VA Health Care: Opportunities to Significantly Reduce Outpatient Pharmacy Costs
Released: 1996-10-11T00:00:00

Letter

Background

Under current law, marketed medical products are classified into two groups: one group has about 65,000 products that are safe for consumers to use only as prescribed by a physician; the other group has over 300,000 products that, according to U.S. Food and Drug Administration standards, are safe for use on the basis of a manufacturer’s labeling instructions alone. Prescription products are available only in licensed pharmacies; whereas, other products are available over the counter at a wide variety of outlets. OTC products are generally for conditions for which users can recognize their own symptoms and levels of relief.

VA Pharmacies Provide an Assortment of OTC Products

VA physicians prescribed OTC products for veterans more than 7 million times in fiscal year 1995, accounting for about one-fifth of all VA prescriptions. VA pharmacies filled these OTC prescriptions over 15 million times, about one-fourth of all prescriptions filled.

VA physicians prescribed more than 2,000 different OTC products. VA pharmacies classify these products into three groups: medications (such as antacids), medical supplies (such as insulin syringes), and dietary supplements (such as Ensure). Medications account for about 73 percent of the 15 million OTC prescriptions filled; medical supplies for 26 percent; and dietary supplements for less than 1 percent.

VA Facilities Limit Physicians’ Prescription of OTC Products

VA’s network and facility directors have considerable freedom in developing operating policies, procedures, and practices for VA physicians and pharmacies. Some facility directors have taken different actions to limit the number of OTC products available through the pharmacies and the quantity of products veterans can receive. Little uniformity in the application of limits is evident, however.

In general, each facility has a pharmacy and therapeutics committee that decides which OTC products to provide based on product safety, efficacy, and cost-effectiveness. These products are listed on a formulary and VA physicians are generally to prescribe only these products.

Of the 2,000 different OTC products dispensed systemwide, individual pharmacies generally handled fewer than 480, with the number of OTC products ranging from 160 to 940. (See app. II for a list of VA facilities and the number of OTC products dispensed.) Medical supplies account for the majority of products, with pharmacies generally dispensing fewer than 10 types of dietary supplements. Moreover, three facilities’ formularies excluded dietary supplements.

The volume of OTC products dispensed also varied among facilities. Overall, OTC products accounted for about 25 percent of all prescriptions filled systemwide. But OTC products represented between 7 and 47 percent of all prescriptions dispensed at individual facilities. (See app. III for a list of facilities with the percentage of pharmacy workload represented by OTC products.)

Of note, 100 products accounted for about 70 percent of the 15 million times that OTC products were dispensed. VA pharmacies dispensed analgesics such as aspirin and acetaminophen almost 3 million times in fiscal year 1995. The most frequently dispensed OTC products included (1) the medications aspirin, acetaminophen, and insulin; (2) the dietary supplements Sustacal and Ensure; and (3) the supplies alcohol prep pads, lancets, and glucose test strips. (See app. IV for a list of commonly dispensed OTC products.)

Some Facilities Restrict OTC Products to Certain Veterans

Facilities have sometimes restricted physicians’ prescriptions of OTC products to veterans with certain conditions or within certain eligibility categories. For example, 115 facilities restricted dietary supplements to veterans who required tube feeding or received approval for the supplements from dieticians. For medical supplies, one facility provided certain supplies only to patients who received them when hospitalized, and another provided diapers only to veterans with service-connected conditions. One facility provided OTC medications only to veterans with service-connected disabilities.

Some Facilities Restrict Quantities of OTC Products

Facilities have sometimes restricted the quantities of OTC products that pharmacies may dispense. Twenty-eight facilities had restrictions that included limits on the quantity of OTC products dispensed within specified time periods or on the number of times a prescription could be refilled. For example, one facility restricted cough syrup prescriptions to an 8-ounce bottle with one refill. It had similar quantity restrictions for 15 other OTC medications. Another facility had a no-refill policy for certain medical supplies, such as diapers, underpads, and bandages.

Other Health Care Plans Provide Few, If Any, OTC Products

Unlike VA, other public and private health care plans cover few, of any, OTC products for their beneficiaries. The Department of Defense, for instance, operates a health care system for military beneficiaries, including active duty members, retired members, and dependents, that provides a more restricted number of OTC products than most VA facilities. In 1992, Defense eliminated all OTC products except insulin from its formularies to control costs. Subsequently, however, Defense reinstated a few OTC products in its formularies because physicians had begun substituting more expensive prescription medications. All beneficiaries are eligible for covered OTC products without a copayment.

The Health Care Financing Administration directs the Medicare and Medicaid programs that pay nonfederal health care providers for medical care for people who are elderly, disabled, or poor. Unlike VA, Medicare does not cover outpatient OTC medications for its beneficiaries. Like VA, Medicaid, at the option of the states, can cover OTC products for its low-income beneficiaries. The availability of OTC products varies by state, ranging from very few to a substantial array of products.

The Federal Employees Health Benefits Program offers a range of health insurance plans to federal employees and their dependents. The program requires plans to meet certain minimum standards, which include coverage for prescription medications but not for OTC products, except for insulin and related supplies. Blue Cross and Blue Shield and Kaiser Permanente, two of the larger plans involved, cover no OTC products other than insulin and related supplies. Both plans require beneficiaries to help cover the cost of prescriptions. Kaiser charges $7 for each prescription provided by its pharmacies. Blue Cross and Blue Shield requires beneficiaries to pay a $50 deductible and 15 to 20 percent of the cost of individual prescriptions obtained at retail pharmacies, depending on whether the beneficiaries have high- or standard-option plans.

Finally, most private health insurers generally do not cover OTC products, with a few exceptions such as insulin and insulin syringes. For example, the Group Health Cooperative of Puget Sound, in Seattle, provides insulin with a $5 copayment but no other OTC products. Before 1995, the Cooperative provided an OTC drug benefit but dropped it because no other similar health plan provided this benefit.

Federal Resources Finance Most of VA’s OTC Costs

Nationwide, VA pharmacies spent an estimated $117 million to purchase OTC products and $48 million to dispense them to veterans in fiscal year 1995. Of the total $165 million spent, about $85 million was for medications, with purchasing costs representing about two-thirds of that amount. About $74 million was spent for medical supplies and $6 million for dietary supplements, with purchasing costs accounting for most of these costs, as shown in figure 1.

Purchasing and dispensing costs differ among the product categories for two reasons. First, VA physicians generally provide more prescriptions with refills for medications than for supplies, thereby causing pharmacies to handle medications more often. Second, ingredient costs of medications are generally significantly lower than those of medical supplies.

VA recovered an estimated $7 million of total OTC costs (about 4 percent) through veterans’ copayments. By law, unless they meet statutory exemption criteria, veterans are to pay $2 for each 30-day supply of OTC medications and dietary supplements that VA provides. Veterans’ copayments are not required for any OTC products used to treat service-connected conditions. Also, veterans are exempt from the copayment requirement if they have low incomes.

Our analysis of veterans’ copayments and pharmacy costs at VA’s Baltimore facility showed that copayments offset 7 percent of costs for OTC products, as shown in table 1.

Federal funds financed most of Baltimore’s OTC product costs. Copayments collected covered a relatively small portion of these costs for several reasons. First, the $2 copayment collected for a 30-day supply represented only a portion of the ingredient, dispensing, and collection costs of most OTC medications and dietary supplements. Second, copayments were not required for medical supplies. Third, most veterans receiving medications and dietary supplements were exempted, and some nonexempt veterans did not make the copayments they owed.

For individual OTC products, veterans’ medication copayments covered from 4 percent to more than 100 percent of VA’s costs, depending on the type of product and the quantities dispensed. For example, a veteran’s medication copayment of $6 for a 90-day supply of a relatively expensive product, such as the dietary supplement Ensure, may cover about 4 percent of VA’s costs. In contrast, a veteran’s copayment of $6 for a 90-day supply of an inexpensive medication, such as aspirin, may cover more than VA’s total cost.

Opportunities to Reduce Federal Expenditures

A variety of actions could help reduce the level of federal resources devoted to the provision of OTC products. VA pharmacies could dispense considerably fewer OTC products. Also, savings could be achieved through more efficient OTC dispensing and copayment collection processes. Finally, the Congress could expand the copayment requirements to generate additional revenues.

Dispensing Fewer OTC Products Could Cut VA’s Cost

VA dispenses OTC products to veterans in several situations. In general, VA provides OTC products to treat veterans for service-connected disabilities. For the treatment of nonservice-connected conditions, VA provides OTC products for hospital-related as well as non-hospital-related situations. VA could save money by limiting the situations under which it dispenses OTC products.

We identified many hospital-related situations in which VA provided OTC products. For example, veterans received phosphate enemas, magnesium citrate, and prep kits for barium enemas in preparation for colonoscopies and other diagnostic tests. Following hospital stays, veterans received ostomy supplies after some surgeries, wound-care supplies, aspirin for heart surgery or angioplasties, and decongestants after sinus surgery.

We also identified situations in which VA physicians determined that a veteran would be likely to be hospitalized if OTC products were not used. These included diabetic veterans using insulin to control their blood sugar, veterans suffering renal failure using sodium bicarbonate tablets to balance their electrolytes, and veterans who have suffered heart attacks or strokes using aspirin to prevent secondary occurrences.

We identified, however, some non-hospital-related situations in which VA provided OTC products. These included antacids for heartburn, preparations for dry skin, acetaminophen for arthritis pain, and cough medications for common colds. Given that VA pharmacies filled prescriptions for such products over 2 million times last year, VA facilities have an opportunity to reduce costs significantly.

Increased Efficiency Could Reduce VA’s Costs

VA pharmacies could more efficiently dispense OTC products by reducing the number of times staff handle these items or by restricting mail service. VA facilities could also reduce costs by collecting medication copayments at the time of dispensing.

Reducing OTC Product Handling Costs

VA pharmacies could significantly reduce their OTC product dispensing costs of $48 million by providing more economical quantities of medications and supplies. Dispensing larger quantities would reduce the number of times that VA pharmacists fill prescriptions for OTC products, saving about $3 for each time a product would have otherwise been dispensed.

As previously discussed, VA physicians generally prescribe OTC products to treat acute or chronic conditions or to prevent future illness. While prescriptions for acute conditions are generally for periods of 30 days or less, OTC products used for chronic or preventive situations are generally prescribed for longer periods. For example, in fiscal year 1995, about 1,800 veterans received aspirin at the Baltimore pharmacy in quantities sufficient for at least 6 months.

VA allows pharmacies to dispense most OTC products in quantities sufficient for a 90-day supply. Not all pharmacies dispense OTC products in such economical quantities, however; 15 reported that they dispense OTC products in 30-day or 60-day supplies.

Limiting pharmacies to dispensing no more than a 90-day supply is uneconomical for certain high-volume OTC products used to treat chronic conditions or to prevent illness. Dispensing larger quantities in those instances seems to provide opportunities to reduce costs. For example, we estimate that VA’s Baltimore pharmacy could have saved over $8,000 if it had dispensed 180-day supplies of aspirin to certain veterans in fiscal year 1995. Assuming a prescribed usage of 1 aspirin tablet a day, supplying 180 tablets rather than 90 would be more consistent with the quantities veterans could purchase from local outlets, which generally stock packages containing between 100 and 500 tablets.

Reducing OTC Mailing Costs

VA pharmacies could also reduce dispensing costs by using mail service for only certain situations (such as for veterans who are housebound or must travel long distances to reach VA facilities) or requiring veterans to pay shipping charges. Last year, VA pharmacies spent about $7.5 million mailing OTC products to veterans.

VA pharmacies generally encourage veterans to use mail service when refilling most prescriptions for OTC products. Almost all pharmacies mail OTC products, relying on mail service for almost 60 percent of the 15 million times that OTC products were dispensed last year. Some pharmacies have already transferred most of their OTC prescription refills to VA’s new regional mail service pharmacies, and others will do so when additional regional pharmacies become operational.

While mailing costs vary, they can be particularly costly for liquid items or items that are dispensed in large packages or for long periods. For example, one facility reported that mailing a prescription of liquid antacid cost $2.88 and mailing a case of adult diapers cost $17.49. Mailing costs for a year’s supply of diapers could exceed $200. Some VA facilities cited high mailing costs as one of the principal reasons for eliminating OTC products from their formularies.

Several facilities have attempted to reduce costs by prohibiting the mailing of certain OTC products, such as cases of liquid dietary supplements and diapers. In addition, some facilities reported switching from liquid products to powders to reduce the weight—and associated mailing costs—for particular OTC products.

Streamlining Copayment Collections

A third way to reduce federal costs is to streamline copayment collections for OTC products. VA primarily bills veterans for copayments, unlike other providers that generally require copayments to be made at the time that the products are dispensed. VA facilities incur administrative costs to prepare and mail bills for copayments related to OTC products, costs that are significant in relation to total collections. A VA-sponsored study estimated that VA facilities spend about 38 cents for every $1 collected to prepare medication copayment bills, mail them, and resolve questions.

VA facilities generally send an initial bill and three follow-up bills to veterans who are delinquent in paying. For OTC products dispensed to veterans in fiscal year 1995, VA’s Baltimore pharmacy collected about 75 percent of the value of the copayments billed. The other 25 percent remained unpaid 5 months past the end of the fiscal year. The veterans who had not paid for these products had not applied for waivers and, as a result, VA officials view them as able to pay. If the Baltimore facility’s costs approximate the rate of 38 cents of every $1 collected, it incurred an estimated $26,000 to collect $67,000 for OTC products. The 25 percent of the medication copayments that were billed but went unpaid would have required additional costs to resolve. Because of the relatively small outstanding balances for most veterans, VA officials told us that they are reluctant to continue contacting nonpayers or to pursue legal or other actions to collect these debts.

VA has the option of not providing OTC products if a veteran refuses to make a medication copayment at the time the product is dispensed. VA officials, however, told us that it is not their policy to withhold OTC products from nonpayers for this reason.

Collecting the copayment at the time a product is dispensed could eliminate most administrative costs and increase revenues. Veterans requesting prescription refills by mail could enclose their copayments with their requests.

VA Facilities Could Increase Restrictions on OTC Products

VA facilities could adopt less generous policies for OTC products that would be more consistent with other health plans’ policies. This could be achieved by adopting such cost-containment measures as limiting the OTC products available or limiting quantities dispensed.

As previously discussed, each VA facility offers a different assortment of OTC products. For example, the most generous OTC product assortment contains about 285 medications, 514 medical supplies, and 14 dietary supplements. In contrast, the least generous assortment includes about 124 medications, 114 medical supplies, and 4 dietary supplements.

Over the last 3 years, 45 pharmacies have reduced the number of OTC products provided to veterans. The most commonly removed OTC products are medications such as soaps, skin lotions, and laxatives; dietary supplements such as Ensure, multiple vitamins, and mineral supplements; and medical supplies such as ostomy products and glucose test strips.

As part of VA’s ongoing reorganization, each of the 22 network directors has developed a list of OTC products dispensed by facilities operating in the network. In general, each network’s formulary more closely approximates the more generous OTC product assortments available in each network rather than the less generous assortments. Some network directors plan to review their formularies to identify products that could be removed.

Recently, 58 facilities told us that they are considering removing some OTC products from their formularies. Most are examining fewer than 10 products, although the number of products under review ranges from 1 to 205. Products most commonly mentioned include dietary supplements, antacids, diapers, aspirin, and acetaminophen. Ninety facilities are not contemplating changes at this time.

Interestingly, wide disagreement exists within VA about providing OTC products on an outpatient basis. For example, 23 facilities suggested that all OTC products should be eliminated. In contrast, 57 suggested that all OTC products should remain available. The other 70 facilities provided no opinion regarding whether OTC products should be kept or eliminated.

Many facilities pointed out that eliminating all OTC products could result in greater VA health care costs. This is because some OTC products are relatively cheap compared with prescription products that might be used or because they help prevent significant health problems that could be expensive for VA facilities to ultimately treat.

Facilities reported that were they to remove certain OTC products from their formularies, greater costs to VA would result. Of those 21 products reported, the most frequently mentioned were aspirin, acetaminophen, antacids, and insulin. These facilities also reported that 14 of the 21 products had prescription substitutes, among them, aspirin, acetaminophen, and antacids (insulin has no prescription substitute).

While 45 facilities removed OTC products during the last 3 years, only 6 of them said that they reinstated some products on their formularies. One facility stated that although it is commonly believed that limiting OTC medications would result in a higher use of more expensive prescription medications, it had not found this to be true.

As OTC products are removed from formularies, veterans will have to obtain the products elsewhere. Some VA facilities reported that they are using VA’s Canteen Service to provide OTC products that have been eliminated from their formularies. The Canteen Service operates stores in almost every VA facility to sell a variety of items, including some OTC products. For example, the Baltimore pharmacy has asked the Canteen Service store to stock about 13 OTC products that were recently eliminated from its formulary. The Baltimore pharmacy has already shifted most dietary supplements to the store.

VA Canteen Service stores do not use federal funds to operate and generally provide items at a discount, in large part because they do not have the expense of advertising. By allowing these stores to sell OTC products, VA may reduce both dispensing and ingredient costs for its pharmacies. At the same time, VA’s Canteen Service stores can provide many veterans with a convenient and possibly less costly option for obtaining these products than other local outlets.

Expanding Veteran Copayment Requirements Would Enhance Revenues

The Congress could reduce the federal share of VA pharmacies’ costs for filling OTC prescriptions by expanding copayment requirements. This could be achieved through (1) tightening exemption criteria, (2) requiring copayments for medical supplies, or (3) raising the copayment amount.

An example using VA’s Baltimore facility shows the different degree of impact these changes would have. There, as previously discussed, veterans’ copayments cover only 7 percent of the pharmacy’s OTC costs. If the copayment were to remain at $2 for each 30-day supply, changes that expand the number of veterans required to make copayments could increase the veterans’ share of costs up to 31 percent and thereby reduce the pharmacy’s share from 93 to 69 percent. In contrast, a copayment of about $9 would be needed to achieve a comparable sharing rate if existing exemptions were maintained.

Restricting OTC Copayment Exemptions

Some veterans are required to make copayments, while others are not. When the Congress established medication copayments in 1990, veterans with service-connected disabilities rated at 50 percent or higher were exempted for any condition as were other veterans who receive medications for service-connected conditions. In 1992, the Congress exempted veterans from the copayment requirement for nonservice-connected conditions if their income was below a specified threshold.

Veterans with service-connected conditions received about one-third of the 116,000 prescriptions filled at the Baltimore pharmacy. Of these, half had disability ratings of 50 percent or higher. Veterans without service-connected conditions received the remaining two-thirds, and about half of these veterans were exempt from making copayments because their incomes were below the statutory threshold. VA officials told us that while some low-income veterans may have difficulties making copayments, most had not seemed to have such a problem before the 1992 enactment of the low-income exemption.

The Baltimore pharmacy could have recovered an additional 7 percent of its costs if all veterans without service-connected conditions were required to make copayments for OTC products and an additional 11 percent if veterans were required to make copayments for OTC products provided for service-connected and nonservice-connected conditions.

Using a lower income level in determining which veterans are exempt from making copayments would also reduce the federal cost of providing OTC products. We found that VA facilities were inappropriately using an income level set at VA’s aid-and-attendance pension rate rather than at the regular pension rate. After we informed VA’s General Counsel of the practice, it issued a May 1996 opinion that the law requires VA facilities to use the regular pension rate as the income level. Using this lower income level should allow facilities to collect copayments from veterans who would not otherwise have been charged. (See app. V for VA’s General Counsel’s memorandum on the pension rate.)

Requiring OTC Copayments for Medical Supplies

Requiring copayments for medical supplies would enhance revenues. When the Congress established a copayment requirement for medications in 1990, it did not include a copayment requirement for medical supplies. VA officials told us that they know of no reason why medical supplies should be treated differently from other product categories in terms of copayments.

Nationwide, VA pharmacies dispensed medical supplies about 4 million times to veterans in fiscal year 1995, including about 36,000 times at the Baltimore pharmacy. Baltimore provided most supplies for 30 days or less, generally preceding or following a VA hospital stay. Many kinds of supplies, however, were provided for longer term conditions such as diabetic and ostomy supplies or diapers for those suffering from incontinence.

We estimate that the Baltimore facility could have recovered an additional 6 percent of its OTC product costs in fiscal year 1995 if veterans had been required to make copayments for medical supplies used to treat nonservice-connected conditions.

Raising the OTC Copayment Amount

If the exemptions and collection rates remain unchanged, facilities would need to charge a higher copayment to recover a larger share of their OTC product costs. For example, at the Baltimore facility, recoveries could be raised from 7 percent to 32 percent if the legislatively established copayment amount were $9 for a 30-day supply. If some changes are made to the exemptions, however, this target share could be achieved with a smaller increase in the copayment rate, as shown in table 2.

Conclusions

Most VA facilities provide more generous OTC product benefits than other health care plans. In addition, VA facilities provide other features, such as free OTC product mail service, that are not commonly available from other plans. As a result, VA facilities devote significant resources to the provision of OTC products that other plans have elected not to spend.

VA should be commended for instructing network directors to consolidate formularies. This action, which is currently in progress, has not yet achieved an adequate level of consistency or cost-containment systemwide because the networks’ current formularies approximate the more generous coverage of OTC products at some VA facilities. Moreover, some networks are permitting facilities to provide less generous coverage of OTC products than these networks’ formularies allow. This is likely to perpetuate the uneven availability of OTC products.

Given the disagreement among networks and facilities over the provision of OTC products, additional guidance may be needed to ensure that veterans have a consistent level of access to OTC products systemwide. In light of concerns about potential resource shortages at some facilities, tailoring the availability of OTC products for nonservice-connected conditions to be more in line with that at less generous facilities would seem desirable. This would essentially limit OTC products to those most directly related to VA hospitalizations.

VA facilities could also reduce their costs if they restructured OTC product dispensing and copayment collection processes. In general, most facilities dispense OTC product refills too frequently, mail products too often, and allow veterans to delay copayments too frequently. Although some facilities have adopted measures to operate more efficiently, all facilities could benefit by doing so.

VA facilities should be able to collect copayments for OTC products from more veterans if they use the appropriate income threshold to determine which veterans owe copayments. In May 1996, VA’s General Counsel concluded that the income threshold, as prescribed by law, should be the regular pension rate for most cases, not the higher aid-and-attendance rate. VA facilities had been using the higher aid-and-attendance rate.

Expanding veterans’ share of the costs would also help reduce federal resource needs. This could be achieved by expanding copayment requirements to include medical supplies, reducing the income threshold for veterans with nonservice-connected conditions, or increasing the amount of copayment required. In addition to enhancing revenues, such changes could also act as important incentives for veterans to obtain only the OTC products from VA facilities that they expect to use.

Finally, some VA facilities have had success using the Canteen Service stores to stock and sell OTC products that the facilities had removed from their formularies. This seems to be a reasonable alternative for providing OTC products to veterans at costs below those of other local outlets.

Matters for Consideration by the Congress

The Congress could reduce federal expenditures for OTC products provided to veterans by amending 38 U.S.C. 1722A to increase the medication copayment amount; expand the coverage of the medication copayment to include medical supplies; or lower the income threshold VA uses to determine which veterans owe medication copayments.

Recommendations to the Secretary

We recommend that the Secretary of Veterans Affairs require the Under Secretary of Health to limit OTC products for nonservice-connected conditions to those most directly related to VA hospitalizations or those considered most essential to prevent hospitalization; standardize the availability of OTC products to give veterans more consistent levels of access to them systemwide; reduce VA’s dispensing costs for OTC products by (1) providing, when appropriate, more economical quantities (more than a 90-day supply) of medications and supplies and (2) limiting mail service to certain situations; require veterans to make copayments at the time OTC products are direct facilities to apply the statutory income threshold to determine which veterans owe medication copayments.

Agency Comments and Our Evaluation

In commenting on a draft of our report, VA’s Under Secretary for Health agreed to standardize the availability of OTC products nationwide and estimated this will be done by May 1997. VA also agreed to use the statutory income threshold (the regular pension rate) instead of the aid-and-attendance rate to determine which veterans should be exempt from medication copayments. VA estimated that most veterans who were previously exempt from the medication copayment because of their income levels will now be required to make payments. However, VA expressed disagreement with our other recommendations.

Our recommendations were intended to identify ways that VA could conserve OTC pharmaceutical resources so that they could be redirected to provide more essential health care services for veterans. VA faces serious budget challenges today and in the future. These challenges are forcing management to make choices about how to best use limited resources to maintain the present level of health care services for veterans. Nationwide, VA’s managers are faced with taking every reasonable action to ensure that they are providing high-quality medical care in a cost-effective manner. Our recommendations, for the most part, were based on actions certain VA pharmacies have already taken.

Limiting OTC Products

VA did not concur with our recommendation to limit OTC products for nonservice-connected conditions to those most directly related to VA hospitalizations or those considered most essential to prevent hospitalization. VA stated that its policy to provide patients with medications, medical supplies, and dietary supplements is based on the clinical determination that these items are medically necessary. VA pointed out that continuity of care is a cornerstone of primary care practice with emphasis on preventive care and asserted that implementation of this recommendation would probably lead to fragmented care. VA stated that fragmentation of care can lead to an overall increase in health care costs. Restriction of OTC products could also lead to a shift in prescribing patterns. To ensure that the patient will actually get the needed medication, physicians may order more expensive prescription items if OTC versions are not provided by VA pharmacies, a practice that would lead to increased overall expenditures.

Our recommendation was designed to bring VA’s provision of OTC products into closer alignment with the practices of the vast majority of health care plans in this country. Generally, private health care plans provide primary care but exclude OTC products as a benefit for their participants—that is, they expect enrollees to obtain OTC products from other sources at their own expense. Furthermore, what we are recommending is that VA do on a systemwide basis what several of its own facilities have done. VA’s local facilities generally factor in drug substitution and potential health effects when making their decisions about which drugs to provide. Some of them have already made the tough choices about which OTC drugs were essential to provide, and they did not report encountering, to any great extent, the types of potential problems that VA expressed concern about in its comments. Limiting VA pharmacies’ provision of certain OTC items presumes that veterans will obtain the items from other local outlets if they share their physicians’ assessment of the products’ medical necessity.

Dispensing More Economical Quantities

VA agreed that OTC products should be provided in more economical quantities to reduce VA’s dispensing costs but only in those instances deemed clinically appropriate. VA stated that the current medication renewal process often serves as a good opportunity for the patient to have personal contact with the health care provider and to be reevaluated for medication compliance. VA also stated that quantity limitation must be based on quality of care considerations and the individual veteran’s ability to comply with his or her medication regimen. Also, consideration must be given to the stability of the drug in question.

Our recommendation was intended to reduce the dispensing costs associated with OTC products and touches on prescription refills rather than prescription renewals. For chronic conditions, VA prescriptions are usually written for 6- or 12-month periods with refills. Renewing the prescriptions once or twice a year does provide opportunities for veterans to see VA health care practitioners, but refilling those prescriptions every 90 days in the interim does not. VA pharmacy officials told us that routine refills are generally handled by mail with no interaction between physicians and veterans.

Analgesics, such as aspirin and acetaminophen, which VA dispensed almost 3 million times in fiscal year 1995, provide an example of how refill quantities influence costs. VA could save about $3 in dispensing costs each time it provided one 180-day supply instead of two 90-day supplies. When sold in local outlets, aspirin is commonly packaged in quantities of 100 to 500 tablets, making it possible for veterans and others to readily buy more than 180-day supplies without raising concerns about medical safety or product stability. OTC products are safe when the manufacturers’ labeling directions are followed and, as in the case of aspirin, are stable enough to be stored in users’ homes for 6 months or longer without adverse consequences.

Limiting Mail Service

VA did not concur with our recommendation to reduce VA’s dispensing costs for OTC products by limiting mail service to certain situations. VA stated that implementing this recommendation would undermine the important health care goals of patient satisfaction and customer service. Also, VA stated that mail service helps to reduce daily crowding and congestion in ambulatory care and parking areas of VA treatment facilities.

When resources are limited, choices about whether to fund certain OTC products have to be made by local VA pharmacies. Some VA pharmacies reported to us that they continued to provide certain OTC products, such as cases of liquid dietary supplements or diapers, but did not mail them. Veterans needing such OTC products have to pick them up at the pharmacy (exceptions are made when warranted). Again, we are only recommending that VA do, on a systemwide basis, what several of its facilities have done independently.

Collecting Copayments When Products Are Dispensed

VA did not concur with our recommendation to require veterans to make copayments at the time OTC products are dispensed. VA stated that to the fullest extent possible, veterans are encouraged to make copayments at the time OTC products are dispensed. An estimated 35 percent of prescription copayments are collected at the time of dispensing. Because approximately 50 percent of all outpatient prescriptions are mailed, VA stated, it is obvious that copayment collection rates at the time of dispensing are already high. Collection decisions must be made on an individual basis, according to VA, which stated that a veteran will not be denied a medically necessary product if for some reason copayment cannot be made at the time the product is dispensed.

During our examination of the copayment process at the VA facility we visited, however, we found that veterans were not presented a copayment bill or required to make payments at the time OTC products were dispensed at the pharmacy. Instead, the facility primarily mailed copayment bills to veterans, incurring additional administrative costs. Because VA’s records showed only total copayment collections, copayments received by mail or collected by the cashier could not be differentiated.

Our work showed that about 25 percent of OTC copayments billed were uncollected. VA incurs additional administrative costs to pursue these uncollected copayments. Collecting the copayments for OTC products at the time of dispensing would eliminate the administrative costs to bill and rebill delinquent payers. Veterans could help conserve VA’s limited resources by making copayments when they pick up the OTC products at the pharmacy or by including their copayments when ordering refills by mail. Given current copayment rates of $2 for a 30-day quantity, our recommendation would not seem to be overly burdensome on veterans. The full text of VA’s comments is in appendix VI.

We are sending copies to appropriate congressional committees; the Secretary of Veterans Affairs; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request.

Please call me on (202) 512-7101 if you or your staff have any questions concerning this report. Contributors to this report are listed in appendix VII.

GAO Questionnaire Results

VA Facilities by the Total Number of Unique OTC Products Dispensed, Fiscal Year 1995

Pittsburgh (HD), PA Los Angeles OPC, CA (continued)

American Lake and Seattle, WA Salt Lake City, UT Chicago (Lakeside), IL North Chicago (Downey), IL El Paso OPC, TX St. Cloud, MN (continued)

West Palm Beach, FL Pittsburgh (UD), PA Chicago (Westside), IL Las Vegas OPC, NV (continued)

White River Junction, VT Central Texas Health Care System, TX West Los Angeles (Wadsworth), CA (continued)

Percentage of Pharmacy Workload Attributable to OTC Products, Fiscal Year 1995

West Palm Beach, FL Pittsburgh (HD), PA Salt Lake City, UT (continued)

White River Junction, VT West Los Angeles (Wadsworth), CA (continued)

American Lake and Seattle, WA Chicago (Lakeside), IL (continued)

North Chicago (Downey), IL St. Cloud, MN Pittsburgh (UD), PA Chicago (Westside), IL (continued)

HD = facility on Highland Drive, Pittsburgh; UD = facility on University Drive, Pittsburgh.

100 Commonly Dispensed OTC Products That Accounted for About 70 Percent of the OTC Workload, Fiscal Year 1995

Department of Veterans Affairs Office of General Counsel’s Opinion on the Low Income Exemption From the Pharmacy Copayment

Comments From the Department of Veterans Affairs

GAO Contacts and Staff Acknowledgments

GAO Contacts

Acknowledgments

In addition to those named above, the following individuals made important contributions to this report: Mike O’Dell, Mark Trapani, Paul Wright, Deena El-Attar, and Joan Vogel.

The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent.

U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.