VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for $29.7M in FY2015

Contract Overview

Contract Amount: $29,704,297 ($29.7M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2015-09-01

End Date: 2015-09-30

Contract Duration: 29 days

Daily Burn Rate: $1.0M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 5

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT PHARMACY PRIME VENDOR (PPV) FY2015 SEP

Place of Performance

Location: BEDFORD, MIDDLESEX County, MASSACHUSETTS, 01730

State: Massachusetts Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $29.7 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT PHARMACY PRIME VENDOR (PPV) FY2015 SEP Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending. 2. McKesson Corporation is a major player in the pharmaceutical distribution market. 3. The contract was awarded through full and open competition, suggesting a competitive bidding process. 4. The firm-fixed-price structure aims to control costs for the government. 5. Performance was evaluated over a 29-day period, indicating a focus on short-term operational efficiency. 6. The contract's value is substantial, requiring careful monitoring of pharmaceutical supply chain integrity.

Value Assessment

Rating: good

The contract value of approximately $29.7 million for a single month's delivery order is substantial. Benchmarking against similar large-scale pharmaceutical prime vendor contracts would be necessary for a precise value-for-money assessment. However, the firm-fixed-price nature of the contract provides cost certainty for the VA. The award to a single, established vendor like McKesson suggests a focus on reliable supply chain management, which is critical for healthcare services.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit a bid. The presence of multiple bidders (5 indicated) suggests a healthy level of competition, which typically drives down prices and encourages innovation. The specific details of the bidding process and the number of proposals received would provide further insight into the intensity of the competition.

Taxpayer Impact: Full and open competition generally benefits taxpayers by ensuring the government receives the best possible pricing and terms due to a robust bidding environment.

Public Impact

Veterans across the nation benefit from timely access to essential pharmaceuticals. The contract ensures the reliable supply of a wide range of pharmaceutical preparations. The geographic impact is nationwide, supporting VA healthcare facilities wherever veterans receive care. The 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 future contract periods if competition diminishes.
Dependence on a single vendor for a critical supply chain component.
Ensuring compliance with all VA regulations and quality standards for pharmaceutical handling.

Positive Signals

Awarded through full and open competition, indicating a competitive market.
Firm-fixed-price contract type provides cost predictability.
McKesson Corporation is a well-established entity with significant experience in pharmaceutical distribution.

Sector Analysis

The pharmaceutical distribution sector is a critical component of the healthcare industry, characterized by large, established players and complex supply chain logistics. Contracts like this represent significant spending within the broader healthcare procurement landscape. The VA's reliance on prime vendors for pharmaceuticals is a common strategy to ensure efficient and cost-effective access to medications for its beneficiaries. Comparable spending benchmarks would likely be in the hundreds of millions or billions annually for large federal healthcare systems.

Small Business Impact

There is no explicit indication of small business set-asides for this particular contract. However, large prime vendors like McKesson often engage small businesses as subcontractors for various support services, including logistics, transportation, and specialized distribution. The subcontracting opportunities and their impact on the small business ecosystem would require further investigation into McKesson's subcontracting plan.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' procurement and program management offices. Accountability measures are embedded in the contract terms, including performance standards and payment schedules. Transparency is generally maintained through contract award databases and public reporting, although specific performance metrics might be internal. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

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

Risk Flags

Potential for supply chain disruption
Vendor lock-in risk
Price volatility of pharmaceuticals

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $29.7 million to MCKESSON CORPORATION. EXPRESS REPORT PHARMACY PRIME VENDOR (PPV) FY2015 SEP

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 $29.7 million.

What is the period of performance?

Start: 2015-09-01. End: 2015-09-30.

What is McKesson Corporation's track record with the VA for pharmaceutical prime vendor services?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs as a prime vendor for pharmaceuticals. They have consistently been awarded significant contracts over many years, indicating a strong performance history and established infrastructure to meet the VA's needs. Their experience includes managing complex distribution networks, ensuring compliance with stringent pharmaceutical regulations, and providing a broad formulary of medications. The VA's continued reliance on McKesson suggests satisfaction with their service delivery, reliability, and ability to handle the scale of pharmaceutical distribution required for the veteran population.

How does the value of this single delivery order compare to the VA's total annual pharmaceutical spending?

This specific delivery order amounted to approximately $29.7 million for a 29-day period in September 2015. To contextualize this, the VA's total annual pharmaceutical spending is significantly higher, often in the billions of dollars. This single order represents a fraction of the overall annual expenditure, likely covering a specific region or a defined set of pharmaceutical needs for that month. Understanding the proportion this order represents requires comparing it against the VA's total pharmaceutical budget for FY2015, which would provide a clearer picture of its relative scale within the larger program.

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

The primary risks associated with relying on a single vendor like McKesson for pharmaceutical prime vendor services include supply chain disruptions, potential price increases due to reduced competition in future solicitations, and vendor performance issues. A disruption at the vendor's facility or in their distribution network could lead to critical drug shortages for veterans. Furthermore, if competition for future contracts is limited, the VA might face less favorable pricing. Vendor performance issues, such as delivery delays or quality control lapses, could directly impact patient care. Robust contract management, contingency planning, and continuous market analysis are crucial to mitigate these risks.

How effective is the firm-fixed-price contract type in managing pharmaceutical costs for the VA?

The firm-fixed-price (FFP) contract type is generally effective in managing pharmaceutical costs for the VA because it shifts the risk of cost overruns to the contractor, McKesson Corporation. Under an FFP contract, the price is set and not subject to adjustment based on the contractor's costs. This provides the VA with cost certainty and predictability, making budgeting more straightforward. For pharmaceuticals, where prices can fluctuate, the FFP structure incentivizes the contractor to manage their own costs efficiently to maintain profitability. However, it's crucial that the initial price negotiated reflects fair market value and that the scope of work is clearly defined to prevent scope creep that could undermine the fixed-price benefit.

What are the historical spending patterns for the Pharmacy Prime Vendor (PPV) program at the VA?

Historical spending patterns for the VA's Pharmacy Prime Vendor (PPV) program show a consistent and substantial investment in pharmaceutical procurement. Over the years, the VA has relied heavily on prime vendors to manage its vast pharmaceutical needs, with annual spending often reaching billions of dollars. Contracts have typically been awarded to major pharmaceutical distributors, with McKesson Corporation, Cardinal Health, and AmerisourceBergen being prominent awardees. Spending has generally trended upwards, reflecting increasing healthcare utilization, drug costs, and the expansion of VA healthcare services. The PPV program remains a cornerstone of the VA's strategy to ensure veterans have access to necessary medications efficiently and cost-effectively.

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: $29,704,297

Exercised Options: $29,704,297

Current Obligation: $29,704,297

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline