Drug Prices Paid by DOD and VA Are, on Average, Lower Than Those
Certified to HCFA as Best Price (Correspondence, 10/31/2000,
GAO/GAO-01-175R).

GAO compares the drug prices paid by the Department of Defense (DOD) and
the Department of Veterans Affairs (VA) with the prices paid by the
Health Care Financing Administration (HCFA). On average, for the sample
of drug prices analyzed by GAO, HCFA's prices were higher than those of
either DOD or VA.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-175R
     TITLE:  Drug Prices Paid by DOD and VA Are, on Average, Lower Than
	     Those Certified to HCFA as Best Price
      DATE:  10/31/2000
   SUBJECT:  Drugs
	     Comparative analysis
	     Prices and pricing
	     Pharmaceutical industry
IDENTIFIER:  Medicaid Program

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GAO-01-175R

DOD, VA, and HCFA Drug Cost Comparison

United States General Accounting Office Washington, DC 20548

October 31, 2000 The Honorable Henry Waxman Ranking Minority Member
Committee on Government Reform U. S. House of Representatives

Subject: Drug Prices Paid by DOD and VA Are, on Average, Lower Than Those
Certified to HCFA as Best Price

Dear Mr. Waxman: The Health Care Financing Administration (HCFA) administers
the Medicaid program, including Medicaid's “best price”
provisions, which require drug manufacturers to report their lowest drug
prices to HCFA. As agreed to with your office, we analyzed certain drug
prices paid by the Department of Defense (DOD) and the Department of
Veterans Affairs (VA) 1 and compared them with the prices of drugs certified
to HCFA by manufacturers as the best price. 2 Both DOD and VA can access the
Federal Supply Schedule for the prices they pay, whereas Medicaid is exempt
from this schedule.

As discussed with your office, we selected a judgmental sample of 21 brand-
name drugs that have no current generic equivalents. These 21 products are
from 6 major therapeutic classes of maintenance drugs and encompass 193
different National Drug Codes (NDC). Each NDC is priced individually. We
examined prices that were in effect as of August 2000, as provided by DOD,
VA, and HCFA.

For this sample in the aggregate 3 , the average DOD price was 27 percent
lower than HCFA's best price; and the average VA price was 30 percent lower
than HCFA's best price.

On average, for 85 percent of the NDCs we sampled, HCFA's best price was
higher than those of either DOD or VA. Among this group, the price
differences ranged up to 92 percent. As summarized in table 1, we separated
the overall price differences for these NDCs into four ranges- 0- 24, 25-
50, 51- 75, and 76- 100 percent differences- between either DOD or VA and
HCFA's best price and computed the average.

1 DOD and VA drug purchase prices were derived from either the Federal
Supply Schedule or individual contractual agreements with the drug
manufacturer for each National Drug Code. 2 Section 1927 of the Social
Security Act defines “best price.”

3 As agreed with your office, because of the proprietary nature of the
pricing data, we are not providing the individual drug price comparisons.

GAO- 01- 175R DOD, VA, and HCFA Drug Cost Comparison Page 2 Table 1. Average
Percentage of NDCs in Cases Where HCFA's “Best Price” Exceeded

DOD's or VA's

Number of NDCs where HCFA's best

price was greater than Price differential

ranges in percent DOD's VA's

Average percentage a

0 to 24 63 52 30 25 to 50 55 66 31 51 to 75 35 50 22 76 to 100 4 2 2

Total 157 170 85

a Average percentage was determined by first subtracting the DOD and VA
price for each NDC from the HCFA best price. The HCFA best price was then
divided into this difference.

We also found that for one drug representing 24 NDCs, the HCFA best price
was lower than DOD's price but not lower than VA's. In addition, for seven
NDCs covering three products, HCFA's best price was lower than that of
either VA or DOD. In these instances, HCFA's best price was on average about
29 percent lower than DOD's or VA's.

During our work, we also identified one instance in which DOD had contracted
to purchase a particular drug NDC at a price higher than that available from
the Federal Supply Schedule. We presented this finding to DOD, which took
action to recover the difference from the manufacturer.

---- As arranged with your office, unless you announce its contents earlier,
we plan no further distribution of this letter until 30 days after the date
of the letter. At that time, we will make copies of the letter available to
interested congressional committees and others on request. If you have any
questions or need additional information, please call me at (202) 512- 7455
or Assistant Director William Hamel at (202) 512- 6722.

Sincerely yours, Robert H. Hast Managing Director Office of Special
Investigations

(600747)
*** End of document. ***