VA's Pharmacy Prime Vendor contract saw nearly $250M in spending over one month in FY17

Contract Overview

Contract Amount: $249,429,799 ($249.4M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2017-03-01

End Date: 2017-03-31

Contract Duration: 30 days

Daily Burn Rate: $8.3M/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 MAR 1, 2017 TO MAR 30, 2017 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 $249.4 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY17 MAR 1, 2017 TO MAR 30, 2017 CONTRACT VA797P-12-D-0001 Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending. 2. High spending levels indicate a critical role in supplying medications to veterans. 3. The contract was awarded through full and open competition, suggesting a competitive market. 4. The firm-fixed-price structure aims to control costs for the government. 5. Performance context is limited due to the short reporting period. 6. The pharmaceutical sector is complex with significant regulatory oversight.

Value Assessment

Rating: good

This contract's monthly spending of nearly $250 million is substantial, reflecting the VA's large-scale pharmaceutical needs. While direct comparisons to similar single-month contracts are difficult without more data, the overall annual spending on pharmacy prime vendors is a key indicator of value. The firm-fixed-price nature of this award suggests an effort to establish predictable costs, though the actual value for money depends on the negotiated unit prices and the volume of pharmaceuticals dispensed.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders had the opportunity to compete. The presence of multiple bidders generally fosters price discovery and can lead to more competitive pricing for the government. The specific number of bids received is not detailed here, but the competition type suggests a healthy market for pharmaceutical distribution services to the VA.

Taxpayer Impact: Full and open competition typically benefits taxpayers by driving down prices through market forces, ensuring the VA receives competitive rates for essential medications.

Public Impact

Veterans nationwide benefit from timely access to a wide range of pharmaceuticals. The contract ensures the supply chain for essential medications for VA healthcare facilities. Geographic impact is nationwide, supporting all VA medical centers and clinics. Workforce implications include jobs in logistics, distribution, and pharmaceutical handling.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price fluctuations in subsequent periods if market conditions change.
Reliance on a single vendor for a critical supply chain element carries inherent risk.
Ensuring consistent quality and availability of all prescribed medications is paramount.

Positive Signals

Firm-fixed-price contract helps manage budget predictability.
Awarded through full and open competition, suggesting competitive pricing.
The VA's established processes for pharmaceutical procurement aim for efficiency.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a large and complex industry critical to public health. The VA's Pharmacy Prime Vendor program is a significant component of this sector, representing substantial government spending. This contract fits within the broader category of healthcare logistics and supply chain management, where efficiency and reliability are paramount. Comparable spending benchmarks would typically involve analyzing annual VA pharmaceutical expenditures and comparing them to other federal agencies or large healthcare systems.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss: false'. The primary awardee, McKesson Corporation, is a large entity. While this specific contract may not directly benefit small businesses through set-asides, large prime vendors often engage small businesses as subcontractors for various support services, though the extent of this is not detailed here. The overall impact on the small business ecosystem would depend on subcontracting opportunities and the competitive landscape for smaller pharmaceutical distributors.

Oversight & Accountability

The Department of Veterans Affairs has established oversight mechanisms for its contracting processes, including the Pharmacy Prime Vendor program. Accountability is typically managed through contract performance monitoring, delivery schedules, and quality assurance. Transparency is facilitated through contract award databases and reporting requirements. Inspector General jurisdiction would likely extend to investigating any potential fraud, waste, or abuse related to this contract.

Related Government Programs

VA Pharmaceutical Prime Vendor Program
Federal Supply Schedule (FSS) for Pharmaceuticals
Department of Defense (DoD) Pharmacy Contracts
Medicaid Drug Rebate Program

Risk Flags

High monthly spending warrants scrutiny for efficiency.
Potential for supply chain vulnerabilities with a single prime vendor.
Need for ongoing price benchmarking to ensure value for money.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $249.4 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR CMOP FY17 MAR 1, 2017 TO MAR 30, 2017 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 $249.4 million.

What is the period of performance?

Start: 2017-03-01. End: 2017-03-31.

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 historically been awarded significant contracts to supply medications to VA medical centers and pharmacies. Their track record includes managing large-scale distribution networks and ensuring the availability of a wide formulary of drugs. While specific performance metrics for this particular short-term delivery order are not detailed, McKesson's continued awards suggest a generally satisfactory performance history in meeting the VA's complex logistical and supply chain requirements for pharmaceuticals. The company's extensive experience in the healthcare supply chain is a key factor in its ability to serve federal agencies.

How does the $249M monthly spending compare to the VA's annual pharmaceutical budget?

The $249 million in spending over a single month (March 2017) represents a substantial portion of the VA's pharmaceutical budget. While the exact annual budget for pharmaceuticals fluctuates, it typically runs into the billions of dollars. For context, the VA's total pharmaceutical spending has historically been in the range of $5 billion to $7 billion annually in recent fiscal years. Therefore, this single month's expenditure, while large, is consistent with the scale of operations required to supply medications to millions of veterans across the country. It highlights the critical nature and high volume of pharmaceutical procurement managed by the VA.

What are the primary risks associated with a single-source prime vendor for pharmaceuticals?

While this contract was awarded under full and open competition, the reliance on a single prime vendor for a specific delivery order or contract period introduces several risks. One primary risk is supply chain disruption; if the vendor experiences issues (e.g., natural disasters, labor strikes, manufacturing problems), it could lead to critical medication shortages for veterans. Another risk is potential price escalation in future contract periods if competition diminishes or market power shifts. Furthermore, ensuring consistent quality control and adherence to stringent pharmaceutical handling regulations across a vast distribution network managed by one entity requires robust oversight. Dependence on a single vendor can also reduce the VA's leverage in negotiating terms and prices over the long term.

How effective is the firm-fixed-price (FFP) contract type in managing pharmaceutical costs for the VA?

The firm-fixed-price (FFP) contract type is generally considered effective for managing costs when the scope of work and requirements are well-defined, as is often the case with pharmaceutical distribution. Under an FFP contract, the price is set and not subject to adjustment based on the contractor's cost experience. This provides the VA with budget certainty and shifts the risk of cost overruns to the contractor, McKesson Corporation in this instance. For routine, high-volume items like pharmaceuticals, FFP helps control expenditures. However, the ultimate value for money still depends on the initial negotiation of the fixed price and the competitive environment in which it was established. It incentivizes the contractor to be efficient to maximize profit.

What is the typical duration and value of VA Pharmacy Prime Vendor contracts?

VA Pharmacy Prime Vendor contracts are typically long-term agreements, often spanning multiple years with options for renewal, to ensure continuity of supply. While this specific data point reflects a 30-day delivery order period with a value of approximately $249 million, the underlying base contract (VA797P-12-D-0001) likely had a longer duration and a significantly larger total potential value. These contracts are usually awarded for base periods of several years, with subsequent option periods that can extend the contract's life for up to five years or more. The total value of such contracts often reaches into the billions of dollars over their entire performance period, reflecting the immense scale of pharmaceutical needs for the veteran population.

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: $249,429,799

Exercised Options: $249,429,799

Current Obligation: $249,429,799

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline