Audit: Pentagon, VA could save millions by combining drug purchases

WASHINGTON - Placing rivalry ahead of savings, the departments of Defense and Veterans Affairs are costing taxpayers as much as $300 million a year because they haven't merged their massive prescription drug purchasing programs, congressional auditors report.

The two agencies spent a combined $2.4 billion in 1999 to fill 140 million prescriptions, figures that would give them enormous combined buying power to negotiate deep discounts with drug companies, the General Accounting Office found.

On the few occasions the agencies have combined their buying powers, savings were enormous, the auditors noted.

For instance, they were able to buy the blood pressure medicine Capoten at $1.17 for 100 tablets, compared to the average wholesale price of $90.84. And 500 tablets of the ulcer-fighting Ranitidine cost just $13.57, compared to $740 at wholesale.

The departments, however, only bought 2 percent of their pharmaceuticals together. The audit concluded the agencies' ''differing missions and cultures have created rivalries that make it difficult for them to act together.''

''The driving expectation is that, as the two agencies buy more of a particular drug, their leverage ... will permit them to exact discounts from drug manufacturers,'' the report said.

VA and Defense officials said the audit doesn't take into account some negative consequences, including the likelihood that a joint contract with a single drug maker might force many patients to change medications.

John Ogden, director of pharmacy services for the VA, said it would be ''penny wise and pound foolish'' to change patients' drugs ''just because we wanted a joint contract. What if an adverse event occurred?''

Ogden also disputed the estimates of savings, saying the VA already gets significant discounts. ''I disagree with the assessment that there's hundreds of millions of dollars on the table'' to be saved, he said.

And military officials said it would be difficult to merge the VA system, which limits patients' choices of drugs, with a Pentagon system that gives beneficiaries far more alternatives. In addition, VA pharmacies won't fill prescriptions written by providers outside their system, but DOD programs do.

''Patient expectations among DOD beneficiaries are different from the expectations of VA beneficiaries,'' said Navy Capt. Charles Hostettler, former director of the Pentagon's pharmacy programs.

''Patient choice is one of the basic tenets'' of the military system and therefore ''constrains DOD's ability'' for joint contracting, he said.

The audit by Stephen P. Backhus, director of the GAO's veterans affairs and military health care, was done at the behest of the House Veterans Affairs investigations subcommittee.

Subcommittee Chairman Terry Everett, R-Ala., said that if the two agencies ''can combine their pharmaceutical purchases to save the taxpayer $1.5 billion over five years, then I want to know why it is not being done right now. This is substantial money that could be reinvested to improve health care for our active duty service members and their families, military retirees and veterans.''

It found the deepest discounts would come from a national contract with a single supplier. The two agencies would agree to purchase the same drug, commit to encourage its use in their nationwide health systems, and include the medicine on a preferred list. However, additional contracts could be written to provide alternatives based on medical need.

Federal agencies already can use one of several discount programs to buy drugs at below-wholesale prices. But Backhus said the savings from a joint, national contract would be enormous for two agencies with 12 million beneficiaries.

''We estimate they could save from about $150 million to $300 million, or about 6 to 12 percent of their annual combined drug spending'' through combined, national contracts - or even through additional national contracts by each agency, he said.

Backhus said GAO identified several classes of medicines that lend themselves to joint contracting, because they are so similar that ''providers and patients would more likely accept one or two drug choices per class.''