VA and Defense Health Care
Potential Exists for Savings through Joint Purchasing of Medical and Surgical Supplies Gao ID: GAO-02-872T June 26, 2002The Department of Veterans Affairs (VA) spent $500 million and the Department of Defense (DOD) spent $240 million for medical and surgical supplies in fiscal year 2001. Since the 1980s, To achieve greater efficiencies through improved acquisition processes and increased sharing of medical resources, VA and DOD signed a memorandum of agreement in 1999 to combine their buying power. VA and DOD saved $170 in 2001 by jointly procuring pharmaceuticals, by agreeing on particular drugs to be purchased, and contracting with the manufacturers for discounts based on their combined larger volume. VA and DOD have not awarded joint national contracts for medical and surgical supplies as envisioned by their memorandum of agreement, and it is unlikely that the two departments will have joint national contracts for supplies anytime soon. However, a few VA and DOD facilities have yielded modest savings through local joint contracting agreements. The lack of progress have made in jointly contracting for medical and surgical supplies has, in part, been the result of their different approaches to standardizing medical and surgical supplies. Other impediments to joint purchasing have been incomplete procurement data and the inability to identify similar high-volume, high-dollar purchases.
GAO-02-872T, VA and Defense Health Care: Potential Exists for Savings through Joint Purchasing of Medical and Surgical Supplies
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United States General Accounting Office:
GAO:
Testimony:
Before the Subcommittee on Health, Committee on Veterans' Affairs,
House of Representatives:
For Release on Delivery:
Expected at 9:30 a.m.
Wednesday, June 26, 2002:
VA And Defense Health Care:
Potential Exists for Savings through Joint Purchasing of Medical and
Surgical Supplies:
Statement of Cynthia A. Bascetta:
Director, Health Care”-Veterans' Health and Benefits Issues:
GAO-02-872T:
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss an important component of the
Department of Veterans Affairs' (VA) business practices”purchasing
medical and surgical supplies”and its efforts to jointly procure them
with the Department of Defense (DOD). In fiscal year 2001, VA spent
about $500 million and DOD spent about $240 million for these
supplies. Since the early 1980s, the Congress has urged VA and DOD to
achieve greater efficiencies through improved acquisition processes
and increased sharing of medical resources. In June 1999, VA and DOD
signed a memorandum of agreement to combine their buying power and
achieve lower medical supply costs and eliminate contracting
redundancies for certain items, including pharmaceuticals and medical
and surgical supplies.
Last year we reported that VA and DOD saved over $170 million annually
by jointly procuring pharmaceuticals.[Footnote 1] VA and DOD achieved
these savings by agreeing on”or "standardizing"”particular drugs that
their facilities would purchase and then contracting with the
manufacturers of these drugs for discounts based on their combined
larger volume. As a follow-up to that study, you requested that we
provide information on VA and DOD's progress in jointly procuring
medical and surgical supplies. VA and DOD purchase approximately
200,000 different medical and surgical supplies. Some commonly used
supplies include gloves, masks, surgical tape, needles, and syringes.
Many medical and surgical supplies are disposable”that is, one-time
use items.
My testimony today focuses on (1) the status of VA and DOD's efforts
to jointly contract nationally for medical and surgical supplies,
including actual and potential savings from collaboration, and (2)
factors that impede their efforts for joint contracting. To examine
these issues, we conducted site visits at VA and DOD headquarters and
at eight of their medical facilities. We also reviewed studies,
documents, and current literature relating to standardization, unique
identifiers for medical and surgical supplies, and joint contracting.
In addition, we compared and analyzed data from current VA and DOD
contracts for medical and surgical supplies and conducted numerous
interviews with VA and DOD officials. Our work was conducted from
January 2002 through June 2002 in accordance with generally accepted
government auditing standards.
In summary, VA and DOD have not awarded joint national contracts for
medical and surgical supplies as envisioned in their memorandum of
agreement, and it is unlikely that the two departments will have joint
national contracts for supplies anytime soon. However, a few VA and
DOD facilities have yielded modest savings through local joint
contracting agreements. VA's and DOD's procurement efforts have
focused on contracting separately”VA on a national basis and DOD on a
regional basis. VA's and DOD's current separate contracts are expected
to save about $19 million annually. Our analysis of about 100
identical medical and surgical items that VA and DOD now contract for
separately indicates that jointly purchasing these items will yield
additional savings, although we were unable to quantify the full
potential. For example, in fiscal year 2001, if VA had collaborated
with DOD and obtained a discounted price from one of DOD's regions for
needle and syringe disposal containers, VA could have saved tens of
thousands of dollars on this one item alone. Similarly, DOD could have
realized additional savings if it had obtained VA's lower national
contract price on one type of intravenous tubing.
The lack of progress VA and DOD have made in jointly contracting for
medical and surgical supplies has, in part, been the result of their
different approaches to standardizing medical and surgical supplies.
These differing approaches”VA's national approach of selecting
specific items for all its facilities to purchase and DOD's regional
approach that allows each of nine geographic regions[Footnote 2] to
individually standardize specific items”increase the possibility that
VA and DOD regions could select and standardize different items for
purchase and thereby minimize the opportunities for national joint
procurements. Other impediments to joint purchasing have been
incomplete VA and DOD procurement data and the lack of a means for
identifying similar high-volume, high-dollar purchases. Because of
these shortcomings, it is difficult for VA and DOD to identify items
that would produce the greatest benefits from standardization within”
let alone between”their departments. The Secretary of Veterans Affairs
recently approved a procurement reform initiative to address these
impediments. If implemented, this initiative would increase the
likelihood that VA could procure medical and surgical supplies more
economically and put it in a better position to identify and enter
into joint procurements with DOD. In addition, VA and DOD are making
improvements to their automated information systems, which should
enhance their ability to identify items for standardization However,
neither VA nor DOD could confirm that their enhanced systems will
contain compatible data that will allow the two departments to readily
exchange procurement information”a key capability for facilitating
standardization and joint procurement.
Background:
VA operates one of the world's largest health care systems, spending
about $21 billion a year to provide approximately 3.8 million veterans
health care through 163 VA hospitals and over 800 outpatient clinics
nationwide. DOD spends about $19 billion on health care for over 5.8
million beneficiaries, including active duty personnel and military
retirees and their dependents. Most DOD health care is provided at the
more than 500 Army, Navy, and Air Force hospitals and other military
treatment facilities worldwide.
VA and DOD have separate systems for procuring and distributing
medical and surgical supplies. VA purchases supplies through the
Federal Supply Schedule (FSS), which is maintained by VA's National
Acquisition Center in Hines, Illinois, and is available to all federal
purchasers. VA validates a sample of FSS prices to ensure that they
are no more than the prices manufacturers charge their most-favored,
nonfederal customers.[Footnote 3] Once FSS prices are established, VA
manually analyzes its procurement history to identify like items, such
as gauze bandages, for which it could potentially standardize and
negotiate blanket purchase agreements (BPA) and national contracts
directly with vendors (manufacturers or distributors) for a larger
discount based on volume purchasing. After like items are identified,
a team of clinicians”including doctors, technicians, and nurses”
assesses the products for quality and agrees on a specific item or
items that are acceptable for use by all VA hospitals.[Footnote 4]
Acquisition officials then negotiate BPAs with the vendors of the
chosen products to obtain lower prices. Once BPAs are established, VA
facilities are required to purchase the items from the selected
vendors. If medical and surgical supplies are not available through
BPAs, VA medical facilities have the option of purchasing supplies
from FSS, locally, or on the open market directly from manufacturers.
Recently, VA began monitoring facility compliance with national BPAs.
DOD purchases medical and surgical supplies through Distribution and
Pricing Agreements (DAPA), which are negotiated and maintained by the
Defense Supply Center in Philadelphia, Pennsylvania.[Footnote 5] DOD
also allows its regions to individually standardize medical and
surgical items and negotiate their own regional incentive agreements
(RIA) to obtain larger discounts on certain high-volume, high-dollar
medical and surgical items. Teams of military and contractor personnel
in each region identify items for standardization As in VA's process,
clinicians then assess and select items to standardize. Finally, the
teams negotiate regional price discounts with the vendors. DOD
facilities are required to buy from certain vendors to take advantage
of DAPA pricing or, if a better price has been negotiated, through
RIAs. If items are not available through DAPA or RIAs, facilities can
purchase items locally or directly from manufacturers.
Over the past 2 decades, the Congress has urged VA and DOD to maximize
efficient use of federal dollars by sharing their health care
resources. In May 1982, the Congress passed the VA and DOD Health
Resources Sharing and Emergency Operations Act,[Footnote 6] which
encouraged the two departments to enter into health resources sharing
agreements. After the Congressional Commission on Servicemembers and
Veterans Transition Assistance issued its 1999 report calling for VA
and DOD to combine their market power, the Congress passed the
Veterans Millennium Health Care and Benefits Act,[Footnote 7] which
required VA and DOD to report on their joint pharmaceutical and
medical supplies procurement activities.
VA and DOD Have Not Awarded Joint National Contracts; Potential
Savings Exist:
VA and DOD have not awarded national joint procurement contracts for
medical and surgical supplies, and none appear likely in the near
future. While a few VA and DOD facilities have obtained modest savings
through local joint contracting agreements, we identified some
additional joint procurement opportunities that have the potential to
increase VA's and DOD's savings. Since their 1999 memorandum of
agreement, VA's and DOD's procurement efforts have focused on
separately contracting for standardized medical and surgical supplies.
Their separate national and regional contracts are expected to save a
total of about $19 million annually.
VA and DOD's joint procurement efforts for medical and surgical
supplies have been limited to the local level. In May 2000, we
reported that six VA and seven DOD facilities had joint purchasing
agreements for certain medical supplies, realizing modest savings.
[Footnote 8] Under one local contract, some VA and DOD facilities in
Virginia and North Carolina negotiated discounts with a manufacturer
for chemistry test slides; these VA and DOD facilities reported
savings of $358,000 and $301,000, respectively. Subsequently, VA and
DOD facilities in another region joined the contract for additional
savings of slightly over $1 million.
Currently, VA has about 150 national BPAs”most of which were awarded
in 2000”covering over 1,900 individual medical and surgical items such
as examination gloves, surgical face masks, and tongue
depressors.[Footnote 9] VA estimates that it saves about $13 million
annually through these national BPAs. DOD has 53 RIAs-”most awarded in
2002”-for items such as surgical tape, needles, and syringes.[Footnote
10] The department expects to save about $6 million annually through
these agreements. The combined savings of about $19 million are about
22 percent less than the $88 million the two departments would have
spent had the RIAs and national BPAs not been negotiated and are
indicative of the savings potential that exists.
However, additional savings can be achieved through VA and DOD
collaboration. By comparing DOD's RIA data from one geographic region
to VA's national BPA data, we identified about 100 identical medical
and surgical items that are procured by both VA and DOD. For most of
these items, the price difference was less than 4 percent. However,
for 19 of the items, the cost differentials range from 4 to 43
percent, with DOD generally paying more than VA. For 14 of these
items, VA negotiated lower prices with the manufacturer than DOD (see
table 1); for 5 others, DOD negotiated lower prices (see table 2). For
example, for a large bore intravenous extension set used for quickly
delivering fluids or blood, DOD's negotiated unit price per case is
$179-43 percent more than VA's negotiated unit price of $102. For
borderless dressings, which are used to treat serious wounds, DOD's
negotiated case price of $90 is 36 percent lower than VA's negotiated
case price of $141. Purchasing the items from the vendors offering the
lowest price will yield additional savings for both departments. For
example, in fiscal year 2001, VA could have saved over $52,000 on one
item alone-8-gallon sharps containers for disposing of used syringes”
if it had collaborated with DOD and obtained its regional price. In
that same year, DOD could have saved about $200,000 on intravenous
pumps and tubing accessories if it had collaborated with VA and
obtained VA's lower national BPA prices. While the item-by-item
savings may be relatively small, the cumulative effect of joint
purchasing thousands of items can be significant.
Table 1: Unit Price Comparison for Select Identical Medical and
Surgical Items; VA More Economical Than DOD:
Advanced woundcare - Manufacturer A:
Item description: Polyurethane sterile foam dressing, 3" x 3";
Unit price, VA: $37.39;
Unit price, DOD[A]: $51.16;
Difference, Dollars: $13.77;
Difference, Percent: 27%.
Item description: Polyurethane sterile foam dressing, 12" x 10";
Unit price, VA: $385.47;
Unit price, DOD[A]: $401.38;
Difference, Dollars: $15.91;
Difference, Percent: 4%.
Item description: Polyurethane sterile foam dressing, 27-5/8" x 15-
3/4";
Unit price, VA: $438.57;
Unit price, DOD[A]: $456.67;
Difference, Dollars: $18.10;
Difference, Percent: 4%.
Item description: Polyurethane sterile foam dressing adhesive, 2" x 2";
Unit price, VA: $44.95;
Unit price, DOD[A]: $69.81;
Difference, Dollars: $24.86;
Difference, Percent: 36%.
Item description: Polyurethane sterile foam dressing, 4" x 4";
Unit price, VA: $27.25;
Unit price, DOD[A]: $42.38;
Difference, Dollars: $15.13;
Difference, Percent: 36%.
Item description: Wound dressing alginate, 2 grams;
Unit price, VA: $9.93;
Unit price, DOD[A]: $16.21;
Difference, Dollars: $6.28;
Difference, Percent: 39%.
Item description: Wound dressing alginate, 3" x 4-3/4";
Unit price, VA: $14.91;
Unit price, DOD[A]: $25.75;
Difference, Dollars: $10.84;
Difference, Percent: 42%.
Intravenous pumps and tubing accessories:
Item description: Luer-Lock Smart-Site needleless valve port;
Unit price, VA: $87.00;
Unit price, DOD[A]: $105.00;
Difference, Dollars: $18.00;
Difference, Percent: 17%.
Item description: Extension set with two injection sites;
Unit price, VA: $174.00;
Unit price, DOD[A]: $273.00;
Difference, Dollars: $99.00;
Difference, Percent: 36%.
Item description: Extension set with 0.2 micron filter;
Unit price, VA: $197.00;
Unit price, DOD[A]: $214.00;
Difference, Dollars: $17.00;
Difference, Percent: 8%.
Item description: Large bore extension set;
Unit price, VA: $102.00;
Unit price, DOD[A]: $179.00;
Difference, Dollars: $77.00;
Difference, Percent: 43%.
Item description: Extension set with 1.2 micron filter;
Unit price, VA: $144.00;
Unit price, DOD[A]: $191.00;
Difference, Dollars: $47.00;
Difference, Percent: 25%.
Item description: Vial adapter/access device;
Unit price, VA: $145.00;
Unit price, DOD[A]: $172.00;
Difference, Dollars: $27.00;
Difference, Percent: 16%.
Item description: Vial dispensing/access device;
Unit price, VA: $147.00;
Unit price, DOD[A]: $209.00;
Difference, Dollars: $62.00;
Difference, Percent: 30%.
[A] The DOD unit price is from one DOD geographic region.
Source: GAO analysis of May 2002 VA and DOD prices.
[End of table]
Table 2: Unit Price Comparison for Select Identical Medical and
Surgical Items, DOD More Economical Than VA:
Advanced woundcare - Manufacturer B:
Item description: Borderless dressing, 8" x 8";
Unit price, DOD[A]: $90.00;
Unit price, VA: $140.63;
Difference, Dollars: $50.63;
Difference, Percent: 36%.
Item description: Island dressing, 1-3/4" x 2-1/2";
Unit price, DOD[A]: $111.00;
Unit price, VA: $135.00;
Difference, Dollars: $24.00;
Difference, Percent: 18%.
Item description: Island dressing, 4-1/2" x 9-1/2";
Unit price, DOD[A]: $66.00;
Unit price, VA: $74.25;
Difference, Dollars: $8.25;
Difference, Percent: 11%.
Sharps containers:
Item description: 8-gallon sharps container, red with clear hinged lid;
Unit price, DOD[A]: $52.08;
Unit price, VA: $63.50;
Difference, Dollars: $11.42;
Difference, Percent: 18%.
Item description: 2-gallon sharps container, yellow;
Unit price, DOD[A]: $65.97;
Unit price, VA: $77.00;
Difference, Dollars: $11.03;
Difference, Percent: 14%.
[A]The DOD unit price is from one DOD geographic region.
Source: GAO analysis of May 2002 VA and DOD prices.
[End of table]
Impediments to Joint Procurement:
The lack of progress VA and DOD have made in jointly contracting for
medical and surgical supplies has, in part, been the result of their
different standardization approaches”national versus regional. Other
impediments to joint purchasing have been incomplete procurement data
and the lack of a means for each department to identify similar high-
volume, high-dollar purchases. Because of these shortcomings, it is
not only difficult for VA and DOD to identify items that should be
standardized within their departments but between their departments as
well. VA is considering improvements to its acquisition policies and
is designing an enhanced automated information system. These
improvements are intended to minimize local purchases, accelerate
identification of items for standardization, and create greater
purchasing power, placing it in a better position to jointly purchase
with DOD. For its part, DOD is implementing a new automated
information system, which is intended to enhance its ability to
identify items for standardization. However, according to officials
from both departments, it is uncertain whether data from the new
systems will be compatible. Such capability would assist both
departments in identifying joint procurement opportunities.
Different Approaches to Standardization Limit Potential for Joint
National Contracts:
While VA and DOD have both begun to independently standardize medical
and surgical supplies for their facilities, VA has standardized
nationally and DOD has standardized regionally. According to a DOD
official, DOD has made several attempts at national standardization
but has been unable to do so. The official said that the primary
reason was because DOD was unable to gain widespread clinician
acceptance across all its medical facilities. DOD officials consider
the regional approach more feasible for standardizing medical and
surgical supplies because it would be easier to gain acceptance among
smaller groups of clinicians. However, this approach limits the
prospects for jointly procuring with VA because it increases the
possibility that different medical and surgical items will be
standardized within DOD regions. For example, while eight of the nine
DOD geographic regions individually standardized and contracted for
needles and syringes from the same vendor, six of the nine geographic
regions standardized on surgical gloves from five different vendors.
Incomplete Procurement Data and Lack of a Means for Identifying
Similar Items Complicate Standardization:
VA and DOD acknowledge that standardizing medical and surgical
supplies is a critical step toward achieving joint procurement.
However, identifying and standardizing like items has been a
cumbersome and time-consuming process for VA and DOD because they lack
complete data on their medical and surgical supply procurements. In
addition, they lack unique item identifiers that would make
recognizing similar items easier.
Complete data on all medical and surgical supplies purchased by their
facilities would enable VA and DOD to more readily identify
prospective items for standardization and joint purchasing
opportunities. While VA has multiple information systems and databases
that provide procurement information, the systems do not have the
capability to provide a systemwide list of its top high-volume, high-
dollar medical and surgical items purchased by all VA facilities.
Instead, VA only has quantity and price information on items purchased
from its national BPAs. DOD also does not have information on the top
medical and surgical items purchased by its facilities because its
systems do not capture information on purchases that individual
facilities make locally or directly from manufacturers.
In addition to lacking complete data, VA and DOD face a difficult task
in identifying like items because not all medical and surgical
supplies have universal product numbers (UPN) or similar coding.
Industry estimates show that from 40 to 80 percent of medical and
surgical supplies have UPNs depending on the unit of packaging”
individual items, cases, or pallets.[Footnote 11] A product's UPN and
associated bar code identify characteristics such as the manufacturer,
product type, size, and unit of packaging (for example, 10 per
carton). As such, UPNs not only facilitate standardization but also
enable purchasers of medical and surgical supplies to develop standard
product groups, track prices, and employ prudent purchasing methods”
paying for medical and surgical supplies that meet quality standards
at competitive prices.
Without UPNs or another identification system, VA and DOD must pull
information from various sources”including ad hoc acquisition reports
and multiple databases”to identify like items. For example, to
identify the types of surgical gloves used at VA facilities, staff
working on the procurement reform initiative had to manually look at
item descriptions in various databases. For this one item, VA
identified more than 12 different product names, including sterile
gloves, surgeon's gloves, and orthopedic gloves. Stock number
identifiers were also inconsistent because each facility has the
option of using the manufacturers' stock numbers or various
distributors' stock numbers. With a dozen product names and a
proliferation of stock numbers, this one item”surgical gloves”could
appear in VA's acquisition system as numerous separate items.
The manufacturing and distribution industry has been reluctant to
adopt more UPNs for medical and surgical supplies. The industry
contends it is too costly and there is a lack of demand from
purchasers. To address the cost concerns, VA is in the process of
performing an economic analysis to determine the cost and benefits of
requiring vendors to include UPNs and associated bar codes for all
medical and surgical supplies on FSS. Concerning demand, however,
purchasers have presented a different perspective from that held by
the manufacturing and distribution industry. For example, the
Healthcare EDI Coalition”which represents 20 major health care buying
groups, including VA and DOD”endorsed the use of UPNs for medical and
surgical items in February 1998. At that time, this group represented
over 90 percent of all health care group contract purchases in the
nation. In June 2000, a group of four health care purchasing groups,
with annual purchases of over $38 billion and whose membership
includes more than 5,800 health care facilities, teamed with three e-
commerce companies to endorse UPNs for medical supplies. According to
a VA official, one of the largest group purchasing organizations
(GPO)[Footnote 12] for health care products, which represents over
1,800 nonprofit hospitals and health systems and about $14 billion in
annual purchases, recently began an effort to require UPNs for all
medical and surgical items purchased through its organization”an
initiative we believe is consistent with best business practices. In
1998, we recommended that the Administrator of the Health Care
Financing Administration, now the Centers for Medicare and Medicaid
Services, require suppliers to identify the specific medical
equipment, supplies, and devices they bill to Medicare by including
UPNs on their Medicare claims.[Footnote 13]
Some Impediments Beginning to Be Addressed, but Impact on Joint
Procurement Unclear:
VA is considering how to implement improvements to its acquisition
policies. These improvements are intended to minimize local purchases,
accelerate standardization, and create greater purchasing power. If
implemented, the improvements will place the department in a better
position to jointly purchase with DOD. VA and DOD are also making
improvements to their automated information systems. However, it is
uncertain whether data from the new systems will be compatible. Such
capability would assist both departments in identifying joint
procurement opportunities.
In May 2002, VA's Procurement Reform Task Force issued its report on
improving the efficiency and effectiveness of VA's acquisition system,
which included 65 recommendations. Recognizing that standardizing
medical and surgical supplies is critical to achieving cost savings,
the task force recommended that VA establish a contract purchasing
hierarchy that would require its facilities to purchase supplies first
from national BPAs; then multiregional, regional, or local BPAs; and
then from FSS. Only when items are not available from these sources
can facilities enter into local agreements or purchase them directly
from the manufacturers. This recommendation is timely because VA
recently estimated that from 30 to 35 percent of facilities' purchases
are not from BPA contracts. To further enhance VA national
standardization, the task force also recommended that VA continue
standardizing medical and surgical products to obtain maximum benefits
by focusing on high-volume, high-dollar medical and surgical items.
Regarding UPNs, the task force recommended that VA take a leadership
position in advocating their use as a way to improve quality, increase
safety, and enhance cost-effectiveness of medical and surgical supply
purchases. Currently, VA is in the process of preparing a cost-benefit
analysis for the Office of Management and Budget (OMB) to support a
regulation that would require vendors to include UPNs and associated
bar codes on all items sold on FSS.[Footnote 14] DOD officials stated
that DOD has been a long-time supporter of the requirement that
vendors include UPNs and plans to participate with VA in discussing
the rulemaking initiative with OMB. Until UPNs are established, the
task force recommended that VA assign a unique identifier to each
medical and surgical product purchased.
Finally, the task force recommended that VA intensify its ongoing
initiatives to identify and create opportunities for joint VA and DOD
purchasing to achieve lower medical material costs by combining the
purchasing power of the two departments and eliminating contracting
redundancies. The task force report did not specify how to achieve
this, given VA's and DOD's different approaches to standardization.
However, joint purchasing could partially be achieved by the task
force's recommendation that VA include in its national BPAs a clause
allowing DOD facilities or regions to purchase medical and surgical
supplies from VA's BPAs and create tiered pricing to provide
additional discounts as more items are purchased. A DOD official
stated that the department would not require but would support any
initiative by its nine geographic regions to take advantage of lower
medical and surgical supply item pricing that may be available through
VA's national BPAs.
In addition to considering implementation of the task force's
recommendations, VA is in the process of designing an enhanced
automated information system”-the CORE Financial Logistics System.
Similarly, DOD is implementing its enhanced automated information
system”the Defense Medical Logistics Supply System. VA and DOD
officials stated that their improved systems will provide information
on all medical and surgical items purchased, including local and high-
dollar, high-volume purchases. However, because each department is
developing its system independently, neither could assure us that the
enhanced systems will contain compatible information that could be
compared between the two departments. Without such a capability, it
will be more difficult for VA and DOD to routinely exchange
information on medical and surgical standardization efforts and
identify additional opportunities for joint procurement.
Concluding Observations:
While it is difficult to quantify the potential savings joint
contracting could yield, these savings could be meaningful given that
VA's and DOD's separate approaches to procuring surgical and medical
supplies have yielded an estimated $19 million annually in savings.
However, much needs to be done to take advantage of additional savings
opportunities. At this point, neither department has accurate,
reliable, and comprehensive procurement information”a basic
requirement for identifying potential medical and surgical items to
standardize. Furthermore, because DOD has opted to follow a regional
rather than a national approach to standardization, opportunities for
national joint procurement will be more difficult to achieve. Within
VA, its Procurement Reform Task Force highlighted many department
procurement shortcomings and potential solutions. Continued management
attention and commitment to implementing the task force's
recommendations is a positive step to improving the efficiency and
effectiveness of VA's acquisition system. DOD is currently
implementing a new procurement system and has been a long time
supporter of efforts to establish UPNs for medical and surgical
supplies. However, the future of joint VA and DOD procurement
initiatives depends on the progress and success each department has in
improving its acquisition system and, ultimately, each department's
commitment to joint procurement.
Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions you or other members of the subcommittee may have.
Contact and Acknowledgments:
For further information, please contact Cynthia A. Bascetta at (202)
512-7101. Individuals making key contributions to this testimony
include Michael T. Blair, Jr.; Cherie' M. Starck; John Y. Oh; Allan C.
Richardson; and Karen M. Sloan.
[End of section]
Footnotes:
[1] U.S. General Accounting Office, DOD and VA Pharmacy: Progress and
Remaining Challenges in Jointly Buying and Mailing Out Drugs,
[hyperlink, http://www.gao.gov/products/GAO-01-588] (Washington, D.C.:
May 25, 2001).
[2] For health care delivery, DOD has 12 regions. However, for
standardization, it has combined some regions for a total of nine
geographic regions.
[3] In cases where VA's validation process identifies that the FSS
price is more than the price paid by most-favored, nonfederal
customers, VA recovers the price differences from the manufacturers.
[4] Not all medical and surgical supplies are viable candidates for
standardization for various reasons, such as strong clinician
preferences for a specific item.
[5] Currently, DAPA is being converted to FSS pricing.
[6] Public Law 97-174.
[7] Public Law 106-117.
[8] U.S. General Accounting Office, VA and Defense Health Care:
Evolving Health Care Systems Require Rethinking of Resource Sharing
Strategies, [hyperlink, http://www.gao.gov/products/GAO/HEHS-00-52]
(Washington, D.C.: May 17, 2000).
[9] VA has 126 national BPAs, 17 basic ordering agreements with
industries operated by the disabled, and 6 national contracts covering
over 1,900 individual medical and surgical items. For simplicity, we
refer to these as national BPAs.
[10] The total number of medical and surgical items for the 53 RIAs in
nine geographic regions was not available centrally.
[11] Industry standards organizations have created two UPN formats for
medical equipment and supplies: (1) an alphanumeric standard that
provides detailed product information and (2) an all-numeric standard
that is more consistent with international coding standards.
[12] GPOs use volume purchasing of their member facilities to
negotiate lower prices from vendors.
[13] U.S. General Accounting Office, Medicare: Need to Overhaul Costly
Payment System for Medical Equipment and Supplies, [hyperlink,
http://www.gao.gov/products/GAO/HEHS-98-102] (Washington, D.C.: May
12, 1998).
[14] Under Executive Order 12866, dated September 30, 1993,
departments are required to submit assessments of the potential costs
and benefits of significant regulatory actions to OMB, along with the
draft regulatory actions.
[End of section]
