VA operates one of the world’s largest health care systems, spending about $21 billion a year to provide approximately 3.8 million veterans health care through 163 VA hospitals and over 800 outpatient clinics nationwide. DOD spends about $19 billion on health care for over 5.8 million beneficiaries, including active duty personnel and military retirees and their dependents. Most DOD health care is provided at the more than 500 Army, Navy, and Air Force hospitals and other military treatment facilities worldwide. VA and DOD have separate systems for procuring and distributing medical and surgical supplies. VA purchases supplies through the Federal Supply Schedule (FSS), which is maintained by VA’s National Acquisition Center in Hines, Illinois, and is available to all federal purchasers. VA validates a sample of FSS prices to ensure that they are no more than the prices manufacturers charge their most-favored, nonfederal customers. Once FSS prices are established, VA manually analyzes its procurement history to identify like items, such as gauze bandages, for which it could potentially standardize and negotiate blanket purchase agreements (BPA) and national contracts directly with vendors (manufacturers or distributors) for a larger discount based on volume purchasing. After like items are identified, a team of clinicians—including doctors, technicians, and nurses—assesses the products for quality and agrees on a specific item or items that are acceptable for use by all VA hospitals. Acquisition officials then negotiate BPAs with the vendors of the chosen products to obtain lower prices. Once BPAs are established, VA facilities are required to purchase the items from the selected vendors. If medical and surgical supplies are not available through BPAs, VA medical facilities have the option of purchasing supplies from FSS, locally, or on the open market directly from manufacturers. Recently, VA began monitoring facility compliance with national BPAs. DOD purchases medical and surgical supplies through Distribution and Pricing Agreements (DAPA), which are negotiated and maintained by the Defense Supply Center in Philadelphia, Pennsylvania. DOD also allows its regions to individually standardize medical and surgical items and negotiate their own regional incentive agreements (RIA) to obtain larger discounts on certain high-volume, high-dollar medical and surgical items. Teams of military and contractor personnel in each region identify items for standardization. As in VA’s process, clinicians then assess and select items to standardize. Finally, the teams negotiate regional price discounts with the vendors. DOD facilities are required to buy from certain vendors to take advantage of DAPA pricing or, if a better price has been negotiated, through RIAs. If items are not available through DAPA or RIAs, facilities can purchase items locally or directly from manufacturers. Over the past 2 decades, the Congress has urged VA and DOD to maximize efficient use of federal dollars by sharing their health care resources. In May 1982, the Congress passed the VA and DOD Health Resources Sharing and Emergency Operations Act, which encouraged the two departments to enter into health resources sharing agreements. After the Congressional Commission on Servicemembers and Veterans Transition Assistance issued its 1999 report calling for VA and DOD to combine their market power, the Congress passed the Veterans Millennium Health Care and Benefits Act, which required VA and DOD to report on their joint pharmaceutical and medical supplies procurement activities. VA and DOD have not awarded national joint procurement contracts for medical and surgical supplies, and none appear likely in the near future. While a few VA and DOD facilities have obtained modest savings through local joint contracting agreements, we identified some additional joint procurement opportunities that have the potential to increase VA’s and DOD’s savings. Since their 1999 memorandum of agreement, VA’s and DOD’s procurement efforts have focused on separately contracting for standardized medical and surgical supplies. Their separate national and regional contracts are expected to save a total of about $19 million annually. VA and DOD’s joint procurement efforts for medical and surgical supplies have been limited to the local level. In May 2000, we reported that six VA and seven DOD facilities had joint purchasing agreements for certain medical supplies, realizing modest savings. Under one local contract, some VA and DOD facilities in Virginia and North Carolina negotiated discounts with a manufacturer for chemistry test slides; these VA and DOD facilities reported savings of $358,000 and $301,000, respectively. Subsequently, VA and DOD facilities in another region joined the contract for additional savings of slightly over $1 million. Currently, VA has about 150 national BPAs—most of which were awarded in 2000—covering over 1,900 individual medical and surgical items such as examination gloves, surgical face masks, and tongue depressors. VA estimates that it saves about $13 million annually through these national BPAs. DOD has 53 RIAs—most awarded in 2002—for items such as surgical tape, needles, and syringes. The department expects to save about $6 million annually through these agreements. The combined savings of about $19 million are about 22 percent less than the $88 million the two departments would have spent had the RIAs and national BPAs not been negotiated and are indicative of the savings potential that exists. However, additional savings can be achieved through VA and DOD collaboration. By comparing DOD’s RIA data from one geographic region to VA’s national BPA data, we identified about 100 identical medical and surgical items that are procured by both VA and DOD. For most of these items, the price difference was less than 4 percent. However, for 19 of the items, the cost differentials range from 4 to 43 percent, with DOD generally paying more than VA. For 14 of these items, VA negotiated lower prices with the manufacturer than DOD (see table 1); for 5 others, DOD negotiated lower prices (see table 2). For example, for a large bore intravenous extension set used for quickly delivering fluids or blood, DOD’s negotiated unit price per case is $179—43 percent more than VA’s negotiated unit price of $102. For borderless dressings, which are used to treat serious wounds, DOD’s negotiated case price of $90 is 36 percent lower than VA’s negotiated case price of $141. Purchasing the items from the vendors offering the lowest price will yield additional savings for both departments. For example, in fiscal year 2001, VA could have saved over $52,000 on one item alone—8-gallon sharps containers for disposing of used syringes—if it had collaborated with DOD and obtained its regional price. In that same year, DOD could have saved about $200,000 on intravenous pumps and tubing accessories if it had collaborated with VA and obtained VA’s lower national BPA prices. While the item-by-item savings may be relatively small, the cumulative effect of joint purchasing thousands of items can be significant. The lack of progress VA and DOD have made in jointly contracting for medical and surgical supplies has, in part, been the result of their different standardization approaches—national versus regional. Other impediments to joint purchasing have been incomplete procurement data and the lack of a means for each department to identify similar high-volume, high-dollar purchases. Because of these shortcomings, it is not only difficult for VA and DOD to identify items that should be standardized within their departments but between their departments as well. VA is considering improvements to its acquisition policies and is designing an enhanced automated information system. These improvements are intended to minimize local purchases, accelerate identification of items for standardization, and create greater purchasing power, placing it in a better position to jointly purchase with DOD. For its part, DOD is implementing a new automated information system, which is intended to enhance its ability to identify items for standardization. However, according to officials from both departments, it is uncertain whether data from the new systems will be compatible. Such capability would assist both departments in identifying joint procurement opportunities. While VA and DOD have both begun to independently standardize medical and surgical supplies for their facilities, VA has standardized nationally and DOD has standardized regionally. According to a DOD official, DOD has made several attempts at national standardization but has been unable to do so. The official said that the primary reason was because DOD was unable to gain widespread clinician acceptance across all its medical facilities. DOD officials consider the regional approach more feasible for standardizing medical and surgical supplies because it would be easier to gain acceptance among smaller groups of clinicians. However, this approach limits the prospects for jointly procuring with VA because it increases the possibility that different medical and surgical items will be standardized within DOD regions. For example, while eight of the nine DOD geographic regions individually standardized and contracted for needles and syringes from the same vendor, six of the nine geographic regions standardized on surgical gloves from five different vendors. VA and DOD acknowledge that standardizing medical and surgical supplies is a critical step toward achieving joint procurement. However, identifying and standardizing like items has been a cumbersome and time- consuming process for VA and DOD because they lack complete data on their medical and surgical supply procurements. In addition, they lack unique item identifiers that would make recognizing similar items easier. Complete data on all medical and surgical supplies purchased by their facilities would enable VA and DOD to more readily identify prospective items for standardization and joint purchasing opportunities. While VA has multiple information systems and databases that provide procurement information, the systems do not have the capability to provide a systemwide list of its top high-volume, high-dollar medical and surgical items purchased by all VA facilities. Instead, VA only has quantity and price information on items purchased from its national BPAs. DOD also does not have information on the top medical and surgical items purchased by its facilities because its systems do not capture information on purchases that individual facilities make locally or directly from manufacturers.