Vendor tapped without competition for key parts of Defense-VA pharmacy system

This story has been updated with details and background.

Buried deep in an ostensibly competitive new procurement for the pharmacy information system to serve the Veterans Affairs and Defense departments’ integrated electronic health record is the fact that VA already has selected a vendor to provide key components of what will become the largest pharmacy management system in the world.

Veterans Affairs said any company that planned to bid on the iEHR Pharmacy Solution procurement must use a drug database supplied by First Databank, a San Francisco-based subsidiary of media conglomerate Hearst Corp. The department tucked this requirement into an appendix to the statement of work attached to the request for information to industry, with the company introduced nearly 100 pages into the 127-page document.

VA also required potential bidders on the pharmacy project -- the first major procurement for the iEHR -- to use a clinical decision support system provided by First Databank. Clinical decision support systems are powerful software tools that help clinicians to detect potential adverse drug interactions and determine whether a patient has an allergy to a particular class of drugs. 

A source familiar with VA and Defense health IT systems and commercial pharmacy information systems who declined to be identified estimated the value of the drug database and clinical decision support systems to be as much as 75 percent of the iEHR Pharmacy System procurement.

VA said it wants to buy commercial software for the iEHR pharmacy system intended to serve 501 Defense and 276 VA pharmacy sites and help fill 190 million prescriptions a year.

A number of other companies provide drug database software -- which identify prescriptions by National Drug Codes assigned by manufacturers -- including Cerner Corp., which also provides clinical decision support software to the health care industry. Other drug database suppliers include the Micromedex division of Thomson Reuters, Medi-Span from Wolters Kluwer Health and Gold Standard from Elsevier, all of which also sell clinical decision support software.

While VA and Defense have opted to use First Databank for their drug database, the Centers for Disease Control and Prevention uses the Cerner Lexicon Plus database -- a compendium of all prescription and some nonprescription drugs products available in the U.S. drug market -- for its national Ambulatory Care Drug Database System.

The Food and Drug Administration maintains a free National Drug Code Directory searchable database and the National Library of Medicine has a database called RxNorm, which pulls information from commercial drug databases, FDA and VA’s National Drug File.

Last year the attorneys general of Kentucky and Michigan slammed First Databank and drug wholesaler McKesson Corp. with lawsuits charging the companies conspired to inflate the average prices for drugs prescribed under the states’ respective Medicaid programs.

In a lawsuit filed in June 2011, Michigan Attorney General Bill Schuette charged that McKesson, Hearst and its subsidiaries -- including First Databank -- conspired to inflate average wholesale prices for certain drugs by 5 percent, resulting in the Michigan Medicaid Program overpaying many millions of dollars in pharmacy claims between 2001 and 2009. During this period, Michigan Medicaid spent nearly $2 billion on the brand-name pharmaceuticals in question and approximately $80 million on the affected generic drugs.

The Michigan suit alleged that McKesson and Hearst, the leading publisher of pharmaceutical pricing data, entered into a secret agreement in 2001 to manipulate drug price data to portray the false inflation of the average wholesale prices of certain brand-name prescription drugs. The inflated prices did not reflect actual increases in the manufacturer's prices or prices that pharmacies were paying to drug wholesalers, the suit charged.

The lawsuit seeks to recover the many millions of dollars of those Michigan Medicaid payments that were in fact overpayments due to false markups, as well as civil penalties for causing false claims to be submitted.

Last July, Kentucky Attorney General Jack Conway filed a similar suit against McKesson and First Databank alleging the companies conspired to inflate the published average wholesale prices of more than 1,800 brand-name prescription drug products dispensed through that state’s Medicaid program.

The Kentucky suit alleged that in August 2001 First Databank and McKesson began engaging in a scheme by fraudulently inflating the average wholesale prices of thousands of prescription drug codes. The complaint said the two companies specifically intended to increase the average wholesale price-based reimbursement amounts paid by the Medicaid program. By increasing the prices for the drugs, the two companies used taxpayer money to increase the profits of their customers, the Kentucky suit charged.

A First Databank spokeswoman said she did not know the status of those lawsuits at this time.