VA's $41.6M Pharmacy Prime Vendor contract awarded to McKesson Corporation for drug wholesaling

Contract Overview

Contract Amount: $41,605,479 ($41.6M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2009-09-01

End Date: 2009-09-30

Contract Duration: 29 days

Daily Burn Rate: $1.4M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT PHARMACY PRIME VENDOR

Place of Performance

Location: CHARLESTON, CHARLESTON County, SOUTH CAROLINA, 29407

State: South Carolina Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $41.6 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT PHARMACY PRIME VENDOR Key points: 1. Contract value represents significant investment in pharmaceutical supply chain. 2. Sole awardee suggests potential for concentrated market power. 3. Long contract duration may indicate stable but potentially less competitive market. 4. Fixed-price contract shifts some cost risk to the contractor. 5. Focus on drug wholesaling highlights critical infrastructure for healthcare delivery. 6. Geographic scope appears to be national, serving a broad veteran population.

Value Assessment

Rating: good

The contract value of $41.6 million over its period of performance is substantial, reflecting the scale of pharmaceutical distribution required by the VA. Benchmarking against similar large-scale drug wholesaling contracts is challenging without more specific service details. However, the fixed-price nature of the contract suggests an attempt to control costs. The award to a single, established entity like McKesson indicates a reliance on proven capabilities, but also warrants scrutiny for potential price efficiencies.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders were likely considered. The fact that it resulted in a single award to McKesson Corporation suggests they were the most advantageous offer, potentially due to price, technical capabilities, or past performance. The level of competition is a positive sign for price discovery, though the single award outcome warrants further analysis of the bidding landscape.

Taxpayer Impact: Full and open competition generally benefits taxpayers by encouraging lower prices and better terms through a competitive bidding process. A single award, even from open competition, means taxpayers are relying on the chosen contractor to provide the best value.

Public Impact

Veterans nationwide benefit from timely access to prescription medications. Ensures a consistent supply of pharmaceuticals for VA healthcare facilities. Supports the VA's mission to provide comprehensive healthcare services. Impacts the pharmaceutical distribution workforce through employment opportunities. Contributes to the overall efficiency and effectiveness of the VA's medical supply chain.

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 vendor could create supply chain vulnerabilities.
Limited transparency into the specific cost breakdown of drug distribution.

Positive Signals

Awarded through full and open competition, suggesting a competitive process.
McKesson Corporation is a large, established player with significant experience.
Fixed-price contract structure provides some cost predictability.

Sector Analysis

The pharmaceutical wholesaling sector is a critical component of the healthcare industry, responsible for the efficient distribution of medications from manufacturers to healthcare providers. This contract falls within the broader healthcare services and logistics market. The VA's spending in this area is substantial, reflecting the significant volume of pharmaceuticals required to serve its large veteran population. Comparable spending benchmarks would typically involve other large federal agencies or private healthcare systems procuring similar distribution services.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss': false and 'sb': false. The primary contractor, McKesson Corporation, is a large business. While there are no direct set-aside implications, large prime contracts often involve subcontracting opportunities. However, the nature of drug wholesaling may limit the scope for small business participation as subcontractors compared to other service contracts.

Oversight & Accountability

Oversight for this contract would primarily reside within the Department of Veterans Affairs, likely through contracting officers and program managers responsible for pharmaceutical procurement and supply chain management. Accountability measures are embedded in the contract terms, including performance standards and reporting requirements. Transparency is generally facilitated through contract awards databases, though detailed operational data may be proprietary. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Federal Supply Schedule (FSS) contracts for pharmaceuticals
Department of Defense (DoD) pharmaceutical procurement
National Institutes of Health (NIH) research grants
Centers for Medicare & Medicaid Services (CMS) drug spending

Risk Flags

Potential for price creep in long-term fixed-price contracts.
Supply chain vulnerability due to single-vendor reliance.
Limited transparency into specific cost components of distribution services.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $41.6 million to MCKESSON CORPORATION. EXPRESS REPORT PHARMACY PRIME VENDOR

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 $41.6 million.

What is the period of performance?

Start: 2009-09-01. End: 2009-09-30.

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

McKesson Corporation has a long and extensive history of contracting with the Department of Veterans Affairs (VA) and other federal agencies, including the Department of Defense (DoD), for pharmaceutical distribution and related services. They are a major player in the federal pharmaceutical supply chain. Their track record includes numerous Pharmacy Prime Vendor contracts, similar to this one, as well as supply agreements through Federal Supply Schedules. While specific performance metrics for past contracts are not detailed here, McKesson's continued success in winning large federal contracts suggests a generally positive performance history and strong capabilities in meeting the complex logistical and regulatory demands of government healthcare procurement. However, like any large contractor, they may have faced scrutiny or performance issues on specific contracts over time, which would typically be managed through contract administration and performance reviews.

How does the unit cost of drugs distributed under this contract compare to market rates or other federal contracts?

Determining the precise unit cost comparison for drugs distributed under this specific Pharmacy Prime Vendor contract is complex without access to the detailed pricing schedules and the specific formulary of drugs procured. This contract focuses on the wholesaling and distribution service, where McKesson acts as the prime vendor, managing inventory and delivery. The actual drug costs are typically based on negotiated prices, often tied to federal ceiling prices or other established benchmarks. While the contract is 'full and open competition,' the 'value for money' is assessed based on the overall service provided, including reliability, breadth of catalog, and delivery efficiency, in addition to the underlying drug costs. Benchmarking would require comparing the aggregate cost of the pharmaceutical supply chain services provided by McKesson to similar large-scale contracts or market analyses of pharmaceutical distribution fees, which are not publicly itemized in this report.

What are the primary risks associated with relying on a single vendor for such a critical service like pharmaceutical distribution?

Relying on a single vendor, even one as large and established as McKesson Corporation, for critical pharmaceutical distribution presents several risks. Supply chain disruption is a primary concern; any issue affecting McKesson's operations, such as natural disasters, labor disputes, cyberattacks, or internal logistical failures, could significantly impact the VA's ability to dispense medications to veterans. This concentration of risk can lead to stockouts or delays. Furthermore, a sole-source or single-award situation, even from open competition, can reduce pricing leverage over time. The lack of direct competition for ongoing service delivery might lessen the incentive for the contractor to offer continuous cost reductions or service enhancements, potentially leading to higher long-term costs for the government and taxpayers if not managed proactively through contract oversight and performance management.

How effective has the VA been in managing its pharmaceutical supply chain through prime vendor contracts historically?

The VA has historically relied heavily on prime vendor contracts, such as the Pharmacy Prime Vendor (PPV) program, to manage its vast pharmaceutical supply chain. This model has generally been considered effective in ensuring broad access to medications for veterans across the country, leveraging the logistical capabilities of large distributors. The PPV program allows the VA to consolidate purchasing and distribution, benefiting from economies of scale and established distribution networks. While specific effectiveness metrics for every contract are not publicly detailed, the continued use and renewal of these contracts suggest a level of satisfaction with the program's ability to meet the VA's needs. Challenges can arise, as with any large-scale procurement, including managing price fluctuations, ensuring supply chain resilience, and optimizing inventory levels, which require ongoing diligent contract management by the VA.

What is the typical duration and value range for similar large-scale federal pharmaceutical prime vendor contracts?

Large-scale federal pharmaceutical prime vendor contracts, particularly those managed by agencies like the Department of Veterans Affairs (VA) and the Department of Defense (DoD), typically have durations ranging from one to five years, often with options for renewal. The total value can vary significantly based on the scope of services, the number of facilities served, and the volume of pharmaceuticals procured. Contracts in the tens to hundreds of millions of dollars annually are common for major prime vendors serving large populations. For instance, contracts like the VA's Pharmacy Prime Vendor (PPV) program, which this Express Report details, often represent substantial investments, reflecting the critical nature of pharmaceutical supply. The $41.6 million total value for this specific contract over its 29-month period suggests it falls within the mid-to-high range for such agreements, depending on the specific services included and the number of end-users supported.

Industry Classification

NAICS: Wholesale Trade › Drugs and Druggists' Sundries Merchant Wholesalers › Drugs and Druggists' Sundries Merchant Wholesalers

Product/Service Code: MEDICAL/DENTAL/VETERINARY EQPT/SUPP

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 1 POST ST, SAN FRANCISCO, CA, 90

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $41,605,479

Exercised Options: $41,605,479

Current Obligation: $41,605,479

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline