VA's Pharmacy Prime Vendor contract saw $274.6M in spending over 29 days in FY16

Contract Overview

Contract Amount: $274,635,056 ($274.6M)

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: $9.5M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 5

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: COPY OF EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY16 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 $274.6 million to MCKESSON CORPORATION for work described as: COPY OF EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY16 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 spending. 2. McKesson Corporation was the sole awardee for this delivery order. 3. The contract was awarded under full and open competition. 4. The rapid turnaround time for this delivery order suggests urgent pharmaceutical needs. 5. The contract's fixed-price nature provides cost certainty for the VA. 6. The spending level indicates a high volume of pharmaceutical products procured.

Value Assessment

Rating: good

This contract's value of $274.6 million for a single month of operation is substantial, reflecting the VA's extensive pharmacy needs. Benchmarking against similar large-scale pharmaceutical prime vendor contracts would be necessary for a precise value-for-money assessment. However, given the scale and the nature of pharmaceutical procurement, the pricing is likely competitive within the industry, especially considering it was awarded under full and open competition.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded through full and open competition, indicating that multiple vendors had the opportunity to bid. With 5 bidders, the competition level appears healthy, which typically drives more competitive pricing and better value for the government. This process ensures that the VA selects the most advantageous offer based on a range of factors, not solely price.

Taxpayer Impact: A competitive bidding process for such a large contract helps ensure that taxpayer dollars are used efficiently, preventing overpayment for essential pharmaceutical supplies.

Public Impact

Veterans nationwide benefit from timely access to a wide range of pharmaceuticals. The contract ensures the availability of medications for various medical conditions treated by the VA. The contract supports the VA's healthcare infrastructure by providing essential drug supplies. The delivery order impacts the pharmaceutical supply chain and distribution networks.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price fluctuations in subsequent contract periods if not managed closely.
Dependence on a single vendor for a critical supply chain component.
Ensuring consistent quality and availability of a vast array of pharmaceuticals.

Positive Signals

Awarded through full and open competition, suggesting a robust selection process.
The contract is firm fixed-price, providing budget predictability.
The scale of the contract indicates the VA's commitment to veteran healthcare.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry. Large government contracts like this one are essential for ensuring the supply of medications to government entities. The market is characterized by significant consolidation and high barriers to entry, with a few major players dominating. This contract fits within the broader category of medical supplies and services procurement for federal agencies.

Small Business Impact

This contract does not appear to have a small business set-aside. While the prime vendor is a large corporation, there may be opportunities for small businesses to participate as subcontractors within the supply chain, though this is not explicitly detailed in the provided data. The focus is on securing a large-scale, reliable supplier for the VA's extensive pharmaceutical needs.

Oversight & Accountability

The Department of Veterans Affairs has established oversight mechanisms for its procurement processes, including contracts of this magnitude. Accountability is maintained through contract performance monitoring, financial audits, and adherence to federal acquisition regulations. Transparency is generally provided through contract award databases, though specific performance metrics and detailed spending breakdowns may be internal.

Related Government Programs

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

Risk Flags

Potential for single-source dependency if competition is not maintained.
Vulnerability to pharmaceutical price inflation.
Reliance on contractor's robust supply chain management.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $274.6 million to MCKESSON CORPORATION. COPY OF EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY16 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 $274.6 million.

What is the period of performance?

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

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

Analyzing historical spending for the Pharmacy Prime Vendor contract is crucial for understanding long-term trends and identifying any significant year-over-year changes. While the provided data focuses on a single month in FY16, a comprehensive review would involve examining contract awards and obligations across several preceding and subsequent fiscal years. This would help determine if the $274.6 million monthly spend in FY16 was an anomaly or representative of consistent demand. Factors such as changes in veteran population, healthcare policy, and pharmaceutical pricing can influence these trends. Without multi-year data, it's difficult to assess the contract's sustained value and the VA's evolving pharmaceutical needs.

How does the per-unit cost of pharmaceuticals under this contract compare to other federal agencies or the commercial market?

Benchmarking the per-unit cost of pharmaceuticals procured through this Pharmacy Prime Vendor contract against other federal agencies (like the DoD's TRICARE) or the broader commercial market is essential for assessing value for money. The VA negotiates significant volume discounts, but direct comparisons require access to detailed pricing data for specific drugs. Factors such as formulary management, contract terms, and distribution fees can influence these costs. A thorough analysis would involve comparing prices for a basket of common generic and brand-name drugs. If VA prices are consistently higher than comparable benchmarks, it could indicate opportunities for cost savings through renegotiation or alternative procurement strategies.

What are the key performance indicators (KPIs) used to evaluate McKesson Corporation's performance under this contract?

Evaluating McKesson Corporation's performance under the Pharmacy Prime Vendor contract relies on specific Key Performance Indicators (KPIs) established in the contract. These typically include metrics related to on-time delivery rates, order accuracy, drug availability, inventory management, and customer satisfaction. The VA would monitor these KPIs to ensure the contractor is meeting its obligations and providing reliable pharmaceutical supply. Consistent performance against these KPIs is critical for maintaining the health and readiness of veterans. Any significant deviations could trigger corrective actions or impact future contract awards.

What is the potential impact of supply chain disruptions on the VA's ability to procure pharmaceuticals through this contract?

Supply chain disruptions, whether due to global events, manufacturing issues, or transportation challenges, pose a significant risk to the VA's ability to procure pharmaceuticals. This contract, while large, relies on a complex global supply chain. The VA's contingency plans and the contractor's (McKesson) own risk mitigation strategies are crucial. The impact could range from temporary shortages of specific medications to broader availability issues, potentially affecting veteran care. The VA's oversight would include monitoring the contractor's resilience and exploring alternative sourcing options if necessary.

How has the VA's spending on pharmaceuticals evolved since FY16, and what role does the Prime Vendor contract play in current spending?

Understanding the evolution of VA pharmaceutical spending since FY16 provides context for the $274.6 million monthly expenditure observed. Factors like the increasing veteran population, advancements in medical treatments, and shifts in healthcare policy have likely influenced overall spending. The Pharmacy Prime Vendor contract, or its successor, continues to be a cornerstone of the VA's strategy for efficiently acquiring medications. Analyzing current spending patterns and contract structures would reveal how the VA has adapted its procurement approach to manage costs and ensure access to necessary drugs in the current healthcare landscape.

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: $274,635,056

Exercised Options: $274,635,056

Current Obligation: $274,635,056

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline