VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for over $38.9 million

Contract Overview

Contract Amount: $38,936,540 ($38.9M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2009-12-01

End Date: 2009-12-31

Contract Duration: 30 days

Daily Burn Rate: $1.3M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 8

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 $38.9 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT PHARMACY PRIME VENDOR Key points: 1. The contract value represents a significant investment in pharmaceutical supply chain management for the VA. 2. McKesson Corporation, a major player in the pharmaceutical distribution market, holds this contract. 3. The contract duration is 30 months, indicating a medium-term commitment for essential drug supply. 4. The award was made under full and open competition, suggesting a robust bidding process. 5. The fixed-price contract type aims to provide cost certainty for the VA. 6. The contract is managed by the Department of Veterans Affairs itself. 7. The North American Industry Classification System (NAICS) code 424210 points to wholesale trade of drugs and druggists' sundries.

Value Assessment

Rating: good

Benchmarking the value of this contract requires detailed analysis of pharmaceutical wholesale pricing trends and VA's specific drug formulary. However, the contract's fixed-price nature suggests an attempt to control costs. Comparing the per-unit cost of drugs procured through this vendor against other federal agencies or large healthcare systems would provide a clearer picture of value for money. The total award amount of over $38.9 million over 30 months indicates substantial volume, which can often lead to better pricing.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded through full and open competition, indicating that multiple qualified vendors had the opportunity to bid. The presence of 8 bidders suggests a competitive marketplace for pharmaceutical prime vendor services. A competitive process generally leads to better price discovery and potentially lower costs for the government compared to sole-source or limited competition awards.

Taxpayer Impact: Taxpayers benefit from the competitive bidding process, which is designed to ensure the government receives the best possible pricing and terms for essential pharmaceutical supplies.

Public Impact

Veterans will benefit from a consistent and reliable supply of necessary medications. The contract ensures the availability of a wide range of pharmaceuticals through wholesale distribution. The geographic impact is nationwide, covering VA facilities across the United States. This contract supports jobs within the pharmaceutical distribution and logistics sectors, including those employed by McKesson Corporation and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price fluctuations if market conditions change significantly, despite fixed-price contract.
Dependence on a single prime vendor could create supply chain vulnerabilities if McKesson faces disruptions.
Ensuring consistent quality and efficacy of pharmaceuticals sourced through the vendor requires ongoing oversight.

Positive Signals

Awarded through full and open competition, indicating a competitive market.
Fixed-price contract type provides cost predictability for the VA.
McKesson Corporation is a large, established entity with significant experience in pharmaceutical distribution.
The contract duration of 30 months allows for stable planning and operations.

Sector Analysis

The pharmaceutical wholesale and distribution sector is a critical component of the healthcare industry, ensuring that medications reach healthcare providers and patients. This contract falls within the 'Drugs and Druggists' Sundries Merchant Wholesalers' category. The market is characterized by large, established players like McKesson, Cardinal Health, and AmerisourceBergen, who manage complex supply chains. Federal spending in this area is substantial, driven by agencies like the VA and DoD, which require reliable access to a vast array of pharmaceuticals.

Small Business Impact

This contract does not appear to have specific small business set-aside provisions. As a large prime vendor contract, the primary focus is on the prime contractor's ability to manage the overall supply chain. However, McKesson Corporation, like other large distributors, likely engages small businesses for various support services, such as logistics, transportation, and potentially specialized pharmaceutical services, as subcontractors. The extent of small business subcontracting would need further investigation.

Oversight & Accountability

Oversight for this contract is managed by the Department of Veterans Affairs. Accountability measures would include performance metrics related to delivery timeliness, drug availability, and adherence to contract terms. 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 Pharmacy Prime Vendor Program
Federal Supply Schedule (FSS) for Pharmaceuticals
National Acquisition Center (NAC) Contracts
VA Medical-Surgical Prime Vendor Program

Risk Flags

Supply Chain Risk
Price Volatility
Contractor Performance Monitoring
Drug Shortage Preparedness

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $38.9 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 $38.9 million.

What is the period of performance?

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

What is McKesson Corporation's track record with federal contracts, particularly with the VA?

McKesson Corporation has a long and extensive history of contracting with the U.S. federal government, including numerous awards from the Department of Veterans Affairs (VA) and the Department of Defense (DoD). Their experience spans various aspects of pharmaceutical distribution, medical supplies, and related services. For the VA, McKesson has frequently served as a Pharmacy Prime Vendor, responsible for supplying a wide range of medications to VA medical centers and clinics nationwide. Their track record generally indicates a capacity to manage large-scale distribution networks and meet demanding delivery schedules. However, like any large government contractor, they have faced scrutiny and occasional disputes related to pricing, product sourcing, and compliance over the years. A thorough review would involve examining specific past performance evaluations and any significant contractual issues or audits.

How does the pricing under this contract compare to similar contracts or market rates for pharmaceutical wholesale?

Direct comparison of pricing under this specific contract to 'market rates' or 'similar contracts' is complex without access to the detailed pricing schedules and the specific drugs procured. However, the fact that this contract was awarded under full and open competition with 8 bidders suggests that the pricing achieved is likely competitive within the federal procurement landscape. Federal agencies often leverage their purchasing power to negotiate favorable terms. To benchmark effectively, one would need to compare the average unit prices for key therapeutic classes of drugs against prices paid by other large federal healthcare providers (like DoD) or even large private healthcare systems, adjusting for volume and contract terms. The fixed-price nature aims to stabilize costs, but the underlying wholesale acquisition costs can fluctuate.

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

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 weakens in the future, and reduced flexibility in sourcing. A disruption at McKesson's facilities, a major transportation issue, or a labor strike could significantly impact the VA's ability to procure necessary medications, potentially affecting patient care. While this contract is fixed-price, future renewals could see price escalations if market conditions change or competition diminishes. Furthermore, a sole reliance might limit the VA's ability to quickly adopt new products or alternative sourcing strategies if they become available and more cost-effective.

How effective is the VA's Pharmacy Prime Vendor program in ensuring medication availability for veterans?

The VA's Pharmacy Prime Vendor (PPV) program, including contracts like this one with McKesson, is generally considered effective in ensuring medication availability for veterans. The program consolidates pharmaceutical procurement, leveraging the expertise and infrastructure of large distributors to manage a vast formulary. By establishing contracts with major vendors, the VA aims to ensure timely delivery of a wide range of drugs to its facilities nationwide. The program's success is measured by metrics such as fill rates, delivery timeliness, and overall cost-effectiveness. While challenges can arise, the PPV model is designed to provide a robust and reliable supply chain, which is crucial for meeting the healthcare needs of the veteran population.

What are the historical spending patterns for the VA's Pharmacy Prime Vendor contracts?

Historical spending patterns for the VA's Pharmacy Prime Vendor contracts show a consistent and substantial investment in pharmaceutical procurement. Over the years, the VA has awarded multi-year contracts, often in the tens to hundreds of millions of dollars annually, to major pharmaceutical distributors. McKesson Corporation, along with other large distributors, has been a frequent awardee. Spending has generally trended upwards, reflecting factors such as an increasing veteran population, expansion of healthcare services, rising drug costs, and the introduction of new, often more expensive, therapies. The VA's total pharmaceutical spending is a significant portion of its overall budget, underscoring the critical nature of these prime vendor contracts.

What is the significance of the NAICS code 424210 in understanding this contract?

The North American Industry Classification System (NAICS) code 424210, 'Drugs and Druggists' Sundries Merchant Wholesalers,' is significant because it precisely categorizes the primary business activity of the contractor under this award. It indicates that McKesson Corporation is acting as a wholesale merchant, purchasing drugs and related sundries from manufacturers or other distributors and selling them to other businesses, in this case, the Department of Veterans Affairs. This classification helps in understanding the nature of the services provided – distribution and wholesale trade – rather than direct manufacturing or retail pharmacy operations. It also allows for comparisons with other federal contracts or industry data within the same sector.

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: 8

Pricing Type: FIRM FIXED PRICE (J)

Contractor Details

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

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $38,936,540

Exercised Options: $38,936,540

Current Obligation: $38,936,540

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline