Senator NELSON. A hundred thousand. That is about half the physicians in the country, is it not?

Dr. LEE. Yes, sir; and it is increasing.

Senator NELSON. What is the procedure? The physician writes a prescription, if the patient takes it to a local pharmacy, the pharmacist then bills the local Veterans' facility-is that the way that works?

Mr. HARDING. That is right, sir, he bills the local VA facility that has jurisdiction in the region where that patient is located.

Senator NELSON. Would you submit for the record a copy of the letter which you have sent out?

Dr. LEE. We will be happy to submit for the record a series of these, and a series of these releases which have gone to our hospitals if you are interested, sir.

Senator NELSON. We would appreciate having those for the record. Mr. GORDON. On page 7, about two-thirds of the way down, you say:

It is his further responsibility to make available to the professional staff information on prices, relative costs of various drugs, and any other product information which may be useful in the selection of drugs.

Now, this is almost impossible to apply to the hometown program, is that correct?

Dr. WELLS. It makes it very difficult, because we simply do not have as much access to the hometown physician or to the fee basis physician as we do to our own hospital staff. This becomes relatively easy to control in-house with our full-time staff. But it becomes exceedingly difficult to handle when we have the fee basis physician; and as Mr. Harding says, we often do not even know who he is until after the prescription comes in for payment.

Dr. LEE. Further complications lay, Mr. Chairman, in the fact that in our affiliation with 93 medical schools, the prescription patterns usually reflect in the medical school programs the things which are going on there, and we are subject to the necessities of attempting to get our people to fit what we think and to have that rationalized with the practices which are dictated by the medical school and its teaching. Mr. GORDON. Then you really have no control. The only thing you do, your function, then is merely to pay the bill upon receipt. Isn't that right?

Dr. WELLS. I would not really say it is quite that bad, because we have an educational access to them which, again referring to Mr. Harding's statement, we try to make as much use of as we can. When this man is identified, we try to let him know what is in the pharmacy in his area through the formulary and through the access to our publications on them. So it is an educational process; in some instances after the fact, admittedly. But nevertheless, I think we will undoubtedly see this move along.

Mr. HARDING. I might say as a further control, as these prescriptions come in, we make a very strong effort to change the physician's prescriptions or get him to change to something we have in the formulary. We call him up, or we have our director of outpatient clinic or the physician call him, explain to him what we have. We send him a copy of our formulary. We are working this way all the time, but it takes quite a while to cover this many physicians.

Senator NELSON. Do you have a formulary in all of your 168 hospitals?

Mr. HARDING. Yes.

Senator NELSON. Is it a locally developed formulary?

Mr. HARDING. It is developed locally by the local therapeutic agents and pharmacy reviews committee, with guidance through the executive therapeutic agents committee, but it is a local formulary at that particular station.

Senator NELSON. Is there any review of that formulary by the VA at the national level?

Mr. HARDING. To a certain extent. We work on this all the time. We receive copies of every local therapeutic agents and pharmacy reviews meeting; they have meetings once a month, and we receive copies of every one of their meetings, and in the minutes of the meeting, they tell us what they want to add or what they are removing from their formulary. This way we have a good idea what the trend is all the time.

Senator NELSON. I do not know whether you covered that or I heard you correctly. What do you do about drugs that have been determined by the NAS/NRC as possibly effective?

Mr. HARDING. Our policy is that we will not procure the ineffectives. The possibly effectives will be procured only if the doctor states that there is no alternate means of therapy available.

Senator NELSON. Whom does he state that to?

Mr. HARDING. To his local therapeutic committee.

Senator NELSON. So, if they are in the category of possibly effective, it has to go through that routine before it will be approved, is that it? Mr. HARDING. Yes.

Mr. GORDON. Are you in a position to estimate the amount of money you will be saving by dropping the possibly effectives and the ineffectives?

Dr. WELLS. Strictly speaking, no. We know that when we drop these, we are going to save the money that goes into that, but the alternate prescribing will take this up in part. It could possibly cost us more money. It is exceedingly difficult to make any rational calculation of that.

Senator NELSON. Well, I would assume that a substantial amount of the drugs that you drop would be the largest sellers in the country such as the topicals and the fixed combination anti-infectives? Isn't that right?

Dr. WELLS. Yes; you mean the largest numbers in terms of dollars that have been dropped out?

Senator NELSON. Yes.

Dr. WELLS. Right.

Senator NELSON. The drugs purchased in place of the fixed combinations, in most cases, if not all, are cheaper than the fixed combinations, aren't they? For example, tetracycline is cheaper than tetracycline combined with novobiocin under the brand name Panalba.

Dr. WELLS. No question about it. There are savings to be made within drug categories, but when you try to project that to the total expenditure of the system, we cannot really come up with an all-over savings related to that.

Mr. GORDON. The Comptroller General, when he appeared before the subcommittee last month, stated that the DOD has specifications for competitive buying for 99 percent of all DPSC centrally managed drug

items and that the VA has only for 25 percent. Why this great differ

ence?

Dr. WELLS. It is simply because they have the practice of writing specifications for a drug even though there is only one source, a single source available for supply. It has been our practice not to write specifications unless they were required, unless by having the specification, we could get into competitive bidding. So it is just a difference in the mechanics of our practice on it.

We monitor this all the time so that if there is a patent expiring or a New Drug Application, we can come in over this and watch the economy of it. But we have not thought it was very meaningful just to write specifications when you knew there was only a single source available.

Mr. GORDON. Now, the Comptroller General told us that the VA administers the Federal Supply Schedule contracts under which Federal agencies can satisfy drug requirements by direct purchasing from drug manufacturers. In 1971, FSS purchases amounted to about $64 million. A comparison of the prices paid show that you pay almost twice as much through the FSS as through direct purchasing. In other words, you might have been able to save $32 million if you had bought it all through central purchasing.

Isn't it possible to get drugs more cheaply in some other way than your present alternative to central purchasing?

Dr. WELLS. As far as the purchase of the Federal Supply Schedules, this difference would seem to be overstated. There are single instances when the price differential is considerable, indeed, but it certainly would not amount to anything like a half of the total purchase. Now, there may be other elements of this that Mr. Cook would like to speak to.

Mr. GORDON. In fact, I spoke to Mr. Cook about this question.

Mr. Cook. Yes. The Federal Supply Schedules are made to be used for a variety of reasons, not just for drugs but for other commodities as well. One of them is to make drugs available to the small user, perhaps a health clinic, an employee health clinic in the Federal Government or something-who has no medical program of the scope of the VA or DOD or PHS, for example, so that his occasional need for items in small quantities can be met by ordering from that source. We only make these schedules where the price is less than is available to him in the community. This is one use.

Another is when we find that there is no advantage in price or not sufficient advantage in price in purchasing this for a central distribution system. And there are such instances as that, where the price is approximately the same whether you buy it and use the vendor's distribution system or whether you use your own.

Mr. GORDON. Well, I have some specific examples. For example, on diazepam, that is Valium, under direct purchasing, it is $18. Under FSS, it is $36; $33.34, $28.89, $33.44. Sodium cephalothin, which is Keflin, direct purchasing is $2.10. Under FSS, the Government is charged $2.70, $3.57 and it goes as high as $3.82.

Then here is Garamycin. $3.62 direct purchasing and $4.80 under the FSS, $4.41, $4.66 and going as high as $5.76. There is a substantial difference.

Here is Librium for $13 under direct purchasing. Under FSS, it is $27.72, or $31.50. There is a vast difference. It may not be 850 percent, but it is more than 50 percent in certain cases.

Mr. Cook. Mr. Gordon, I think the tables from which you are reading, the central purchase prices happen to be our own for our own central distribution system.

Mr. GORDON. Yes; this is data supplied by you.

Mr. Cooк. Yes, sir. And that is the primary source for our hospitals. There is a variety of reasons why they may have used the Federal Supply Schedule, some of them not good reasons. But some of them, when we analyzed the data, showed that time was the essential factor. They needed something today, so they purchased it through a local distributor of the Federal Supply Schedule contract. In other instances, they should not have done so and we are taking steps to correct that.

Dr. WELLS. This group of purchases, you know, are monitored very carefully, both through the pharmacy and the supply services. This is the purpose of our periodically sending them letters and we have sent a great many of them all the time, asking them why this digression. So we try to watch this on a day-to-day basis. But it is a big system and occasionally, something will slip through.

Senator NELSON. Do you keep any comparative statistics on what is prescribed in each of the 168 hospitals?

Dr. WELLS. Yes. By trying to see what we have in the way of prescribing patterns at individual hospitals?

Senator NELSON. Yes.

Dr. WELLS. As a matter of fact, this is one of the studies that our central office therapeutics committee has been undertaking for quite some time. We try to make this comparison and see if it is rational, see if we can find out when differences lack explanation what goes here, what is the trouble.

Senator NELSON. When did you start that program?

Dr. WELLS. That particular kind of review has been about a year? Mr. HARDING. About a year now since we began it.

Senator NELSON. Your objective is to be able to evaluate what the prescribing practices are within each one of the hospitals under your jurisdiction?

Mr. HARDING. Yes.

Senator NELSON. And that is a continuous, ongoing study?
Mr. HARDING. That is an ongoing continuous thing, yes.

Senator NELSON. What do you do with the information accumulated?

Mr. HARDING. The more information we get on this, the more we will be able to work toward developing some type of control on things that they are using or may be using in certain areas that we have found out our physicians have decided are not as important in other areas. So we are going to disseminate this information to all of the stations throughout the whole region, throughout the whole United States.

Senator NELSON. Thank you very much, gentlemen. We appreciate your statement and your taking the time to come here today. We are recessed subject to call of the Chair.

(Whereupon, at 11:45 a.m., the subcommittee was adjourned, subject to the call of the Chair.)

(The letters referred to follow :)

Professional services letter.

VETERANS' ADMINISTRATION, DEPARTMENT OF MEDICINE AND SURGERY, Washington, D.C., June 19, 1972.

To: Directors of hospitals, domiciliary, outpatient clinics and regional offices with outpatient clinics and manager, marketing center.

Subject: FDA interim index to evaluations published in Federal Register for NAS/NRC reviewed drugs.

1. Three copies of Index to Evaluations, Volume II, December 31, 1971, have been forwarded to you in accordance with DM&S Circular 10-70-237, paragraph 3. Distribution should be made as follows: Chief of Staff or Chairman, Therapeutic Agents and Pharmacy Reviews Committee (1); Chief, Pharmacy Service (1) and Chief, Supply Service (1).

2. Pages 3-25 of the Index lists drug products classified by Food and Drug Administration as "Lacking Substantial Evidence of Efficacy" (Category 1). In accordance with DM&S Circular 10-72-92, VA funds may not be expended for drugs classified no higher than Category 1, except those for investigational use for which a protocol has been submitted to and approved by the Executive Committee on Therapeutic Agents and in accordance with FDA Regulations.

3. Category 2 drugs, classified by Food and Drug Administration as "Possibly Effective" are listed on pages 26-42 of the Index. In accordance with DM&S Circular 10-72-92, VA funds should not be expended for drug products in Category 2, with the following exceptions:

a. Investigational Drugs-Submission of protocol and approval by Executive Committee on Therapeutic Agents is required.

b. Drug products for which there is no appropriate alternate drug therapy available in Category 3 or 4, "Probably Effective" or "Effective". (Approval by the Chief of Staff or local Therapeutic Agents and Pharmacy Reviews Committee is required.)

4. Drug products in Category 3, classified by Food and Drug Administration as "Probably Effective" should be used only if, in the opinion of the prescribing physician, there is no appropriate alternate drug therapy available in Category 4, classified "Effective".

5. The attachment lists all drug products in the three categories, which were classified less than "Effective" in the Index to Evaluations. This list may be duplicated locally for distribution to fee-basis physicians. If prescriptions are to be filled at Veterans Administration expense, drugs prescribed by fee-basis physicians should be limited to those in the highest catgory which, in the opinion of the prescribing physician, will meet the treatment needs of the patient.

6. It is our desire to permit physicians as much professional freedom as possible in the treatment of veteran patients. Attention again is invited, however, to IL 11-71-44, paragraph 7: "Federal funds should be expended only to purchase the most effective drug product available for a given condition. Therapeutic committees must, therefore, assure themselves that sound professional reasons govern their selection of drugs."