The estimate includes savings accruing to the VHA for a variety of items including drugs in closed and preferred classes on the National Formulary; blanket purchase agreements (BPAs) (described below) for selective serotonin re-uptake inhibitors (SSRIs) and alpha blockers; exclusive contracts for generic drugs (that is, a contract purchasing all units of a generic drug from a single manufacturer); and bulk purchase of pharmacy-related supplies (for example, vials, sponges). The NAC estimate also captures any savings from the expiration of patents and subsequent generic competition. Although each of these items may have generated reductions in prices for the VHA, many (for example, brand patent expirations) are not attributable to the implementation of the National Formulary. In examining the cost impact of the VA National Formulary, this IOM analysis focuses narrowly on savings associated with prices negotiated for closed and preferred drug classes. As a result, this analysis produces a conservative estimate of the effects of VHA bargaining power associated with the National Formulary and national purchasing.

In this chapter, VA National Formulary savings in pharmaceutical expenditures are estimated as any reductions in pharmaceutical expenditures attributable to the National Formulary using a pre-/post-design that controls for changes in the size and characteristics of the veteran user population over time and across VISNs. This analytical approach allows an accounting of changes in both price and quantity resulting from adoption of the National Formulary. It focuses on the cost effects of the closed and preferred classes, the heart of the VA National Formulary. Because BPAs are sometimes used to forestall class closure (as described below), savings on selected BPAs could arguably also be attributed to the National Formulary. In part because the IOM committee could not assess the effect of BPAs on the decision to close classes, the committee's estimate represents an underestimate of the savings resulting from the National Formulary.

The committee addressed four primary questions in assessing the effect of the VA National Formulary on VHA costs: (1) How does the National Formulary affect prices for closed and preferred classes? (2) How does the National Formulary affect prescribing patterns within closed and preferred classes (that is, what is the level of compliance with the National Formulary for closed and preferred classes)? (3) How does the National Formulary affect pharmaceutical spending per veteran user for closed and preferred classes? and (4) Is there evidence that changes in formulary policy result in increased utilization elsewhere in the VHA system?

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