and Budget, OMB, guidance on improving the management of medical materiel. In June 1971, as Dr. Lee has indicated, OMB requested that all Federal agencies involved in procuring, supplying, and using drugs, medical items, and nonperishable subsistence items participate under OMB's leadership in an interagency study. The purpose of the study was to provide an economic analysis of the management of these items and to make appropriate recommendations for achieving effective and economic government-wide support for drugs, medical, and nonperishable subsistence items. The interagency study group completed extensive fact finding and submitted its report and recommendations. The report received the official support of all appropriate agencies. In the interim, the General Accounting Office issued its previously referenced report. In June 1974, OMB directed that an interagency committee be established to implement the recommendations of the study group. This committee was established in September 1974, and specifically directed to develop a system for Government-wide management of medical and nonperishable subsistence items. This Committee consists of a Chairman from the GSA Office of Federal Management Policy, and one representative each from the Department of Defense, Department of Health, Education, and Welfare, General Services Administration, and Veterans' Administration. To expedite the development of an effective and responsive management system, the committee established various task groups to perform specific functions. Accordingly, a task group to determine criteria for defining categories of medical items, was established. The purpose of this group is to develop criteria by which medical. items can be categorized in order to make purchasing assignments in a manner that will preclude overlap and duplication in the Federal agencies. The task group consists of representatives from DOD, HEW, GSA, and VÀ. The preliminary report of the task group provides for an integrated system in which noncataloged, locally purchased items would be reported through a data collection system, screened and recommended for item entry and subsequent stockage. The items not recommended for central stockage would be screened against other predetermined criteria for assignment of a national stock number and management on a nonstocked basis. This task group is continuing its effort and is currently expanding the following concepts and procedures: (1) A method of collecting data on noncataloged locally purchased items which would be candidates for item entry, (2) a procedure for item entry and review, (3) a procedure to determine the best method of supply, (4) a procedure to determine the best method of procurement to include the appropriate procuring agency, (5) a method of collecting and maintaining usage data on items in the systems that are designated nonstocked, (6) the development of a Federal supply catalog which would contain all the items in the system, (7) an examination of the impact of the implementation of the task group's recommendation on the Federal establishment. We anticipate that the report of the task group will be completed within the next 60 days. Mr. GORDON. May I interrupt for a second? How will this single system affect the local purchases and purchases and purchases off the FSS catalog? Mr. MCKENZIE. I would like to ask Col. Wood to respond to that question. Colonel WOOD. We would hope, Mr. Chairman, that it would significantly reduce the number of local purchases. In other words, we would have on a Government-wide basis, a rather extensive reporting system, or marketing research effort, if you will, of what is being used locally. We would then be able to get these items into the central system sooner. So, we would anticipate a rather significant reduction in the local purchase. As you realize, of course, we can never eliminate local purchase because we will always have emergencies that come up, a patient requires a particular drug immediately and it is not available, so we buy it locally. But we would hope that it would significantly reduce local purchases. Mr. GORDON. Are you able to give us a rough estimate as to how much can be saved by cutting down on those types of buying? Colonel WOOD. Well Mr. GORDON. Just a rough estimate. Colonel WOOD. In the past, we find that on the average the DPSC price for items is generally 20 to 21 percent less than the average price that we pay locally for drugs, either through the Federal supply schedule or from the local wholesaler. Mr. GORDON. Well, in dollar terms, what can we say? Colonel WOOD. It is really too premature to say, Mr. Gordon. I just cannot give you a figure because we do not know how many items will be picked up under this new system. Mr. GORDON. But you say it would be significant. Mr. MCKENZIE. Concurrently, the Defense Medical Materiel Board in conjunction with the Defense Personnel Support Center is taking related actions to accelerate item entry into the central supply system. Examples of the specific actions being taken by these activities are: (1) classifying the criticality of medical items based on their complexity and essentiality to patient care; (2) designing a uniform system for reporting locally procured drug items utilizing the national drug code for identification purposes; (3) reviewing the adequacy of current criteria for assigning national stock numbers and for making a determination on central stockage; and (4) reviewing the actual item entry procedures. With respect to this latter item, we hope to cut in half the actual time from when an item is recommended for entry into the system until it becomes available to the consumer. Pending the full implementation of the recommendations which will result from the many actions I have mentioned, we continue to evaluate items procured locally for entry into the central system. In the past year we have introduced 130 new drug items into the system. The CHAIRMAN. Do you have any estimate of the amount saved by that? Mr. MCKENZIE. Colonel Wood, could you respond to that one? Colonel WOOD. Sir, as I indicated previously, we expect about a 21 percent savings. These 130 items are for the most part high dollar items, so we would hope in this particular instance, to save somewhere in the neighborhood of $0.5 million. The CHAIRMAN. In the neighborhood of $0.5 million? Colonel WoOD. Yes, sir. The CHAIRMAN. Go ahead, Mr. McKenzie. Mr. MCKENZIE. Mr. Chairman, I would now like to direct my comments to the matter of drug quality assurance. In hearings before this subcommittee in March, 1974, we indicated that the DOD was willing and ready to work with the Food and Drug Administration to develop a consolidated quality assurance program for Federal purchases of drug that would meet the specific requirements of DOD. We also stated that, assuming these requirements were met and the associated costs were reasonable, we were committed to transfer this function to the FDA. Mr. GORDON. What is reasonable cost? Mr. MCKENZIE. Mr. Gordon, by reasonable costs we have in mind obtaining comparable services to those that we now provide inhouse at a cost either approximately the same or less than it is costing us at present. In the fulfillment of this commitment, we met with representatives of the FDA on April 4, 1974, to discuss the possibility of FDA's assuming Defense medical quality assurance activities outside of the United States. The DOD had previously required military Medical Service Corps officers to perform surveys of those plants located in foreign countries that supply active medical ingredients to domestic firms selling pharmaceuticals to the military. After several meetings to discuss the various procedures involved, I am pleased to report that we entered into an interagency support agreement under which we will rely on the FDA to perform our foreign inspections in the future. We are making a copy of this agreement available for the record. It was formally signed on October 22, 1974. [Testimony resumes at page 11173. The information referred to follows:] INTERAGENCY AGREEMENT BETWEEN THE DEFENSE SUPPLY AGENCY AND THE FOOD AND DRUG ADMINISTRATION FDA 224-75-3004 The Defense Supply Agency (hereinafter called DSA) agrees to reimburse the Food and Drug Administration (hereinafter called FDA) for services as provided and described herein. Purpose: To provide for DSA certain inspection and related services of drugs manufactured in foreign countries. I. STATUTORY RIGHTS AND OBLIGATIONS Any and all statutory rights and obligations of FDA with respect to licensed biologics, certifiable antibiotics and drugs and with respect to the evaluation and issuance, by FDA, of New Drug Applications, are in no way affected by this agreement. To inspect, at DSA's request, drug manufacturing plants and Such inspection by FDA will be performed by qualified 2. Such inspections will be made for the purpose of 3. FDA will furnish DSA with a written report of its FDA 224-75-3004 B. C. D. for bid and contracts. These reports will be DSA agrees: 1. To furnish written requests for inspection services. 2. 3. To furnish FDA with an annual estimate of the number To notify FDA of any specific changes in DSA con- 4. To furnish FDA concurrent with requests for foreign 5. To furnish FDA copies of all current drug and pharma- Revisions 1. Page 2 Additional procedures and revisions as may be necessary 2. In the event that the time requirements expressed herein cannot be met by FDA, the DSA will be advised promptly. Other Provisions 1. In the event FDA has inspected the facilities of the |