VA's Pharmacy Prime Vendor contract for Jun-Aug 2017 awarded to McKesson Corporation for $33.3M

Contract Overview

Contract Amount: $33,270,542 ($33.3M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2017-06-01

End Date: 2017-08-31

Contract Duration: 91 days

Daily Burn Rate: $365.6K/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) FY2017 JUN-AUG

Place of Performance

Location: PITTSBURGH, ALLEGHENY County, PENNSYLVANIA, 15212

State: Pennsylvania Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $33.3 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2017 JUN-AUG Key points: 1. This contract represents a significant portion of the VA's pharmaceutical spending, highlighting the importance of the Pharmacy Prime Vendor program. 2. The fixed-price nature of the contract provides cost certainty for the government, though it may limit flexibility. 3. The short duration of the delivery order (91 days) suggests it may be part of a larger, ongoing program or a bridge contract. 4. The award was made under full and open competition, indicating a robust bidding process. 5. McKesson Corporation, a major player in pharmaceutical distribution, is the incumbent contractor, suggesting a stable supply chain. 6. The contract's value, while substantial, needs to be benchmarked against similar prime vendor contracts to assess value for money.

Value Assessment

Rating: good

The contract value of $33.3 million for a 91-day period averages approximately $11.1 million per month. Benchmarking this against other large-scale pharmaceutical distribution contracts for federal agencies is crucial. Given McKesson's established role as a prime vendor, the pricing is likely competitive, but a detailed cost analysis would be needed to confirm optimal value. The firm fixed-price structure aims to control costs, but the specific profit margins are not publicly detailed.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, suggesting that multiple qualified vendors were invited to bid. The presence of 5 bidders (no) indicates a healthy level of competition for this significant contract. This competitive environment is expected to drive down prices and ensure the government receives favorable terms.

Taxpayer Impact: The full and open competition process ensures that taxpayer dollars are used efficiently by fostering a market where vendors must offer competitive pricing to secure the contract.

Public Impact

Veterans across the nation benefit from timely access to pharmaceuticals through the VA's healthcare system. This contract ensures the reliable supply of a wide range of pharmaceutical preparations to VA medical facilities. The contract supports the operational readiness of the VA's pharmacy services, a critical component of veteran healthcare. Geographic impact is nationwide, as the VA serves veterans across all states and territories. While not directly creating new jobs, the contract sustains employment within McKesson Corporation's pharmaceutical distribution network.

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 large distributor could pose supply chain risks if disruptions occur.
The firm fixed-price contract might limit the VA's ability to benefit from significant market price drops during the contract period.

Positive Signals

Awarded through full and open competition, indicating a competitive market.
Incumbent contractor (McKesson) has established infrastructure and experience, suggesting reliable delivery.
Firm fixed-price contract provides budget certainty for the VA.
The contract ensures a consistent supply of essential medications for veterans.

Sector Analysis

The pharmaceutical distribution sector is characterized by large, established players like McKesson, Cardinal Health, and AmerisourceBergen. These companies manage complex supply chains to deliver medications to healthcare providers. Federal contracts, particularly for agencies like the VA, represent a significant portion of the market due to the large patient populations served. Benchmarking this contract's value against the overall federal pharmaceutical spending and the market share of prime vendors would provide further context.

Small Business Impact

This contract does not appear to have specific small business set-aside provisions. As a prime vendor contract for pharmaceuticals, it likely involves large-scale distribution managed by major corporations. Subcontracting opportunities for small businesses might exist within the broader pharmaceutical supply chain, but are not directly evident from this award notice.

Oversight & Accountability

The Department of Veterans Affairs has established oversight mechanisms for its contracts, including performance monitoring and financial audits. Inspector General reports may cover areas of concern related to pharmaceutical procurement and distribution. Transparency is generally maintained through contract award databases, though specific performance metrics and detailed pricing structures are often proprietary.

Related Government Programs

VA Pharmacy Benefits Management (PBM)
Federal Supply Schedule (FSS) Pharmaceutical Contracts
Department of Defense TRICARE Pharmacy Contracts

Risk Flags

Potential for supply chain disruption
Price volatility in future contract periods
Over-reliance on a single large distributor

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $33.3 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR (PPV) FY2017 JUN-AUG

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 $33.3 million.

What is the period of performance?

Start: 2017-06-01. End: 2017-08-31.

What is McKesson Corporation's track record with the VA for similar Pharmacy Prime Vendor contracts?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs as a Pharmacy Prime Vendor. They have consistently been awarded significant contracts to supply pharmaceuticals to VA medical facilities nationwide. Their track record generally indicates reliability in distribution and fulfillment, which is critical for maintaining patient care. However, like any large contractor, there may have been instances of performance issues or contract disputes over the years, which would typically be documented in VA performance evaluations or IG reports. The consistent awarding of these large contracts suggests a generally positive performance history, but a deeper dive into specific performance metrics and any past corrective actions would be necessary for a comprehensive assessment.

How does the $33.3 million value for this 91-day contract compare to other VA pharmaceutical contracts or similar federal contracts?

The contract value of $33.3 million for a 91-day period translates to an approximate monthly expenditure of $11.1 million. This figure needs to be contextualized. The VA's total pharmaceutical spending can be in the billions annually. This specific delivery order represents a segment of that larger spending. To assess value, it should be compared to: 1) Previous Pharmacy Prime Vendor contracts awarded to McKesson or other vendors by the VA, looking at per-diem or per-month costs. 2) Similar prime vendor contracts awarded by other federal agencies, such as the Department of Defense, which also manages large pharmaceutical supply chains. Without these comparative benchmarks, it's difficult to definitively state if $33.3 million for three months represents optimal value for money, though it signifies a substantial procurement.

What are the primary risks associated with this Pharmacy Prime Vendor contract for the VA?

The primary risks associated with this Pharmacy Prime Vendor contract include supply chain disruptions, potential for price volatility (despite the fixed-price nature, future contracts could see increases), and over-reliance on a single large distributor. A disruption in McKesson's operations, whether due to natural disasters, labor issues, or internal problems, could significantly impact the VA's ability to dispense medications to veterans. Furthermore, if competition in the prime vendor market were to decrease in the future, the VA could face higher prices in subsequent contract awards. Ensuring robust inventory management and contingency planning by the contractor, along with continuous market analysis by the VA, are key mitigation strategies.

How effective is the Pharmacy Prime Vendor program in ensuring pharmaceutical availability for veterans?

The Pharmacy Prime Vendor (PPV) program is generally considered highly effective in ensuring the widespread availability of pharmaceuticals for veterans. By consolidating purchasing through a few large prime vendors, the VA achieves economies of scale, streamlines logistics, and ensures access to a broad formulary of drugs. The program's success is evidenced by the VA's ability to serve millions of veterans annually with their medication needs. While individual delivery orders like this one are snapshots, the overall PPV framework is designed for consistent and reliable supply, forming the backbone of the VA's pharmaceutical distribution network. Effectiveness is measured by fill rates, delivery timeliness, and formulary compliance.

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 significant investment in pharmaceutical procurement. The VA typically awards multi-year contracts to a small number of large distributors, with McKesson Corporation being a frequent awardee. Annual spending through the PPV program has historically been in the billions of dollars, reflecting the scale of veteran healthcare needs. While specific dollar amounts fluctuate year-to-year based on contract vehicles, drug costs, and utilization, the overall trend indicates a sustained and substantial commitment to this procurement strategy. Analyzing year-over-year spending can reveal trends in drug price inflation and shifts in market share among vendors.

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: $33,270,542

Exercised Options: $33,270,542

Current Obligation: $33,270,542

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline