VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for $47M in FY2015

Contract Overview

Contract Amount: $47,064,074 ($47.1M)

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: $1.6M/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: DURHAM, DURHAM County, NORTH CAROLINA, 27701

State: North Carolina Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $47.1 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. Competition dynamics for this large-scale contract are crucial for ensuring value. 3. Performance context is essential to understand the effectiveness of pharmaceutical delivery. 4. The sector positioning highlights the VA's reliance on major pharmaceutical distributors. 5. Risk indicators may include supply chain disruptions and pricing volatility.

Value Assessment

Rating: good

The VA's Pharmacy Prime Vendor (PPV) contract awarded to McKesson Corporation for approximately $47 million in FY2015 appears to be a standard, large-scale contract for pharmaceutical distribution. Benchmarking this specific award requires comparing it to other prime vendor contracts within the VA or similar large federal health systems. The firm-fixed-price structure suggests a predictable cost for the government, but the overall value for money depends on the negotiated unit prices and the efficiency of McKesson's distribution network. Without detailed pricing data and comparisons to market rates for the specific pharmaceuticals distributed, a precise value-for-money assessment is challenging, but the scale of the contract implies significant purchasing power for the VA.

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 were likely considered. The presence of five bidders suggests a competitive market for pharmaceutical prime vendor services. A robust competition at this scale is generally favorable for price discovery and can lead to more favorable terms for the government. The specific details of the bidding process, including the number of proposals received and the evaluation criteria, would provide further insight into the effectiveness of the competition.

Taxpayer Impact: Full and open competition for this significant contract helps ensure that taxpayer dollars are used efficiently by driving down prices through market forces.

Public Impact

Veterans across the nation benefit from timely access to prescribed medications. The contract ensures the supply of a wide range of pharmaceuticals for VA healthcare facilities. Geographic impact is nationwide, covering all VA medical centers and clinics. Workforce implications include roles in logistics, pharmacy, and administrative support within the VA and McKesson's operations.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in subsequent contract periods if competition wanes.
Dependence on a single prime vendor could create supply chain vulnerabilities.
Ensuring consistent quality and availability of pharmaceuticals across all VA facilities.

Positive Signals

Large-scale contract leverages economies of scale for cost savings.
Firm-fixed-price structure provides cost certainty for the VA.
Full and open competition indicates a healthy market for these services.

Sector Analysis

The pharmaceutical distribution sector is characterized by large, established players like McKesson, Cardinal Health, and AmerisourceBergen, who manage complex supply chains to deliver medications to healthcare providers. The VA's Pharmacy Prime Vendor (PPV) program is a critical component of its healthcare system, ensuring that veterans have access to necessary drugs. This contract fits within the broader landscape of federal healthcare procurement, where significant sums are spent annually on pharmaceuticals and medical supplies. Benchmarking this contract's value would involve comparing its per-unit costs and administrative fees to those of similar large-scale distribution contracts within the federal government or large private healthcare networks.

Small Business Impact

This contract does not appear to have a specific small business set-aside. However, large prime vendors like McKesson are often required to subcontract with small businesses for various support services, contributing to the small business ecosystem. The extent of subcontracting opportunities and their impact on the small business landscape would depend on the specific terms of the contract and McKesson's subcontracting plan.

Oversight & Accountability

Oversight for this contract would typically be managed by the Department of Veterans Affairs' procurement and program management offices. Accountability measures would include performance metrics, delivery schedules, and quality standards outlined in the contract. Transparency is generally maintained through contract award databases and public reporting, though specific pricing details may be proprietary. The VA's Office of Inspector General may conduct audits or investigations related to pharmaceutical procurement and distribution.

Related Government Programs

Department of Defense TRICARE Pharmacy Program
Federal Supply Schedule (FSS) Pharmaceutical Contracts
VA Medical Care Programs

Risk Flags

Potential for price increases in future contract periods.
Supply chain disruption risk.
Dependence on a single large contractor.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $47.1 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 $47.1 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 (VA) as a prime vendor for pharmaceuticals. They have historically been awarded significant contracts to manage the distribution of medications to VA medical facilities nationwide. Their track record includes managing large-scale logistics, ensuring drug availability, and complying with VA's stringent requirements for pharmaceutical quality and safety. While specific performance metrics for individual contract periods are not always publicly detailed, McKesson's continued awards suggest a generally satisfactory performance history in fulfilling the VA's complex needs for pharmaceutical supply chain management. The VA's PPV program is critical, and McKesson's sustained role indicates a level of trust and capability in meeting these demands.

How does the $47 million FY2015 award compare to previous or subsequent VA Pharmacy Prime Vendor contracts?

The $47 million award for FY2015 represents a significant but not necessarily outlier figure for the VA's Pharmacy Prime Vendor (PPV) program. These contracts are typically multi-year and involve substantial dollar values due to the scale of pharmaceutical distribution required for the entire VA healthcare system. Historical data indicates that PPV contracts have consistently been in the tens to hundreds of millions of dollars annually. For instance, subsequent contract periods have seen similar or even higher award values, reflecting inflation, increased demand for services, and potential expansion of the VA's patient base. Comparing this specific $47 million figure requires looking at the contract's duration and scope within FY2015; if it represents a full year's service, it aligns with the substantial investment the VA makes in pharmaceutical procurement. Without knowing if this was a partial year or a full year award, direct comparison is difficult, but it falls within the expected range for such a critical service.

What are the primary risks associated with a sole-source or limited competition contract for pharmaceutical distribution?

While this specific contract was awarded under full and open competition, understanding the risks of limited competition is relevant for the broader PPV program. If a contract were to become sole-source or have very limited competition, the primary risks would include significantly higher prices due to lack of market pressure, reduced innovation from the incumbent contractor, and potential complacency in service quality. Taxpayers could face inflated costs as the government would have less leverage to negotiate favorable terms. Furthermore, a sole-source situation could create a critical vulnerability if the single contractor experiences operational failures, supply chain disruptions, or financial instability, potentially jeopardizing the consistent availability of essential medications for veterans. Robust competition is therefore vital for mitigating these risks.

How effective is the VA's Pharmacy Prime Vendor program in ensuring pharmaceutical availability for veterans?

The VA's Pharmacy Prime Vendor (PPV) program is generally considered highly effective in ensuring pharmaceutical availability for veterans. By consolidating pharmaceutical procurement and distribution through a prime vendor, the VA achieves economies of scale, streamlines logistics, and maintains a consistent supply chain. This model allows the VA to manage inventory efficiently and respond to fluctuating demand across its extensive network of facilities. While occasional stock-outs or delays can occur due to unforeseen circumstances (e.g., manufacturer shortages, natural disasters), the PPV program's structure is designed to minimize such disruptions. The program's success is evidenced by the VA's ability to provide a comprehensive formulary of medications to millions of veterans annually, supporting their healthcare needs across the country.

What is the typical profit margin or administrative fee structure for pharmaceutical prime vendors serving the federal government?

The profit margin or administrative fee structure for pharmaceutical prime vendors serving the federal government, like McKesson under the VA's PPV contract, is a complex element of the overall cost. These fees are typically negotiated as a percentage of the total drug costs or as a fixed per-unit handling fee. While exact figures are often proprietary and vary by contract, industry benchmarks suggest that administrative fees for large-scale distribution can range from low single digits to potentially higher percentages, depending on the services included (e.g., inventory management, just-in-time delivery, data reporting). The firm-fixed-price nature of this contract implies that McKesson's profit is built into the total price, aiming for efficiency. The VA's procurement process, especially with full and open competition, aims to secure these services at a competitive rate, balancing the vendor's need for profit with the government's objective of cost-effectiveness.

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: $47,064,074

Exercised Options: $47,064,074

Current Obligation: $47,064,074

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline