VA to Compete Biological 'Prosthetics' Purchases

In a reversal, the Veterans Health Administration will now apply federal acquisition rules when buying “biologics” -- medicines made from human tissue and bone that it had classified as “prosthetics” and exempted from such rules, officials said Wednesday.

The agency came under scrutiny from House lawmakers for putting medicines used in knee surgery, burns, cancer treatment, and gene therapy in the same category as artificial arms and legs. Using that designation permitted the agency to buy biologics from a handful of corporations without competitively bidding them or negotiating prices, and critics said that wasted millions of dollars each year.

On Wednesday, a senior VHA official told a House panel that the agency has interpreted the 1959 law – U.S. Code 8123 – to include biologics in the interest of patients.

“The question is, under what condition does the physician prescribe the specific product, or does the veteran’s choice weigh in for the justification for sourcing a particular item? That’s primarily the scenario under which 8123 is used,” said Philip Matkovsky, VHA’s assistant deputy undersecretary for health for administrative operations.

Members of the Subcommittee on Oversight and Investigations said VHA’s policy on biologics was confusing. They also noted that the Defense Department, which also operates a health care system and hospitals, does not consider biological medicines to be prosthetics.

The law regarding purchase of prosthetics, in fact, was written years before biologics were introduced into medicine, according to testimony.

Matkovsky may have dodged more critical questioning by issuing a memo May 23 – a week before the hearing – directing VHA purchasing agents to apply federal acquisition regulations and VA acquisition regulations when ordering biologics from now on.

Critics of VHA’s biologics purchases said the agency has overspent anywhere from $40 million to $50 million annually by ignoring the usual regulations. Typically, the agency’s buyers procure biologics from two or three major medical corporations, and do so without trying to negotiate for price.

Smaller companies that are able to supply the same biologics are effectively barred from sales because it’s easier for the purchasing agents to shop from the same sources each time, critics say. Biologics are not the kind of thing for which a doctor or patient would have a preference, an official with a company that has sold biologics to the VA told Military.com last month.

On Wednesday, representatives of Academy Medical LLC of Florida told the subcommittee that all biologics suppliers procure their materials from the same sources. Academy Medical is one of the few small businesses that have managed to secure a contract to sell biologics through the Federal Supply Schedule, according to Dan Shaw, the managing partner in the company.

Stephen Schurr, who testified with Shaw as a subject matter expert, told the subcommittee that there is little difference in biologics manufactured by one company or another or used in one or another hospital.

“All biologic companies share” the same sources, he said. “There are just a handful of donor facilities that supply processing plants [that make], so pretty much they all come from the same sources.”

Shaw told the subcommittee that VHA’s May 23 memo would make the playing field more level. But he also urged the representatives to have the Department of Veterans Affairs “formalize this VHA policy memorandum by having it formally codified” in law.

“Policy of this magnitude should be formalized for perpetuity, as policies are easily forgotten as time goes on or through leadership changes,” he said in his testimony.

Subcommittee chairman Rep. Bill Johnson, R-Ohio, said after the hearing he was pleased with what he heard from Matkovsky. But he said the subcommittee will want to take a close look at VHA’s plan for changing its purchase system.

“We have processes to comply with the laws … and to get the best value for the taxpayer and to make sure the veterans are being cared for,” he said. “We’re going to be looking at [VHA’s] plan, to ensure that their upgrade plan or transition plan addresses all the concerns we have.”