Cutting Costs with Cheaper Drugs

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Here’s another tidbit from today’s GAO report on reducing costs by eliminating duplicative efforts:

The Department of Veterans Affairs (VA) and the Department of Defense (DOD) spent about $11.4 billion on prescription drugs for beneficiaries in fiscal year 2009.  Since the early 1980s, Congress has urged the departments to achieve greater efficiencies through increased collaboration. Therefore, VA and DOD have attempted to restrain pharmacy costs by jointly contracting for some drugs to obtain discounts from drug manufacturers.

….VA and DOD spending on joint national contracts increased from $183 million on 76 contracts in fiscal year 2002 to $560 million on 84 contracts in fiscal year 2005, it decreased by fiscal year 2009 to $214 million on 67 contracts….VA and DOD have attributed significant cost avoidance 3 to their joint contracting efforts; for example, VA estimated about $666 million in cost avoidance in fiscal year 2005 alone. These cost avoidance estimates have declined significantly as joint contract spending has decreased.

OK then. In 2005, joint spending on prescription drugs amounted to $560 million, which saved $666 million. Not all of that “cost avoidance” was due to joint contracts, but if you figure that even a quarter of it was then VA and DOD could easily save upwards of $2 billion or so if they jointly procured, say, 80% of their drug purchases. This is especially true since the joint contracts to date have mostly been for cheaper generic drugs. Why? GAO reports that the VA and DOD have had problems agreeing on joint purchases of more expensive name brand drugs, partly for reasons of bureaucracy and partly for reasons of statute law.

But I’ll bet these problems could be overcome if Congress pushed a wee bit harder. It’s true that they’ve apparently been pushing since 1982 and don’t have much to show for it, which just goes to show how hard it is to reduce spending even on something that no right thinking person really opposes. That is, no right thinking person other than pharmaceutical lobbyists and VA/DOD bureaucrats who enjoy fighting turf battles over joint formularies.

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