VA's Pharmacy Prime Vendor contract saw $199M in spending over 30 days, highlighting significant pharmaceutical procurement

Contract Overview

Contract Amount: $199,249,872 ($199.2M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2016-12-01

End Date: 2016-12-31

Contract Duration: 30 days

Daily Burn Rate: $6.6M/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 FY17 DEC 1, 2016 TO DEC 31, 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 $199.2 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY17 DEC 1, 2016 TO DEC 31, 2016 CONTRACT VA797P-12-D-0001 Key points: 1. The contract's value suggests a substantial volume of pharmaceutical needs for the VA. 2. Analysis of pricing and value for money requires benchmarking against similar large-scale pharmaceutical contracts. 3. The 'FULL AND OPEN COMPETITION' indicates a potentially competitive bidding process, which can drive better pricing. 4. Performance context is limited to a single month, making long-term trend analysis difficult. 5. This contract falls within the broader healthcare sector, specifically pharmaceutical supply chain management. 6. The contractor, McKesson Corporation, is a major player in pharmaceutical distribution.

Value Assessment

Rating: good

The reported spending of approximately $199 million for a single month (December 2016) is substantial. Benchmarking this against other large federal pharmaceutical contracts or the VA's historical spending patterns for similar services would be crucial for a definitive value assessment. Given the scale, it suggests efficient procurement processes are in place, but detailed cost breakdowns are needed to fully evaluate value for money. The firm fixed-price nature of the contract provides cost certainty.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under 'FULL AND OPEN COMPETITION,' suggesting that multiple bidders had the opportunity to compete. The presence of 5 bidders (no) indicates a healthy level of competition for this significant pharmaceutical prime vendor requirement. This competitive environment is generally expected to lead to more favorable pricing and terms for the government compared to sole-source or limited competition scenarios.

Taxpayer Impact: A full and open competition for a contract of this magnitude is beneficial for taxpayers as it fosters a competitive market, potentially driving down costs and ensuring the government receives competitive pricing for essential pharmaceuticals.

Public Impact

Veterans are the primary beneficiaries, receiving access to a wide range of pharmaceuticals through the VA's healthcare system. The contract ensures the continuous supply of necessary medications for VA medical facilities nationwide. This procurement supports the operational efficiency of the VA's pharmacy services, enabling timely dispensing of prescriptions. The contract has implications for the pharmaceutical distribution workforce, supporting jobs within McKesson Corporation and its supply chain partners.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Limited performance data (one month) hinders comprehensive assessment of contractor performance and reliability.
The sheer volume of the contract could present logistical challenges if not managed effectively.
Dependence on a single prime vendor for a critical supply chain carries inherent risks.

Positive Signals

Awarded under full and open competition, suggesting a robust selection process.
The contractor, McKesson Corporation, is a well-established entity in pharmaceutical distribution with significant experience.
Firm fixed-price contract type provides cost predictability for the VA.

Sector Analysis

This contract operates within the healthcare sector, specifically focusing on pharmaceutical distribution and supply chain management for a large federal agency. The market for pharmaceutical prime vendors is dominated by a few large distributors capable of handling the scale and complexity of federal contracts. Benchmarking this contract's value against other large federal healthcare procurements or private sector pharmaceutical distribution agreements would provide further context on its market positioning.

Small Business Impact

While this contract is a large prime vendor agreement, there is no explicit indication of a small business set-aside. However, large prime contractors like McKesson are often required to meet subcontracting goals with small businesses. The impact on the small business ecosystem would depend on the specific subcontracting plans and opportunities generated by this contract, which are not detailed here.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' procurement and program management offices. Accountability measures are inherent in the firm fixed-price contract structure, requiring the contractor to deliver specified goods and services within the agreed price. Transparency is generally facilitated through contract award databases and reporting requirements, though specific oversight activities are not detailed in this summary.

Related Government Programs

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

Risk Flags

Limited performance data (single month)
Potential supply chain vulnerability
Contractor dependency risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $199.2 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY17 DEC 1, 2016 TO DEC 31, 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 $199.2 million.

What is the period of performance?

Start: 2016-12-01. End: 2016-12-31.

What is McKesson Corporation's track record with the VA and other federal agencies for similar pharmaceutical prime vendor contracts?

McKesson Corporation has a long-standing and extensive history of serving as a prime vendor for pharmaceuticals for both the Department of Veterans Affairs (VA) and the Department of Defense (DoD). They are one of the largest pharmaceutical distributors in the United States and globally. Their track record includes managing complex supply chains, ensuring timely delivery of medications, and handling large-volume procurements. While specific performance metrics for past contracts are not detailed here, their continued success in winning and performing on such significant federal contracts suggests a generally positive track record. However, like any large contractor, there may have been instances of performance issues or disputes that would require deeper investigation into specific contract histories and oversight reports.

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

Determining the precise per-unit cost comparison is challenging without access to the specific line-item pricing data for the pharmaceuticals procured under this contract. The reported total spending of $199 million over 30 days represents an aggregate value. Federal contracts, especially those awarded through full and open competition like this one, often leverage significant purchasing power to negotiate competitive pricing. However, the VA's formulary, specific drug requirements, and negotiated discounts all influence the final per-unit costs. Benchmarking would require comparing the prices of specific drugs procured here against prices from other federal contracts (e.g., DoD, GSA schedules) or even the average wholesale price (AWP) in the commercial market, adjusted for volume and negotiated terms. Without that granular data, a definitive per-unit cost comparison cannot be made.

What are the primary risks associated with relying on a single prime vendor for such a large volume of pharmaceutical needs?

The primary risks associated with relying on a single prime vendor for a large volume of pharmaceutical needs include supply chain disruptions, price volatility, and potential contractor performance issues. A disruption at the vendor's distribution centers, a natural disaster affecting their logistics, or labor disputes could significantly impact the VA's ability to procure necessary medications. While the contract is firm fixed-price, there's a risk of the vendor facing financial instability, potentially impacting their ability to fulfill orders. Furthermore, over-reliance can reduce the government's leverage in future negotiations if competition diminishes. The VA mitigates some of these risks through robust contract management, contingency planning, and potentially maintaining relationships with secondary suppliers or alternative contract vehicles.

How effective is the 'FULL AND OPEN COMPETITION' strategy in ensuring cost savings for the VA in pharmaceutical procurement?

The 'FULL AND OPEN COMPETITION' strategy is generally considered highly effective in ensuring cost savings for the VA in pharmaceutical procurement. By allowing all responsible sources to submit bids, it fosters a competitive environment where multiple large pharmaceutical distributors vie for the contract. This competition typically drives down prices as bidders seek to offer the most attractive terms to win the award. The presence of 5 bidders (no) in this specific instance suggests a robust competitive landscape. While the firm fixed-price nature of the contract provides cost certainty, the initial competitive bidding process is crucial for establishing that baseline price. Savings are realized not only through lower unit costs but also potentially through improved service levels and efficiencies offered by the winning bidder.

What is the historical spending trend for the VA's Pharmacy Prime Vendor program, and how does this $199M figure compare?

Historical spending for the VA's Pharmacy Prime Vendor program typically runs into billions of dollars annually, reflecting the vast healthcare needs of the veteran population. The $199 million figure reported for December 2016 represents a single month's expenditure. Annual spending under this program often exceeds $5 billion, sometimes reaching upwards of $7-8 billion in recent years, depending on the specific contract vehicles and scope. Therefore, the $199 million for one month, while substantial, is consistent with the overall high volume of pharmaceutical procurement managed by the VA. It suggests that the contract was performing within expected operational parameters for that period, contributing to the larger annual spend required to supply medications across the VA system.

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: $199,249,872

Exercised Options: $199,249,872

Current Obligation: $199,249,872

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline