Report 2001-012 Summary - January 2002

State of California: Its Containment of Drug Costs and Management of Medications for Adult Inmates Continue to Require Significant Improvements


Our review of the State's drug and medical supply procurement practices reveals:


The Department of General Services (General Services) and state agencies such as the Department of Corrections (Corrections) could do more to control the State's drug expenditures, which exceeded $135 million in fiscal year 2000-01. From fiscal year 1996-97 to fiscal year 2000-01, annual expenditures for the five state agencies most frequently purchasing drugs increased by more than 200 percent. The average annual increase in purchases during this period was 34.3 percent, a rate that is almost three times higher than the national average annual rate of increase for drug purchases, 12.7 percent. Given these significant numbers, the State should be concerned about controlling additional increases.

General Services, the primary purchaser for the State, negotiates agreements with drug manufacturers and a wholesaler (prime vendor) who distributes the drugs to state agencies. Because of several reasons, such as the State's purchase volume being too low to generate enough interest and its belief that some bidders are unwilling to do business with the State, General Services has obtained contracts with only 45 manufacturers for 850 of the 1,838 items it requested. To increase the number of drugs available to state agencies at lower prices, General Services recently contracted with another state to gain access to a group-purchasing organization; however, this contract may not offer the best deal to the State. To improve its procurement process further, General Services has led efforts to develop a statewide drug formulary, a listing of drugs that is to promote appropriate and cost-effective use of medications, but has not ensured that state agencies will be able to enforce it. Currently, Corrections, which was responsible for roughly 68 percent of the State's drug purchases in fiscal year 2000-01, has an outdated formulary and lacks sufficient data to perform drug-utilization reviews that can identify questionable prescribing practices. The State also needs a statewide process for contracting for medical supplies. State agencies' inability to identify specific details on the types and amounts of medical supplies they purchase-in fiscal year 2000-01 this amount was roughly $14 million-hinders General Services' plan to contract with a vendor that already has a medical supply catalog in order to reduce these costs by soliciting bids for better prices.

Corrections spent $91 million in fiscal year 2000-01, or two-thirds of the State's expenditures from the prime vendor contract, to provide health care to more than 159,000 inmates. Its Health Care Services Division (Health Care Services), due to inadequate monitoring of management and delivery of health care, missed the opportunity to use its formulary process to identify those medical practitioners with prescribing practices that are not cost-effective. Health Care Services also does not control its pharmacies' drug ordering to ensure cost-effective purchases.

A major hindrance to improving Corrections' current drug procurement process is Health Care Services' inadequate prescription tracking system, which is unable to provide information that would allow the cost-effective and safe use of medications. Corrections does not plan to replace the current system with the health care component of the Strategic Offender Management System until November 2006, and development of that system is already behind schedule. Further, it has no plans to implement an interim solution. To limit further escalation in drug costs to the State and to improve its delivery of health care services to inmates, Corrections should plan improvements in its pharmacy services process based on results from a study currently in progress as soon as the consultant delivers the report.


To improve the prices that agencies pay for drug purchases, General Services should take the following actions:

To improve its health care services, Corrections should await the results of its consultant's report, identify those recommendations that will most improve its pharmacy services, and implement them as quickly as possible.

To address its inadequate prescription tracking system and improve its pharmacy operations, Corrections should accelerate its timetable for the acquisition and implementation of the Strategic Offender Management System and its health care component.


General Services reports that it will take the appropriate actions to address our recommendations. However, it disagrees with our conclusion that its contract with another state to gain access to a group-purchasing organization may not offer the best deal to the State.

Corrections reports that it agrees with most of our recommendations and will work to adopt and incorporate them as appropriate.