McKesson Corporation's VA Pharmaceutical Prime Vendor contract saw $654.8M in FY2021 spending, a significant portion of the VA's drug procurement

Contract Overview

Contract Amount: $654,784,584 ($654.8M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2021-06-01

End Date: 2021-06-30

Contract Duration: 29 days

Daily Burn Rate: $22.6M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2021 JUNE

Place of Performance

Location: IRVING, DALLAS County, TEXAS, 75039

State: Texas Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $654.8 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2021 JUNE Key points: 1. The contract represents a substantial portion of the VA's pharmaceutical spending, highlighting its critical role in drug supply. 2. McKesson's performance is key to ensuring timely access to medications for veterans. 3. The firm fixed-price contract structure aims to provide cost certainty for the VA. 4. Competition dynamics for this large-scale prime vendor contract are complex, involving significant barriers to entry. 5. Oversight is crucial to ensure fair pricing and efficient delivery of pharmaceuticals. 6. The contract's duration and value indicate a long-term strategic relationship with the vendor.

Value Assessment

Rating: good

This contract, valued at over $654 million for FY2021, is a significant component of the VA's pharmaceutical supply chain. While specific year-over-year comparisons are not provided in the data, the scale suggests it is a major award. The firm fixed-price nature of the contract provides a degree of cost predictability for the VA. Benchmarking the per-unit cost of pharmaceuticals procured through this prime vendor would require detailed analysis of the specific drugs and quantities, which is beyond the scope of this summary.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were likely considered. This approach is generally favorable for price discovery and ensuring the government receives competitive pricing. The specific number of bidders is not detailed, but the nature of prime vendor contracts often attracts significant interest from large pharmaceutical distributors.

Taxpayer Impact: Full and open competition suggests that taxpayers benefit from a more competitive bidding process, potentially leading to lower overall costs for the pharmaceuticals procured through this contract.

Public Impact

Veterans across the United States benefit from consistent and timely access to a wide range of pharmaceuticals. The contract ensures the availability of essential medications for healthcare facilities managed by the Department of Veterans Affairs. This contract supports the VA's mission to provide comprehensive healthcare services to its beneficiaries. The efficient distribution of pharmaceuticals impacts the operational effectiveness of VA medical centers and clinics nationwide.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases over time if not adequately managed through contract oversight.
Dependence on a single vendor for a critical supply chain element could pose risks.
Ensuring equitable distribution across all VA facilities requires robust logistical management.

Positive Signals

The firm fixed-price structure provides cost predictability.
Full and open competition suggests a competitive award process.
The contract's scale indicates a mature and established supply chain.

Sector Analysis

The pharmaceutical prime vendor market is a critical segment of the healthcare industry, focused on the distribution of drugs to large institutional buyers. Contracts like this are essential for government agencies, particularly the VA, to manage the complex logistics of pharmaceutical procurement and ensure a steady supply. The market is characterized by a few large, established distributors capable of handling the scale and regulatory requirements of such awards. Spending in this sector is consistently high due to the essential nature of pharmaceuticals.

Small Business Impact

This contract does not appear to have a specific small business set-aside. Large prime vendor contracts for pharmaceuticals typically involve significant scale and infrastructure that are more aligned with large corporations. Subcontracting opportunities for small businesses might exist within the broader supply chain, such as logistics or specialized services, but are not directly indicated by this award. The primary focus is on the prime vendor's capability to manage a vast distribution network.

Oversight & Accountability

The Department of Veterans Affairs is responsible for the oversight of this contract. Mechanisms likely include regular performance reviews, audits, and adherence to contract terms and conditions. Transparency is generally maintained through contract award databases and reporting requirements. The VA's Office of Inspector General may conduct audits or investigations into the contract's performance and financial aspects to ensure accountability and prevent fraud.

Related Government Programs

Department of Defense Pharmaceutical Prime Vendor Contracts
Federal Supply Schedule (FSS) for Pharmaceuticals
VA Medical Care Programs
National Acquisition Center (NAC) Contracts

Risk Flags

Supply Chain Dependency
Price Volatility Risk
Contractor Performance Monitoring

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $654.8 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2021 JUNE

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 $654.8 million.

What is the period of performance?

Start: 2021-06-01. End: 2021-06-30.

What is the historical spending trend for this Pharmaceutical Prime Vendor contract with the VA?

Historical spending data for this specific McKesson Corporation Pharmaceutical Prime Vendor (PPV) contract with the VA indicates a substantial and consistent financial commitment. While the provided data focuses on FY2021 with $654.8 million in spending, broader analysis of past fiscal years would reveal trends in drug utilization and procurement strategies. Typically, such prime vendor contracts are awarded for multi-year periods, and spending can fluctuate based on factors like changes in veteran population, healthcare needs, formulary adjustments, and the introduction of new pharmaceuticals. Understanding these historical patterns is crucial for forecasting future budgetary needs and assessing the long-term value and stability of the VA's pharmaceutical supply chain.

How does McKesson Corporation's performance on this contract compare to other major pharmaceutical distributors serving the federal government?

Comparing McKesson Corporation's performance on this VA contract to other major pharmaceutical distributors serving the federal government requires access to detailed performance metrics across multiple contracts. Generally, major distributors like McKesson, Cardinal Health, and AmerisourceBergen are evaluated on factors such as on-time delivery rates, order accuracy, fill rates, and responsiveness to urgent needs. The VA, like other federal agencies, likely has performance standards and key performance indicators (KPIs) embedded within its contracts. While McKesson is a leading player, its specific performance relative to competitors would be assessed through internal VA evaluations, contract compliance reports, and potentially through broader industry benchmarks if publicly available. The scale of this contract suggests a high level of operational capability is expected and likely maintained.

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

Relying on a single prime vendor like McKesson for a substantial volume of pharmaceutical procurement presents several key risks. Firstly, there's a risk of supply chain disruption; any issue affecting the vendor's operations, such as natural disasters, labor disputes, or logistical failures, could significantly impact the availability of critical medications for veterans. Secondly, there's a potential for reduced price negotiation leverage over time, as the vendor may face less direct competition for subsequent contract renewals or modifications. Thirdly, quality control and compliance issues at the vendor level could have widespread consequences. Finally, dependence on one entity can create vulnerabilities if the vendor experiences financial instability or strategic shifts. Robust contract management, contingency planning, and potentially exploring alternative sourcing strategies are crucial to mitigate these risks.

What is the estimated value or market share this contract represents within the broader federal pharmaceutical procurement landscape?

This contract, with $654.8 million in FY2021 spending for McKesson Corporation's VA Pharmaceutical Prime Vendor (PPV) services, represents a significant portion of the Department of Veterans Affairs' pharmaceutical budget. The VA is one of the largest healthcare providers in the United States, and its pharmaceutical spending is substantial. While precise market share within the entire federal pharmaceutical procurement landscape is difficult to ascertain without comprehensive data across all agencies (e.g., DoD, HHS), this award highlights the critical role of prime vendors in managing large-scale drug distribution for federal healthcare systems. It underscores the concentration of federal pharmaceutical distribution among a few major players capable of handling such extensive contracts.

Are there specific performance metrics or service level agreements (SLAs) tied to this contract that ensure quality and efficiency?

While the provided data does not detail specific performance metrics or Service Level Agreements (SLAs) for this McKesson Corporation PPV contract, it is standard practice for large federal contracts of this nature to include such provisions. These SLAs typically cover critical areas like order fulfillment rates (ensuring a high percentage of ordered items are shipped), on-time delivery percentages, accuracy of shipments, response times for inquiries or issues, and potentially inventory management standards. The Department of Veterans Affairs would monitor McKesson's adherence to these SLAs, with potential financial penalties or corrective action plans triggered by consistent non-compliance. These metrics are essential for ensuring that veterans receive their medications reliably and efficiently.

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

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 6555 STATE HIGHWAY 161, IRVING, TX, 75039

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $654,784,584

Exercised Options: $654,784,584

Current Obligation: $654,784,584

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: 36W79720D0001

IDV Type: IDC

Timeline