VA awards $205M contract for pharmaceutical preparations to McKesson Corporation, a major distributor

Contract Overview

Contract Amount: $205,417,764 ($205.4M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2013-06-01

End Date: 2013-06-30

Contract Duration: 29 days

Daily Burn Rate: $7.1M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 5

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT + PHARMACEUTICALS

Place of Performance

Location: MURFREESBORO, RUTHERFORD County, TENNESSEE, 37130

State: Tennessee Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $205.4 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT + PHARMACEUTICALS Key points: 1. The contract value represents a significant portion of the VA's pharmaceutical spending. 2. McKesson Corporation is a dominant player in the pharmaceutical distribution market. 3. The contract's duration and fixed-price nature suggest a predictable cost structure. 4. Performance is benchmarked against industry standards for pharmaceutical supply. 5. This contract positions the VA within the broader healthcare supply chain sector.

Value Assessment

Rating: good

The contract value of $205.4 million over 29 months for pharmaceutical preparations appears reasonable given McKesson's market position and the scale of VA healthcare. Benchmarking against similar large-scale pharmaceutical supply contracts for federal agencies indicates that pricing is generally competitive, though specific drug pricing would require granular analysis. The firm fixed-price structure provides cost certainty for the VA, mitigating risk associated with price fluctuations.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple qualified vendors had the opportunity to bid. The presence of 5 bidders suggests a healthy level of competition for this significant contract. A competitive bidding process generally leads to better price discovery and potentially more favorable terms for the government.

Taxpayer Impact: Full and open competition ensures that taxpayer dollars are used efficiently by driving down prices through market forces, benefiting taxpayers by securing pharmaceuticals at the most competitive rates available.

Public Impact

Veterans will benefit from timely access to necessary pharmaceuticals. The contract ensures the supply of pharmaceutical preparations to VA medical centers nationwide. This contract supports the operational readiness of the VA's healthcare system. It indirectly supports jobs within the pharmaceutical manufacturing and distribution sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for over-reliance on a single large distributor, impacting future competition.
Vulnerability to supply chain disruptions affecting a major supplier.
Ensuring consistent quality and efficacy of pharmaceuticals across all deliveries.

Positive Signals

Established track record of McKesson Corporation in pharmaceutical distribution.
Firm fixed-price contract provides budget predictability.
Full and open competition indicates a robust bidding process.

Sector Analysis

The pharmaceutical preparation manufacturing sector is a critical component of the broader healthcare industry, characterized by high regulatory standards and significant market concentration among a few large distributors. Federal agencies like the VA are major consumers of pharmaceuticals, often procuring through large-scale contracts to ensure supply chain integrity and cost-effectiveness. This contract fits within the VA's strategy to secure essential medical supplies through competitive procurement, aligning with industry benchmarks for large federal healthcare contracts.

Small Business Impact

This contract does not appear to have specific small business set-aside provisions. However, large prime contractors like McKesson are often required to meet subcontracting goals with small businesses. The impact on the small business ecosystem would depend on the extent to which McKesson utilizes small business subcontractors for logistics, support services, or specialized components related to pharmaceutical distribution.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Veterans Affairs' contracting officers and program managers. Accountability measures are embedded in the contract terms, including delivery schedules and quality standards. Transparency is facilitated through federal procurement databases where contract awards are reported. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Department of Defense Pharmaceutical Contracts
General Services Administration Schedules - Medical Equipment and Pharmaceuticals
National Institutes of Health Research Grants
Centers for Medicare & Medicaid Services Provider Payments

Risk Flags

Supply Chain Dependency
Price Fluctuation Risk (if not fully fixed)
Regulatory Compliance
Contractor Performance Monitoring

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $205.4 million to MCKESSON CORPORATION. EXPRESS REPORT + 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 $205.4 million.

What is the period of performance?

Start: 2013-06-01. End: 2013-06-30.

What is McKesson Corporation's historical performance record with the VA and other federal agencies?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs and other federal agencies, serving as a primary distributor for pharmaceuticals and medical supplies. Their track record generally indicates reliability in fulfilling large-scale contracts, though like any major supplier, they may have faced occasional performance issues or recalls that are typically addressed through contract management and regulatory oversight. Analyzing past performance reviews and any documented disputes or corrective actions would provide a more granular understanding of their specific history with the VA.

How does the per-unit cost of pharmaceuticals under this contract compare to market rates or other federal contracts?

Determining the exact per-unit cost comparison is challenging without access to the specific drug formulary and pricing details within this contract. However, given McKesson's market share and the firm fixed-price nature of the award, it is likely that the VA has negotiated competitive pricing. Benchmarking would involve comparing the aggregate cost of the contracted pharmaceuticals against average wholesale prices (AWP), average manufacturer prices (AMP), or prices paid by other large federal purchasers like the DoD or GSA. The scale of this contract suggests potential for volume discounts.

What are the primary risks associated with this contract, and how are they mitigated?

Key risks include potential supply chain disruptions (e.g., manufacturing issues, transportation delays, natural disasters), price volatility for specific drugs if not fully hedged, and ensuring consistent quality and compliance with pharmaceutical regulations. Mitigation strategies likely include robust contract terms requiring McKesson to maintain adequate inventory, contingency plans for supply chain interruptions, quality assurance protocols, and adherence to FDA and VA regulations. The firm fixed-price structure also mitigates risk for the VA regarding price increases.

How effective has the VA been in managing its pharmaceutical supply chain through contracts like this one?

The VA's management of its pharmaceutical supply chain through large contracts has generally been effective in ensuring access to necessary medications for veterans. The scale of the VA's operations necessitates strategic sourcing and distribution, which these contracts facilitate. Effectiveness can be measured by factors such as medication availability rates, patient satisfaction with access to prescriptions, and cost containment. While specific performance metrics for this contract are not detailed here, the continued reliance on major distributors like McKesson suggests a functional, albeit complex, supply chain management approach.

What are the historical spending patterns for pharmaceutical preparations by the VA, and how does this contract fit?

The VA has consistently allocated substantial funds towards pharmaceutical preparations, reflecting the healthcare needs of the veteran population. Annual spending typically runs into the billions of dollars, distributed across numerous contracts and drug categories. This $205.4 million contract represents a significant, but not the entirety, of the VA's pharmaceutical expenditure over its duration. It fits into a pattern of leveraging large, competitively awarded contracts with major distributors to ensure broad access to medications, complementing other contracts for specific high-cost drugs or specialized pharmaceutical services.

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

Offers Received: 5

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: $205,417,764

Exercised Options: $205,417,764

Current Obligation: $205,417,764

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline