VA's Pharmacy Prime Vendor contract saw $260M in spending over 29 days in FY16

Contract Overview

Contract Amount: $259,663,316 ($259.7M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2016-06-01

End Date: 2016-06-30

Contract Duration: 29 days

Daily Burn Rate: $9.0M/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 CMOP FY16 JUN 1, 2016 TO JUN 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 $259.7 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY16 JUN 1, 2016 TO JUN 30, 2016 CONTRACT VA797P-12-D-0001 Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending, highlighting its critical role in healthcare delivery. 2. A high number of bidders (5) suggests robust competition for this essential service. 3. The firm-fixed-price contract type indicates predictable costs for the government. 4. The contract's short duration (29 days) suggests it may be a task order or a bridge contract within a larger program. 5. The primary contractor, McKesson Corporation, is a major player in pharmaceutical distribution. 6. The contract's focus on pharmaceutical preparation manufacturing points to a key area of healthcare support.

Value Assessment

Rating: good

The reported spending of $259.7 million over 29 days equates to approximately $8.95 million per day. This daily rate is substantial and reflects the high volume of pharmaceutical needs for the VA. Benchmarking this against similar large-scale pharmacy prime vendor contracts would be necessary for a precise value-for-money assessment, but the scale suggests significant operational capacity and demand.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, with five bidders participating. This level of competition is generally positive, as it allows for a wider range of potential suppliers to offer their services and can drive down prices through market forces. The presence of multiple bidders suggests that the market for such services is healthy and accessible.

Taxpayer Impact: A full and open competition ensures that taxpayer dollars are used efficiently by leveraging market competition to secure the best possible pricing and service for essential pharmaceutical supplies.

Public Impact

Veterans across the nation benefit from timely access to necessary medications through this contract. The contract ensures the supply of pharmaceutical preparations, crucial for treating a wide range of medical conditions. The geographic impact is nationwide, supporting VA medical centers and clinics across the United States. This contract supports a significant portion of the pharmaceutical supply chain, indirectly impacting jobs in manufacturing, logistics, and distribution.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The short duration of the reporting period (29 days) makes it difficult to assess long-term performance or trends.
Without more detailed breakdowns of services and products, it's challenging to evaluate the efficiency of specific pharmaceutical categories.
The sheer volume of spending necessitates robust ongoing oversight to ensure continued value and prevent potential cost overruns in future periods.

Positive Signals

The contract was awarded through full and open competition, indicating a competitive bidding process.
The firm-fixed-price contract type provides cost certainty for the government.
The large number of bidders suggests a healthy and active market for pharmaceutical prime vendor services.

Sector Analysis

The pharmaceutical industry is a critical sector within healthcare, characterized by high R&D investment, complex supply chains, and significant government procurement. This contract falls under pharmaceutical preparation manufacturing and distribution, a vital segment that ensures the availability of medicines. The VA's reliance on prime vendors like McKesson is common across large healthcare systems to manage the procurement and delivery of a vast formulary of drugs efficiently.

Small Business Impact

Information regarding small business set-asides or subcontracting plans was not explicitly provided for this specific reporting period. However, large prime vendor contracts often include provisions for small business participation, either directly or through subcontracting opportunities with the prime awardee. Further analysis would be needed to determine the extent of small business involvement.

Oversight & Accountability

The Department of Veterans Affairs has established oversight mechanisms for its contracts, including the Pharmacy Prime Vendor program. These mechanisms typically involve contract performance monitoring, financial audits, and quality assurance reviews. Inspector General reports may also scrutinize spending and performance within major healthcare programs. Transparency is generally maintained through contract award databases and public reporting requirements.

Related Government Programs

VA Pharmaceutical Contracts
Medical Supplies Procurement
Healthcare Supply Chain Management
Drug Manufacturing and Distribution

Risk Flags

Potential for supply chain disruptions
Risk of pharmaceutical price volatility
Ensuring product quality and integrity
Cybersecurity threats to distribution systems
Contractor financial stability and operational continuity

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $259.7 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY16 JUN 1, 2016 TO JUN 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 $259.7 million.

What is the period of performance?

Start: 2016-06-01. End: 2016-06-30.

What is the historical spending trend for the Pharmacy Prime Vendor contract over the past five fiscal years?

Historical spending data for the VA's Pharmacy Prime Vendor contract would reveal trends in pharmaceutical procurement. Analyzing spending across multiple fiscal years allows for the identification of growth patterns, potential fluctuations due to policy changes or increased demand, and the overall trajectory of this significant expenditure. For instance, a consistent year-over-year increase might indicate growing veteran populations or expanded healthcare services, while a sharp decline could signal shifts in procurement strategies or the introduction of new cost-saving measures. Understanding these historical patterns is crucial for future budget forecasting and resource allocation within the VA's healthcare system.

How does the per-day spending of $8.95 million compare to industry benchmarks for similar large-scale pharmaceutical distribution contracts?

The per-day spending of approximately $8.95 million for the VA's Pharmacy Prime Vendor contract is substantial. To benchmark this effectively, one would need to compare it against the daily operational costs and revenue of major private sector pharmaceutical distributors serving comparable large healthcare networks or government entities. Factors such as the breadth of the formulary, the efficiency of the distribution network, and the negotiated profit margins would influence these benchmarks. While direct comparisons are difficult due to proprietary data, the VA's spending rate suggests a high volume of critical pharmaceutical services being managed, necessitating efficient operations to ensure value for money.

What are the primary risks associated with a contract of this magnitude and nature?

Contracts of this magnitude, particularly in the pharmaceutical sector, carry several inherent risks. Supply chain disruptions, whether due to manufacturing issues, transportation problems, or geopolitical events, could impact the availability of essential medications. Price volatility for pharmaceuticals, despite a fixed-price contract, can pose risks if market conditions change drastically, potentially affecting future contract negotiations or the contractor's profitability. Furthermore, ensuring the quality and integrity of the pharmaceuticals distributed is paramount, with risks of counterfeit or substandard products. Cybersecurity threats to the distribution and inventory management systems also represent a significant concern. Finally, dependence on a single prime vendor, even with competition, can create vulnerabilities if the contractor faces financial instability or operational failures.

What is McKesson Corporation's track record with the VA and other federal agencies for similar large-scale contracts?

McKesson Corporation has a long-standing and extensive track record as a major pharmaceutical distributor serving the U.S. federal government, including the Department of Veterans Affairs (VA) and the Department of Defense (DoD). They have historically held significant prime vendor contracts for supplying pharmaceuticals to these agencies. Their experience includes managing complex logistics, large-volume distribution, and adhering to stringent regulatory requirements. While specific performance metrics for each contract vary, McKesson's continued success in securing and performing on these large federal contracts suggests a generally positive track record in terms of operational capability and reliability. However, like any large contractor, they may have faced scrutiny or performance reviews on specific contracts over time.

What specific types of pharmaceuticals are typically covered under a Pharmacy Prime Vendor contract of this nature?

A Pharmacy Prime Vendor contract, such as the VA's, typically covers a broad spectrum of pharmaceuticals to meet the diverse medical needs of the beneficiary population. This includes, but is not limited to, generic and brand-name prescription drugs across various therapeutic classes (e.g., cardiovascular, oncology, infectious diseases, mental health). It often encompasses specialty pharmaceuticals, vaccines, and over-the-counter medications. The contract's scope usually involves not just the supply of these drugs but also inventory management, distribution logistics, and potentially data reporting services to ensure efficient and cost-effective delivery to VA medical facilities nationwide.

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: $259,663,316

Exercised Options: $259,663,316

Current Obligation: $259,663,316

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline