VA's McKesson Pharmaceutical Prime Vendor contract exceeds $953M in FY2024, awarded via full and open competition

Contract Overview

Contract Amount: $953,242,300 ($953.2M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2024-09-01

End Date: 2024-09-30

Contract Duration: 29 days

Daily Burn Rate: $32.9M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2024 SEPTEMBER

Place of Performance

Location: IRVING, DALLAS County, TEXAS, 75039

State: Texas Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $953.2 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2024 SEPTEMBER Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending, highlighting the critical role of prime vendors. 2. Full and open competition suggests a robust market for pharmaceutical distribution services to the VA. 3. The firm-fixed-price structure aims to control costs and provide predictability for the government. 4. Performance is concentrated in Texas, indicating a regional focus for this specific delivery order. 5. The short duration of this delivery order suggests it may be part of a larger, ongoing program.

Value Assessment

Rating: good

This contract, valued at over $953 million for a single month, is substantial. While specific benchmarks for monthly pharmaceutical prime vendor contracts are not readily available, the VA's reliance on such large-scale agreements indicates a mature and established procurement process. The firm-fixed-price contract type suggests an effort to manage costs effectively. Further analysis would require comparing this to other similar prime vendor contracts awarded by the VA and other federal agencies over comparable periods.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were likely considered. This approach generally fosters a competitive environment, encouraging vendors to offer their best pricing and terms to secure the award. The VA's decision to use full and open competition suggests confidence in the availability of qualified suppliers and the ability to achieve fair market value through a broad solicitation.

Taxpayer Impact: Taxpayers benefit from full and open competition as it typically drives down prices and ensures the government receives competitive offers, maximizing the value of federal dollars spent on essential pharmaceutical supplies.

Public Impact

Veterans will benefit from timely and reliable access to a wide range of pharmaceuticals through the VA healthcare system. The contract ensures the continuous supply of necessary medications for medical treatment and health maintenance of eligible veterans. Services are delivered primarily within Texas, impacting the healthcare infrastructure and patient care in that region. The contract supports the pharmaceutical supply chain, indirectly impacting jobs in logistics, distribution, and related healthcare support services.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in future contract periods if competition dynamics shift.
Dependence on a single prime vendor for a large volume of pharmaceuticals could pose supply chain risks.
Geographic concentration in Texas might limit flexibility if demand shifts significantly outside this region.

Positive Signals

Awarded through full and open competition, suggesting competitive pricing and market validation.
Firm-fixed-price contract type provides cost certainty for the VA.
The large contract value indicates the vendor's capacity to meet significant demand.

Sector Analysis

The pharmaceutical prime vendor (PPV) market is a critical component of the healthcare sector, ensuring the efficient distribution of medications to government entities. The Department of Veterans Affairs is a major procurer in this space, often utilizing large, comprehensive contracts to meet the needs of its vast patient population. This contract fits within the broader landscape of federal healthcare spending, where pharmaceutical procurement represents a significant expenditure. Benchmarks for similar PPV contracts can vary widely based on the scope, duration, and specific services required, but multi-hundred-million-dollar annual awards are common for large federal agencies.

Small Business Impact

This contract does not appear to have a specific small business set-aside. However, as a prime vendor contract, McKesson Corporation may engage small businesses as subcontractors for various logistical or support services. The extent of subcontracting to small businesses would depend on McKesson's internal policies and the specific requirements outlined in the contract, which are not detailed here. The impact on the small business ecosystem would be indirect, primarily through potential subcontracting opportunities.

Oversight & Accountability

The Department of Veterans Affairs utilizes various oversight mechanisms for its contracts, including performance monitoring, quality assurance reviews, and financial audits. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse related to this contract. Transparency is generally maintained through contract award databases and public reporting, though specific performance metrics and detailed financial breakdowns may be internal.

Related Government Programs

Department of Defense Pharmaceutical Prime Vendor Contracts
Federal Supply Schedule (FSS) Pharmaceutical Contracts
VA Medical Care Programs
National Acquisition Center (NAC) Contracts

Risk Flags

High contract value for a short duration
Potential for supply chain disruption
Geographic concentration of services

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $953.2 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2024 SEPTEMBER

Who is the contractor on this award?

The obligated recipient is MCKESSON CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Veterans Affairs (Department of Veterans Affairs).

What is the total obligated amount?

The obligated amount is $953.2 million.

What is the period of performance?

Start: 2024-09-01. End: 2024-09-30.

What is McKesson Corporation's track record with the VA for pharmaceutical prime vendor services?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs as a pharmaceutical prime vendor. They have consistently been awarded significant contracts to supply medications to VA facilities across the nation. Their track record generally indicates a capacity to manage large-scale pharmaceutical distribution and meet the VA's demanding requirements for delivery and inventory management. Historical data suggests McKesson is a primary player in this market, often competing for and winning substantial portions of the VA's pharmaceutical needs. The consistent awarding of large contracts points to a generally satisfactory performance history, though specific details on past performance evaluations, any penalties, or disputes would require deeper access to VA contract performance reports.

How does the value of this single delivery order compare to the VA's total annual pharmaceutical spending?

This single delivery order for McKesson Corporation amounts to approximately $953.24 million for the month of September 2024. The Department of Veterans Affairs' total annual pharmaceutical spending is significantly higher, often in the tens of billions of dollars. For context, in fiscal year 2023, the VA's pharmaceutical spending was reported to be around $14.5 billion. Therefore, this single delivery order represents a substantial portion of the VA's monthly pharmaceutical expenditure, likely covering a significant category of drugs or serving a large geographic region, but it is a fraction of the total annual budget allocated for pharmaceuticals.

What are the primary risks associated with relying on a single prime vendor for pharmaceutical distribution?

The primary risks associated with relying on a single prime vendor like McKesson for pharmaceutical distribution include supply chain disruptions, price volatility, and reduced negotiating leverage for the government. A major disruption, such as a natural disaster affecting McKesson's facilities or a widespread recall, could severely impact the VA's ability to procure necessary medications. Furthermore, over-reliance on one vendor might diminish the VA's bargaining power over time, potentially leading to less favorable pricing in future contract renewals if competition is not robust. While full and open competition is utilized for awarding the contract, the day-to-day execution relies heavily on the performance and stability of the single awarded entity for that specific contract period.

How effective is the firm-fixed-price contract type in managing pharmaceutical costs for the VA?

The firm-fixed-price (FFP) contract type is generally considered effective in managing pharmaceutical costs for the VA because it shifts the risk of cost overruns to the contractor, McKesson Corporation. Under an FFP agreement, the price is set and not subject to adjustment based on the contractor's actual costs. This provides the VA with cost certainty and predictability, making budgeting more straightforward. It incentivizes the contractor to control its own costs efficiently to maintain profitability. For pharmaceuticals, where prices can fluctuate, an FFP contract locks in the price for the duration of the delivery order, protecting the VA from unexpected price increases during that period. However, it's crucial that the initial price negotiated reflects fair market value.

What is the typical duration and value range for VA pharmaceutical prime vendor delivery orders?

The duration and value range for VA pharmaceutical prime vendor delivery orders can vary significantly, reflecting the dynamic nature of pharmaceutical needs and supply chain management. This specific delivery order has a duration of 29 days (September 1, 2024, to September 30, 2024) and a value of over $953 million. While this particular order is exceptionally large and short-termed, typical delivery orders under larger prime vendor contracts can range from a few weeks to several months or even a year, depending on the specific requirements, drug availability, and strategic sourcing decisions. Values can range from thousands to hundreds of millions of dollars, aligning with the overall scale of the VA's pharmaceutical procurement, which is in the billions annually.

Industry Classification

NAICS: Manufacturing › Pharmaceutical and Medicine Manufacturing › Pharmaceutical Preparation Manufacturing

Product/Service Code: MEDICAL/DENTAL/VETERINARY EQPT/SUPP

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 6555 STATE HIGHWAY 161, IRVING, TX, 75039

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $953,242,300

Exercised Options: $953,242,300

Current Obligation: $953,242,300

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: 36W79720D0001

IDV Type: IDC

Timeline