Methods for estimating and comparing VA outpatient drug benefits with the private sector

To estimate and compare Veterans Health Administration (VA) expenditures for outpatient pharmaceuticals for veterans at six VA facilities with hypothetical private sector costs.

Using the VA Pharmacy Benefits Management Strategic Health Care Group (PBM) database, we extracted data for all dispensed outpatient prescriptions from the six study sites over federal fiscal year 1999. After extensive data validation, we converted prescriptions to the same units and merged relevant VA pricing information by National Drug Code to Redbook listed average wholesale price and the Medicaid maximal allowable charge, where available. We added total VA drug expenditures to personnel cost from the pharmacy portion of that medical center's cost distribution report.

Hypothetical private sector payments were $200.8 million compared with an aggregate VA budget of $118.8 million. Using National Drug Code numbers, 97% of all items dispensed from the six facilities were matched to private sector price data. Nonmatched pharmaceuticals were largely generic over-the-counter pain relievers and commodities like alcohol swabs. The most commonly prescribed medications reflect the diseases and complaints of an older male population: pain, cardiovascular problems, diabetes, and depression or other psychiatric disorders.

Use of the VA PBM database permits researchers to merge expenditure and prescription data to patient diagnoses and sentinel events. A critical element in its use is creating similar units among the systems. Such data sets permit a deeper view of the variability in drug expenditures, an important sector of health care whose inflation has been disproportionate to that of the economy and even health care.