VA awards $183M pharmaceutical contract to McKesson Corporation, highlighting a significant portion of drug wholesale spending

Contract Overview

Contract Amount: $183,456,537 ($183.5M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2010-12-01

End Date: 2010-12-31

Contract Duration: 30 days

Daily Burn Rate: $6.1M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 8

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: PHARMACEUTICALS

Place of Performance

Location: MURFREESBORO, RUTHERFORD County, TENNESSEE, 37130

State: Tennessee Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $183.5 million to MCKESSON CORPORATION for work described as: PHARMACEUTICALS Key points: 1. This contract represents a substantial investment in pharmaceutical supply chain management for the VA. 2. McKesson Corporation, a major player in drug distribution, secured this significant award. 3. The contract's fixed-price nature suggests a degree of cost certainty for the VA. 4. The duration of the contract (30 months) indicates a long-term need for these pharmaceutical supplies. 5. The award falls within the 'Drugs and Druggists' Sundries Merchant Wholesalers' category, reflecting specialized market needs. 6. The high dollar value suggests a critical role in supporting veteran healthcare services.

Value Assessment

Rating: good

The $183 million award to McKesson Corporation for pharmaceuticals appears to be a significant but potentially competitive procurement. Benchmarking this against similar large-scale pharmaceutical distribution contracts within the federal government would be necessary for a definitive value assessment. However, given McKesson's established market presence, the pricing is likely competitive, though the absence of specific unit cost data makes a precise comparison difficult. The fixed-price contract type offers some predictability for the VA's budget.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple vendors had the opportunity to bid. With 8 bidders participating, this suggests a healthy level of competition for this significant pharmaceutical supply contract. A robust competitive process generally leads to better price discovery and potentially more favorable terms for the government.

Taxpayer Impact: A full and open competition with multiple bidders is beneficial for taxpayers as it drives down prices through market forces and ensures the government is receiving competitive offers for essential pharmaceutical supplies.

Public Impact

Veterans will benefit from consistent and reliable access to necessary pharmaceuticals. The contract ensures the supply of a wide range of drugs and druggists' sundries. The geographic impact is national, supporting VA facilities across the country. This contract supports jobs within the pharmaceutical distribution and logistics sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in future contract renewals if competition diminishes.
Reliance on a single large distributor could create supply chain vulnerabilities.
Ensuring equitable distribution to all VA facilities requires robust logistical oversight.

Positive Signals

Award to a well-established distributor with a proven track record in federal contracting.
Full and open competition suggests a strong market response and potential for cost savings.
Fixed-price contract provides budget certainty for the Department of Veterans Affairs.
The contract's duration indicates a stable supply chain for critical medications.

Sector Analysis

The pharmaceutical wholesale and distribution sector is a critical component of the healthcare industry, characterized by large, established players like McKesson Corporation. Federal spending in this area is substantial, driven by agencies like the Department of Veterans Affairs and the Department of Defense, which require a consistent supply of medications for beneficiaries. This contract fits within the broader category of medical supplies and logistics, where efficiency and reliability are paramount. Comparable spending benchmarks would involve analyzing other large federal contracts for pharmaceutical distribution services.

Small Business Impact

While this contract was awarded to a large prime contractor, McKesson Corporation, there is no explicit indication of a small business set-aside. However, large federal contracts often include subcontracting requirements. It is probable that McKesson will engage small businesses for various support services, such as logistics, transportation, or specialized administrative functions, contributing to the small business ecosystem. Further analysis of the subcontracting plan would be needed to quantify this impact.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of Veterans Affairs contracting officers and program managers. Accountability measures are embedded within the contract's terms and conditions, including performance standards and reporting requirements. Transparency is facilitated through federal procurement databases where contract awards are publicly disclosed. The Inspector General's office within the VA may conduct audits or investigations related to contract performance and financial integrity.

Related Government Programs

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

Risk Flags

Potential for supply chain disruption
Price volatility in pharmaceutical markets
Contractor performance risk
Dependence on large distributors

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $183.5 million to MCKESSON CORPORATION. PHARMACEUTICALS

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 $183.5 million.

What is the period of performance?

Start: 2010-12-01. End: 2010-12-31.

What is McKesson Corporation's historical performance with the Department of Veterans Affairs on similar pharmaceutical contracts?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs, frequently securing contracts for pharmaceutical distribution. Historical data indicates consistent performance in fulfilling VA's needs, often through large-scale agreements. While specific performance metrics for past contracts are not detailed here, McKesson's continued success in winning significant VA awards suggests a generally satisfactory track record. However, like any large contractor, there may have been instances of minor performance issues or disputes that were resolved through contract management processes. A deeper dive into past contract performance reports and any associated corrective actions would provide a more granular understanding of their historical reliability.

How does the awarded price per unit for key pharmaceuticals compare to market rates or other federal agency contracts?

Direct comparison of the awarded price per unit for specific pharmaceuticals is not possible with the provided data, as it only shows the total contract value. To assess value for money, one would need to obtain the detailed pricing schedules within the contract and benchmark these against current market rates from wholesale drug distributors and prices paid by other federal agencies, such as the Department of Defense or through the Federal Supply Schedule. Given the competitive nature of the award (8 bidders), it is likely that the pricing is at or near market competitive levels. However, without the unit cost data, a definitive statement on whether this represents excellent value is not feasible.

What are the primary risks associated with relying on a single large distributor like McKesson for a significant portion of VA pharmaceutical needs?

The primary risks associated with relying on a single large distributor for a significant portion of VA pharmaceutical needs include potential supply chain disruptions due to unforeseen events (e.g., natural disasters, labor strikes, or the distributor's own operational issues), increased pricing power for the contractor in future negotiations if competition is less robust, and potential vulnerabilities if the contractor faces financial instability or significant legal challenges. While McKesson is a large and generally stable company, diversification of suppliers or maintaining strategic stockpiles could mitigate some of these risks. The VA's contract management and contingency planning would be crucial in addressing these potential issues.

How effective has the VA's procurement process been in securing competitive pricing for pharmaceutical supplies over the last five years?

The VA's procurement process for pharmaceutical supplies has generally been effective in securing competitive pricing, particularly through mechanisms like full and open competition and the use of the Federal Supply Schedule (FSS). The data shows a $183 million contract awarded via full and open competition with 8 bidders, indicating a healthy market response. Historically, the VA has leveraged its significant purchasing power to negotiate favorable terms. However, the effectiveness can vary depending on the specific drug category and market dynamics. Analyzing trends in average prices paid across various pharmaceutical categories and the number of bidders on similar contracts over the past five years would provide a more comprehensive assessment of the VA's procurement effectiveness.

What is the historical spending trend for pharmaceuticals by the Department of Veterans Affairs, and how does this contract fit within that trend?

The Department of Veterans Affairs consistently spends hundreds of millions, often billions, of dollars annually on pharmaceuticals, reflecting the healthcare needs of the veteran population. This $183 million contract awarded to McKesson Corporation represents a significant, but not unprecedented, portion of that annual spending. It aligns with the VA's ongoing strategy to ensure a reliable supply of medications through large, competitively awarded contracts. Historical data would likely show similar large-dollar awards to major pharmaceutical distributors over the years. This specific contract's duration (30 months) suggests it covers a substantial period, contributing to the VA's overall pharmaceutical budget predictability.

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: $183,456,537

Exercised Options: $183,456,537

Current Obligation: $183,456,537

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline