Mr. WHITWORTH. Well, on page 2 we are talking about our central drug procurement program. If you go back to page 1, Mr. Gordon, Dr. Lee testified that 51 percent of the $107 million was procured from Federal supply schedules and local purchases, and 5 percent for fee basis. So, really, on page 2, the reference you are making, we are only talking about $46 million, our central drug purchases, sir. Now within the Federal Supply Schedule's purchases, and our local purchases, there is a great-under the definition, the reporting definition that we must apply-there is a considerable percentage bought from small business; but that percentage cannot be broken out for drugs in our reporting system, sir. Mr. GORDON. As I understand it, then, you buy from small businesses in your local purchases, from drugstores and small wholesalers. Mr. WHITWORTH. Yes, sir. May I illustrate by saying we have testified that 5 percent of the $107 million is for fee basis. It would be my estimate that most of that is reportable as small business purchases because the prescriptions were filled at the corner drugstore, sir. But in attempting to relate the 28 percent, we are trying to show you that in our central system the percentage of the manufacturers that we go to is 28 percent; this was our intent. Mr. GORDON. I did not get your answer to the chairman's previous question. You say what is the percentage in dollar terms that you buy from small business, and is centrally supplied drugs? Mr. WHITWORTH. Twenty-eight percent of $5,700,000, which is about $1.6 million. Mr. GORDON. All right. That is $1.6 million, and you spend how much in your centrally supplied system, totally? Mr. WHITWORTH. $46 million. Mr. GORDON. And what percent is that? Mr. WHITWORTH. Pardon me, sir? Mr. GORDON. What percent is that? That is $1 million out of $46 million. That is a little less than 2 percent, right? Mr. WHITWORTH. Figured that way, yes, sir. But may I respond, sir, that of that $46 million, most of it cannot be bought from small business. I think the answer to the question you are getting at is simply that most of the drugs manufactured in the country are manufactured by large business; and a very small part is manufactured by small business. But of that which we can get competition for, for our central depot system, 28 percent comes from small business manufacturers, of that amount that we can get for our central depot system. The CHAIRMAN. This is on competitive bid, is that right? Mr. WHITWORTH. Yes, sir. All on competitive bid. The CHAIRMAN. What percentage of the $107 million is bought on competitive bids? Mr. WHITWORTH. There is no possible way to tell that for sure, sir. We know that in our central system we have schedule A, which is about $8 million. This is all competitive bid. We know that we have 31 percent of our central purchasing of $46 million, which is com petitive bid. But, beyond that, including what is bought by our 170odd purchasing offices, I cannot give you a percentage. Much is bought locally, and some is bought competitively there, sir. The CHAIRMAN. So these 170 offices that do purchasing take competitive bids? Mr. WHITWORTH. Yes, sir. The CHAIRMAN. You have 170. What kind of region do they cover? What are they? Mr. WHITWORTH. They are in all of our hospitals, sir, throughout the 50 States and San Juan. The CHAIRMAN. So these purchases are, in fact, veterans hospitals? Mr. WHITWORTH. Yes, sir. The CHAIRMAN. And every veterans hospital is a purchaser? Mr. WHITWORTH. Yes, sir. The CHAIRMAN. You have 170 of them, is that what you are saying? Mr. WHITWORTH. Yes, sir. The CHAIRMAN. And when they buy drugs, they may be buying on a competitive bid from a manufacturer or a wholesaler. Is that correct? Mr. WHITWORTH. Senator, they have priority sources. If the drug is available from our central system, they must come to our central system. If it is not available in our central system, but is available on schedule A, which is the competitive section of the Federal supply contracts, they must go to schedule A. If it is not available from either of those two sources, they go to schedule C; then schedule B. If it is not available from an established source, they purchase the item locally. The CHAIRMAN. They purchase what? Mr. WHITWORTH. The item they need locally, sir. The CHAIRMAN. Please proceed. Dr. LEE. We apologize if we have confused the issue by being proud of the fact that over half of all of our purchases in the VA are from small business. We will stick to the drug areas from here on in, sir, and that is where 28 percent comes in on competitive awards. In fiscal 1974, in fact, the total dollar value of the competitive awards amounted to over $13 million. Of that sum, $5,700,000 was purchased for our wholesale distribution system. For the first three quarters of this fiscal year 1975, we have made a competitive award for our wholesale system in the amount of $10 million, which is nearly double that which we awarded a year ago. For the potential volume we have for small businesses, our wholesale distribution procurement records show that we have 191 large business firms, and only 76 small business firms have indicated an interest in doing business with us relating to our procurement of drugs. The percentage, then, of the small business firms is that 28 percent mentioned. Mr. WHITWORTH. It is a coincidence, sir, but it is. Dr. LEE. In the generic procurement of drugs, of interest to this subcommittee over the years has the amount of drugs the Veterans Administration purchases on a generic, as opposed to a brand name. basis. Since our first appearance before your subcommittee, at which time we had very few items in our central purchasing program procured on a generic basis, we can tell you today that we now procure, or are in the process of procuring competitively, all items that are competitively available. This represents 31 percent of the total items in our central system. We think we have come a long way, Mr. Chairman, in the past 4 years. We feel that we had set a proper course, actually, in VA in the beginning, but the strong winds from this committee have pushed us along a bit more rapidly than perhaps we might otherwise have done. The questions arises, of course, as to the effect of our increased procurement of generic items-what has that done to quality. We cannot say, Mr. Chairman, that we have had any increase whatever in quality complaints accompanying our increased use of generic drugs. Our quality complaints have always been very few, and this is probably a tribute to the thoroughness of the inspections by the FDA, whose personnel have, for many years, tested every lot of these drugs delivered to our depots for central distribution. The CHAIRMAN. You mean, when you purchase on a competitive basis, they test every lot for USP standards? Dr. LEE. We hold them on the shelf, sir, until that test is complete. Mr. GORDON. Do you pay for the inspection? Dr. LEE. Yes, sir. The CHAIRMAN. Do you have figures on how many drugs that are supplied to you fail to meet USP standards? Dr. LEE. Very few, as a matter of fact. We can get that for the record. About 212 percent my fellows tell me. The CHAIRMAN. Two and a half percent of those you procure fail the inspection of the FDA? Mr. WHITWORTH. Two and a half percent. Yes, sir. The CHAIRMAN. Is that all because of failure to meet USP standards, or the National Formulary? Mr. WHITWORTH. That and physical defects, Senator. The CHAIRMAN. What do you mean by physical defects? Mr. FRANCESE. Broken, chipped tablets; physical defects and spots on tablets. The CHAIRMAN. So that 212 percent, then, includes drugs that may in fact meet USP standards, but there is some damage to the drugs? Mr. FRANCESE. Right, sir. The CHAIRMAN. You do not know what percentage that is? Mr. FRANCESE. No, I am afraid not. Mr. GORDON. May I ask one question? Have there been any problems with drugs after FDA inspection and analysis? Mr. WHITWORTH. I know of none in recent years. But these gentlemen are on the firing line. Dr. LEE. None has come to my attention. Mr. WHITWORTH. We know of no problem. We feel that inspections are good and the quality complaints are minimum. We do have a quality feedback system which would certainly let us know if the quality did fail. Dr. LEE. On those testings, only the lots approved by the FDA enter our system for use. Those disapproved are returned to the sup plier at his expense. Perhaps the fact that the firms from whom we buy generic items know that each lot will be tested is a contributing factor to our record of high quality items. On generic procurement of drugs, this has brought significant savings to the VA. The amount saved because of generic procurement cannot be computed with absolute accuracy. Cumulatively, from 1972 to the present size, we estimate our generic procurement has resulted in a total savings of some $4 million. These dollars saved by generic procurement of drugs, however, are not the only dollar savings we feel we have benefited from through these intensified efforts, stimulated in fact by this committee. Let me illustrate, if you will, what can be achieved through generic procurement of drugs with the following two examples. We could give you a great many more. With Nitrofurantoin in 50 mg, in thousand lots, our last brand name purchase was in March of 1973, and that was at $43.56. Approximately 2 years later our last generic buy, compared to $43.56, was $3.95. Another example, if you like, is Bisacodyl suppositories in 500's. The last brand name buy was in January 29, 1974, at $78.57. Thirteen months later our last generic buy was approximately half that, $38. The CHAIRMAN. These were on competitive bids, then, I take it? Dr. LEE. Yes. The CHAIRMAN. Yes the same companies that sold to the Veterans' Administration for $43 did bid on the competitive bid? Mr. WHITWORTH. They bid, sir, but they were not successful. The CHAIRMAN. Do you know what their bids were on these two drugs? Mr. WHITWORTH. We could supply it for the record, Senator. We do not know. Dr. LEE. We did not put that in the illustration. We will be glad to add it. The CHAIRMAN. It would be interesting to have it for the record. I assume then that was a negotiated purchase at $43. Is that right? Mr. WHITWORTH. That is correct, sir. That was on schedule B, the negotiated part of the Federal supply schedule contract. The CHAIRMAN. I think it would be useful for the record to give us a list of the competitive bids, including and identifying the one that bid $43, and what they bid on the competitive bid in 1975. Mr. WHITWORTH. Senator, if I might, on example No. 2, the same manufacturere gave us the last brand name buy as well as the last generic buy, as a matter of interest. The CHAIRMAN. So the same company that sold the suppository 500's at $78.57 in January 29, 1974, won the competive bid in February 26, 1975? Mr. WHITWORTH. That is what I am saying, sir. Dr. LEE. At half the price. We will add a third column in this and give you some examples, sir. The CHAIRMAN. All right. Thank you, sir. This will serve to furnish additional information requested by Senator Nelson in relation to the statement presented on April 25, 1975, by Dr. Lyndon E. Lee, Jr., Assistant Chief Medical Director for Professional Services, of the Department of Medicine and Surgery of the Veterans Administration, before the Subcommittee on Monopoly, of the Senate Select Committee on Small Business. The information requested is in relation to Dr. Lee's statement on page 4 wherein two examples of recent generic procurement of drugs was made. The more specific information desired has been furnished by the Veterans Administration Marketing Center at Hines, Illinois, and is as follows: Nitrofurantoin Tablets, US P 50 mg., 1000s. Firm Bid Terms Net 7.80 2% Bolar Pharmaceutical Company $ 3.95 Note: The firm supplying this product on a branded JOHN T. MANNING Assistant General Counsel Show veteran's full name, VA file number, and social security number on all correspondence. Dr. LEE. On generic procurement, this is not the only source of recent cost savings in our central drug program. You may remember in our testimony before this subcommittee a little over a year ago, we described an experiment in a Federal supply schedule procure BICE |