McKesson Corporation awarded $837.8M for Pharmaceutical Prime Vendor services by VA in FY2022

Contract Overview

Contract Amount: $837,783,745 ($837.8M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2022-09-01

End Date: 2022-09-30

Contract Duration: 29 days

Daily Burn Rate: $28.9M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2022 SEPTEMBER

Place of Performance

Location: IRVING, DALLAS County, TEXAS, 75039

State: Texas Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $837.8 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2022 SEPTEMBER Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending, highlighting the critical role of prime vendors. 2. Analysis of value for money requires benchmarking against similar prime vendor contracts and market prices for pharmaceuticals. 3. Competition dynamics are favorable given the full and open competition, suggesting potential for competitive pricing. 4. Risk indicators include potential for sole-source extensions and the need for ongoing performance monitoring. 5. Performance context is a single month delivery order, making long-term value assessment challenging. 6. Sector positioning is within the broader healthcare and pharmaceutical supply chain, a vital area for government operations.

Value Assessment

Rating: good

This delivery order for $837.8 million represents a substantial single-month expenditure. Benchmarking this against other large-scale pharmaceutical prime vendor contracts, particularly those with similar scope and duration, is crucial for assessing value. While the contract type is firm-fixed-price, which generally offers cost certainty, the sheer volume necessitates careful review of unit prices and overall cost-effectiveness compared to market rates and alternative procurement methods for pharmaceuticals.

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 preferred as it fosters a competitive environment, potentially leading to better pricing and service offerings for the government. The number of bidders and the evaluation criteria would provide further insight into the strength of the competition.

Taxpayer Impact: Full and open competition is beneficial for taxpayers as it drives down costs through market forces and encourages innovation among potential suppliers, ensuring the government receives the best possible value.

Public Impact

Veterans across the nation benefit from timely access to essential pharmaceuticals. The contract ensures the supply of a wide range of pharmaceutical preparations. Services are delivered nationwide, supporting VA healthcare facilities wherever veterans receive care. This contract supports jobs within the pharmaceutical distribution and logistics sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in future contract periods if not rigorously managed.
Dependence on a single vendor for a critical supply chain function carries inherent risks.
Ensuring consistent quality and availability of a vast array of pharmaceuticals requires robust oversight.

Positive Signals

Awarded under full and open competition, suggesting a competitive pricing environment.
Firm-fixed-price contract type provides cost certainty for this delivery order.
The scale of the contract indicates the contractor's capacity to meet significant demand.

Sector Analysis

The pharmaceutical prime vendor (PPV) program is a critical component of the federal healthcare supply chain, particularly for the Department of Defense and the Department of Veterans Affairs. These contracts ensure the continuous availability of a vast array of pharmaceuticals to support healthcare facilities and beneficiaries. The market is characterized by a few large, established distributors capable of managing the complex logistics and regulatory requirements. Spending in this sector is substantial, reflecting the high cost of pharmaceuticals and the extensive reach of government healthcare programs.

Small Business Impact

While this contract is with a large prime vendor, McKesson Corporation, it's important to assess subcontracting opportunities for small businesses. Large federal contracts often have subcontracting plans that aim to include small businesses in the supply chain. The absence of specific small business set-aside information for this particular delivery order suggests that the primary award was not directed towards small businesses, but downstream opportunities may exist.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' contracting officers and program managers. Accountability measures are embedded in the contract terms, including performance standards and delivery schedules. Transparency is generally maintained through contract award databases, although detailed operational data may be sensitive. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Department of Defense Pharmaceutical Prime Vendor Program
Federal Supply Schedule (FSS) Pharmaceutical Contracts
VA National Formulary
Strategic National Stockpile

Risk Flags

High contract value requires diligent oversight.
Single month delivery order makes long-term value assessment difficult.
Potential for future price increases if competition weakens.
Dependence on a single vendor for critical supplies.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $837.8 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2022 SEPTEMBER

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 $837.8 million.

What is the period of performance?

Start: 2022-09-01. End: 2022-09-30.

What is McKesson Corporation's track record with the VA for pharmaceutical prime vendor services?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs as a pharmaceutical prime vendor. They are one of the major distributors consistently awarded large contracts to supply pharmaceuticals to VA medical centers and other facilities. Their track record generally reflects a capacity to manage large-scale distribution and meet demanding delivery requirements. However, like any large contractor, there may have been instances of performance issues or contract disputes over the years, which would be detailed in contract performance reports and agency evaluations. The consistent awarding of significant contracts suggests a generally satisfactory performance history, but a deeper dive into specific performance metrics and any corrective actions taken would be necessary for a comprehensive assessment.

How does the $837.8 million value for this single month delivery order compare to historical VA pharmaceutical spending?

An $837.8 million expenditure for a single month's delivery order under the Pharmaceutical Prime Vendor (PPV) program is substantial and indicative of the scale of the VA's pharmaceutical needs. To contextualize this, historical VA pharmaceutical spending data would need to be analyzed. This would involve looking at annual spending trends for the PPV program, average monthly expenditures, and the value of individual delivery orders over several fiscal years. If this figure represents a typical monthly outlay, it underscores the program's significance. If it's an outlier, it might suggest a surge in demand, a change in contract structure, or a reconciliation of past obligations. Comparing this to previous years' monthly averages and total annual pharmaceutical budgets will reveal whether this represents a consistent level of spending or a deviation.

What are the primary risks associated with relying on a single prime vendor like McKesson for such a large contract?

Relying on a single prime vendor for a contract of this magnitude presents several key risks. Firstly, there's the risk of supply chain disruption; any issue affecting McKesson's operations, such as natural disasters, labor strikes, or internal logistical failures, could significantly impact the VA's ability to procure necessary medications. Secondly, a lack of robust competition in future contract renewals could lead to price escalations and reduced value for money. Thirdly, over-reliance can diminish the VA's leverage in negotiating terms and ensuring optimal service levels. Finally, there's the risk of vendor lock-in, making it difficult and costly to switch to alternative suppliers if performance degrades or strategic needs change. Mitigating these risks involves strong contract management, performance monitoring, and contingency planning.

How does the firm-fixed-price contract type influence the value and risk for this pharmaceutical prime vendor delivery order?

A firm-fixed-price (FFP) contract type is generally advantageous for the government in a procurement like this, as it shifts the risk of cost overruns to the contractor, McKesson Corporation. This means the agreed-upon price is fixed, regardless of McKesson's actual costs incurred in fulfilling the delivery order. For the VA, this provides budget certainty and protects against unexpected price increases during the contract period. For McKesson, it incentivizes efficient operations and cost management to maximize profit margins. The primary risk for the VA under an FFP contract is ensuring that the initial price negotiated reflects fair market value and that the scope of work is clearly defined to prevent scope creep or disputes. If McKesson underestimated costs, they bear the loss; if they overestimated, the VA may be paying a premium, highlighting the importance of thorough pre-award price analysis.

What is the typical duration and scope of Pharmaceutical Prime Vendor (PPV) contracts awarded by the VA?

Pharmaceutical Prime Vendor (PPV) contracts awarded by the VA are typically long-term agreements, often spanning multiple years with options for extension. The scope is comprehensive, encompassing the procurement, storage, and distribution of a vast formulary of pharmaceuticals to VA healthcare facilities nationwide. These contracts are designed to ensure a reliable and efficient supply chain for essential medicines. While this specific data point represents a single 29-day delivery order (September 2022) valued at $837.8 million, it is part of a larger, ongoing PPV arrangement. The overall contract structure usually involves base periods and option periods, allowing for continuity of service while providing opportunities for re-competition or adjustments based on performance and market conditions.

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: $837,783,745

Exercised Options: $837,783,745

Current Obligation: $837,783,745

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: 36W79720D0001

IDV Type: IDC

Timeline