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Good morning Mr. Chairman and distinguished members. I am Brigadier General Daniel G. Mongeon, Commander of the Defense Supply Center Philadelphia. I appreciate the opportunity to appear before this subcommittee to address questions concerning Department of Defense and Department of Veterans Affairs joint pharmacy procurement. I would like to begin with some brief background information on the Defense Supply Center Philadelphia and our medical materiel mission..

The Defense Supply Center Philadelphia is one of the Defense Logistics Agency’s five supply management centers. Our mission is to ensure the combat readiness and sustainment of America’s Fighting Forces by providing world class logistical support in peace and war. We also support other federal agencies and some foreign governments. We are the providers of pharmaceuticals and medical supplies, food, general and industrial items, and clothing and textile products. Our mission encompasses support to the full spectrum of military operations, ranging from support of non-war activities such as disaster relief and humanitarian aid, to provision of logistics support to major regional war. Most critically we must be able to maintain capabilities which can seamlessly transition from every day support requirements to the escalating support dimensions of crisis events. We have 33 branch offices throughout the United States, Europe and the Pacific. On an annual basis we buy and sell over $5 billion in products representing the commodity groups I mentioned earlier.

DSCP is the Department of Defense and Military Health System’s "national provider" for medical materiel. In this role we develop and implement the critical logistics and medical supply chain business practices that ensure the cost effective and efficient distribution of medical materiel to the full range of Military Health System operations. These operations range from the daily operation of DoD’s medical treatment facilities and other patient care activities, to support of our combat medical units that are engaged in their own wide range of contingency and crisis response missions. The importance of this medical materiel mission is very visible to us. We are constantly aware that timely provision of medical materiel, procured at the best possible price, is a very important contributing factor to the success of the health care system that supports the military community. And, of course, we are very focused on the fact that medical materiel support is a vital part of the medical readiness that guarantees the best combat casualty care and contingency medical support for our Armed Forces.

We continue to make important changes and enhancements in our medical materiel support program. Our very successful prime vendor program is entering its second generation as we realign prime vendors to support the regional design of the Military Health System. These prime vendors represent the nation’s largest and most sophisticated pharmaceutical and medical surgical supply distribution firms. The shift to commercial practices has caused a dramatic reduction in unnecessary medical materiel inventory and a far more efficient delivery of materiel to our health care system. Today, our medical treatment facilities receive next business day delivery for a very high percentage of their requirements. The shift to commercial capabilities has also affected our medical materiel readiness programs. We have made significant investments in contingency materiel that is held at distributor and manufacturer locations. We have dramatically lessened the loss of prepositioned readiness materiel due to potency date expiration and obsolescence, and have achieved greater flexibility to update our readiness materiel as new items enter the medical materiel marketplace. More recently we have invested in a wide range of electronic commerce initiatives designed to make our business practices as innovative and effective as any in the medical materiel industry. Our medical materiel operation has been a key reason for our Center’s recent receipt of the President’s Award for Quality Improvement, a highly coveted and competitive federal sector recognition sponsored by the Department of Commerce. Today, our medical directorate functions as a very sophisticated supply chain integrator, linking our customer base with their commercial and industrial suppliers. We execute the programs that provide the business intelligence, supply order fulfillment, distribution and readiness to meet the very complex array of medical missions performed by the Department of Defense.

An important part of our business and readiness strategy is to partner with other government agencies whenever the partnership adds operational capability, makes economic sense for the Department of Defense, and is consistent with our mission accomplishment. Clearly, pharmacy procurement is a part of our mission that we believe can be enhanced by the right partnership with the Department of Veterans Affairs. Our interagency Memorandum of Agreement with the VA is designed to accomplish our partnership goal. Both agencies procure a substantial amount of pharmaceuticals. During our last fiscal year DoD procured $1B of pharmaceuticals, it is the largest part of our medical materiel mission. This year the amount is likely to reach $1.4B. We believe that smart partnering with the VA can lead to additional reduction in product prices. In fact, the Federal Pharmacy Executive Steering Committee began work even before the signing of the MOA to establish joint DoD-VA procurement objectives and guidelines. There already have been important results from our partnering efforts. DSCP and the VA have 18 joint pharmaceutical contracts for high demand items. These contracts are expected to yield $29M in combined cost reductions this year for both agencies. DSCP has 5 other DoD national contracts that will provide us an additional $54M in cost reductions for DoD during this fiscal year. As these 5 contracts reach their conclusion our requirement will be merged with the VA requirement in order to form additional joint contracts. The DSCP and VA staffs are now working together on 40 additional drug candidates that we will pursue for joint contract award. The potential cost reduction value from contracts for these additional items is likely to be several million dollars. In our broader pricing program, 112 of our 255 pharmaceutical Distribution and Pricing Agreements with manufacturers have been identified for conversion to the VA’s Federal Supply Schedule. Of these 112 agreements, the conversion process is complete for 82 agreements. There is now one Federal price in effect for these 82 manufacturers. The conversion process for the additional 30 agreements, completing the 112 approved for conversion to date, will be concluded soon. We believe that over the next year a number of manufacturers that initially deferred action to convert the DoD pricing agreement to the Federal Supply Schedule will be ready to work with us in the conversion process. Also related to this conversion process, we have resolved a number of initial data management issues caused by our agencies’ different operating systems, and we are now forming a more elaborate data management working group to further examine measures we both can take to synchronize our data and information management requirements.

In closing Mr. Chairman, I believe our partnership with the VA is smart and offers significant potential for future cooperative efforts. Most importantly, our joint pharmacy procurement efforts are reducing product prices and providing our patient care providers the opportunity to extend the value of their critical financial resources. I look forward to continued, very positive efforts with the VA to make this partnership even more effective. I will be happy to answer any questions that you may have for me.

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