The Impact of VA Allowing Government Agencies to Be Excluded from Temporary Price Reductions on Federal Supply Schedule Pharmaceutical Contracts

VA is responsible for negotiating Federal Supply Schedule (FSS) prices (volume discounts) for billions of dollars of pharmaceuticals on behalf of all federal agencies. This review examined how VA administers temporary price reductions (TPRs) and the impact on government-wide contract negotiations when VA accepted TPRs offered only to certain government agencies and not all authorized FSS users. The VA OIG found that the National Acquisition Center has been routinely facilitating the award of TPRs that benefit certain agencies and exclude other authorized users. In many instances, the TPRs were exclusive to VA, resulting in additional savings for VA but not other federal agencies (sometimes inconsistent with order volume). The OIG found no authority whereby VA may award prices on the FSS for its sole benefit, or only one or more other agencies’ benefits, while allowing other federal agencies to be denied a benefit authorized by law. The OIG determined that restricting TPRs under FSS pharmaceutical contracts resulted in taxpayers paying $602 million more over two years than if all authorized users government-wide were charged the lowest TPRs for the same pharmaceuticals. Agency-specific TPRs also appear to have negatively impacted the negotiation and establishment of some FSS prices, including statutory federal ceiling prices for covered drugs. TPRs were processed as unilateral modifications, contrary to standard contracting procedures. Also, TPRs were not published as required for FSS prices, potentially reducing competition. The OIG made four recommendations, including developing and implementing a policy that prohibits agency-specific TPRs on FSS contracts, developing a policy for TPRs that exceed one year, and consulting with appropriate authorities regarding the legality of confidentiality provisions and unilateral contract modifications in FSS contracts. The OIG found VA’s nonconcurrence with the OIG recommendation to stop agency-specific TPRs to be without legal merit. VA concurred with the other three recommendations.