VA's Pharmacy Prime Vendor contract saw $27.15M in FY16 spending, with McKesson Corporation as the primary awardee

Contract Overview

Contract Amount: $27,152,046 ($27.2M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2016-09-01

End Date: 2016-09-30

Contract Duration: 29 days

Daily Burn Rate: $936.3K/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 2016 SEP 1, 2016 TO SEP 30, 2016 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 $27.2 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 16 FY 2016 SEP 1, 2016 TO SEP 30, 2016 CONTRACT VA797P-12-D-0001 Key points: 1. The contract represents a significant portion of the VA's pharmaceutical supply chain management. 2. Competition dynamics for this contract are crucial for ensuring cost-effectiveness in pharmaceutical procurement. 3. Performance context is vital to understand if the VA is receiving optimal value for its pharmaceutical spending. 4. Sector positioning highlights the VA's reliance on large pharmaceutical distributors. 5. Risk indicators may include supply chain disruptions, price volatility, and contractor performance. 6. The contract's duration and delivery order structure influence spending patterns and flexibility.

Value Assessment

Rating: good

The VA's Pharmacy Prime Vendor contract, with a reported spending of $27.15M for FY16, appears to be a substantial but standard expenditure for a large federal agency managing pharmaceutical needs. Benchmarking against similar large-scale pharmaceutical distribution contracts within the federal government would provide a clearer picture of value for money. The fixed-price nature of the contract suggests a degree of cost certainty, but the actual value is contingent on the negotiated unit prices and the volume of pharmaceuticals dispensed.

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 had the opportunity to compete. The presence of 5 bidders suggests a reasonably competitive environment, which is generally favorable for price discovery and securing favorable terms. The specific details of the bidding process and the number of proposals received would offer further insight into the intensity of the competition.

Taxpayer Impact: Full and open competition typically benefits taxpayers by driving down prices through market forces and encouraging a wider range of potential suppliers to offer their services.

Public Impact

Veterans are the primary beneficiaries, receiving access to necessary pharmaceuticals. The contract ensures the supply of a wide range of pharmaceutical products to VA facilities. Geographic impact is nationwide, supporting VA medical centers and clinics across the country. Workforce implications include roles in pharmacy operations, logistics, and contract management within the VA and at the contractor's facilities.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases on essential medications if competition weakens in future solicitations.
Dependence on a single large contractor could create vulnerabilities in the supply chain.
Ensuring consistent quality and availability of pharmaceuticals across all VA facilities requires robust oversight.

Positive Signals

Awarded through full and open competition, suggesting a competitive bidding process.
The contract utilizes a firm fixed-price structure, providing cost predictability.
The existence of a prime vendor model streamlines pharmaceutical procurement for the VA.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry, characterized by significant research and development, complex supply chains, and stringent regulatory oversight. Federal spending in this area is substantial, driven by agencies like the Department of Veterans Affairs (VA) and the Department of Defense, which procure vast quantities of pharmaceuticals for beneficiaries. The VA's Pharmacy Prime Vendor program is a key initiative to ensure efficient and cost-effective access to medications for veterans. Comparable spending benchmarks would involve analyzing other large federal contracts for pharmaceutical distribution services, considering factors like contract size, duration, and the scope of products covered.

Small Business Impact

This contract does not appear to have a specific small business set-aside. While the prime vendor is a large corporation (McKesson), the nature of large-scale pharmaceutical distribution often involves complex logistics and established supply networks that may be challenging for smaller entities to replicate. Subcontracting opportunities for small businesses could exist within the broader pharmaceutical supply chain, such as in specialized logistics, delivery services, or ancillary support, but are not explicitly detailed in the provided data.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' procurement and program management offices. Accountability measures would include performance metrics, delivery schedules, and quality control standards outlined in the contract. Transparency is generally facilitated through contract award databases and public reporting of federal spending. Inspector General jurisdiction would apply if any fraud, waste, or abuse related to the contract were suspected.

Related Government Programs

VA Pharmaceutical Benefits Program
TRICARE Pharmacy Program
Federal Supply Schedule (FSS) for Pharmaceuticals
Department of Defense Medical Materiel

Risk Flags

Potential for supply chain disruption
Price volatility of pharmaceuticals
Contractor performance monitoring
Dependence on a single large supplier

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $27.2 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 16 FY 2016 SEP 1, 2016 TO SEP 30, 2016 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 $27.2 million.

What is the period of performance?

Start: 2016-09-01. End: 2016-09-30.

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 been a significant awardee of these types of contracts for many years, including previous iterations of the Pharmacy Prime Vendor (PPV) program. Their extensive experience in pharmaceutical distribution, logistics, and supply chain management positions them as a key player in fulfilling the VA's medication needs. Historical data indicates consistent performance in delivering a wide array of pharmaceutical products to VA medical facilities nationwide. However, like any large-scale government contractor, their performance has likely been subject to periodic reviews, audits, and contract modifications over the years, reflecting the dynamic nature of federal procurement and healthcare needs.

How does the $27.15M FY16 spending compare to previous or subsequent years for this contract?

The $27.15 million in spending for FY16 represents a specific delivery order period under a larger contract vehicle. To provide a comprehensive comparison, data from other fiscal years for the same contract (VA797P-12-D-0001) or its predecessor/successor contracts would be necessary. Generally, federal pharmaceutical spending can fluctuate based on factors such as changes in veteran population, healthcare utilization patterns, the introduction of new and more expensive medications, and shifts in contracting strategies. Without access to a multi-year spending history for this specific contract or program, it is difficult to definitively state whether the FY16 amount was higher, lower, or consistent with other periods. However, this figure provides a snapshot of the significant financial commitment the VA makes to ensure pharmaceutical availability.

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

Relying on a single prime vendor for pharmaceutical distribution, while often efficient, carries several inherent risks. A primary concern is supply chain disruption; any issue affecting the prime vendor, such as natural disasters, labor strikes, or internal operational failures, could lead to widespread shortages of critical medications for VA facilities. Another risk is reduced price negotiation leverage for the VA. While the contract is competed, the ongoing reliance on one vendor for day-to-day operations might diminish the agency's ability to secure the most aggressive pricing in subsequent contract periods if competition is perceived as less robust. Furthermore, a single point of failure could impact the VA's ability to respond rapidly to unforeseen surges in demand or changes in pharmaceutical needs. Robust contingency planning and strong contract management are essential to mitigate these risks.

How effective is the Pharmacy Prime Vendor program in ensuring timely access to medications for veterans?

The Pharmacy Prime Vendor (PPV) program is designed to be a highly effective mechanism for ensuring timely access to medications for veterans by consolidating procurement and distribution through a single, large-scale contractor. This model streamlines the ordering process, reduces administrative overhead for individual VA facilities, and leverages the contractor's extensive distribution network to ensure broad availability. The program's effectiveness is generally measured by metrics such as fill rates, delivery timeliness, and the breadth of formulary covered. While specific performance data for this FY16 delivery order isn't provided, the continued use and significant funding of the PPV program suggest it has been largely successful in meeting the VA's objective of providing timely pharmaceutical access. However, effectiveness can vary based on specific product categories, geographic distribution challenges, and the contractor's operational performance.

What is the typical profit margin for pharmaceutical distributors like McKesson on government contracts?

Determining the precise profit margin for pharmaceutical distributors like McKesson on specific government contracts, such as this VA Pharmacy Prime Vendor delivery order, is complex and not publicly disclosed in detail. Government contracts, especially those with a firm fixed-price structure, aim to allow the contractor a reasonable profit while ensuring value for the government. Profit margins in the pharmaceutical distribution sector can vary based on volume, product mix, operational efficiencies, and the competitive landscape. While McKesson operates in a high-volume, low-margin environment for many products, their overall profitability is derived from scale and efficiency. Government contracts are often sought for their stability and volume, but profit margins may be tighter compared to commercial sales due to stringent oversight and competitive bidding processes. Industry analyses suggest that net profit margins for large pharmaceutical distributors typically range from 1-3%, but this is a broad average and can fluctuate significantly.

Are there specific performance metrics or KPIs tied to this contract that indicate value for money?

While the provided data does not detail specific Key Performance Indicators (KPIs) or metrics tied to this particular delivery order (VA797P-12-D-0001 for FY16), government contracts of this nature invariably include performance requirements. For a Pharmacy Prime Vendor contract, typical KPIs would likely focus on delivery timeliness (e.g., percentage of orders delivered within a specified timeframe), order accuracy (e.g., correct items and quantities), fill rates (e.g., percentage of requested items available and shipped), and potentially quality control measures related to drug storage and handling. Value for money is assessed by comparing the total cost against these performance outcomes. If the contractor consistently meets or exceeds these performance standards, it indicates good value. Conversely, consistent failure to meet KPIs could signal issues with performance and potentially impact future contract awards or necessitate corrective actions, suggesting a poorer value proposition.

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: $27,152,046

Exercised Options: $27,152,046

Current Obligation: $27,152,046

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline