting, Using, and Financing Devices . . . . . . . . 61

Veteran Eligibility for Program; and Services . . . .

Income Maintenance . . . . . . . . . . . . . . . . . . . . . . . .

Health and Medical Care. . . . . . . . . . . . . . . . . . . .

VA Financing and Resource Allocation . . . . . . . . .

Management Initiatives . . . . . . . . . . . . . . . . . . . . .

Adoption and Use of Devices . . . . . . . . . . . . . . . . . .

Rehabilitative Devices . . . . . . . . . . . . . . . . . . . . .

Medical Equipment and Supplies . . . . . . . . . . . .

Social and Political Forces. . . . . . . . . . . . . . . . . . .

Appendix A: Acknowledgments and Health Program

Advisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . .

61

61

62

63

63

66

66

70

71

77

Page

Appendix B: Medical Devices and the Veterans

Administration: The Perspective of Veterans’

Service Organizations . . . . . . . . . . . . . . . . . . . . . . . . . 80

Appendix C: Veterans Administration Procurement

and the Market for Medical Equipment . . . . . . . . . 86

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

List of Tables

Table No. Page

1.

2.

3.

4.

5.

6.

7.

8.

.

Summary of Rehabilitation Research and

Development Projects, Fiscal Year 1983 . . . . . . . . . 26

Veterans Administration R& D Budget Overview . 27

Selected Device Purchases by the Veterans

Administration Using Federal Supply Schedule

Contracts, Fiscal Year 1983 . . . . . . . . . . . . . . . . . . . . 49

Veterans Administration Supply Support to

Other Federal Facilities, Fiscal Year 1982 . . . . . . . 50

Priority Purchasing Sources for VA Medical

Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Outlays for Veterans’ Benefits and Services,

Fiscal Years 1981-83 . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Sample Rehabilitative Devices Distributed to

Veterans, Fiscal Year 1982. . . . . . . . . . . . . . . . . . . . . 68

VA Controlled Item List for Medical and Dental

Equipment, 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

C-1. ‘Sum of Absolute Values of Annual

Percentage Changes in Vendors’ VA

Marketing Center X-ray Equipment Market

Shares, 1979-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

C-2, Annual VA Marketing Center Procurement

of CT Scanning Equipment, 1979-82 . . . . . . . . . . 89

C-3. Annual Percentage Change in VA Marketing

Center Procurement of Nuclear Medical

Equipment, 1979-82 . . . . . . . . . . . . . . . . . . . . . . . . 92

C-4. Changes in Rankings of Four Largest Sellers

of Nuclear Medical Equipment Through

the VA Marketing Center, 1979 -82 . . . . . . . . . . . 92

C-5. Sum of Absolute Values of Year-to-Year

Percentage Changes in Vendors’ VA Marketing

Center Nuclear Medical Equipment Market

Shares, 1979 -82 . . . . . . . . . . . . . . . . . . . . . . . .......92

List of Figures

Figure No. Page

1.

2.

3.

4.

5.

6,

‘The Development and Diffusion of Medical -

Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Organization Chart of the

Veterans Administration, May 1984 . . . . . . . . . . . . 7

VA Department of Medicine and Surgery . . . . . . . 14

Medical Center Hospital . . . . . . . . . . . . . . . . . . . . . . 16

The Innovation Process . . . . . . . . . . . . . . . . . . . . . . . 46

Veterans Administration, Department of Medicine

and Surgery Medical Districts, 1983 . . . . . . . . . . . . 64

vii
Chapter 1

Introduction and Summary
Chapter 1

Introduction and Summary

BACKGROUND AND SCOPE OF THIS STUDY

Many medical devices have been developed in

recent years, and medical practice has changed

accordingly, lengthening and improving the lives

of American people.l In serving its special population, the Veterans Administration (VA) is one increasingly important provider of these sophisticated medical devices and services for diagnosis,

treatment, and rehabilitation.

This technical memorandum was prepared as

part of OTA’s assessment of Federal Policies and

the Medical Devices Industry, conducted at the

request of the Senate Committee on Labor and

Human Resources, with the endorsement of the

Senate Committee on Veterans’ Affairs. The

memorandum responds specifically to the Senate

Committee on Veterans’ Affairs request for information on the VA’s role in device development

and procurement.

The VA health care delivery system is now the

largest in the Nation, with 172 medical centers,

98 nursing homes, 16 domiciliaries, and 226 outpatient clinics,23 The VA employs the full-time

equivalent of almost 200,000 physicians, dentists,

nurses, and administrative and support personnel. An estimated 30 million veterans are eligible

‘Medical devices encompass an enormous variety of supplies and

equipment, from frequently purchased inexpensive items, such as

bandages and syringes, to infrequently purchased expensive ones,

such as clinical laboratory and imaging equipment. In this study

the definition of a medical device is taken from the 1976 Medical

Device Amendments to the Food, Drug, and Cosmetic Act (Public

Law 94-295). They define a medical device as any instrument, apparatus, or other similar or related article that is intended to prevent,

diagnose, mitigate, or treat disease or to affect the structure or function of the body. Drugs, which achieve their effects through chemical action within the body, are separately defined.

‘Many VA medical facilities are actually self-sustaining communities, with a medical center, power plant, restaurant, fire department, garage, warehouse, movie theater, library, pharmacy, apartments, recreation areas, and business offices—with all the needs that

these facilities require to operate. Medical facility purchases of equipment and supplies, therefore, also include items and services that

cannot be strictly classified as medical devices (146).

3The Hospital Corp. of America, a private, “for-profit” hospital

chain, has more facilities, but accounts for revenues only about half

the size of the VA’s health care delivery budget (32).

for its health care services, and the VA supports

a full range of these services. These same characteristics make the VA an excellent setting for evaluating medical devices and technologies (109,118).

Since the late 1940's the VA has been an important source of research and development funds,

especially for rehabilitative technologies and devices. The VA evaluates new equipment for safety

and technical performance. Its Office of Procurement and Supply buys many medical devices; its

medical facilities acquired nearly $1.3 billion in

equipment and supplies in fiscal year 1982 alone.4

The VA is also a significant part of the market

for devices such as prosthetics and wheelchairs

that are designed for disabled people. In addition,

other organizations, such as the Department of

Defense, refer to the VA’s supply catalog in making procurement decisions.

This technical memorandum emphasizes internal VA policies and procedures related to medical devices. It provides information from three different perspectives: that of the veteran as a

consumer, that of the device industry as a supplier, and that of the VA itself. Topics addressed,

for example, include the VA’s effect on private

research and development and decisionmaking

more generally.

Research in the biomedical sciences, such as

physiology and anatomy, provides the knowledge

to develop diagnostic, preventive, and therapeutic devices. However, much of the basic research

that leads to these devices is also performed in

such fields as physics, chemistry, and electronics.

This situation makes the creation and production

of devices especially complex and difficult to analyze (7).

Nonetheless, several stages of technological development and diffusion can be identified. Ini4Domiciliaries are homes where food, clothing, and necessary medical services are provided to ambulatory veterans.

3
4

tially, the results of basic and applied research are even more costly and lengthy than developing the

consulted in preparing specifications and build- prototype. Following development, facilities for

ing prototype devices (fig. 1). The next stages, manufacturing the device must be planned and

refining the prototype for marketing and testing constructed, and marketing efforts begun. Finally,

its safety, reliability, and performance, may be devices are manufactured, purchased, and used.

Figure 1 .—The Development and Diffusion of Medical Technologies

Extenl

of

use

\

\

\

Innovation

Basic Applied Targeted First Clinical Early Late Accepted research research development human trials adoption adoption practice

Basic research Applied R&D and testing Diffusion

SOURCE: Office of Technology Assessment, Development of Medical Technology: Opportunities for Assessment Washlngton, DC US. Government Printing Office, stock

No. 052-003-00217-5, August 1976), as amended.

SUMMARY

Veterans and the VA Health Care with non-service-connected disabilities who are

Delivery System unable to obtain or pay for needed medical care

are both eligible for rehabilitative and other comAmong congressionally mandated benefits are prehensive medical services. Several other groups

health care services for eligible veterans. Eligibility of veterans have been declared eligible for VA

determination is complex but in brief, veterans health care benefits without being unable to pay:

with service-connected disabilities and veterans those age 65 and over; Medicaid-eligible veterans;
5

former prisoners of war; veterans exposed to

dioxin and other defoliants, such as Agent Orange,

during the Vietnam War; and veterans exposed

to nuclear testing or who served in Hiroshima or

Nagasaki, Japan, between September 11, 1945,

and July 1, 1946. Priorities must be established

in providing for these groups because VA medical expenditures are limited. Veterans with service-connected disabilities are accorded top priority

for medical and rehabilitative care, but approximately 80 percent of VA patients have nonservice-connected disabilities.

Health benefits are administered by the VA Department of Medicine and Surgery, whose responsibilities include patient care, research, and education. Acute care for eligible veterans with

medical, surgical, and psychiatric problems is provided in the VA medical centers, most of which

are affiliated with medical schools. The VA pays

for some care in non-VA hospitals, but usually

only for veterans with service-connected disabilities. It provides ambulatory care in its outpatient

clinics, although it also pays for some private physician visits on a fee-for-service basis. The VA has

an extensive long-term care system, including

nursing homes, domiciliaries, State veterans’

homes, hospital-based home care, geriatric day

care, hospice care, and community nursing home

care.

A number of veterans’ service organizations

participate in the VA’s delivery of health care. The

largest of these organizations are The American

Legion, the Veterans of Foreign Wars, and the

Disabled American Veterans. Nationally, these

groups attempt to influence legislation. Locally,

they support community programs and often have

an important influence on VA hospitals. Administrators respond to their inquiries and complaints

and usually try to consult these organizations during major planning. Several veterans’ service organizations have representatives on national advisory bodies to the VA and can influence national

VA health care policy.

Research and Development

The Federal Government’s role in the research

and development of devices, especially in prosthetic and disability-related research, dates back

to the 1930s and 1940s. The VA and the Department of Defense conducted much of the initial research on prosthetic devices. Since 1947 the VA

has spent over $30 million on prosthetic device

research alone, while its other research and development has also grown.

Research and development falls under three

Services: Medical Research, Health Services Research and Development, and Rehabilitation Research and Development (Rehabilitation R&D).

Rehabilitation R&D affects the medical devices

industry most directly, although the Medical Research Service uses major medical equipment and

also clinically evaluates and monitors such devices

as cardiac pacemakers. Rehabilitation R&D concentrates on prototype devices in three general

areas: prosthetics and amputation (especially

lower limb), spinal cord injury (in developing

wheelchairs), and sensory aids (especially for the

visually impaired).

Increased funding for Rehabilitation R&D may

be warranted, especially for the full development

of devices, since in the past some potentially

worthwhile prototypes seem to have been abandoned in early stages. This problem results in part

from the VA’s lack of structured programs to

disseminate information on research and development. The VA is now addressing this problem

of technology transfer through its Office of Technology Transfer and an agreement with the Department of Commerce to disseminate information on promising technologies. VA procurement

procedures have also presented a problem for VA

research: long delays in obtaining needed research

equipment.

Testing and Evaluation

Once devices are commercially available, the

VA may adopt them for use in its facilities or by

veteran beneficiaries only after appropriate VA

testing and evaluation. The Prosthetics and Sensory Aids Service evaluates rehabilitative devices,

and the Office of Procurement and Supply tests

and evaluates other types of medical equipment,

such as X-ray equipment.

The VA has been active in standards development and has provided information on its work

in this area to other public and private health care
6

delivery groups. Throughout the 1970s, the VA

increasingly used standards in its prosthetics and

sensory aids programs. Not only were devices

evaluated, but they were also tested for compliance with set standards. Concern grew about

using the standards developed for existing technologies to evaluate and purchase new rehabilitative devices. Newer standards, therefore, have

emphasized performance requirements. This policy has attempted to allow innovation and yet to

provide adequate control for patient safety and

welfare; its success is not yet clear.

The Testing and Evaluation Staff of the VA

Marketing Center in Hines, Illinois, tests and

evaluates medical devices and systems purchased

by the VA. The staff is part of the Office of Procurement and Supply, not part of the Department

of Medicine and Surgery (fig. 2). Medical devices

are selected for evaluation through requests by

VA medical centers, manufacturers, or the VA

Central Office, as well as through the Testing and

Evaluation Staff itself. Factors affecting selection

include potential volume and interest on the part

of the VA. Tests are usually consumer research

tests, although sometimes other types of tests are

conducted in cooperation with the Medical Research Service, the Department of Defense, or outside private testing laboratories. Evaluations are

advisory and do not obligate VA medical centers

to purchase particular products.

Both methodological and organizational problems have been identified in VA testing and

evaluation. The VA’s several testing and evaluation units may duplicate efforts. In addition, the

units lack control in carrying out experimental

protocols. New organizational plans may ameliorate these problems if they are implemented.

Comparative evaluations could be good additional sources of information for procurement

decisionmaking.

Marketing, Procuring, and

Supplying Devices

The Marketing Research and Analysis Program

at the VA Marketing Center is a procurement resource that gathers and analyzes information on

the range and quality of commercially available

products and their compatibility with VA needs.

The size of the VA market allows it to buy medical supplies economically through centralized procurement. VA centralized procurement for its

medical centers and for other Government agencies encompasses several programs. There is

evidence that centralized VA procurement of some

medical devices, such as catheters, needles, syringes, surgical blades, and pacemakers, has

enabled the VA to obtain lower prices than other

public and private organizations. VA policies on

procurement have also affected the prices of several types of major medical equipment (as shown

by the study presented in app. C).

Under the terms of the most favored customer

clause in VA procurement contracts, suppliers are

not allowed to sell their products under similar

contracts to any private buyer at a price lower

than that offered the VA. This policy has reduced

VA procurement costs, although it may also have

increased costs to private buyers.

Because of the VA’s brand name justification

requirement, VA hospitals must justify purchasing equipment from other than the least-cost supplier on the VA list (e.g., based on service availability). Suppliers are anxious to maintain their

share of the VA market, and it is likely that they

lower prices to be competitive given this requirement.

VA contracts with suppliers state that prices

may not be increased during the contract year,

and if they decrease prices, the lower price holds

for the remainder of the year. This firm fixed price

clause protects the VA from price increases during a year, but suppliers may charge a higher initial price than they would in the absence of the

clause.

By law, the public has access to information

on VA Marketing Center procurement prices for

medical equipment. This public disclosure requirement may result in higher procurement costs for

two reasons. It reduces the so-called retaliation

lag (the time before rival companies learn of price

cuts and reduce their own prices in response).

Also, the publicly known VA price may become

private buyers’ target price.

The VA Marketing Center does not make volume commitments, which may result in raising

VA prices for many kinds of equipment. This re-
Figure 2.–Organization Chart of the Veterans Administration (VA),a May 1984

I

1

t

aThL~ chart ~h~W~ the relationships among the parts of the VA discussed In this chapter.

bACMD = Assl~tant Chief Medical Director

cvA Supply Sewfces are located In Indiwdual VA medical centers

‘The prosthetic Technology Evaluation Committee advises the prosthetics and Sensory Aids se~lce

SOURCE. Off Ice of Technology Assessment.

-1
8

suit depends in some measure on whether the

equipment is expensive or inexpensive because of

the relative transaction costs of contracts, where

significant savings may be realized. An unofficial

VA policy is to avoid procuring mixed equipment

systems (components from several manufacturers

combined in systems), to reduce warranty problems. This policy may increase procurement costs,

but it may decrease repair costs.

The VA Marketing Center has also encountered

problems in attempting to ensure product quality,

largely because of its increasing use of simplified

purchase descriptions in place of more detailed

product specifications and standards, which are

being phased out in response to a 1980 Federal

policy directive. Product quality is likely to improve when the VA better integrates all its

information-gathering activities (research, development, testing, evaluation, marketing, etc. ) into

purchasing contract decisions.

Local supply officers are charged with procurement for the VA medical centers. The open market may be used to purchase items not available

from centrally managed sources, needed for an

emergency, or available at lower prices than

through the central Federal Supply Schedule program managed by the VA. In the early 1960s,

open market procurement (i.e., purchases made

directly by individual VA medical centers) accounted for about 10 percent of purchases; the

figure is now about 39 percent. More open market purchasing permits hospital staff to select manufacturers and models that they prefer and,

perhaps, to receive orders more quickly. Nevertheless, such individual purchases prevent the VA

from using its potential buying power to gain

lower prices through volume purchases.

Adopting, Using, and

Financing Devices

All VA activities relating to medical devices

have the goal of the adoption and use of goodquality, low-cost medical technologies. Because

of social and political incentives to overadopt

some medical devices and because of financial

constraints on others, the VA has sporadically

adopted devices and other technologies, and its

distribution of resources may not be equitable or

efficient across geographic areas and facilities.

More comparative analyses of medical devices

and equipment are needed to ensure better results

in this regard.

The issue of financing medical devices has increased in importance as the population of veterans ages and more of them need the assistance

such devices provide. The high costs of providing unlimited prostheses to veterans, as law requires, and the use of high technology in health

care draw funds from the rest of the VA health

care activities.

Decisions about adopting and using new medical devices would ideally be based on information about veterans’ needs and the safety, efficacy,

and costs of the devices and their alternatives.

However, not all needed data are always available, and current VA decisionmaking does not

necessarily consider all the available data. The VA

lacks formal processes to decide which VA medical centers should adopt new, expensive devices

and to allocate funds among the medical centers

for such purchases.

Because of limited resources, in fiscal year 1981

the VA adopted a system of strategic planning,

Medical District Initiated Program Planning. As

new device and equipment requests are made

through medical district plans, the evaluation of

technologies could be focused and the adoption

of new technologies could be based on more accurate information.

Conclusions

The VA’s current system of medical devicerelated research, development, evaluation, procurement, and use has a number of significant

weaknesses. Better analytical methods for

evaluating and procuring the most appropriate devices at least cost could be applied at various

points in technology development and use.

VA research and development, evaluation, and

procurement have often been poorly integrated.

The VA’s potential market leverage in procuring

devices, for example, has not been realized in

stimulating the development of certain devices.

Nor have the results of the VA’s own research,

development, and evaluation been systematically
9

incorporated in the VA’s procurement and adoption decisions.

The VA recently initiated several new programs

and committees that may greatly improve the

VA’s development and use of medical devices. The

Rehabilitation R&D Service’s new Evaluation

Unit, which will coordinate and improve the

testing of prototype rehabilitative devices, and the

Prosthetic Technology Evaluation Committee,

which will develop a formal evaluation and

coordination process for commercially available

products, are two notable efforts. These improvements in evaluation processes may result in more

appropriate adoption and use of medical devices

and other technologies by the VA, and indirectly,

by other Government agencies and the private

sector.

A last important sign of the VA’s new directions is the recent formation of a High Technology Assessment Group to determine future VA

policy on acquiring major new technologies. The

High Technology Assessment Group could help

develop information for allocating health care resources more efficiently and equitably than in the

past.

ORGANIZATION OF THIS TECHNICAL MEMORANDUM

This memorandum groups medical devices into

three general classes: rehabilitative devices (orthotic and prosthetic devices, such as artificial

limbs), equipment (radiological and laboratory

devices), and supplies (bandages, disposable,

etc.). It should be noted, however, that the diversity of medical devices defies easy classification.

Medical devices include products used for different medical purposes (preventive, diagnostic,

therapeutic, and rehabilitative) and by different

branches of medical care (e.g., dentistry, ophthalmology, orthopedics, and neurology).

Chapter 2 provides the context for discussing

present VA policies on medical devices and describes briefly the history and characteristics of

the VA health care delivery system. Chapters 3

through 6 address the VA’s involvement in research and development; testing and evaluation;

marketing, procurement, and supply; and financing, adopting, and using devices.

Appendix A acknowledges the valuable assistance of the Health Program Advisory Committee and other individuals for their information,

advice, and review of drafts. Appendix B reviews

veterans’ service organizations and their perspectives on the VA health care delivery system. Appendix C examines VA procurement of eight types

of medical equipment and the effects of VA purchasing policies on private manufacturers and

buyers of such medicaI equipment.

25-289 0 - 85 - 2
Chapter 2

The Veterans Administration

and Health Care: An Overview
Chapter 2

The Veterans Administration

and Health Care: An Overview

The Veterans Administration (VA) provides a

broad range of services for veterans and their dependents. These benefits include compensation

payments for service-related disability or death,

pensions based on financial need for totally disabled veterans and certain survivors of veterans

for non-service-related disability or death, education and rehabilitation, home loan guarantees,

burial, and–most importantly for this study—

free or subsidized hospital, ambulatory, and extended medical care, including nursing home care,

to eligible veterans.

VA health care is administered by its Department of Medicine and Surgery (DM&S), which

had a budget of $8.1 billion in fiscal year 1983. ’

IThe budget was $6.96 billion in fiscal year 1981 and $7.59 billion in fiscal year 1982. These figures include construction, research,

HISTORICAL PERSPECTIVE

Federal programs for veterans date to the Revolutionary War. Until early in this century, however, they were almost exclusively pension programs; what medical and hospital care was

available was provided by States or communities.

The VA medical program evolved through a

series of legislative enactments during and after

World War I. The war added nearly 5 million people to the Nation’s veteran population, and new

programs were required to meet their many needs.

In 1921 Congress created the U.S. Veterans Bureau, which consolidated the functions of several

agencies that had been administering veterans’

programs. The veterans’ hospital system was cre2Except where noted, this section is adapted from U.S. Congress,

Congressional Research Service, Medical Care Programs of the Veterans Administration (Report No. 83-99 EPW, Washington, DC,

May 16, 1983).

Title 38 of the U.S. Code (sec. 4101) provides that

the functions of DM&S “. . . shall be those necessary for a complete medical and hospital service, including medical research . . . [and] to carry

out a program of training and education of health

service personnel, acting in cooperation with

schools. . . . “ Thus, DM&S has a three-part mission of patient care, research, and education (150).

DM&S is administered from the Central Office

in Washington, DC, and is headed by a Chief

Medical Director. Specific areas of patient care

and program function, such as rehabilitation

medicine, surgery, radiology, and medical research, are termed “Services” and are under the

Central Office guidance of Service Directors. An

organizational chart is shown in figure 3.

and administrative costs, which together account for less than 10

percent of all hospital and medical care expenditures (97).

ated in 1922 when 57 Public Health Service hospitals were transferred to the Veterans Bureau.

The system was constructed rapidly for the many

World War I veterans with service-connected injuries. Within a few years, however, the number

of service-connected cases were no longer sufficient to fill available bed space. As a result, in

1924 Congress passed legislation expanding eligibility for hospitalization benefits to encompass

indigent veterans with non-service-connected

health needs.

This pattern was repeated after World War II:

after the immediate needs of the war’s veterans

were met, the system again had excess capacity

and the process of expanding the scope of medical benefits continued. In recent years most VA

hospital patients have been treated for problems

unrelated to military service. Over the years the

13
Figure 3.—VA Department of Medicine and Surgery

.

I I I I 1

SOURCE: U.S. Veterans Administration, Department of Medicine and Surgery, Office of the Chief Medical Director, Washington, DC, Oct. 1, 1982.
15

VA’s medical role has grown in four general

directions:

m

●

*

●

providing more health care to veterans with

non-service-connected disabilities,

providing a greater range of health care

services,

training health care personnel and conducting medical research, and

providing some services to certain nonveterans.

Another major development in VA medical

care after World War II was the affiliation of VA

hospitals with medical schools. In the 1920s and

1930s the VA hospital system had become somewhat isolated from the professional medical community. VA affiliation with medical schools was

viewed as a way to overcome this isolation and

improve the quality of care for veterans. Public

Law 79-293, which established DM&S within the

VA, authorized the affiliation program. On balVA HEALTH CARE

Acute Care Services

SERVICES3

Acute care services are provided mainly in VA

hospitals, or medical centers, which are the primary source of medical care for veterans. In fiscal

year 1981 about 1.25 million patients were treated

in VA hospitals, 1.22 million in medical and surgical beds and 206,000 in psychiatric bed sections;

only about 30,400 were treated in non-VA hospitals at VA expense. VA hospital care includes

skilled medical and surgical procedures and intensive diagnostic and therapeutic services (fig.

4). The quality of VA hospital care is generally

thought to be enhanced by the affiliations of most

3This section is adapted from U.S. Congress, Congressional Budget

Office, Veterans Administration Health Care: Planning for 1990

(Washington, IX, February 1983).

ance, these affiliations appear to have been

beneficial to all concerned. The Nation’s veterans

have had better care, and the Nation’s doctors

have been better educated (62).

The VA now provides most of its health care

services in VA hospitals, domiciliaries, nursing

homes, and outpatient clinics. In addition, under

current law, the VA may contract for medical care

in government or community facilities, but only

if care either cannot be provided or cannot be

more economically provided in VA facilities. In

1981 the VA contracted for nursing home care in

2,900 community nursing homes and subsidized

care on a limited per diem basis at 44 State veterans’ homes, including hospitals, nursing homes,

and domiciliaries. Noninstitutional care is also

provided for veterans through hospital-based

home care programs, geriatric day care centers,

and residential care programs.

VA medical centers with medical, nursing, or dental schools.

The number of VA acute care beds has declined

over the last several years. The VA operated an

average of 82,079 hospital beds during 1981, compared to more than 97,OOO beds during 1973.

Many changes in the VA system have led to the

decline in total hospital beds, notably a decline

in the number of psychiatric hospital beds. Medical and surgical beds have also been closed

because of shorter lengths of stay and shifting patients to outpatient care. Recent legislation requires the VA to operate at least 90,000 total hospital and nursing home beds (Public Law 97-72)

and to have sufficient beds in readiness to support the Department of Defense in times of

declared war (Public Law 97-174).
16

Figure 4.—Medical Center Hospital

SOURCE” U S Veterans Administration, VA Organization Manual M-00-1, Change 11, p X-74 (Washington, DC, July 30, 1981)

Long=Term Care Services

The VA provides both institutional and noninstitutional long-term care services. Institutional

services include those of the 101 nursing home

units associated with VA medical centers and

those provided in community nursing homes,

State veterans’ homes, and domiciliaries. Noninstitutional care consists of monitoring the health

of patients in their own homes, in congregate

(group) homes, and at day care centers. Special

programs begun in recent years support noninstitutional care, such as hospital-based home care

and geriatric day care.

VA Nursing Home Care

The VA nursing home units provide the most

highly skilled and most intensive extended care

after hospitalization, with no time limits. In 1981

the VA operated an average of 8,700 nursing

home beds. Most VA nursing homes are almost

filled: in fiscal year 1982, 54 of 98 VA nursing

homes had occupancy rates above 9S percent.

Community Nursing Homes

The VA also contracts per diem for skilled nursing care at regularly inspected community nursing homes. Over 28,200 veterans were cared for

in these homes in 1981. According to the VA, veterans are usually placed in such homes when they

do not require the level of care provided in VA

nursing homes.

State Veterans’ Homes

State veterans’ homes are facilities established

by the State for medical and residential care of

veterans. Two VA grant programs support State
veterans’ homes. A per diem program helps the

State provide hospital, nursing home, and domiciliary care to veterans. Another VA program

contributes to State construction of new domiciliary and nursing home facilities and expansion

and remodeling of existing facilities. The VA subsidized care in State homes for over 24,700 veterans in 1981.

VA Domiciliaries

Domiciliaries, the forerunners of the VA programs, date from legislation in 1866 that established Soldiers’ Homes for disabled veterans. VA

domiciliaries are usually located in the complex

of VA medical centers. Veterans placed in domiciliaries must be service-disabled or permanently

disabled and unable to support themselves. Their

health often requires some monitoring although

not so much as is provided in skilled nursing

homes. In 1981 the VA provided domiciliary care

for over 14,800 persons.

Hospital-Based Home Care

The VA helps patients with residual disabilities

to remain in their own homes. Patients and their

families are given appropriate instructions in

routine nursing procedures, supervised by a

hospital-based treatment team. The team includes

a physician, public health nurse, social worker,

rehabilitation therapist, and other specialists. Frequency of home visits depends on the patient’s

needs and treatment plan. In

pitals served 5,600 patients,

minal cancer patients.

Geriatric Day Care

Although several related

1981 teams at 30 hosone-fifth of them terVA programs are in

operation~the day care program is a new VA project in which older veterans are helped to return

to their own homes. Under day care programs,

veterans continue in rehabilitation at community

centers or outpatient clinics under VA auspices.

Model programs are in operation at the Chicago

and Boston medical centers and in a community

near the Loma Linda, California, medical center

in coordination with The American Legion.

Ambulatory Care

The ambulatory care and outpatient clinical

programs are vital in the VA health care system

as an alternative to hospitalization. The VA operates mental hygiene clinics and day treatment

centers for psychiatric patients. Clinic services are

also used for care prior to and after hospitalization. Outpatient clinics also help control chronic

conditions, such as arthritis, hypertension, and

diabetes, that are often associated with aging. In

1981 more than 15.8 million outpatient medical

visits were made to VA staff and 2.1 million visits

were made to private physicians funded on a feefor-service basis by the VA.

Other Services

The VA also operates other outpatient programs to supplement its main hospital and nursing home services. For example, dental care is

given to eligible veterans and the VA considers

it a necessary service for the total care of patients

in acute care or long-term care facilities.

In addition, the VA established Geriatric Research, Education, and Clinical Centers (GRECCS)

for the growing number of elderly veterans. There

are currently eight such centers, although 1!5 are

authorized by legislation (Public Law 96-330).

GRECCS are located at VA medical centers and

use the research and clinical activities of affiliated

medical schools. One goal of the program is to

train new geriatric practitioners, teachers, and researchers.

The growing aged veteran population is a major concern of the VA. By 1990 practically all

World War II veterans, now 12 million persons,
18

will be 65 or older. Although most will be eligi- beds and should have more than 13,000 after

ble for free VA health care, only about 2 million 1987. If this number is insufficient, the VA may

are expected to apply for such health care, in- rely on alternative sources such as community or

eluding 400,000 service-disabled veterans. The VA State nursing homes.

proposes to construct additional nursing home

THE VETERAN PATIENT POPULATION

The VA provides health benefits only to the

eligible population. Those eligible are primarily

veterans with service-connected disabilities, those

discharged from active service because of illness

or injury incurred or aggravated in the line of

duty, former prisoners of war, those exposed to

Agent Orange in Vietnam, veterans 65 or older,

and veterans unable to pay for their medical care.

(Eligibility for VA health care is discussed further

in ch. 6.) Although seldom required, VA facilities

can also provide medical care to members of the

Armed Forces, dependents or survivors of servicedisabled veterans, and other non-veterans for

humane reasons or emergency care.

There are approximately 30 million veterans,

of whom 98 percent are male. Forty percent are

World War II veterans, now in their 50s and 60s.

Only a small number of all veterans however, are

currently served by the VA health care system.

About 3 million veterans—10 percent of the veteran population—used VA services during 1981.

Most veterans use community facilities and services for medical care, presumably because these

‘This section is adapted from U.S. Congress, Congressional Budget

Office, Veterans Administration Health Care: Planning for 1990

(Washington, DC, February 1983).

veterans have sufficient public or private health

insurance or prefer the proximity of non-VA facilities. Veterans receiving VA care have health

insurance less frequently than those receiving nonVA care.

Most VA services are provided to veterans with

service-connected disabilities or to low-income

veterans without insurance. In fiscal year 1982,

34 percent of the applicants for VA medical care

were service-disabled veterans; such veterans

apply for care six times more frequently than

other veterans. Service-disabled veterans are more

likely to need greater medical care, particularly

the specialized care offered by the VA, and have

priority by law.

A significant part of VA health care is given

to and requested by the aged. Aged veterans apply

for VA care twice as often as younger veterans,

accounting for almost 20 percent of applications.

In 1981, 17 percent of veterans aged 65 or older

applied for medical care at VA facilities, compared

to only 8.5 percent of veterans under 65. In the

same year, the VA funded medical or health benefits for over 798,000 veterans 65 or older; onefourth of patients discharged from VA hospitals

—about 236,800—were 65 or older.

VETERANS’ SERVICE ORGANIZATIONS

Veterans’ service organizations play a signifi- cluding medical devices. The major organizations

cant role in the VA’s delivery of health care, in- —The American Legion, the Veterans of Foreign

‘This section is adapted from S. C. Farrow, A. D. Kaluzny, and ———..——

T. Ricketts, “Proceedings of a Conference on Health Services Re- 5(1/2):1-16, 1981. For further information on veterans’ service orgasearch Issues in the Veterans Administration, ” J. Medical Systems nizations, see app. B.
Wars, and the Disabled American Veterans—are

all powerful influences both locally, where they

are involved in a variety of activities, such as community programs for youth, and nationally,

where they serve their members in the political

arena. Some organizations represent specific

disabilities, some particular conflicts, and others

ethnic and religious affiliations. Thus their interest groups sometimes overlap.

Through their local chapters, these organizations significantly influence VA hospitals. The

groups provide hours of volunteer work offering

support and advice to patients and their families,

Occasionally, they strongly pressure a hospital

director to support a particular policy. Local hospitals are sensitive to such pressure and respond

to inquiries and complaints. Although veterans’

service organizations are not always involved in

planning, they are consulted at times, particularly

about reducing services or changing bed designations.

Nationally, these organizations attempt to affect legislation, notably proposals to reduce services, although occasionally they lobby for new

services, such as drug treatment centers for

Vietnam-era veterans.

The opinions of veterans and veterans’ organizations about the VA and medical devices are

examined throughout this study and in detail in

appendix B. This chapter has provided a brief

overview of the VA’s health care system and the

population it serves. The next four chapters examine VA programs and activities bearing most

directly on the development and use of medical

devices.
Research and Development

of Devices
Chapter

Research and Development of Devices

Though the Federal Government purchased

medical devices as long ago as the years following the Civil War, groundwork for the current system of device-related research and development

was laid in the 1940s by the National Academy

of Sciences and the Armed Forces in response to

the postwar needs of veterans. Much initial research on prosthetic devices was conducted by the

Department of Defense (DOD) and the Veterans

Administration (VA). Since 1947 the VA has spent

over $3o million on prosthetics research alone.

Prosthetics research, along with growing research

in other areas, still continues in the VA system

(109).

MEDICAL RESEARCH

The Medical Research Service provides opportunities for clinicians and scientists to study the

health problems of veterans. During fiscal year

1981 approximately 4,100 investigators participated in 5,44o medical research projects conducted

at 129 VA health care facilities, including medical centers and independent outpatient clinics

(118). Since many VA investigators are health care

providers in VA medical centers, many of these

studies emphasize the practical care of veterans

and the general population (119).

Research Programs

The Merit Review Program is by far the largest

program within the Medical Research Service, involving approximately 2,OOO funded investigators.

This research is investigator initiated, as opposed

to centrally directed. Although the program supports basic science, it emphasizes clinical research.

Approximately 85 percent of all principal investigators in the VA system are physicians who

carry out their research part time, spending most

of their time with veteran patients. Research interests arise from daily clinical practice, and

results are applied to patient care. Each investigator pursues his or her own interests, and

each competes against all the others for funding.

VA research and development are now divided

among three programs or “services”: Medical Research, Health Services Research and Development, and Rehabilitation Research and Development (Rehabilitation R&D). Only the last, Rehabilitation R&D, is substantially concerned with

medical devices and so is the main focus of this

chapter. The other two services are briefly described, since their programs do affect device

evaluation and procurement specifically and technology transfer generally, as later chapters report.

High Priority Research focuses on problems of

particular importance to veterans, whether because of the prevalence or incidence of a condition or because it results from military service,

especially from combat (142). Current research

areas are aging, spinal cord injury and tissue

regeneration, schizophrenia, alcoholism, Agent

Orange, and delayed stress disorders.

The Cooperative Studies Program supports

multi-center clinical trials within the VA system.

The program is administered through the VA Central Office in Washington, DC, and has one experimental drug unit and four centers to coordinate data in different parts of the country.

As of September 1982, 19 studies were in progress, 11 were in active planning, and 12 were in

final analysis (106,142). The largest number of

trials have tested drug therapies, followed by trials

of types of surgery, such as coronary artery bypass grafts. Although most trials have concerned

treatments, many have also focused on preventive health care measures, such as control of

hypertension. The mix of VA clinical trials is

much like that of the National Institutes of Health

(NIH), except that fewer VA trials focus on cancer treatment.

23
24

Clinical trials follow a well-defined path from

inception to publication. Ideas for studies come

from VA physicians and investigators around the

country. They are considered by VA panels and

outside advisers, and if judged worthwhile and

appropriate for VA research, are planned and carried out. Each study is assigned to a coordinating center for help in designing, conducting, and

analyzing the trial (106).

The Cooperative Studies Program enables researchers to obtain large enough samples with

geographic diversity to permit valid generalizations—for example, about the relative values of

different treatments or the etiology and natural

history of a medical disorder. One Army-VA Cooperative Study revolutionized the treatment of

tuberculosis, virtually emptying tuberculosis

wards in the early 1950s (142).

Other Medical Research

The VA not only funds research, it is also involved in clinical trials funded by others, such as

NIH and pharmaceutical companies (106). The

Medical Research Service maintains a computerized data system that encompasses all VA

research, including that funded by outside

sources.

The VA also supports the retrospective collection and analysis of data on medical procedures

and devices, which, although not intended for research can still be used in research. For example,

a 1980 VA Inspector General Audit of cardiac

pacemaker procurement concluded that the VA’s

requisition and monitoring of pacemakers should

be more closely controlled (120). Senate hearings

later that year raised concerns about the VA’s

ability to track pacemaker patients and to identify and protect those affected by recalls. These

events prompted the VA to develop a pacemaker

registry and prosthesis profiles for all VA pacemaker patients. The registry is now reviewed periodically for both procurement and clinical care,

and information is exchanged with other interested Government agencies, such as the Food and

Drug Administration, DOD, and NIH (113).

HEALTH SERVICES RESEARCH AND DEVELOPMENT

The Health Services Research and Development

Service (HSR&D) develops and supports projects

to evaluate alternative policies and technologies

for clinical and administrative decisionmaking in

VA health care. HSR&D emphasizes management

tools, as in developing an information system for

VA clinicians, administrators, researchers, and

consumers (31,119).

Recent broad research priorities focus on care

of the aged veteran, VA health care operations,

the cost effectiveness of patient care technologies,

rehabilitation services, and preventive health care.

HSR&D supported 36 investigator-initiated research projects at 25 VA medical centers during

fiscal year 1982, In a VA pilot program of preventive health care established in response to Public

Law 96-22, subjects of research are schizophrenia,

hypertension, psychiatric screening, and dentistry,

along with the evaluation of some preventive

health care services (32,119).

Four regional field programs have recently been

established to integrate research with the information requirements of managers and clinicians.

These field programs conduct research, provide

technical assistance to investigators and consultation to administrators and clinicians, educate VA

staff about the uses of health services research,

and serve as a systemwide resource in such areas

as care of the aged veteran, ambulatory care, and

operational efficiency. In addition, HSR&D addresses information needs of VA Central Office

managers.
25

REHABILITATION RESEARCH AND

Rehabilitation R&D (formerly Rehabilitation

Engineering R&D) is the most directly important

VA Service in relation to medical devices. Rehabilitation R&D was the VA’s response to the needs

of disabled people, particularly veterans. The

Service evolved from the R&D Division of the

Prosthetic Service, dating back to 1946, and was

at first mainly an artificial limbs program. In 1973,

as a result of increased national focus on rehabilitation research and engineering needs, Rehabilitation R&D was separated from other VA R&D and

given a mandate to improve the quality of life and

facilitate the independence of physically disabled

veterans (109, 127). This mission is to be accomplished through research, development, and evaluation of new devices, techniques, and concepts

in rehabilitation. The Rehabilitation Act of 1973

(Public Law 93-112), additionally requires Rehabilitation R&D to cooperate and coordinate activities with the National Institute of Handicapped

Research, Legislation further requires research and

development for automotive adaptive equipment

(153).

Rehabilitation R&D primarily develops sophisticated, “usable” devices to help individuals. Other

goals include improved rehabilitation methods

(e.g., functional electrical stimulation and methods to avoid decubitis uIcers, or bedsores) and

technology transfer, including increasing the

availability of new devices on the open market.

Rehabilitation R&D does not directly furnish or

fabricate devices for veterans; rather, prototype

devices are developed and adapted from commercially available items purchased from local private sources (153). Successful models may then

be produced commercially.

Rehabilitation R&D organizes both intramural

and extramural research and development programs, has established Rehabilitation R&D

Centers and research affiliations with engineering schools, and generally attempts to ensure the

dissemination and clinical use of new devices,

techniques, and concepts (144).

The topics of Rehabilitation R&D range from

traditional artificial limbs to robotic devices for

the totally paralyzed person (153). Activities are

DEVELOPMENT

concentrated in three areas, representing the most

prevalent service-connected disabilities:

●

●

●

Prosthetics and amputation. Rehabilitation

R&D emphasizes lower limb prosthetics, including improved fitting techniques, especially for the elderly. Rehabilitation R&D is

now most heavily committed to this area,

which represents about 40 percent of its total

budget.

Spinal cord injury. Rehabilitation R&D

devotes about 30 percent of its budget to improving wheelchairs by improving motor and

controller efficiency, reducing noise, and developing a fail-safe braking system.

Sensory aids. Special emphasis is given to

aids for visually impaired people. Studies include those of new sensory aids, people’s

mobility and orientation needs, and new

communication and vocational aids. This

area represents about 30 percent of the

Rehabilitation R&D budget (119,152).

Table 1 presents a summary list of Rehabilitation R&D projects in fiscal year 1983. Research

priorities are identified in special meetings, which

include representatives from rehabilitation research, clinicians, manufacturers, and disabled

veterans’ consumer groups. Workshops and seminars in fiscal year 1982 focused on hearing impairment, prosthetics, and commercializing VA

technology (152). (For the views of veterans’

groups on VA research, see app. B.) Rehabilitation R&D has not traditionally supported device

development for cardiovascular, pulmonary, and

renal disabilities because they have seldom been

service connected (153). However, such devices

may receive attention in the Medical Research

Service and be used in VA clinical practice.

Rehabilitation R&D Centers

Three VA Centers perform and support rehabilitation research and development. The VA

Prosthetics Center (VAPC) in New York City’ is

‘Within the VA, VAPC has also unofficially been known as the

Prosthetics Evaluation, Testing, and Information Center, and the

Rehabilitation Engineering Center.

25-289 0 - 85 - 3
Table 1 .—Summary of Rehabilitation Research and

Development Projects, Fiscal Year 1983

Topic

Prosthetics/amputation:

Diagnostic procedures. . . . . . . . . . .

Surgical procedures . . . . . . . . . . . . .

Internal joint/prostheses . . . . . . . . .

Gait analysis . . . . . . . . . . . . . . . . . . .

Maxillofacial prostheses . . . . . . . . .

Prosthetics and orthotics . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . .

Spinal cord injury:

Mobility (including wheelchairs

and automotive adaptive

equipment) . . . . . . . . . . . . . . . . . . .

Manipulative devices (including

computer-assisted devices

and environmental controls) . . . .

Surgical procedures . . . . . . . . . . . . .

Neuromuscular control (including

functional electrical stimulation,

nerve conduction studies, and

neural models). . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . .

Sensory aids:

Blindness and visual impairment . .

Deafness and hearing treatment . .

Speech impairment. . . . . . . . . . . . . .

Number of projects

4

9

17

5

1

8

44

6

2

5

10

23

8

9

5

Total . . . . . . . . . . . . . . . . . . . . . . . . 22

Technology dissemination and use:

Rehab R&D centers . . . . . . . . . . . . . 2

Rehab R&D affiliation . . . . . . . . . . . 2

Information dissemination . . . . . . . 6

Total . . . . . . . . . . . . . . . . . . . . . . . . 10

SOURCE: Office of Technology Assessment, 1984,

organizationally separate from Rehabilitation

R&D.2 VAPC was established in 1956 to conduct

research and development in rehabilitation engineering, to evaluate commercially available devices, to provide customized devices for difficult

cases, 3 and to manufacture and distribute orthopedic footwear and prosthetic and orthotic devices. In the 1950s, VAPC was the basis of a suc-

‘Since this technical memorandum was drafted, the VA has proposed a reorganization that would put VAPC, Rehabilitation R&D,

and Prosthetics and Sensory Aids Service under one director.

3VAPC represents a merger of the New York Regional Office and

the Prosthetic Testing and Development Laboratory, then part of

the Research and Development Division of the Prosthetic and Sensory Aids Service, to bring research and clinical programs together

for the benefit of each. In 1969, VAPC established a program of

satellite stations to help its engineers and professional personnel work

more closely with patients at the site of hospitalization. Such stations have been established at VA hospitals in Brooklyn, NY, East

Orange, NJ, the Bronx, NY, and Castle Point, NY.

cessful VA intramural research program,

developing most of the prosthetic limbs and the

fitting techniques used today (127).

A recent audit report (1982) by the VA’s Office of Inspector General, however, disclosed substantial management problems at VAPC over the

last several years and recommended changes in

its goals and organization, including the discontinuation of its research and development program (139). The VA hopes to transfer VAPC’S

Development Section to the Technology and Performance Evaluation Service. Personnel in the Research Section were offered reassignment to the

Engineering Service at a nearby VA hospital (22).

(Other VAPC activities and program changes are

discussed later in this report. )

The other two Rehabilitation R&D Centers

were established only in the last few years and

are directly tied to the VA Rehabilitation R&D

program. One is in the Palo Alto VA medical center in California, the other in the Hines, Illinois,

VA medical center outside Chicago. Six more

Centers are planned by 1986.

These Centers provide engineering support in

VA medical centers where there are existing relationships between VA medical and engineering

communities, and they are affiliated with leading

engineering schools, just as VA medical centers

are affiliated with medical schools. These affiliations bring faculty and students into clinical research settings to study the problems of disabled

people and new procedures and devices in engineering. The Centers’ primary goal is to apply advanced technology (e.g., microprocessors) to help

physically handicapped veterans. The VA views

the Centers as natural outcomes of engineering

school affiliations that successfully produced new

rehabilitative devices, techniques, and concepts

in VA clinical settings.

Each Rehabilitation R&D Center is administered by a director and an assistant director, one

a physician and the other a rehabilitative engineer, Each Center is staffed with investigators and

technicians, but receives administrative support

from its associated health care facility (144).

The Rehabilitation R&D program is also establishing university-affiliated engineering research
27

programs to help support graduate students and

faculty who undertake rehabilitation engineering

projects. The program is designed not only to interest engineering students in rehabilitation, given

the critical shortage of trained rehabilitation engineering professionals in this country, but also to

infuse new ideas into the Rehabilitation R&D program through its frequent communication with

academia (19,30,109).

Technology Transfer

Part of the VA’s rehabilitation research program mandate (38 U.S. C. sec. 4101(c)(2)) is to test

prosthetic, orthotic, and orthopedic appliances

and sensory aids, and to disseminate VA results

and information for the benefit of all disabled persons (154).

The VA has traditionally attempted to ensure

the clinical use of new devices, techniques, and

concepts in three major ways:

Ž Through VA investigators who have appointments in affiliated medical or engineering schools and who can communicate the

DISCUSSION

The goals and priorities of VA R&D are diverse,

given its extremely broad mandates to address veterans’ complex and difficult problems. VA R&D

is especially important for rehabilitative devices,

because the markets for many are small and fragmented. In the past, unless the stages of research,

development, and transfer have each been publicly funded, market incentives have often been

results of VA research to students and colleagues.

Through peer-reviewed research in the VA

intramural program. Because competition for

support is keen and the review considers the

number and quality of publications and presentations at scientific meetings, there is pressure to disseminate information promptly to

the research community, whether in the VA

or outside.

Through funded Rehabilitation R&D investigator;, two-thirds of whom are involved in

patient care and have direct professional interests in physically disabled veterans. Application of recent results can thus be direct

(144).

Rehabilitation R&D also supports the Office of

Technology Transfer, whose main responsibility

has been preparing the Journal of Rehabilitation

R&D (formerly the Bulletin of Prosthetics Research). The Office also maintains the Prosthetic

Reference Collection and the Prosthetics Film and

Audio-Visual Lending Service for interested researchers and clinicians (144).

insufficient to ensure the availability of rehabilitative devices from private firms (109).

Table 2 summarizes the VA R&D budget. Although the commitment to R&D in current dollars

has increased over the past few years (and substantially increased for Rehabilitation R&D in

fiscal year 1983), the budget is stable or declinable 2.—Veterans Administration R&D Budget Overview (thousands of dollars)

Fiscal year

1977 1978 1979 1980 1981 1982 1983

Medical research program . . . . . . . . . . . . . . . . . . $101,567 $108,153 $118,016 $122,745 $129,943 $130,842 $141,052

Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,220 4,367 4,217 4,171 4,171 3,845 4,015

Rehabilitation R&D program . . . . . . . . . . . . . . . . 4,419 5,502 7,191 8,085 8,784 7,185 10,001

Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 90 112 143 (143) 128 250

Health services R&D program. . . . . . . . . . . . . . . 3,604 2,996 3,004 3,153 3,083 2,828 3,786

Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 90 105 104 104 93 120

SOURCES” U S. Veterans Administration, Off Ice of Budget and Finance, Cortgressiona/ &dgef Submission (Washington, DC, 1983); R. Nolan, US Veterans Administration, Office of Budget and Finance, Washington, DC, personal communication, September 1983.
28

ing when inflation is taken into account. Furthermore, as a proportion of medical care expenditures, funds for R&D have steadily declined for

over a decade: In fiscal year 1970, R&D accounted

for 3.4 percent of the total medical care costs, in

1982, only 2 percent (144).

Veterans’ service organizations have expressed

great concern about the effects of relative cutbacks

in R&D budgets, especially those for prosthetics

and sensory aids.

VAPC has encouraged innovation in the past

by demonstrating that new types of wheelchairs

were technologically possible, safe, and most importantly, that they had a significant market—

the VA (80). The Center’s work with power

wheelchairs in the early 1970s showed they could

be safely used at speeds greater than a slow walk

and on rough terrain, which encouraged manufacturers to begin making such chairs. VAPC

work on lightweight sports wheelchairs had similar effects. VAPC now focuses on commercially

available devices rather than prototypes, which

may change the VA’s role in device innovation

and development.

Especially given dwindling R&D moneys, the

VA peer review and advisory council systems become even more important. The Medical Research

Service has a well-developed merit review system,

and both HSR&D and Rehabilitation R&D have

restructured and improved their systems within

the last few years. The Rehabilitation R&D process, modeled on that of the Medical Research

Service, relies on in-house professionals, Rehabilitation R&D directors, and a multidisciplinary

panel of non-VA experts to set research priorities

and review proposals and results (109). Recently,

Rehabilitation R&D has also taken steps to increase consumer involvement in planning R&D,

placing representatives from veterans’ service

organizations on its merit review board.

Rehabilitation R&D, the primary focus of VA

R&D on medical devices, deserves attention in at

least two other areas. The first concerns Rehabilitation R&D Centers. Funding has shifted over the

last few years to these Centers and their university-affiliated programs and away from extramural support. A 1981 VA evaluation of the two existing Centers concluded that they were developing toward a “stable and productive” existence,

but noted some achievements were lagging (144).

Delays were experienced in selecting Center directors, in completing basic construction and renovation, and in procuring essential computers and

office supplies. Procurement problems have persisted, at least at the Palo Alto Center, which buys

rough!y $400,000 in devices annually (not including office supplies), because the Center must buy

through the Palo Alto VA medical center procurement and supply service.

VA medical centers have relatively constant

needs for medical equipment and supplies, but research centers, because of the nature of research,

can exhibit highly erratic purchasing patterns. Research can also require highly sophisticated technology not normally purchased for medical care.

Thus, the centralized contracting procedures used

for medical center procurement may be inadequate for Rehabilitation R&D. Special contractual procedures can delay projects for a long time.

The Palo Alto Center has reported equipment procurement lags of up to 18 months (53), longer than

the duration of some Center projects.

The situation at the Palo Alto Center has been

exacerbated by special VA procurement policies

for microprocessor equipment. Much of the Center’s work involves innovative uses of electronic

and microprocessor technology. However, until

recently all VA purchases of such equipment have

been controlled by the VA’s Central Office of

Automated Data Processing. Even relatively unsophisticated circuit board devices costing $100

have needed approval not only of the local supply

process but also of the Central Office.

Because of medical centers’ increasing needs for

automation, in May 1983 authority was delegated

to the centers to procure all automated dataprocessing equipment, software, and services with

a purchase value of $10,000 or less or a lease cost

of $300 or less per month (53,122). Rehabilitation

R&D has additionally designated smoother, more

expeditious contracting procedures as one of its

“special initiatives” beginning in fiscal year 1983

(152).

The second issue of interest regarding Rehabilitation R&D is that of technology transfer. For

several years the VA had recognized deficiencies
29

in the use of results from VA-sponsored R&D on

rehabilitative devices. Generally, it seems that

considerable information on new devices, techniques, and concepts had been disseminated, but

there were no structured efforts to transfer technology (109). No system routinely promoted the

greater use of successful prototype devices, which

were known mainly through their experimental

use in VA clinical settings (144).

Rehabilitation R&D has established an interagency agreement with the Department of Commerce to identify and develop potential markets

and financing for prototype devices funded and

developed through Rehabilitation R&D. The program’s goal is to develop a better process toward

commercializing VA technologies. In addition, the

VA intends to improve its in-house testing and

evaluation of prototype devices.

Although still in planning, Rehabilitation

R&D’s new initiatives in technology transfer are

a significant step for the VA with regard to medical devices. Later chapters further examine the

programs mentioned here, as well as the VA’s role

in technology transfer.
Chapter 4

Testing and Evaluating Devices
Chapter 4

Testing and Evaluating Devices

Testing and evaluation encompass many activities, including requesting, funding, and conducting studies. Techniques for testing medical devices

are equally various, from the informal methods

of individual inventors, developers, and physicians to complex clinical trials. No technique is

applicable to every medical device, and in many

instances simpler methods may be more appropriate. Often, researchers use a combination of

techniques (7).

Depending on the nature of a device, public

agencies, nonprofit organizations, and private

firms also use different criteria to evaluate it. The

most common, and perhaps most important, criteria used in the early development of healthrelated products are safety, technical feasibility,

and technical performance. Depending on the use

or intended market for a device, further test criteria may be effectiveness, suitability for desigPROTOTYPE DEVICES

Rehabilitation R&D evaluates prototype devices and disseminates information, and in both

cases works with the National Institute of Handicapped Research. ] As noted earlier, the VA is

mandated to test prosthetic, orthotic, and orthopedic appliances and sensory aids, and to disseminate information on its research for the benefit

of all disabled persons (38 U.S. C. sec. 4101).

Still, rehabilitative devices often do not complete the transition from research prototypes to

commercially viable products, even though Rehabilitation R&D supports dozens of ongoing device development projects. This discontinuity may

be caused by several separate, but related,

obstacles (which are discussed further in ch. 5).

One of these obstacles is the lack of unbiased clinical evaluations of prototypes’ performances and

‘For discussion of the National Institute of Handicapped Research,

see OTA’S report Technology and Handicapped People (109).

nated goals, reliability, cost, cost effectiveness,

repairability, convenience, esthetics, consumer

satisfaction, patient protection, legal impacts,

liability concerns, accessibility, reimbursement

status, social implications, and ethical concerns

(110).

Several Veterans Administration (VA) programs that evaluate innovations have evolved

over the years given the many kinds of decisionmaking related to medical devices. The Rehabilitation R&D Service (Rehabilitation R&D) evaluates

rehabilitative devices still in development. The Office of Procurement and Supply and the Prosthetic

and Sensory Aids Service, along with other VA

medical, surgical, and rehabilitative service offices, evaluate devices that are already commercially available but must be approved before the

VA can purchase and distribute them.

clinical applications (154). The VA explains this

problem in a 1981 internal report (144):

The problem is that, after the prototype has

been developed, it is necessary to place a number of examples of the developed item into actual use, under conditions in which carefully controlled evaluations , . . can be carried out. Only

after these evaluations, and any modifications

which result from them, is it appropriate to manufacture such items for routine placement with

veteran patients. In the case of other new health

care developments (such as the development of

new drugs) this evaluation phase is funded by

the manufacturer’s capital funds. In the development of new devices for the disabled, the

developer (and/or proposed manufacturer) is frequently a very small business which cannot afford the capital outlay required to place a

number of prototypes into an evaluation program . . . The Veterans Administration does not

routinely purchase for its beneficiaries items

33
34

which have not been through testing and evaluation.

. . . . the Research and Development budget is

not adequate to provide the capital for purchase

of expensive prototypes to be placed in actual

use by veteran patients under an evaluation protocol. Similarly, it has not been customary to use

patient care funds for this purpose. The only exception has been the purchase, by [the VA Prosthetics Center] . . . of devices which are put into

evaluation protocols. There is currently no feasible alternative in the VA system available for

those instances where, for whatever reason, the

purchase and evaluation of the device by [the VA

Prosthetics Center2] . . . is inappropriate. This

situation has led to a number of instances where

devices have been developed with VA research

and development funds which subsequently neither have been demonstrated to be ineffectual

nor have been put into general use by the veteran patient.

Expensive prototypes supported by VA R&D

funding, but never evaluated, include the following (144):

a wheelchair adapted for use with the Scott

Van (a specially equipped van that can be

driven by a person confined to a wheelchair

or gurney), with a new system of electronic

controls;

a high-performance wheelchair developed at

the University of California-Berkeley on

contract;

a wheelchair control system developed at the

Johns Hopkins University Physics Laboratory on contract;

a four-bar linkage knee for above-knee prostheses developed at the University of

California-Berkeley on contract; and

a standing device for paraplegics developed

by Ocean Systems Laboratory in San Diego

on contract.

Recently, Rehabilitation R&D has named its

own evaluation unit to establish and operate a national program with the following goals (154):

. . . . conduct clinical trials (or evaluations) on

new devices, techniques and concepts in rehabilitation; promote commercialization of re2Recall that the VA Prosthetics Center, as noted in ch. 3, primarily evaluates commercially available devices rather than prototypes.

search devices evaluated by the program; and direct a technical information acquisition and

dissemination program, which includes developing educational guidelines and technical manuals

[for training programs].

The Rehabilitation R&D Service envisions the

unit as a “facilitating and coordinating” center to

improve the “organization and visibility” of the

Service’s evaluations. Various VA facilities, including Rehabilitation R&D Centers, the VA Prosthetics Center (VAPC), and individual medical

centers, have been involved in testing and evaluating new and emerging rehabilitative devices

through Service funding (154).

There have been concerns in the past, however,

about duplication in testing and evaluating specific rehabilitative devices as they proceed from

development to marketing and diffusion. For example, recreational ski equipment for the disabled

person (later commercially produced as Arroya

sit-ski equipment) was developed and tested at the

Palo Alto Rehabilitation R&D Center and tested

at four independent testing and evaluation centers.

Still, it could not be purchased for veterans until

VAPC had tested it again (5,6,53).

The Rehabilitation R&D evaluation unit is also

intended to improve prototype testing and evaluation themselves through several means:

developing uniform evaluation protocols and

reporting procedures,

developing criteria for patient or client

selection,

designating an appropriate number and the

locations of facilities involved in particular

evaluations,

preparing and disseminating evaluation

results, and

integrating requirements of the Food and

Drug Administration (FDA) and other regulatory agencies.

The unit generally oversees the evaluations performed. In simple cases, staff will negotiate arrangements. When an evaluation calls for a substantial national or international effort, a

workshop may be held to bring together developers and evaluation professionals to work out

arrangements. It is hoped that funding for major

evaluations can be negotiated among all partici-
35

pants who have a stake in a device’s development information on the likelihood of commercial sucand ultimate commercial success (154). -

cess and indications for use, or information on

It is premature to assess the Rehabilitation R&D changes that might lead to success. The information can also lead to more informed decisions evaluation unit. However, the program is important insofar as prototype testing and evaluation— about new research and development for rehabilitative devices (154). in the clinic or in the community—can provide

COMMERCIALLY AVAILABLE DEVICES

Any vendor who wishes to sell new medical devices, including equipment, supplies and expendable, and rehabilitative products, may have to

submit the device for a product demonstration,

“bench testing, ” or some other type of testing, to

evaluate safety and various other criteria of the

VA. New rehabilitative devices have traditionally

been tested and evaluated by VAPC in New York

City, and new equipment and supplies by the

Testing and Evaluation Staff (T&E) at the VA

Marketing Center in Hines, Illinois.

The VA Prosthetics Center3

VAPC is a unique organization within the VA

by virtue of combining programs in clinical

practice—in prosthetics, orthotics, and technical

aids—and programs in development and evaluation for their mutual benefit. New devices can

then be used promptly in the clinic, as part of an

evaluation or to study their wider applicability.

VAPC has long stressed in-house evaluation of

commercial devices. It has been the VA’ s

organizational focus for nearly all bioengineering and clinical evaluations of commercially available rehabilitative devices and for some hospital

equipment for nearly three decades.4 During its

early years, evaluations concentrated on limb

prostheses in response to the overwhelming needs

of World War II veterans. In more recent years,

‘Except where noted, information in this section is based on U.S.

\’eterans Administration, Department of Medicine and Surgery, Veterans Administration Prosthetic and Sensory Aids Program Since

I+’or/d War 11 (Washington, DC: U.S. Government Printing Office,

1978).

‘VAPC’S work has been complemented over the years by some

evaluations of contractors, developers, manufacturers, and inventors of prototype devices, largely in weighing priorities for its own

R&D.

evaluation has emphasized orthotics and the

spinal-cord-injured patient. Evaluations in the

1970s emphasized bioengineering directed especially at the stroke patient, the patient with developing vascular insufficiency, and the aged person with problems of independence in daily living.

Standards Development

Throughout the 1970s, the VA increasingly

employed standards in its prosthetic and sensory

aids program. Developing standards requires not

only evaluating devices in drafting the standards,

but also compliance testing after the standards are

established. In theory, compliance testing further

tests the current standard and determines whether

products meet the purchaser’s needs. The standards developed reflected desired qualities of prosthetic and orthotic hardware, orthopedic aids,

fitted limbs and braces, and sensory aids. “Specifications” of product attributes were included to

control devices’ quality, safety, and performance.

Such standards were perceived as benefiting both

VA beneficiaries and other disabled people. Once

developed, standards were implemented through

the VA Office of Procurement and Supply and

its contracts with manufacturers and fitters.

VA standards development has required the

participation of individuals and organizations

both within and outside the VA. A draft standard of appropriate language can be developed

from clinical experience with devices and techniques and the knowledge and experience of R&D

and evaluation staff. The draft must then be

evaluated by those who will work with it: manufacturers, prosthetists, orthotists, educational

specialists, VA supply specialists, and others.

Such reviews have also included professional asso-
36

ciations such as the American Society for Testing

and Materials, the International Standards Organization, and the Rehabilitation Society of North

America.

Once a rehabilitative device standard has been

employed, the VA—through VAPC—performs

compliance testing of hardware, sampling the

market and conducting laboratory tests. The VA

makes known the results of such tests to its procurement personnel and to manufacturers.5 When

results of compliance testing have been negative,

the VA has also developed engineering design recommendations.

VAPC has developed standards for lift aids,

motor vehicle systems for handicapped people,

wheelchairs, knee mechanisms, foot-ankle assemblies, stump socks, elastic hosiery, crutches, canes,

and other related devices. When VAPC has not

developed a standard for a device, the VA Office of Procurement and Supply has relied, when

possible, on other appropriate standards. The research and testing of the National Bureau of

Standards (NBS) have been valuable to the VA

in evaluation (18,109). NBS has developed devices

to measure slip resistance on walkways, conducted performance and reliability tests on hearing aids and cardiac pacemakers, developed standards for acrylic bone cements and metals, and in

general has helped address technical issues related

to the needs of disabled individuals.

Veterans’ organizations and others have expressed concern that the VA has used specifications and standards for existing technologies to

evaluate and purchase new ones. Thus, emerging devices of unusual design or performance may

have trouble entering the market, especially the

large VA market (109). (Small firms may have

pronounced difficulties since they have fewer resources to address regulations on marketing. )

Older standards have been particularly vulnerable

to such criticism, because they tend to specify

product dimensions and materials.

Newer standards have emphasized, instead,

functional or performance requirements, Precise

‘Manufacturers are prohibited by previous policy agreements from

directly or indirectly using the results of VA evaluations for advertising (18).

materials, fabrication methods, and design

features have generally not been specified, The

goal has been to allow innovation while providing adequate controls for patient safety. At present, the VA has only four or five general standards for rehabilitative devices; for example, the

standard for wheelchair lift systems covers 21 different models and 13 different manufacturers. Yet

despite the VA’s efforts, existing standards may

still bar new technologies.

Shepard and Karen came to this conclusion in

the case of wheelchairs (80). Historically, the VA’s

standards were written with a specific wheelchair,

usually an Everest & Jennings model, in mind. The

VA’s evaluations of wheelchairs may have promoted safety, but they also functioned in the interests of the major manufacturers, As the largest

purchaser of wheelchairs in this country, the VA

might not only overlook new technologies, but

possibly discourage innovation and product improvement.

In the last few years the VA has replaced most

standards and device specifications with more

general Commercial Item Descriptions (CIDS).

CIDS are designed to accommodate better the variety of privately developed and marketed devices

(see ch. 5 for a critical discussion of CIDS) (12).

General Testing and Evaluation

VAPC device testing typically follows several

preliminary steps (163):

●

●

●

gathering background information, often

from the manufacturer;

developing an evaluation protocol that encompasses any appropriate VA standards

and specifications as well as criteria to

validate manufacturers’ claims; and

having the protocol approved by the R&D

committees of any local VA medical centers

involved in the trial.

Standardized protocols are also employed for certain general classes of devices.

Testing protocols range from simple validation

assessments to complex clinical evaluations involving dozens of VA medical centers or clinics.

At the least, rehabilitative devices are tested for

safety, reliability, and the validity of manufac-
37

turers’ claims. New wheelchair products, for example, are tested for strength, safety, maneuverability, and ease of use, although not necessarily

for durability (18).

Devices can undergo either special laboratory

testing or field testing at VA- medical centers or

clinics, or both, Field testing is advantageous in

assessing a device’s “usefulness, ” that is, the conditions in which a device is most appropriately

prescribed and used. Field testing also decreases

the probability of observer bias by relying on a

larger and more random group of testers. Yet

VAPC has not always used field testing because

of organizational difficulties.

Until fiscal year 1984, neither VAPC staff nor

the VA Prosthetic and Sensory Aids Service, the

primary users of rehabilitative device evaluations,

had authority over researchers, in contrast to the

case of VA testing and evaluation of medical

equipment and supplies (see the later section of

this chapter on VA Marketing Center testing and

evaluation). This absence of authority typically

resulted in lack of control over experimental protocols and data reporting, and often created an

initial resistance to cooperating in device studies.

Group evaluations, which compare similar devices, have been attempted but never fully developed (163), since they frequently involve extensive field testing.

VA evaluation of commercially available rehabilitative devices has been the target of complaints, especially from veterans’ groups. The

Disabled American Veterans organization has

characterized the evaluation system as “fraught

with inefficiencies and communication breakdowns” (160). In addition to the Disabled American Veterans’ complaints, there have been other

criticisms: that testing priorities are not adequately

established and that there are long delays in evaluating devices; that clinical prescription criteria

must be more standardized to ensure more consistent quality of care; that device needs of veterans must be better anticipated; and that devices

should be evaluated by the FDA (not the VA) for

safety (though by the VA for efficacy and cost

effectiveness) (164).

Prosthetics Technology Evaluation Committee

To address concerns about VA evaluations of

commercially available devices, the Prosthetics

and Sensory Aids Service established the Prosthetics Technology Evaluation Committee (PTEC)

early in 1982. The committee—including representatives from the Prosthetic and Sensory Aids

Service, the Office of Procurement and Supply,

and Rehabilitation Medicine Services, the VA Inspector General’s Officer and Rehabilitation

R&D—has developed an evaluation and coordination process for VA products and devices,

which is now almost fully operational.

PTEC will be responsible “for assessing and

ranking the legitimacy and appropriateness of

evaluation proposals and for assessing and approving the results of clinical evaluations” (125).

The Prosthetic and Sensory Aids Service established PTEC primarily because of concern that the

VA evaluation process was not sufficiently formalized. Not only were evaluation efforts

hampered, but, faced with increasingly expensive

devices and technologies and steady or declining

budgets, the VA was using its lack of a process

to deter supplying expensive prosthetic and sensory aids to veterans. b

The PTEC evaluation process probably has two

main strengths: 1) classifying devices into three

types to determine the testing and evaluation that

devices will undergo; and 2) coordinating with

other parties interested in rehabilitative devices,

in the VA delivery system, other Federal agencies, independent testing labs, and veterans’

groups. (The Paralyzed Veterans of America and

the Disabled American Veterans, for example,

both have permanent representatives on this committee. Other veterans’ groups are informed of its

activities and invited to participate in meetings. )

“L’A policy is to provide blind veterans with all necessary services and devices to overcome their handicaps and to provide other

d]sabled veterans with devices and technologies deemed nqedicall}’

necessary. As in the case of disability compensation and pensions,

a ma] or concern to users and policy makers is the cost of co~’ering

all available technologies (62, 109 ). This issue is discussed further

In ch 6.
38

The PTEC process groups devices into three

types, according to potential risk, innovation, and

(importantly) cost. It is like the FDA classification in determining the kind and extent of evaluation by a device’s type. This classification system

is not yet final. It will depend significantly on a

survey of the users (which will also lead to

prescription guidelines).

Generally, however, devices in the lowest category of risk, newness, and cost will seldom be

subjected to laboratory testing other than the

manufacturers. Additional laboratory testing will

concern only safety. Devices in the middle class

will be laboratory tested, as needed, for compliance with existing standards, safety, and validation of manufacturers’ claims. Provided the test

results are positive, products will then undergo

limited clinical trials to substantiate laboratory

findings and to obtain users’ opinions. Only devices at the highest level of classification will be

subjected to extensive VA lab testing and clinical

trials (22,50).

PTEC can provide information for various

kinds of decisionmaking, from that of users to that

of policy makers. To the extent possible, PTEC

will rely on data from the FDA, independent laboratories testing, and others. The amount of

testing information shared by the VA and the

FDA has traditionally been negligible, however.

Evaluation criteria have generally differed because

of the VA’s special needs and client population.

The VA has also been hesitant for the FDA to use

VA data because private device manufacturers

might request free evaluation services from the

VA (50).

Testing and Evaluation Staff,

VA Marketing Center

At any one time, about 250 devices, ranging

from hospital-based equipment to supplies and expendable, are being reviewed by the VA Office

of Procurement and Supply as a requisite for procurement contracts. The Office’s Testing and

Evaluation Staff (T&E), part of the VA Marketing Center and supply depot in Hines, Illinois, has

primary responsibility for this aspect of VA device testing.

The T&E was established in February 1976 by

administrative fiat, based on a VA-initiated study,

the “McKinsey report.” The study suggested that

the VA might perform several functions (57):

●

●

●

be a valuable source of information on medical devices for other health care providers,

centralize and expand existing information

and evaluation activities,

support the FDA in ensuring the safety and

efficacy of medical devices, and

stimulate the development of new or improved products for identified needs.

As the McKinsey report was released, the FDA

also entered a memorandum of understanding

with the VA to exchange medical device “experience. ” This agreement would eventually require

a VA clearinghouse for medical device recalls

from the FDA and hazard reports from VA medical centers. Meanwhile, the McKinsey report’s

recommendation to stimulate innovation was implemented with the help of NBS, which initiated

the Experimental Technology Incentives Program

(ETIP). The VA agreed to participate in market

research to promote public or private partnerships

and industry incentives to develop medical devices. ETIP, first placed in the VA Central Office, remained dormant for a year. With the establishment of T&E, however, ETIP was transferred

to the VA Marketing Center with a grant of

$450,000. AS a result of al] these events, T&E has

had responsibility for medical device evaluations,

liaison with FDA on recall and hazard alerts, and

ETIP (134). The ETIP-VA agreement ended in

1981, but T&E has continued its market research.

Testing and evaluating VA-purchased medical

devices is T&E’s central focus. Such medical devices are selected for evaluation through requests

by VA medical centers, manufacturers, the VA

Central Office, and “in-house” initiatives. Choices

depend more on volume considerations and the

interest of VA health care facilities than, for example, cost factors (67).

Once a device is selected for testing and evaluation, prospective clinical trials may be carried out

under the auspices of the Medical Research Service (18) or cooperatively with the Department of

Defense through an agreement with Fort Sam
39

Houston in Texas. Most often, however, testing

and evaluation consist of internal consumer research to validate manufacturers’ claims with tests

carried out at VA medical centers and facilities

around the country T&E also has working agreements with nearly a dozen private testing laboratories, for needed laboratory tests, including the

Emergency Care Research Institute, Utah Biomedical Laboratories, Stanford Research Institute,

and Underwriters Laboratories. Information is

also shared with some of these laboratories (134).

T&E develops the base protocols, which may

be amended by appropriate medical services

within the VA. Testing sites are also cooperatively

selected, with local VA supply and procurement

officers administering hospital tests (67). As the

appropriate VA manual specifies (156), evaluations typically take the form of user surveys on

many product features, including compliance with

manufacturers’ claims and industry standards,

safety, design, ease of use, durability, cost, and

the products’ advantages and disadvantages compared to similar products.

Testing may last from 2 weeks to a full year,

but averages 30 to 60 days. Information is then

compiled in a brief description of the product

(often derived from manufacturers’ literature) and

of survey findings. The Office of Procurement and

Supply publishes evaluation results quarterly and

distributes them to VA medical centers, medical

and regional office centers, clinics, and supply

depots and distribution centers, and to procurement officers at the VA Marketing Center. Results

of the evaluations cannot be used by manufacturers, but they are routinely requested by private hospitals, nursing homes, and State and local

governments, and are reprinted by private publications such as Consumer Reports, Hospital Purchasing Management, and Health Devices Alert

(18,67,147).

Importantly, evaluations are advisory. Theoretically they are incorporated in national procurement contract requirements, but purchases are

not based solely on the evaluations. Purchasing

decisions still rest with individual hospitals,

which, on average, purchase from national contracts only about 60 percent of the time. Furthermore, evaluations stress advantages and disadvantages based on a manufacturer’s standard

or claim. There are no evaluations of features for

which manufacturers make no claims. VA regulations also prohibit explicitly comparing one

product with another. There have been efforts to

do group evaluations of some classes of devices.

Group evaluations would better control for testing

bias and could generate more meaningful information. Staffing and budgetary restraints, however, have restricted T&E to very few group

evaluations (67).

T&E primarily evaluates standard stock items

and smaller medical equipment. Decisions to purchase expensive devices, for example computed

tomography (CT) scanners, involve not only

supply and procurement staff; they require the approval of special medical equipment committees

in individual medical centers and that of Service

Directors in the Central Office.7 Although there

are a few exceptions, Service Directors have traditionally relied only on data generated by the manufacturer or on VA “acceptance testing, ” which

prospectively establishes “performance requirements” (e. g., for reliability, dosages, or performance times), with local interdisciplinary VA teams

assessing devices against the criteria. The Medical Research Service has worked jointly with other

Services in some evaluations. For example, the

Radiology Service made purchasing decisions

about CT scanning with the help of an advisory

committee including the directors of medicine,

surgery, neurosurgery, and neurology. Two research projects—one comparing the costs of inhouse scanners and those of contracting for scans

and another evaluating VA hospitals’ sharing of

CT scanners—also figured in these decisions.

Recently, manufacturers have begun to offer

the VA expensive equipment outright in exchange

for exclusive long-term contracts for disposable

the hardware requires or in exchange for experimental data. The VA now lacks a policy on accepting or using such equipment (18).

In fiscal year 1983 T&E began post-marketing

surveillance by surveying all VA purchasers and

‘Expensive medical and dental equipment, generally items above

$30,000 and others specified in VA regulations (157), are called “controlled items. ” Controlled items are further discussed in ch. 6.
40

users of products previously evaluated. The survey’s goal is to determine performance, quality,

and other product characteristics after more prolonged use. Two dozen items are to be reviewed

each year. Summaries of responses will be published quarterly along with new product evaluations (67,133).

T&E is also concerned with “product assurance, ” resolving medical device and product complaints and providing staff support for developing specifications, standards, and inspection criteria for equipment and supplies bought centrally

and managed by the VA depot system (which is

described inch. 5). For example, T&E has developed standards for hospital beds and eyeglass

frames, the last jointly with ETIP.

To the extent possible, T&E and, in turn, procurement components of the VA have relied on

existing standards and device evaluations, such

as those of the FDA’s National Center for Devices

and Radiological Health in the area of radiation

leakage (18). The VA also wants to rely on FDA

standards and testing if the provisions of the 1976

Medical Device Amendments on performance

standards are implemented (13). If a device has

been on the market for some time, the VA will

often use any evaluations conducted by NBS and

the Department of Defense (18).

The current Administration is also moving

toward voluntary standards as an official policy

in all areas. Office of Management and Budget

Circular A-119, currently in effect, describes the

use of voluntary standards for procurement. T&E

has worked with several voluntary standards

groups in the past, including the American Society

of Testing and Materials and the National Sanitation Foundation. As an alternative to using standards, the VA has increasingly used CIDS, which

are adopted as standards are, but allow a broader

mix of devices to be purchased. So far CIDS have

had a much greater impact than standards in the

purchase of medical devices (67), as discussed in

the following chapter.

The VA requires its medical centers to use

depot-stocked items when possible. To ensure user

satisfaction, the VA has a formal system for registering complaints with the VA’s Marketing Center, which must promptly resolve these complaints.

A 1982 General Accounting Office (GAO) report called for this system to be improved (101).

Medical centers, it found, were not satisfied with

depot-stocked items and often bought alternative

products from other sources without filing a complaint. As a result, inferior stock was often not

brought to the Marketing Center’s attention.

When complaints were filed, the Marketing Center often did not take appropriate action, further

discouraging medical centers from reporting complaints.

The medical centers use the VA’s Quality Improvement Report to file complaints about depotstocked items. During fiscal year 1980, for example, 478 Quality Improvement Reports were filed

on medical supply and equipment items. However, until fiscal year 1982, the marketing and procurement officers (“commodity managers”) at the

Marketing Center were also responsible for responding to Quality Improvement Reports. GAO

felt that the commodity managers perhaps could

not evaluate reported problems objectively. With

regard to frequently registered items, GAO found

that the Marketing Center: 1) did not address the

medical centers’ stated problems, 2) did not provide the medical centers with clear resolutions,

or 3) provided the medical centers with false

assurances.

In response to the GAO report, the VA transferred responsibility for the quality complaint system to the Marketing Center’s T&E staff beginning in fiscal year 1982 to improve the system’s

objectivity and responsiveness. Transfer to T&E

of the quality complaint system had the additional

benefits of coordinating evaluations and encouraging better information exchange with the

FDA on medical device problems and experience.

All Quality Improvement Reports received by

T&E are screened to determine the potential for

hazard alerts or product recalls because of risk

to the lives or safety of patients and employees.

T&E forwards information on hazard alerts to the

FDA’s National Center for Devices and Radiological Health and other divisions of the Marketing

Center, which in turn notify all VA medical facilities.
41

Another function of T&E is developing and

managing a computerized information storage and

retrieval system for consumers. Another outgrowth of the VA-ETIP program, this system facilitates the fIow of information among the purchasing divisions of the Marketing Center, VA

medical centers, and other Government agencies;

DISCUSSION

This chapter has focused on the VA’s diverse

evaluation activities. Generally, VA evaluations

are conducted during the later phases of R&D.

Late in the R&D process is generally when information must be collected for reimbursement,

financing, and drug and device regulation (i.e.,

for decisions affecting use). This is a good time

for evaluations insofar as information and experience may be available and the device has not yet

been widely diffused. Evaluations can then affect

the VA’s adoption of devices (109).

The separation of Rehabilitation R&D from

other VA research in 1973 was partly to give more

focus to VA rehabilitation research (109). In turn,

this focus helped stimulate the VA to devote more

attention to evaluation, as in establishing the

Rehabilitation R&D evaluation unit.

At the same time, one veterans’ group has criticized the divided responsibility for evaluation.

Commercially available devices, especially

rehabilitative ones, often need refinements before

the VA can approve them for its use. According

to the Disabled American Veterans, in these cases

it may not be clear who is responsible for

evaluation—Rehabilitation R&D, Prosthetic and

Sensory Aids Service, or the VA Office of Procurement and Supply (160).

Coordinating evaluations has been addressed

by forming PTEC. In calling for the involvement

of all relevant VA services and in inviting consumer groups to participate, the VA appears to

be taking a step toward more systematic evaluation of rehabilitative devices. PTEC has the support of such groups as the Paralyzed Veterans of

America and The American Legion (71,82).

provides product, price, and vendor histories

useful in awarding VA procurement contracts;

and contains marketing data useful and available

to private manufacturers. Since larger companies

often have in-house marketing capabilities the information has been most useful to smaller and

emerging companies.

Thousands of rehabilitative devices issue from

the public, private, and nonprofit sectors. Many

are relatively simple and inexpensive, and others

are costly and complex. Regardless of a device’s

cost, complexity, or proposed use, it should meet

certain criteria before being widely used, notably

those covering safety, effectiveness, durability,

and recommended applications (112). Baseline

assessments combine laboratory testing and clinical evaluations, Some devices warrant much

broader assessments. Costs should be explicitly

considered in some cases. In others, evaluating

the devices in the user’s environments may be

essential (109).

Both the Rehabilitation R&D evaluation unit

and PTEC would seem to embrace these testing

needs. Both programs are new, however, and

there are problems yet to be resolved. PTEC, for

example, needs to expand its field testing activities and to make its testing more national in scope.

PTEC’S authority over VA medical facilities

should be established internally. The Rehabilitation R&D evaluation unit could encourage more

testing and evaluation at Rehabilitation R&D

Centers and ensure that its results are valid and

credible to PTEC, to avoid duplication of efforts.

Even with these problems, the evaluation unit and

PTEC appear to have great potential.

In evaluating medical equipment, supplies, and

expendable, T&E represents a modest but productive effort, given its small staff. Although not

rigorous, its evaluations can provide information

for purchasing by VA facilities. T&E evaluations

are apparently most often used by smaller, more

rural VA facilities. The VA estimates that only

25-289 0 - 85 - 4
42

about 20 percent of its medical centers make purchasing decisions based on T&E evaluations. At

the same time, supply and procurement officers

at all VA hospitals use the evaluations as an information resource, including in doing business

with vendors.

Although T&E evaluation generally does not

study such features as cost effectiveness, it could

do so through more group evaluations with modest increases in budget and staff. Its publications

of results and standard setting can have significant influence because of the VA’s market power.

For example, the VA’s requirement that fibrillating

catheter devices for the heart meet National Fire

Protection Association Standards led to complete

industry compliance in manufacturing these devices, despite the absence of industry consensus

(46). VA publication of testing results on hearing aids spurred innovation and competition

among manufacturers (41). (The VA Office of

Procurement and Supply has occasionally been

reluctant to publish its test results, however, because the demographic characteristics of the veteran population are not always those of all consumers (18). )

It is noteworthy that large private buyers such

as for-profit hospital chains have developed

organizational components similar to T&E. At the

recommendation of a private third-party payer,

the Hospital Corp. of America recently announced the formation of “product standardization” committees to evaluate products’ “safetyworthiness, ” failures, and performance, and to

manage product recalls—all tasks of T&E (69).

Special evaluation groups may be valuable to

large medical systems.

T&E’s weakness may lie in not integrating evaluation information and its market research into

the overall VA marketing, procurement, and supply system. This issue is considered more fully in

the next chapter.
Chapter 5

Marketing, Procuring, and

Supplying Devices
Chapter 5

Marketing, Procuring, and

Supplying Devices

The Veterans Administration (VA) both promotes and purchases medical devices, necessitating different kinds of VA programs. As part of

its commitment to research, development, and

evaluation of rehabilitative devices, the VA’s

Rehabilitation Research and Development Service (Rehabilitation R&D) works with private organizations in manufacturing and marketing products they have developed. The VA Marketing

Center (VAMKC), in the VA Office of Procurement and Supply, on the other hand, determines

PROTOTYPE DEVICES

Technology transfer is generally one of the

more difficult hurdles in developing and distributing rehabilitative devices. Chapter 3 touched on

the VA’s long absence of structured activities in

this area. No VA system routinely ensures that

successful new prototypes are transferred to clinical practice.

There are a number of significant obstacles to

private industry’s participation in this process as

well

●

●

●

(65,109):

lack of adequate demographic data (or market statistics) about the technologies disabled

people need;

the commercial vulnerability of some ventures because of small, fragmented markets

and high investment costs; and

obstacles presented by the patent system, liability insurance requirements, and the thirdparty payment system.1

‘A further problem, discussed in ch. 4, results from the VA’s being both a large market for many devices and an arbiter of performance and design standards. To a large extent the VA can thus determine which technologies enter the market. If the VA uses

specifications and standards developed for existing technologies, it

may impede the emergence of innovative devices.

the VA’s need for commercially available devices

and purchases and supplies these devices.

The VA activities related to prototype rehabilitative devices, which are discussed here first, by

definition conclude at the marketing stage. VA

activities related to commercially available devices

(rehabilitative devices and equipment and supplies), which are described later, encompass marketing, procurement, and supply.

Figure 5 illustrates the generally complex dynamics and requirements of private sector efforts to

bring research ideas, information, and products

to the consumer.

One purpose of the Rehabilitation R&D Center’s evaluation unit is to address the problem

areas of marketing and finance, which it plans to

do in at least two ways (154):

●

●

by encouraging device development and innovation to meet disabled veterans specific

needs, and

by helping VA-supported researchers and appropriate industry representatives coordinate

an interagency program with the Department

of Commerce for commercializing prototype

devices that the unit evaluates.

The VA Administrator signed an interagency

agreement with the Department of Commerce in

May 1983, and the VA planned to reimburse the

Department for up to $125,000 in fiscal year 1983

for its expertise in marketing and commercializing technology.

The VA is also considering a specific program

with the Department of Commerce like the Na45
46

Figure 5.—The Innovation Process

The Product life cycle

/ / / . / Research and ///// // / / / / /

Premarket

phase

+

I

--- -

/

—

CE: J. E. Muthard, “Putting Rehabilitation Knowledge to Use,” Rehabilitation Monograph No. 11 (Gainesville, FL: University of Florida Rehabilitation Research

Institute, 19S0), as cited In (109).

tional Science Foundation’s Small Business In- Another purpose of the evaluation unit is to innovation Research Program. Funding of up to prove the link between the VA’s R&D and indus-

$20,000 would be provided to small businesses to try by several means (154):

“demonstrate the_feasibility of a new concept.” -

When feasibility studies have been done, the pro- ●

gram may support a limited number of more substantial proposals to carry new concepts through ●

prototype testing and evaluation. The program

would be directed at established, specific needs

of disabled veterans (154).

monitoring the progress of all Rehabilitation

R&D projects on devices;

staying informed of any links Rehabilitation

R&D projects have with industry, and encouraging industrial interest where there is

none;
47

developing information on U.S. and foreign

industry that relates to disabled veterans, and

accessing data stored in VA banks and in

ABLEDATA; 2 and

coordinating the Rehabilitation R&D interagency agreement with the Department of

Commerce in market surveys, locating capitalization funds, and stimulating the commercialization of R&D prototype devices

based on its evaluation program.

The Rehabilitation R&D Center’s evaluation

unit can substantially increase, centralize, and improve Rehabilitation R&D’s role in marketing and

financing, though until now efforts have been

piecemeal. The Rehabilitation R&D Center at Palo

Alto, for example, has retained an in-house marketing specialist since December 1982. The Palo

2 ABLEDATA is a new computer information system funded by

the National Institute of Handicapped Research as a service of the

National Rehabilitation Information Center based at Catholic University, Washington, DC. ABLEDATA combines manufacturers’

data and updated information on local availability of products,

names of manufacturers, locations of distributors, product descriptions, costs, and results of any relevant evaluations. The data bank

is accessible to information brokers at locations around the country, and the brokers are accessible to rehabilitation centers, individuals, or anyone who needs the information. The Prosthetic Technology Evaluation Committee (discussed in ch. 4) also plans to share

information routinely with ABLEDATA (109).

Alto Center is now working with about 30 companies in developing devices.

Nevertheless, the evaluation unit does not necessarily solve all problems of technology transfer. The Palo Alto group ran into difficulties because of Public Law 96-517, concerning patent

rights to inventions developed by nonprofit institutions using Government funds. The VA will

not implement the law for several months, although other Federal agencies that fund R&D already have. In the interim, Stanford University

(whose engineers work with the VA at Palo Alto)

has been unable to file a patent application to protect its intellectual property rights on at least one

prototype device. 3 Instead, Stanford has requested

that the engineer-inventors participate in VA patent evaluation and application filing and has encouraged the VA to conduct its investigation of

the device “with due speed, so that the publication ban will not post before a patent filing decision is made” (53,76).

3A recently named property right distinct from patents, copyrights,

trademarks, and trade secrets is “tangible research property.” For

example, in March 1982 Stanford University developed a special

policy on tangible research property to protect its ownership of “tangible (or corporeal) items produced in the course of research projects, ” including “biological materials, computer software, computer data bases, circuit diagrams, engineering drawings, integrated

circuit chips, prototype devices and equipment, etc. ” (83).

COMMERCIALLY AVAILABLE DEVICES

Marketing

The VA’s Marketing Research and Analysis

program, developed from the VA-National Bureau of Standards Experimental Technology Incentives Program during the late 1970s. It represents a major change in VA procurement in

bringing marketing judgment to bear on commercial products’ entry into the VA supply system

and is central in developing VA procurement

strategies. Marketing Research and Analysis is primarily the responsibility of the Testing and Evaluation Staff (T&E) of the VAMKC, although each

procuring division of the VAMKC has a product

development section supporting the program

(128).

As a purchaser of devices, the VA attempts

both to obtain the lowest possible prices in contracting and to improve medical care. Marketing

Research and Analysis is a resource for procurement by gathering and analyzing information on

the range and quality of available commercial

products and determining whether they meet VA

needs. This is done through surveys, Quality Improvement Reports (discussed inch. 4), and other

techniques ranging from informal telephone inquiries (about products acquired by local medical centers) to comprehensive reviews (of products that may improve care VA-wide or effect

substantial savings) (130). The aim of this prod-
48

uct and market research is to determine the need,

demand, and best method of supply for items.

Recommendations are then forwarded to procurement officers.

This VA program encompasses research in

many areas (130):

●

●

●

●

product research (on products satisfying VA

and other users’ needs, product changes required to meet VA needs, product descriptions used in commercial transactions, and

new products needed);

market analysis (on the number and competitiveness of firms, business practices, pricing

structures, distribution practices, restrictions

on shelf life and storage);

analysis of the commercial market (on

acceptability to likely users in light of such

features as reliability and warranty); and

analysis of product support (on warranty and

support procedures).

Such research originates from the VA Central

Office, procurement offices at the VAMKC, and

T&E.

An obvious priority during the program’s first

years was to test the hypothesis that because of

its size Federal procurement could significantly influence market innovation by providing an early

market for products, thus reducing market entry

risks (52). Results of this test were mixed.

For example, the program authored the Directory of Living Aids for the Disabled Person, having found that no single printed source of such

information existed although there was a corresponding demand. Publishing firms were solicited

to determine their interest and the feasibility of

the endeavor. As an incentive to industry, the VA

proposal called for the directory to be published

once for distribution to people within the VA

health care system but allowed the contractor or

any other interested parties to use the same data

commercially, with obvious private as well as social benefits. The VA objective, which was reflected later in the publishers’ bids, was to have

bidders recognize the directory’s market potential and publish it at minimal cost to the VA (67).

The program’s projects have not always been

so successful. Another project determined that

syringe needles should be more readily destroyed

for disposal. Working closely with a small private firm, the program helped develop such a

product, but the company eventually went bankrupt (67).

More recently, the program has focused on

commercially available products. Criticism of

products, poor depot sales, and seeming technological breakthroughs are typical subjects of research. T&E also frequently relates its testing and

evaluation, Quality Improvement Reports, and

recall and hazard alerts to the program’s research

(67).

Procurement and Supply4

The VA’s Office of Procurement and Supply

supports the most extensive medical program in

the Federal Government and also provides nonperishable subsistence supplies, medical equipment and supplies, drugs, biological, reagents,

and chemicals to more than 4,100 installations of

other Government agencies. These services are

supported by nearly 6,800 employees, including

staff at the Central Office, the VAMKC, three

supply depots, the Prosthetics Distribution Center, and 172 medical centers.

In fiscal year 1982 the VA’s Office of Procurement and Supply spent nearly $1.3 billion on supplies and equipment. Two kinds of mechanisms

support this procurement and delivery: the VA’s

central procurement programs, and the local supply activities of medical centers. Generally, central procurement encompasses all medical equipment, supplies, and rehabilitative device items,

while local purchases are usually of disposable

medical and dental supplies.

Central Procurement

Several centralized VA procurement programs

have been established over the years so that in4Except as noted, this section is based on U.S. Veterans Administration, Brief of Office of Procurement and Supply, unpublished

(Washington, DC, December 1982) (121).
49

dividual medical centers can obtain supplies and

equipment economically, not having to solicit and

award contracts themselves. The VA finances all

supply operations through a revolving supply

fund, charging customers a percentage markup

over the item’s purchase price, about 6 percent,

to balance the fund (99). The VAMKC provides

these centrally managed supply channels, which

are also available to other Government agencies,

such as Public Health Service hospitals, the Bureau of Indian Affairs, and Federal correction institutions.

Centralized procurement programs are organized into procurement divisions, each headed by

a commodity manager, specializing in different

areas: pharmaceuticals, medical supplies, medical equipment, surgical supplies, and nonperishable subsistence supplies. These VAMKC programs include a national depot distribution

system, Federal Supply Schedules (FSS) for items

that the General Services Administration assigns

to the VA to manage, contracts for direct delivery to medical centers, and decentralized contracts

for direct ordering by medical centers.

VA Supply Depots

During the 1940s, wartime demands and poor

distribution systems made it necessary for the VA

and the Department of Defense (DOD) to establish depot inventories of hospital stock. These

depots have been continuously maintained to the

present day (34). Under this program, volume

purchases are made at low prices and items are

managed through three VA supply depots, in

Somerville, New Jersey; Hines, Illinois; and Bell,

California. A Prosthetics Distribution Center in

Denver, Colorado, also serves the approximately

200,000 veterans with service-connected disabilities.

Medical center supply requests are transmitted

to the VA’s Data Processing Center in Austin,

Texas, recorded in the automated supply system

(the Integrated Procurement, Storage, and Distribution System, or “Log 1“), and then sent to

the appropriate depot to be filled. In fiscal year

1982, VA medical centers obtained about $198

million in about 650 different supply and equipment items (over 95 percent supplies) from the

supply depots. Depot shipments and receipts are

also recorded in Log 1 for the VAMKC’S management of depot stock (100).

Federal Supply Schedules

Under the FSS program, Government agencies

contract with commercial vendors for many supplies and services. The schedules allow VA medical centers and other agencies to order directly

from contractors at preestablished prices. ’ The

VAMKC manages FSS contracts for certain drugs,

chemicals, subsistence supplies, and medical supplies and equipment (the General Services Administration manages VA FSS contracts for such items

as furniture and office supplies and equipment)

(100). In fiscal year 1982, VA medical centers purchased materials worth about $434 million

through this program. Table 3 gives a more specific breakdown of FSS purchases for selected

devices.

Decentralized Contracts and Direct Delivery

The VAMKC also administers decentralized

contracts for medical centers. These contracts are

for specialized medical equipment, for example,

5 The schedules contain a “buy American differential” clause. Essentially, a price differential (percentage) must be applied to a foreign-made item before placing an order if foreign and domestic products are listed under the same special item number in the FSS and

both products satisfy an item requirement (148). This discourages

purchase of the foreign-made item unless the price of the U.S.-made

item is higher by a certain percentage.

Table 3.—Selected Device Purchases by the Veterans

Administration Using Federal Supply Schedule

Contracts, Fiscal Year 1983a

Expenditure

Items (millions of dollars)

Medical supplies (mainly consumables). . . $120.0

Dental supplies and equipment . . . . . . . . . . 17.5

Medical supplies and equipment. . . . . . . . . 46.7

Pacemakers . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0

Wheelchairs . . . . . . . . . . . . . . . . . . . . . . . . . . 9,6

Surgical gloves . . . . . . . . . . . . . . . . . . . . . . . . 1.3

Eyeglasses . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3

Medical X-ray film . . . . . . . . . . . . . . . . . . . . . 6,0

aEstimated,

SOURCES: U.S. Veterans Administration, f982Anrwa/ Report (Washington, DC,

19S3); U.S. Veterans Administration. Brief of Office of Procurement

and Supply, unpublished (Washington, DC, December 1982).
50

electrocardiograph and stress test equipment,

sterilizers, pacemakers, and intravenous pumps,

which are usually not available through the depot or FSS programs. VA medical centers are the

primary users of this program, but other Government agencies may participate. For direct deliveries, the VAMKC not only administers contracts

but also orders for the medical centers. Vendors

then deliver material to them directly. This program is used primarily for radiological and nuclear supplies and equipment (100). In fiscal year

1982 these two programs accounted for $158 million in medical center purchases.

Other Activities

The VAMKC directly procures medical supplies

for other Government agencies including the

Agency for International Development, the Bureau of Indian Affairs, DOD, the U.S. Air Force

in the Philippines (CT scanners), the U.S. Army

in Germany, the U.S. Army Medical Materiel

Agency (nuclear diagnostic equipment for world

wide distribution), and the U.S. Embassy in Moscow. In addition, the VAMKC has processed

2,600 individual orders for direct delivery to

various Army hospitals within the 48 contiguous

States and has provided radiographic equipment

for U.S. health services in the Virgin Islands. In

fiscal year 1982 the total value of this direct procurement was $15 million.

The VAMKC also participates in the Medical

Shared Procurement Program with DOD, one of

many Federal interagency agreements for sharing

or exchanging materials, facilities and services.b

Commonly used items are procured by one agency to secure the best possible price, while simplifying procurement for both the agencies and private firms. As of July 1983, the total annual dollar

value of contract awards under the VA-DOD program was $295 million.

The VA has executed over 200 supply agreements with 17 other Federal agencies worth $45.2

million per year in exchange for support services.

Of the $45.2 million, $33.7 million represents VA

6Agreements have developed pursuant to the Economy Act of June

1932, as amended (31 U.S.C. 1535); Public Law 97-258, September

1982, as amended; and Public Law 97-332, October 1982.

supply support to other Federal facilities. Table

4 shows the source, dollar value, and type of supplies provided during fiscal year 1982. The remaining $11.5 million represents the coordination

or exchange of medical, laboratory, and laundry

services; automatic data-processing systems; research and development projects; maintenance of

facilities, roads and grounds; and training.

Finally, the VA has established an Office of

Small and Disadvantaged Business Utilization as

part of a larger Federal program that reserves

some procurement for the exclusive bidding of

small and minority-owned businesses. The program was designed to give these businesses equal

opportunity to compete for Government contracts

and subcontracts (102).

Medical Center Supply Activities

All VA medical centers have similar supply and

procurement characteristics. Generally, each center has its own supply service that acquires and

distributes supplies and manages center inventories. In a few metropolitan areas, centers share

a supply service and warehouse.

The departments within a center, such as dietetics, engineering, radiology, and pharmacy, or7

1nformation in this section is based on U.S. Congress, General

Accounting Office, VA Needs Better Visibility and Control Over

Medical Center Purchases, PSAD #81-16, Washington, DC, Dec.

12, 1980 (100).

Table 4.—Veterans Administration Supply Support

to Other Federal Facilities, Fiscal Year 1982

costs

Items (dollars)

From VA depots:

Drugs and medicines . . . . . . . . . . . . . . . . .

Other medical supplies . . . . . . . . . . . . . . .

General supplies . . . . . . . . . . . . . . . . . . . . .

Subsistence supplies . . . . . . . . . . . . . . . . .

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .

From f/e/d stations to:

Territorial governments . . . . . . . . . . . . . . .

Other government agencies . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,776,006

5,335,163

332,437

6,869,817

11,177,690

$32,481,113

$ 371,980

803,861

$ 1,175,841

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,656,954

SOURCE: U.S. Veterans Administration, Br/ef of Office of Procurement arrd Supp/y, unpublished (Washington, DC, December 1982).
51

der through the center’s supply service. The supply service is required to fill requisitions

appropriately and promptly, ensuring that vendor competition is adequate and prices are reasonable. Expendable supplies received by a medical center are either stocked in the center’s

warehouse (posted) or delivered directly to the appropriate department (unposted).

The VA’s automated supply system provides

information for medical centers, as well as the

VAMKC, to use in procurement. The medical

centers contribute data on their stock orders, receipts, and distribution, and use Log 1 to manage local stock, whereas the VAMKC uses this

information not only to manage depot stock but

to identify posted items with central management

potential. Log 1 has files on three types of medical center procurements: expendable posted and unposted supplies and nonexpendables (equipment).

As described above, the VAMKC centrally

manages items commonly used by VA medical

centers and provides several centrally managed

supply channels, but it purchases very little

directly for the centers. The VAMKC mainly selects items based on medical center usage, on the

assumption that it can obtain lower prices and

more reliable sources than individual medical centers can. VA priorities for sources of medical center supplies are listed in table 5.

To ensure proper supply channels are selected,

the VA requires that the medical centers’ supply

services review each purchase request. The open

market may be used to purchase items not availTable 5.—Priority Purchasing

able from centrally managed (so-called mandatory) sources, when they are needed for an emergency or are available at lower prices than

through FSS.

The VA’s Impact on Product Quality

An important responsibility of the VAMKC is

ensuring product quality. This responsibility has

proved difficult to fulfill. In fiscal year 1980 the

VAMKC began using Commercial Item Descriptions (CIDS) in place of more detailed product

specifications and standards to purchase medical

supplies and equipment, in response to a new Federal procurement policy to “purchase commercial

products and use commercial distribution systems” whenever possible (117).8 CIDS and purchase descriptions (the latter used only for small

or special purchases) are simplified product descriptions of the functional or performance characteristics of commercial products acceptable for

Government use (115). These descriptions are still

to ensure that items purchased are satisfactory.

A 1982 General Accounting Office (GAO)

study found that the VA had applied the new policy improperly (101). The VA’s purchase descriptions were only one or two sentences long and

8VA specifications were detailed documents, typically covering

design, materials, workmanship, and other product features; sampling, testing, and inspecting procedures to be used; packaging and

marketing requirements; and other measures to determine whether

a product qualified for purchase. Specifications are not to be confused with standards, which typically include only a product description and performance requirements. However, specifications often

incorporated standards (12).

Sources for VA Medical Centers

VA priority Approximate annual purchases Percentage

Supply channel ranking (millions of dollars) of total

VA excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 N A

b N Ab

VA supply depots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 $197.9 15.3’Yo

Other government excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0.4

Federal prisons and correctional institutions, blind-made

—

and severely handicapped products . . . . . . . . . . . . . . . . . . . . . 4 1.0 1

General Services Administration stock . . . . . . . . . . . . . . . . . . . . 5 34<1 2.7

VA decentralized contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 41.4

Federal Supply Schedule contracts . . . . . . . . . . . . . . . . . . . . . . . 7 434.4 3;:;

Open market purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 498.2 38.5

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None 86.0 6.6

aFiscal year 1982.

bNot available.

SOURCE: U.S. Veterans Administration, Brief of Office of Procurement and Supply, unpublished (Washington, DC, December 1982).
52

contained little specific information. In addition,

GAO concluded that in developing purchase descriptions, the VAMKC marketing divisions did

not communicate with users and suppliers. As a

result, the VA purchased many medical items that

were either unneeded or inferior.

GAO also found other problems in the new

CID system. Before using CIDS, the VA had relied

on three elements for quality control:

●

●

●

the marketing division, through its specifications, standards, and qualified products lists;

the depot inspectors, through inspections

upon delivery; and

individual medical centers, through professional opinions and assessments. - -

When the VA stopped using detailed specifications, it also discontinued this three-element

quality assurance program, believing that the program was based on using detailed specifications

and was therefore no longer applicable. As a result of this change, however, quality standards

were not consistently established in purchasing

devices, and inspection programs were no longer

dependable. Again, GAO found that stocked

items were frequently poor or inappropriate. Surgical instruments had defects, such as cracks, pits,

or rough edges, that could prevent sterilization.

Some did not close properly or failed to meet VA

test standards. Other items had missing or broken parts and misaligned components. Finally,

when medical centers received these defective

items, their complaints were often ignored.

In response to the GAO study, the VA reinstituted some of its traditional measures for quality

assurance:

●

●

●

reestablishing a qualified products list for surgical instruments,

developing inspection criteria for depot items

to supplement purchase descriptions, and

transferring responsibility for quality complaints from the purchasing divisions to T&E

to improve objectivity and responsiveness (as

discussed at length in ch. 4).

The VA has now taken a further step through

an interagency agreement with the Food and Drug

Administration (FDA). As of March 1982 the FDA

assumed certain quality assurance responsibilities

for VA medical device contracts, including depot

stock inspection and investigating the manufacturing practices of potential contractors (116).

There is still concern, however, that CIDS and

purchase descriptions will contribute to the lower

quality of VA medical equipment and supplies.

Surgical instruments, for example, have drawn

complaints from VA medical centers, and for the

same defects (67,79).

The issue of quality has also arisen regarding

hospital beds. VA testing and evaluation led to

the recommendation that beds be purchased with

specific safety controls for repositioning, and this

recommendation was incorporated in earlier product specifications. VA marketing research also

found that certain positioning features significantly increased cost, yet that VA hospitals rarely used

these features. Neither of these findings, however,

has been consistently applied in VA centralized

purchasing contracts using CIDS. Instead, more

expensive beds and beds with fewer safety features

have often been purchased because of poor product descriptions (67,79).

Nevertheless, such problems do not demand a

return to the old specifications. The VA, veterans’

service organizations, and private manufacturers

and vendors agree that device specifications were

often too rigid, stifling innovation given the size

of the VA market. One private firm made wooden

canes considered obsolete by every other purchaser, yet it maintained a profitable operation for several years because of the VA’s outdated specifications. Bradburd also found that VA specifications

for medical equipment were often written by considering a particular manufacturer’s product, putting other manufacturers at a serious disadvantage (14) (see app. C). Other VA specifications

were simply unenforced given the range of suppliers (12,54,67).

The VA, then, has tried to strike a balance in

using CIDS, writing device product descriptions

both to maximize the number of potential suppliers and to prevent an influx of inferior items.

Commodity managers, who are responsible for

both contracts and developing CIDS, now work

closely with T&E to incorporate device evaluations and market research into product descriptions (12).
53

However, despite the attempted cooperation of

T&E and purchasing divisions, problems may still

arise because their individual goals of quality and

efficiency may conflict. Purchasing divisions are

charged to contain VA costs as well as to see that

supplies are available. Also, factors other than

price and availability (e.g., product reliability and

performance), while taken into account, are more

difficult to quantify in purchasing.

The VA’s Impact on Product Cost

The impact of the VA’s procurement system on

product cost depends on supply conditions, the

type of procurement (centralized or decentralized), and VA contract procedures and policies.

Many industries believe that the VA and other

Government agencies obtain the best buy (44).

Becker and his colleagues found the “overriding

premise” in selling to Government agencies is that

they expect low prices. However, industries still

can benefit (9):

Government orders are sought by most manufacturers that would be unacceptable and unprofitable if normal accounting practices were

followed. The manufacturer generally sells at

these reduced prices based on the premise that

this is “incremental” or add-on business. . . .

With smaller margins than would otherwise be

realized . . . the manufacturer may . . . increase

manufacturing . . . utilization of otherwise

unused production time and facilities.

The VAMKC decides to manage an item centrally based on several factors: usage, need, customer service, and cost.9 Certain minimum criteria must additionally be met:

●

●

●

●

●

$15,000 in potential sales for new items,

an estimated savings of at least 15 percent

for supplying an item through depot stock,

annual sales of at least $10,000 to retain an

item supplied through depot stock,

the use of an item by at least 10 percent of

all VA hospitals to retain an existing method

of supply, and

a realized savings of at least 5 percent on any

centralized contract.

‘Once a decision has been made to procure an item centrally, contracts are developed through either a formal bid or negotiation, depending on need, demand, and number of manufacturers (12).

These criteria have probably contributed to efficiency and savings in VA centralized procurement.

There is also some empirical evidence that

VAMKC policies result in lower product costs.

A recent study by IMS America, Ltd., under contract to the VA, concluded that the VA is a “most

favored customer,” even compared to large institutional buyers (44). The study compared the

prices of selected items for the VA and the Hospital Corp. of America, including catheter needles,

syringes, surgical tape, surgical blades, and common pharmaceuticals. The study found that the

VA consistently obtained the best buy and concluded that the results probably would have been

the same had another sample of products been

compared. “The size of the VA as a buyer alone

clearly places the VA at an advantage, ” the report observed (44).

VA centralized procurement has also compared

favorably with other Federal procurement. A recent survey of 25 hospitals in 10 States by the Inspector General of the Department of Health and

Human Services found that the price of cardiac

pacemakers was about 17 percent higher for Medicare than for the VA (120).

Two studies have criticized the VAMKC’S management of the depot system. The 1982 GAO report and the 1983 President’s Private Sector Survey on Cost Control found that VA inventory

management techniques increased costs (34).10 The

VA is now simplifying and automating its ordering and storage systems.

OTA examined the likely effects of VA policies

on the costs of procuring nine types of major medical equipment: X-ray equipment, computerized

tomography (CT) seamers, digital imaging equipment, nuclear diagnostic equipment, nuclear magnetic resonance (NMR) and positron emission tomography (PET) scanners, ultrasound diagnostic

equipment, patient monitoring equipment, electro-encephalogram (EEG) and electrocardiogram

(ECG) equipment, and hemodialysis equipment

(this study is presented in app. C). The study

focused on how the VA affects and is affected by

l’JThe President’s Private Sector Survey on Cost Control further

recommended the complete dismantling of the VA depot system

based on its own cost-accounting analysis. Analysis of this issue,

however, is beyond the scope of this report.
54

market conditions, and especially on how VA

procurement policies affect the prices and products manufacturers offer to the VA. Five official

contract procedures and one unofficial VA policy were examined for their effects on equipment

costs: 1) brand name justification, 2) the firm fixed

price clause, 3) public disclosure requirements, 4)

no volume commitment, 5) the most favored customer clause, and 6) the unofficial reluctance to

procure mixed equipment systems.

Analysis of the likely effects of these policies

indicated that they have different, perhaps conflicting results on procurement prices:

● Brand Name Justification. —When a VA hospital is authorized to buy equipment, the

VAMKC forwards to the hospital a list of

suppliers on contract whose equipment meets

the requirements of the purchase order,

ranked by order of cost. The hospital is required to buy from the least-cost supplier

unless it can justify purchasing from a different source (e.g., because of service availability). This requirement is called brand

name justification. Because suppliers are anxious to maintain their share of the VAMKC

market, the requirement almost certainly

results in lower prices.

● Firm Fixed Price Clause. —Under the terms

of a VAMKC contract, suppliers cannot increase prices during the contract year. Furthermore, if they lower the price at any time

during the year, the lower price holds for the

remainder of the contract year. The firm

fixed price clause may or may not result in

lower procurement costs. Suppliers offer temporary price discounts in the private market

to promote their products. Normally, promotional offers would probably be extended

to the VAMKC as well, but because of the

firm fixed price clause, suppliers are reluctant to make them. Even the requirement that

prices not be increased during a contract year

has indeterminate effects on procurement

costs. Although the requirement does protect those who buy~ through the VAMKC

from price increases, suppliers may charge

a higher price at the start to ensure a profit.

●

●

Altogether, it is extremely difficult to determine the net effect of the firm fixed price

clause.

Public Disclosure Requirements.—By law,

the public has access to VAMKC procurement prices for medical equipment. Both

theoretical and empirical evidence support

the view that this results in higher procurement costs for the VAMKC. First, a firm’s

benefits from cutting its price are in part a

function of the so-called retaliation lag, the

length of time before rivals learn of the price

cut and cut their own prices in response. Price

disclosure requirements reduce the retaliation

lag, and therefore discourage price cutting in

the VAMKC market. Because other buyers

of medical equipment also have access to the

price data, the VAMKC price may serve as

the other buyer’s target in pricing negotiations, which can also inhibit price cutting in

the VAMKC market. Suppliers of X-ray, nuclear medical, patient monitoring, and hemodialysis equipment have stated that prices offered to the VAMKC are higher because of

the contract disclosure requirement. Some

suppliers said the disclosure requirement did

not affect pricing in their markets because

pricing information was widely available

from other sources.

No Volume Commitment. —Having a contract with the VAMKC does not imply any

contractual volume commitment in procurement. For most equipment categories (other

than X-ray and nuclear diagnostic equipment), the absence of a volume commitment

is a major factor in pricing. There are two

likely reasons why volume commitment

would be unimportant in some industries,

but very important in others. First, when

equipment is purchased from stock and is

fairly standardized, a volume commitment

can reduce manufacturing costs that can be

passed on to the buyer, but not when the

equipment is custom made. Second, the effects of volume commitment seem to depend

on whether equipment is expensive or inexpensive. When equipment is inexpensive, the

costs of preparing contracts and marketing
55

●

●

are higher relative to the purchase price of

the equipment. In this situation, the cost savings that come with volume commitment are

more significant. Some suppliers indicated

that they might lower prices by 5 to 10 percent in exchange for a volume commitment.

One supplier in the ultrasound market stated

that a group purchase of even 15 to 20 units

would suffice for a larger price discount than

is now offered.

Most Favored Customer Clause .—Under the

terms of a VAMKC contract, suppliers are

prohibited from selling their equipment under

a “like contract” to any private buyer at a

price lower than that offered the VAMKC.

If a lower price is offered to a private buyer,

this price must be given to the VAMKC for

the rest of the contract year. This stipulation

helps ensure that the VAMKC’S clients benefit from vendor competition in the private

market. Although the strictness with which

the most favored customer clause is interpreted varies from one equipment category

to the next, it almost certainly reduces

VAMKC equipment procurement costs. The

most favored customer clause can also have

a powerful impact on private buyers. In a few

markets, private buyers are offered lower

prices than the VAMKC when they make

contractual volume commitments, on the

grounds that these are not “like contracts. ”

The effect of the clause is obviously less in

these markets. However, in cases of no volume commitment, the most favored customer

clause may have the effect of increasing prices

that private buyers must pay for medical

equipment, especially for X-ray, nuclear

diagnostic, ultrasound, patient monitoring

equipment, and CT scanning devices.

Reluctance to Procure Mixed Systems.—

Although there is apparently no formal requirement to this effect, VAMKC personnel

are reluctant in practice to purchase mixed

medical equipment systems, those in which

items of different companies are interconnected. The most important reason for this

is the difficulty of assigning financial responsibility for repairs under warranty, in addition to that of determining responsibility for

actually making the interconnection. Unfortunately, this VA policy may practically

eliminate many smaller companies from the

procurement process, causing higher initial

procurement costs.

Perhaps the greatest effects on VA product costs

are the result of its generally decentralized procurement. Many purchasing decisions are made

by individual VA facilities, not by the VAMKC.

Two decades ago, VA medical centers needed

to make few purchases on the open market, only

10 percent of their supplies. When the military

draft ended, it was hard to keep physicians in the

Armed Forces, partly because they could not obtain the medical instruments and supplies that they

preferred. For this reason, VA and DOD hospital physicians were allowed to purchase more

items through the open market (34), the purchasing arrangement that now accounts for $498 million, or 38 percent, of VA medical center supplies

and equipment (table 5).

A 1980 GAO report on VA medical center purchasing analyzed the large proportion of open

market purchases (100). GAO concluded that the

VA was paying too much as a result of the following:

●

●

●

●

●

The VA had not standardized many common

items. Medical centers were therefore independently purchasing many different products for basic needs, which increased purchasing costs.

The VA lacked sufficient visibility over medical center purchases to address central procurement issues effectively, and needed an

improved information system.

Medical centers failed to use the VA’s “mandatory” supply sources, even though common items were available at lower cost from

these sources.

Competitive bids, although required by Federal procurement regulations for purchases

above $500, were not often obtained, providing little assurance that reasonable prices

were paid.

Neighboring VA medical centers independently obtained common supplies, failing to

share product and vendor information and

purchasing and contracting experience.
56

The VA generally agreed with GAO’s conclusions, and the Central Office tightened control

over some aspects of local purchasing by instituting quarterly reports on medical centers’ purchases from other than mandatory sources. Medical centers have complained, however, that their

purchasing patterns have often stemmed from

problems with the VAMKC, for example, the

problems of product quality discussed earlier in

this chapter. The VAMKC also delayed from 3

to 6 months in sending mandatory source listings

to the medical centers, though apparently at least

in part because of the change to a newly integrated

system of Federal stock numbers .11 Because of

such delays, items may be centrally managed, but

medical centers are unaware of it when ordering

supplies and equipment. These delays also weakened the control sought by the Central Office in

initiating quarterly reports (43,51).

In other areas, there has been little or no response to the 1980 GAO report. Neither the CenI IThe VA Cataloging operations are centralized at the VA supply

depot in Hines, Illinois. Data on items entering the supply system

and on changes in existing items are submitted by medical centers

and central procurement programs to the Cataloging Division to

be cataloged in the Federal Catalog System. Cataloged data are then

submitted to the Defense Logistics Services Center in Battle Creek,

Michigan, for national stock number assignment. The national stock

number identifies an item through all phases of logistics by all Federal agencies. A VA master computer file of all repetitively procured

items contains the national stock numbers and relevant descriptive

and management data for all supply transactions involving these

items. User catalogs are produced and regularly updated for centrally and noncentrally managed items. Additionally, nonexpendable

items are cataloged for property accountability. The major problem in cataloging is eliminating duplicate stock numbers for identical items. The VA-DOD Shared Procurement Program is coordinating the cataloging of all new medical items and reviewing those

already cataloged to eliminate duplication. The VA also participates

in the Federal Supply Management Council Working Group for Cataloging Systems in developing Government-wide cataloging policies

and practices for improved supply management. On Nov. 1, 1982,

the VA became the cataloging agent and manager for civil agencies

of Federal Supply Group 65, Medical, Dental, and Veterinary Equipment and Supplies (121).

DISCUSSION

tral Office nor neighboring VA medical centers

have further consolidated purchases or shared

product or vendor information. Such coordination has been achieved by VA medical centers on

occasion, but only rarely and by coincidence; for

example, buyers from VA medical centers in

Washington, DC, Baltimore, Maryland, Martinsburg, West Virginia, and Perry Point, Maryland,

came together for a few years to buy plated media

for clinical laboratories. One factor inhibiting consolidated buying is the relative lack of automated

data management systems for supply officers at

local medical centers, providing little opportunity to share contract and purchase experience

(18,43,51).

More recently, the President’s Private Sector

Survey on Cost Control criticized the open market purchasing by VA medical centers, and called

for more central purchasing to achieve the price

advantages of buying standard items in quantity.

The report commends the recent VA-DOD shared

procurement efforts, but suggests that VA (and

DOD) management provide more routine, detailed reports highlighting the number or value

of items purchased on the open market locally that

might be more economically purchased under nationally negotiated contracts. With better developed information systems for supply management

and by “aggressively seeking out commonly purchased items to be included in contract negotiations, ” VA hospitals could expect to attain the following (34):

. . . a level of local purchases that approximates

the 15 to 25 percent rate experienced by private

sector hospital management firms. This level

should be given to local hospital personnel as a

management objective. These personnel have

performed well toward other goals and it is reasonable to believe that they can also achieve

these goals. This method has worked well in the

private sector hospital chains.

With regard to marketing, purchasing, and sup- have been accomplished in various ways. Ideally,

plying medical products, the VA has three gen- they should also be attained together. At least

eral goals: product innovation, product quality, with respect to commercially available devices,

and low product cost. Individually, these goals however, the VA’s organization and decisionmak-
57

ing have at times exacerbated the inherent tension among these goals.

Available evidence indicates that the VA’s centralized procurement programs, through various

contract and distribution mechanisms, have often

ensured low prices for their medical centers’ equipment and supplies. Manufacturers also generally

express a positive view toward the VAMKC process. The VA is perceived as “progressive” in its

purchasing, and VA central procurement staff are

generally viewed by device manufacturers as

knowledgeable and fair (see app. C).

Nevertheless, the VA’s procurement of medical equipment can be improved. For example, the

VAMKC could consider making contractual volume commitments, in particular, for patient monitoring, EEG, ECG, hemodialysis, and ultrasound

equipment. Even if the VA practice of decentralized purchasing continues for these types of equipment, enough VA hospitals may want a given

supplier’s product to warrant a volume commitment that would ensure a greater discount.

The VAMKC might also alter contract disclosure requirements so that contract price information is not accessible until 6 months after the beginning of a contract year. This policy would

provide virtually all the protection of public

disclosure requirements but could increase the

willingness of manufacturers to discount their

products.

Last, the VAMKC should explicitly recognize

that the purchase price of major medical equipment often amounts to a small fraction of annual

operating costs. Perhaps the major complaint of

device manufacturers is that the VA considers purchase price only—not total operating costs—in

determining its suppliers (see app. C for analysis).

Lower equipment and supply costs of course,

must not be obtained by sacrificing product quality. The VA has implemented new quality assurance policies over the last few years, attempted

to improve the objectivity and responsiveness of

its quality complaint system, and established a

special agreement with the FDA to obtain its expertise in quality assurance. Even so, there must

be closer monitoring of the VA’s use of specifications, purchase descriptions, and CIDS to ensure

quality control.

The VA has adopted over 60 CIDS for medical

supplies and expendable alone, and is in the process of adopting some 90 more (12). These documents have influenced the purchase of medical devices and will continue to.

Given its use of purchase descriptions and

CIDS, the VA should consider the merits of comparative evaluations. These would more explicitly

identify device alternatives for VA customers.

Comparative evaluations could also identify, and

perhaps evaluate, positive and negative features

of the different devices. Product quality features

(e.g., safety, durability, and performance) could

then be considered along with cost in making

choices about devices.

The potentially most useful comparative method now is cost-effectiveness analysis. In considering both economic and clinical information, this

method integrates concerns about costs with those

about quality. In a cost-effectiveness analysis, an

outcome is specified (e. g., a patient’s functional

status) and the costs of alternative means to

achieve it (e.g., using devices) are compared .12

Although cost-effectiveness analyses and similar

analytic techniques have certain methodological

weaknesses, they can still illuminate issues and

synthesize relevant data. Comparative analyses

are neither simple nor necessary for every type

of device. Yet they can improve decisions and purchasing contracts, depending on the VA’s use of

them. More generally, integrating all the VA’s information in purchasing seems as promising as it

does challenging.

IZFor more discussion on cost-effectiveness analysis, wx U.S. Congress, Office of Technology Assessment, The Implications of Cost-Effectiveness AnaJysis of Medical Technology, GPO stock No. 052-

003-0076 (Washington, DC: U.S. Government Printing Office, 1980)

(107),

25-289 0 - 85 - 5
58

Increased procurement through centralized con- the VA’s being a larger buyer of medical supplies ~

tracts would promote the VA’s leverage in the are at least two important ones: 1) greater price

market because the size of its market would grow. discounts, and 2) the encouragement of device inThe large number of medical centers’ open mar- novation by providing a larger early market for

ket purchases now reduces the VA’s advantages new products (52,128).

as a large buyer. Among the possible benefits of
Chapter 6

Adopting, Using, and

Financing Devices
Chapter 6

Adopting, Using, and Financing Devices

. 

The desired result of all the activities directed

toward medical devices is the appropriate adoption and use of these devices. In examining the

capacity of the Veterans Administration (VA) to

meet veterans’ needs for such devices, it is thus

necessary to look at the VA system of adopting

and using devices, including selecting, providing,

and paying for them. Issues of resource allocation must also be considered in examining this

system.

Veterans adopt and use medical devices, depending primarily, though not entirely, on the VA

programs and services for which veterans are eligible. Through these programs and services, veterans receive devices directly, have them financed,

and learn about them (109). I

IThe issue of eligibility becomes particularly important since, according to VA estimates, 58 percent of VA patients are at or below

the poverty line. Data compiled by the National Center for Health

Statistics from 1971 to 1974 show that the lower a hospitalized veteran’s income, the more likely he is to be treated in a VA rather

than non-VA hospital. In 1980 the VA estimated that veterans disThe VA makes available an enormous range of

medical devices, including, for example, over 300

sensory aids for the blind (13). During fiscal year

1982, the VA provided over $81 million in prosthetic services. Each year it provides commercially

available prosthetic devices and services to about

1 million disabled veterans (118). In addition, it

provides a range of devices through routine patient care services.

Since adopting and using medical devices depends to a great degree both on veteran eligibility

and VA budgeting and financing, these topics are

discussed first. More specific policies and issues

affecting adoption and use of devices—rehabilitative devices and medical equipment and supplies—are then examined. Finally, more explicit

approaches that consider device adoption in light

of resource allocation are addressed.

charged from VA hospitals were five times more likely to have annual incomes under $4,000 (26 percent) than over $10,000 (5 percent) (96).

VETERAN ELIGIBILITY FOR PROGRAMS AND SERVICES2

Many VA programs serve veterans’ needs, including those for: 1) income maintenance, 2) medical care, 3) social services, 4) educational services, 5) vocational rehabilitation and independent

living, and 6) housing assistance. VA programs

vary not only in purpose, but in origin, eligibility

criteria, and ways of providing services (e.g.,

through funding only, funding and referral to

services, or direct provision of services), and in

financing and administration.

The greatest expenditures for medical devices

are made through income maintenance and related

transfer payments and medical care programs.

‘Except as noted, this discussion is based on an earlier OTA report Technology and Handicapped People (109).

Income Maintenance

The VA administers a major income maintenance program through compensation for serviceconnected disabilities and pensions for non-service-connected disabilities. The VA estimated that

in fiscal year 1983, an estimated $10.2 billion

would be spent for 2.6 million veterans through

the compensation program, and $4.0 billion for

1.8 million veterans through the pension program.

The amount veterans are compensated for service-connected disabilities depends on how much

their disabilities affect their earning capacity in

civilian occupations. Additional compensation is

provided for dependents. To be eligible, a veteran

must have contracted a disease, suffered a nonmisconduct injury, or aggravated an existing disease or injury in the line of duty, during war or

61

25-289 0 - 85 - 6
62

peacetime. Proof of disability is based on service

medical records. Service connection may be

granted by presumption if a veteran develops one

of several chronic diseases within 1 year of discharge from service, tuberculosis or Hansen’s disease within 3 years, or multiple sclerosis within

7 years. Once service connection is established,

the VA assigns a percentage to the disability from

an established “Schedule for Rating Disabilities”

(111). Eligibility is thus based on medical criteria

and proof of service. Vocational factors were considered only in developing the “Schedule for Rating Disabilities. ” An individual does not have to

prove the inability to earn an income or to support himself or herself with unearned income.

Pensions for non-service-connected disabilities

provide incomes to totally and permanently disabled veterans and their dependents whose income

is below an established standard. To be eligible,

veterans must have served at least 90 days, including at least 1 day of wartime, must be medically determined to be disabled, and must have

personal resources and income below a legislated

amount. At age 65, veterans are considered disabled regardless of their physical condition or income. Disabled survivors of veterans may also

receive benefits if they meet the income test (95).

Eligible veterans receive VA cash payments (with

the amount determined by statute), medical and

social services, and housing and education benefits.

Erlanger and colleagues note that although the

distinction between service- and non-service-connected disabilities has always been made in discussing veterans’ benefits, the legitimacy of all veterans’ pressure for benefits has never been seriously questioned, as was observed in the 1980

hearings on the Veterans’ Disability Compensation and Survivors’ Benefits Amendments (111).

Veterans’ disability programs have always been

separate from civilian programs, with better benefits and less strict eligibility requirements. The

major concern of policymakers has been the cost

of providing all eligible disabled veterans with all

necessary services (26).

Income maintenance programs are important

for disabled veterans not only for income, but also

for supplemental benefits and referrals to other

services. Both device and service technologies are

provided under supplemental benefits, while the

income itself allows recipients to purchase devices

not covered by supplemental benefits. Income

maintenance from both compensation and pension programs are funded from general revenues.

Health and Medical Care

Chapter 2 described the VA’s comprehensive

medical and rehabilitative services for veterans

with service-connected disabilities and for those

with non-service-connected disabilities unable to

pay for medical care. These services are federally

funded. Priority for medical and rehabilitative

care is given to veterans with service-connected

disabilities, an estimated 3 million people. Veterans with non-service-connected disabilities may

be admitted to VA hospitals if they are unable

to pay for hospital care elsewhere and if beds are

available.3 Approximately 80 percent of VA patients are veterans without service-connected disabilities (114).

VA health and medical benefits include prehospitalization, hospitalization and posthospitalization care, prosthetic and medical devices, nursing home and domiciliary care, devices, transportation services, outpatient services, and prescribed

drugs. Unlike coverage under Medicare and Medicaid, all technologies and devices suited to an eligible veteran’s circumstances and needs are made

available. The VA provides blind veterans with

necessary services and devices to overcome their

handicap and provides other disabled veterans

with technologies and devices deemed medically

necessary. A growing concern of VA users and

policymakers is the cost of covering all available

technologies and devices. There are now funding

restrictions for some medical care for veterans

without service-connected disabilities; for example, a foster home program is available to such

veterans only when they can pay its cost (109).

3The “inability to pay” requirement does not apply to veterans:

1) 65 or older, 2) receiving VA pensions, 3) eligible for Medicaid,

4) rated service-connected disabled, or 5) considered former prisoners

of war. It also does not apply to those requesting medical services

in connection with exposure to dioxin or other toxic substances in

herbicides or defoliants (e.g., Agent Orange) used for military purposes in Vietnam Aug. 5, 1964, through May 7, 1975, in connection with exposure to ionizing radiation from detonated nuclear devices as a result of participation in the testing of such a device, or

in the U.S. occupation of Hiroshima and Nagasaki between Sept.

11, 1945, and July 1, 1946 (96).
63

VA FINANCING AND RESOURCE ALLOCATION

Table 6 shows outlays for veterans’ benefits and

services by functional categories for fiscal years

1981 through 1983. Approximately 70 percent of

the VA budget represents entitlement programs,

such as the pension and compensation programs.

Spending for these programs is “uncontrollable”

in that Congress must modify existing law by

changing the eligibility criteria in order to affect

spending. The remaining 30 percent of the VA

budget goes to discretionary programs, primarily medical care. Spending for discretionary programs can generally be changed through the appropriations process (96).

Veterans who seek VA medical care, then, are

served within the limits of VA resources and legislated priorities (94). Under a limited and controlled budget, the VA health care system plans

for 1 and 5 years ahead. Alternative plans are prepared, ranging from a 5 percent cut in the present budget to an increase in real terms. Once Congress fixes the appropriation, the budget is then

set for the following fiscal year. A reduced appropriation, of course, requires a corresponding

reduction in staff or services.

Once its appropriation is set, the VA health care

system is characterized by highly decentralized

planning and financial management. The VA has

regional and functional health care market areas

Table 6.—Outlays for Veterans’ Benefits and Services,

Fiscal Years 1981-83

Outlays by fiscal year

(millions of dollars)

1981 1982 1983

Items (actual) (estimated) (estimated)

Income security $12,909 $14,070 $14,843

Education, training, and

rehabilitation. . . . . . . . 2,254 1,883 1,557

Hospital and medical

care . . . . . . . . . . . . . . . 6,965 7,594 8,108

Housing . . . . . . . . . . . . . . 201 –68 –863

Other benefits and

services . . . . . . . . . . . . 662 680 741

Offsetting receipts. . . . . – 3 – 3 – 3

Total outlays . . . . . . $22,988 $24,155 $24,383

SOURCE Budget of the United States Government for Fiscal Year 1963, pp. 5-166,

as reported by U.S. Congress, Congressional Research Service, Medical

Care F70grarns of the Veterans Adrnirristration, Report No. 63-99 EPW

(Washington, DC, May 16, 1983).

and has assigned fiscal and budgetary authority

to the regional consortia of its medical centers.

Regional allocations are prospectively budgeted

by the Central Office. There are now 28 subdivisions known as “Veterans Administration Medical Districts” (fig. 6). Each medical district typically represents 4 to 10 VA medical centers that

all offer primary and secondary care and some

access to tertiary care. This “regionalization” in

medical district budgeting is intended to help coordinate services provided by all members of the

district, to avoid unnecessary duplication and to

encourage new services only where they are required by large populations (16).

The formula used in resource allocation gives

some weight to outpatient visits but more to bed

occupancy. A new system for budgeting inpatient

care based on diagnosis-related groups (DRGs) is

being introduced (see the corresponding section

below). In the future, the formula maybe changed

to reflect the size of the veteran population, adjusted for age (29,59).

Management Initiatives

Several health care management initiatives have

been taken in recent years through both legislative

mandate and administrative fiat. These initiatives

affect the VA’s allocation of resources and adoption and use of devices, particularly equipment.

Facility Planning

Each VA medical center annually prepares a

construction and facility improvement plan covering the next 5 years. This plan, which is reviewed and approved by the Central Office, proposes construction according to program and

service plans.

Each year, the VA develops and submits to

Congress a 5-year comprehensive medical facility construction plan for VA projects requiring

over $2 million. The plan submitted in June 1982,

covering fiscal years 1983 through 1987, identified

252 projects with a total estimated cost of $5.4

billion (119).
64

Figure 6.—Veterans Administration, Department of Medicine and Surgery Medical Districts, 1983

SOURCE: U.S. Veterans Administration, as reprinted in U.S. Congress, Congressional Budget Office, Human Resources and Community Development Division, Veterans

Adrrrlnk?tration Health Care: Planning for f9W (Washington, DC, Februa~ 1983).

Construction needs for projects costing less than

$2 million are also identified from the medical center facility plans. For fiscal years 1983 through

1987, such projects numbered more than 1,400,

with an estimated total cost of $850.4 million. In

fiscal year 1982 the VA began emphasizing these

smaller projects and proposed an increase for its

fiscal year 1983 budget for this purpose (119).

Medical Equipment Reporting System

Not surprisingly, the VA’s medical equipment

inventory has increased in both quantity and complexity over the years. To manage all this medical equipment, the VA has developed an interactive computer-based Medical Equipment Reporting System to help both VA medical centers and

the Central Office maintain and access equipment

histories, identify important performance trends,

track mandated corrective actions, and establish

a data base for utilization review and resource

planning. Each VA medical center will eventually

have access to both local and systemwide experiences and trends (119).

Health Resources Sharing

Public Law 97-174, the VA-Department of Defense Health Resources Sharing and Emergency

Operations Act, was intended to promote cost

savings while providing veterans and the military

more comprehensive services. The two agencies

plan several joint efforts (121):

● Establishing a VA-Department of Defense

Health Care Resources Sharing Committee

to review policies and practices and to recommend changes. Monitoring the acquisition

of major equipment and the locations of new

facilities will be part of the committee’s

responsibilities.
65

Publishing guidelines based on the committee’s recommendations, which must not adversely affect the range of services, quality

of care, or established priorities of either

agency.

Authorizing interagency sharing agreements

among all medical facilities for referrals, with

reimbursement to the facility delivering care.

The VA is first determining services that can

be shared, to permit direct reimbursement. Sharing will primarily be locally initiated, but a few

programs will be developed in the VA’s Central

Office and the Pentagon.

The VA’s authority to share specialized medical resources was first established in 1966 (in Public Law 89-785) to permit VA medical centers to

share underutilized, specialized, scarce, and costly

resources with other medical centers, community

hospitals, Federal and State hospitals, clinics, and

blood and organ banks, so as to eliminate duplication. The law similarly permits the VA to use

community resources for veterans. Shared resources have included computed tomography

(CT) scanners, electron microscopy studies, specialized laboratory procedures, nuclear medicine

services, radiation therapy, cardiac catheterization, open heart surgery, dialysis, ultrasound, and

mammography (119).

Medical District Initiated Program Planning

Perhaps the VA’s most important step for the

adoption and use of devices has been Medical District Initiated Program Planning (MEDIPP), begun

in 1981. MEDIPP is a long-range “strategic planning system” giving greater responsibility for resource allocation to the VA’s 28 medical districts

(136).

MEDIPP evolved to respond to two seemingly

incompatible conditions: the short-range demand

for more (and different) services and long-range

declining demand, both a function of the aging

veteran population. As the many veterans of

World War II and the Korean conflict enter their

60s and 70S, their health care needs will increase.

Yet, as these veterans die, the demand for services will drop sharply, especially if no major military conflict brings large numbers of veterans into

the system (123).

From 1970 through 1979 VA medical care appropriations tripled, from roughly $1.7 billion to

$5.3 billion. Cost consciousness increased correspondingly toward the end of the decade. Since

1977 the VA has faced stable or declining health

care budgets (adjusted for inflation). Given the

general political concern about VA spending and

the changing demographics of the veteran population, the VA has recognized that past planning

and management approaches are no longer feasible. MEDIPP is intended to provide the basis

for planning and managing the VA’s changing

health care delivery needs (59,123).

Since the VA will certainly have to discontinue

some services or facilities, organizational and constituency understanding and acceptance may be

significant hurdles for MEDIPP’s success. For this

reason, MEDIPP will involve administrative and

clinical personnel at several levels within the VA

Department of Medicine and Surgery.

MEDIPP begins its work each year on November 1 when the VA’s Chief Medical Director publishes a list of the general issues, objectives, and

goals for the immediate and long-range future of

the Department of Medicine and Surgery programs. This report is used by each VA medical

district, which appoints a district planning board

and staff to develop a district plan. District plans

reflect demographic analysis, a workload forecast,

and a review of local resources submitted by the

VA facilities within its jurisdiction. District plans

are reviewed by district and regional administrators and councils, and when approved, submitted

to the VA Central Office (119,136).

In MEDIPP’s first year, 28 medical district plans

were submitted to the Central Office on November 1, 1982, covering fiscal years 1985 through

1990. More than 400 administrative and clinical

personnel helped prepare the plans, along with

the representatives from veterans’ service organizations who served on medical district planning

boards, advisory committees, and task forces.

These initial district plans will provide the basis

for developing a national strategy that identifies

program directions of the Department of Medicine and Surgery, trends in veterans’ health care

needs, and the types and sizes of facilities and mix

of health care services required to meet these needs

(119).
66

An initial problem in MEDIPP has been developing adequate program standards and criteria

toward formulating VA district plans and national

policies. Like health planning laws and programs

(e.g., certificate-of-need requirements) that regulate private health care investments, MEDIPP

must set quantitative and other standards for specific technologies, such as general hospital beds,

open heart surgery, cardiac catheterization, and

end-stage renal disease services. The VA is also

now developing case-mix workload and general

staffing guidelines for new planning standards

(7,59).

The promise of MEDIPP is in providing the VA

an initial framework for rational planning in an

era of dwindling health care resources. Its significance in relation to devices mostly concerns equipment. District plans will propose the creation, expansion, or dismantling of services, specifying

requirements for construction, staffing, and new

equipment. The implications of the plans for medical supplies will probably be vague. Likewise,

changes in the adoption and use of prosthetic devices will be identified through MEDIPP only in

the case of new rehabilitative services. However,

MEDIPP could identify and monitor the need and

demand for various types of major medical equipment. MEDIPP could then be used not only in

planning, but also to track the adoption and use

of major equipment. Requests and proposals for

device equipment could then be considered in light

of their cost effectiveness in delivering care. To

some extent, VA-initiated research has already begun to explore these possibilities, as discussed

below.

ADOPTION AND USE OF DEVICES

Eligibility and payment for services obviously

affect the adoption and use of devices. The decision of whether to include a device in a specific

service or to provide a device to an individual in

delivering care is also assumed to have a major

influence on adoption and use.

Individuals’ circumstances and needs have traditionally been identified at the clinical level,

within the relationship of patient and provider.

Diagnosis-Related Groups

Another new process that may affect medical

device adoption and use is setting VA inpatient

budgets using DRGs (28). Although the VA has

budgeted prospectively because of the congressional appropriations process, the use of a casemix measure such as DRGs is intended to distribute funds more rationally among medical centers

than have previous arrangements. DRGs classify

patients by principal diagnosis, surgical procedure, age, presence or absence of significant comorbidities or complications, and other relevant criteria. The new Medicare prospective payment system for hospitals is also based on DRGs. The VA

budgeting system and the Medicare payment system use similar mathematical models to assign patients to DRGs and to allocate resources among

DRGs.

Data sources for the VA system include all VA

discharge abstracts, costs by different service categories (medical, surgical, psychiatric), the current model of 470 DRGs used by Medicare, and

the New Jersey Reimbursement Schedule. Since

the VA has no patient-based method of assigning costs, the VA used New Jersey cost data to

assign relative DRG weights to the VA discharges,

and these weights were used for allocation decisions (27).

DRGs will also be used in VA utilization review and quality assurance programs (27). Capital purchases are excluded from the DRG rate, and

hospitals do not keep surpluses. Thus, DRG budgeting will affect the use of devices more than their

purchase, which will be affected more by

MEDIPP.

VA medical, surgical, and rehabilitative services

have been relied on to determine need, develop

rationales for specific devices, and request procurement formally through the VA Office of Procurement and Supply (13).

Rehabilitative Devices

After World War II, VA rehabilitation services

were concerned primarily with treating a fairly
67

large group of young war-injured veterans. The

VA’s rigorous pursuit of this mission, according

to a 1977 National Academy of Sciences (NAS)

report, led to its world leadership in the clinical

use of devices and techniques for aiding physically handicapped people (62).

Today more than 80 percent of those treated

through the VA’s rehabilitative services have nonservice-connected disabilities, with many suffering from the chronic diseases associated with

aging. The postwar period has also seen rapid

growth in medical knowledge and technology, including substantial changes in treatment approaches in rehabilitation (62).

The VA provides rehabilitative devices through

a number of special services and programs.

Rehabilitation Medicine

All VA hospitals have rehabilitation medicine

services, but only 52 have rehabilitation medicine

bed sections. The VA rehabilitation programs

vary in size, type, and organizational arrangement

(62,119). For example, there is a cardiopulmonary

rehabilitation program at the VA medical center

in Wood, Wisconsin, and driver training programs for the handicapped at several other medical centers. In fiscal year 1982, the VA began

using an additional teaching vehicle (the MEDVAN Mark IX system) for severely disabled veterans, such as quadriplegics, at two VA medical

centers. Six independent living centers were established in 1981 at VA medical centers to eliminate

the barriers that limit veterans in community living, including barriers that are physical, psychological, social, and environmental. More than 25

VA medical centers are also involved in rehabilitation programs focusing on the aging veteran (119).

Spinal Cord Injury Centers

There are now 19 VA Spinal Cord Injury Centers across the country. They provide initial care,

rehabilitation, and long-term care for about 7,200

patients. In addition, there are about 31,000 yearly outpatient visits of those with spinal cord injuries. Home care programs for these patients recorded 14,600 visits in fiscal year 1982. Many

special services must be provided to the spinalcord-injured patient, from medical and rehabilitation care to adjustment counseling. Urodynamic

laboratories have been established recently for

Spinal Cord Injury Centers to provide intensive

rehabilitation and sustaining care. Urodynamic

laboratories are essential for evaluating the

neurogenic bladder, and proper diagnosis often

permits patients to be catheter-free and avoid

urinary tract infections (119,145).

Blind Rehabilitation

In the Blind Rehabilitation Program, services

are provided by the six VA Blind Rehabilitation

Centers and Clinics, and by 75 Visual Impairment

Service Teams located at VA medical centers.

The Blind Rehabilitation Centers give training

in orientation and mobility, communication,

manual skills, and activities of daily living, along

with evaluating vision and prescribing aids such

as electronic reading and travel aids. The Blind

Rehabilitation Centers also provide counseling to

patients and their families, physical reconditioning, and recreation, and they conduct research on

blindness and rehabilitation, prosthetics, and sensory aids for blind people.

The Visual Impairment Service Teams focus on

outpatient treatment, annually reviewing the

health profiles, living circumstances, social adjustment, and personal needs of blind people. These

teams include staff physicians, social workers, and

other VA medical center personnel.

The VA also has a Vision Impairment Center

to Optimize Remaining Sight. Currently there is

only one such center, at the VA medical center

in Kansas City, Missouri, under the Hospital Optometry Section of the Eye Clinic (141).

Audiology and Speech Pathology

During fiscal year 1982, the VA issued approximately 34, 000 hearing aids to eligible veterans

throughout the Nation. The procedure for obtaining a hearing aid from the VA is straightforward.

The eligible veteran applies for a hearing aid at

the nearest VA facility, and is given orological and

audiological examinations. During 1982 more

than 574,000 patient visits were reported by the

98 VA audiology and speech pathology programs.

Additionally, a program offering services by com-
68

puter is being pilot tested in the southeastern region of the country (119,127).

Prosthetics

By regulation, the prosthetic shops (“Orthotic

Laboratories”) of VA hospitals may make only

temporary prostheses. Definitive prostheses must

be obtained from commercial vendors under contract to the VA.

Definitive prostheses are obtained through a

prosthetics representative, a veteran with a service-connected disability who is the purchasing

agent for all prostheses, from eyeglasses to motorized wheelchairs. The 96 prosthetics representatives at some 80 VA facilities dispense more than

$84 million per year in devices in initial and repeat prescriptions (62). Table 7 gives a sample of

rehabilitative devices distributed to veterans in

fiscal year 1982.

Clearly, the prosthetics representative is central in the adoption process. Representatives must

be thoroughly familiar with all VA-authorized

prosthetic, orthotic, and sensory aid devices, and

other rehabilitative equipment. Representatives

must also know fitting techniques, eligibility requirements, and device sources. They are responsible for educating the clinical and management

staff at their hospitals about the prosthetics program. Finally, they must submit administrative

reports and work with contracting prosthetics

suppliers (159).

Prosthetics representatives serve as counselors

for veterans who need prostheses. Clinic teams

of physicians, physical or occupational therapists,

Table 7.—Sample Rehabllitative Devices Distributed

to Veterans, Fiscal Year 1982

Value

Item Number of devices (dollars)

Aids for the blind. . . 15,156 $ 512,352

Artificial limbs . . . . . 10,598 10,171,840

Braces . . . . . . . . . . . . 36,308 2,336,293

Corset belts . . . . . . . 20,641 236,884

Eyeglasses . . . . . . . . 101,286 3,419,484

Hearing aids . . . . . . . 32,252 243,625

Shoes. . . . . . . . . . . . . 29,597 704,740

Wheelchairs . . . . . . . 30,981 10,055,721

SOURCE: U.S. Veterans Administration, VA Annual Report IWZ (Waahlngton, DC,

19s3).

prosthetists, and prosthetics representatives meet

with the veteran to decide which, if any, prosthesis should be prescribed. They choose from

among the devices approved by the Prosthetic and

Sensory Aids Service (PSAS) of the VA. PSAS

makes its decisions through its Prosthetic Technology Evaluation Committee on the basis of evaluative research conducted by the VA or other investigators. In some cases, clinic staff may

recommend a prosthesis that has not yet been

evaluated. PSAS is asked to rule on these cases

individually (88). When it determines that new

commercially available devices are needed, PSAS

will formulate the technical specifications for the

devices, and negotiate service contracts with private manufacturers directly or through professional associations, such as the American Orthotics

and Prosthetics Association (13,24).

PSAS also directs the national VA prosthetics

program, including the VA Prosthetics Center (see

chs. 3 and 4); 20 Prosthetic Treatment Centers,

which provide specialized services for a region;

53 Orthotic Laboratories, which fabricate and fit

temporary limbs; 11 Restoration Clinics, concerned with artificial eyes, facial and body restorations, cosmetic hands, plastic ear inserts, and similar items; and prosthetic activities within VA

medical centers and outpatient clinics (143).

Past Problems

Prosthetics representatives specifically and the

VA prosthetics program generally have been the

focus of criticisms over the last several years. The

1977 NAS study of the VA concluded that the VA

took much longer to obtain prosthetic devices

than did private hospitals. In addition, the study

questioned the prosthetics representatives’ refilling device prescriptions that did not require a

medical recertification of need (62). A 1979 VA

program evaluation concurred with the NAS report, concluding that some prosthetic services for

patients were too slow, and also noted that the

program’s efficiency and effectiveness were diminished by other factors (143). One was the reduction in the Central Office staff for PSAS from

eight in 1973 to four in 1979. The report stated:

“Liberalizing legislation has had the effect of increasing Prosthetic and Sensory Aid workload,

yet program staffing was decreased. . . .Present
69

staffing of the service would appear inadequate. ”

To minimize increased workload and decreased

staffing, various VA Central Office functions were

assigned to selected field facilities. In several cases,

no authority was delegated and no official transfer documents addressed these significant operating changes (2,143). The VA report further

found no evidence of major program planning in

the PSAS Central Office.

The NAS evaluation also concluded that the

VA chain of command, in which prosthetics field

personnel report directly to hospital directors,

resulted in lack of direction to prosthetics representatives in the field (62):

There is a lack of sufficient communication between VA Central Office program officials and

[VA medical center] prosthetic representatives.

Most problems in this area are due to a lack of

upward communications. Upward communications must pass through [VA medical center]

Operations to get to Prosthetic and Sensory Aids

Service.

Recent Policy Changes

Since the VA’s internal evaluation of PSAS, the

latter’s Central Office staff was increased from

four to eight persons and began to address some

of the problems of the prosthetics program. To

speed prosthetics procurement, for example, VA

medical centers have been allowed since 1981 to

directly purchase (through decentralized contracts) new, commercially available prosthetic or

orthotic appliances and repairs for other prosthetic appliances costing up to $300 (2,118). Other

efforts begun in 1982 were comprehensive training programs for new prosthetics representatives

and other prosthetics personnel, revised contracting procedures for artificial limbs, a more systematic evaluation program (see ch. 4), a newsletter,

and revisions of outdated training and specification manuals, many dating to the 1950s. In addition, the VA is now discussing reorganization that

would put Rehabilitation R&D, PSAS, and the

VA Prosthetics Center in one administrative structure (13).

Veterans’ groups, such as Disabled American

Veterans and Paralyzed Veterans of America,

have supported recent PSAS policy changes, but

feel many more are needed (2,39). Because of

PSAS’S very large field staff, veterans’ groups are

concerned that Central Office policy changes will

be delayed (159). (App. B further discusses the

concerns of veterans’ organizations. ) There are

still many reports of disabled veterans’ being provided inappropriate devices, because of either the

practices of prosthetics representatives or Central

Office policies. For example, wheelchairs procured

by VA medical centers for hospital transportation

are often distributed to veterans as prescription

chairs. Such chairs have often not met veterans’

needs and have not proved durable outside hospitals.

Future Issues

Perhaps the major PSAS issue that the VA must

address over the next few years is the prosthetics

budget and related fiscal practices. The PSAS

budget has tripled in 8 years to $84 million and

has been projected to reach $500 million annually

in 4 to 5 years (24). One reason for the steep rise

in costs has been the increased purchase of sophisticated technology for handicapped people. Another reason is the increasing population of veterans whose mobility and senses are affected by

aging (119). Probably the most significant force

behind the escalation, however, is that providing prosthetics to veterans is unlimited by law (38

U.S.C. sec. 5023):

The Administrator may procure prosthetic appliances and necessary services required in the

fitting, supplying, and training and use of prosthetic appliances by purchase, manufacture, contract, or in other such manner as the Administrator may determine to be proper, without

regard to any other provisions of the law.

Because the prosthetics budget receives no separate congressional appropriation, funds for prosthetics are drawn from the VA’s annual appropriation for medical care, which is fixed prospectively.

As a result, the prosthetics budget has drained resources from other parts of the health care budget as prosthetics costs have expanded.

The unconstrained prosthetics budget has also

contributed to undesirable administrative practices within the VA. Because PSAS handles a high

volume of devices, and because of the general

availability of prosthetic devices, other VA rehabilitative services (Blind Rehabilitation, Spinal
70

Cord Injury Centers, etc.) have come to use PSAS

as a purchasing clearinghouse for their own supplies and devices. PSAS therefore orders such supplies as pacemakers and kidney dialysis machines,

which have very little to do with the functions

of prosthetics representatives. Although this handling of supply functions has helped hold down

the personnel requirements of other rehabilitative

services, it has of course placed fiscal and administrative burdens on PSAS (24,160).

The VA has tried to constrain prosthetics costs

through somewhat paradoxical fiscal practices.

Although PSAS directs national VA prosthetics

policies, it has little control or advisory function

over the program’s budget outside the Central Office. PSAS participates in the Central Office’s initial distribution of funding to medical districts.

The distribution of funds within the medical districts, however, is the responsibility of the medical district directors, and that within medical centers is the responsibility of the medical center

directors. All medical districts and medical centers

are semiautonomous, so that prosthetics services

receive whatever budget allotment their medical

center director determines. Poor communication

between the PSAS Central Office and prosthetics

representatives about budget needs has sometimes

resulted from the separation of program and

budget lines of authority (143). The proposed

administrative realignment mentioned earlier

should ameliorate this situation.

VA policymakers are examining several ways

to resolve the increasing budgetary and fiscal

problems in providing prosthetic devices. One approach is to have Congress appropriate a prosthetics budget separate from other health care

funding. A second would limit devices to veterans

with service-connected disabilities, now a minority of the disabled veterans served by the VA. A

third approach is to assess more thoroughly the

impact of the range of rehabilitative devices on

the health and well-being of the individual veteran and on VA costs. The third approach would

allow the VA to plan resource allocations more

rationally. The VA has already implemented this

approach to some extent through the Prosthetics

Technology Evaluation Committee, as discussed

in chapter 4. This committee makes decisions

about rehabilitative device adoption and use in

the context of general VA health care goals. Similar approaches can be taken in acquiring and using

other devices, as discussed below.

Medical Equipment and Supplies

Although the VA centrally plans its general policy, daily planning, administration, and delivery

of health care is carried out by VA medical facilities. The VA Service Directors in the Central Office issue performance guidelines and routinely

monitor the utilization and quality of all program

units, but have very little authority over medical

centers’ decisions about device adoption and use.

As noted above, budgets are allocated regionally,

and medical equipment and supplies are purchased by local supply officers. The VA provides

its central Testing and Evaluation Staff, but its

role is advisory. The main Central Office influence over routine device purchase and use is

through establishing testing standards, evaluating

and centralizing contracting in light of those

standards, and establishing purchasing source

priorities for VA facilities. The determining factors for many device purchases are found within

individual VA health care facilities (38,62). Physician freedom in choosing medical devices, for

example, has been at least an implicit VA policy

since the early 1960s.

Controlled Item Acquisition

A clear exception to this purchasing pattern exists with equipment and supplies that the VA Central Office regulates as “controlled items. ” The

controlled medical device items (listed in table 8)

are generally relatively costly equipment, requiring an initial investment of $5,000 or more. They

may also require substantial outlays for facility

space, staffing, disposable, and maintenance (157).

Controlled item acquisition can be regarded as

analogous to certificate-of-need requirements (84).

Acquisition of medical and dental equipment

on the VA’s controlled item list may be initiated

either locally or through a Service Director in the

Central Office. In the first case, VA medical facilities often rely on Major Medical Equipment

Committees, a cross-section of medical center staff

and clinicians, to determine medical need. When

it is warranted, the committee will request that
71

Table 8.—VA Controlled Item List for Medical

and Dentai Equipment, 1982

—

Cost threshold

Equipment type (dollars)

Cardiac defibrillation . . . . . . . . . . . . . . . . . .

Physiological monitoring . . . . . . . . . . . . . .

C!inicai laboratory equipment and

instrumentation . . . . . . . . . . . . . . . . . . . . .

Electroencephalograph . . . . . . . . . . . . . . .

Gastric hypothermia . . . . . . . . . . . . . . . . . . .

Electron microscope for use in clinical

laboratory . . . . . . . . . . . . . . . . . . . . . . . . . .

X-ray apparatus . . . . . . . . . . . . . . . . . . . . , . .

Nuclear medicine . . . . . . . . . . . . . . . . . . . . .

Ultrasonic unit, diagnostic . . . . . . . . . . . . .

X-ray film processor, automatic or

manual e

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dental cabinet, modular or unitizede 

. . . . .

Dental operating chair . . . . . . . . . . . . . . . .

Dental operating unite 

. . . . . . . . . . . . . . . . .

High velocity oral evacuation unite 

. . . . . .

Dental operating Iighte

. . . . . . . . . . . . . . . . .

Automatic dental X-ray film processor . .

Dental X-ray apparatus . . . . . . . . . . . . . . . .

Acupuncture equipment and needlese f

. 

. .

Neurosurgical subcutaneous

stimulator . . . . . . . . . . . . . . . . . . . . . . . . .

Surgical laser, including accessories . . .

Cardiac pacemaker surveillance

—equipment. . . . . . . . . . . . . . . . . . . . . . . . .

$4,500

(b)

30,000’

7,500

10,000

(b)

(b)

5,000d

5,000

(b)

1,200

(b)

(b)

(b)

(b)

1,000

2,500

(b)

(b)

(b)

(b)

NOTE: If a device’s purchase price exceeds the “cost threshold,” the purchase

must be specially reviewed.

aconstant display of electrocardiographic curve, temperature, respiration, and

blood pressure.

bNo cost threshold.

cper Item or where combined cost components total $~,~ or more.

dper item or Items costing this amount in a single purchase.

eEXCept when acquired from a VA supply depot, a VA decentralized schedule,

the VA Marketing Center, or a Federal Supply Schedule contract.

f Restricted to research in the Surgical SerVICe.

SOURCE: U.S. Veterans Administration, VA Marrua/, subchapter E, change 155

(Washington, DC, Oct. 14, 19S2).

an additional evaluation be performed on site in

the medical center. Evaluations may also be conducted in conjunction with the VA’s Medical Research Service, as was the case for CT scanners.

The committees generally meet as needed to consider equipment standards and safety, to resolve

problems involved in acquisition and use, and to

develop and recommend policy (140).

Service Directors in the Central Office approve

or disapprove controlled item acquisitions based

on more or less explicit criteria of program needs,

experimental or commercial status, and the support provided to other VA facilities and districts.

Often, specific standards of productivity or utilization are developed in advance and disseminated to medical facilities.

Service Directors also seek to ensure that resources are available for pIanned or authorized

program growth. If funding is not available

through a facilities budget allotment, equipment

may be reimbursed through a special fund maintained by the Chief Medical Director’s office. This

fund is used to allocate moneys, as they become

available during the year, toward unfunded VA

needs, although no explicit criteria are used in

making these supplemental allocations (62).

When device acquisition has been part of a

broader effort to initiate so-called specialized medical services (e. g., renal transplantation or open

heart surgery), the VA’s Chief Medical Director

has in the past also established ad hoc advisory

groups. These groups have been composed of VA

and non-VA physicians with expertise in the particular program specialties, who, through regular

meetings, and sometimes site visits, provide quality overviews of the programs.

For example, the shift toward purchasing CT

scanners, rather than contracting for CT services,

was justified in a 1978 VA report by the Special

Central Office Advisory Group for Computerized

Tomography Units (155). The report found that

the cost of performing a CT examination on VAowned scanners was only about 60 percent of the

cost of the same examination obtained under contract from a civilian institution, which led to the

VA’s policy of purchasing CT equipment whenever possible (108).

Social and Political Forces

As this chapter has shown, the VA has often

developed well-defined procedures, conducted

analyses, and presented technical criteria for

equipment acquisition within its facilities. However, these facts should not obscure the political

and social factors in VA device adoption and use.

Regardless of the VA’s planning, medical school

preferences and politics have considerably influenced the VA system.

Thompson, for example, has argued that the

VA’s desire to be associated with medical schools

has shaped hospital construction decisions far

more than other concerns, such as promoting veterans’ access to medical care (91). To ensure the
72

quality of their personnel and foster medical professionalism, VA administrators have wished to

locate facilities near medical schools and have

sought to make their institutions hospitable places

for teaching and research. Medical schools have

successfully encouraged VA hospitals to seek the

latest equipment and specialized facilities. The

1977 NAS study noted a proliferation of various

special care units, for example, nearly 70 cardiac

catheterization units (62). Each VA hospital

seemed to want its own specialized resources, in

part to satisfy its medical school affiliates, even

though these resources were frequently underused.

Two other factors have also affected resource

allocation, namely, the VA’s voluntary relationships with regional and State health planning

agencies and the absence of effective utilization

review. Under Public Law 93-641, the National

Health Planning and Resources Development Act

of 1974, the VA was given voting membership on

State health coordinating councils and on regional

health systems agencies .

4 A VA hospital was supposed to submit an application to the health systems agency for new construction or equipment.

The agency made a recommendation to the VA

Central Office, which could approve or disapprove without regulatory constraint and did not

have to explain its action. NAS recommended that

the VA become part of the general health care

planning process established for communities and

regions (62).

The absence of effective utilization review is a

second possible reason for inefficient resource allocation. VA hospitals have not been under the

Professional Standards Review Organization

(PSRO) program, the peer utilization review for

Medicare and Medicaid. The VA moved, somewhat slowly, to establish a VA Health Services

4The main reasons for this legislation were to establish mechanisms for developing national health planning policy and to augment areawide and State planning for health services, manpower,

and facilities, in order to curtail the rise in health care expenditures,

improve access to care, and ensure quality of care, A non-VA hospital needed to apply for approval of substantial construction and

expensive equipment to the local or areawide health systems agency,

which made a recommendation to the State planning agency. The

State agency approved the recommendation or reversed it with an

explanation; the applicant could appeal. Final approval or denial

of an application was made by the Secretary of Health and Human

Services.

Review Organization for quality assessment and

utilization review. As part of this initiative,

Thompson (90) notes that the VA may have

adopted some of the shortcomings of the PSRO

program, such as deriving standards for hospitals in peer groups by examining treatment processes, which would identify outlier hospitals but

would not pinpoint excesses committed by all facilities in a peer group.

Other social and political forces have constrained the VA’s adoption and use of devices. For

example, the VA’s attempts to increase its CT

scanners were criticized in a General Accounting

Office report (98) and opposed by Congress in the

late 1970s. When, in 1978, the VA moved to purchase 13 new scanners to supplement its existing

24, congressional resistance prompted the VA to

withdraw the request. Furthermore, the Office of

Management and Budget placed considerable

pressure on the VA to reduce hospital beds. The

VA reduced them, as a result, from about 121,000

in 1964 to fewer than 90,000 in 1980 (91). (Recent legislation [Public Law 97-174] requires the

VA to operate at least 98,000 beds.)

Generally, the social and political pressures on

the VA to overadopt devices in some areas of care

and to constrain expenditures in others have an

additional important implication. The VA’s resources may be adequate for its functions, but

may not be distributed equitably or efficiently

among geographic areas, types of facilities, or

functions within and across hospitals. The VA’s

often sporadic adoption and use of devices and

other technologies and patterns of care seem to

provide ample evidence of this. The VA has demonstrated international leadership in such areas

as cardiac care and radioisotopes. Yet in 1983

fewer than one-third of VA hospitals had CT

scanners (40), and the 1977 NAS study found evidence of maldistribution of equipment, basic and

specialized services, staff, and beds (62).

NAS also found that some of this poor distribution could be attributed to the VA Central Office and its Service Directors, because some important allocation decisions seemed to rest more

on judgment than on explicit criteria. Recent evidence suggests that the VA has not restructured

its allocation process to address this problem.
73

The VA recently decided to purchase a nuclear

magnetic resonance (NMR) unit, which is one of

the newest advances in medical imaging and diagnosis, and which some experts believe may assume

many of the present functions of the CT scanner.

As the clinical potential of this new scanning technique becomes better understood, many VA medical centers may want to procure their own units.

NMR is an expensive technology, however, costing $1 million or more for the machine alone and

necessitating facility modifications that may cost

an additional $1 million (84). Because of its cost,

policymakers have urged a thorough assessment

of its health benefits before widely using it.

The VA Central Office decided to purchase an

NMR unit early in 1983. On the recommendation

of the Director of Nuclear Medicine, the Chief

Medical Director chose to place this unit at the

St. Louis VA Medical Center. This particular VA

facility was chosen because it represented, in the

Service Director’s judgment, the best mix of support equipment, staff, and physical location (81).

The decision to place the NMR unit at the St.

Louis VA medical center may have been correct,

but the NMR decision process has been questioned

by observers both within the VA and elsewhere.

Explicit criteria for choosing a location were never

developed, nor was an expert advisory group

formed, nor were protocols developed for an objective evaluation of VA needs.

Early in the adoption process, the VA Medical

Research Service proposed a strategy to introduce

NMR into the VA system: a solicitation of all interested VA medical centers to submit proposals

for an NMR center. These proposals would be

evaluated by an ad hoc advisory committee, and

their recommendations forwarded to the Chief

Medical Director for review and action. Importantly, the review would include studies of the cost

effectiveness of NMR compared to more conventional imaging devices (35).

The proposed strategy, however, was not initially considered by the office of the Chief Medical Director. Only in November 1983, after the

first NMR unit was being placed in St. Louis, did

the office of the Chief Medical Director begin to

implement such a strategy. The VA’s apparent

lack of system in decisions about new technology

raises serious concerns about VA resource allocation. Because of NMR’s clinical potential and because of its high costs, NMR is an important test

of VA policy. At this time, though, it would appear that the VA has not developed a wise policy for acquiring major medical devices, such as

NMR.

Future Acquisition Issues

The VA must continually confront issues about

many new devices and other technologies such as

NIvIR, assess their need, demand, and relative value, and make decisions about their purchase and

use. This chapter has discussed the VA’s current

related policies and programs. There is some evidence, however, that VA methods of acquiring

devices and other technologies may be in transition.

An internal VA study examined the relationship between technology needs and MEDIPP (15).

An earlier section of this chapter examined

MEDIPP as a framework for VA planning and

discussed its usefulness in identifying VA needs

for major medical equipment. In MEDIPP’s first

year, ending in November 1982, 28 district plans

were analyzed, and two significant findings

emerged regarding device adoption and use. The

first was that, in addition to traditional routing

requests, VA districts are unexpectedly using

MEDIPP to request the purchase of controlled

item equipment. There were specific requests for

over 40 major equipment items, including seven

CT and six NMR scanners, six cardiac catheterization items, two computerized electrocardiography

devices, and digital subtraction angiography

equipment. Some districts requested major equipment items through both traditional Central Office channels and MEDIPP. Other districts made

no major equipment requests through MEDIPP.

The second finding was that MEDIPP identified

about 50 VA-wide issues for future health care

delivery. Of those 50, the acquisition of devices

(and the larger issue of medical technology) was

among the four considered most important.5 VA

administrators and planners believed that both

‘The other issues were (in order) bed levels, geriatric care, and

data validity (good recordkeeping).
74

immediate and secondary impacts of technology

acquisition are crucial in planning and resource

allocation.

The findings from the first MEDIPP cycle confirm the potential utility of MEDIPP, not only in

planning but also in tracking major equipment

adoption and use. As new equipment requests are

made through medical district plans, a good evaluation program could guide technologies’ diffusion within the VA (15).

One evaluation that might be effective is technology assessment, or comprehensive technology

assessment, as it is sometimes called. This form

of policy analysis provides information on the effects of a device or other technology, including

social, ethical, political, economic, and technical

effects. Technology assessment uses various methods and draws on many disciplines. It takes several important factors into account: 1) unintended

and unanticipated impacts of technological applications; 2) indirect effects; and 3) the distribution

of costs, benefits, and other effects among all interested parties.

Technology assessment has not been used very

extensively in the VA health care system. In June

1983, however, the Chief Medical Director of the

VA formed a High Technology Assessment

Group, which will “determine what course the VA

should follow with respect to acquisition of major new technology in the future” (84). As the VA

faces changing health care delivery needs and stable or declining health care budgets, some analytical method is needed to address more comprehensively the many factors involved in adopting

and using costly equipment. Appropriate evaluation methods are probably needed for several

kinds of VA users, from technicians to Service Directors. Such an effort might be very useful to the

VA in allocating health care resources more efficiently and equitably.
Appendixes
Appendix Am —Acknowledgments and

Health Program Advisory Committee

In addition to the advisory panel, this technical memorandum has benefited from the advice and review

of experts in rehabilitation, veterans’ affairs, and health policy. The staff would like to express its appreciation

to the following people for their valuable guidance. -

L. W. Ashton, General Electric Medical Systems,

Washington, DC

Peter W. Axelson, Veterans Administration, Palo

Alto, CA

H. V. Tino Ballenca, Mennen Medical, Inc.,

Buffalo, NY

Chester G. Bazel, Veterans Administration,

Washington, DC

Taylor Benson, Marquette Electronics, Marquette,

WI

Henry Bergman, Public Citizen Health Research

Group, Washington, DC

Steve Bialys, Veterans Administration, Hines, IL

Jay C. Bisgood, Department of Defense,

Washington, DC

Ronald A. Blackwood, Honeywell Medical

Electronics, Pleasantville, NY

Hal Booker, Veterans Administration, Washington,

DC

Jack Breslar, Veterans Administration,

Washington, DC

Ernest M. Burgess, Prosthetics Research Study,

Seattle, WA

Gene D. Burton, Hospital Corp. of America,

Nashville, TN

William T. Butler, Baylor College of Medicine,

Houston, TX

Richard Cole, Extracorporeal Co., King of Prussia,

PA

Clyde C. Cook, Veterans Administration,

Washington, DC

Frank Coombs, Veterans Administration,

Washington, DC

John A. D. Cooper, Association of American

Medical Colleges, Washington, DC

Warren B. Cozzens, Marquette Electronics, Inc.,

Marquette, WI

Marco Cucinella, Spacelabs, Inc., Chatsworth, CA

Jack Cumming, Xonics Corp., Chicago, IL

Donald Custis, Veterans Administration,

Washington, DC

Roger D. Daniro, General Services Administration,

Washington, DC

Richard diMonda, American Hospital Association,

Chicago, IL

Fred Downs, Veterans Administration,

Washington, DC

Frank B. Engel, CGR Corp., Baltimore, MD

Carlton C. Evans, Veterans Administration,

Washington, DC

Elbert O. Garner, Hospital Corp. of America,

Nashville, TN

Margaret Giannini, Veterans Administration,

Washington, DC

Peter G. Goldschmidt, Veterans Administration,

Washington, DC

David German, Disabled American Veterans,

Washington, DC

Richard J. Greene, Veterans Administration,

Washington, DC

Robert Hart, Technicare Corp., Solon, OH

Vince Hlinovsky, Paralyzed Veterans of America,

Washington, DC

Jessie Holder, Veterans Administration, Hines, IL

Ralf Hotchkiss, Washington, DC

C. Richard Hullihen, Picker International, Solon,

OH

Henry Humphreys, Veterans Administration,

Washington, DC

Frederico Juarbe, Veterans of Foreign Wars of the

United States, Washington, DC

Richard Kaiser, Veterans Administration, Hines, IL

W. B. King, Philips Medical Systems, Inc.,

Springfield, VA

Rodney S. Kirk, The American Legion,

Washington, DC

Thomas Kodl, Veterans Administration, Hines, IL

Barbara Kolledge, Veterans Administration, New

York, NY

Kenneth Kreitner, Veterans Administration, Palo

Alto, CA

Lawrence Liefer, Veterans Administration, Palo

Alto, CA

James Lykins, Veterans Administration, Hines, IL

Gabriel Manasse, Veterans Administration,

Tucson, AZ

AlIan C. Martin, Technicare Ultrasound, Rolling

Meadows, IL

Vernon McKenzie, Department of Defense,

Washington, DC

77

25-289 0 - 85 - 7
78

Matthew F. McNulty, Jr., The Medical Center,

Georgetown University, Washington, DC

L. L. Mitchell, General Services Administration,

Washington, DC

Frank A. Morrone, Jr., Veterans Administration,

Washington, DC

Lyle Mussman, Advanced Technology

Laboratories, Bellevue, WA

Robert Nolan, Veterans Administration,

Washington, DC

Foster Palmer, Veterans Administration, Hines, IL

David J. Passamaneck, AMVETS, Washington,

DC

Lynn Phillips, Paralyzed Veterans of America,

Washington, DC

Albert Press, Cobe Laboratories, Denver, CO

Barbara J. Pryor, Washington, DC

Edward M. Pugh, Picker International, Falls

Church, VA

Richard M. Ryan, Jr., Medical Advisory Group

International, Winchester, MA

Sam Serritelli, Veterans Administration, Hines, IL

James Smith, Veterans Administration,

Washington, DC

John F. Sommer, Jr., The American Legion,

Washington, DC

John Stuart, Veterans Administration, Hines, IL

Fred Stuvek, Jr., Siemens Medical Systems, Inc.,

Iselin, NJ

William Sullivan, Diasonics, Milpitas, CA

Mark Tauscher, Hewlett-Packard Co., Rockville,

MD

William W. Thompson, Blinded Veterans

Association, Washington, DC

Robert Teidt, Mennen Medical, Inc., Buffalo, NY

Noel Woosley, AMVETS, Washington, DC

Donald Wright, Veterans Administration, New

York, NY

Dennis Wyant, Veterans Administration,

Washington, DC

HEALTH PROGRAM ADVISORY COMMITTEE

Sidney S. Lee, Committee Chair

President, Milbank Memorial Fund

New York, NY

Stuart H. A1tman*

Dean

Florence Heller School

Brandeis University

Waltham, MA

H. David Banta

Deputy Director

Pan American Health Organization

Washington, DC

Carroll L. Estes**

Chair

Department of Social and Behavioral Sciences

School of Nursing

University of California, San Francisco

San Francisco, CA

Rashi Fein

Professor

Department of Social Medicine and Health Policy

Harvard Medical School

Boston, MA

“Until April 1983.

● *Until March 1984.

Harvey V, Fineberg

Dean

School of Public Health

Harvard University

Boston, MA

Melvin A. Glasser***

Director

Health Security Action Council

Committee for National Health Insurance

Washington, DC

Patricia King

Professor

Georgetown Law Center

Washington, DC

Joyce C. Lashof

Dean

School of Public Health

University of California, Berkeley

Berkeley, CA

——

● **Until October 1983.
79

Alexander Leaf

Professor of Medicine

Harvard Medical School

Massachusetts General Hospital

Boston, MA

Margaret Mahoney*

President

The Commonwealth Fund

New York,NY

Frederick Mosteller

Professor and Chair

Department of Health Po!icy and Management

School of Public Health

Harvard University

Boston, MA

Norton Nelson

Professor

Department of Environmental Medicine

New York University Medical School

New York, NY

Robert Oseasohn

Associate Dean

University of Texas, San Antonio

San Antonio, TX

Nora Piore

Senior Advisor

The Commonwealth Fund

New York, NY

Mitchell Rabkin**

President

Beth Israel Hospital

Boston, MA

Dorothy P. Rice

Regents Lecturer

Department of Social and Behavioral Sciences

School of Nursing

University of California, San Francisco

San Francisco, CA

Richard K. Riegelman

Associate Professor

George Washington University

School of Medicine

Washington, DC

Walter L. Robb

Vice President and General Manager

Medical Systems Operations

General Electric Co.

Milwaukee, WI

Frederick C. Robbins

President

Institute of Medicine

Washington, DC

Rosemary Stevens

Professor

Department of History and Sociology of Science

University of Pennsylvania

Philadelphia, PA

● Until August 1983.

● *Until April 1983.
Appendix B.— Medical Devices and

the Veterans Administration: The Perspective

of Veterans’ Service Organizations

There have been veterans’ service organizations in

this country since before the Declaration of Independence. The first, the Society of the Cincinnati, was

formed during the Revolutionary War. Today there

is no accurate record of all the veterans’ organizations

in this country (89). They range from small groups in

isolated areas to large organizations that play a role

in forming national policy. Most of the organizations

perform two kinds of services for veterans. They help

individual veterans obtain Federal benefits and services and provide their own services to veterans. For

their members as a group, they represent veterans’ concerns before legislative bodies.l

The six veterans’ organizations discussed here are

active nationally. They all work closely with the Veterans Administration (VA) while providing services,

monitoring the VA’s activities, and suggesting improvements in VA operations. OTA conducted an informal survey of these organizations’ relationships

with the VA by talking with their representatives.

Views were sought on the VA’s responsiveness to veterans’ health care needs and the strengths and weaknesses of current VA programs, particularly with regard to prosthetics and rehabilitative devices. Each of

the six organizations consulted is briefly described

along with their viewpoints, with emphasis on problem areas and suggested improvements, Note that these

organizations represent only one perspective on the

issues. Their views should be considered keeping in

mind that they are consumers of VA health care and

therefore not impartial observers.

Paralyzed Veterans of America

The Paralyzed Veterans of America (PVA) is a national, nonprofit service organization for paralyzed

veterans, founded in 1946 and chartered by Congress

in 1971. 2 With 11,000 members and 36 chapters

throughout the United States, Puerto Rico, and Mexico, PVA is the largest advocate for 25,000 paralyzed

American veterans. Although membership is limited

to veterans who have spinal cord injury or disease and

‘It is estimated that betweens million and 5 million, out of almost 30 million, veterans in the United States belong to veterans’ organizations. It is difficult to establish a more precise figure because many, and in fact, probably

most veterans who do belong to an organization belong to more than one (i’o).

2A congressional charter essentially lends prestige to an organization; there

are no legal benefits of a congressional charter.

an honorable discharge (injury may or may not have

occurred during military service), PVA also works as

an advocate for the other 175,000 nonveteran paralyzed Americans, as well as all U.S. veterans (71).

PVA’S emphasis is on improved medical treatment and

rehabilitation for all those with spinal cord injuries.

PVA was involved in the VA establishment of Spinal

Cord Injury Centers in the late 1940s to treat spinal

cord injuries and diseases. There are now 19 Spinal

Cord Injury Centers across the country, with PVA representatives in each (39).

PVA is also concerned with meeting the posthospitalization needs of both paralyzed veterans and other

paralyzed Americans, including accessible housing,

specialized transportation, high-quality education, and

prosthetic aids for more independent living. PVA’S

activities are organized around four major programs,

for national service, advocacy, legislation, and research.

The national service program operates 46 regional

service offices, corresponding to regional facilities of

the VA, staffed by national service officers trained to

advise veterans and their dependents on their needs,

legal benefits, health care (including prosthetics, medication, and rehabilitation), education, housing, and

other VA benefits. National service officers also monitor the activities of the VA medical centers in their

jurisdictions, including the appearance, condition, and

maintenance of the facility; the adequacy and availability of medical equipment; personnel training, retention, and levels; prosthetic availability, fitting, and distribution policies; outpatient treatment and admission

procedures; and the hospital administration’s longrange plans and goals (68).

PVA’S advocacy program is committed to eliminating barriers to disabled people in housing, transportation, employment, education, and rehabilitation.

The advocacy department has represented PVA’S positions on numerous committees, both public and private, and has participated in several lawsuits, as a

friend of the court and as a litigant.

The PVA legislative program considers how changes

in laws affect disabled veterans and other handicapped

persons and encourages the Government to protect

and expand veterans’ benefits. PVA monitors and advocates legislation both federally and locally, and

testifies at legislative and administrative hearings.

The PVA research program explores ways to improve the care, treatment, and rehabilitation of spinal80
81

cord-injured people and promotes the search for a cure

for spinal cord injury. PVA is the largest private supporter of central nervous system research in the United

States (68). Through the Technology and Research

Foundation,. established in 1975, PVA awards research

grants and fellowships for research related to spinal

cord injury, including basic and applied medical research and research on rehabilitation methods and

aids. PVA itself conducts demographic and statistical

studies to clarify problems related to spinal cord injuries (71).

Disabled American Veterans

After World War I, some disabled veterans formed

local self-help groups that eventually became the

Disabled American Veterans (DAV), a national nonprofit association established in 1920 and chartered by

Congress in 1932. The founders of DAV worked with

other organizations toward the legislation for a central Government agency to handle veterans’ affairs—

the Veterans Bureau, forerunner of today’s Veterans

Administration, DAV now has 818,000 members and

a nationwide network of service programs, in addition to a Vietnam veterans outreach program, a national legislative program, and a national employment

program.3 DAV places special emphasis on meeting

the needs of Vietnam veterans. Approximately 25 percent of DAV’S members are veterans of the Vietnam

War period and Vietnam veterans represent 95 percent of the professional staff, both at DAV’S national

headquarters and in the field.

DAV’S national service program operates much the

same as does PVA’S corresponding program, with approximately 250 national service officers in 68 offices

across the United States, who provide free counseling

and claims representation for disabled veterans and

their families. In addition, since 1973 DAV has sent

Field Service Units to rural and suburban areas to serve

veterans and families living too far from DAV offices.

All DAV national service officers are disabled veterans

with service-connected, wartime disabilities who function as attorneys-in-fact, representing veterans before

the Veterans Administration, the Social Security

Administration, the Labor Department, and other Federal and State agencies. They provide counseling on

disability benefits, rehabilitation programs, and other

available services, and help in preparing claims and

assembling evidence to support claims.

DAV also provides a Disaster Fund (for disabled veterans needing help because of natural disasters), an

Emergency Relief Fund (for disabled veterans facing

financial emergencies), and a Scholarship Fund (for

children of needy disabled veterans). These programs

are available only to veterans with service-connected

disabilities, although one need not be a DAV member

to apply.

DAV’S national legislative program monitors and

advocates legislation affecting benefits for disabled veterans and their families, including disability compensation, health care, employment, vocational rehabilitation, and death benefits. DAV also advocates architecture designed for handicapped people. Like PVA’S

advocacy and legislative programs, this DAV program

is active at local, State, and national levels.

Through its national employment program, DAV

helps disabled veterans find jobs, supports local employment programs, helps employers and local government officials place disabled veterans in jobs and

job programs, and files job discrimination complaints

on behalf of disabled veterans. DAV works closely

with the National Alliance of Business, the President’s

Committee on Employment of the Handicapped, and

other private and public organizations concerned with

creating equal employment opportunities for handicapped people.

Veterans of Foreign Wars of the

United States

The Veterans of Foreign Wars of the United States

(VFW) is the Nation’s oldest existing veterans’ service

organization, and one of its largest. It originated from

the veterans’ groups formed in the early 1900s by veterans of the Spanish American War, the Philippine Insurrection of 1899, and the China Relief Expedition of

1900. Several of these early groups eventually banded

together to form a new organization, which in 1914

became the VFW.4 Since 1914, the VFW has worked

for compensation, pension, hospital, and bonus benefits for World War I veterans; the GI Bill of Rights

for veterans of World War 11, Korea, and Vietnam;

and other major laws providing benefits to veterans.

The VFW now has nearly 2 million members; in the

past 15 years membership has increased by more than

250,000. Membership in the VFW is open to any U.S.

citizen who has served honorably in any overseas

engagement for which a campaign medal or ribbon

was awarded by the U.S. Government. The VFW has

nearly 10,000 posts (local chapters), in the United

States, Germany, Thailand, Korea, Japan, France, and

other countries (45).

‘To qualify for membership in DAV, an honorably discharged veteran must

have a disability incurred in wartime military service or under conditions

similar to war (23).

4The VFW, however, recognizes its founding year as 1899, when the first

of the organizations that would become the VFW was formed.
82

VFW operates a nationwide service network like

those of PVA and DAV to aid all veterans and their

families (regardless of whether they are VFW members) in filing claims for benefits. It also promotes legislation for veterans’ rights and benefits and national

security, and sponsors community activities, including

programs aimed at stimulating patriotism and an appreciation of national heritage.

The American Legion

The American Legion is the largest veterans’ organization in the United States. It was born at a caucus

of the first American Expeditionary Force in 1919 in

Paris, with the goal of building an association of veterans “whose primary devotion was to God and Country” (89). The American Legion now has about 2.5 million members, of whom about 25 percent are Vietnam

veterans. s Its Auxiliary boasts an additional 1 million

members (89). The American Legion has seven programs that have remained essentially unchanged since

the organization’s beginnings. The programs are for

veterans’ affairs and rehabilitation, children and

youth, Americanism, national security, foreign relations, legislation, and economics.

The American Legion’s main concern has always

been the “welfare of veterans and their families.” Its

programs for veterans’ affairs and rehabilitation,

children and youth, and economics are all intended

to serve veterans and their families in various ways. b

Its other programs—except for those of the Legislative

Division,7 which promotes issues of interest to the

organization (including veterans’ rights and benefits)—do not directly benefit veterans. Rather, they

further the organization’s ideals of patriotism and good

citizenship, and advocate its views on national security and foreign policy.

Through its veterans’ affairs and rehabilitation program, The American Legion operates a nationwide network of 16,000 service officers who provide help in

preparing and filing claims for VA benefits (like the

service networks of other veterans’ organizations).

This program also offers advice and representation in

cases before the VA’s Board of Veterans Appeals and

‘Any honorably discharged veteran who served in World War I (Apr. 6,

1917, to Nov. II, 1918), World War 11 (Dec. 7, 1941, to Dec. 31, 1946), the

Korean War (June 25, 1950, to Jan. 31, 1955) or the Vietnam War (Dec. 22,

1%1, to May 7, 1975) is eligible for membership in The American Legion.

6Although the objectives of the program for children and youth have grown

to include improved social and economic conditions for all children, the

original purpose of this program was to ensure the well-being of the chih-lren

of deceased and disabled veterans.

The Legislative Division is the lobbying arm of The American Legion. Although other issues also get vigorous support from this division, legislation

for veterans’ benefits specifically and the economic well-being of veterans

generally is given priority attention.

the Department of Defense Boards for discharge review, and in correcting military records. These services are provided free, regardless of whether the veteran is a member of The American Legion. In addition,

the program employs six field representatives who

regularly conduct onsite visits in the VA’s 172-hospital

system, much like PVA’S hospital monitoring (82).

American Veterans of World War 11,

Korea, and Vietnam

The American Veterans of World War II, Korea,

and Vietnam (AMVETS) was founded in 1944 and

chartered by Congress in 1947. Although AMVETS

was originally formed for veterans of World War 11,

in 1966 its charter was amended to include veterans

of the Korean War and Vietnam. AMVETS now has

about 200,000 members, of whom about a third are

Vietnam veterans.8

AMVETS’ goals and services are very similar to

those of The American Legion and the VFW. As a service organization, AMVETS’ primary commitment is

to serving veterans and their families. Its service officers are stationed at VA regional offices and medical facilities in every State. These service officers are

trained professionals who offer counseling and representation to all veterans and help them obtain the

benefits to which they are entitled, including compensation, education, employment, hospitalization, and

rehabilitation (162). AMVETS also participates in the

VA’s Voluntary Service Program (as do some other

veterans’ organizations), whose volunteer workers

provide services for hospitalized veterans.

AMVETS also provides many community services

such as drug abuse education programs, voter registration drives, programs to promote safe driving habits,

and a college scholarship program for needy children.

Some of AMVETS’ community service projects are

also intended to encourage patriotism, such as the National Americanism Essay Project it sponsors, and the

AMVETS Memorial Carillons in national cemeteries

and at historic sites throughout the United States.

Blinded Veterans Association

The Blinded Veterans Association (BVA) is a nonprofit organization founded in 1945 by a group of vet5Membership in AMVETS is open to any honorably discharged American

veteran who actively served in the Armed Forces between Sept. 16, 1940,

and May 7, 1975. Those who entered the service for the first time on or after

May 8, 197s, are not now eligible for AMVET membership, but legislation

is pending to open AMVETS membership to all honorably discharged veterans who served in the Armed Forces from May 7, 197s, to an indefinite

future date.
83

erans blinded in World War II. BVA was incorporated

in 1947 and in 1958 was granted a congressional charter. Almost 5,000 of the nearly 50,000 blind veterans

in this country belong to BVA.9 Some of these blind

veterans also have other disabilities such as a hearing

loss or missing limbs.

BVA operates much like the other veterans’ organizations by providing help to individuals through a nationwide service network and by representing the interests of blind veterans in promoting legislation. BVA

has two major service programs, the Field Service Program and the Outreach Employment Program. Both

are provided under contracts with the Federal Government: the Field Service Program under contract

with the VA and the Outreach Employment Program

under contract with the Department of Labor. There

are 37 BVA regional groups that provide help at State

and local levels.

BVA’S Field Service Program is unique in that blind

veterans are actually sought out by the field representatives and offered help. BVA obtains the names of

blind veterans from the VA and hospital records and

through word of mouth. A field representative then

visits the veteran and encourages him or her to seek

whatever assistance is appropriate. The program

employs 10 field representatives, all blind veterans

themselves, who help blind veterans in obtaining benefits, including disability compensation or pension, rehabilitation and vocational training, and prosthetic

equipment and training in its use. The representatives

also counsel the veteran’s family and help them to take

advantage of existing community programs. This program serves as an adjunct to the VA’s 76 Visual Impairment Service Teams at VA medical centers, who

are responsible for reaching as many blind veterans

as possible to provide them physical examinations and

rehabilitation (91).

The Outreach Employment Program makes use of

regional employment representatives who help blind

veterans by finding prospective employers, providing

advice on resumes and job applications, keeping the

veterans informed of potential job opportunities, and

offering counseling in cases of job discrimination. The

program also tries to convince employers, through

public service advertising and directly, to hire blind

veterans.

Observations on the Veterans

Administration Health Care

Delivery System

The veterans’ service organizations interviewed for

this appendix believe that the Veterans Administration

is doing a more than adequate job of tending to the

health care needs of veterans in the United States.

Some problems were noted, although in many cases

efforts are already being made to alleviate them. Comments on specific VA departments follow.

Rehabilitation Research and Development Service

The VA’s Rehabilitation Research and Development

Service (Rehabilitation R&D) is primarily responsible

for the research, development, and evaluation of new

devices, techniques, and concepts in rehabilitation.’”

Such activities generally focus on the three most prevalent service-connected disabilities of veterans: prosthetic aids for amputees, especially lower-limb prosthetics (which represents about 40 percent of the

Service’s budget); aids for veterans with spinal cord

injuries, with special emphasis on wheelchairs (representing about 30 percent of the budget); and sensory

aids, including aids for the visually impaired (representing about 30 percent of the budget)(5). Although

the dollar amount allocated to Rehabilitation R&D

rose 40 percent from fiscal year 1982 to fiscal year 1983

(a $2.9-million increase), this Service receives only 6.4

percent of the VA research and development budget

(see table 2 in ch.3).

PVA, DAV, and BVA all feel that greater funding

should be provided for research sponsored by

Rehabilitation R&D. However, they disagree on which

areas should be emphasized. PVA would like to see

more R&D conducted on aids for spinal-cord-injured

veterans, DAV on prosthetics, and BVA on sensory

aids for the blind (33,39,161).

All the organizations noted that positive changes

have been made in the last few years, such as increased

funding for Rehabilitation R&D and greater participation of veterans’ organizations in setting research

priorities. The VA recently held three informal sessions

to discuss research priorities in upper- and lower-limb

prosthetics, speech pathology, audiology and aids for

hearing-impaired veterans, and functional electrical

stimulation. Nearly 50 people from across the coun-

‘Membership in BVA is open to all veterans with service-connected blindness. Blinded veterans with non-service-connected blindness are eligible for

associate membership.

1ORehabilitation R&D and other VA programs for research and development are discussed in ch. 3 of this technical memorandum. The testing and

evaluation of devices is carried out by the VA Prosthetics Center in New York

City and the VA Marketing Center in Hines, Illinois (see also ch. 4).
84

try participated in each session, including experts in

the relevant fields, VA representatives, physicians, device manufacturers, and representatives of all the major veterans’ organizations.

PVA, DAV, BVA, AMVETS, and The American

Legion are also represented on the VA Rehabilitation

R&D merit review panel, which recommends research

priorities and reviews research proposals and results.

Prosthetics and Sensory Aids Service

The Prosthetics and Sensory Aids Service (PSAS)

is generally responsible for providing eligible veterans

with the prosthetic and rehabilitative devices and sensory aids that they need for independent living. PSAS

is also involved with the research, development,

testing, and evaluation of commercial devices, as well

as procurement and supply. Veterans’ organizations

commended the VA for increasing the size of PSAS

staff, for recognizing the need for training VA field

representatives and developing a comprehensive training program, and for encouraging more involvement

with veterans’ organizations. Some of these initiatives

have already produced results, others will require more

time.

Several veterans’ organizations noted that some of

the information available on benefits is not accurate.

Inadequate training of field representatives is not the

main reason for this, however, but rather that the

PSAS Program Operating Manual requires much revision. The manual, which describes the process of issuing devices, including eligibility requirements and

verification of eligibility, has not been revised since

1956. The field representatives’ reliance on an incomplete and outdated manual resulted in the inconsistent

application of national policy and arbitrariness in the

representatives’ interpretation of rules. The manual is

now being revised, with help from all major veterans’

organizations.

The most frequent complaint about PSAS concerns

the long delays in providing prosthetic and rehabilitative devices to veterans. All the organizations interviewed gave examples of unacceptable delays between

the order and actual delivery of devices. For example,

a cane was delivered only after several months and

a custom-designed wheelchair only after a year. Long

delays for repairs were also noted, such as hearing aid

and eyeglass repairs that took up to 5 weeks. These

delays are primarily attributed to the fact that all

orders must go through the Office of Procurement and

Supply’s Prosthetics Distribution Center in Denver,

Colorado,

It is possible that a decentralized distribution system would be more effective. The VA considers it more

cost effective to stock large quantities of devices at one

center. However, a complete analysis should take into

account inventory costs, the costs of paperwork involved in placing orders, and the time that disabled

veterans spend without devices essential to their everyday activities. The veterans’ organizations suggested

that PSAS have greater flexibility to contract with local

suppliers in distributing devices. The VA Office of Inspector General audited the Prosthetics Distribution

Center in 1983 (138) and made recommendations to

improve the efficiency and economy of the distribution and repair functions of the Prosthetics Distribution Center. However, the recommended changes must

be negotiated with the Department of Medicine and

Surgery before taking action.

The VA Prosthetics Center

The VA Prosthetics Center (VAPC) has been widely

viewed by veterans’ groups as having serious organizational problems, largely because of its autonomy .11

VAPC now has direct line authority through PSAS,

which could help solve some of these problems.

VAPC’S original goals were to conduct research and

development in rehabilitation engineering, to evaluate

and test commercially available assistive devices, to

provide direct patient care for difficult prosthetic and

orthopedic cases (i. e., customized devices), and to

manufacture and distribute orthopedic footwear and

prosthetic and orthotic devices. These are still VAPC’S

responsibilities, with the exception of R&D, but there

have been problems with VAPC’S providing direct patient care.

VAPC Special Clinic Teams were intended to provide expert fitting and construction of prostheses for

the most difficult prosthetic cases.lz People from across

the Nation were to be sent to VAPC when they needed

special treatment. According to DAV, however, this

program has not been successfully implemented. In addition, plans to introduce five additional Special Clinic

Teams in other hospitals across the country have been

late in implementation. These additional teams were

to be trained and in place by October 1984. Instead,

as of November 1984, seven teams have been identified, but the teams are not complete and more training is needed, The new target date is March 1985 (13).

The Chief Medical Director proposed that VAPC’S

special patient care services be moved in January 1983

from present facilities in New York City to the

Manhattan VA Medical Center, on the expectation

that a hospital setting would be more conducive to direct patient care. DAV has questioned the proposed

IIVApC is dixusxd in chs, 3 and a.

]zSPwial C]inic Teams are discussed in ch. B.
85

location on the grounds that it may not be accessible

to handicapped veterans. The proposal to move VAPC

is still being discussed and Congress must be notified

prior to any action (13,164).

Along with other VA departments, VAPC has also

been involved with setting standards and evaluating

commercially available devices. Prosthetic aids, wheelchairs, and aids for blind and hearing-impaired veterans are all produced mostly by private manufacturers and provided to the VA through contracts.

Many commercially manufactured devices are evaluated to ensure that they meet VA standards prior to

the VA’s adopting them for use. PVA and DAV indicated, however, that some new products are constrained by the VA’s more specific standards.

As far as the VA’s evaluation is concerned, PVA,

DAV, and 13VA all mentioned that inefficiencies in the

system result in delays, and that the device needs of

veterans are not always met because of inconsistent

and restrictive policies and standards. PSAS initiated

the Prosthetic Technology Evaluation Committee in

early 1982 to address problems in VA evaluations, 13

PVA and DAV have permanent representatives on this

committee, which is responsible “for assessing and

ranking the legitimacy and appropriateness of evaluation proposals and for assessing and approving the

results of clinical evaluations. ” Other veterans’ organizations are kept informed of the committee’s activities and invited to participate in its meetings. All the

organizations feel that the committee is a first step in

the right direction, that improvements are already evident, and that further progress will take time, but can

be expected.

Summary and Conclusions

Although the veterans’ organizations discussed here

have different eligibility requirements, different degrees

IJThe prosthetics Techno]on Evaluation Committee is discussed in ch. Q.

of involvement in political issues, and different programs for veterans, all of the organizations emphasize

the needs of their particular members, and these needs

are often those of all veterans.

The delivery of high-quality rehabilitation services

and medical care, including prosthetic and rehabilitative devices, is a main concern of these organizations.

All have representatives in place at some, if not all,

VA medical facilities. These representatives function

like consumer representatives for the VA, determining the needs of veterans, assessing their eligibility for

VA benefits, and helping them obtain the benefits. In

addition, representatives of some organizations monitor the activities of VA health care facilities to promote high-quality care.

Since veterans’ service organizations are so closely

involved in the VA’s delivery of health care, both as

participants and observers, their perceptions of VA

programs are valuable. These organizations generally

feel that they have an excellent working relationship

with the VA. Although there are still problems, the

view of these organizations seems to be that the VA

is increasing efforts to involve veterans’ groups in planning and policy decisions and to respond to the groups’

concerns. All these organizations meet regularly with

the VA, and some have representatives on various VA

panels. In addition, informal meetings are held between veterans’ organizations and the VA as issues

arise.

Not surprisingly, these organizations would like to

see greater Federal allotments to the VA, as well as

greater VA allotments to the programs serving their

members. Another consensus view is that there are

long delays in providing and repairing prosthetic and

rehabilitative devices. Although a certain amount of

procedure and delay has been expected because of the

size of the VA bureaucracy, improvements could be

made, Through cooperation and discussion between

the VA and veterans’ service organizations, progress

is being made to improve these services as funds

permit.
Appendix C.—Veterans Administration Procurement

and the Market for Medical Equipmentl

This appendix describes and analyzes the ways that

Veterans Administration (VA) procurement of medical equipment affects and is affected by conditions of

demand and supply in the markets for X-ray equipment, computed tomography (CT) scanning equipment, digital imaging equipment, nuclear diagnostic

equipment, nuclear magnetic resonance (NMR) and

positron emission tomography (PET) scanning devices,

ultrasound diagnostic equipment, patient monitoring

and electroencephalograph (EEG) and electrocardiography (ECG) equipment, and hemodialysis equipment. The discussion encompasses the ways procurement policies of the VA affect the prices and products

that are offered and the practices of private buyers.

Manufacturers’ comments on VA procurement are also

summarized.

This study is based on data available through the

VA Marketing Center (VAMKC) about its procurement. Although important national market structure

data exist, most are available only in the form of 4-

digit SIC codes, which are too broad a classification

for the analysis here. 2 In fact, all types of equipment

examined in this study fall within a single 4-digit SIC

code, SIC 3693, electromedical and electrotherapeutics

equipment.

Some Bureau of Census data are available in the

finer 5-digit and 7-digit codes, but they suffer from several problems: First, data are withheld at these levels

because of Bureau requirements to maintain confidentiality of individual firms’ data; second, some important structural data are not reported at all at these

levels of analysis; and third, there begin to be severe

problems in the data reliability of plants that produce

many products.

Private proprietary sources of data are not bound

by the same confidentiality requirements as the Bureau of the Census, but they tend to be incomplete and

are frequently inconsistent (3).

Because of VAMKC contractual reporting requirements, however, the characteristics of specific equipment markets can be reconstructed, including information on product market concentration, market

shares of individual firms, and market share instability. (When findings are reported here, care has

been taken to ensure their confidentiality.) In addition,

IBased on a paper prepared for OTA by Ralph Bradburd (14).

‘SIC codes are Standard Industrial Classification codes, which are used

by the Bureau of the Census of the Department of Commerce to classify products for the Census of Manufactures, which provides the most comprehensive statistics on medical device industries (see IOS).

data gleaned from interviews with manufacturers’ representatives have been analyzed along with VAMKC

data for a fuller interpretation.

Diagnostic X= Ray Equipment

X-rays are a highly penetrating form of electromagnetic radiation of much higher frequency than

visible light. They are generated in evacuated glass

bulbs called X-ray tubes that contain two electrodes,

an anode and a cathode. High voltage applied between

the two electrodes causes electrons to flow from the

cathode to the anode, and X-rays are produced as the

electrons strike the anode. Since substances vary in

their opacity to X-rays, X-rays that have passed

through a body can provide information on its internal structure (63). In standard radiography, X-rays that

have passed through the body strike a sensitive

photographic film, and the resulting picture reflects the

structures through which the X-rays have passed. A

conventional radiograph is effectively a shadowgraph,

a projection of the X-ray absorption of a threedimensional body onto a two-dimensional detector.

(Standard X-rays are also called “projection X-rays.”)

In fluoroscope, the detector is a fluorescent screen

rather than photographic film. In modern fluoroscope,

X-rays are detected by a phosphor surface next to the

surface of a photoemitter, to intensify the image. The

final image can be viewed directly or camera recorded.

Conventional radiography provides excellent spatial

resolution but rather poor contrast resolution. In other

words, objects of different opacity to X-rays than surrounding material are quite distinct in X-ray images,

but it is difficult to discern even a large target object

if its opacity to X-rays does not differ significantly

from that of surrounding material. As a result, except

in regions of low absorption, namely the chest, breast,

and extremities, conventional radiography is unsuited

for characterizing soft-tissue detail (75).

General Demand Characteristics

Supplies v. Equipment Costs.—Annual expenditures

on X-ray film and other supplies depend on how much

X-ray equipment is used. In a large hospital, the annual cost of supplies can easily be as great as the purchase price of the equipment (21,25). X-ray film, film

development chemicals, and other supplies are typically purchased independently of X-ray equipment.

Equipment Purchase Price. -X-ray equipment varies

greatly in price depending on its characteristics. A sim86
87

ple unit may cost as little as $30,000, while the equipment for a fully appointed procedures room may cost

well over $1 million. Peripheral equipment is also required, such as developing rooms, viewing equipment,

and cabinets for storing X-ray photographs.

Servicing and Technical Support.—The need for

technical support and servicing of X-ray equipment increases with its complexity. Sophisticated X-ray equipment may require up to 8 weeks for installation and

calibration (21). For annual service contracts, manufacturers quoted costs ranging from 5 to 14 percent

of equipment purchase costs. Servicing costs and

“downtime” of equipment are both important considerations in purchasing, and service availability can

support a VA hospital’s “brand name justification” for

purchasing equipment (which is explained below).

The VA Market: Demand and Supply

VA Demand.—VA X-ray equipment purchases are

channeled through the VAMKC’S Radiological and

Nuclear Equipment and Supplies Division. The

VAMKC negotiates annual contracts with vendors,

and when VA medical centers (or other units that purchase through the VAMKC) are authorized to purchase X-ray equipment, the VAMKC places the order,

arranges for direct delivery to the medical center, and

administers the contract (40).

X-ray equipment accounts for more direct delivery

medical equipment capital expenditures than any other

single equipment category, and represents a substantial annual budget item. As a proportion of medical

equipment expenditures, those for X-ray equipment

have been falling, representing 71 percent of total medical equipment expenditures other than through the

Federal Supply Schedule (FSS) in 1979, 69.6 percent

in 1980, 50.2 percent in 1981, and 46.9 percent in

1982. 3 Yet the corresponding absolute dollar amount

in 1982, over $59 million, was larger than that in any

of the previous 3 years (131,132).

The VAMKC manages direct delivery purchases of

X-ray equipment for a number of Government agencies other than the VA, including the Public Health

Service. Even so, the VA accounted for 91.3 percent

of VAMKC’S total direct delivery X-ray equipment expenditures in 1979, 78.2 percent in 1980, and 73.8 percent in 1981 (131).

VA Demand Relative to the National Market.—The

VAMKC appears to be a significant part of the na3The FSS program is administered by the Office of Federal Supply and Services of the General Services Administration. VAMKC is the commodity manager for this program’s Group 65, Medical, Dental, and Veterinary Equipment and Supplies. VAMKC establishes contracts with manufacturers of this

equipment under the policy guidance and procurement regulations of the General Services Administration. (This arrangement is discussed further in ch. 5.)

tional market for X-ray equipment. The VAMKC requires that vendors disclose total annual sales of the

equipment covered in their annual contracts. Although

incomplete, the data made available to OTA by the

VAMKC indicate that it purchases roughly 5 to 10 percent of the X-ray equipment of companies on annual

contract. Companies apparently vary in the proportion of the X-ray equipment sales they make through

the VAMKC, for one company below 5 percent, for

another over 10 percent (132). For many, but not all

companies, the VA is either their largest or one of their

largest customers (4,21,25,48,86).

VAMKC Demand Variability .-Total expenditures

for X-ray equipment orders processed by the VAMKC

are highly variable. From 1979 to 1980, they fell by

35.6 percent, and from 1980 to 1981, they fell an additional 37.2 percent. Finally, from 1981 to 1982, they

rose by 297.6 percent. The variability of VA demand

for X-ray equipment was somewhat greater than that

of other agencies that purchase through the VAMKC.

VA purchases fell by 44.9 percent from 1979 to 1980,

and by 40.8 percent from 1980 to 1981 (131). (Available data do not permit the calculation of the corresponding 1981-82 percentage change. ) Such demand

variability is high compared with most American industries (93). Its effect on the market will be discussed

below.

Suppliers to the VA Market.—Many major manufacturers of X-ray equipment have had VAMKC annual contracts in the past 3 years, including (in alphabetical order) CGR Corp., General Electric Co.,

General X-ray, H. G. Fischer, Orthopedic Equipment,

Philips Medical Systems, Picker International, Raytheon, Siemens Corp., and Xonics Medical Systems.

However, this VAMKC market is relatively concentrated: Four firms accounted for almost 95 percent of

sales to the VA in 1982 (132). In addition, if vendors

are ranked by sales volume for 1979 through 1982, the

same four firms are always found at the top, with none

moving by more than one rank (131,132).

Taken alone, these data might indicate lack of competition in the market. However, further data analysis shows that, although rankings by market share

have not changed much, the market shares themselves

have. In measuring market share changes, the greatest possible sum of the absolute values is 200. This is

the value resulting should the market change hands

completely, with every firm with any sales in the first

period having none in the second and other firms entirely capturing the market. Table C-1 shows the significant annual changes in market shares during the

sample period.

There are several possible explanations of the

observed volatility in market shares. One is that the
88

Table C-l.—Sum of Absolute Values of Annual

Percentage Changes in Vendors’ VA Marketing Center

X-ray Equipment Market Shares, 1979-82

1979-80 1980-81 1981-82

Sum of absolute values. . . . . . 26.4 45.8 29.3

As a percentage of maximum

possible value (200) ... , . . . 13.2 22.9 14.6

SOURCES: U.S. Veterans Administration, Marketing Center, Radiological and

Nuclear Equipment and Supplies Division, unpublished data, Hines,

IL, 1983; and U.S. Veterans Administration, Marketing Center, Radiological and Nuciear Equipment and Supplies Division, unpublished

information from vendors’ 1982 contracts, Hines, IL, 1983.

individual buyers of X-ray equipment prefer particular companies’ products, and it happens that the purchase cycles of these buyers alternate to produce the

observed shifts. Although the data do not permit a test

of this hypothesis, it seems unlikely. An alternative,

and more likely, explanation is that the firms aggressively compete with each other in price or product performance, with the lead in either or both of

these dimensions, and hence the market share, changing hands from year to year.

CT Scanning Devices

CT scanners area form of X-ray equipment. As in

standard radiography, X-rays are generated and

detected, and the attenuation of the X-rays as they pass

through the body provides information about the

structures through which they have passed.

In CT scanning, the X-ray beam is passed through

a collimator (a device for producing a beam of parallel rays of light or other radiation) that forms the beam

into a thin fan in a plane perpendicular to the long axis

of the body. On the other side of the body is an array

of X-ray detectors. Each of these detectors produces

a charge signal proportional to the X-ray energy it absorbs. Signal strength is a function of the attenuation

of the X-ray along the path between the detector element and the X-ray source.

To produce a cross-sectional image, depth information is obtained by rotating the source and detector

array around the body axis while taking projections

of the same section from several hundred different

angles. The data from each projection are “digitized”

and processed. A series or “stack” of contiguous CT

images contains all the data necessary for constructing a variety of quasi-three-dimensional forms (75).

CT scanning devices help overcome two limitations

of standard X-ray equipment. First, they allow the

diagnostician to obtain a view of a cross-section of the

body, as opposed to a projection that provides only

information on the total accumulated attenuation of

the X-ray beam as it passes from one side of the body

to the other. A tumor or lesion directly behind a bone

as the body is viewed may not be detectable in a standard X-ray. Also, standard X-ray equipment usually

cannot determine the depth of a tumor or lesion, but

a cross-sectional view can. In addition, because the

detector absorption data are digitized and can be processed, greater contrast resolution is possible (as explained in the discussion of image data processors

below). CT scanners are extremely important in detecting tumors, in determining the optimal path for radiation therapy, and in other uses.

General Demand Characteristics

Supplies v. Equipment Costs.—Accurate data are

not available on the annual costs of supplies for CT

scanners. However, because these scanners are much

more expensive than standard X-ray equipment, and

because they use digital image recording rather than

expensive X-ray film, the cost of their supplies should

be smaller relative to equipment costs compared with

standard X-ray equipment.

Equipment Purchase Price.—The list price of a CT

scanning device generally varies between $600,000 and

$1,500,000 depending on its manufacturer and characteristics. These prices have begun to fall as the market has matured and the cost of data-processing components has fallen (40).

Servicing and Technical Support.—CT scanners are

extremely sophisticated equipment and, to perform

properly, must be very finely adjusted. (The VA hires

an outside consultant, a physicist, to inspect installed

CT scanners.) As a result, both technical support and

servicing are extremely important. One vendor quoted

a price of $85,000 for the annual service contract on

a CT scanner with a list price of about $1 million, or

about 8.5 percent of the equipment’s purchase price

(4,25,42,86).

The VA Market: Demand and Supply

VA Demand.—CT scanning devices are purchased

through the VAMKC, rather than through the usual

FSS, decentralized contracts, or direct delivery programs (all described in ch. 5). Purchases of CT scanners must be approved by the VA Central Office in

Washington, DC. The Central Office has ranked VA

hospitals by their need for CT scanners. Funds for the

scanners are budgeted in the VA Central Office and

are provided centrally, not as usual through hospital

funds. Purchases are delayed until a sufficient number are possible, so a group purchase can be made with

significant savings. The VAMKC then requests bids

for equipment meeting its specifications.
89

In 1982 the VAMKC requested a bid for purchase

of 23 CT scanners, 21 for VA hospitals and 2 for the

Air Force. The list price for the equipment of the winning bidder was $1,359,000 per unit; the VAMKC procured the equipment at $917,730 per unit. An additional $4.4 million worth of CT scanners were bought

in the same year from another company. In 1983, the

VAMKC purchased 24 CT scanners through similar

bidding. In that year, the list price for the equipment

purchased was $1,383,500 per unit; the VAMKC procured the equipment at $829,950 per unit (40).

CT scanners have accounted for a growing proportion of VAMKC-procured equipment costs. In 1979

CT scanners represented 6.1 percent of non-FSS equipment expenditures; in 1980, 13.1 percent; and in 1981,

28.2 percent. In 1982 CT scanners accounted for 20.2

percent of total non-FSS equipment procurement, a

somewhat smaller percentage than the year before, but

a higher total dollar commitment, $25,512,122 compared to $8,386,270. Since 1980 CT scanners have accounted for more VAMKC procurement dollars than

any other category of equipment except X-ray equipment, with most of this CT equipment going to VA

hospitals (table C-2). In 1983 VAMKC procurement

of CT scanners totaled $19,918,800 (40,132).

VA Demand Relative to the National Market.—As

mentioned above, CT scanners have not been purchased through the usual VAMKC annual contracts.

As a result, there is much less information to estimate

the relative importance of VA procurement in the national market. According to a representative of

Siemens, the CT market is now about 600 units per

year (for all manufacturers), down from 750 per year

a few years ago (86). If this number is accurate,

VAMKC procurement probably does not account for

more than 4 to 5 percent of total national expenditures

on CT equipment.

In this market, the VAMKC may also not be some

manufacturers’ largest account. Nonetheless, the total

dollar volume of VAMKC CT procurement—almost

$20 million–may be high enough for VAMKC’S proTable C-2.—Annual VA Marketing Center Procurement

of CT Scanning Equipment, 1979.82

1979 1980 1981 1982

Total annual CT

procurement by

VAMKC ($ millions) . . . $3.2 $4.5 $8.4 $25.5

VA proportion of total

VAMKC procurement . . 100°/0 20.70/o 88.40/o N.A.

SOURCES: U.S. Veterans Administration, Marketing Center, Radiological and

Nuclear Equipment and Supplies Division, unpublished data, Hines,

IL, 1983; and U.S. Veterans Administration, Marketing Center, Radi.

ological and Nuclear Equipment and Supplies Division, unpublished

information from vendors’ 1982 contracts, Hines, IL, 1983.

curement practices to influence manufacturers’ behavior, if not as much as in other markets.

VAMKC Demand Variability .—VAMKC procurement of CT scanning devices has fluctuated from year

to year, but much of this fluctuation seems more

appropriately characterized as growth rather than demand instability, certainly in the period from 1979 to

1982. 111 any case, given that VAMKC procurement

is a small fraction of the national market, a drop in

VAMKC orders, such as available data indicated for

fiscal year 1983 (from 25 to 24 scanners), is unlikely

to have an impact on manufacturers.

Suppliers to the VA Market.—A number of major

companies produce CT scanning equipment, including

CGR, General Electric Co., Picker International, and

Siemens. Since 1979 the VAMKC has purchased CT

equipment from General Electric, Pfizer, and Picker

International (Pfizer has since left the CT market) and

some equipment from Technicare, a subsidiary of

Johnson & Johnson, for use with CT equipment. In

1982 a number of companies responded to the

VAMKC request for technical proposals to supply CT

equipment. Only two of those companies’ proposals

met the necessary technical specifications. Those two

companies were then issued an invitation for bid. Of

the two companies that received an invitation for bid,

only one company’s product passed the testing for

specifications, and that company received the contract.

(There was a second round of bidding in 1982, with

different specification requirements, to replace five CT

units purchased in 1979. ) In 1983 three companies submitted technical proposals that met specification requirements; those three companies received an invitation for bid. One of the three companies’ products did

not pass testing, and the contract was given to the

lower of the two remaining bids. Thus, in both 1982

and 1983, one firm received either all or most of the

orders (40).

It is difficult to say whether the number of potential CT equipment suppliers to the VA market will increase or decrease in the next few years. As the market matures, it is likely that some firms now active will

exit the market. On the other hand, it is likely that

the equipment of more of the firms remaining will meet

VAMKC specifications. Thus, it is hard to predict

whether competition in the VA market will increase

or decrease.

Digital Image Processing Equipment

Digital image processing is a technology that reconstructs and enhances images based on data stored electronically in digital form, The system is perhaps best

explained by comparing it with the technologies it is
replacing. In traditional projection radiography, for

example, the X-rays passing through the subject strike

an X-ray sensitive photographic film. The chemicals

on the film are exposed (i. e., darkened) at particular

locations depending on the attenuation of X-ray beams

as they pass through the subject on their way from

their source to the film. In a digitized projection Xray system, the photographic film is replaced by a grid

of electronic detectors that transmit their data on Xray exposure to a computer, where the data are recorded in digital form. These recorded data can then

be processed in a variety of ways and used in reconstructing images. (The familiar computer-printed pictures of the Mona Lisa and Snoopy are examples of

image production from digital data, though these computer programs are vastly less sophisticated than those

used in medical imaging. )

In digital fluoroscope, a photoemitter is connected

to an image-intensifying system, which creates a video

signal that is digitized, stored, and processed. A television monitor driven by a digital display controller then

converts the processed information into displayed

brightness (75).

Digital image processing offers a number of important advantages over standard radiographic and

fluoroscopic techniques and is being applied to ultrasound techniques as well. Notably, this processing can

vary the brightness and contrast of a picture so a

diagnostician can focus on particular features. As mentioned in the discussion of X-ray equipment, contrast

resolution is a problem in standard radiographic techniques, Because the film must record a wide range of

X-ray attenuation occurring between the source and

the detector, it is often difficult if not impossible to

distinguish two objects similarly opaque to X-rays in

an X-ray photograph. The advantage of digital image

processing is that signals representing a narrow range

of X-ray attenuation can be processed to obtain high

contrast. This enhancement is like that of a medical

thermometer compared to an outdoor thermometer.

The outdoor thermometer must record temperatures

anywhere from –30O to over 100° F, a very wide

range; a medical thermometer can be more sensitive

since it only covers a range from 94° to 108° F, Similarly, one may adapt a digital image to focus on a narrow range more sensitively.

There are other advantages of digital image processing as well. It can also be used for edge enhancement and to increase the clarity of the X-ray image.

Its greater sensitivity makes possible less X-ray exposure, and the time diagnosis takes is also reduced

by eliminating the time-consuming step of film development.

One of the most important medical applications of

digital image processing is in angiography (103). In

angiography, a catheter is threaded through a vein or

artery until properly positioned and a dye that is

opaque to X-rays is injected. Subsequent X-rays of the

injected region highlight the blood vessel passages, revealing arterial blockages, constrictions, and other

signs of atherosclerotic disease. Angiography requires

minor surgery, however, and is not without risk; an

average of 2 in 1,000 patients die from complications

(77).

Digital image processing substantially reduces the

risks of angiocardiography and arteriography. In either procedure, dyes injected into the bloodstream

begin to diffuse through the bloodstream, and using

standard X-ray techniques this meant that dye had to

be injected very close to the location of interest, requiring invasive surgery. Digital image processing,

however, can enhance the information about the flow

of dye. The new techniques can sense far lower

amounts of dye than standard equipment, which

allows the dye to be injected in peripheral veins. Very

revealing images of interior structures can be created

using digital subtraction. First, an X-ray image of an

area is taken before injecting the dye and the pattern

obtained is stored on computer disks or tapes. Then

the dye, usually iodine, is injected, and as the dye

passes through the area’s arteries, a television monitor displays a pattern representing the difference, point

for point, between the images before and after injection. In this way, a much less cluttered picture is created (58).

Another important advantage of digital image processing is that its operating costs are much lower than

those of standard radiography. It does not require expensive X-ray film, the annual costs of which can be

as great as the capital cost of standard radiographic

equipment. Also, because images are stored on such

media as magnetic tape or disks in very little space,

the large storage facilities now required are no longer

needed (25,37). In addition, the diagnostician can retrieve stored X-rays almost instantly from a computer

terminal.

Because of the enormous and rapidly growing advantages of digital imaging, the markets for radiographic and fluoroscopic equipment are now unstable.

One manufacturer’s representative predicted that the

entire imaging market could be captured by digital imaging within 5 years (25).

The VA Market: Demand and Supply

VA Demand.—In discussing VA demand for digital image processing equipment, it is necessary to distinguish between such equipment that is an integral
91

part of an X-ray system and that called “digital addon” equipment, which is appended to an existing system to “digitize” it. It is difficult to determine the extent of total VAMKC procurement of digital image

processing equipment from available VAMKC documents. The available documents indicate that in 1982

the VA purchased $342,261 worth of digital radiography equipment and $438,900 worth of digital fluoroscope equipment, for a total of $781,161, or just

slightly more than 0.6 percent of the total VAMKC

non-FSS expenditures for medical equipment. However, an unknown part of the expenditures for “X-ray

equipment” may actually represent such imaging

equipment purchased as part of a system (132). In this

discussion we will focus on VAMKC procurement of

digital “add-on” equipment.

The Problem of Mixed Systems.—Perhaps the most

important feature of the market for digital add-on

equipment is the problem of putting together the products of different companies into a coherent system.

VAMKC procurement personnel and manufacturers’

representatives indicate their concern about assigning

responsibility for equipment breakdowns, particularly

during the warranty period. They fear that when a system does not function properly, each of the companies

will place the blame on a component produced by the

others. In addition, there is the problem of coordinating the delivery of mixed systems, and especially, of

determining which manufacturer is responsible for

connecting the components. Finally, there are the

issues of service costs and the larger discounts typically

offered when the VAMKC purchases an entire system

from one manufacturer (40).

As a result of these complications, the VAMKC

strongly prefers to purchase complete X-ray systems

rather than purchase their components from different

manufacturers. When the VAMKC does purchase digital add-on equipment, it prefers to purchase this

equipment from the same manufacturer that produced

the system (40). This preference probably reduces the

number of vendors to the VA market, which may increase the costs of the digital add-on equipment. Available documentation does not indicate if the impact of

this preference is significant, and if it is, whether or

not the above-mentioned difficulties with mixed systems still make the preference for avoiding mixed systems the most cost-effective strategy.

Suppliers to the VA Market. -There are probably

30 or 40 manufacturers of digital image processing

equipment today (37). However, many of them produce only add-on equipment, and thus, for the reasons discussed above, may have some difficulty selling their products through VAMKC. In 1982 the

VAMKC purchased digital image processing equipment from only two companies (132).

Nuclear Diagnostic Equipment

In diagnostic nuclear medicine, pharmaceuticals

tagged with a gamma-ray-emitting isotope are administered to a patient. The steady-state or dynamic

distribution of the isotope in the body is then determined by an imaging system. The most common imaging system is the “gamma camera, ” which produces

a projection image. It is also possible to combine crosssectional techniques and isotope imaging in emission

computed tomography, in which one or many gamma

cameras rotate around the patient and collect and store

data for many projection images. Techniques like those

used in CT are then used to create cross-sectional

images.

Diagnostic nuclear medicine has a number of medical uses. It requires only a low radiation dose and is

particularly suited to the study of cardiac dynamics

and to whole-body imaging, which can determine the

extent of certain diseases (75). Nuclear medical equipment is commonly used in diagnosing thyroid dysfunction, using a radioisotope of iodine as the tracer.

The VA Market: Supply and Demand

VA Demand.—The VA and several other agencies

purchase nuclear medical equipment through the direct delivery program of the VAMKC’S Radiological

and Nuclear Equipment and Supplies Division. Nuclear medical equipment accounts for a variable but significant part of total annual VAMKC medical equipment procurement expenditures. In 1979 it accounted

for 19 percent of total non-FSS equipment expenditures; in 1980, 12.5 percent; in 1981, 18.1 percent; and

in 1982, 6.6 percent. Total expenditures for nuclear

medical equipment were $10 million in 1979, $4.3 million in 1980, $5.4 million in 1981, and $8.3 miIlion in

1982 (131,132).

The VAMKC manages direct delivery purchases of

nuclear diagnostic equipment for a number of agencies, including the VA, Public Health Service, Army,

Navy, Air Force, and other Government agencies. It

appears that the VA is not always the largest buyer

of nuclear medical equipment through the VAMKC,

In 1979 the VA accounted for 81.2 percent of total expenditures on nuclear medical equipment; by 1980 it

accounted for only 49 percent of the expenditures,

though it was still the largest buyer; and in 1981 the

VA accounted for only 32.4 percent of expenditures,

buying less than the Army (131). There is no breakdown of equipment purchases by agency in 1982 or

1983.

VAMKC Procurement Relative to the National Market.—VAMKC procurement of nuclear medical equipment accounts for a moderately significant part of the
92

national market. In 1982 VAMKC procurement totaled about $8.3 million. Based on the data that nuclear medical equipment vendors must provide the

VAMKC, it would appear that VAMKC procurement

in that year accounted for approximately 7 percent of

these vendors’ nuclear medical equipment sales (with

a range from about 5 to 10 percent) (132),

VAMKC Demand Variability .—VAMKC procurement of nuclear medical equipment has fluctuated from

year to year (see table C-3). The variability of nuclear

medical equipment expenditures is not as great as those

for X-ray equipment, but it is significant.

Suppliers to the VA Market.—Companies with

VAMKC annual contracts in the past 3 years include

(in alphabetical order) Elscint, Inc.; General Electric

Co.; MEDX, Inc.; Picker International; Raytheon;

Siemens; Technicare; and Toshiba Medical Systems,

All major manufacturers appear to have an annual

contract with the VAMKC.

It is difficult to assess the competitiveness of the nuclear medical equipment market. The four firms with

the largest market shares in 1982 accounted for almost

95 percent of VAMKC procurement, and the pattern

is similar in earlier years for which data are available.

With such high market concentration, the firms are

likely to recognize their mutual dependence, and vigorous price rivalry would not be expected.

However, other factors operating in the nuclear

medical equipment market suggest that this simple

structural measure may underestimate true competitiveness. First, in this market there is very rapid technological change. In such situations, firms tend to compete very vigorously in both product development and

pricing (78). Second, there have been notable changes

in the rankings of the top four firms in the VAMKC

market (table C-4).

Not only have the rankings of the firms shifted, but

as table C-5 shows, so have their market shares. (If

the firms were quite close to each other in market

shares, there could be significant movement in the

firms’ rankings without significant shifts in market

shares. ) Again, the greatest possible sum of the absolute values of market share changes is 200. The data

Table C-3.—Annual Percentage Change in

VA Marketing Center Procurement of

Nuclear Medical Equipment, 1979-82

1979-80 1980-81 1981-82

Total. . . . . . . . . . . . . . . . . . . -57.50/0 +25.9Y0 +54.80/0

VA only . . . . . . . . . . . . . . . . -74.3°/0 –16.7°/0 N.A.

SOURCE: U.S. Veterans Administration, Marketing Center, Radiological and

Nuclear Equipment and Suppiies Division, unpublished data, Hines,

IL, 1983; and U.S. Veterans Administration, Marketing Center,

Radiological and Nuclear Equipment and Supplies Dlvlsion, unpublished information from vendors’ 1982 contracts, Hines, IL, 1983.

Table C.4.—Changes in Rankings of Four Largest

Sellers of Nuclear Medical Equipment Through the

VA Marketing Center, 1979-82

1979 1980 1981 1982

ABB D

A D A

~CA C

DDC B

NOTE: The firm with the largest 1979 VA market share is identified as Firm A, that

with the second largest 1979 market share Firm B, etc.

SOURCES: U.S. Veterans Administration, Marketing Center, Radiological and

Nuclear Equipment and Supplies Division, unpublished data, Hines,

IL, 1983; and U.S. Veterans Administration, Marketing Center,

Radiological and Nuclear Equipment and Supplies Division, unpublished information from vendors’ 1982 contracts, Hines, IL, 1983.

Table C.5.—Sum of Absolute Values of Year-to-Year

Percentage Changes in Vendors’ VA Marketing Center

Nuclear Medical Equipment Market Shares, 1979.82

1979-80 1980-81 1981-82

Sum of absolute values. . . . . . 14.1 40.5 35.4

As a percent of maximum

possible value (200) . . . . . . . 7.0% 20.30/o 17.7%

SOURCES: U.S. Veterans Administration, Marketing Cater, Radiological and

Nuclear Equipment and supplies Division, unpublisheci data. Hines.

IL, 1983; and U.S. Veterans Administration, Marketing ‘Cente~:

Radiological and Nuclear Equipment and Supplies Division, unpublished information from vendors’ 1982 contracts, Hines, IL, 1983,

in table C-S suggest that firms are competing with each

other for market share, although, as discussed in the

section on X-ray equipment, other explanations are

possible.

The market concentration and market share data

point to opposite conclusions about competition in this

market. It is impossible, given available data, to assess

pricing rivalry in the VAMKC nuclear medical equipment market. However, though it may be difficult to

assess the static efficiency of this market, the pace of

technological change and improvement in product performance are consistent with high dynamic efficiency.

NMR Devices

NMR, or as it is also known, magnetic resonance

imaging (MRI), is based on the principle that information can be gathered on the composition of tissue

through its response to powerful magnetic fields. The

basic tool of NMR is an immense and extremely

powerful doughnut-shaped magnet that can enclose the

patient’s entire body. When subjected to magnetic

fields, hydrogen nuclei within the patient’s body align

themselves in parallel ranks, spinning like tops, and

wobbling or “processing,” as tops do, around their axes

of spin. The patient is then irradiated with a short electromagnetic pulse, which pushes the spinning nuclei
93

over on their sides. When the pulse subsides, the nuclei

return to their positions, reradiating in the process

some of the energy they had absorbed. Sensitive

receivers pick up this electromagnetic echo. The information about the tissue comes from the timing and

intensity of the signal, which depend on the amount

of fat or water in a tissue and the type of motion of

the nuclei. Computers then analyze the signals and

display a cross-sectional image of the area studied (1).

The techniques used for developing a cross-sectional

image are essentially the same as those used in CT

scanners, through digital data processing.

The advantage of NMR is that, unlike CT scanners,

NMR does not expose the patient to X-rays. NMR may

prove useful in diagnosing cancer and in detecting

brain abnormalities and possibly heart damage (56).

Demand and Supply

NMR (or MRI) devices have only recently received

approval of the Food and Drug Administration (FDA),

and thus are only beginning to be sold commercially.

Their cost is expected to be roughly that of CT scanning devices (56) or perhaps higher (86). According

to a recent estimate, by August 1984, 93 NMR units

were installed within the United States (84). It is widely

believed that NMR’s potential market is extremely

large. One manufacturer’s representative estimated

that the NMR national market maybe as large as $250

million to $300 million a year within 2 or 3 years (42).

Given the size of the potential market for NMR devices, a number of manufacturers have entered the

field, including General Electric, Philips, Picker, and

Technicare.

Through fiscal year 1983 only one NMR device had

been procured through the VAMKC, one for a clinical evaluation. This procurement is unlikely to affect

the market significantly. Performance specifications

were drawn up for the purchase, but they were based

on those of available products, and so should not have

affected product development (40).

Because NMR’s use in medicine is so new and has

so recently received FDA approval for clinical use, the

market is in its youth. However, NMR will likely have

a significant market within a few years. It would clearly be in the public interest for the VAMKC to begin

planning its NMR procurement policies.

PET Devices

PET is another technique for cross-sectional imaging. It is unique in producing images of chemical activity within the body, such as local metabolism. In PET,

positron-emitting isotopes of biologically significant

atoms—e.g., oxygen, nitrogen, or carbon—are produced using a cyclotron. These isotopes are then attached, or “tagged,” to a physiologically active material, such as glucose, and administered to the patient.

Finally, a scanner determines the postinjection distribution of the isotope, the information being processed

like that in a CT scan to produce a two-dimensional

image. The image is significant because the distribution of the isotope reflects the distribution, and therefore the utilization, of the metabolize (75).

Demand and Supply

PET has attracted attention in the popular press for

its potential in diagnosing metabolic disorders, brain

abnormalities, and cancer. It would appear to be a way

of observing abnormalities in body chemistry, with

great medical potential.

At present, however, there does not appear to be

a significant market developing for PET scanners. In

part, this probably reflects the expense of PET, perhaps $1 million for the PET scanner itself and as much

as another $2.5 million for a cyclotron to produce the

radioactive isotopes (1).

The VA has purchased two PET scanning devices

and apparently has no immediate plans to purchase

more, so VAMKC procurement practices have most

likely not affected whatever market this product has.

It is uncertain whether a market for PET will develop

later, but at the moment PET does not appear to be

an important issue for procurement planners.

Ultrasound Diagnostic Equipment

Ultrasound is generally defined as vibrations between 20 kHz and 30 MHz. The sound frequencies used

for most diagnostic purposes range from 1 to 12 MHz.

Such ultrahigh frequencies are produced by piezoelectric transducers that convert electrical energy to vibratory mechanical energy (sound). After a short sound

burst, the transducer circuitry is switched to act as a

receiver for returning sound or echoes, and for each

pulse of sound emitted the reflectivity of tissue along

the line of sound transmission is measured. The returning echo is converted to an electrical signal that is processed and stored in digital form.

In traditional ultrasound the echoes are displayed

on an oscilloscope, with the intensity of each echo represented by a correspondingly bright spot on the

screen. The position of the echo is displayed in the XY plane depending on the position of the transducer

and the transit time of the acoustic pulse. In more modern ultrasound equipment, the digitized information

can be processed with digital image processing to obtain a better picture of the target object. Moving the

sound beam through the tissues by moving the trans25-289 0 - 85 - 8
94

ducer is termed scanning. Using scanning techniques,

a series of parallel or orthogonal tomograms, which

are images of a slice or plane, can be assembled into

a three-dimensional image of an organ.

Ultrasound is extremely useful in diagnosing heart

disease and in detecting abnormalities of the liver,

kidneys, gallbladder, and lymph nodes in the abdomen

(72). It also has the very important attraction of

employing nonionizing radiation at low power levels;

no harmful effects have been found in humans in

almost 30 years of clinical application (72). However,

ultrasound has limitations. It requires a soft-tissue path

between the transducer and the region of study; intervening bone, air, or dense fat attenuates and distorts

the sound (60,72). In addition, ultrasound cannot effectively penetrate deep into tissue (about 22 cm is now

the practical limit) and thus cannot effectively analyze

problems in blood vessels or other parts deep within

the body (77).

General Demand Characteristics

Supplies v. Equipment Costs.—Ultrasound equipment is relatively inexpensive to operate. Costs of supplies and expendable are modest, perhaps at most onefifth or one-sixth of the equipment’s purchase price,

according to one industry source (60).

Equipment Purchase Price.—Ultrasound equipment

varies substantially in price depending on a system’s

capabilities. A system typically costs between $40,000

and $120,000, in the middle range for the diagnostic

medical equipment discussed here.

Servicing and Technical Support.—Servicing and

technical support are important to the proper functioning of ultrasound equipment. Manufacturers will frequently provide training in these areas to customers’

personnel, and service availability is one of the important factors affecting VA procurement of ultrasound equipment (60,85).

The VA Market: Demand and Supply

VA Demand. -Ultrasound equipment has been purchased through the VAMKC’S direct delivery program

since April 1983. Prior to that it was purchased

through decentralized contracts. From March 1, 1980,

to February 1981, such ultrasound procurement totaled

$6.84 million; from March 1,1982, to March 31,1983,

VAMKC procurement of ultrasound equipment totaled about $11.5 million; in 1983 it is expected to be

about $5 million (85).

Differences in contract, fiscal, and calendar years

make it impossible to calculate the proportion of nonFSS medical equipment expenditures accounted for by

ultrasound equipment. The $11.5 million spent on

ultrasound equipment in the 1982 contract year is

equal to about 9 percent of total VAMKC direct delivery equipment procurement costs in the 1982 Government fiscal year. The 1980 contract year ultrasound

procurement of $6.84 million is equal to about 20 percent of 1980 fiscal year direct delivery equipment procurement costs, although it was not included in the

direct delivery program at the time. The figure for 1983

is likely to be much smaller, perhaps 5 to 10 percent

(85,131,132). Exact data are not available, but according to the VAMKC contract specialist for ultrasound,

the VA accounts for about 60 percent of total VAMKC

procurement of ultrasound equipment, with the Army,

Air Force, and Public Health Service accounting for

most of the rest (85).

VA Demand Relative to the National Market.-The

VA accounts for a very small proportion of the national demand for ultrasound equipment. Several

sources estimated that national sales of ultrasound

equipment in 1982 were about $400 million (60,74).

Assuming VA procurement to be 60 percent of

VAMKC procurement, VA expenditures represent not

even 2 percent of the national market; VAMKC procurement altogether was probably not more than 3

percent. National sales of ultrasound equipment are

expected to be less in 1983 than in 1982, about $285

million. However, VAMKC ultrasound procurement

is expected to fall even more, to about $5 million, or

less than 2 percent of the market. Although VAMKC

procurement may account for a larger proportion of

some vendors’ sales than this, no vendor indicated on

its annual contract that VAMKC procurement accounted for more than 5 percent of the company’s

ultrasound equipment sales (85).

VAMKC Demand Variability .-VAMKC ultrasound procurement expenditures vary substantially

from year to year. The decline from contract year 1982

to contract year 1983, for example, is expected to be

greater than 55 percent. More than half the manufacturers’ representatives interviewed indicated that

VAMKC demand variability is greater than that of

most private customers (55,60,74,87).

Suppliers to the VA Market. -The capital requirements to enter the ultrasound market are smaller than

for many other kinds of diagnostic medical equipment,

and many small companies have entered the market

in recent years. This is reflected in the VAMKC market, where more than 15 companies will have annual

contracts this year (85).

Although some companies do specialize in particular ultrasound applications (abdominal, cardiac, etc. )

there appears to be substantial competition in the market. In contrast to the VAMKC’S procurement of other

kinds of medical equipment discussed here, its procure-
95

ment of ultrasound equipment is very evenly distributed among the vendors on contract. The four vendors with the largest shares of the VAMKC market

accounted for only slightly more than half of the

VAMKC market in 1982; sales of the vendors ranked

seventh and eighth totaled almost as much as those

of the vendor with the largest share; and even the lowranked vendors accounted for significant shares of the

VAMKC market (85). Consistent with this low market concentration, the relative ease of entry into the

market, and the industry’s very rapid technological

change, the ultrasound equipment market was described by the VAMKC contract specialist as “fiercely

competitive” (85).

Electromedical Equipment

The 5-digit SIC category Electromedical Equipment

(SIC Code 36932) includes a wide variety of diagnostic, therapeutic, and patient monitoring equipment. In

this discussion, VA procurement of electrocardiograph

(ECG), electroencephalograph (EEG), and patient

monitoring equipment is examined.

In electrocardiography, electrodes attached to the

chest and extremities measure changes in the electrical potential of the body’s surface, which are associated with the electrical activity accompanying the action of the heart. Thus, such measurements can detect

heart abnormalities. In electroencephalograph, electrodes attached just under the scalp detect electrical

activity in the brain. EEG recordings are used in

diagnosing epilepsy, stroke, tumors, and other brain

abnormalities. ECG and EEG recordings were originally made on paper rolls (63), but digital recording

techniques are replacing the old recordings, so that

ECG and EEG equipment can easily be used in patient

monitoring as well as diagnosis.

Patient monitoring equipment is used to monitor parameters reflecting a patient’s medical condition, such

as blood pressure, pulse, brainwave activity, temperature, and respiration. Modern patient monitoring

equipment is based on semiconductor chip technology,

and often incorporates microcomputer components.

Patient monitoring equipment varies in complexity and

cost, from stand-alone units that monitor one or a few

functions for a single patient to central station systems

that can monitor a wide range of physiological indicators for a very large number of patients and transmit

the data for display to a single location, such as a

nurses’ station (20).

General Demand Characteristics

Equipment Purchase Price.—Stand-alone EEG,

ECG, and patient monitoring units range from $2,000

to $16,000, while systems can cost anywhere from

$20,000 to several hundred thousand dollars depending on their size and complexity (20).

Servicing and Technical Support .—According to an

industry source, most EEG, ECG, and patient monitoring equipment does not require much servicing, and

the annual cost of a full-service contract is about 5 to

10 percent of the equipment’s purchase price.

The VA Market: Demand and Supply

VA Demand .-Patient monitoring systems are purchased through the VAMKC direct delivery program;

stand-alone monitoring units and EEG and ECG equipment are purchased through the FSS program.

In July 1982 the responsibility for procurement of

patient monitoring systems was transferred within the

VAMKC. Unfortunately, the procurement data were

not similarly transferred, and it was not possible to

construct a historical series for this kind of equipment.

In addition, according to VAMKC personnel, FSS procurement data for stand-alone EEG, ECG, and patient

monitoring equipment are also not readily available

for 1981 and 1982 (49).

FSS procurement of such stand-alone equipment

during the first three quarters of the 1983 contract year

(beginning August 1982) totaled $4.6 million (49).

Assuming that this figure can be extrapolated for the

year (multiplying it by four-thirds), annual FSS procurement during the contract year should be about

$6.2 million.

In fiscal year 1982 (beginning October 1981),

VAMKC procurement of patient monitoring systems

under the direct delivery program totaled $12.2 million, which suggests that expenditures for such systems

are about twice those for stand-alone equipment. In

the same year, procurement of patient monitoring systems represented close to 10 percent of total equipment

procurement under the direct delivery system (132).

The lack of data makes it impossible to calculate corresponding figures for earlier years.

VAMKC Procurement Relative to the National Market.—According to one industry source, the national

market for patient monitoring systems is about $220

million, and that for stand-alone EEG, ECG, and patient monitoring units about $100 million (20). If the

VAMKC figures of $6 million for stand-alone equipment purchases and $12 million for monitoring system purchases are in fact representative, then VAMKC

procurement accounts for about 5 to 6 percent of national sales for both categories of equipment, Because

the data are incomplete, and because VAMKC procurement of other medical equipment varies greatly

from year to year, it is best to consider these estimates

as rough ones.
Suppliers to the VA Market.—Although a number

of firms produce patient monitoring equipment, the

VAMKC market is dominated by a few large firms.

In fiscal year 1982, the four firms with the largest

shares of VAMKC direct delivery procurement accounted for close to 95 percent of such procurement,

and a single firm accounted for much of the 95 percent (132). The national market for patient monitoring equipment is also highly concentrated. Some companies appear to have a much higher share of the

VAMKC direct delivery market than they do of the

national market, while for other companies the reverse

is true. Based on information in 1982 annual contracts,

one vendor’s share of the direct delivery market was

only 7 percent of its share of the national market, while

another vendor’s direct delivery market share was

almost seven times as large as its nationaI market

share. This is a puzzling phenomenon, and to understand it would require a closer investigation than is

possible here; however, since it may reflect some

positive or negative feature of procurement rather than

chance, it may warrant further study.4 It was not possible, given available date, to calculate the market concentration of the FSS patient monitoring equipment

market.

Despite the apparent market concentration and the

existence of a dominant firm, Hewlett-Packard, both

the VAMKC and industry sources characterized the

firms in the patient monitoring equipment market as

very competitive (20,47,49,92).

Hemodialysis Equipment

Dialysis is the transfer of solute (a dissolved substance) across a semipermeable membrane. Hemodialysis, through “artificial kidney” machines, is dialysis

to purify the blood of people whose kidneys have partly or completely ceased to function. In such machines,

blood is circulated on one side of a semipermeable

membrane while a special dialysis fluid is circulated

on the other. The dialysis solution must closely match

the chemical composition of the blood. Metabolic

waste products, such as urea and creatinine, diffuse

through the membrane into the dialysis fluid and are

discarded, while substances needed by the body (e.g.,

sodium chloride) are prevented from diffusing by including the same substances in the dialysis fluid (63).

‘One possible explanation is that VA hospitals are generally larger,

university-affiliated hospitals. Certain vendors do better in this select market than they do elsewhere (10).

The VA Market: Demand and Supply

VA Demand. -Manufacturers contract with the FSS

division of the VAMKC to provide hemodialysis

equipment and supplies to Government agencies at

specified prices. These prices, along with product descriptions, provide the supply schedules that VA hospitals and other Government agencies use to order

equipment and supplies directly. Most schedules are

so-called multiple award schedules, specifying several

different vendors’ versions of an item so that buyers

can choose among them. Multiple award schedules are

governed by a most favored customer clause (described

later below). Less frequently, the FSS program awards

contracts through competitive bidding and makes a

single award (47).

The VA spends a relatively modest sum on hemodialysis equipment relative to its expenditures on

hemodialysis disposable and supplies. One manufacturer estimated that in the national market equipment

costs are onlys to 8 percent of total dialysis costs, with

disposable, consumables and personnel costs accounting for the remainder (17).

According to the FSS Solicitation for Offers for

1984, estimated expenditures for hemodialysis equipment for 1984, which are based on actual 1983 expenditures, are slightly under $650,000 (129), or about onehalf of 1 percent of total annual VAMKC equipment

procurement expenditures. This figure seems unrealistically low. At approximately $7,000 per machine

(the price quoted by two manufacturers), the VA

would have purchased only 93 machines. However,

the VA now has about 1,900 machines in use, and the

average machine is replaced afters years; this implies

a 20-percent turnover rate (17) and thus that the VA

should be buying about 400 machines annually. In estimates of the VA’s importance in the national market,

it will be assumed that a normal annual procurement

is between 10 and 20 percent of stock or 200 to 400

hemodialysis machines per year. If this is the case, then

annual expenditures on hemodialysis equipment are

between 1 and 2 percent of total annual medical equipment procurement.

VA Demand Relative to the National Market.—

There are approximately 25,000 hemodialysis machines in use in the United States today; of these, about

1,900, or 7.6 percent, are in use in VA installations.

The market for new machines is a function of depreciation and obsolescence of existing equipment and

the growth of new facilities. More than one manufacturer estimated that the size of the national market was

about 4,000 to 5,000 machines per year at an average

unit price of between $7, 000 and $8,000, or between

$28 million and $40 million (17,73). If FSS procurement of hemodialysis equipment is roughly propor-
97

tional to its share of dialysis equipment now in use,

then it should account for about 7 to 8 percent of the

national market. It is probably safe to say that FSS

procurement represents between 5 and 10 percent of

the national market.

Suppliers to the VA Market .—The national market

for hemodialysis equipment is highly concentrated; the

three largest companies account for about 90 percent

of total market sales, and only five firms account for

virtually all the national sales. Data are not available

to calculate manufacturers’ market shares of the

VAMKC FSS market, but sales in this market appear

as highly concentrated as in the national market

(17,73,135).

Analysis and Implications for Policy

The Importance of VA Procurement in

the National Market

The VA’s proportion of the national market for

medical equipment, considered in isolation, is a

misleading measure of the market leverage that the VA

exerts. VA procurement is channeled through the

VAMKC, which also acts as contract negotiator and

administrator for the Public Health Service, the armed

services, and other Government agencies. The combined procurement of all these groups, then, determines the buying power of the VA. As a result, the

rest of this discussion will consider all VAMKC procurement, rather than its procurement for the VA

alone.

VAMKC procurement accounts for a significant, but

not overwhelming, proportion of the national market

for most types of equipment examined in this appendix; in some of the markets, the VA proportion is very

modest. Based on data in VAMKC annual contracts,

VAMKC procurement accounts for 5 to 10 percent of

the national markets for X-ray, nuclear diagnostic, and

hemodialysis equipment, about 5 percent of the national market for EEG, ECG, and patient monitoring

equipment, 3 percent of the national market for CT

scanning equipment, and 1 to 2 percent of the ultrasound equipment market. The VAMKC share of the

national market for digital image processing equipment

is uncertain, but most likely is very small (40,131,132).

Thus, although the dollar amounts of VAMKC procurement may be significant, and vendors are certainly

anxious to maintain their VAMKC market share,

VAMKC procurement does not dominate any market

examined here.

Conditions of Supply

Numerous structural characteristics of the market

can be said to shape observed market outcomes (78),

but only a few of the most important will be discussed

here.

Barriers to Entry

For some of the equipment categories examined, particularly CT scanners and radiographic and nuclear

diagnostic systems, the capital requirements of the

market appear to preclude the entry of small firms.

The servicing and technical support of some products

are so important that the firms that cannot offer wellorganized nationwide support suffer a severe disadvantage.

Of course, all these markets are not entirely closed

to small firms. There is enormous technological change

occurring in almost all the markets examined, much

of it in computer applications to diagnostic medicine,

and in software rather than hardware. In such markets, a small firm can succeed if it finds a niche. (On

the basis of reports of mergers and acquisitions, the

result of that success is often being purchased at an

attractive price by a larger firm in the medical equipment market. )

Market Concentration

Market concentration, the proportion of sales

accounted for by the largest sellers in a particular market, is quite high in almost all the medical equipment

markets examined here. In the VAMKC markets for

X-ray, nuclear diagnostic, patient monitoring, and

hemodialysis equipment, the four largest firms in each

class accounted for 90 to 95 percent of procurement

expenditures within their classes. Procurement of CT

scanners has been based on competitive bids, and the

same firm won the contract in both major bids. Only

in the market for ultrasound equipment are VAMKC

procurement expenditures spread more evenly over a

large number of companies, Generally, such high market concentration is associated with a lack of high

pricing rivalry, but it is not clear that this is the case

for the industries examined here.

Market Share Instability

High market concentration can sometimes be a

misleading indicator of firms’ conduct in the market.

In both the X-ray and nuclear diagnostic equipment

VAMKC markets, market share instability suggests

that rivalry among the firms is greater than would be

predicted on the basis of market concentration.
98

Summary of Competitive Conditions

Although the medical equipment markets examined

in this appendix certainly do not conform to the picture of perfectly competitive markets, the volatility of

market shares and the very rapid pace of technological change suggest that these markets still function

competitively. In a few cases, rivalry may be based

more on product performance than price. Two of the

VAMKC markets, for ultrasound diagnostic and patient monitoring equipment (the first of which is highly

concentrated and the second not), were both described

by VAMKC personnel as extremely competitive (49).

The Impact of VAMKC Procurement on

Vendor Pricing

The impact of VAMKC procurement on market outcome depends not only on supply conditions and the

level of VAMKC procurement, but also on the procedures and policies that govern VAMKC procurement,

the most important of which are analyzed below.

Brand Name Justification .-When a VA hospital is

authorized to buy equipment, the VAMKC forwards

to the hospital a list of suppliers on contract whose

equipment meets the specifications of the purchase order, ranked by order of cost. By regulation, the hospital is required to buy from the least-cost supplier

unless it can justify purchasing from a different source

(e.g., service availability). This requirement is called

brand name justification. Because suppliers are anxious to maintain their share of the VAMKC market,

the requirement almost certainly lowers prices.

Firm Fixed Price Clause.—Under the terms of a

VAMKC contract, suppliers cannot increase prices

during the contract year. Furthermore, if they lower

the price at any time during the year, the lower price

holds for the remainder of the year. The firm fixed

price clause may or may not result in lower procurement costs. Suppliers offer temporary price discounts

in the private market to promote their products. Normally, promotional offers would probably be extended

to the VAMKC as well, but because of the firm fixed

price clause, suppliers are reluctant to make them.

Even the requirement that prices not be increased during a contract year has indeterminate effects on procurement costs. While the requirement does protect

those who buy through the VAMKC from price increases, suppliers may charge a higher price at the start

to ensure a profit. Altogether, it is extremely difficult

to determine the net effect of the firm fixed price clause.

Public Disclosure Requirements. -By law, the public has access to VAMKC procurement prices for medical equipment. Both theoretical and empirical

evidence support the view that this results in higher

procurement costs for the VAMKC. First, a firm’s

benefits from cutting its price are in part a function

of the so-called retaliation lag, the length of time before

rivals learn of the price cut and cut their own prices

in response. Price disclosure requirements reduce the

retaliation lag, and therefore discourage price cutting

in the VAMKC market. Because other buyers of medical equipment also have access to the price data, the

VAMKC price may be the private buyer’s target in

pricing negotiations, which can also inhibit price cutting in the VAMKC market. Finally, suppliers of Xray, nuclear medical, patient monitoring, and hemodialysis equipment have stated that the prices offered

to the VAMKC are higher because of the contract

disclosure requirement. Some suppliers said the

disclosure requirement did not affect pricing in their

markets, for the reason that pricing information was

widely available from other sources.

No Volume Commitment.—Having a contract with

the VAMKC does not imply any contractual volume

commitment in procurement. For two equipment categories, X-ray equipment and nuclear diagnostic equip

ment, volume commitment does not appear to be an

important consideration. For the other equipment categories examined here, volume is a major influence on

pricing.

There are two likely reasons why volume commitment would be unimportant in some industries and

very important in others. First, when equipment is purchased from stock, and is fairly standardized, a volume commitment can reduce manufacturing costs that

can be passed on to the buyer, but not when the equipment is custom made. Second, the effects of volume

commitments seem to depend on whether equipment

is expensive or inexpensive. When equipment is inexpensive, the costs of preparing contracts and marketing are higher relative to the purchase price of the

equipment. In this situation, the savings that come

with volume commitment are more significant. Some

suppliers indicated that they might lower their prices

by 5 to 10 percent in exchange for a volume commitment. One supplier in the ultrasound market, stated

that a purchase of even IS to 20 units would suffice

for a larger price discount than is now offered the

VAMKC.

Most Favored Customer Clause. -Under the terms

of a VAMKC contract, suppliers are prohibited from

selling their equipment under a “like contract” to any

private buyer at a price lower than that offered the

VAMKC. If a lower price is offered to a private buyer,

this price must be given to the VAMKC for the rest

of the contract year. This stipulation helps ensure that

the VAMKC’S clients benefit from any vendor competition in the private market,
99

Although the strictness with which the most favored

customer clause is interpreted varies from one equipment category to the next, it almost certainly reduces

VAMKC equipment procurement costs. In a few markets, private buyers are offered lower prices than the

VAMKC when they make contractual volume commitments, on the grounds that these are not “like contracts, ” and the effect of the clause is obviously less

in those markets. The most favored customer clause

can greatly influence private buyers, as discussed

below.

Informal Procedures. -VAMKC personnel said they

were reluctant in practice to purchase mixed medical

equipment systems, those in which items of different

manufacturers are interconnected. The most important reason for this is the difficulty of assigning financial responsibility for repairs under warranty, in addition to that of determining responsibility for actually

making the interconnections. Unfortunately, this VA

policy may practically eliminate many smaller companies in procurement, causing higher initial procurement costs. The reluctance to purchase mixed systems

is based on experience, but the value of this policy

should be reviewed periodically.

The Impact of VAMKC Procurement on

Vendor R&D

In contrast to prosthetic devices, which veterans

may have special needs for and the VA has actively

developed and procures with great leverage, the categories of medical equipment examined here are ones

that the VA and VAMKC affect relatively little. Of

the various VAMKC procurement mechanisms that

could influence vendors’ research and product development, only three seem to exert any significant impact, and of the three, one type is rather indirect.

Specifications. -The VAMKC can and does influence product development through specifications.

These are often developed from industry standards or

based on the characteristics of products already on the

market. To maintain their share of the VAMKC market, firms must produce equipment that satisfies the

specifications, and some vendors in the markets for

X-ray equipment, nuclear diagnostic equipment, CT

scanning devices, and patient monitoring equipment

stated that they altered their products to meet the requirements (though most of these equipment modifications are incremental changes in performance, not fundamental improvements in product design). Different

manufacturers’ products have different strengths. It is

a great advantage for a manufacturer to have VAMKC

equipment specifications “written to its own machine, ”

as discussed below.

Product Evaluations.—The VAMKC’S Testing and

Evaluation Staff evaluates some medical equipment

and supply items and makes the results available to

the public. According to the director of this program,

these results are heavily used (66). It is impossible to

quantify the effect of this program on manufacturers’

development activities, though no doubt there is some.

Indirect Effects.—Within the limitations determined

by its shares of the various medical equipment markets, VAMKC procurement can encourage manufacturers’ R&D to the extent that it embraces new technologies. For the most part, vendors characterized

VAMKC procurement as moderately progressive in

this regard. The VAMKC has a policy of not purchasing equipment that is not commercially available and

already in clinical use. Thus, VAMKC procurement

is not “state of the art” in most instances. However,

the fact that most VA installations do attempt to have

up-to-date equipment probably has some small positive impact on the profitability, and therefore the extent, of manufacturers’ R&D.

Effects of VAMKC Procurement on

Private Buyers

VAMKC procurement practices may affect private

buyers of medical equipment in several ways. The

most important of these are its information on product evaluations and prices, and the most favored customer clause.

Product Evaluation Information.—As mentioned

above, the product evaluation information produced

by the VAMKC’S Testing and Evaluation Staff is extensively used. It must be assumed that the availability of such information leads to better informed medical equipment procurement by private buyers.

Availability of Price Information.—There is clear

evidence that the price information available from

VAMKC annual contracts and bids has sometimes influenced private buyers of medical equipment. A procurement director for a large, private, centrally managed hospital group stated that in one case, he “insisted

on a better deal because the VA got a better deal. ” At

the very least, the VAMKC price may be the target

for private buyers of medical equipment.

Most Favored Customer Clause. -In contrast to the

effects of available product evaluation and price information, the most favored customer clause increases

the prices that private buyers must pay for medical

equipment. Interviews with both vendors and buyers

indicated that the clause affects prices of X-ray, nuclear diagnostic, ultrasonic, patient monitoring, and

CT scanning equipment. One private buyer indicated

that the most favored customer clause was a “major
100

problem” for him. Even when vendors offer lower

prices to buyers who make volume commitments, the

effect of the VAMKC is still felt.

The most favored customer clause limits price discounting in the private market. For this reason, although the stipulation may lower VAMKC procurement expenditures, it may actually raise Federal health

care expenditures through its effect on the equipment

and supply costs of private providers of health care.

The Federal Government’s role in financing health care

extends far beyond the agencies that procure medical

equipment and supplies through the VAMKC, and if

the most favored customer clause increases equipment

costs for private buyers who are reimbursed on the

basis of costs, it could increase rather than decrease

total Federal health care expenditures.

Manufacturers’ Views of

VAMKC Procurement

Manufacturers generally demonstrate a positive

view of VAMKC procurement. Other than the failure to make volume commitments, which was discussed “above, only three issues were identified as

clearly problematic: contract documentation requirements, the delay in processing procurement orders,

and the problem of “tailored specifications. ”

Contract Documentation Requirements. -Contract

documentation was the major complaint of many vendors, especially those of less expensive products, for

whom documentation costs are more significant relative to equipment purchase prices. Documentation

may also be a greater source of dissatisfaction among

smaller firms because larger firms are more likely to

have employees specializing in Government accounts.

Several manufacturers suggested that the VAMKC

maintain a central computer file for contract documentation and simply have vendors update the file when

necessary, rather than supply full documentation

repeatedly.

Delay in Processing Orders.—The time required for

the VAMKC to process orders was a major source of

irritation for some manufacturers. Apparently, the delays are important only for firms that normally sell

their equipment from stock. When manufacturers produce equipment to order, the order typically becomes

part of the order backlog (unless the market is extremely slack). In this situation, the time necessary for

processing the order is absorbed easily and does not

cause problems. When equipment is sold from stock,

however, the order can usually be filled immediately,

and, as a result, the bureaucratic delay is a major irritation. It is not clear what can be done to alleviate

this problem, except perhaps to computerize the procurement process more.

Tailored Specifications. -As mentioned above, different manufacturers’ products tend to have different

areas of strength. When equipment specifications are

written to the specifications of a particular manufacturer’s product, essentially as “tailored specifications, ”

other manufacturers are at a distinct disadvantage in

the VAMKC market. A number of manufacturers

from a variety of equipment markets complained of

this problem, suggesting that it warrants greater attention from VAMKC personnel. If specification requirements can be prepared with attention to their impact on the number of vendors able to compete,

procurement costs may be reduced without significant

sacrifice in quality of care.
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