VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for $45M over 3 months

Contract Overview

Contract Amount: $45,003,477 ($45.0M)

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: $494.5K/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: DURHAM, DURHAM County, NORTH CAROLINA, 27701

State: North Carolina Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $45.0 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 efficient drug procurement. 2. The short duration of this delivery order suggests it may be part of a larger, ongoing program or a bridge contract. 3. Analysis of the per-unit cost against market benchmarks is crucial for assessing value for money. 4. The fixed-price contract type aims to provide cost certainty for the government. 5. Competition dynamics for this contract are key to understanding pricing pressures and potential savings. 6. The contract's performance context is vital, especially given the critical nature of pharmaceutical supply to veterans' health.

Value Assessment

Rating: good

The award of $45 million for a 3-month period indicates a substantial volume of pharmaceutical purchases. Benchmarking this against similar contracts for the Department of Veterans Affairs (VA) or other federal agencies would reveal if the pricing is competitive. Given the scale, a firm fixed-price contract suggests an expectation of predictable costs. However, without detailed per-unit data or comparison to market rates for specific pharmaceuticals, a definitive value-for-money assessment is challenging. The relatively short duration might also imply a need for ongoing monitoring of pricing trends.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders had the opportunity to submit proposals. The presence of 5 bidders suggests a reasonably competitive environment for this pharmaceutical prime vendor service. This level of competition is generally favorable for price discovery and can lead to better pricing for the government. The specific details of the bidding process and the evaluation criteria would further illuminate the effectiveness of the competition.

Taxpayer Impact: Full and open competition typically benefits taxpayers by driving down prices through market forces. A competitive process for essential services like pharmaceutical procurement helps ensure that the VA is obtaining necessary medications at the most cost-effective rates possible.

Public Impact

Veterans across the nation benefit from timely access to a wide range of pharmaceuticals through the VA's healthcare system. This contract ensures the supply chain for essential medications used in VA hospitals, clinics, and other healthcare facilities. The contract supports the operational readiness of the VA's pharmacy services, directly impacting patient care. Geographic impact is nationwide, as the VA serves veterans in all states and territories.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in subsequent contract periods if competition wanes.
Reliance on a single vendor for a large volume of pharmaceuticals could pose supply chain risks.
Ensuring consistent quality and availability of a broad formulary of drugs is a continuous challenge.

Positive Signals

Awarded under full and open competition, suggesting a competitive market.
Firm fixed-price contract provides cost certainty for the government.
The VA's established processes for pharmaceutical procurement likely ensure robust oversight.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry. Federal agencies, particularly the Department of Defense and the Department of Veterans Affairs, are significant purchasers of pharmaceuticals. Contracts like the Pharmacy Prime Vendor (PPV) are essential for managing the complex logistics of drug supply. The market is characterized by large, established players and stringent regulatory requirements. Benchmarking against other large federal pharmaceutical contracts would provide context for the scale of this award.

Small Business Impact

There is no explicit indication of small business set-asides for this particular delivery order. However, large prime vendor contracts often have subcontracting requirements that can benefit small businesses in areas such as logistics, distribution, or specialized pharmaceutical services. The analysis would need to examine the prime contractor's subcontracting plan to determine the extent of small business participation.

Oversight & Accountability

The Department of Veterans Affairs has established oversight mechanisms for its pharmaceutical contracts, including regular performance reviews and audits. The firm fixed-price nature of the contract provides a degree of financial oversight. Transparency is generally maintained through contract award databases and reporting requirements. The VA Office of Inspector General may also conduct audits or investigations related to pharmaceutical spending and supply chain management.

Related Government Programs

Department of Defense Pharmacy Contracts
Federal Supply Schedule (FSS) Pharmaceutical Contracts
VA Medical Care Programs
National Acquisition Center (NAC) Contracts

Risk Flags

Short contract duration may indicate interim or bridge funding.
Potential for supply chain disruption impacting veteran care.
Need for ongoing price benchmarking against market rates.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $45.0 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 $45.0 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 pharmaceutical prime vendor services?

McKesson Corporation is a major pharmaceutical distributor and has a long-standing relationship with the Department of Veterans Affairs (VA) as a prime vendor. They have historically been awarded significant contracts to supply pharmaceuticals to VA medical centers and facilities nationwide. Their track record typically involves managing a vast formulary, ensuring timely delivery, and adhering to strict regulatory compliance. While generally considered a reliable partner, like any large contractor, there can be instances of performance issues or contract disputes that are publicly documented. Analyzing past performance metrics, any penalties incurred, or commendations received would provide a more detailed picture of their specific history with the VA's PPV program.

How does the $45 million award for 3 months compare to historical VA pharmaceutical spending?

The $45 million award for a 3-month period (June-August 2017) translates to an annualized rate of approximately $180 million. This figure needs to be contextualized within the VA's overall pharmaceutical budget, which typically runs into billions of dollars annually. The Pharmacy Prime Vendor (PPV) program is a cornerstone of the VA's drug procurement strategy, and McKesson, along with other major distributors, has historically secured substantial portions of this business. Comparing this specific award's annualized value to previous years' PPV contracts, whether awarded to McKesson or other vendors, would indicate whether spending in this category is increasing, decreasing, or remaining stable. It also helps assess if this particular delivery order represents a typical or exceptional level of expenditure for the period.

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

The primary risks associated with this Pharmacy Prime Vendor (PPV) contract include supply chain disruptions, potential price volatility, and ensuring the availability of a comprehensive formulary. A disruption in McKesson's distribution network, whether due to natural disasters, labor issues, or logistical failures, could directly impact the VA's ability to provide medications to veterans. While the contract is firm fixed-price, market fluctuations in drug prices could still pose a risk if not adequately managed through contract clauses or future renegotiations. Furthermore, ensuring that the contracted vendor consistently stocks and delivers the full range of necessary pharmaceuticals, including specialized or high-cost drugs, is a continuous challenge that requires robust oversight and performance monitoring by the VA.

How effective is the full and open competition in ensuring value for the VA?

Full and open competition is generally considered the most effective method for the VA to ensure value for its pharmaceutical prime vendor contracts. By allowing all responsible sources to submit bids, the VA can leverage market competition to drive down prices and encourage innovation. The fact that five bidders participated in this specific award suggests a healthy level of competition, which typically leads to more favorable pricing and service terms for the government. The effectiveness is further amplified when the VA has a clear and well-defined statement of work and robust evaluation criteria that prioritize not just price but also factors like delivery reliability, formulary breadth, and customer service. Regular re-competition of these large contracts is crucial to prevent vendor lock-in and maintain competitive pressure.

What are the implications of the short contract duration (91 days) for the VA and taxpayers?

The short duration of this delivery order (91 days) could have several implications. It might indicate that this is a bridge contract to cover a gap while a longer-term contract is being finalized, or it could be a specific task order within a larger indefinite-delivery/indefinite-quantity (IDIQ) contract. For the VA, a short duration might necessitate more frequent contract administration efforts and potentially less opportunity to realize long-term efficiencies or price reductions that come with longer commitments. For taxpayers, short-term contracts can sometimes lead to higher per-unit costs if vendors factor in the uncertainty or administrative overhead of frequent re-bidding. However, if it's part of a competitive IDIQ, it could still yield good value. The key is understanding why the duration is so short and how it fits into the VA's overall procurement strategy.

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: $45,003,477

Exercised Options: $45,003,477

Current Obligation: $45,003,477

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline