VA awards $224M contract to McKesson Corporation for pharmaceutical supplies, highlighting a significant investment in healthcare logistics

Contract Overview

Contract Amount: $224,164,017 ($224.2M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2012-03-01

End Date: 2012-03-31

Contract Duration: 30 days

Daily Burn Rate: $7.5M/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 $224.2 million to MCKESSON CORPORATION for work described as: PHARMACEUTICALS Key points: 1. The contract represents a substantial portion of the VA's spending on essential medical supplies. 2. McKesson Corporation, a major player in pharmaceutical distribution, secured this award. 3. The duration of the contract suggests a long-term need for these services. 4. The award was made under full and open competition, indicating a robust bidding process. 5. The fixed-price nature of the contract aims to provide cost certainty for the government. 6. This spending is critical for ensuring veterans have access to necessary medications.

Value Assessment

Rating: good

The contract value of $224 million over its term is substantial, reflecting the scale of pharmaceutical needs for the Department of Veterans Affairs. Benchmarking against similar large-scale pharmaceutical distribution contracts within the federal government would provide further context on value for money. The fixed-price structure suggests an attempt to control costs, but the overall value is best assessed by comparing the unit prices of specific drugs and sundries against market rates and other federal contracts.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded through full and open competition, meaning all responsible sources were permitted to submit a bid. The presence of 8 bidders (implied by 'no': 8) suggests a competitive environment, which typically drives down prices and encourages innovation. The level of competition is a positive indicator for price discovery and ensures the government receives competitive offers.

Taxpayer Impact: The full and open competition process likely resulted in a more favorable price for taxpayers by leveraging the market's competitive forces to secure the best value for pharmaceutical supplies.

Public Impact

Veterans across the nation will benefit from consistent access to a wide range of pharmaceuticals. The contract ensures the reliable supply of drugs and druggists' sundries, crucial for medical treatment. This award supports the VA's mission to provide comprehensive healthcare services to its beneficiaries. The contract's execution likely involves a significant logistics network, potentially impacting regional employment in warehousing and distribution.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases over the contract term if not adequately managed within the fixed-price structure.
Dependence on a single large contractor for a critical supply chain element could pose a risk if the contractor faces disruptions.
Ensuring the quality and efficacy of all dispensed pharmaceuticals is paramount.

Positive Signals

Awarded through full and open competition, indicating a competitive bidding process.
Fixed-price contract type provides cost predictability for the government.
McKesson Corporation is an established entity with extensive experience in pharmaceutical distribution.
The contract duration suggests a stable and reliable supply chain for veterans' medication needs.

Sector Analysis

The pharmaceutical wholesale and distribution sector is a critical component of the healthcare industry, ensuring that medications reach healthcare providers and patients. This contract falls within the broader healthcare services and medical supplies category. The federal government, particularly agencies like the VA, represents a significant customer base for pharmaceutical wholesalers, driving substantial annual spending. Comparable spending benchmarks would involve analyzing other large federal contracts for similar medical supplies and pharmaceuticals.

Small Business Impact

While this contract was awarded to McKesson Corporation, a large prime contractor, there is no explicit indication of a small business set-aside. However, large prime contractors often engage small businesses for subcontracting opportunities in logistics, transportation, and specialized services. The extent of small business participation would depend on McKesson's subcontracting plan and the specific requirements of the contract.

Oversight & Accountability

The Department of Veterans Affairs is responsible for the oversight of this contract. Accountability measures are typically embedded within the contract terms, including performance standards, delivery schedules, and quality requirements. Transparency is facilitated through contract award databases and reporting requirements. The VA's Office of Inspector General would have jurisdiction to investigate any potential fraud, waste, or abuse related to this contract.

Related Government Programs

Department of Defense Pharmaceutical Contracts
Federal Supply Schedule (FSS) for Medical Supplies
National Institutes of Health (NIH) Research Grants
Centers for Medicare & Medicaid Services (CMS) Drug Pricing

Risk Flags

Short Contract Duration Discrepancy
Potential for Supply Chain Disruption
Quality Control of Pharmaceuticals

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $224.2 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 $224.2 million.

What is the period of performance?

Start: 2012-03-01. End: 2012-03-31.

What is McKesson Corporation's track record with the Department of Veterans Affairs and other federal agencies?

McKesson Corporation has a long-standing and extensive history of contracting with the Department of Veterans Affairs (VA) and other federal agencies, including the Department of Defense and the General Services Administration (GSA). Their engagements typically involve the distribution of pharmaceuticals, medical supplies, and related services. Historical data indicates McKesson has been a primary supplier for various federal healthcare programs, often securing large-value contracts due to their established infrastructure and market presence. While specific performance metrics for each contract vary, their continued success in winning federal awards suggests a generally satisfactory performance record. However, like any large contractor, they may have faced scrutiny or performance issues on specific contracts, which would be detailed in contract performance reports and agency oversight records.

How does the $224 million contract value compare to the VA's overall pharmaceutical spending?

The $224 million contract value represents a significant, but not the entirety, of the Department of Veterans Affairs' (VA) pharmaceutical spending. The VA operates one of the largest integrated healthcare systems in the world, serving millions of veterans annually. Their total annual spending on pharmaceuticals is typically in the billions of dollars, encompassing a vast array of medications procured through various contract vehicles, including the Federal Supply Schedule (FSS), other large prime contracts, and open market purchases. This specific contract with McKesson Corporation likely covers a defined set of pharmaceutical products or a specific distribution region, contributing a substantial portion to the VA's overall drug procurement budget. To fully contextualize its significance, one would need to compare it against the VA's total pharmaceutical expenditure for the relevant fiscal years.

What are the primary risks associated with a large pharmaceutical distribution contract of this magnitude?

A large pharmaceutical distribution contract of this magnitude carries several primary risks. Firstly, supply chain disruption is a significant concern; any interruption in McKesson's ability to procure and deliver medications due to natural disasters, labor disputes, or geopolitical events could severely impact veteran healthcare. Secondly, price volatility and cost escalation, even within a fixed-price contract, can occur if market conditions change drastically or if contract terms are not sufficiently robust to mitigate unforeseen cost increases. Thirdly, quality control and counterfeit drug risks are ever-present in the pharmaceutical supply chain; ensuring the integrity and efficacy of all distributed products is critical. Lastly, over-reliance on a single large contractor can create dependency, potentially limiting the VA's flexibility and bargaining power in future procurements if competition diminishes.

How does the 'Drugs and Druggists' Sundries Merchant Wholesalers' NAICS code inform the nature of this contract?

The North American Industry Classification System (NAICS) code 424210, 'Drugs and Druggists' Sundries Merchant Wholesalers,' precisely defines the core business activity covered by this contract. It signifies that the contract is for the wholesale distribution of pharmaceuticals (prescription and over-the-counter drugs) and related health and personal care items (sundries). This means the contractor, McKesson Corporation, is primarily responsible for procuring these goods from manufacturers and distributing them to VA facilities or designated points of care. The NAICS code helps delineate the scope of work, ensuring that the contract aligns with the established commercial classification for wholesale drug distribution and excludes services like direct patient care, pharmaceutical manufacturing, or retail pharmacy operations.

What are the implications of this contract being a 'FIRM FIXED PRICE' type award?

A 'FIRM FIXED PRICE' (FFP) contract type means that the contractor, McKesson Corporation, is obligated to perform the work described in the contract for a stated fixed price, regardless of the actual costs incurred. This structure places the primary risk of cost overruns on the contractor. For the Department of Veterans Affairs (VA), this offers significant cost predictability and budget certainty, as the total expenditure is known upfront. It incentivizes the contractor to manage its costs efficiently and to perform the work as economically as possible. However, FFP contracts can sometimes lead to higher initial prices compared to cost-reimbursement contracts, as contractors factor in a contingency for potential cost increases. For this pharmaceutical supply contract, FFP is advantageous for managing the budget for essential medications.

What does the contract award date (2012-03-01) and end date (2012-03-31) imply about the contract's duration and potential for renewals?

The provided dates, an award date of March 1, 2012, and an end date of March 31, 2012, indicate an exceptionally short contract duration of approximately one month. This is highly unusual for a contract valued at $224 million. It is probable that these dates represent a specific task order, a modification, or a very short-term bridge contract rather than the entire lifecycle of the $224 million award. Typically, contracts of this magnitude are awarded for multiple years, often with options for extension. If these dates are indeed accurate for the entire contract, it would suggest a highly specialized, short-term need or a potential administrative error in the provided data. More commonly, a contract of this value would have a base period of 1-5 years, potentially with several option periods, extending its total duration significantly.

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: $224,164,017

Exercised Options: $224,164,017

Current Obligation: $224,164,017

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline