VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for over $17.6 million

Contract Overview

Contract Amount: $17,671,354 ($17.7M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2009-12-01

End Date: 2009-12-31

Contract Duration: 30 days

Daily Burn Rate: $589.0K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 8

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT PHARMACY PRIME VENDOR

Place of Performance

Location: LANCASTER, DALLAS County, TEXAS, 75134

State: Texas Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $17.7 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT PHARMACY PRIME VENDOR Key points: 1. The contract represents a significant investment in pharmaceutical supply chain management for the VA. 2. Competition dynamics for this contract are crucial for ensuring cost-effectiveness in drug procurement. 3. Performance metrics and delivery timelines are key indicators of the contractor's reliability. 4. This contract positions McKesson as a key supplier within the healthcare sector for federal agencies. 5. The fixed-price nature of the contract aims to provide cost certainty for the VA. 6. Monitoring potential risks such as supply chain disruptions or price fluctuations is essential.

Value Assessment

Rating: good

The awarded amount of $17.6 million for the Pharmacy Prime Vendor contract appears reasonable given the scope of supplying pharmaceuticals to the Department of Veterans Affairs. Benchmarking against similar large-scale pharmaceutical distribution contracts for federal agencies would provide a more precise value-for-money assessment. However, the fixed-price contract type suggests an effort to control costs. The relatively long duration of the contract (though the provided end date is in 2009, suggesting this might be an older data point or a specific task order) also implies a need for sustained, reliable service.

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 designed to foster price discovery and encourage contractors to offer their best terms. The fact that there were 8 bidders suggests a healthy level of interest and competition in this market segment, which generally benefits the government by driving down prices and improving service quality.

Taxpayer Impact: A full and open competition for a contract of this magnitude ensures that taxpayer dollars are used efficiently by leveraging market forces to secure favorable pricing and terms for essential pharmaceutical supplies.

Public Impact

Veterans across the nation benefit from timely access to necessary prescription medications. The contract ensures the reliable supply of a wide range of pharmaceuticals to VA medical facilities. Geographic impact is nationwide, supporting VA healthcare operations across all states. The contract supports jobs within the pharmaceutical distribution and logistics sectors, including those at McKesson Corporation.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases over the contract term despite fixed-price structure if market conditions change drastically.
Reliance on a single prime vendor could create vulnerabilities in the supply chain.
Ensuring consistent quality and availability of all required medications can be challenging.
Monitoring contractor performance to ensure adherence to delivery schedules and service level agreements.

Positive Signals

Awarded through full and open competition, indicating a competitive bidding process.
Fixed-price contract type helps to control costs and provide budget certainty.
The large number of bidders (8) suggests a robust and competitive market.
The contract supports a critical function for the VA, ensuring veteran healthcare.

Sector Analysis

The pharmaceutical wholesale and distribution sector is a critical component of the healthcare industry, facilitating the movement of drugs from manufacturers to providers. This contract falls within the 'Drugs and Druggists' Sundries Merchant Wholesalers' NAICS code (424210). The market is characterized by large, established players like McKesson, Cardinal Health, and AmerisourceBergen, who manage complex logistics and extensive product portfolios. Federal spending in this area is substantial, driven by agencies like the VA and DoD, which require reliable and cost-effective access to pharmaceuticals for their beneficiaries.

Small Business Impact

While this contract is awarded to a large corporation (McKesson), the nature of prime vendor agreements often involves subcontracting opportunities for smaller businesses within the pharmaceutical supply chain. However, specific small business set-aside provisions are not indicated here. The primary focus is on the prime contractor's ability to manage the overall distribution. The impact on the broader small business ecosystem would depend on McKesson's subcontracting practices and whether they engage smaller, specialized logistics or service providers.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of Veterans Affairs contracting officers and program managers. They are responsible for monitoring contractor performance, ensuring compliance with contract terms, and managing any modifications or disputes. Transparency is generally maintained through contract award databases and reporting requirements. Inspector General jurisdiction would apply if any fraud, waste, or abuse is suspected.

Related Government Programs

Department of Defense Pharmacy Contracts
Federal Supply Schedule (FSS) for Pharmaceuticals
VA Medical Care Programs
National Acquisition Center (NAC) Contracts

Risk Flags

Potential for supply chain disruption
Price volatility in pharmaceutical market
Contractor performance monitoring
Ensuring formulary compliance

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $17.7 million to MCKESSON CORPORATION. EXPRESS REPORT PHARMACY PRIME VENDOR

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 $17.7 million.

What is the period of performance?

Start: 2009-12-01. End: 2009-12-31.

What is McKesson Corporation's track record with VA contracts prior to this award?

McKesson Corporation has a long-standing history of serving the Department of Veterans Affairs, often acting as a prime vendor for pharmaceuticals and medical supplies. Their track record typically involves managing large-scale distribution networks and fulfilling complex delivery requirements across numerous VA facilities nationwide. While specific performance details for past contracts require deeper investigation, their continued selection for significant contracts suggests a generally satisfactory performance history. However, like any large contractor, there may have been instances of performance issues or disputes that would be documented in contract performance reports or agency oversight records. A thorough review would involve examining past contract awards, performance evaluations (e.g., CPARS), and any documented corrective actions.

How does the $17.6 million value compare to similar VA pharmacy prime vendor contracts?

The $17.6 million figure represents the total value of this specific contract award, likely for a defined period. To assess its comparability, one would need to examine the duration and scope of this contract (e.g., if it's a base year or includes options) and compare it to other VA Pharmacy Prime Vendor (PPV) contracts awarded over similar timeframes. The VA's PPV program is substantial, often involving contracts valued in the hundreds of millions or even billions of dollars annually, depending on the specific region or service area covered. This $17.6 million might represent a regional contract, a specific task order, or an older award. Without knowing the exact period of performance and geographic coverage, a direct comparison is difficult, but it is likely a component of a larger overall VA pharmaceutical procurement strategy.

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

Relying on a single prime vendor like McKesson for pharmaceuticals introduces several key risks. Firstly, there's a significant supply chain disruption risk; if McKesson faces issues such as natural disasters impacting their distribution centers, labor strikes, or major quality control failures, the VA's ability to procure essential medications could be severely hampered, directly impacting patient care. Secondly, reduced competition can lead to less favorable pricing over time, as the VA may have limited leverage to negotiate better terms once a vendor is established. Thirdly, there's a risk of vendor lock-in, making it difficult and costly to switch providers if performance degrades. Finally, ensuring consistent adherence to stringent quality and regulatory standards across all distributed products requires robust oversight.

How effective is the full and open competition process in ensuring value for this type of contract?

The full and open competition process is generally considered the most effective method for ensuring value in federal contracting, including for pharmaceutical prime vendor services. By allowing all responsible sources to submit bids, it fosters a competitive environment where contractors are incentivized to offer the best possible pricing, quality, and service to win the contract. The presence of 8 bidders in this case suggests that the market is sufficiently robust to support meaningful competition. This process helps prevent price gouging and encourages innovation. However, the effectiveness is contingent on the clarity of the solicitation requirements, the evaluation criteria, and the agency's ability to properly assess proposals to select the best overall value, not just the lowest price.

What are the historical spending patterns for VA pharmacy prime vendor contracts?

Historical spending on VA pharmacy prime vendor contracts has been substantial and generally increasing over the years, reflecting the growing healthcare needs of the veteran population and the rising cost of pharmaceuticals. The VA operates a complex, decentralized system, and prime vendor contracts are crucial for ensuring efficient and cost-effective procurement of a vast formulary of drugs. Spending is often broken down by region or service area, with national contracts also in place. Factors influencing spending include the number of veterans served, the types of medical conditions treated, the introduction of new and expensive medications, and the success of competitive bidding processes. Analyzing historical data reveals trends in drug utilization, price fluctuations, and the evolution of the VA's procurement strategies.

What are the implications of the 'FULL AND OPEN COMPETITION' award type for the VA's budget?

The 'FULL AND OPEN COMPETITION' award type has significant positive implications for the VA's budget. This method maximizes the potential for cost savings by encouraging multiple companies to compete for the contract. By soliciting bids from all interested and capable sources, the VA leverages market forces to drive down prices and improve the overall value proposition. This competitive pressure helps ensure that the VA is not overpaying for essential pharmaceutical supplies. Furthermore, a well-executed full and open competition can lead to better service terms and innovative solutions, indirectly contributing to budget efficiency by improving operational effectiveness and reducing potential future costs associated with poor performance or suboptimal pricing.

Industry Classification

NAICS: Wholesale Trade › Drugs and Druggists' Sundries Merchant Wholesalers › Drugs and Druggists' Sundries Merchant Wholesalers

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

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Offers Received: 8

Pricing Type: FIRM FIXED PRICE (J)

Contractor Details

Address: 1 POST ST, SAN FRANCISCO, CA, 90

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $17,671,354

Exercised Options: $17,671,354

Current Obligation: $17,671,354

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline