HHS awarded $43.9M for pharmacy benefit management, with a fixed fee structure

Contract Overview

Contract Amount: $43,903,142 ($43.9M)

Contractor: Health Care Service Corporation, a Mutual Legal Reserve Company

Awarding Agency: Department of Health and Human Services

Start Date: 2005-02-01

End Date: 2009-12-31

Contract Duration: 1,794 days

Daily Burn Rate: $24.5K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Healthcare

Official Description: OTHER PROFESSIONAL SERVICES

Place of Performance

Location: ALBUQUERQUE, BERNALILLO County, NEW MEXICO, 87113, UNITED STATES OF AMERICA

State: New Mexico Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $43.9 million to HEALTH CARE SERVICE CORPORATION, A MUTUAL LEGAL RESERVE COMPANY for work described as: OTHER PROFESSIONAL SERVICES Key points: 1. Contract awarded via full and open competition, suggesting a competitive pricing environment. 2. The contract's duration of nearly 5 years indicates a significant, long-term need. 3. The 'Cost Plus Fixed Fee' (CPFF) contract type can incentivize cost control by the contractor. 4. The award was made to a single entity, Health Care Service Corporation. 5. The service category, Pharmacy Benefit Management, is critical for healthcare cost containment. 6. The contract's value of $43.9M places it in the mid-tier range for federal service contracts.

Value Assessment

Rating: good

The contract's value of $43.9 million over nearly five years suggests a substantial investment in pharmacy benefit management services. While specific benchmark data for this exact service is not provided, the CPFF structure aims to provide a predictable profit margin for the contractor while encouraging efficiency. Comparing this to similar large-scale PBM contracts would offer a clearer picture of value for money, but the competitive award process is a positive indicator.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple vendors had the opportunity to bid. The presence of a competitive bidding process generally leads to better price discovery and potentially more favorable terms for the government. The number of bidders is not specified, but the method of award suggests a robust competition.

Taxpayer Impact: Taxpayers benefit from a competitive process that is expected to drive down costs and ensure the government receives the best possible value for its investment in pharmacy benefit management.

Public Impact

Beneficiaries of this contract include federal employees and potentially other eligible populations whose prescription drug benefits are managed through this service. The services delivered include pharmacy benefit management and third-party administration of insurance and pension funds related to pharmaceuticals. The geographic impact is primarily focused on New Mexico, where the contract was administered. The contract supports administrative and professional roles within the healthcare sector, contributing to the workforce in these areas.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost overruns inherent in CPFF contracts if not closely monitored.
Reliance on a single contractor for critical pharmacy benefit management functions.
The specific performance metrics and their effectiveness are not detailed in the provided data.

Positive Signals

Awarded through full and open competition, suggesting a fair and competitive process.
The CPFF structure can incentivize contractor efficiency and cost management.
Long contract duration indicates a stable and ongoing need for these essential services.

Sector Analysis

The contract falls within the broader 'Other Professional Services' sector, specifically focusing on healthcare administration and insurance services. Pharmacy Benefit Management (PBM) is a significant sub-sector within the healthcare industry, responsible for managing prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, and other payers. The market for PBM services is substantial, with major players managing billions of dollars in drug spending annually. This contract represents a portion of the federal government's engagement with this critical market.

Small Business Impact

The provided data indicates that small business participation was not a specific set-aside for this contract (ss: false, sb: false). Therefore, the direct impact on small businesses through set-asides is likely minimal. However, the prime contractor, Health Care Service Corporation, may engage small businesses as subcontractors, though this information is not detailed. The overall impact on the small business ecosystem would depend on the subcontracting opportunities generated by this large contract.

Oversight & Accountability

Oversight for this contract would typically be managed by the Department of Health and Human Services (HHS) through contract officers and program managers. The 'Cost Plus Fixed Fee' structure necessitates diligent oversight to ensure costs are reasonable and allocable, and that the fixed fee is earned. Transparency would be facilitated through contract reporting requirements. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Federal Employee Health Benefits (FEHB) Program
TRICARE Pharmacy Program
Medicare Part D Prescription Drug Benefit
Medicaid Pharmacy Services

Risk Flags

Contract type (CPFF) requires diligent oversight to manage costs.
Limited information on specific performance metrics and outcomes.
Reliance on a single contractor for critical PBM functions.

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $43.9 million to HEALTH CARE SERVICE CORPORATION, A MUTUAL LEGAL RESERVE COMPANY. OTHER PROFESSIONAL SERVICES

Who is the contractor on this award?

The obligated recipient is HEALTH CARE SERVICE CORPORATION, A MUTUAL LEGAL RESERVE COMPANY.

Which agency awarded this contract?

Awarding agency: Department of Health and Human Services (Office of the Assistant Secretary for Administration).

What is the total obligated amount?

The obligated amount is $43.9 million.

What is the period of performance?

Start: 2005-02-01. End: 2009-12-31.

What is the historical spending pattern for Pharmacy Benefit Management services by HHS?

Historical spending data for Pharmacy Benefit Management (PBM) services by the Department of Health and Human Services (HHS) is not directly available from the provided contract details. This specific contract, valued at $43.9 million, represents a single award for services between February 2005 and December 2009. To understand HHS's broader spending patterns in PBM, one would need to analyze multiple contracts across different agencies and programs within HHS, such as those related to the Federal Employee Health Benefits (FEHB) program or other administrative functions. A comprehensive analysis would involve examining annual reports, budget justifications, and contract databases like FPDS-NG or USASpending.gov for similar service categories and contract types over several fiscal years to identify trends, increases, or decreases in investment in PBM services.

How does the 'Cost Plus Fixed Fee' (CPFF) structure compare to other contract types for similar services?

The 'Cost Plus Fixed Fee' (CPFF) contract type, used in this $43.9 million award, is one of several options for procuring services. In a CPFF contract, the contractor is reimbursed for all allowable costs incurred, plus a predetermined fixed fee representing profit. This structure incentivizes the contractor to control costs, as the fee remains constant regardless of the final cost. Compared to 'Cost Plus Incentive Fee' (CPIF) contracts, CPFF offers less flexibility for performance-based incentives but provides greater cost certainty for the government. 'Fixed Price' contracts, on the other hand, shift more risk to the contractor, offering greater cost certainty to the government but potentially leading to less contractor engagement if costs escalate. For complex services like Pharmacy Benefit Management, where scope can evolve, CPFF can be a suitable choice when managed with robust oversight, balancing cost control incentives with the need for flexibility.

What are the key performance indicators (KPIs) typically associated with Pharmacy Benefit Management contracts?

Key Performance Indicators (KPIs) for Pharmacy Benefit Management (PBM) contracts typically focus on cost savings, quality of service, and operational efficiency. Common KPIs include drug cost savings achieved through formulary management, rebate negotiation, and generic dispensing rates. Patient access to medications, adherence rates, and member satisfaction scores are also critical. Operational KPIs might involve claims processing accuracy and timeliness, turnaround times for prior authorizations, and the effectiveness of drug utilization review programs. For this specific contract, the provided data does not detail the KPIs used, but effective oversight would involve tracking metrics related to negotiated drug prices, dispensing efficiency, and overall cost containment for the managed prescription drug benefits.

What is the track record of Health Care Service Corporation as a federal contractor?

Health Care Service Corporation (HCSC) has a significant track record as a federal contractor, primarily known for its role in administering health insurance plans. While this specific contract for Pharmacy Benefit Management (PBM) is one example, HCSC is a major provider of health insurance plans, including those offered under the Federal Employee Health Benefits (FEHB) program. Their experience extends to managing complex healthcare services and navigating regulatory environments. Analyzing their broader federal contracting history, including contract performance ratings, past performance evaluations, and any disputes or terminations, would provide a more comprehensive view of their reliability and capability in fulfilling government requirements beyond this single PBM award.

What is the potential impact of this contract on drug pricing and availability for beneficiaries?

This contract, valued at $43.9 million and covering Pharmacy Benefit Management (PBM) services, has a direct impact on drug pricing and availability for the beneficiaries it serves. As a PBM, Health Care Service Corporation is responsible for negotiating drug prices with manufacturers and pharmacies, developing formularies (lists of covered drugs), and processing prescription claims. The effectiveness of these negotiations and formulary design directly influences the cost of prescription drugs for beneficiaries. A well-managed PBM contract can lead to significant cost savings through preferred drug placement and rebate capture, while also ensuring access to necessary medications. The specific impact depends on the terms of the contract, the negotiation leverage HCSC possesses, and the oversight provided by HHS to ensure fair pricing and adequate drug availability.

Industry Classification

NAICS: Finance and Insurance › Agencies, Brokerages, and Other Insurance Related Activities › Pharmacy Benefit Management and Other Third Party Administration of Insurance and Pension Funds

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › PROFESSIONAL SERVICES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: O5I053998

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 300 E RANDOLPH STREET, CHICAGO, IL, 60601

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

Financial Breakdown

Contract Ceiling: $43,903,142

Exercised Options: $43,903,142

Current Obligation: $43,903,142

Timeline