VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for over $216 million in FY 2015

Contract Overview

Contract Amount: $216,581,268 ($216.6M)

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: $7.5M/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 CMOP 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 $216.6 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY 2015 JUNE 1, 2015 TO JUNE 30, 2015 CONTRACT VA797P-12-D-0001 Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending, highlighting the importance of efficient drug procurement. 2. Analysis of this contract is crucial for understanding the VA's overall pharmaceutical supply chain management. 3. The firm fixed-price contract type suggests predictable costs for the VA, but requires careful monitoring of service delivery. 4. The single delivery order issued during the period indicates a focused operational phase for this contract. 5. The large dollar value necessitates robust oversight to ensure value for taxpayer money. 6. Understanding the competitive landscape for such large pharmaceutical contracts is key to assessing pricing power.

Value Assessment

Rating: good

This contract, valued at over $216 million for a one-month period, is a substantial expenditure for the Department of Veterans Affairs. While specific benchmarks for a single month's delivery order are difficult to ascertain without more granular data, the overall Pharmacy Prime Vendor program is a critical component of VA healthcare. The firm fixed-price nature of the contract suggests that the VA aimed for cost certainty. However, the sheer volume of pharmaceuticals procured means that even small deviations in unit pricing could represent significant financial impact. Benchmarking against similar large-scale pharmaceutical distribution contracts within the federal government or large healthcare systems would provide a clearer picture of value.

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 had the opportunity to bid. This competitive process is designed to foster price discovery and ensure the government receives the best possible value. The fact that McKesson Corporation was the awardee suggests they offered the most advantageous proposal based on the evaluation criteria. The number of bidders (5) is a healthy sign of competition for this significant contract.

Taxpayer Impact: Full and open competition generally benefits taxpayers by driving down prices through market forces, ensuring that the government is not overpaying for essential goods and services like pharmaceuticals.

Public Impact

Veterans across the nation benefit from timely access to prescription medications facilitated by this contract. The contract ensures the supply of a wide range of pharmaceuticals to VA medical facilities. The geographic impact is nationwide, supporting VA healthcare operations across all states. This contract supports jobs within the pharmaceutical distribution and logistics sectors, including those at McKesson Corporation.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in future contract periods if competition diminishes.
Reliance on a single large vendor for a critical supply chain component could pose risks.
Ensuring consistent quality and delivery performance across such a large volume of pharmaceuticals requires diligent oversight.

Positive Signals

Awarded through full and open competition, suggesting competitive pricing.
Firm fixed-price contract provides cost certainty for the VA.
The scale of the contract indicates the contractor's capacity to meet significant demand.
The contract supports a vital healthcare service for veterans.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry. This contract falls under the pharmaceutical preparation manufacturing (NAICS 325412) and is a prime example of large-scale federal procurement within this space. The market is characterized by significant consolidation and a few major players dominating distribution. The VA's spending in this area is substantial, reflecting the ongoing need for medications to serve the veteran population. Comparable spending benchmarks would likely be found in other large federal healthcare providers like the Department of Defense or large civilian healthcare networks.

Small Business Impact

While this contract is a large prime vendor agreement, it's important to assess subcontracting opportunities for small businesses. Large prime contractors are often required to meet small business subcontracting goals. The nature of pharmaceutical distribution may limit direct set-aside opportunities, but ancillary services could potentially be sourced from small businesses. The impact on the small business ecosystem would depend on the specific subcontracting plan and its execution.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of Veterans Affairs contracting officers and program managers. They are responsible for monitoring performance, ensuring compliance with contract terms, and managing any modifications or disputes. Transparency is generally maintained through contract award databases and reporting requirements. 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 TRICARE Pharmacy Program
Medicare Part D prescription drug benefit
Medicaid Drug Rebate Program

Risk Flags

High contract value requires diligent oversight.
Potential for supply chain disruption.
Reliance on a single large vendor.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $216.6 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP 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 $216.6 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 been a significant awardee of these large-scale contracts for many years, indicating a consistent ability to meet the VA's demanding requirements. Their history includes managing complex distribution networks and ensuring the timely delivery of a vast array of medications. While specific performance metrics for past contracts are not detailed here, their repeated success in securing these awards suggests a generally positive track record in terms of operational capability and meeting contractual obligations. However, like any large government contractor, they may have faced scrutiny or performance reviews on specific aspects of their service delivery over time.

How does the $216 million value for a single month compare to the VA's overall annual pharmaceutical spending?

The $216.58 million awarded to McKesson Corporation for the period of June 1, 2015, to June 30, 2015, represents a substantial monthly expenditure. To contextualize this, one must consider the VA's total annual pharmaceutical spending. While the exact FY 2015 annual total isn't provided, the VA consistently spends billions of dollars annually on pharmaceuticals. For instance, in FY 2014, the VA spent approximately $4.4 billion on pharmaceuticals. Therefore, a single month's expenditure of over $216 million suggests that this contract, or the Pharmacy Prime Vendor program it represents, accounts for a significant portion, potentially around 5-6% monthly, of the VA's total annual pharmaceutical budget. This highlights the critical nature and scale of this procurement.

What are the primary risks associated with a sole large vendor managing the VA's pharmaceutical supply chain?

The primary risks associated with relying on a single large vendor like McKesson Corporation for the VA's pharmaceutical supply chain include potential disruptions due to unforeseen events (e.g., natural disasters, labor strikes, cyberattacks), increased pricing power for the vendor over time, and a reduced ability for the VA to quickly pivot or seek alternative suppliers in emergencies. Dependence on one entity can create vulnerabilities in the supply chain. Furthermore, if the vendor experiences financial difficulties or operational failures, it could lead to widespread medication shortages for veterans. Robust contingency planning, strong contract management, and potentially exploring multi-vendor strategies for critical items can mitigate these risks.

How does the 'Firm Fixed Price' contract type impact value for money in this context?

The 'Firm Fixed Price' (FFP) contract type is generally favored by the government when the scope of work is well-defined and risks can be reasonably estimated, as it provides cost certainty. For the VA's Pharmacy Prime Vendor contract, an FFP structure means that McKesson Corporation is obligated to provide the specified pharmaceuticals at the agreed-upon price, regardless of their actual costs. This shifts the risk of cost overruns to the contractor. From a value-for-money perspective, this is beneficial for the VA as it protects against unexpected price increases. However, it requires careful negotiation of the initial price to ensure it is fair and reasonable, and diligent oversight to confirm that the contractor is meeting performance standards. If the initial price is too high, the VA may overpay, even with an FFP contract.

What is the significance of the 'Delivery Order' (AW) designation for this contract?

The 'Delivery Order' (AW) designation indicates that this specific award is a task order or delivery order issued against a larger, pre-existing indefinite-delivery/indefinite-quantity (IDIQ) or similar type of contract vehicle. In this case, it signifies that the $216.58 million represents the value of pharmaceuticals ordered and delivered within the specified one-month period (June 1, 2015, to June 30, 2015) under a broader contract agreement (VA797P-12-D-0001). This structure allows the VA to procure goods and services as needed, providing flexibility. The fact that this was a single, large delivery order for that month suggests a concentrated period of demand or fulfillment. It implies that the underlying contract vehicle likely covers a longer period and potentially a wider range of pharmaceutical needs.

How does the geographic location 'CALIFORNIA' (SN) relate to this national contract?

The designation 'CALIFORNIA' (SN) likely refers to the location of the contractor's facility or a significant operational hub involved in fulfilling this contract, rather than limiting the contract's scope to California. Given that this is a Pharmacy Prime Vendor contract for the Department of Veterans Affairs, its reach is inherently national, serving veterans across the United States. McKesson Corporation, a major pharmaceutical distributor, operates numerous distribution centers. The 'CALIFORNIA' tag might indicate the specific facility responsible for processing or shipping this particular delivery order, or it could be the primary point of contact or administrative location for this contract within McKesson's structure. The contract itself is designed to support the VA's nationwide network of healthcare facilities and pharmacies.

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: $216,581,268

Exercised Options: $216,581,268

Current Obligation: $216,581,268

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline