VA's Pharmacy Prime Vendor contract saw $26M in spending over 29 days in June 2015

Contract Overview

Contract Amount: $25,956,612 ($26.0M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2015-06-01

End Date: 2015-06-30

Contract Duration: 29 days

Daily Burn Rate: $895.1K/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 NCO 16 FY 2015 JUNE 1, 2015 TO JUNE 30, 2015 CONTRACT VA797P-12-D-0001

Place of Performance

Location: SAN FRANCISCO, SAN FRANCISCO County, CALIFORNIA, 94104

State: California Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $26.0 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 16 FY 2015 JUNE 1, 2015 TO JUNE 30, 2015 CONTRACT VA797P-12-D-0001 Key points: 1. The contract's value for the specified period indicates significant pharmaceutical procurement volume. 2. Competition dynamics for this contract are crucial for ensuring cost-effectiveness in VA's drug supply chain. 3. Performance context suggests a need to monitor delivery timeliness and product availability. 4. The sector positioning highlights the VA's role as a major purchaser of pharmaceuticals. 5. Risk indicators may include supply chain disruptions and price volatility for essential medications.

Value Assessment

Rating: good

This contract, valued at approximately $26 million for a single month, represents a substantial portion of the VA's pharmaceutical spending. Benchmarking this against similar prime vendor contracts would require access to more granular data on drug volumes and specific product mixes. However, the firm-fixed-price structure suggests that pricing was determined upfront, offering some predictability. The relatively short duration of this specific order (29 days) implies it's part of a larger, potentially multi-year, prime vendor agreement.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple vendors were eligible to bid. With 5 bidders identified, this suggests a reasonably competitive environment for securing the Pharmacy Prime Vendor role. A higher number of bidders generally leads to better price discovery and potentially lower costs for the government. The specific details of the bidding process and the evaluation criteria would provide further insight into the effectiveness of this competition.

Taxpayer Impact: Full and open competition with multiple bidders is beneficial for taxpayers as it drives down prices through market forces, ensuring the VA receives the best value for its pharmaceutical expenditures.

Public Impact

Veterans across the nation benefit from timely access to a wide range of pharmaceuticals through this contract. The contract ensures the supply of essential medications for VA healthcare facilities. Geographic impact is nationwide, supporting VA medical centers and clinics. Workforce implications include the logistics and administrative personnel required to manage and distribute pharmaceuticals.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in subsequent contract periods if competition diminishes.
Risk of supply chain disruptions impacting patient care.
Dependence on a single vendor for a broad range of pharmaceuticals.

Positive Signals

Awarded through full and open competition, suggesting competitive pricing.
Firm-fixed-price contract provides cost certainty for the specified period.
The VA's established procurement processes aim to ensure reliable pharmaceutical supply.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry. Prime vendor contracts like this are essential for large government agencies to manage the complex logistics of acquiring and distributing a vast array of medications. The VA is one of the largest purchasers of pharmaceuticals in the United States, and its spending significantly influences market dynamics within this sector. Comparable spending benchmarks would involve analyzing other large federal or state healthcare systems' pharmaceutical procurement strategies.

Small Business Impact

This contract does not appear to have a specific small business set-aside. However, the prime vendor, McKesson Corporation, is a large entity that likely engages with numerous small businesses within its supply chain for various services and components. Analysis of subcontracting plans would be necessary to determine the extent of small business participation and its impact on the broader small business ecosystem.

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 reporting requirements. Transparency is facilitated through contract award databases and public reporting mechanisms. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

VA Federal Supply Schedule (FSS) Contracts
Department of Defense Pharmaceutical Contracts
National Institutes of Health (NIH) Research Grants

Risk Flags

Potential for price increases in future contract periods.
Risk of supply chain disruptions impacting patient care.
Dependence on a single vendor for a broad range of pharmaceuticals.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $26.0 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 16 FY 2015 JUNE 1, 2015 TO JUNE 30, 2015 CONTRACT VA797P-12-D-0001

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 $26.0 million.

What is the period of performance?

Start: 2015-06-01. End: 2015-06-30.

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

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 ability to manage a vast formulary, ensure timely delivery across numerous VA facilities, and adapt to evolving pharmaceutical requirements has likely been key to their repeated success. While specific performance metrics for past contracts are not detailed here, their continued role suggests a generally positive track record in fulfilling the complex demands of the VA's healthcare system.

How does the $26 million monthly spend compare to the VA's overall pharmaceutical budget?

The $26 million spent over 29 days in June 2015 represents a significant monthly expenditure. To contextualize this against the VA's overall pharmaceutical budget, we would need to annualize this figure and compare it to the total pharmaceutical spending for Fiscal Year 2015. If this $26 million is representative of a typical month, it suggests an annual spend in the range of $312 million ($26M * 12). The VA's total pharmaceutical budget for FY2015 was approximately $4.7 billion. Therefore, this single prime vendor contract accounts for roughly 6.6% of the VA's total annual pharmaceutical expenditure, highlighting its substantial contribution to the overall drug supply chain.

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

Relying on a single prime vendor, even one as large as McKesson, introduces several risks. Firstly, there's a risk of supply chain disruption; if the vendor experiences internal issues (e.g., warehouse problems, labor disputes, IT failures) or external shocks (e.g., natural disasters affecting distribution routes, pandemics), the VA's access to critical medications could be severely impacted, potentially affecting patient care. Secondly, reduced competition in future contract renewals could lead to less favorable pricing. A single vendor may have more leverage in negotiations, potentially increasing costs over time. Lastly, there's a risk of vendor lock-in, where the VA becomes highly dependent on the vendor's systems and processes, making it difficult and costly to switch providers if performance declines or better alternatives emerge.

How does the firm-fixed-price (FFP) contract type benefit the VA in this scenario?

The firm-fixed-price (FFP) contract type offers significant benefits to the VA in this pharmaceutical prime vendor scenario. FFP contracts establish a ceiling price that is not subject to adjustment based on the contractor's cost experience. This provides the VA with cost certainty and predictability for the duration of the contract period (in this case, the 29 days of June 2015). It shifts the risk of cost overruns from the government to the contractor, incentivizing the contractor to manage its costs efficiently. For a high-volume, predictable need like pharmaceutical supply, FFP is generally preferred as it simplifies financial management and budgeting for the agency, ensuring that the allocated funds cover the expected procurement costs without unexpected increases.

What is the significance of the North American Industry Classification System (NAICS) code 325412?

The NAICS code 325412, 'Pharmaceutical Preparation Manufacturing,' signifies that the primary business activity related to this contract involves the manufacturing of pharmaceutical preparations. While this specific contract is for a 'Prime Vendor' (which typically focuses on distribution and supply chain management), the underlying NAICS code indicates the nature of the products being handled. Pharmaceutical preparation manufacturing encompasses establishments that produce in whole or in part drugs or medicines for human or animal consumption. This includes biological and dược (pharmaceutical) preparations. For the VA, this code underscores the critical nature of the products being procured – finished drugs ready for dispensing to veterans, rather than raw chemical ingredients.

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: $25,956,612

Exercised Options: $25,956,612

Current Obligation: $25,956,612

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline