VA Health Care: Continuing Oversight Needed to Achieve Formulary 
Goals (24-JUL-01, GAO-01-998T). 				 
								 
Although the Department of Veterans Affairs (VA) has made	 
significant progress establishing a national formulary that has  
generally met with prescribers' and patients' acceptance, VA's	 
oversight has not been sufficient to fully ensure standardization
of its drug benefit nationwide. In its January 2001 report, GAO  
found that the three medical centers it visited were not in	 
compliance with the national formulary. Specifically, two of the 
three medical centers omitted more than 140 required national	 
formulary drugs, and all three facilities inappropriately	 
modified the national formulary list of required drugs for	 
certain drug classes by adding or omitting some drugs. In	 
addition, as VA policy allows, Veterans Integrated Service	 
Networks (VISN) added drugs to supplement the national formulary 
ranging from five drugs at one VISN to 63 drugs at another.	 
However, VA lacked criteria for determining the appropriateness  
of the actions networks took to add these drugs. In addition to  
problems standardizing the national formulary, GAO identified	 
weaknesses in the nonformulary approval process. While the	 
national formulary directive requires certain criteria for	 
approving nonformulary drugs, it does not prescribe a specific	 
nonformulary approval process. As a result, the processes health 
care providers must follow to obtain nonformulary drugs differ	 
among VA facilities regarding how requests are made, who receives
them, who approves them, and how long it takes to obtain	 
approval. GAO found that the length of time to approve		 
nonformulary drugs averages nine days, but it can be as short as 
a few minutes in some medical centers. In addition, some VISNs	 
have not established processes to collect and analyze data on	 
nonformulary requests. As a result, VA does not know if approved 
requests meet its established criteria or if denied requests are 
appropriate. This testimony summarized a December 1999 report	 
(HEHS-00-34) and a January 2001 report (GAO-01-183).		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-998T					        
    ACCNO:   A01452						        
  TITLE:     VA Health Care: Continuing Oversight Needed to Achieve   
             Formulary Goals                                                  
     DATE:   07/24/2001 
  SUBJECT:   Drugs						 
	     Noncompliance					 
	     Veterans benefits					 
	     Standards and standardization			 
	     Veterans hospitals 				 
	     VA Veterans Integrated Service Network		 

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GAO-01-998T
     
Testimony Before the Committee on Veterans' Affairs, U. S. Senate

United States General Accounting Office

GAO For Release on Delivery Expected at 2: 30 p. m. Tuesday, July 24, 2001
VA HEALTH CARE

Continuing Oversight Needed to Achieve Formulary Goals

Statement of Cynthia A. Bascetta Director, Health Care- Veterans?

Health Care and Benefits Issues

GAO- 01- 998T

Page 1 GAO- 01- 998T

Mr. Chairman and Members of the Committee: I am pleased to be here today to
discuss the Department of Veterans Affairs (VA) management and oversight of
its national drug formulary. VA?s national formulary is intended, in part,
to control costs and better ensure that veterans have access to the same
drugs regardless of which VA medical center they visit. VA medical centers
were directed to make all national formulary drugs available to prescribers-
health care providers who have VA prescription- writing privileges. 1 To
meet local patient needs, VA allows its 22 networks to add drugs to
supplement the national formulary. 2 VA also requires each network to
establish an approval process for obtaining drugs not listed in its
formulary.

My testimony addresses problems we identified in two recent reports
regarding implementation and standardization of the formulary and the
approval process for nonformulary drugs at each network. 3 In conducting our
work, we reviewed the formulary policies and activities of VA?s headquarters
and its 22 networks, analyzed nationwide VA prescription data, conducted
site visits and interviewed VA officials at three medical centers located in
three different networks, and surveyed 2,000 prescribers. We also updated
this statement to reflect VA?s most recent actions to implement our
recommendations for improving its management and oversight.

In summary, while VA has made significant progress establishing a national
formulary that has generally met with prescribers? and patients? acceptance,
VA?s oversight has not been sufficient to fully ensure standardization of
its drug benefit nationwide. In our January 2001 report, we found that the
three medical centers we visited were not in compliance with the national
formulary. Specifically, two of three medical centers omitted more than 140
required national formulary drugs, and all three facilities inappropriately
modified the national formulary list of required

1 Veterans Health Administration?s Directive 97- 047, VA National Formulary
Directive, Oct. 16, 1997. 2 In 1995, VA began transforming its delivery and
management of health care to expand access to care and increase efficiency.
VA decentralize decisionmaking and budgeting authority to 22 regional
Veterans Integrated Service Networks (VISN), which became responsible for
managing all VA health care.

3 VA Health Care: VA?s Management of Drugs on Its National Formulary (GAO/
HEHS- 00- 34, Dec. 14, 1999) and VA Drug Formulary: Better Oversight Is
Required, but Veterans Are Getting Needed Drugs (GAO- 01- 183, Jan. 29,
2001).

Page 2 GAO- 01- 998T

drugs for certain drug classes by adding or omitting some drugs. In
addition, as VA policy allows, VISNs added drugs to supplement the national
formulary ranging from 5 drugs at one VISN to 63 drugs at another. However,
VA lacked criteria for determining the appropriateness of the actions
networks took to add these drugs.

In addition to problems standardizing the national formulary, we identified
weaknesses in the nonformulary approval process. While the national
formulary directive requires certain criteria for approving nonformulary
drugs, it does not prescribe a specific nonformulary approval process. As a
result, the processes health care providers must follow to obtain
nonformulary drugs differ among VA facilities regarding how requests are
made, who receives them, who approves them, and how long it takes to obtain
approval. We found that the length of time to approve nonformulary drugs
averages 9 days, but can be as short as a few minutes in some medical
centers. In addition, some VISNs have not established processes to collect
and analyze data on nonformulary requests. As a result, VA does not know if
approved requests meet its established criteria or if denied requests are
appropriate.

In our January 2001 report, we made several recommendations to VA to improve
its management and oversight of its national formulary. VA concurred with
all of our recommendations and has taken, or plans to take, steps to
implement them. Although these are clearly steps in the right direction, it
is too early to tell how successful VA will be in establishing the
continuous oversight needed to improve formulary management.

In fiscal year 2000, VA?s pharmacy benefit provided approximately 86 million
prescriptions at a cost of approximately $2 billion- or about 12 percent of
VA?s total health care budget, compared to 6 percent of VA?s total health
care budget a decade ago. VA provides outpatient pharmacy services free to
veterans receiving medications for treatment of serviceconnected conditions
and to low- income veterans. Other veterans who Background

Page 3 GAO- 01- 998T

have prescriptions filled by VA may be charged a copayment for each 30- day
supply of medication. 4

Like many health care organizations, VA uses several measures in an effort
to improve quality of care and control pharmacy costs. These include (1)
implementing a national formulary, which standardizes the list of drugs
available; (2) developing clinical guidelines for prescribing drugs; and (3)
using compliance programs, such as prior authorization, to encourage or
require physicians to prescribe formulary drugs.

VA medical centers individually began using formularies as early as 1955 to
manage their pharmacy inventories. However, it was not until 40 years later
in September 1995, that VA established a centralized group to manage its
pharmacy benefit nationwide. In November 1995, when VISNs were established,
VA?s Under Secretary for Health directed each VISN to develop and implement
a VISN- wide formulary. To develop their formularies, the VISNs generally
combined existing medical center formularies and eliminated rarely
prescribed drugs. In 1996, VA was required to improve veterans? access to
care regardless of the region of the United States in which they live. As
part of its response, VA implemented a national drug formulary on June 1,
1997, by combining the core set of drugs common to the newly developed VISN
formularies. VA?s formulary meets the Joint Commission for the Accreditation
of Health Care Organizations? requirements for developing and maintaining an
appropriate selection of medications for prescribers to use in treating
their patient populations.

VA?s formulary lists more than 1,100 unique drugs in 254 drug classes-
groups of drugs similar in chemistry, method of action, or purpose of use.
After performing reviews of drug classes representing the highest costs and
volume of prescriptions, VA decided that some drugs in 4 of its 254 drug
classes were therapeutically interchangeable- that is, essentially
equivalent in terms of efficacy, safety, and outcomes. This determination
allowed VA to select one or more of these drugs for its formulary so that it

4 Section 201 of the Veterans Millennium Health Care and Benefits Act (P. L.
106- 117) authorized the Secretary of the Department of Veterans Affairs to
prescribe regulations to increase the copayment for each 30- day supply of
medication for outpatient treatment of non- service- connected disabilities
or conditions and to establish maximum monthly and maximum annual
pharmaceutical copayments for veterans who have multiple outpatient
prescriptions. In response, the Secretary has proposed regulations that,
among other things, increases the copayment from $2 to $7. (Fed. Reg., Vol.
66, No. 136, July 16, 2001, pp. 36960- 63.)

Page 4 GAO- 01- 998T

could seek better prices through competitively bid committed- use contracts.
5 Other therapeutically equivalent drugs in these classes were then excluded
from the formulary. These four classes are known as

?closed? classes. VA has not made clinical decisions regarding therapeutic
interchange in the remaining 250 drug classes, and it does not limit the
number of drugs that can be added to these classes. These are known as

?open? classes. To manage its pharmacy benefit nationwide, VA established
the Pharmacy Benefits Management Strategic Healthcare Group (PBM). PBM is
responsible for managing the national formulary list, maintaining databases
that reflect drug use, and monitoring the use of certain drugs. PBM also
facilitates the addition and deletion of drugs on the national formulary on
the basis of safety and efficacy data, determines which drugs are
therapeutically interchangeable in order to purchase drugs through
competitive bidding, and develops safeguards to protect veterans from the
inappropriate use of certain drugs. VISN directors are responsible for
implementing and monitoring compliance with the national formulary and
ensuring that a nonformulary drug approval process is functioning at each of
their medical centers. Although VISN and medical center directors are held
accountable in annual performance agreements for meeting certain national
and local goals, attaining formulary goals has not been part of their
performance standards.

While VA has made significant progress in establishing a national formulary,
its oversight has not been sufficient to ensure that it is fully achieving
its national formulary goal of standardizing its drug benefit nationwide. In
our January 2001 report, we found three factors that have impeded formulary
standardization: (1) medical centers we visited omitted some national
formulary drugs from their local formularies, (2) VISNs varied in the number
of drugs they added to local formularies to supplement the national
formulary without appropriate oversight, and (3) medical centers
inappropriately added or deleted drugs in closed classes. Nevertheless, most
prescribed drugs were on the national formulary, and prescribers and
patients were generally satisfied with the national formulary.

5 Under committed- use contracts, VA commits to using primarily the contract
drug, instead of other therapeutically interchangeable drugs, to guarantee
drug companies a high volume of use in exchange for lower prices. National
Formulary

Standardization Not Yet Achieved

Page 5 GAO- 01- 998T

The first factor impeding standardization is that medical centers omitted
some national formulary drugs from their local formularies. Almost 3 years
after VA facilities were directed to make all national formulary drugs
available locally, two of the three medical centers we visited in spring of
2000 omitted required drugs from the formularies used by their prescribers.
At one medical center, about 25 percent (286 drugs) of the national
formulary drugs were not available as formulary choices. These included
drugs used to treat high blood pressure, mental disorders, and women?s
medical needs. At the second medical center, about 13 percent (147 drugs) of
the national formulary drugs were omitted, including drugs used to treat
certain types of cancer and others used to treat stomach conditions.

From October 1999 through March 2000, health care providers at these two
medical centers had to obtain nonformulary drug approvals for over 22,000
prescriptions for drugs that should have been available without question
because they are on the national formulary. Our analysis showed that at the
first center, over 14, 000 prescriptions were filled as nonformulary drugs
for 91 drugs that should have been on the formulary. 6 At the other medical
center, over 8,000 prescriptions for 23 national formulary drugs were filled
as nonformulary drugs. If the national formulary had been properly
implemented at these medical centers, prescribers would not have had to use
extra time to request and obtain nonformulary drug approvals for these
drugs, and patients could have started treatment earlier.

The second factor impeding standardization is the wide variation in the
number of drugs added by VISNs to their local formularies. VA?s policy
allowing VISNs to supplement the national formulary locally has the
potential for conflicting with VA?s goal of achieving standardization if it
is not closely managed. From June 1997 through March 2000, the 22 VISNs
added a total of 244 unique drugs to supplement the list of drugs on the
national formulary. As figure 1 shows, the number of drugs added by each
VISN varies widely, ranging from as many as 63 to as few as 5. Adding drugs
to supplement the national formulary is intended to allow VISNs to be
responsive to the unique needs of their patients and to allow quicker
formulary designation of new drugs approved by the Food and Drug

6 After our visit, we were informed by a pharmacy official that the medical
center adopted the national formulary as its own on June 30, 2000.

Page 6 GAO- 01- 998T

Administration (FDA). 7 VA officials have acknowledged that this variation
affects standardization and told us they plan to address it. For example,
PBM plans to more quickly review new drugs when approved by FDA to determine
if they should be added to the national formulary.

7 VA national formulary policy provides that a new drug must be on the
market for a minimum of 1 year before it can be added to the national
formulary.

Page 7 GAO- 01- 998T

Figure 1: Variation in Number of Unique Drugs VISNs Added to Supplement VA?s
National Formulary, June 1997- March 2000

Source: GAO analysis of PBM data.

The third factor is that medical centers we visited inappropriately modified
the national formulary list of drugs in the closed classes. Contrary to VA
formulary policy, two of three medical centers added two different drugs to
two of the four closed classes, and one facility did not make a drug in a
closed class available. Moreover, the Institute of

22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

VISN Number of drugs added

Numbered areas specify VISN designations 5

4 3 2

1 11 12

13

14

17

18 19

20 21

16 15

16 9 6

7

8 10

8

21 22

0 10

20 30

40 50

60 70

0 to 10 11 to 25 26 to 50 More than 50

Number of drugs added

20

Page 8 GAO- 01- 998T

Medicine (IOM) found broad nonconformity at the VISN level. 8 Specifically,
IOM reported that 16 of the 22 VISNs modified the list of national formulary
drugs for the closed classes. 9 This also undermines VA?s ability to achieve
cost savings through its committed- use contracts.

While VA has not yet fully achieved national formulary standardization, most
prescribed drugs were on the national formulary. From October 1999 through
March 2000, 90 percent of VA outpatient prescriptions were written for
national formulary drugs. The percentage of national formulary drug
prescriptions filled by individual VISNs varied slightly, from 89 percent to
92 percent. We found wider variation among medical centers within VISNs- 84
percent to 96 percent.

Of the remaining 10 percent of prescriptions filled systemwide, VA?s
national database could not distinguish between nonformulary drugs and drugs
added to local formularies by VISNs and medical centers to supplement the
national formulary. VA?s PBM and the IOM estimate that drugs added to
supplement the national formulary probably account for about 7 percent of
all prescriptions filled, and nonformulary drugs account for approximately 3
percent of all prescriptions filled. VA officials told us that they are
modifying the database to enable them to identify which drugs are added to
supplement the national formulary and which are nonformulary. This will
allow them to better oversee the balance between local needs and national
standardization.

Prescribers we surveyed reported they were generally satisfied with the
national formulary. Seventy percent of VA prescribers in our survey reported
that the formulary includes the drugs their patients need either to a ?great
extent? or to a ?very great extent.? Approximately 27 percent reported that
the formulary meets their patients? needs to a ?moderate

extent,? with 4 percent reporting that it meets their patients? needs to a
lesser extent. No VA prescribers reported that the formulary meets their
patients? needs to ?very little or no extent.? This is consistent with IOM?s
conclusion that the VA formulary ?is not overly restrictive.?

8 In June 2000, IOM issued a report on the effect VA?s national formulary
has had on the cost and quality of VA health care, the restrictiveness of
VA?s national formulary, and how the national formulary compares with
private and other government formularies. (IOM, Description and Analysis of
the VA National Formulary [Washington, D. C.: IOM, June

2000].) 9 IOM, Description and Analysis of the VA National Formulary, pp.
32- 33.

Page 9 GAO- 01- 998T

Veterans also appear satisfied with their ability to obtain the drugs they
believe they need. At the VA medical centers we visited, patient advocates
10 told us that veterans made very few complaints concerning their
prescriptions. In its analysis of patient complaints, IOM found that less
than one- half of 1 percent of veterans? complaints were related to drug
access. 11 IOM further reported that complaints involving specific
identifiable drugs often involved drugs that are marketed directly to
consumers, such as Viagra. 12 Our review also indicated that the few
prescription complaints made were often related to veterans trying to obtain
?lifestyle? drugs or refusals by VA physicians and pharmacists to fill
prescriptions written by non- VA health care providers. 13 VA may fill
prescriptions written by non- VA health care providers only under limited
circumstances, for example, when the veteran is housebound and receives
additional compensation because of a service- connected disability. 14

While the national formulary directive requires certain criteria for
approval of nonformulary drugs, it does not prescribe a specific
nonformulary approval process. As a result, the processes health care
providers must follow to obtain nonformulary drugs differ among VA
facilities regarding how requests are made, who receives them, who approves
them, and how long it takes to obtain approval. In addition, some VISNs have
not established processes to collect and analyze data on nonformulary
requests. As a result, VA does not know if approved requests meet its
established criteria or if denied requests are appropriate.

10 Patient advocates are VA employees who are responsible for receiving and
acting on complaints from veterans. 11 IOM obtained formulary- related
complaints from a nationwide database of veteran complaints for over 90
percent of all VA facilities representing all 22 VISNs. IOM determined that
only 2,385 of 570, 937 veteran complaints were attributed to the national
formulary. No VISN had significantly more complaints than any other. (IOM,
Description and Analysis of the VA National Formulary, p. 145.)

12 Viagra (sildenafil), which is used to treat erectile dysfunction, is
available within VA only through the nonformulary drug approval process. 13
We asked prescribers in our survey how often in 1999 their patients asked
them to rewrite prescriptions from non- VA prescribers so that they could be
filled by VA. Thirty- one percent said ?often? or ?very often,? 34 percent
reported that it occurred ?occasionally,?

and 21 percent said ?seldom.? Fourteen percent said that they never received
such requests.

14 See 38 U. S. C. sect.1712( d); 38 C. F. R. sect.17. 96, and Op. VA Gen. Coun. 41-
91 (1991). Approval Processes

for Nonformulary Drugs Have Weaknesses

Page 10 GAO- 01- 998T

Both the people involved and the length of time to approve nonformulary
drugs varied. The person who first receives a nonformulary drug approval
request may not be the person who approves it. For example, 61 percent of
prescribers reported that nonformulary drug requests must first be submitted
to facility pharmacists, 14 percent said they must first be submitted to
facility pharmacy and therapeutics (P& T) committees, and 8 percent said
they must first be sent to service chiefs. In contrast, 31 percent of
prescribers reported that facility pharmacists approve nonformulary drug
requests, 26 percent said that facility P& T committees approve them, and 15
percent told us that facility chiefs of staff approve them. The remaining 28
percent reported that various other facility officials or members of the
medical staff approve nonformulary drug requests. The time required to
obtain approval for use of a nonformulary drug also varied depending on the
local approval processes. The majority of prescribers we surveyed (60
percent) reported that it took an average of 9 days to obtain approval for
use of nonformulary drugs. 15 But many prescribers also reported that it
took only a few hours (18 percent) or minutes (22 percent) to obtain such
approvals.

During our medical center visits, we observed that some medical center
approval processes are less expeditious than others. For example, to obtain
approval to use a nonformulary drug in one facility we visited, prescribers
were required to submit a request in writing to the P& T committee for its
review and approval. Because the P& T committee met only once a month, the
final approval to use the requested drug was sometimes delayed as long as 30
days. The requesting prescriber, however, could write a prescription for an
immediate 30- day supply if the medication need was urgent.

In contrast, another medical center we visited assigned a clinical
pharmacist to work directly with health care providers to help with drug
selection, establish dose levels, and facilitate the approval of
nonformulary drugs. In that facility, clinical pharmacists were allowed to
approve the use of nonformulary drugs. If a health care provider believed
that a patient should be prescribed a nonformulary drug, the physician and
pharmacist could consult at the point of care and make a final decision with
virtually no delay.

15 In emergencies, exceptions are made to allow the patient to obtain the
drug more quickly.

Page 11 GAO- 01- 998T

Prescribers we surveyed were almost equally divided on the ease or
difficulty of getting nonformulary drug requests approved. (See table 1.)

Table 1: Ease of Obtaining Nonformulary Drug Approvals Reported by
Prescribers Response categories Percentage reporting

?Easy? or ?very easy? 29 ?About as easy as difficult? 40 ?Difficult? or
?very difficult? 32

Note: Percentages do not total 100 because of rounding. Source: GAO survey.

Regardless of whether the nonformulary drug approval process was perceived
as easy or difficult, the majority of prescribers told us that their
requests were generally approved. According to our survey results, 65
percent of prescribers sought approval for nonformulary drugs in 1999. These
prescribers reported that they made, on average, 25 such requests (the
median was 10 requests). We estimated that 84 percent of all prescribers?
nonformulary requests were approved.

When a nonformulary drug request was disapproved, 60 percent of prescribers
reported that they switched to a formulary drug. However, more than one-
quarter of the prescribers who had nonformulary drug requests disapproved
resubmitted their requests with additional information.

For patients moving from one location to another, the majority of
prescribers we surveyed told us that they were more likely to convert VA
patients who were on a nonformulary drug obtained at another VA facility to
a formulary drug than to request approval for the nonformulary drug. (See
table 2.)

Table 2: Likelihood of Prescribers? Converting Patients From Nonformulary
Drug Prescriptions to Formulary Drug Prescriptions

Response categories Percentage reporting

?Likely to convert? or ?very likely to convert? 64 ?As likely to convert as
to seek approval for the nonformulary drug? 18 ?Likely to seek approval for
the nonformulary drug? or ?very likely to seek approval of nonformulary
drug? 18

Source: GAO survey.

Page 12 GAO- 01- 998T

Contrary to the national formulary policy, not all VISNs have established a
process for collecting and analyzing data on nonformulary requests at the
VISN and local levels. Twelve of VA?s 22 VISNs reported that they do not
collect information on approved and denied nonformulary drug requests. Three
VISNs reported that they collect information only on approved nonformulary
drug requests, and seven reported that they collect information for both
approved and denied requests. Such information could help VA officials to
determine the extent to which nonformulary drugs are being requested and
whether medical center processes for approving these requests meet
established criteria. In its report, IOM noted that inadequate documentation
on such matters could diminish confidence in the nonformulary process.

We are encouraged by VA?s actions, but it is too early to tell how
successful it will be in addressing our recommendations for improving its
management and oversight of the national formulary. To improve
standardization of its formulary, we recommended that VA establish (1) a
mechanism to ensure that VISN directors comply with VA?s national formulary
policy and (2) criteria that VISNs should use to determine the
appropriateness of adding drugs to supplement the national formulary and
monitor the VISNs? application of these criteria. VA?s PBM has developed
changes to its database that will provide comparative national data on VISN,
nonformulary, and national formulary drug use. PBM also plans to share these
data, including identification of outliers, with all 22 VISNs and coordinate
with VISN formulary leaders to facilitate consistent compliance with
national formulary policy. In addition, VA (1) drafted criteria for VISNs to
use to determine the appropriateness of adding drugs to supplement the
national formulary list, which it intends to include in a directive; (2) is
developing a template for VISNs to document all VISN formulary additions;
and (3) intends to review more quickly all new FDAapproved drugs for
inclusion in the national formulary.

To improve its nonformulary drug approval process, we recommended that (1)
VA establish a process to ensure timely and appropriate decisions by medical
centers and (2) veterans be allowed continued access to previously approved
nonformulary drugs, regardless of where they seek care in VA?s health care
system. In addressing these recommendations, VA plans to incorporate into
its revised formulary directive the fundamental steps that all medical
centers must take in establishing and reporting their nonformulary
activities. VA also plans to include in its revised formulary directive a
specific requirement that approved nonformulary medications will continue if
a veteran changes his or her care to a different VA facility. Plans for
Improving

Oversight Are Progressing

Page 13 GAO- 01- 998T

We also recommended that VA enforce existing requirements that VISNs collect
and analyze the data needed to determine that nonformulary drug approval
processes are implemented appropriately and effectively in their medical
centers, including tracking both approved and denied requests. VA plans to
establish steps for reporting its nonformulary approval activities. PBM has
begun initial discussions with VA?s Information Management Office about
planning for the changes.

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions you or other members of the Committee may have.

For more information about this statement, please call me at (202) 5127101,
or Walter Gembacz, Assistant Director, at (202) 512- 6982. A key contributor
to this statement was Mike O?Dell. GAO Contacts and

Acknowledgments

(290100)
*** End of document. ***