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 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’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.) 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. 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. 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. 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. 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. 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.