VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for $25.7M in FY2016

Contract Overview

Contract Amount: $25,714,009 ($25.7M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2016-09-01

End Date: 2016-09-30

Contract Duration: 29 days

Daily Burn Rate: $886.7K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 5

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2016 SEP

Place of Performance

Location: PITTSBURGH, ALLEGHENY County, PENNSYLVANIA, 15212

State: Pennsylvania Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $25.7 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2016 SEP Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending. 2. McKesson Corporation is a major player in the pharmaceutical distribution market. 3. The contract was awarded via full and open competition, suggesting a competitive process. 4. The short duration of the award (29 days) indicates it may be a bridge or task order. 5. Fixed-price contract type helps manage cost certainty for the government. 6. The contract's performance period falls within FY2016, providing a snapshot of spending.

Value Assessment

Rating: good

The contract value of $25.7 million for a single month of pharmaceutical supply is substantial. Benchmarking this against other large-scale pharmaceutical distribution contracts for federal agencies would be necessary for a precise value-for-money assessment. However, given the scale and the nature of pharmaceutical procurement, this figure appears within a reasonable range for a prime vendor supporting a large healthcare system like the VA. The firm fixed-price structure provides cost predictability.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple vendors were likely solicited and allowed to bid. The presence of 5 offers suggests a healthy level of competition for this significant contract. This competitive process is expected to drive favorable pricing and ensure the government receives competitive bids for its pharmaceutical needs.

Taxpayer Impact: Full and open competition generally benefits taxpayers by fostering a marketplace where providers vie for government business, leading to potentially lower prices and better service terms.

Public Impact

Veterans will benefit from the continued availability of necessary pharmaceuticals. The contract ensures the supply chain for a wide range of prescription drugs for VA facilities. The geographic impact is nationwide, supporting VA medical centers and clinics across the country. This contract supports jobs within the pharmaceutical distribution and logistics sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in future contract periods if competition diminishes.
Reliance on a single prime vendor could create supply chain vulnerabilities if not managed proactively.
Ensuring consistent quality and timely delivery across all VA facilities is critical.

Positive Signals

Awarded through full and open competition, indicating a robust bidding process.
Firm fixed-price contract type provides cost certainty.
The scale of the contract suggests the contractor has the capacity to meet VA's needs.

Sector Analysis

The pharmaceutical distribution sector is a critical component of the healthcare industry, involving the warehousing and delivery of medications. Federal agencies, particularly the Department of Veterans Affairs, are significant purchasers of pharmaceuticals. Prime vendor contracts like this one are essential for managing the complex logistics of supplying medications to a large, geographically dispersed patient population. The market is dominated by a few large distributors, making competition dynamics crucial.

Small Business Impact

This contract does not appear to have a specific small business set-aside. However, large prime vendors like McKesson are often required to meet subcontracting goals with small businesses as part of their overall contract performance. The impact on the small business ecosystem would depend on the specific subcontracting plans and opportunities generated by this award.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' contracting officers and program managers. Accountability measures are embedded in the contract terms, including delivery schedules and product specifications. Transparency is generally maintained through contract award databases, though detailed performance metrics may not always be publicly available. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

VA Pharmaceutical Prime Vendor Program
Federal Supply Schedule (FSS) for Pharmaceuticals
Department of Defense TRICARE Pharmacy Program

Risk Flags

Potential for supply chain disruption
Risk of price increases in future procurements
Over-reliance on a single supplier

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $25.7 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2016 SEP

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 $25.7 million.

What is the period of performance?

Start: 2016-09-01. End: 2016-09-30.

What is McKesson Corporation's track record with the VA for pharmaceutical prime vendor contracts?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs as a prime vendor for pharmaceuticals. They have historically been awarded significant contracts to supply medications to VA medical centers and clinics nationwide. Their track record includes managing large-scale distribution networks and ensuring the availability of a broad formulary of drugs. While specific performance metrics for past contracts are not detailed here, their continued selection for these critical roles suggests a generally satisfactory performance history in terms of logistics, product availability, and compliance with VA requirements. However, like any large government contractor, they may have faced scrutiny or performance reviews on specific aspects of their service over time.

How does the $25.7 million value compare to previous or subsequent VA Pharmacy Prime Vendor contracts?

The $25.7 million value for this FY2016 contract represents a monthly expenditure. To accurately compare, one would need to annualize this figure or look at the total value of the contract if it extended beyond a single month. The VA Pharmacy Prime Vendor (PPV) program is a massive undertaking, and annual spending often runs into billions of dollars. For instance, subsequent annual PPV contracts have consistently exceeded $5 billion. Therefore, $25.7 million for a 29-day period is a substantial but likely proportional segment of the overall annual pharmaceutical procurement managed through the PPV system, reflecting the ongoing demand for medications within the VA system.

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

Relying on a single prime vendor like McKesson for pharmaceutical distribution presents several risks. Firstly, supply chain disruptions, whether due to natural disasters, geopolitical events, or the vendor's own operational issues, could severely impact the VA's ability to procure necessary medications. Secondly, a lack of robust competition in future contract cycles could lead to price escalations, reducing the value for money. Thirdly, over-reliance on one vendor might reduce the VA's leverage in negotiating terms and conditions. Finally, ensuring consistent quality control and adherence to stringent pharmaceutical handling regulations across the entire distribution network managed by a single entity requires continuous and rigorous oversight.

How effective is the firm fixed-price contract type in managing pharmaceutical costs for the VA?

The firm fixed-price (FFP) contract type is generally considered effective for managing costs in stable markets where prices are predictable, such as the pharmaceutical distribution services. For the VA, an FFP contract provides cost certainty, meaning the price is set and does not change regardless of the contractor's actual costs. This shifts the risk of cost overruns to the contractor. In the context of pharmaceutical distribution, where the cost of the drugs themselves might fluctuate but the distribution service fee can be fixed, FFP helps the VA budget more accurately and avoid unexpected increases in service costs. However, it's crucial that the initial fixed price is set competitively and reflects fair market value.

What is the typical duration and scope of Pharmacy Prime Vendor contracts?

Pharmacy Prime Vendor (PPV) contracts, like the one awarded to McKesson in FY2016, are typically long-term agreements designed to ensure a continuous and reliable supply of pharmaceuticals to the Department of Veterans Affairs. These contracts often have a base period and multiple option periods, potentially extending over several years (e.g., 5-10 years). The scope is comprehensive, encompassing the procurement, warehousing, and distribution of a vast array of prescription drugs and related medical supplies to VA medical centers and outpatient clinics across the nation. The specific award noted here, with a duration of 29 days, suggests it might be a bridge contract, a task order under a larger indefinite-delivery/indefinite-quantity (IDIQ) contract, or a short-term renewal while a larger competition is finalized.

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: $25,714,009

Exercised Options: $25,714,009

Current Obligation: $25,714,009

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline