America's best discount drugstore is run by the federal government.
The Department of Veterans Affairs throws the weight of federal buying power and a law mandating discounts on medicine into price negotiations with drug manufacturers.
"We're the big gorilla," said George T. Patterson, executive director and chief operating officer of the VA Office of Acquisition and Materiel Management. "We get the drop-dead best prices in the world."
The VA drug benefit is a life preserver for vets like Vernon Chapin, 76, a retired plumber and Army veteran from Lutherville. Chapin pays a total $56 a month for eight prescriptions to keep his blood pressure, diabetes and other health woes in check. Other veterans who have service-related illnesses or injuries get free medicine for those ailments.
"I shudder to think what would happen to me without the VA," Chapin said. "I'd be making a choice between eating and taking my drugs."
The VA's muscular approach to drug purchasing is the envy of private employers and insurers struggling with rocketing prescription prices that are the highest in the world. The VA, by contrast, pays roughly half of U.S. retail pharmacy prices.
VA volume buying power - the agency negotiates for itself, the Department of Defense, the Public Health Service and the Coast Guard - is the model for Maryland and other states forming multistate pools to leverage better drug prices for Medicaid recipients and state employees. It is also the model favored by congressional Democrats and consumer advocates for the massive new Medicare drug program.
A group of Senate Democrats, including Barbara Mikulski of Maryland, called on the Department of Health and Human Services last week to adopt a VA-style program for Medicare. The Medicare benefit crafted by Republicans and signed into law by President Bush last year bars the department from using Medicare's 41 million beneficiaries to leverage lower prices from drug companies. The law instead turns to private companies to cut deals with manufacturers. The benefit, which starts in 2006, carries a $530 billion price tag for its first decade.
"Rather than using the purchasing power of Medicare's 41 million beneficiaries, the new law fragments the population, diluting the ability to negotiate lower prices," the senators wrote HHS Secretary Tommy Thompson. "This is not only a waste of limited taxpayer resources, it is also a cruel betrayal of Medicare beneficiaries who are struggling with astronomical drug bills."
The administration opposed efforts to give Medicare negotiating power akin to the VA's for fear that its huge volume would become a national price control and deprive pharmaceutical companies of cash needed for drug research and development.
The VA represents a much smaller buying pool. While there are 24.5 million veterans, only 6.1 million of them were treated at VA medical centers last year, with 4.5 million getting prescriptions. The VA filled about 200 prescriptions last year, spending about $3 billion a year on drugs, up from $750 million in 1991.
Some worry that the VA's successful drug program is in danger of being swamped by growing numbers of veterans seeking refuge from rising prices of medication elsewhere.
Tens of thousands of veterans who face spiraling copayments and premiums in their private health plans are lining up for the VA drug benefit. If enough are allowed to tap the benefit - as they were promised when they joined the military - some fear they could sink VA's shaky overall health care budget.
About 20 percent of the veterans who use the VA each year do so solely because of its drug benefits, according to an agency survey. But nearly 90 percent of the approximately 164,000 veterans who sought enrollment to the VA system last year wanted the drug benefit above all, according to the VA inspector general. Those veterans are barred from the system by an agency decision in January 2003 to save money by closing its doors to "high-income" applicants who make more than $25,000 a year and do not have service-related health problems.
Edward L. Clark, an Army veteran from Greencastle, Pa., is among those blocked from the system. Clark, 57, sought VA benefits when his income from selling telecommunications equipment went into a tailspin and he could no longer afford $500 a month for private insurance. "Now I'm going to take my chances without insurance or medication," he said. "If I get sick, I'll go to an emergency room."
With both Democrats and Republicans vying for the votes of veterans in this election year, Congress is considering legislation that would help veterans such as Clark by opening the VA drugstore to more veterans.
The effort to expand access to the benefit has raised two questions. The first is whether to lift a VA rule requiring veterans who want the prescription benefit to be examined by a VA physician, even though the patient may have valid script from his own doctor. The cost of the re-examinations totaled $1.3 billion in 2001, the inspector general reported.
"This policy, in effect, denies veterans their pharmaceutical benefit," Dr. Conelio R. Hong of Norwich, Conn., told the House Veterans Affairs' health subcommittee in March. Veterans make "medically unnecessary" appointments and then wait months to see a VA doctor, Hong said. The wait is long enough that many drop off the list, he said.
Then there is a question of how the federal government will pay for providing drugs to more veterans. Taxpayers and VA patients roughly split the VA average prescription cost - $13 for a month's supply of pills at the VA pharmacy. Veterans pay a $7 co-pay; taxpayers pay the rest. Some worry that widening access to the benefit will lure millions more veterans and stress the agency's ability to provide health care.
"An expansion of pharmaceutical benefits would increase demand on the system. An increase in demand would necessitate shifting scarce resources away from treating veterans," Carl William Blake, associate legislative director of the Paralyzed Veterans of America, told the House panel.
"Now is not the time, when the VA is not being given the resources it needs to meet the needs of veterans and service members who are returning from Iraq and Afghanistan, to force the VA to treat fewer veterans or charge them more for services."
But Richard "Rick" Jones, national legislative director for another veterans' advocacy group, AMVETS, maintains that all vets have a right to the benefit. AMVETS and other groups are backing a proposal that would allow veterans to fill prescriptions written by their own doctors if they cover the VA cost of the medication, which is usually half the price of drugs at retail pharmacies and less than discounts offered by Canadian Internet drug stores.
"It would fulfill a promise made to all who have performed service honorably to the nation," Jones said. "And it would grant access to the benefit without hurting other vets."
The VA draws its purchasing power from Public Law 102-585 - passed by Congress and signed by President George H.W. Bush in 1992, an election year. The law assures discounts for the VA.
"At the end of each year, we find out about sales from across the commercial sector, average the price of each drug and deduct 20 percent from that," said Patterson, a registered pharmacist who heads the operation that administers over 1,500 contracts for over $10 billion worth of medical and surgical products. Patterson's office buys more than $6 billion worth of pharmaceuticals a year for the "big four" - the VA, DOD, the Coast Guard and Public Health Service.
"And we often negotiate prices even lower than the 20 percent discount," he said. "The law is a big hammer."
Congress passed the law in response to a VA budget crunch caused by rising drug prices, Patterson said. "Our good friends in the pharmaceutical industry started raising our prices off the planet, and Congress acted," Patterson said.
The law was just the start of VA efforts to save money on drug purchasing. To further boost its purchasing power, the agency moved in the late 1990s to a single national preferred drug list, or formulary. Previously, each of 172 VA hospitals had its own drug list.
The VA also focuses heavily on prescribing generic drugs. Sixty-five percent of the drugs prescribed by VA physicians are generic. They account for only 8 percent of the agency's total drug bill. Brand name drugs - 35 percent of the agency's prescriptions - account for 92 percent of the tab.
Despite the discounts, the VA never has difficulty getting drugmakers to sell their products to the agency, Patterson said. One reason that VA is so attractive to drug companies is that VA medical centers offer the drug manufacturers a pool of young doctors - a coveted group that promises a long-term use of the products.
The other is that the federal government is a well-heeled customer. "The business is coveted," Patterson said. "It's good clean business. We pay our bills."
Examples of how VA saves money on drugs
Drug name VA price Costco.com Canadameds.com
Wellbutrin SR (150 mg) $61.77 (60 pills) $97.99 (50 pills) $69.77 (60 pills)
Zocor (40 mg) $20.22 (30 pills) $125.27 (30 pills) $82.32 (30 pills)
Pravachol (40 mg) $150.47 (90 pills) $278.59 (100 pills) $80.32 (30 pills)
Viagra (100 mg) $144.15 (30 pills) $163.27 (18 pills) N/A