Inside VA/DoD Margin Strength and Market Stability

Bottom Line:

The VA and DoD are not “loss leader” channels. They are high-value, margin-stable, influence-rich markets where a single, well-executed access strategy can deliver nationwide adoption, steady demand, and long-term commercial benefits—with spillover effects into academia and the private sector.

Why VA & DoD Stand Out as Strategic Markets

1. High-Value, Stable Demand

The Department of Veterans Affairs (VA) and Department of Defense (DoD) operate two of the largest healthcare delivery networks in the world, covering a combined 18 million lives. This includes older veterans, active-duty personnel, and their families, many with complex, high-acuity medical needs that drive predictable utilization across chronic and specialty therapies.

• Integrated Care Models – Coordinated systems improve adherence, therapeutic persistence, and long-term outcomes, reinforcing demand stability.

• Diverse, Constant Patient Base – Broad clinical scope allows manufacturers to engage across multiple therapeutic areas.

• Population Health Leadership – Both systems prioritize preventive care, optimize chronic disease management, and improve adherence, aligning with value-based care goals.

  
  

Strategic Opportunity: Manufacturers can enter sophisticated value-based discussions that directly connect product performance to organizational priorities.

2. Superior Pricing & Margins

Contrary to the “low-margin government channel” perception, VA and DoD pricing mechanisms (Non-Federal Average Manufacturer Price (non-FAMP) and Federal Ceiling Price (FCP)) exclude payer rebates that erode margins in other channels - specifically for branded products.

• Margin Advantage – Net prices often align with Medicare Part D and can be superior in certain specialty categories.

• CBO Findings – Across 210 brand drugs reviewed, VA/DoD net prices (non-FAMP) were close to Part D, while Medicaid prices were substantially lower.

• Lifecycle Impact – Margins can be especially favorable during launch pricing before downward market pressures mature.

  
  

Result: In many therapeutic areas, VA and DoD channels outperform Medicaid, Medicare, and Most Favored Nation benchmarks on net revenue.

3. Efficient Procurement & Market Access

The VA and DoD operate centralized formulary and contracting systems, eliminating the fragmentation of commercial payer negotiations.

• Single Decision, Nationwide Access – One engagement with each health system can secure access across the entire network.

• Low Maintenance – Longer formulary review cycles reduce the churn and risk common in commercial markets.

• Predictable Ordering & Supply – Centralized procurement streamlines forecasting, budgeting, and resource allocation.

  
  

Strategic Advantage: Manufacturers benefit from long-term, system-wide adoption with minimal re-negotiation.

4. Spillover Influence & Advocacy

VA and DoD systems are deeply integrated with academic medical centers, clinical trials, and professional training programs, creating influence well beyond their own patient base.

• Academic Partnerships – Most VA specialists are dually appointed with the corresponding academic affiliate or a commercial practice – often carrying VA prescribing habits into those commercial settings.

• Research & Real-World Evidence – VA/DoD adoption serves as a proof point, signaling value through rigorous evaluation and cost-effectiveness analysis.

• Commercial Spillover – Positive outcomes within these systems can accelerate uptake in broader markets, including large integrated delivery networks (IDNs) and systems like Kaiser.

  
  

Force Multiplier: VA/DoD success stories resonate with payers, providers, and policymakers, positioning products for faster, broader adoption.