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Testimony of

John E. Ogden, M.S.

Chief Consultant for Pharmacy Benefits Management

Department of Veterans Affairs

VA’s Consolidated Mail Outpatient Pharmacy Program

Before the

Subcommittee on Oversight and Investigations

Committee on Veterans Affairs

U.S. House of Representatives

May 25, 2000

Mr. Chairman and members of the Subcommittee,

I am pleased to be here this morning to discuss a wonderful success story…the Veterans Health Administration’s (VHA) Consolidated Mail Outpatient Pharmacy Program (CMOP). I’ve also included information for the record that augments the testimony of the Honorable Gary Krump regarding joint contracting efforts for pharmaceuticals between the Department of Veterans Affairs (VA) and the Department of Defense.

For over four decades VA has provided mail prescription services to veterans as an adjunct to its health benefit. During the 1970s and 1980s, consolidation of mail prescription workloads from multiple VA medical centers into centralized operations was initiated on a limited basis. In 1994, the Consolidated Mail Outpatient Pharmacy (CMOP) at Leavenworth, Kansas began processing high volume mail prescription workloads using an integrated, automated dispensing system. Since that time, VA has expanded the program to include a total of seven (7) CMOPs located in Leavenworth, KS; West Los Angeles, CA; Bedford (Boston), MA; Dallas, TX; Murfreesboro (Nashville), TN; Hines (Chicago), IL; and Charleston, SC. In Fiscal Year 1999, those facilities processed workloads exceeding 40 million prescriptions; they are on track to process 50 million prescriptions in Fiscal Year 2000.

Patients are provided care by the VA medical centers or clinics with new or emergent prescriptions being dispensed directly from that medical center or clinic. Refill prescription requests or continuation of therapy prescription requests are received and processed at the individual VA sites on a daily basis. Once processed, the data are uploaded from multiple VA health care facilities to a CMOP for processing. CMOP dispenses the pharmaceuticals or products as determined by the participating site, delivers the completed prescriptions directly to the patient by mail and returns the dispensing data to the participating medical center or clinic electronically. Patients contact the medical center or clinic directly if there are any questions or problems, which are resolved by the participating site in coordination with the CMOP. Therefore, the VA model takes full advantage of economies of scale for mail prescription processing and distribution, while at the same time preserving the essential patient-provider relationship.

The CMOP program serves each participating VA medical center or outpatient clinic as an integrated extension of each of those sites and has been a vehicle of change in the standardization of drug nomenclature, the standardization of dispensing units, and the standardization of pharmaceutical and medical supply product selection. Staffing at the CMOP is at levels between 50,000 to 100,000 prescriptions per year per full-time employee equivalents (FTEE) which is several times more productive than traditional manual systems. The normal processing time for an order at the CMOP is less than 2 days with actual delivery time via the mail to the patient averaging 3 days, including Sundays.

In Fiscal Year 2000 to date, the average non-drug CMOP cost aggregated across the seven CMOPs is $2.00 per prescription and the drug or product cost is $20.33 per prescription across the program. The non-drug cost includes $0.77/Rx in personal services costs, $0.40/Rx in operating costs and $0.83/Rx in mailing costs, but does not include depreciation of equipment nor cost of administrative oversight (VACO/VA organization). As indicated earlier, the estimated prescription workload that will be processed this year is 50,000,000 prescriptions. This translates into roughly $1.0 billion in drugs and medical products and $100 million in non-drug expenses. Through achievement of economies of scale and continuing improvements in technology, personal service costs and operating costs have decreased over time.

The CMOP program is strongly vested in quality and has extensive quality assurance and performance improvement measures in place. The automation of the dispensing process changed how we do business and instead of the classic one or two checks historically associated with prescription dispensing, the automated dispensing process has numerous checks with the newest system having no less than seven checks or validations during the dispensing process. As a result, there has been a ten-fold reduction in error rates. This fact was underscored by comments by JCAHO reviewers familiar with error rates at other mail prescription and healthcare facilities. The primary problems today are 1.) delays in the mails and 2.) damage during shipment to the patient. I am pleased to say that progress has been made in reducing these problem issues. The program has an overall accuracy or problem-free rate above 99.99%, which is remarkable considering all the complexities, and logistical issues that occur on a daily basis.

From day one of the initiative, VHA officials planned for the CMOP program to serve as a center of excellence in quality pharmacy practice. One of the most important goals of the CMOP program is the emphasis on delivering timely service of the highest possible quality. We not only stated our commitment to quality we delivered it through outcomes. As described above, the CMOP program operates with extensive quality assurance activities and continuous monitoring concerning the use of automation and bar-code technology. For example, first quarter Fiscal Year 2000 Quality Assurance reports documented an average rate of error (i.e. wrong product dispensed to patient) of 0.0013% or 1 per 76,466 prescriptions. The average rate of errors per package sent (i.e. product received by wrong patient) was 0.0027% or 1 per 60,618 outpatient prescriptions. No system is error free and to put these numbers in context, the professional literature cites medication error rates from 1 to 20%. The CMOP program is well below the lowest reported error rate due to the use of automated systems supported by bar code technology. In addition, the CMOPs are fully accredited by the Joint Commission on the Accreditation of Health Care Organizations. Most of the CMOPs were accredited with commendation.

In another quality action, VHA partnered with the National Industries for the Blind to develop a "clear" prescription vial for use in the CMOP program that meets FDA/USP ultraviolet light reflection standards. The partnership produced a vial that enhances patient safety during the checking process and employee safety through reduction of the occurrence of carpal tunnel syndrome.

Today, the total estimated annual capacity of the seven operating CMOPs is roughly 55 million prescriptions, while actual processing workloads are approaching 50 million prescriptions. Therefore, the overall program has capacity of roughly 5 million prescriptions in reserve which may sound sufficient until you realize that if one of the newer CMOPs, such as Murfreesboro, experiences downtime for whatever reason (i.e. fire, tornado, earthquake, hurricane, etc), only half of the 10 million Rx workloads at Murfreesboro could be processed by the combined remaining CMOP capacity. Redundancy and sufficient reserve capacity to respond to disaster or emergent circumstances is essential in assuring uninterrupted provision of care to our patients. While disaster planning is an integral part of the CMOP program, it is easy to assume that the plans will never be needed. However, emergent situations occurred at no less than five (5) CMOPs during the past fiscal year, which resulted in the temporary transfer of workload to alternate CMOP locations due to circumstances that included: 1.) electrical fire; 2.) hurricane evacuation; 3.) Y2K upgrades; and 4.) new system activation. The net result on patients was basically "no impact" and for most patients they did not even notice their prescriptions were processed at another CMOP site. Our point here is that total capacity of the CMOP program should never be less than 20% above actual workload or the reserve capacity above daily workloads should at least be equal to the workloads associated with the largest volume CMOP facility. Using this assumption, the CMOP program of today has only half of the necessary reserve capacity needed. It should also be noted that the workloads processed by the CMOP program have increased by 9 million prescriptions per year since 1997 with 23 million Rx in 97, 30 million Rx in 98, 40 million Rx in 99 and an estimated 50 million this year.

The CMOP program has developed plans to meet current and future VA prescription workloads. The CMOP model to be emulated by current and future VA facilities includes a total of 75,000 SF and total capacity of 60,000 prescriptions per day operating daily at levels of approximately 80% total capacity or roughly 48,000 prescriptions per day.

Short-term goals (1 year) include the enhancement of the newest CMOP operations at Murfreesboro, TN; Hines, IL; Charleston, SC; and Leavenworth, KS to emulate this model. This can be and is being done through expansion of current lease arrangements, software improvements to existing dispensing equipment (estimated cost $160,000 per site) and the full replacement of the Leavenworth operation, which is currently undergoing validation and acceptance.

Medium-term goals (2-3 years) include the full replacement of the oldest CMOP operations including new construction and new equipment utilizing the Enhanced Lease program at Bedford, MA and Los Angeles, CA plus the full expansion and upgrade of the Dallas, TX operation. The estimated cost of construction of a new 75,000 SF building on VA grounds is $5.5 million per site; the estimated cost of a new 60,000 Rx/day automated dispensing system is $6.0 million per system, the approximate cost for inventory is $5.0 million (5-day supply/50+ turns per year), plus the cost of office furnishing and miscellaneous expenses would be less than $1.0 million for a total new facility startup cost of $17.5 million.

Long-range goals (3-5 years) include planning for additional CMOP facilities with interest having already been expressed in three areas of the country. A thorough RFP process is planned to determine future CMOP locations to ensure that factors such as cost of living, available workforce, transportation logistics, climate, patient demographics, and others are taken into account in making the best decision on future locations.

Other planning includes continued efforts in the standardization and streamlining of the seven individual, very customized CMOP operating facilities into a single organization unit. The continued development of new technologies including the expansion into 2-dimension bar codes that have numerous benefits over current barcode technologies such as also including the lot number and expiration as well as the National Drug Code identifier. In addition, new methodologies of data distribution and transport are being reviewed for ways to improve workload balancing, potentially provide closest proximity to patient dispensing, dynamic workload shifting, paperless receiving and ordering, direct patient delivery from manufacturer of select products, product accountability through the supply chain, product storage condition monitoring through the supply chain and many other opportunities for improvement.

The ChampVA Meds-by-Mail program is a partnership between the Leavenworth CMOP, the VA Medical Center in Cheyenne, WY and the ChampVA database in Denver, CO. The partnership provides mail prescriptions to ChampVA beneficiaries across the United States. This relatively small program (80,000 prescriptions annually) produces savings of approximately $1.6 million per year; it is an example of mutually beneficial partnerships possible within government while providing quality, cost-effective care to eligible beneficiaries. Meds-by-Mail was recently the recipient of the Deputy Secretary’s Scissors Award and is an excellent example of possible creative uses and benefits that are possible with the CMOP program.

In the year 2000, the CMOP program has served and continues to serve as a living lesson in persistence, in patience, in continuous improvement, in teambuilding, in efficiency, in productivity, in partnering, in community involvement, in system planning, in customer satisfaction, in employee involvement, in quality medical care, in value added services, in the continuum of care, and so much more, but ultimately it is an ongoing example of cost-effective government that ‘cares’.

This concludes my statement. Please note, attached to this statement is the information for the record regarding the joint contracting for pharmaceuticals between VA and DoD that I mentioned at the beginning of my testimony. I will be happy to respond to any questions the Subcommittee may have.

Joint pharmacy procurement is a viable and important program that represents one option that VA has pursued in our efforts to reduce the acquisition costs of pharmaceuticals. Joint procurement has been an active program since the 1970s; however, in recent years VA and DoD have been pursuing expanded opportunities for joint procurement as part of the VA/DoD Executive Council. In 1998, the Executive Council chartered the Federal Pharmacy Executive Steering Committee (FPESC) to further enhance these efforts. FPESC established a working group of staff from the VHA Pharmacy Benefit Management (PBM) Strategic Healthcare Group, the DoD Pharmacoeconomic Center (PEC), the VA National Acquisition Center (NAC) and the DoD Defense Supply Center- Philadelphia (DSCP) to explore opportunities for joint procurement. Since October 1998, eighteen (18) contracts have been awarded with estimated annual savings to VA of approximately $19 million.

The working group has also identified an additional forty (40) drugs, some of which are already under contract by one or both organizations, as potential candidates for joint procurement. VA spends approximately $139,722,160^* per year on the forty items. The potential drugs that are actively being considered, include:

 

Acetaminophen	Ketoconazole Cr
Acyclovir	Low Molecular Weight Heparins
Albuterol IR	Meclizine
Amitriptyline	Methocarbamol
Azathioprine	Naproxen
Bupropion	Nasal Steroids
Buspirone	Non-Sedating Antihistamines
Carbidopa/Levodopa SA	Oral Contraceptives
Carisoprodol	Pentoxifylline
Clozapine	Prednisone
Conjugated Estrogens	Returned Goods
Cyclosporin	Rifampin
Diclofenac	Selegiline
Etodolac	Sotalol
Furosemide	Sucralfate
Glipizide	Sulindac
Hydrochlorothiazide	Terazosin
Hydroxyurea	Ticlopidine
Imipramine HCL	Valproic Acid
Isosorbide	Verapamil IR

* Estimate only. Depending on the final contracting options selected, some products may be excluded or additional ones may be included.

It is important to note that the above-listed drugs are being considered for joint contracting by two organizations that provide care for distinctively different patient populations and which provide that care through distinctly different delivery systems. For VA, clinical decisions drive the VHA formulary management and contracting processes, with a broad base of VHA healthcare providers actively participating in decision-making regarding which medications must be available throughout the VA healthcare system. Once clinical decisions are made, procurement options are explored. The option selected could include a national contract that puts branded products within the same therapeutic class against one another, blanket purchase agreements, and use of the Federal Supply Schedule (FSS) and/or joint procurement with DoD.

The final contracting option selected can vary greatly across therapeutic classes and while VA has been aggressive and very successful in reducing drug acquisition costs, national contracts and joint procurement are not options that are always selected. I’d like to provide the committee with some examples.

• In some therapeutic classes, VHA has determined that access to most or all of the drugs is clinically required and therefore most or all are listed on the VA national formulary. In this example, from the procurement prospective, there is no opportunity to compete the products amongst themselves. There also is little or no negotiation leverage with manufacturers, as market share cannot be appreciably driven to a specific subset of products, nor can an estimated volume be guaranteed. In these types of classes, VHA has not taken action either individually or jointly with DoD, as to do so would not be clinically appropriate. Examples of these types of classes are AIDS/HIV drugs, chemotherapy drugs, anticonvulsants, and atypical antipsychotics. For those cases, where VHA cannot leverage prices, in no instances does it pay greater than the Federal Ceiling Price, which is already a highly discounted price.
• In some classes, because of the differences in eligibility, and more importantly, because of pharmacy benefit design, VA and DoD have not and cannot always select the same procurement option. As an example, in the therapeutic subclass of antidepressants called selective serotonin reuptake inhibitors (SSRIs), VHA determined that all were clinically necessary and listed all the agents on the VHA national formulary after negotiating modest voluntary price reductions. In contrast, DoD chose to compete the products against one another and ultimately selected one for the Medical Treatment Facility (MTF) formulary, while making the remaining SSRIs available via their mail prescription service. Hence, if a DoD beneficiary needed an SSRI other than the drug available at the MTF, the beneficiary had the option of utilizing the mail prescription program to obtain the drug. In February 2000, secondary to an infusion of allocated funds, DoD made the decision to add the remaining SSRIs to their MTF formularies.
• VA has awarded several multi-year contacts within a therapeutic class. Typically, for some portion of the VA population, these contracts result in a therapeutic interchange of the patients’ medication. In a number of classes, VHA had already converted patients to a nationally contracted drug prior to the time DoD began their contracting actions. VHA officials made an intentional decision not to participate in a joint contract for those classes because of the potential to have to change patients’ medications a second time within a relatively short period of time. While therapeutic interchange is an accepted practice within the US health care environment, VHA is sensitive to the impact that therapeutic interchange has on patients and providers. Additional examples of these types of classes include the cholesterol lowering drugs (HMGs), ACEIs for use in blood pressure control and heart failure and Proton Pump Inhibitors (PPIs) for acid suppression.
• Anticipated changes in the market also affect options. As mentioned above, VA had a multi-year award in place for the PPI drugs before DoD initiated their national contacting efforts with this therapeutic class. It is anticipated that a generic version of a branded PPI will be marketed in approximately one year. VA will avoid greater cost by waiting for the generic version to be available than by selecting any other option and cannot endorse a strategy in which potential conversions of patient’s medications could occur in a relatively short timeframe. Given the patient and cost considerations described above, our strategy to continue the current contract until a generic product is available is the best course for this class of drugs.

Contracting for pharmaceuticals is a complex endeavor that demands careful planning and execution in order to prevent unintended consequences; it must never be uncoupled from a robust formulary and disease management process. Clinically responsible contracting begins with a thorough analysis of the medical literature by seasoned clinical staff who consider the available information within the framework of the specific clinical needs of the patient population being treated. To promote high quality clinical care, contracting should be considered as an option to reduce drug acquisition costs only after safety, efficacy and clinical appropriateness have clearly been established.

VHA is regarded by many knowledgeable individuals in the national and international health care arenas as an organization that has been very aggressive and effective in reducing drug acquisition costs, while at the same time promoting high quality medical care. As an example, two countries that have been heralded as world leaders in controlling pharmaceutical expenditures have recently consulted with the PBM and VA’s National Acquisition Center to learn how VA has been able to obtain such favorable prices for nationally contracted pharmaceuticals. It is our understanding that VA national contract prices are being considered as one component of the national pharmaceutical index for one of those countries.

In summary, I would like to reiterate that VHA is committed to the joint contracting process with DoD, and together with DoD has made significant progress during the time the joint contracting workgroup has been functioning. VA will continue to seek opportunities to reduce drug acquisition costs through joint contracting whenever and wherever it is clinically responsible to do so.

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