STATEMENT OF
THE HONORABLE EDWARD A. POWELL, JR.
ASSISTANT SECRETARY
FOR FINANCIAL MANAGEMENT
DEPARTMENT OF VETERANS AFFAIRS
ON VA PHARMACEUTICAL PROCUREMENT POLICY
BEFORE THE
SUBCOMMITTEE ON HEALTH
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES

July 25, 2000

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the Department of Veterans Affairs (VA) pharmaceutical procurement policy and to address your concerns regarding the pilot project of the Office of Personnel Management (OPM) to authorize the Special Agents Mutual Benefit Association (SAMBA), which is a Federal Employee Health Benefits Plan (FEHBP) provider, access to the Federal Supply Schedule (FSS) for pharmaceuticals. I am accompanied today by Gary J. Krump, Deputy Assistant Secretary for Acquisition and Materiel Management.

The OPM pilot program to allow a FEHBP contract holder access to the FSS for pharmaceuticals acquisition appears to be a reasonable exercise of management diligence. The goal of the pilot is to determine if a schedule similar to the FSS can be established to provide pharmacy benefits to the FEHBP community. This goal is consistent with the President’s desire to improve the operating efficiency of Government. VA has not objected to, and will participate in, this pilot because of the potential overall benefit to the Federal Government. While our focus for this experiment is overall good governance, we are acutely aware our foremost mission is service to our Nation’s veterans.

Background

VA is delegated by the General Services Administration (GSA) the responsibility for establishing and administering the FSS contracts for health care related commodities for the Federal Government. The FSS Program is a multiple award schedule (MAS), with indefinite delivery-indefinite quantity (IDIQ) type contracts. These contracts are national in scope and available for use by all Federal agencies. Prices are negotiated with the goal of obtaining equal to or better than Most Favored Commercial Customer (MFC) prices. The contract establishes, at the time of award, a price monitoring methodology whereby "best pricing" is ensured for the life of the multi-year contract through monitoring commercial market pricing trends. When using an FSS, the customer evaluates price lists and identifies the contractors which appear to offer the best overall value. An FSS contractor has a duty to provide the schedule goods and services to a Federal executive department customer. The contractor has the option to refuse any order from non-executive department customers within 5 days of receipt. Under the terms of our FSS, cost-reimbursement contractors for executive agencies are non-executive department FSS customers when they are granted FSS access under Federal Acquisition Regulation (FAR) Part 51.

VA also administers Section 603 of the Veterans Health Care Act of 1992 (P.L. 102-585), which prescribes Master Agreements and Pharmaceutical Pricing Agreements with covered drug manufacturers. These agreements set Federal Ceiling Prices (FCP) for the four major Federal agencies that procure pharmaceuticals (VA, DoD, portions of the Department of Health and Human Services, and the Coast Guard, i.e., the "Big Four"). Section 603 requires that the price of a "covered drug" not be more than 76 percent of the Non-Federal Average Manufacturer Price (Non-FAMP). In some instances, VA obtains statutory pricing lower than 76 percent of Non-FAMP. Covered drugs include single source drugs, innovator multiple source drugs, and biological products (e.g., vaccines).

SAMBA will not be entitled by law to Federal Ceiling Prices. At this time, however, FSS pricing and P.L. 102-585 pricing are often the same because most manufacturers do not choose to establish separate price schedules. Thus, Government agencies other than the "Big Four" are frequently receiving the benefit of P.L. 102-585 pricing by voluntary choice of most manufacturers. Contractors would be within their legal rights to insist that dual pricing (separate FSS price lists) be negotiated for other than "Big Four" entities. If dual pricing occurs, then higher prices for other eligible users could result.

Understandably, OPM has looked for innovative ways to cut taxpayer costs. Pursuant to FAR Part 51, OPM granted SAMBA, an FEHBP experience-rated contract holder, immediate access to the FSS for pharmaceuticals.

Presently, SAMBA consists of approximately 16,000 enrollees and their beneficiaries, and the use of the VA FSS would apply only to the mail-out pharmacy.

OPM and VA officials have met to discuss the use of the FSS pharmaceutical schedule by an FEHBP contractor as a possible pilot program. A pilot program would give OPM a basis for developing strategies that would reduce pharmaceutical pricing for other FEHBP experience-rated contract holders.

OPM has determined SAMBA’s experience-rated FEHBP contracts are of a cost-reimbursement nature, and, therefore, the holder is entitled to access VA FSS for pharmaceuticals pursuant to FAR Part 51. The VA OGC has deferred to the determination of OPM’s OGC.

We are entering into this pilot, based on the following principles: (1) the pilot will not exceed 2 years; (2) access to FSS by SAMBA will be for their mail-out program only; (3) access to the FSS for pharmaceuticals by health insurance carriers within the FEHBP will not be extended beyond the SAMBA Health Plan Pilot; (4) OPM and VA will continuously evaluate the financial and program impact of the pilot throughout its 2-year existence; and (5) a process for the quick resolution of problems by OPM and VA is incorporated into an agreement between VA, and OPM.

The last point is worth reiterating: because VA is concerned about any significant cost impact to its program resulting from the pilot, a Memorandum of Agreement (MOA) between OPM and VA will be developed describing how the agencies will work together to oversee the pilot. We will include language in the MOA that provides a mechanism for bringing our concerns to OMB and OPM for quick resolution, including potentially terminating the pilot. The administration is committed to ensuring VA’s ability to provide appropriate pharmaceutical care for veterans. In addition, the MOA will also contain language for the joint evaluation of the pilot program.

The evaluation plan will compute the net cost savings to the Government; analyze the administrative implementation issues, especially the operational procedures implemented by SAMBA and its Prescription Benefit Manager, to assure that there is no diversion of drugs. In addition, the feasibility of negotiating and establishing a separate pricing schedule for the FEHBP will be investigated.

VA and OPM will arrange for pharmaceutical companies to meet with representatives from VA and OPM.

Summary

VA remains committed to assist the continued improvements of OPM’s programs and those of every other Federal entity. The efficiency of every agency and conservation of taxpayer dollars are important concerns. We stand prepared to extend our expertise to accomplish this pilot and the eventual establishment of a separate pharmaceutical schedule for OPM. We will not, however, compromise our duty to serve those who have served this country.

This concludes my statement. I will be pleased to answer any questions members of the Subcommittee may have.