VA Health Care: Expanded Eligibility Has Increased Outpatient
Pharmacy Use and Expenditures (08-NOV-02, GAO-03-161).
The Department of Veterans Affairs (VA) spent about $3.0 billion
on its outpatient pharmacy benefit in fiscal year 2001. After VA
implemented the Veterans' Health Care Eligibility Reform Act in
1999, more veterans could use VA outpatient care, including the
pharmacy benefit, than before. Increased eligibility contributed
to a doubling of the number of Priority 7 veterans using VA
health care. Priority 7 veterans are primarily veterans with
higher incomes and no service-connected disability. GAO was asked
to report on Priority 7 veterans' use of the outpatient pharmacy
benefit and VA's expenditures to provide this benefit. To do
this, GAO reviewed VA pharmacy data on use and costs from fiscal
years 1999 through 2001.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-161
ACCNO: A05506
TITLE: VA Health Care: Expanded Eligibility Has Increased
Outpatient Pharmacy Use and Expenditures
DATE: 11/08/2002
SUBJECT: Veterans benefits
Health care cost control
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GAO-03-161
Report to the Chairman, Committee on Veterans* Affairs, House of
Representatives
United States General Accounting Office
GAO
November 2002 VA HEALTH CARE Expanded Eligibility Has Increased Outpatient
Pharmacy Use and Expenditures
GAO- 03- 161
VA spent $418 million on the outpatient pharmacy benefit for Priority 7
veterans in fiscal year 2001. VA pharmacy expenditures for Priority 7
veterans in this year were offset by copayments for drugs. In fiscal year
2001,
VA collected approximately $41 million in drug copayments from Priority 7
veterans by charging $2 for a 30- day or less supply. This reduced VA*s
net expenditures to $377 million.
After VA implemented eligibility reform in 1999, Priority 7 veterans* use
of the pharmacy benefit increased rapidly from about 11 million 30- day
equivalents of drugs or supplies in fiscal year 1999 to about 26 million
30- day equivalents in fiscal year 2001. This resulted in more than a
doubling of VA*s net pharmacy expenditures for these veterans. Yet, net
pharmacy expenditures for Priority 7 veterans remain a relatively small
share of VA*s total net spending for outpatient drugs and supplies. Most
of VA*s increased
pharmacy spending during this period was for all other veterans-- those
with service- connected disabilities, low incomes, or certain other
recognized statuses such as former prisoners of war. In fiscal year 2001,
87 percent of VA*s net pharmacy expenditures were for these veterans.
VA agreed with GAO*s findings regarding outpatient pharmacy use and
expenditures.
Net Expenditures for VA*s Outpatient Pharmacy Benefit Less Drug
Copayments, Fiscal Years 1999- 2001
164 247 377 1,916
2,169 2,458
0 500
1,000 1,500
2,000 2,500
3,000 1999 2000 2001 1999 2000 2001 Dollars in millions
Priority 7 veterans All other veterans Source: GAO analysis of VA data. VA
HEALTH CARE
Expanded Eligibility Has Increased Outpatient Pharmacy Use and
Expenditures
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 161. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Cynthia A. Bascetta at (202) 512- 7101. Highlights of
GAO- 03- 161, report to the
Chairman, Committee on Veterans* Affairs, House of Representatives.
November 2002
The Department of Veterans Affairs (VA) spent about $3. 0 billion on its
outpatient pharmacy benefit in fiscal year 2001. After VA implemented the
Veterans* Health Care Eligibility Reform Act in 1999,
more veterans could use VA outpatient care, including the pharmacy
benefit, than before. Increased eligibility contributed to a doubling of
the number of Priority 7 veterans using VA health care. Priority 7
veterans are primarily veterans with higher incomes and no service-
connected disability.
GAO was asked to report on Priority 7 veterans* use of the outpatient
pharmacy benefit and VA*s expenditures to provide this benefit. To do
this, GAO reviewed VA pharmacy data on use and costs from fiscal years
1999 through 2001.
Page i GAO- 03- 161 VA Outpatient Pharmacy Letter 1 Results in Brief 2
Background 3 Priority 7 Veterans* Use of Pharmacy Benefit Has Grown 6 VA
Spent Over $400 Million on the Outpatient Pharmacy Benefit for Priority 7
Veterans 7 Proportion of Priority 7 Pharmacy Use Varies Substantially
Across
Networks 9 Agency Comments and Our Evaluation 11 Appendix I Scope and
Methodology 13
Appendix II Comments from the Department of Veterans Affairs 16
Appendix III GAO Contact and Staff Acknowledgments 18
Related GAO Products 19
Tables
Table 1: Expenditures for VA*s Outpatient Pharmacy Benefit, Fiscal Years
1999 through 2001 8 Table 2: Net Expenditures for VA*s Outpatient Pharmacy
Benefit
Less Drug Copayments, Fiscal Years 1999 through 2001 9 Figures
Figure 1: Growth of Priority 7 Veterans Treated, Fiscal Years 1996 through
2001 5 Figure 2: Growth in Priority 7 Veterans* Use of the Pharmacy
Benefit, Fiscal Years 1999 through 2001 6 Figure 3: Priority 7 Veterans by
Network: Proportion of Patients Treated and Drugs and Supplies Used,
Fiscal Year 2001 10 Contents
Page ii GAO- 03- 161 VA Outpatient Pharmacy Abbreviations
DOD Department of Defense PBM Pharmacy Benefits Management VA Department
of Veterans Affairs VHA Veterans Health Administration
Page 1 GAO- 03- 161 VA Outpatient Pharmacy November 8, 2002 The Honorable
Christopher H. Smith
Chairman Committee on Veterans* Affairs House of Representatives
Dear Mr. Chairman: The Department of Veterans Affairs (VA) spent about
$3.0 billion on drugs, supplies, and other associated costs to provide an
outpatient pharmacy benefit to veterans in fiscal year 2001. 1 VA*s
pharmacy benefit provides prescription drugs, over- the- counter drugs,
and medical supplies to veterans receiving VA health care. VA*s cost for
providing the pharmacy benefit includes the cost of drugs and supplies,
pharmacy personnel, and other operational expenses. In recent years,
expenditures for the
outpatient pharmacy benefit have become a larger portion of VA*s medical
care budget, rising from 12 percent in fiscal year 1999 to 14 percent in
fiscal year 2001. 2 The number of veterans treated by VA has risen during
this time from 3.1 million to 3.8 million, in part due to broadening
health care eligibility that began in fiscal year 1999. One result of this
broadened eligibility was an increase in the number of Priority 7 veterans
treated*
those veterans primarily with higher incomes and no service- connected
disability. 3 You requested that we provide information on the overall
dimensions of
Priority 7 veterans* use of the pharmacy benefit to better inform the
Committee*s oversight of VA health care. To better understand the impact
of the growing number of Priority 7 veterans treated by VA, we examined
1 In addition, VA spent approximately $250 million for inpatient drugs and
supplies in fiscal year 2001. 2 Drug expenditures are increasing in health
care generally, not just in VA. Expenditures have risen for a number of
reasons including increased use of drugs, the substitution of higher
priced new drugs for lower priced existing ones, and more direct- to-
consumer advertising by manufacturers. 3 Priority 7 veterans are veterans
who have either incomes or net worths above a certain
threshold, no service- connected disability that results in monetary
benefits from VA, and no other recognized statuses such as former
prisoners of war. The income threshold was $23,688 for veterans without
dependents in 2001. A service- connected disability is an injury
or disease that was incurred or aggravated while on active military duty.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 161 VA Outpatient Pharmacy (1) Priority 7 veterans* use of
the VA outpatient pharmacy benefit, (2) the amount of VA expenditures for
providing this benefit to Priority 7 veterans, and (3) whether the
proportion of Priority 7 veterans* pharmacy
use varies across VA*s 22 regional health care networks. 4 To perform our
work, we reviewed documents and analyzed data from fiscal years 1999
through 2001 that VA provided on the use of the pharmacy benefit, VA*s
expenditures, and revenues VA generated from copayments it charges certain
veterans for drugs. We defined pharmacy
use in 30- day equivalents to standardize drug and supply volume across
fiscal years and networks because prescriptions can be written for
different lengths of time such as 30, 60, or 90 days. We tested the
reliability of the data and determined they were adequate for our
purposes. We also interviewed VA officials at headquarters, other
locations, and Network 2 (Albany) to better understand the pharmacy
benefit and VA*s data on pharmacy use, expenditures, and revenues from
drug copayments. For a complete description of our scope and methodology,
see appendix I. Our work was performed from March 2002 through November
2002 in accordance with generally accepted government auditing standards.
Priority 7 veterans used 26.4 million 30- day equivalents of drugs and
supplies in fiscal year 2001, up from 10.7 million 30- day equivalents in
fiscal year 1999. During this period, the number of Priority 7 veterans VA
treated doubled from about 400,000 to over 800,000. This growth was the
most important factor contributing to the rapid increase in Priority 7
veterans* use of the pharmacy benefit. In addition, for Priority 7
veterans who received at least one drug or supply, the average number of
drugs and supplies defined in 30- day equivalents increased from 33 to 38
per year.
VA spent $418 million on the outpatient pharmacy benefit for Priority 7
veterans in fiscal year 2001. These expenditures were offset by Priority 7
copayments for drugs. This offset reduced VA*s net expenditures to $377
million in fiscal year 2001, more than double the amount VA spent for this
purpose in fiscal year 1999. Moreover, the rate of growth for Priority 7
net pharmacy expenditures was more than four times that for all other
veterans treated by VA. Even though net expenditures for Priority 7
veterans* use of the pharmacy benefit increased rapidly, the proportion of
4 VA now has 21 networks. In January 2002, VA combined Network 13
(Minneapolis) and Network 14 (Lincoln) to form a new network. Results in
Brief
Page 3 GAO- 03- 161 VA Outpatient Pharmacy VA expenditures for this
purpose was only 13 percent of total net pharmacy expenditures in fiscal
year 2001. By comparison, 22 percent of
VA*s patients were Priority 7 veterans in that year. The remaining 87
percent of net expenditures were for other veterans. Most of VA*s
increased pharmacy spending from fiscal year 1999 to fiscal year 2001 was
for these veterans.
The proportion of pharmacy use accounted for by Priority 7 veterans varies
substantially across the networks. Priority 7 veterans* use of the
pharmacy benefit ranged from 9 percent of all drugs and supplies dispensed
in Network 20 (Portland) to 29 percent of all drugs and supplies dispensed
in Network 3 (Bronx) in fiscal year 2001. This unevenness in patient use
results in disproportionately higher costs to treat Priority 7 veterans as
a group in networks that have larger proportions of Priority 7 veterans.
VA does not take this unevenness into account when providing financial
resources to its networks each year.
In commenting on the draft report, VA agreed with our findings regarding
outpatient pharmacy use and expenditures. The Veterans* Health Care
Eligibility Reform Act of 1996 simplified eligibility standards for
veterans in need of hospital and outpatient care. 5 Among other things,
the act authorized VA to provide medical care
services not previously available to veterans without service- connected
disabilities or low incomes. As required by the act, VA established seven
priority categories for enrollment to manage access in relation to
available resources. A higher priority for enrollment is given to veterans
who have service- connected disabilities, lower incomes, or other
recognized statuses such as former prisoners of war. These higher priority
enrollees are ranked in priority order from 1 through 6. The lowest
enrollment priority is given to veterans not included in priorities 1
through 6, referred to as Priority 7 veterans. The act requires VA to
restrict enrollment consistent with these enrollment priorities if
sufficient resources are not available to provide care that is timely and
acceptable in quality for all priority groups.
The new enrollment system, implemented in fiscal year 1999, resulted in
the expansion of medical benefits to some priority groups, including
Priority 7 veterans. Before eligibility reform, most veterans now
classified
5 Pub. L. No. 104- 262 S:S: 101, 104. Background
Page 4 GAO- 03- 161 VA Outpatient Pharmacy as Priority 7 veterans could
only receive VA outpatient services, including prescription drugs, if
these services were related to hospital care received at the VA. Priority
7 veterans can now receive prescription drugs, over- thecounter
drugs (e. g., aspirin, cough syrup, vitamins) and medical and surgical
supplies (e. g., syringes, alcohol wipes) on an outpatient basis. To
obtain these drugs or supplies, veterans must be enrolled in and receiving
health care at VA. If a veteran has a prescription from a non- VA
provider, the VA pharmacy will only provide the drug or supply if the
prescription is rewritten first by a VA provider except in certain
circumstances such as when VA has a sharing agreement with the Department
of Defense (DOD). Some veterans, including Priority 7 veterans, are
charged a copayment for
drugs, which VA increased in February 2002 from $2 to $7 for a 30- day or
less supply of drugs. There is no copayment for supplies.
The number of Priority 7 veterans treated has increased significantly and
represents the most rapidly growing share of the veterans VA treats. From
fiscal year 1996 through fiscal year 2001, the number of Priority 7
veterans treated has increased by almost eightfold (see fig. 1). Priority
7 veterans represented 22 percent of VA*s workload in fiscal year 2001.
According to VA projections, growth in Priority 7 workload is expected to
continue to increase at least through fiscal year 2010.
Page 5 GAO- 03- 161 VA Outpatient Pharmacy Figure 1: Growth of Priority 7
Veterans Treated, Fiscal Years 1996 through 2001
Priority 7 veterans over the age of 65 have contributed the most to this
growth in VA patient workload. Between fiscal years 1999 and 2001, the
proportion of Priority 7 users age 65 or over grew from 52 percent to 65
percent. In contrast, the proportion of veterans age 65 or over among
other veteran users grew from 45 percent to 47 percent during this period.
Older Priority 7 veterans could be attracted to VA because many persons in
this age group lack or have limited prescription drug coverage from other
sources. Medicare, the federal health financing program and the primary
health insurer for persons over the age of 65, has a restricted outpatient
prescription drug benefit. 6 Over one- third of Medicare beneficiaries
have no prescription drug coverage, and those beneficiaries
6 Medicare*s benefit largely covers those drugs that cannot be self-
administered or require certain medical equipment to be administered.
Medicare part B (which covers physician and other outpatient services)
covers roughly 450 drugs that amounted to almost $4 billion including
beneficiary copayments in 1999. See U. S. General Accounting Office,
Medicare: Payments for Covered Outpatient Drugs Exceed Providers* Cost,
GAO- 01- 1118 (Washington D. C.: Sept. 21, 2001).
0 100,000
200,000 300,000
400,000 500,000
600,000 700,000
800,000 900,000
135,378 235,523
397,230 574,516
827,722 107,520
1996 1997 1998 1999 2000 2001 Fiscal year Veterans
Source: VA. Note: Because the Priority 7 classification was not developed
until fiscal year 1999, we used VA*s previous classification that most
closely represents this priority group, Category C. The Category C
data we used for fiscal years 1996 through 1998 slightly underestimate the
number of Priority 7 veterans for those years.
Page 6 GAO- 03- 161 VA Outpatient Pharmacy with coverage are sometimes
exposed to gaps in coverage and high out- ofpocket costs. 7 Priority 7
veterans* use of the pharmacy benefit has more than doubled
from fiscal year 1999 to fiscal year 2001 (see fig. 2). Their use included
prescription drugs, over- the- counter drugs, and supplies each defined in
30- day equivalents. In fiscal year 2001, 82 percent of the items were
prescription drugs. 8 Figure 2: Growth in Priority 7 Veterans* Use of the
Pharmacy Benefit, Fiscal Years
1999 through 2001
7 See Mary A. Laschober, Michelle Kitchman, Patricia Neuman, Allison A.
Strabic, Trends in Medicare Supplemental Insurance and Prescription Drug
Coverage, 1996- 1999, Health Affairs (Feb. 27, 2002) and U. S. General
Accounting Office, Medigap: Current Policies Contain Coverage Gaps,
Undermine Cost Control Incentives, GAO- 02- 533T (Washington, D. C.: Mar.
14, 2002).
8 In addition to prescription drugs, 14 percent of the prescriptions were
for over- the- counter drugs, 4 percent for supplies, and less than 1
percent for other drugs such as medicines used in research studies, and
drugs whose classification was not listed in VA*s pharmacy database.
Priority 7 Veterans*
Use of Pharmacy Benefit Has Grown
10,738,762 16,408,037
26,397,456
0 5,000,000
10,000,000 15,000,000
20,000,000 25,000,000
30,000,000 1999 2000 2001 Fiscal year Number of 30- day equivalents
Note: Drugs and supplies are measured in 30- day equivalents. Source: GAO
analysis of VA data.
Page 7 GAO- 03- 161 VA Outpatient Pharmacy The most important factor
contributing to Priority 7 veterans* increased use of the pharmacy benefit
was the increase in the number of Priority 7
patients treated between fiscal years 1999 and 2001. We estimate that
about 74 percent of the increase in Priority 7 veterans* use of the
pharmacy benefit resulted from the increase in Priority 7 veterans
treated. This estimate held constant the number of drugs and supplies
provided per veteran and the proportion of veterans using the pharmacy
benefit.
Two other factors contributed to the growth in Priority 7 veterans* use of
the pharmacy benefit. The most important of the two was an increase in the
number of drugs and supplies used per Priority 7 veteran. During this
period, for Priority 7 veterans who received at least one drug or supply,
the average number of drugs and supplies defined in 30- day equivalents
increased from 33 to 38 per year. The other factor was an increase in the
proportion of Priority 7 veterans using the pharmacy benefit from 81 to 83
percent.
For similar reasons, other veterans* use of the pharmacy benefit also
increased during this period. An increase in the number of these veterans
accounted for about 53 percent of the increased use of the pharmacy
benefit. Another contributing factor was the increase in the average
number of 30- day equivalents per year provided to these veterans, which
rose from 49 to 53. Finally, the proportion of these veterans using the
pharmacy benefit increased from 87 to 89 percent.
VA spent $418 million on the outpatient pharmacy benefit for Priority 7
veterans in fiscal year 2001 (see table 1), 9 more than double the amount
VA spent for these veterans* drugs and supplies in fiscal year 1999.
Moreover, the rate of growth for Priority 7 pharmacy expenditures was more
than four times that for other veterans. The primary factor responsible
for this growth in spending for Priority 7 veterans is the increase in the
number of Priority 7 veterans using the pharmacy benefit. Growth in
pharmacy expenditures would have been higher if VA had not been able to
keep the
9 VA*s Office of Inspector General estimated that VA*s direct cost of
pharmaceuticals was $200 million in fiscal year 1999, based on projections
using Network 8 (Bay Pines) experiences. For a description of its
methodology, see Office of Inspector General, Department of Veterans
Affairs, Audit of Veterans Health Administration (VHA)
Pharmacy Copayment Levels and Restrictions on Filling Privately Written
Prescriptions for Priority Group 7 Veterans, Report Number 99- 00057- 4
(Washington D. C.: Dec. 20, 2000). We were able to develop a more precise
estimate by using pharmacy data from all of VA*s networks. VA Spent Over
$400 Million on the
Outpatient Pharmacy Benefit for Priority 7 Veterans
Page 8 GAO- 03- 161 VA Outpatient Pharmacy average expenditure for a 30-
day supply of drugs and supplies relatively constant between fiscal years
1999 and 2001. 10 During this period, VA spent
on average about $17 each year for a 30- day supply of drugs and supplies
for Priority 7 veterans. Excluding pharmacy personnel and other
operational expenses, VA spent about $12 to $13 on average for a 30- day
supply of drugs and supplies for these veterans between fiscal years 1999
and 2001.
Table 1: Expenditures for VA*s Outpatient Pharmacy Benefit, Fiscal Years
1999 through 2001
Dollars in millions
Outpatient pharmacy expenditures 1999 2000 2001
Priority 7 veterans $178 $271 $418 All other veterans $1,977 $2,245 $2,554
Total $2,155 $2,516 $2,972
Note: The categories include expenditures for drugs and supplies, pharmacy
personnel, and other operational expenses. The expenditures do not include
offsets from drug copayments.
Source: GAO analysis of VA data. VA*s expenditures for the pharmacy
benefit are offset by Priority 7 veterans* copayments for drugs. This
offset reduced VA*s net expenditures to $377 million for providing drugs
and supplies to Priority 7 veterans in fiscal year 2001 (see table 2). VA
collected approximately $41 million in drug copayments from Priority 7
veterans in fiscal year 2001 by charging $2 for a 30- day or less supply.
11 VA copayment collections will offset net
pharmacy expenditures even more for Priority 7 veterans in the future
because the copayment amount increased to $7 in February 2002. If the
copayment had been $7 in fiscal year 2001, VA could have collected about
$100 million more from these veterans.
10 VA has taken a number of actions to reduce pharmacy spending. These
actions include the establishment of formularies, use of different
contract arrangements to purchase drugs, use of mail- order pharmacies,
and use of joint procurement with DOD. See U. S. General Accounting
Office, VA and DOD Health Care: Factors Contributing to Reduced Pharmacy
Costs and Continuing Challenges, GAO- 02- 969T (Washington, D. C.: July
22, 2002). 11 VA collected about 90 percent of what it billed from drug
copayments in fiscal year 2001.
Page 9 GAO- 03- 161 VA Outpatient Pharmacy Table 2: Net Expenditures for
VA*s Outpatient Pharmacy Benefit Less Drug Copayments, Fiscal Years 1999
through 2001
Dollars in millions
Net outpatient pharmacy expenditures 1999 2000 2001
Priority 7 veterans $164 $247 $377 All other veterans a $1,916 $2,169
$2,458
Total $2,080 $2,417 $2,835
Note: Numbers in table may not add to total outpatient pharmacy
expenditures because of rounding. a Veterans with service- connected
disabilities rated greater than 50 percent, receiving drugs for service-
connected conditions, or with incomes lower than the VA pension level are
exempt from paying drug copayments.
Source: GAO analysis of VA data. Even though net expenditures for Priority
7 veterans* use of the pharmacy benefit have more than doubled from fiscal
year 1999 to 2001, the proportion of VA expenditures for this purpose was
only 13 percent of total net pharmacy expenditures in fiscal year 2001. By
comparison, 22 percent of VA*s patients were Priority 7 veterans in that
year. The remaining 87 percent of VA*s net spending for the pharmacy
benefit was for other veterans. This amounted to about $2.5 billion. The
rate of growth in net pharmacy benefit expenditures for Priority 7
veterans was more than four times that for other veterans from fiscal year
1999 to fiscal year 2001, but the net increase in spending for Priority 7
veterans represented
only 28 percent of all increased spending during that period. The
proportion of pharmacy use accounted for by Priority 7 veterans varies
substantially across the networks. Priority 7 veterans* use of the
pharmacy benefit ranged from 9 percent of all drugs and supplies dispensed
in Network 20 (Portland) to 29 percent of all drugs and supplies dispensed
in Network 3 (Bronx) in fiscal year 2001. The unevenness among networks in
Priority 7 veterans* use of drugs and supplies tracks closely with the
unevenness among networks in Priority 7 patients treated (see fig. 3).
Proportion of Priority
7 Pharmacy Use Varies Substantially Across Networks
Page 10 GAO- 03- 161 VA Outpatient Pharmacy Figure 3: Priority 7 Veterans
by Network: Proportion of Patients Treated and Drugs and Supplies Used,
Fiscal Year 2001 0 5 10 15 20 25 30 35 40 1 (Boston)
2 (Albany) 3 (Bronx) 4 (Pittsburgh)
5 (Baltimore) 6 (Durham)
7 (Atlanta) 8 (Bay Pines)
9 (Nashville) 10 (Cincinnati) 11 (Ann Arbor)
12 (Chicago) 13 (Minneapolis)
14 (Lincoln) 15 (Kansas City)
16 (Jackson) 17 (Dallas) 18 (Phoenix)
19 (Denver) 20 (Portland) 21 (San Francisco)
22 (Long Beach) Priority 7 veterans as a percentage of patients treated
and drugs and supplies used
Patients treated Drugs and supplies used Note: Drugs and supplies are
measured in 30- day equivalents. Source: GAO analysis of VA data.
Percentage
Page 11 GAO- 03- 161 VA Outpatient Pharmacy This unevenness in patient use
results in disproportionately higher costs to treat Priority 7 veterans as
a group in networks that have larger
proportions of Priority 7 veterans. As we discussed in a prior report, 12
VA does not take this unevenness into account when providing financial
resources each year to its networks. VA provides financial resources to
its networks based primarily on the number of patients the networks treat,
but VA excludes most Priority 7 veterans in determining the number of
patients treated. Initially, VA excluded most Priority 7 veterans in this
process because of their small numbers and the expectation that
collections from these veterans for drug copayments and from third- party
payments from their health care insurance plans, where applicable, would
cover the majority of Priority 7 veterans* costs. However, collections
covered only 24 percent of Priority 7 veterans* costs in fiscal year 2000.
We recommended that VA include all patients that it serves in its network
resource allocation model. Although VA concurred, it has not implemented
this recommendation.
In commenting on the draft report, VA agreed with our findings regarding
outpatient pharmacy use and expenditures. VA noted that the key factor in
increased outlays for pharmaceuticals from fiscal year 1999 to 2001 was
the increased number of veterans treated, rather than other factors such
as medication inflation or intensity of therapy.
VA also commented on the policy implications of filling privately written
prescriptions, which was recommended in a VA Office of Inspector General
(OIG) report we cited. However, we included the OIG report for the sole
purpose of citing its estimates of the direct cost of pharmaceuticals
based on work in Network 8 (Bay Pines). We did not address other issues in
the OIG report that VA discussed in its comments. VA agreed that Priority
7 veterans* use of the pharmacy benefit varies
across networks and that most of these veterans are not included in its
workload calculation when allocating financial resources to its networks.
Although VA concurred with the recommendation in our February 2002
report to better align measures of workload with actual workload served,
regardless of veteran priority group, it said it is considering how best
to address this recommendation. VA continues to be concerned that
12 See U. S. General Accounting Office, VA Health Care: Allocation Changes
Would Better Align Resources with Workload, GAO- 02- 338 (Washington D.
C.: Feb. 28, 2002). Agency Comments
and Our Evaluation
Page 12 GAO- 03- 161 VA Outpatient Pharmacy inclusion of Priority 7
veterans in the workload calculation would create financial incentives for
networks to seek out more Priority 7 veterans and
come at the expense of service- connected and low- income veterans. As we
noted in the prior report, networks with a disproportionate number of
Priority 7 veterans already have fewer resources to treat serviceconnected
and low- income veterans on a per- patient basis. Including Priority 7
workload in fiscal year 2003 allocations to networks would provide more
comparable resources for treating service- connected and low- income
veterans in all networks. VA*s comments are in appendix II.
We are sending copies of this report to the Secretary of Veterans Affairs,
interested congressional committees, and other interested parties. This
report is also available at no charge on GAO*s Web site at http:// www.
gao. gov. In addition, we will make copies of the report available to
others upon request.
If you or your staff have any questions about this report, please call me
at (202) 512- 7101. Another contact and key contributors are listed in
appendix III.
Sincerely yours, Cynthia A. Bascetta Director, Health Care Veterans*
Health and Benefits Issues
Appendix I: Scope and Methodology Page 13 GAO- 03- 161 VA Outpatient
Pharmacy We reviewed the Department of Veterans Affairs (VA) outpatient
pharmacy benefit for fiscal years 1999 through 2001 and focused on
Priority 7 veterans treated by VA to examine (1) Priority 7 veterans* use
of the VA outpatient pharmacy benefit, (2) the amount of VA expenditures
for providing this benefit to Priority 7 veterans, and (3) whether the
proportion of Priority 7 veterans* pharmacy use varies across VA*s 22
regional health care networks.
To address these objectives, we obtained documents and data on the use of
the VA pharmacy benefit and expenditures from fiscal years 1999 through
2001 primarily from four VA offices. From the Veterans Health
Administration*s (VHA) Office of Policy and Planning we obtained the
numbers of enrollees and veterans treated by network and priority group.
Based on our request, this office also provided data on veterans*
enrollment status to VA*s Pharmacy Benefits Management (PBM) Strategic
Healthcare Group to match with its pharmacy data. VA*s PBM Strategic
Healthcare Group provided a summary dataset that detailed pharmacy use and
expenditures for drugs and supplies by veterans* enrollment status from
fiscal years 1999 through 2001. VHA*s Revenue Office in the newly created
Chief Business Office provided data on the amount of collections VA
obtained from veterans* copayments for drugs. This office also provided
information on the costs of pharmacy personnel and other operational
expenses. VA*s Decision Support System program office in Bedford,
Massachusetts verified these numbers.
To do our analysis, we used the number of 30- day equivalents instead of
the number of unique prescriptions to measure pharmacy use based on
guidance provided by officials from VA*s PBM Strategic Healthcare Group.
The 30- day equivalent measure standardizes drug and supply volume, which
is necessary because veterans can receive prescriptions in various days of
supply including quantities sufficient for 30, 60, or 90 days.
To determine the total cost of VA*s outpatient pharmacy benefit we added
the cost of drugs and supplies obtained from VA*s PBM Strategic Healthcare
Group with personnel and other operations costs that we obtained from
VHA*s Revenue Office. To calculate VA*s personnel and operations costs, we
multiplied the number of unique prescriptions dispensed times $7.28 for
fiscal years 1999, 2000, and 2001. VA calculated the $7.28 figure using
fiscal year 2000 data to estimate expenditures based
on factors including: (1) salary costs of pharmacy personnel who dispense
the prescription, consult with veterans about their prescription, and
support the pharmacy operations, (2) materials needed to fill the
prescription including bottles and drug labels, (3) a share of the
facilities* Appendix I: Scope and Methodology
Appendix I: Scope and Methodology Page 14 GAO- 03- 161 VA Outpatient
Pharmacy overhead, often allocated based on square footage, including
electricity and maintenance, and (4) a share of headquarters* overhead and
expenses.
To reduce rounding error in our estimates of VA*s personnel and operations
costs, we recalculated the $7.28 estimate with information provided by VA
and used the precise number in our calculations.
We tested VA computer- based data used in our analysis and concluded that
they were adequate for our purposes. To do this, we assessed the
reliability of data that we obtained from VA that were used in our
analyses. When we identified inconsistencies between databases, we tried
to resolve them by interviewing officials responsible for creating or
maintaining the databases, updating the databases with additional
information VA provided, and requesting special data runs with parameters
that we specified.
We interviewed officials in VHA*s Office of Policy and Planning who were
knowledgeable about VA*s enrollment database to assess its reliability.
They told us that when they analyze data in which some veterans do not
have an enrollment priority indicated in the database, for analytical
purposes they assign a priority to these veterans using a computer
algorithm. This algorithm assigns a priority to veterans who do not have
one in the database. In most cases, the algorithm assigns the priority the
veteran had in the previous year. VA officials told us that it is
necessary to use such an algorithm because a veteran*s priority could
change, for
example, because of a change in income. When the information is not
updated soon enough in a database, no priority status is indicated. In
such cases, we relied on data provided to us by VA that used its algorithm
to identify the number of Priority 7 veterans using the pharmacy benefit.
We took several steps to validate that the pharmacy data provided by VA*s
PBM Strategic Healthcare Group accurately portrayed the use of the
pharmacy benefit and its expenditures. We interviewed officials from VA*s
PBM Strategic Healthcare Group and a pharmacy official from Network 2
(Albany) to determine if price data for drugs and supplies are
automatically updated. We found that VA does not have a mechanism to
automatically update prices in the PBM pharmacy database. Because we used
these price data to develop our estimate of expenditures, we tested the
reliability of this field in the PBM pharmacy database. To do this, we
took a random sample of 20 prescription records from a random sample of 33
VA drugs or supplies. For each prescription record in the sample, we
compared the price in the PBM pharmacy database with the lowest price that
VA would have been able to purchase the drug or supply for on that date.
We determined the lowest price for the date it was dispensed by
Appendix I: Scope and Methodology Page 15 GAO- 03- 161 VA Outpatient
Pharmacy using VA*s database of contract prices for drugs and supplies. We
then calculated the total expenditure for each drug or supply to determine
whether the expenditures for these drugs or supplies were over- or
understated. We determined that VA*s numbers for total drug and supply
expenditures for Priority 7 veterans were accurate for our purposes.
We also conducted a literature review of works published within the last 3
years. The literature search included the MEDLINE and AGELINE databases
and relied on publications from other federal agencies. The search focused
on finding information regarding prescription drug prices, current
clinical practice regarding the use of prescription drugs, and
insurance coverage for prescription drugs, particularly for persons over
the age of 65. We performed our review from March 2002 to November 2002 in
accordance with generally accepted government auditing standards.
Appendix II: Comments from the Department of Veterans Affairs Page 16 GAO-
03- 161 VA Outpatient Pharmacy Appendix II: Comments from the Department
of Veterans Affairs
Appendix II: Comments from the Department of Veterans Affairs Page 17 GAO-
03- 161 VA Outpatient Pharmacy
Appendix III: GAO Contact and Staff Acknowledgments
Page 18 GAO- 03- 161 VA Outpatient Pharmacy James C. Musselwhite, (202)
512- 7259 In addition to the contact named above, Thomas A. Walke, Matthew
L. Puglisi, Kristin M. Wilson, and Vanessa R. Taylor made key
contributions
to this report. Appendix III: GAO Contact and Staff
Acknowledgments GAO Contact Acknowledgments
Related GAO Products Page 19 GAO- 03- 161 VA Outpatient Pharmacy VA and
DOD Health Care: Factors Contributing to Reduced Pharmacy Costs and
Continuing Challenges. GAO- 02- 969T. Washington, D. C.: July
22, 2002.
Medicare: Financial Outlook Poses Challenges for Sustaining Program and
Adding Drug Coverage. GAO- 02- 643T. Washington, D. C.: April 17, 2002.
Medicare Outpatient Drugs: Program Payments Should Better Reflect Market
Prices. GAO- 02- 531T. Washington, D. C.: March 14, 2002.
Medigap: Current Policies Contain Coverage Gaps, Undermine Cost Control
Incentives. GAO- 02- 533T. Washington, D. C.: March 14, 2002.
VA Health Care: Allocation Changes Would Better Align Resources with
Workload. GAO- 02- 338. Washington, D. C.: February 28, 2002. VA Health
Care: Continuing Oversight Needed to Achieve Formulary
Goals. GAO- 01- 998T. Washington, D. C.: July 24, 2001.
DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly Buying
and Mailing Out Drugs. GAO- 01- 588. Washington, D. C.: May 25, 2001.
VA Drug Formulary: Better Oversight Is Required, but Veterans Are Getting
Needed Drugs. GAO- 01- 183. Washington, D. C.: January 29, 2001.
DOD and VA Health Care: Jointly Buying and Mailing Out Pharmaceuticals
Could Save Millions of Dollars. GAO/ T- HEHS- 00- 121. Washington, D. C.:
May 25, 2000. Related GAO Products
(290126)
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