VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for $36.5M in FY2017

Contract Overview

Contract Amount: $36,519,444 ($36.5M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2017-09-01

End Date: 2017-09-30

Contract Duration: 29 days

Daily Burn Rate: $1.3M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2017 SEP

Place of Performance

Location: BAY PINES, PINELLAS County, FLORIDA, 33744

State: Florida Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $36.5 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2017 SEP Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending. 2. McKesson Corporation is a major player in the pharmaceutical distribution market. 3. The contract was awarded using full and open competition, suggesting a competitive pricing environment. 4. The short duration of the delivery order (29 days) may indicate a need for immediate supply or a bridge contract. 5. Analysis of pricing against market rates is crucial for assessing value for money. 6. The contract's performance context is within the broader VA healthcare system's pharmaceutical needs.

Value Assessment

Rating: good

The award amount of $36.5 million for a 29-day period suggests a substantial daily expenditure on pharmaceuticals. Benchmarking this against similar prime vendor contracts for the VA or other federal agencies would provide a clearer picture of value. Without specific per-unit drug costs or a comparison to market averages for pharmaceutical distribution services, a definitive value assessment is challenging. However, the scale of the contract implies significant volume and potential for economies of scale.

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 had the opportunity to submit proposals. This competitive process is generally expected to drive down prices and ensure fair market value. The number of bidders is not specified, but the use of this procurement method suggests a healthy level of interest and competition for this significant contract.

Taxpayer Impact: Taxpayers benefit from the competitive nature of this award, as it is likely to have resulted in more favorable pricing than a sole-source or limited competition scenario.

Public Impact

Veterans will benefit from the timely and consistent availability of pharmaceuticals through the VA's healthcare system. The contract ensures the supply of a wide range of pharmaceutical preparations to VA facilities. The geographic impact is nationwide, as VA facilities across the country rely on prime vendors for their drug supply. This contract supports the pharmaceutical supply chain workforce, including logistics, warehousing, and distribution personnel.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price fluctuations given the short duration of the delivery order.
Reliance on a single vendor for a large volume of pharmaceuticals could pose supply chain risks if not managed effectively.

Positive Signals

Awarded through full and open competition, indicating a competitive market.
The contract is with a well-established pharmaceutical distributor, suggesting operational experience.
The scale of the contract may allow for significant volume discounts.

Sector Analysis

The pharmaceutical distribution sector is characterized by large, established players like McKesson Corporation, Cardinal Health, and AmerisourceBergen. These prime vendors manage complex supply chains to deliver a vast array of medications to healthcare providers. Federal contracts, particularly for agencies like the VA, represent a significant portion of the market due to the large patient populations served. Benchmarking against industry standards for distribution fees and service levels is key to evaluating contract performance.

Small Business Impact

This contract, awarded to a large corporation, does not appear to have specific small business set-aside provisions. However, large prime vendors often engage small businesses for subcontracting opportunities in areas such as logistics, transportation, and specialized services, contributing to the broader small business ecosystem.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' contracting officers and program managers. Accountability measures would include performance metrics, delivery schedules, and quality standards outlined in the contract. Transparency is generally maintained through contract award databases, though specific operational details may be proprietary.

Related Government Programs

VA Pharmacy Services
Federal Supply Schedule (FSS) for Pharmaceuticals
Department of Defense Pharmaceutical Contracts

Risk Flags

Short contract duration may indicate potential instability or a need for immediate action.
Reliance on a single large vendor carries inherent supply chain risks.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $36.5 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2017 SEP

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 $36.5 million.

What is the period of performance?

Start: 2017-09-01. End: 2017-09-30.

What is McKesson Corporation's track record with the VA for similar prime vendor contracts?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs as a prime vendor for pharmaceuticals. They have consistently been awarded significant contracts over many years, indicating a strong track record of performance and reliability in meeting the VA's needs. Their experience includes managing large-scale distribution, maintaining extensive inventories, and ensuring timely delivery of a wide range of medications to VA medical centers and clinics nationwide. This history suggests a deep understanding of the VA's specific requirements and operational environment, making them a frequent and often successful bidder for these critical contracts.

How does the $36.5 million award for a 29-day period compare to typical monthly spending for the VA Pharmacy Prime Vendor program?

An award of $36.5 million for a 29-day period translates to an approximate daily expenditure of $1.26 million. This figure provides a snapshot of the significant daily operational costs associated with the VA's pharmaceutical supply chain. To assess if this is typical, it would need to be compared against historical monthly spending data for the Pharmacy Prime Vendor (PPV) program across multiple years and potentially across different vendors. If this daily rate is consistent with or lower than previous periods, it suggests stable or improved cost management. Conversely, a significant increase could signal rising drug prices, increased demand, or changes in contract terms.

What are the key performance indicators (KPIs) typically used to evaluate the success of a Pharmacy Prime Vendor contract?

Key performance indicators for a Pharmacy Prime Vendor contract often include on-time delivery rates, order accuracy, inventory fill rates, and product availability. For instance, a target might be to achieve a 98% on-time delivery rate and a 99% order accuracy. Other critical metrics involve adherence to temperature control and storage requirements for sensitive medications, compliance with all relevant regulations (e.g., DEA, FDA), and responsiveness to urgent or emergency supply requests. The contractor's ability to manage recalls efficiently and provide accurate reporting on drug utilization and inventory levels are also vital components of performance evaluation.

What is the potential impact of a short-duration delivery order (29 days) on the overall pharmaceutical supply chain stability for the VA?

A short-duration delivery order, like this 29-day contract, can introduce a degree of uncertainty into the pharmaceutical supply chain if it represents a deviation from longer-term agreements. It might indicate an immediate need to replenish stock, a bridge to a new, larger contract, or a response to unforeseen demand surges. While a single short order is unlikely to destabilize the entire VA system, a pattern of such orders could suggest challenges in long-term planning or contract management. It necessitates agile logistics and potentially requires the vendor to maintain flexible inventory levels to meet immediate demands, which could incur additional costs or risks if not managed proactively.

Are there any specific risks associated with relying on a single vendor like McKesson for a large volume of pharmaceuticals, even under full and open competition?

Yes, there are inherent risks associated with relying on a single vendor, even one selected through full and open competition. These risks include potential supply chain disruptions due to unforeseen events affecting the vendor (e.g., natural disasters, labor strikes, financial instability, cyberattacks). There's also the risk of vendor lock-in, where transitioning to a new vendor becomes difficult or costly, potentially reducing future negotiating leverage. Furthermore, while competition was used for this award, ongoing market dynamics could shift, making the current pricing less favorable over time. Robust contingency planning, clear contract terms regarding business continuity, and regular market analysis are essential to mitigate these risks.

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: ONE POST ST, SAN FRANCISCO, CA, 94104

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

Financial Breakdown

Contract Ceiling: $36,519,444

Exercised Options: $36,519,444

Current Obligation: $36,519,444

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline