VA awards $260M contract for pharmaceuticals to McKesson Corporation, highlighting a significant portion of its drug sundries wholesale spending

Contract Overview

Contract Amount: $260,211,405 ($260.2M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2011-09-01

End Date: 2011-09-30

Contract Duration: 29 days

Daily Burn Rate: $9.0M/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 $260.2 million to MCKESSON CORPORATION for work described as: PHARMACEUTICALS Key points: 1. The contract represents a substantial portion of the VA's spending on drugs and druggists' sundries, indicating a key supplier relationship. 2. McKesson Corporation, a major player in pharmaceutical distribution, secured this contract through full and open competition. 3. The firm fixed-price contract structure suggests a degree of cost certainty for the government. 4. With a duration of 29 months, the contract provided a stable supply chain for essential pharmaceutical products. 5. The award amount of $260.2 million underscores the scale of pharmaceutical procurement within the Department of Veterans Affairs. 6. The contract's value, relative to the total market for pharmaceutical wholesaling, positions it as a significant, but not dominant, segment.

Value Assessment

Rating: good

The contract value of $260.2 million for pharmaceutical supplies over 29 months appears reasonable given the scale of the Department of Veterans Affairs' needs. Benchmarking against similar large-scale pharmaceutical distribution contracts awarded by other federal agencies or large healthcare systems would provide a more precise value-for-money assessment. However, McKesson Corporation is a well-established distributor, suggesting competitive pricing was likely achieved through the full and open competition process.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders had the opportunity to submit proposals. The presence of 8 bidders, as suggested by the data, points to a healthy competitive environment. This level of competition is generally expected to drive down prices and ensure the government receives fair market value for the pharmaceutical supplies.

Taxpayer Impact: The full and open competition for this substantial pharmaceutical contract likely resulted in cost savings for taxpayers by fostering a competitive bidding environment.

Public Impact

Veterans across the nation benefit from timely access to necessary pharmaceuticals through this contract. The contract ensures the supply of a wide range of drugs and druggists' sundries, supporting various medical treatments. The geographic impact is nationwide, covering all VA facilities requiring pharmaceutical provisions. 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 increases in subsequent contracts if competition diminishes.
Reliance on a single large supplier could pose risks if McKesson faces supply chain disruptions.
Ensuring consistent quality and availability of all listed pharmaceuticals requires robust oversight.

Positive Signals

Awarded through full and open competition, indicating a competitive pricing environment.
McKesson Corporation is a reputable and experienced pharmaceutical distributor.
The firm fixed-price contract provides cost predictability for the VA.
The contract duration of 29 months offered stability in supply.

Sector Analysis

The pharmaceutical wholesale and distribution sector is a critical component of the healthcare industry, characterized by large, established players like McKesson Corporation. This contract falls within the 'Drugs and Druggists' Sundries Merchant Wholesalers' NAICS code (424210). The market is highly regulated and competitive, with significant spending by government entities to ensure access to medications for beneficiaries. Comparable spending benchmarks would involve analyzing other large federal contracts for pharmaceutical distribution, such as those with the Department of Defense or other health programs.

Small Business Impact

The data indicates this contract was not specifically set aside for small businesses, nor does it explicitly mention subcontracting goals for small businesses. As a large-scale contract awarded to a major distributor, the primary focus was likely on securing a broad range of pharmaceuticals efficiently. Further investigation into subcontracting plans would be needed to assess the direct impact on the small business ecosystem within pharmaceutical distribution.

Oversight & Accountability

The Department of Veterans Affairs is responsible for overseeing this contract, ensuring compliance with terms and conditions, and monitoring performance. Accountability measures would include performance metrics, delivery schedules, and quality control. Transparency is facilitated through contract award databases. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse related to the contract.

Related Government Programs

Department of Defense Pharmaceutical Contracts
Federal Supply Schedule (FSS) for Pharmaceuticals
Medicaid Drug Rebate Program
Medicare Part D Prescription Drug Benefit

Risk Flags

Potential for supply chain disruption
Price volatility risk
Over-reliance on a single supplier

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $260.2 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 $260.2 million.

What is the period of performance?

Start: 2011-09-01. End: 2011-09-30.

What is McKesson Corporation's track record with federal contracts, particularly with the Department of Veterans Affairs?

McKesson Corporation has a long history of contracting with the U.S. federal government, including the Department of Veterans Affairs (VA). They are a major distributor of pharmaceuticals and medical supplies, frequently awarded contracts for these goods. Their track record generally reflects their position as one of the largest players in the industry. However, like any large contractor, they may have faced scrutiny or performance issues on specific contracts over time. A detailed review of their contract history with the VA would reveal specific performance metrics, any disputes, and overall satisfaction levels. The provided data shows a significant award to McKesson for pharmaceuticals, indicating a substantial and ongoing relationship with the VA.

How does the $260.2 million contract value compare to the VA's overall pharmaceutical spending?

The $260.2 million awarded to McKesson Corporation represents a significant portion of the Department of Veterans Affairs' (VA) spending on drugs and druggists' sundries. To contextualize this further, one would need to examine the VA's total annual pharmaceutical budget. If the VA's total pharmaceutical spending is in the billions, this single contract, while large, might represent a specific category or a portion of their overall procurement. However, given that McKesson is a primary distributor, this award likely covers a substantial volume and variety of medications, making it a key component of the VA's drug supply chain strategy. Without the total VA pharmaceutical budget, it's difficult to state the exact percentage, but the amount itself signifies a major procurement.

What are the primary risks associated with a large pharmaceutical contract awarded to a single distributor like McKesson?

A primary risk associated with awarding a large pharmaceutical contract to a single distributor, such as McKesson, is supply chain vulnerability. Any disruption to McKesson's operations, whether due to natural disasters, labor issues, or internal logistical problems, could significantly impact the VA's ability to procure necessary medications. Another risk is the potential for reduced price competition in future solicitations if McKesson becomes the dominant supplier and other distributors are less inclined to compete. Furthermore, over-reliance on one entity could lead to less leverage for the VA in negotiating terms and prices over the long term. Robust contingency planning and strong contract oversight are crucial to mitigate these risks.

How effective is the 'firm fixed price' contract type in managing costs for pharmaceutical procurement?

The 'firm fixed price' (FFP) contract type is generally considered effective for managing costs in procurement scenarios where the scope of work is well-defined and risks are relatively low. For pharmaceutical procurement, FFP provides the VA with cost certainty, as the price is fixed regardless of the contractor's actual costs. This shifts the risk of cost overruns to the contractor (McKesson, in this case). This structure is beneficial for budgeting and financial planning. However, if market prices for pharmaceuticals fluctuate significantly after the contract is awarded, the contractor might be disincentivized to pass on cost savings, or conversely, could face losses if costs rise unexpectedly. For essential medicines with stable pricing, FFP is often a suitable choice.

What historical spending patterns exist for pharmaceutical procurement by the Department of Veterans Affairs?

The Department of Veterans Affairs (VA) has consistently allocated substantial funds towards pharmaceutical procurement to serve its veteran population. Historical spending patterns indicate a growing demand for medications, driven by an aging veteran demographic and advancements in medical treatments. The VA typically utilizes a mix of contract types, including large-scale distribution agreements, formulary agreements, and specific drug procurements, often leveraging the Federal Supply Schedule (FSS) and full and open competition. Major pharmaceutical distributors like McKesson, Cardinal Health, and AmerisourceBergen have historically been significant awardees due to their extensive networks and product portfolios. Spending has likely increased over the years, reflecting both inflation in drug prices and expanded healthcare services for veterans.

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: $260,244,405

Exercised Options: $260,211,405

Current Obligation: $260,211,405

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline