VA awards $456.8M contract to McKesson Corporation for pharmaceutical preparations, highlighting a significant investment in healthcare supply chain

Contract Overview

Contract Amount: $456,812,865 ($456.8M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2012-09-01

End Date: 2012-09-30

Contract Duration: 29 days

Daily Burn Rate: $15.8M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 5

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: PHARMACEUTICALS

Place of Performance

Location: MURFREESBORO, RUTHERFORD County, TENNESSEE, 37130

State: Tennessee Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $456.8 million to MCKESSON CORPORATION for work described as: PHARMACEUTICALS Key points: 1. The contract represents a substantial portion of the VA's pharmaceutical spending, indicating a critical reliance on McKesson for essential medical supplies. 2. Analysis of pricing and value for money requires benchmarking against similar VA contracts and market rates for pharmaceutical preparations. 3. The 'FULL AND OPEN COMPETITION' suggests a robust bidding process, potentially leading to competitive pricing, but requires further examination of bidder numbers. 4. Performance context is crucial; the contract's duration and delivery order nature imply ongoing supply needs and potential for adjustments. 5. McKesson's position as a major pharmaceutical distributor places this contract within a key sector of the healthcare industry. 6. Risk indicators may include supply chain disruptions, price volatility of pharmaceuticals, and the contractor's past performance history.

Value Assessment

Rating: good

The award of $456.8 million to McKesson Corporation for pharmaceutical preparations by the Department of Veterans Affairs warrants a 'good' value assessment. While specific per-unit cost data is not provided, the scale of the contract suggests a significant volume purchase. Benchmarking against other large-scale pharmaceutical contracts awarded by the VA or other federal agencies would provide a clearer picture of whether the pricing reflects competitive market rates. The 'FULL AND OPEN COMPETITION' indicates that multiple vendors likely had the opportunity to bid, which typically drives better pricing. However, without knowing the number of bidders and the specific items procured, a definitive value-for-money assessment is challenging.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under 'FULL AND OPEN COMPETITION,' indicating that the solicitation was made available to all responsible prospective contractors. This approach is designed to maximize competition and leverage the market to obtain the best possible prices and terms. The fact that it was fully competed suggests that the VA sought a broad range of potential suppliers for pharmaceutical preparations. The number of bidders and the specific evaluation criteria would further illuminate the intensity of the competition and its impact on price discovery.

Taxpayer Impact: A full and open competition generally benefits taxpayers by fostering a competitive environment that can lead to lower prices and better quality goods and services. It ensures that the government is not limited to a single provider, thereby preventing potential price gouging and encouraging innovation among suppliers.

Public Impact

Veterans across the country will benefit from a consistent and reliable supply of necessary pharmaceuticals. The contract ensures the delivery of essential pharmaceutical preparations, supporting the VA's mission to provide comprehensive healthcare services. The geographic impact is nationwide, as the VA serves veterans in all states and territories. This contract supports jobs within the pharmaceutical manufacturing and distribution sectors, including those employed by McKesson Corporation and its supply chain partners.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases on pharmaceuticals over the contract duration.
Dependence on a single large contractor for a critical supply chain component.
Risk of supply chain disruptions impacting veteran healthcare delivery.
Ensuring compliance with all VA regulations and quality standards for pharmaceuticals.

Positive Signals

Awarded through full and open competition, suggesting competitive pricing.
McKesson Corporation is a well-established entity in pharmaceutical distribution.
The contract duration implies a stable supply chain for essential medications.
The scale of the award indicates significant volume, potentially leading to economies of scale.

Sector Analysis

The pharmaceutical industry is a critical component of the broader healthcare sector, characterized by high research and development costs, stringent regulatory oversight, and complex global supply chains. This contract falls within the Pharmaceutical Preparation Manufacturing sub-sector. The market for pharmaceuticals is substantial, with federal agencies like the VA being major purchasers. Benchmarking this contract's value would involve comparing its total value and unit costs against other large federal contracts for similar pharmaceutical preparations, as well as private sector purchasing agreements.

Small Business Impact

There is no explicit indication from the provided data that this contract includes a small business set-aside. As a large-scale award to a major corporation like McKesson, it is unlikely to be directly set aside for small businesses. However, McKesson may engage small businesses as subcontractors for various support services or specialized components within the pharmaceutical supply chain. The extent of subcontracting to small businesses would need further investigation to assess the impact on the small business ecosystem.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of Veterans Affairs' contracting officers and program managers. They are responsible for monitoring contractor performance, ensuring compliance with contract terms, and managing any modifications or disputes. Transparency is facilitated through contract databases like FPDS. While specific Inspector General (IG) jurisdiction is not detailed, the VA Office of Inspector General typically has oversight over VA programs and contracts to detect and prevent fraud, waste, and abuse.

Related Government Programs

Department of Defense Pharmaceutical Contracts
National Institutes of Health Research Grants
Centers for Medicare & Medicaid Services Drug Pricing

Risk Flags

Potential for price increases in pharmaceutical market.
Contractor performance and reliability.
Supply chain vulnerability.
Regulatory compliance in pharmaceutical manufacturing and distribution.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $456.8 million to MCKESSON CORPORATION. PHARMACEUTICALS

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 $456.8 million.

What is the period of performance?

Start: 2012-09-01. End: 2012-09-30.

What is McKesson Corporation's track record with the Department of Veterans Affairs for pharmaceutical supply contracts?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs, frequently securing contracts for the supply of pharmaceuticals and medical equipment. Historical data indicates multiple awards, ranging from individual delivery orders to larger, multi-year agreements. Analyzing past performance reviews, on-time delivery rates, and any documented disputes or contract terminations associated with McKesson's previous VA contracts would provide a comprehensive understanding of their reliability and adherence to contractual obligations. This specific contract, awarded in 2012 with a duration of 29 months, represents one of many engagements, suggesting a pattern of continued partnership based on perceived performance and competitive pricing.

How does the $456.8 million value of this contract compare to other large pharmaceutical procurements by the VA or other federal agencies?

The $456.8 million award to McKesson is a substantial figure, placing it among significant federal procurements for pharmaceuticals. To benchmark its value, it should be compared against similar contracts awarded by the VA and other agencies like the Department of Defense (DoD) or the General Services Administration (GSA) for comparable pharmaceutical preparations over similar timeframes. For instance, if the VA typically awards contracts in the range of $100-$300 million for similar volumes, this $456.8 million award might indicate a larger scope, higher unit prices, or a longer duration than average. Conversely, if other agencies regularly award contracts exceeding $500 million for comparable goods, this award might be considered within the typical range. Detailed analysis would require comparing specific drug categories, quantities, and contract terms.

What are the primary risk indicators associated with this specific pharmaceutical supply contract?

Key risk indicators for this contract include potential price volatility of pharmaceutical ingredients and finished products, which can be influenced by global supply, manufacturing issues, and regulatory changes. Dependence on a single large contractor like McKesson introduces supply chain risk; disruptions due to natural disasters, geopolitical events, or the contractor's internal issues could impact the availability of critical medications for veterans. Furthermore, the 'FIRM FIXED PRICE' contract type, while offering cost certainty to the government, shifts the risk of cost overruns to the contractor. However, if market prices rise significantly above the fixed price, the contractor might face financial strain, potentially impacting their ability or willingness to fulfill the contract, or leading to requests for price adjustments. Ensuring consistent quality and compliance with stringent pharmaceutical regulations also presents an ongoing risk.

How effective has the VA been in ensuring value for money through its pharmaceutical procurement strategies, particularly with large contracts like this one?

The VA's effectiveness in ensuring value for money on large pharmaceutical contracts is generally considered strong, largely due to its significant purchasing power and sophisticated procurement processes. The agency utilizes strategies such as negotiating volume discounts, leveraging competitive bidding through mechanisms like 'FULL AND OPEN COMPETITION,' and employing various contract types (e.g., Firm Fixed Price) to manage costs. For a contract of this magnitude ($456.8M), the VA likely engaged in extensive market research and price analysis to establish a fair and reasonable price. However, 'value for money' extends beyond just price to include reliability of supply, quality of products, and responsiveness to needs. Continuous monitoring of contractor performance and periodic re-competition are crucial for sustained value. While this specific contract's performance metrics aren't detailed, the VA's overall approach aims to balance cost-effectiveness with ensuring veterans receive necessary medications.

What are the historical spending patterns for pharmaceutical preparations by the Department of Veterans Affairs over the last decade?

Over the last decade, the Department of Veterans Affairs has consistently allocated substantial funds towards pharmaceutical preparations, reflecting the healthcare needs of the veteran population. Annual spending has generally trended upwards, driven by factors such as an expanding veteran population, advancements in medical treatments leading to new and more expensive drugs, and inflation. Contracts like the $456.8 million award to McKesson in 2012 represent significant single-award expenditures within this broader spending pattern. Analyzing aggregated data from sources like the Federal Procurement Data System (FPDS) would reveal year-over-year spending trends, identify major awardees, and highlight shifts in the types of pharmaceuticals being procured. This historical context is vital for understanding the scale and evolution of the VA's pharmaceutical budget and procurement strategies.

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: $456,812,865

Exercised Options: $456,812,865

Current Obligation: $456,812,865

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline