VA Health Care
Expanded Eligibility Has Increased Outpatient Pharmacy Use and Expenditures Gao ID: GAO-03-161 November 8, 2002The 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.
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.
GAO-03-161, VA Health Care: Expanded Eligibility Has Increased Outpatient Pharmacy Use and Expenditures
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GAO Highlights:
Highlights of GAO-03-161, report to the Chairman, Committee on
Veterans‘
Affairs, House of Representatives:
November 2002:
VA HEALTH CARE:
Expanded Eligibility Has Increased Outpatient Pharmacy Use and
Expenditures:
Why GAO Did This Study:
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.
What GAO Found:
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:
[See PDF for image]
Source: GAO Analysis of VA Data
[End of figure]
[End of section]
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:
Contents:
Letter:
Results in Brief:
Background:
Priority 7 Veterans‘ Use of Pharmacy Benefit Has Grown:
VA Spent Over $400 Million on the Outpatient Pharmacy Benefit for
Priority 7 Veterans:
Proportion of Priority 7 Pharmacy Use Varies Substantially Across
Networks:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Veterans Affairs:
THE SECRETARY OF VETERANS AFFAIRS:
WASHINGTON:
October 31, 2002:
Ms. Cynthia A. Bascetta, Director, Health Care-Veterans‘ Health and
Benefits Issues Health Care Team:
U.S. General Accounting Office 441 G Street, NW, Washington, DC 20548:
Dear Ms. Bascetta:
The Department of Veterans Affairs (VA) has reviewed your draft report,
VA HEALTH CARE: Expanded Eligibility Has Increased Outpatient Pharmacy
Use and Expenditures (GAO-03-161) and agrees with your findings and
conclusions. GAO‘s report validates that the key factor in increased
outlays for pharmaceuticals in FY 1999 to 2001 relates primarily on the
increased number of patients treated receiving medications, rather than
such other factors as medication inflation or intensity of therapy.
While those factors are drivers, the report clearly shows that the
overwhelming increase in pharmacy costs results from the increase in
the number of patients treated. In the case of Priority 7 veterans, an
estimated 74 percent of the increase in use of pharmacy benefits is due
to the increase in the number of those veterans being treated by VA.
GAO cites an FY 2000 Office of Inspector General (OIG) report that
recommended VHA consider filling privately written prescriptions. The
then Under Secretary for Health stated that concerns about quality of
care, financial and workload implications, and the still unknown
consequences of Medicare drug benefit legislation precluded concurrence
with the OIG‘s recommendation. Although the policy implications of
several variations of pharmacy-only benefits are currently being
considered in VA, the concerns cited in response to the OIG‘s report
are still valid. Also, in the OIG‘s report, it does not appear that all
of the associated costs of processing and filling prescriptions were
fully addressed. The Veterans Health Administration‘s (VHA) ability to
meet the capacity to fulfill the potential workload were OIG‘s
recommendation implemented is a serious concern. This concern is
heightened by plans for VA and the Department of Defense to use
existing excess capacity at VA‘s Consolidated Mail-Out Pharmacies.
GAO also points out that both VA‘s Inspector General and GAO have
recommended in their previous work that VA address the variations in
the proportion of Priority 7 veteran use of VA pharmacy benefits across
networks. They recommended including all Priority 7 veterans not
currently in the Basic Vested Care category to better align actual
enrollment and the allocation of resources in each network. Such
inclusion would create financial incentives to seek out more Priority 7
veterans instead of veterans with service-connected disabilities or
those with incomes below the current income threshold or special needs
patients (e.g., the homeless) --veterans who comprise VA‘s core health
care mission.
VA must also consider that allocating these resources is a zero sum
circumstance. Increased resources for Priority 7 veterans would come at
the expense of veterans who are service-connected, poor, or who require
specialized services. Allocation of resources to areas with a
disproportionate percentage of Priority 7 veterans would come at the
expense of veterans who live in areas with disproportionately higher
numbers of service-connected and low-income veterans. VHA is carefully
weighing how to best address OIG‘s and GAO‘s report recommendations.
Earlier this month, the RAND Corporation issued a report on VERA, and
VHA is currently evaluating it. The report should assist VHA in making
decisions on VERA in time for the FY 2003 allocation.
Thank you for the opportunity to comment on your draft report.
Sincerely yours,
Anthony J. Principi
Signed by Anthony J. Principi
[End of Section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
James C. Musselwhite, (202) 512-7259
Acknowledgments:
In addtion to the contact named above, Thomas A. Walke, Matthew L.
Puglisi, Kristin M. Wilson, and Vanessa R. Taylor made key
contributions
to this report.
Related GAO Products:
Tables:
Table 1: Expenditures for VA‘s Outpatient Pharmacy Benefit, Fiscal
Years 1999 through 2001:
Table 2: Net Expenditures for VA‘s Outpatient Pharmacy Benefit Less
Drug Copayments, Fiscal Years 1999 through 2001:
Figures:
Figure 1: Growth of Priority 7 Veterans Treated, Fiscal Years 1996
through 2001:
Figure 2: Growth in Priority 7 Veterans‘ Use of the Pharmacy Benefit,
Fiscal Years 1999 through 2001:
Figure 3: Priority 7 Veterans by Network: Proportion of Patients
Treated and Drugs and Supplies Used, Fiscal Year 2001:
Abbreviations:
DOD: Department of Defense
PBM: Pharmacy Benefits Management
VA: Department of Veterans Affairs
VHA: Veterans Health Administration:
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.[Footnote 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.[Footnote 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.[Footnote 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) 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.[Footnote 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.
Results in Brief:
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 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.
Background:
The Veterans‘ Health Care Eligibility Reform Act of 1996 simplified
eligibility standards for veterans in need of hospital and outpatient
care.[Footnote 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 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-the-counter 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.
Figure 1: Growth of Priority 7 Veterans Treated, Fiscal Years 1996
through 2001:
[See PDF for image]
[End of figure]
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.[Footnote 6] Over
one-third of Medicare beneficiaries have no prescription drug coverage,
and those beneficiaries with coverage are sometimes exposed to gaps in
coverage and high out-of-pocket costs.[Footnote 7]
Priority 7 Veterans‘ Use of Pharmacy Benefit Has Grown:
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.[Footnote 8]
Figure 2: Growth in Priority 7 Veterans‘ Use of the Pharmacy Benefit,
Fiscal Years 1999 through 2001:
[See PDF for image]
[End of figure]
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 Over $400 Million on the Outpatient Pharmacy Benefit for
Priority 7 Veterans:
VA spent $418 million on the outpatient pharmacy benefit for Priority 7
veterans in fiscal year 2001 (see table 1),[Footnote 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 average expenditure for a
30-day supply of drugs and supplies relatively constant between fiscal
years 1999 and 2001.[Footnote 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.
Priority 7 veterans; 1999: $178; 2000: $271; 2001: $418.
All other veterans; 1999: $1,977; 2000: $2,245; 2001: $2,554.
Total; 1999: $2,155; 2000: $2,516; 2001: $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.
[End of table]
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.[Footnote 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.
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.
Priority 7 veterans; 1999: $164; 2000: $247; 2001: $377.
All other veterans[A]; 1999: $1,916; 2000: $2,169; 2001: $2,458.
Total; 1999: $2,080; 2000: $2,417; 2001: $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.
[End of table]
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.
Proportion of Priority 7 Pharmacy Use Varies Substantially Across
Networks:
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).
Figure 3: Priority 7 Veterans by Network: Proportion of Patients
Treated and Drugs and Supplies Used, 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. As we discussed in a prior
report,[Footnote 12]2 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.
Agency Comments and Our Evaluation:
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 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 service-connected 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:
Signed by Cynthia A. Bascetta
[End of section]
Appendix I: Scope and Methodology:
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‘ 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 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.
[End of section]
Appendix II: Comments from the Department of Veterans Affairs:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
James C. Musselwhite, (202) 512-7259:
Acknowledgments:
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.
[End of section]
Related GAO Products:
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.
FOOTNOTES
[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.
[4] VA now has 21 networks. In January 2002, VA combined Network 13
(Minneapolis) and Network 14 (Lincoln) to form a new network.
[5] Pub. L. No. 104-262 §§ 101, 104.
[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).
[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.
[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.
[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.
[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).
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