VA Pharmacy Prime Vendor contract awarded to McKesson Corporation for over $209 million

Contract Overview

Contract Amount: $209,227,968 ($209.2M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2015-03-01

End Date: 2015-03-31

Contract Duration: 30 days

Daily Burn Rate: $7.0M/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 VA760PPVFY2015MAR

Place of Performance

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

State: California Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $209.2 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT PHARMACY PRIME VENDOR VA760PPVFY2015MAR Key points: 1. The contract represents a significant investment in pharmaceutical supply chain management for the VA. 2. Competition dynamics for this large-scale contract are crucial for ensuring cost-effectiveness. 3. Performance context is vital to understand the VA's reliance on this vendor for essential medications. 4. Sector positioning highlights the critical role of pharmaceutical distributors in federal healthcare. 5. Risk indicators may include supply chain disruptions and price volatility for pharmaceuticals.

Value Assessment

Rating: good

This contract, valued at over $209 million, is a substantial award for pharmaceutical distribution services. Benchmarking against similar large-scale prime vendor contracts within federal healthcare would provide a clearer picture of value for money. The firm-fixed-price structure suggests predictable costs, but the overall value is contingent on the volume and type of pharmaceuticals dispensed. Further analysis of unit pricing for key medications compared to market rates is recommended.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were likely considered. The presence of 5 bidders suggests a competitive landscape, which typically drives better pricing and service levels. This level of competition is generally favorable for the government, as it allows for a thorough evaluation of various proposals and pricing structures, potentially leading to cost savings.

Taxpayer Impact: A competitive bidding process for such a large contract helps ensure that taxpayer dollars are used efficiently by securing favorable terms and pricing for essential pharmaceutical supplies.

Public Impact

Veterans across the nation benefit from timely access to prescribed medications. The contract ensures the reliable supply of a wide range of pharmaceuticals to VA medical facilities. Geographic impact is nationwide, supporting VA healthcare operations across all states. Workforce implications include the logistics and administrative personnel required to manage and distribute medications.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases on pharmaceuticals over the contract term.
Reliance on a single prime vendor could create vulnerabilities in the supply chain.
Ensuring equitable distribution of medications to all VA facilities.

Positive Signals

Full and open competition suggests a robust bidding process.
Firm-fixed-price contract provides cost certainty for the VA.
Long-standing relationship with a major pharmaceutical distributor can ensure stability.

Sector Analysis

The pharmaceutical distribution sector is a critical component of the healthcare industry, involving the warehousing and delivery of medications. Federal spending in this area is substantial, driven by agencies like the Department of Veterans Affairs and the Department of Defense. This contract fits within the broader category of federal healthcare procurement, specifically focusing on the supply chain management of pharmaceuticals. Comparable spending benchmarks would involve looking at other large prime vendor contracts for medical supplies and pharmaceuticals across federal agencies.

Small Business Impact

While this contract is awarded to a large corporation, McKesson, it's important to consider subcontracting opportunities for small businesses within the pharmaceutical supply chain. Federal regulations often require prime contractors to outline plans for engaging small businesses. The impact on the small business ecosystem would depend on the extent to which McKesson utilizes small business suppliers for logistics, warehousing, or specialized services related to pharmaceutical distribution.

Oversight & Accountability

Oversight for this contract is likely managed by the Department of Veterans Affairs' procurement and logistics departments. Accountability measures would include performance metrics, delivery schedules, and quality control standards for pharmaceutical handling. Transparency is generally maintained through contract award databases and public reporting, though specific operational details may be proprietary. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

VA Pharmaceutical Prime Vendor Program
Federal Supply Schedule (FSS) for Pharmaceuticals
Department of Defense TRICARE Pharmacy Program
General Services Administration (GSA) Schedules for Medical Supplies

Risk Flags

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

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $209.2 million to MCKESSON CORPORATION. EXPRESS REPORT PHARMACY PRIME VENDOR VA760PPVFY2015MAR

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 $209.2 million.

What is the period of performance?

Start: 2015-03-01. End: 2015-03-31.

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

McKesson Corporation has a long history of serving as a prime vendor for the Department of Veterans Affairs, managing the distribution of pharmaceuticals to VA medical centers nationwide. Their track record includes managing large-scale contracts with significant dollar values, similar to the EXPRESS REPORT PHARMACY PRIME VENDOR contract. Past performance evaluations would typically assess McKesson's reliability in terms of on-time delivery, order accuracy, and adherence to quality standards for pharmaceutical handling and storage. While specific details of past performance are often proprietary, their continued selection for major contracts suggests a generally satisfactory performance history. However, like any large contractor, there may have been instances of performance issues or disputes that were addressed through contract management processes.

How does the awarded price compare to market rates for pharmaceutical distribution?

Determining the precise value-for-money requires a detailed comparison of the unit prices for specific pharmaceuticals and related services against prevailing market rates. The firm-fixed-price nature of this contract provides cost certainty for the VA, but it does not inherently guarantee the lowest possible price. Benchmarking would involve analyzing the cost of key drugs and distribution fees against those offered by other federal agencies or large commercial healthcare providers. Factors such as volume discounts, the breadth of the formulary managed, and the efficiency of McKesson's distribution network play a role. Without access to the specific pricing structure within the contract and comparable market data, a definitive assessment of whether this price represents excellent value is challenging, but the competitive bidding process suggests an effort to achieve favorable market terms.

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

The primary risks associated with relying on a single prime vendor like McKesson for pharmaceutical distribution include supply chain disruptions, potential price increases, and a reduction in competitive pressure over time. A disruption at McKesson's facilities or in their transportation network could lead to widespread shortages of essential medications for VA facilities. While the contract is firm-fixed-price, there may be mechanisms for price adjustments or renegotiations, and a lack of competition could embolden the vendor to seek higher prices in future solicitations. Furthermore, over-reliance can stifle innovation and reduce the VA's agility in responding to changing pharmaceutical needs or market conditions. Robust contingency planning, performance monitoring, and maintaining awareness of alternative suppliers are crucial risk mitigation strategies.

How effective is the VA's current prime vendor system in ensuring medication availability for veterans?

The VA's prime vendor system, particularly through contracts like the Pharmacy Prime Vendor (PPV) program, is generally considered effective in ensuring medication availability for veterans. This system centralizes the procurement and distribution of a vast array of pharmaceuticals, streamlining the process and leveraging economies of scale. By contracting with large, experienced distributors, the VA can ensure a consistent supply of medications to its numerous medical facilities across the country. The program's success is often measured by metrics such as fill rates, delivery timeliness, and the ability to meet emergency medication needs. While challenges can arise, such as specific drug shortages or logistical issues, the overall framework is designed to provide reliable access to necessary treatments for the veteran population.

What has been the historical spending trend for the VA Pharmacy Prime Vendor program?

Historical spending on the VA Pharmacy Prime Vendor program has shown a consistent and significant upward trend over the years, reflecting the increasing demand for healthcare services among veterans and the rising cost of pharmaceuticals. Annual expenditures have grown substantially as the VA expands its reach and the complexity of medication management increases. This growth is also influenced by factors such as the introduction of new, often more expensive, specialty drugs and the overall expansion of the VA's healthcare infrastructure. Analyzing year-over-year spending data reveals the scale of the VA's commitment to pharmaceutical procurement and highlights the importance of efficient contract management to control costs while meeting patient needs.

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: $209,227,968

Exercised Options: $209,227,968

Current Obligation: $209,227,968

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline