VA's McKesson Pharmaceutical Prime Vendor contract saw $797.6M in FY2023 spending, with a $27.5M delivery order in June

Contract Overview

Contract Amount: $797,632,030 ($797.6M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2023-06-01

End Date: 2023-06-30

Contract Duration: 29 days

Daily Burn Rate: $27.5M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2023 JUNE

Place of Performance

Location: IRVING, DALLAS County, TEXAS, 75039

State: Texas Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $797.6 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2023 JUNE Key points: 1. The contract supports the distribution of pharmaceuticals to VA facilities, ensuring a steady supply chain for veterans' healthcare. 2. This is a significant contract, reflecting the VA's substantial need for pharmaceutical products. 3. The fixed-price nature of the contract provides cost certainty for the government. 4. The single delivery order in June suggests a consistent demand pattern for pharmaceutical supplies. 5. The contract is managed by the Department of Veterans Affairs, indicating a focus on veteran healthcare services. 6. The North American Industry Classification System (NAICS) code 325412 points to pharmaceutical preparation manufacturing, a key sector for healthcare.

Value Assessment

Rating: good

The VA's Pharmaceutical Prime Vendor (PPV) program is a critical component of its healthcare infrastructure. While specific per-unit cost benchmarks for this broad contract are not provided, the overall spending of over $797 million in FY2023 indicates a large-scale operation. The fixed-price contract type helps manage costs, but ongoing analysis would be needed to ensure competitive pricing against market rates for individual pharmaceutical products distributed through this vendor. The $27.5 million delivery order in June is substantial, but within the context of the annual spend, it appears to be a regular operational expenditure.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, suggesting that multiple vendors had the opportunity to bid. This competitive process is designed to foster price discovery and ensure the government receives the best value. The specific number of bidders is not detailed, but the 'full and open' designation implies a robust competitive environment was sought.

Taxpayer Impact: Full and open competition generally leads to more favorable pricing for taxpayers by encouraging multiple vendors to offer their best terms.

Public Impact

Veterans across the United States benefit from timely access to necessary medications through the VA healthcare system. The contract ensures the availability of a wide range of pharmaceuticals, supporting various treatment needs. The geographic impact is nationwide, covering all VA medical centers and facilities that require pharmaceutical supplies. This contract supports jobs within the pharmaceutical distribution and logistics sectors, including those employed by McKesson Corporation.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases over the contract term if not adequately managed.
Reliance on a single prime vendor could create supply chain vulnerabilities if not diversified.
Ensuring equitable distribution of pharmaceuticals to all VA facilities, regardless of location.

Positive Signals

The full and open competition process is a positive signal for value.
The fixed-price contract provides budget predictability.
The established nature of the PPV program suggests operational efficiency.

Sector Analysis

The pharmaceutical distribution sector is a vital part of the healthcare industry, characterized by large, established players and complex logistics. Contracts like this represent significant portions of federal spending on healthcare supplies. Benchmarking this contract's value would involve comparing McKesson's pricing and service levels to other major pharmaceutical distributors serving government or large commercial entities. The market is highly regulated, with significant barriers to entry.

Small Business Impact

Information regarding small business set-asides or subcontracting plans for this specific contract was not provided in the data. However, large prime vendor contracts often include provisions for small business participation, either directly or through subcontracting opportunities with the prime awardee. Analysis would be needed to determine if McKesson has specific small business goals associated with this agreement and how they are being met.

Oversight & Accountability

The Department of Veterans Affairs is responsible for the oversight of this contract. Accountability measures would typically include performance metrics, delivery schedules, and quality control standards. Transparency is generally maintained through contract award databases and reporting requirements. The VA's Office of Inspector General would have jurisdiction to investigate any potential fraud, waste, or abuse related to this contract.

Related Government Programs

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

Risk Flags

Potential for supply chain disruption
Price volatility for pharmaceuticals
Vendor performance and reliability

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $797.6 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACEUTICAL PRIME VENDOR (PPV)FY2023 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 $797.6 million.

What is the period of performance?

Start: 2023-06-01. End: 2023-06-30.

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

McKesson Corporation is a major player in the pharmaceutical distribution industry and has a long-standing relationship with the Department of Veterans Affairs, serving as a prime vendor for many years. They also hold contracts with other federal agencies, including the Department of Defense, to supply pharmaceuticals. Their track record generally involves managing large-scale distribution networks and ensuring timely delivery of a wide array of medications. Historical performance data, including on-time delivery rates, order accuracy, and any past performance issues or disputes, would be crucial for a comprehensive assessment. Publicly available contract databases and past performance reviews can offer insights into their reliability and effectiveness in fulfilling federal requirements.

How does the pricing structure of this contract compare to market rates for pharmaceutical distribution services?

The provided data indicates a 'FIRM FIXED PRICE' contract type, which offers cost certainty to the government. However, assessing the competitiveness of the pricing requires detailed analysis of the specific pharmaceuticals and services covered, as well as the negotiated profit margins. Benchmarking against similar contracts awarded by other federal agencies or large commercial entities for comparable distribution services would be necessary. Additionally, comparing the unit prices of high-volume drugs distributed under this contract against publicly available pricing information or formulary data from other healthcare systems could provide further insights. Without access to the detailed pricing schedules and service level agreements, a definitive comparison to market rates is challenging.

What are the primary risks associated with relying on a single prime vendor for pharmaceutical distribution for the VA?

The primary risks associated with relying on a single prime vendor like McKesson for pharmaceutical distribution include supply chain disruptions, potential for price increases if competition is limited in future solicitations, and a lack of flexibility in sourcing alternatives during emergencies. A single point of failure in the supply chain could lead to critical medication shortages for veterans. Furthermore, if the vendor faces financial difficulties or operational issues, it could significantly impact the VA's ability to procure necessary drugs. While full and open competition is intended to mitigate some of these risks, the sheer scale of the contract means that vendor performance and stability are paramount.

How effective is the Pharmaceutical Prime Vendor (PPV) program in ensuring the availability and accessibility of medications for veterans nationwide?

The PPV program, as managed by the VA, is generally considered effective in ensuring the availability and accessibility of a broad range of medications for veterans across the country. By consolidating pharmaceutical procurement through prime vendors, the VA aims to achieve economies of scale, streamline logistics, and maintain adequate inventory levels. The program's success is measured by its ability to consistently supply VA medical centers and clinics with the drugs they need, thereby supporting patient care. Performance metrics related to fill rates, delivery timeliness, and formulary compliance are key indicators of the program's effectiveness. The substantial annual spending underscores the program's critical role in the VA's healthcare delivery system.

What has been the historical spending trend for the VA's Pharmaceutical Prime Vendor contracts over the past five fiscal years?

Historical spending data for the VA's Pharmaceutical Prime Vendor (PPV) contracts would reveal trends in the agency's expenditure on pharmaceutical distribution. While the provided data focuses on FY2023, a broader analysis would involve examining spending from FY2019 through FY2022. Typically, such spending is substantial and may show gradual increases due to factors like inflation, an aging veteran population, and advancements in medical treatments requiring new or more expensive medications. Fluctuations could also be influenced by changes in contracting strategies, competition levels, and the overall healthcare needs of the veteran population. Understanding these historical patterns is crucial for budget forecasting and identifying potential cost-saving opportunities.

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: $797,632,030

Exercised Options: $797,632,030

Current Obligation: $797,632,030

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