TUESDAY, JULY 25, 2000



Washington, D.C. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 334, Cannon House Office Building, Hon. Cliff Stearns (chairman of the subcommittee) presiding.

Present: Representatives Stearns, Gutierrez, Doyle, Bilirakis, Carson, Snyder, and Shows.

OPENING STATEMENT OF CHAIRMAN STEARNS Mr. STEARNS. Good morning. The VA Subcommittee on Health will come to order. I've called for this hearing today to give our members and our witnesses an opportunity to place on the public record a potential change in federal procurement policy that may have a detrimental effect on the cost of drugs and medicine the VA buys for veterans in its health care system. We want to discuss what that effect may be. I appreciate everyone's cooperation with the subcommittee in appearing.

Before introducing our witnesses, I want to reflect on the record that I invited a-I want to put on the record that I invited a representative from the Office of Management and Budget to testify at this hearing, but OMB declined to appear. I find it curious that in a policy initiative so clearly imprinted with the fingerprints of our budget personnel at OMB, that no OMB official would be willing to come and defend what it wants VA and others to abide by. OMB deferred to VA to inform us of their plans. So it would be nice to have their opinion, too.

Without objection, my invitation letter to OMB Director Jacob Lew will be introduced and entered into the record of our hearing today. Also without objection, we have a letter that I wish to put in the record that I sent to Secretary Togo West on March 15, 2000, concerning this very same subject, a letter that remained unanswered as of this morning.

(See pp. 39 and 40.)

Mr. STEARNS. The Congress has paid very keen attention for years to the issue of VA's pharmaceutical policy. Any change, however trivial it may seem at first glance, gives us all some concern. We have a 10-year history of vigilance to ensure that veterans receive the VA drugs and medicines they need, and that VA doesn't have to spend an arm and a leg to get them. The pharmaceutical

industry, in the beginning a bit reluctant to participate in this program, has embraced VA's arrangement with drug manufacturers and marketers, and I think it is safe to say that VĂ enjoys the very best price advantage of any pharmaceutical buying institution in America. GAO has told us before that VA's discount from retail drug rates exceeds 80 or 90 percent in some procurement classes. The average discount basis, or "floor," is about 24 percent by law.

What motivated me to call this morning's hearing was testimony by Mr. Flynn, one of our witnesses today, at a hearing before the Committee on the status of the Federal Employees Health Benefits Plan. OPM manages the health benefits for the entire Federal Government, including the health plans of many employee organizations, such as the Special Agents Mutual Benefits Association, or SAMBA.

Parenthetically, OPM's reach in health plan management includes all Members and staff of the Congress. So in the interest of full disclosure, if drug discounts in federal health plans were to come about as I understand the planning here, then I and all my colleagues would stand to benefit, too, from this action. But of course, the Subcommittee is not concerned about our personal situations. We are most concerned about the impact of such a plan on the VA health care system and its patients. So I take this hearing very seriously.

My colleagues, let me quote from Mr. Flynn's prior testimony, and I quote-he said, and I quote, “I wanted to ask you about OPM proposing to allow SAMBA to purchase prescription drugs for its mail order program off a federal supply schedule at a discount. What is the status of SAMBA's access to the FSS for prescription drugs?”

This is what Mr. Flynn said. “I expect, Mr. Chairman, that we will have resolved that completely within a matter of days. We do know that we have now reached sort of a framework of agreement under which SAMBA will be available to access the federal supply schedule for prescription drugs for their mail order program. Details of that are being worked out, but it would be a 2-year pilot effort, and we look forward to seeing the results of that and whether or not the savings that were generated might be applicable to other areas of FEHBP.”

Later, the Chairman asked Mr. Flynn, and I quote, “How much does the FEHBP program spend per year on prescription drugs?" And Mr. Flynn replied, “In round numbers, it is a dollar out of every four. We have a $20 billion-a-year program, which means $5 billion each year goes towards prescription drugs.

Today, the entire drug purchasing program of the Department of Veterans Affairs is valued at less than $2 billion. If Mr. Flynn's stated hopes could come true based on the SAMBA experiment, VA's program in the FSS goes from $2 billion to $7 billion annually, and even more, possibly, down the road.

I want to give Mr. Flynn and VA a full opportunity this morning to explain how they propose that VA will not be adversely affected by this plan for FEHBP, with SAMBA drug purchasing leading the charge. I am also especially interested in whether this expansion, with SAMBA now, or perhaps the entire FEHBP later on, needs an authorization from Congress.

Before going to our witnesses today, of course, I want to turn over to my colleague, Mr. Gutierrez, who is the ranking Subcommittee member on this, for any opening remarks he has.

OPENING STATEMENT OF HON. LUIS V. GUTIERREZ Mr. GUTIERREZ. Thank you, Mr. Chairman. I'm pleased that we are here today to discuss the issue of pharmaceutical procurement, and I thank the witnesses for appearing.

As we know, the Department of Veterans Affairs currently purchases pharmaceutical drugs and medical supplies for VA patients through the federal supply schedule, a program for volume buying that allows VA to receive these goods at below-average price per item. VA medical centers are the most significant federal purchasers of pharmaceuticals through the federal supply schedule. By buying in bulk, and negotiating the federal supply schedule with drug companies, this procurement keeps costs to a minimum for veterans who rely on VA facilities for their health care needs.

Recently, the Office of Personnel Management authorized the Special Agents Mutual Benefits Association, a federal employee health care benefits provider, access to the federal supply schedule for pharmaceuticals. By doing so, OPM instructed the Department of Veterans Affairs to permit approximately 16,000 federal employees, under certain restrictions, access to pharmaceuticals at a reduced cost. The goal of this pilot program is to determine if a prescription drug price similar to those specified in the federal supply schedule can be established to provide pharmacy benefits to millions of federal employees. I strongly support the goal of this endeavor.

I am deeply concerned about the rising costs of pharmaceuticals in recent years. For example, prescription drug premiums for federal employees have increased by 30 percent in the past 3 years. Some Americans, most of them senior citizens, are now traveling into Canada and other foreign countries to purchase their medications, because they can buy prescription drugs there for a price that on average is 40 percent lower than what they are charged in the United States.

I fear that our veterans population will be among the hardest hit by the increasing cost of drugs. We must remember that the vast majority of veterans rely on the VA for their health care, and do so because they have nowhere else to turn. And these men and women would face a great hardship if they are forced to pay more for medicines they need.

I strongly support efforts to ensure that our nation's veterans continue to have access to pharmaceuticals at affordable prices. However, I believe that all of us on this committee, while we work to assure that veterans continue to receive affordable prescription drugs, must commit ourselves to the critical goal that every American has access to affordable prescription drugs. The rising cost of drugs and the unwillingness of Congress to take real, credible action to give the American people life-saving or life-sustaining drugs at reasonable prices constitute a national crisis.

I urge my colleagues, our advocates for veterans, and most importantly, the pharmaceutical industry, to take action to protect

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