An Updated View Of The Federal Segment: Veterans Affairs Formulary Management
By Shannon Matwiyoff and Cheryl Nagowski Middleton

This article is the first installment of a three-part series aimed at helping drug and device manufacturers better navigate the VA and DoD health systems.
Our nation recently honored the 80th anniversary of D-Day, and with it the brave men and women who fought for U.S. and allied nation freedom. We are also approaching our third anniversary of the withdrawal from the longest war in American history: a 20-year conflict in Iraq and Afghanistan. Returning veterans presented with a different pattern of combat injuries than in previous wars due to new injury mechanisms, such as improvised explosive devices, along with higher rates of survival. Today, the veteran pool is more complex than ever, ranging widely in age and presenting with complex comorbidities.
While the major disease states in the Veterans Health Administration (VHA) are in-line with the general population (heart disease, cancer, etc.), the rates and complexity of these disease states far exceeds commercial numbers. For instance, diabetes, depression, substance use, and certain cancers present at three to four times the general population. Those in the pharmaceutical and medical device industries seeking to help facilitate personalized medicine and smooth drug access must first gain an updated view of VA market dynamics.
VA Background
The VHA is the largest integrated healthcare provider in the United States, established to serve the unique, service-connected needs of our veterans. The original 54 Veterans Affairs Medical Centers (VAMC) have grown to more than 172 centers and 1100 outpatient clinics across the U.S., providing care to more than half of the 20 million U.S. veterans. The VHA has avoided privatization by delivering superior care and cutting-edge innovation for veteran afflictions, making it a high-priority account for drug and device manufactures.
The adage “if you’ve seen one VA, you’ve seen one VA” is certainly true, especially when it comes to drug access. However, the system is elegantly simple: a single payer run integrated delivery network (IDN) model with some outsourced care via a community health plan. The large patient population alone presents tremendous direct business opportunity for life sciences companies, but when combined with market dynamics like the fragility of these patients, rich spillover opportunity, high control benefit design, and appetite for innovation, there is a strong basis to commit resources to this segment.
Benefit Design
The VHA does not follow a tradition benefit design like private payers or commercial IDNs. Veteran coverage, prioritization, and cost-sharing is contingent on the veterans’ service-connected disease states. The VHA provides comprehensive care via two channels, a high-control integrated delivery network (IDN) and outsourced community care. The VA is an “and/or” payer, meaning it’s engaged in conjunction with or apart from other benefits (like Medicare or commercial insurance).
The VHA allows fairly open access to drugs considering it is a closed access, highly controlled IDN. There are very few health systems where a manufacturer can assume with confidence that being blocked or excluded from patient access is implausible, and this is one of them. However, there is a high degree of price sensitivity, as the health system is challenged with congressionally fixed budgets and a large volume of veteran need. The VHA operates with limitations that require selective drug access and prioritization based on therapeutic need, clinical safety, and value (risk/benefit). It is imperative that manufacturers meet the VA where they are and position therapeutic value within the framework of the VA’s unique access management.
Michael Valentino – Consultant & Former VHA Chief Consultant for Pharmacy Benefits Management (PBM) |
"Veterans who choose VA for their healthcare typically rely heavily on the system and continue to use it for many decades. Recognizing this, the VA strives to provide access to a high-quality, safe and sustainable formulary management system. If a manufacturer's new drug is significantly superior to alternative therapies as demonstrated by published evidence in a major peer-reviewed publication, the VA will embrace its use. A notable example is VA's aggressive adoption of the Direct Acting Antiviral medications for Hepatitis C. However, efforts to convince VA to use a new drug that lacks superior safety and efficacy as compared to other alternatives will likely be ineffective" |
Veterans Health Administration Facts And Figures |
|
Lives |
9 million |
Channel of Care |
70% of Lives – Integrated Delivery Network 30% of Lives – VA Community Care |
Structure |
18 Regions, 171 Medical Centers, 1100 Clinics |
IDN Channel System Description |
Closed, high control |
Eligible |
Veterans who served and were either discharged or retired |
Benefit |
Payer of last resort |
Medical Benefit Management |
Direct drug buy, no distinction between medical and pharmacy benefit as a closed IDN (for community setting, physician administered/DRG reimburses at algorithm similar to Medicare (with some exceptions)) |
Pharmacy Benefit Management |
Either “on or off” formulary with a “Criteria-for-Use” (CFU) used as the primary drug access control mechanism, typically with a facility-level prior-authorization |
Drug Pricing
There is a common misconception that the VHA is entitled to receive a price similar to the Medicaid “best price.” In reality, as long as the base price set in the VA Federal Supply Schedule (FSS) contract is prudently negotiated, the VHA can be more profitable than other government segments. The Congressional Budget Office (CBO) recently analyzed a pool of top-selling specialty drugs and high-priced drugs, and found that Medicare Part D and VA net prices closely aligned, with both being dramatically higher than Medicaid net prices.
All brand drugs (those approved by the FDA under a New Drug Application (NDA) or Biologics License Application (BLA) pathway) purchased by the VHA are price capped at a ceiling price of 24.1% off of the non-Federal Average Manufacturer's price (non-FAMP). This non-FAMP base represents the average price commercial wholesalers (or direct non-federal purchasers) pay as non-FAMP does not include rebates a drug manufacturer pays to other health plans and/or commercial pharmacy benefit managers. Not being statutorily required to contract at a Medicaid “best price” or a “Most Favored Nations” price allows drug manufacturers to offer additional discounts as an access lever.
Formulary Management
For nearly 15 years VHA has managed one National Formulary. Although a National Formulary was created in 1997, it wasn’t the only formulary until 2009, when regional and facility-level formularies were abolished. Not only does a single formulary protect continuity of care across the entire VA system, it also allows the VA to leverage its nationwide buying power to achieve greater cost savings. Although it is VHA policy that the National Formulary is the only drug formulary authorized for use in VHA, significant discretion is given to each VA hospital for the development and application of its own non-formulary and prior-authorization (PA) adjudication and approval process.
The VHA makes inclusive coverage decisions based on real-world evidence reviews and clinical value for its own population. Unique to VHA is that outside of interchangeable markets, which are often subject to a 1:1 decision via the National Contract solicitation process, there is no ability to directly buy down any element of access. In the commercial market, manufacturers can pay to improve almost any access constraint, and when they can’t, they can buy it down on the backend (via a copay card program, for example). In the VHA, manufacturers are not allowed to pay for a contractual commitment in exchange for favorable positioning, including formulary preference, favorable criteria for use (CFU) or prior authorization (PA), reduced step edits, quantity limits, stocking, or coverage policy.
Clinical Guidance
The first action taken in the VHA following FDA approval of a new drug is a comprehensive safety and efficacy review of the new molecular entity, which is then published in the form of clinical guidance. Information contained ranges from FDA approval details, clinical trial summaries, applicability in veteran populations, and opinion on appropriate use, to cost-effective drug prescribing. This information comes packaged in a variety of ways, with the most common being a “Drug Monograph.” These guidelines are issued (on average) around six-months post-approval and posted publicly with product coverage detail in the VA Formulary Advisor.
Formulary Placement
At launch, FDA-approved drugs are reviewed for formulary status based on an internally determined “priority of need” in the veteran patient population. Some newly approved drugs are never reviewed by the VHA formulary management groups (the Medical Advisory Panel (MAP), VISN Pharmacist Executives Committee and PBM). Both newly-approved and non-formulary drugs are accessed via a non-formulary request process, unique to each VA medical center. Being “on or off” formulary is generally negligible to patient access because most branded agents that are “on formulary” also include a facility-level PA. These locally defined, facility-level PA’s often involve access processes that are similar to the locally defined non-formulary request process. The weight of being a preferred formulary agent in VHA depends on the drug class, clinical and safety profile, how that status was granted (ex. a competitive national contract win) and the individual VA medical centers’ appetite to allow deviation.
Differentiated Brand |
Therapeutically (not generically) Interchangeable Brand |
Mature Brand |
Formulary status is less relevant (vs. clinical profile, value to veteran’s care, etc.) |
Formulary status is important (physician subject to more hassle factors) |
Formulary status is critical (most classes are narrowed with little to no slippage) |
VA Physician Perspective on Access |
“As a specialist, I can usually get what I need for my patients. I just put in an order in the system and wait for pharmacy to reply, sometimes with questions, but usually they’ll approve if it’s warranted. In some cases, especially if the drug is cost prohibitive and the clinical value is something like side effect profile, it can take six or seven rounds of adjudication with pharmacy to get the order through.” |
Access Controls
Given the sharp rise in new drug pricing, the VHA has assumed greater oversight and utilization management. It’s important to accurately consider where your brand(s) stand relative to veteran population benefit. For example, a novel, effective drug for suicide prevention will be given a higher priority by the VHA given the clinical benefit, versus a new hypertension therapy with an effective standard-of-care. The first step in smoothing VHA access is satisfying a veteran-specific unmet need. Beyond this, if being “on formulary” isn’t imperative to access for a new brand, what is?
A Criteria-for-Use, or CFU, is the primary access facilitation tool used by the VHA. This lever is important because once the VA PBM establishes access at a national level using this mechanism, local facilities must comply with those criteria. A CFU functions like a commercial PA, and may exist for both formulary and non-formulary drugs. This is often a manufacturer’s best ‘guide’ with medical centers to understand when, how, and who will be authorized to prescribe and receive therapy.
As of 04/2024 |
2021 |
2022 |
2023 |
New Molecular Entities (NME) FDA Approved |
50 |
37 |
53 |
VA Clinical Guidance Established |
23 |
24 |
13 |
Criteria-for-Use (CFU) Established |
18 |
18 |
11 |
On VA National Formulary |
2 |
7 |
5 |
Prior Authorization (PA) |
2 |
6 |
4 |
The majority of CFUs are accompanied by an often undervalued (and often misunderstood) access mechanism: the facility-level PA. The PA can be used to impose additional access criteria, so long as it is done in a manner that ensures the CFU is upheld as originally written by the VA PBM. Establishing a required drug consult with the facilities pharmacy chief is one example. PAs also can occur at the national and regional levels, but it’s rare.
The access controls used by the VHA for drug management may sound like access controls used in commercial plans, but nearly all involve deviation in functionality. Defining what “good” looks like in this segment is highly nuanced, and starts with a compelling value proposition tailored to the unique needs of veterans. It’s honest and rooted in military cultural value, positioning a manufacturer as a long-term partner to the VA who’s interest in this segment is a blend of both business opportunity and social responsibility. We’ll explore more around what a manufacturer can influence in Part III of this series: “Access Levers Manufacturers Can Leverage.”
About The Authors:
Shannon Matwiyoff is a tenured pharmaceutical industry expert with expertise in the federal channel, both locally and nationally.
Cheryl Nagowski Middleton is a consultant at Revolve Access, specializing in the development of Federal launch and growth strategies.