VA's Pharmacy Prime Vendor contract saw nearly $50M in FY2015 spending, awarded to McKesson Corporation

Contract Overview

Contract Amount: $49,934,780 ($49.9M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2015-09-01

End Date: 2015-09-30

Contract Duration: 29 days

Daily Burn Rate: $1.7M/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) FY2015 SEP

Place of Performance

Location: BAY PINES, PINELLAS County, FLORIDA, 33744

State: Florida Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $49.9 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT PHARMACY PRIME VENDOR (PPV) FY2015 SEP Key points: 1. The contract's value suggests a significant volume of pharmaceutical services delivered to the VA. 2. Competition dynamics for this contract are crucial for ensuring cost-effectiveness in pharmaceutical procurement. 3. Performance context is vital to understand if the delivered pharmaceuticals met clinical and logistical needs. 4. The sector positioning indicates a critical role in the broader healthcare supply chain for the VA. 5. Risk indicators may include supply chain disruptions, drug shortages, or price volatility.

Value Assessment

Rating: good

The reported spending of approximately $50 million for a single month (September 2015) indicates a substantial contract. Benchmarking this against similar large-scale pharmaceutical prime vendor contracts would be necessary for a precise value-for-money assessment. However, the scale suggests significant operational capacity and reach within the VA system. The firm fixed-price contract type provides cost certainty, which is a positive indicator for budget management.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, suggesting that multiple vendors had the opportunity to bid. The presence of 5 bidders indicates a reasonably competitive environment. This level of competition is generally favorable for price discovery and can lead to more favorable pricing for the government compared to sole-source or limited competition scenarios.

Taxpayer Impact: A competitive bidding process for such a large contract helps ensure that taxpayer dollars are used efficiently, driving down costs through market forces.

Public Impact

Veterans across the nation benefit from timely access to necessary pharmaceuticals. The contract supports the delivery of a wide range of prescription medications and related pharmaceutical services. Geographic impact is nationwide, covering all VA facilities requiring pharmaceutical supplies. Workforce implications include roles in pharmaceutical distribution, logistics, and administration within the VA and its contractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in subsequent contract periods if competition wanes.
Dependence on a single vendor for a critical supply chain component carries inherent risks.
Ensuring consistent quality and availability of pharmaceuticals across all VA facilities.

Positive Signals

Awarded through full and open competition, indicating a robust bidding process.
Firm fixed-price contract provides budget predictability.
Significant spending suggests a well-established and functional procurement process for essential medicines.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry. Contracts like this represent significant spending within the pharmaceutical supply chain. The market is characterized by large, established players and stringent regulatory requirements. Benchmarking this contract's value against other large federal pharmaceutical procurements, such as those for the Department of Defense or other health agencies, would provide further context on its scale and efficiency.

Small Business Impact

While this contract is a large prime vendor agreement, it's important to assess subcontracting opportunities for small businesses. Large prime contractors are often required to meet small business subcontracting goals. The success of these goals can significantly impact the small business ecosystem within the pharmaceutical supply chain, providing them with opportunities to supply specialized services or products.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' procurement and program management offices. Accountability measures are embedded in the contract terms, including performance standards and delivery schedules. Transparency is generally maintained through federal procurement databases, though specific operational details may be proprietary. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Federal Supply Schedule (FSS) contracts for pharmaceuticals
Department of Defense pharmaceutical procurement
TRICARE pharmacy program
Medicaid drug rebate program

Risk Flags

Potential for price escalation in future periods
Supply chain disruption risk
Dependence on a single large vendor

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $49.9 million to MCKESSON CORPORATION. EXPRESS REPORT PHARMACY PRIME VENDOR (PPV) FY2015 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 $49.9 million.

What is the period of performance?

Start: 2015-09-01. End: 2015-09-30.

What was McKesson Corporation's track record with the VA prior to this contract award?

McKesson Corporation has a long-standing history of contracting with the U.S. government, including the Department of Veterans Affairs, for pharmaceutical distribution and related services. Prior to this specific FY2015 contract, McKesson has been a major player in the Pharmacy Prime Vendor (PPV) program, often holding significant portions of the VA's pharmaceutical supply needs. Their track record generally involves large-scale distribution capabilities, extensive product portfolios, and established logistics networks. However, like any large contractor, they have faced scrutiny and reviews regarding pricing, service levels, and compliance over the years. A detailed review would involve examining past performance evaluations, any contract disputes, and their history of meeting delivery and quality standards for the VA.

How does the $50 million monthly spending compare to historical VA pharmaceutical expenditures?

The reported $49.9 million spending for September 2015 represents a substantial monthly expenditure, translating to an annualized run rate of nearly $600 million if consistent. Historically, the VA's Pharmacy Prime Vendor (PPV) program has been one of its largest single contract categories, often exceeding billions of dollars annually. This specific contract, as a 'delivery order' under a larger prime vendor agreement, reflects a significant portion of the VA's overall pharmaceutical procurement. Comparing this monthly figure to prior fiscal years would reveal trends in VA pharmaceutical demand and spending. For instance, if previous monthly averages were significantly lower or higher, it could indicate changes in veteran population, healthcare utilization, drug pricing, or contracting strategies. The PPV program aims to consolidate pharmaceutical purchasing to achieve economies of scale, and figures around this magnitude are typical for such a consolidated approach.

What are the primary risks associated with a single vendor holding such a large pharmaceutical contract?

A primary risk associated with a single vendor holding a large pharmaceutical contract like the VA's Pharmacy Prime Vendor (PPV) is supply chain vulnerability. Any disruption to the vendor's operations, whether due to natural disasters, labor disputes, cyberattacks, or financial instability, could severely impact the VA's ability to procure essential medications for veterans. Another significant risk is reduced price competition over time. While initially awarded through full and open competition, the long-term reliance on a single vendor can diminish the government's leverage in future negotiations, potentially leading to higher prices. Furthermore, there's a risk of vendor lock-in, where switching vendors becomes prohibitively expensive or complex, reducing flexibility. Ensuring robust contingency plans, performance monitoring, and potentially diversifying supply sources are critical mitigation strategies.

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 pharmaceutical costs when the scope of work and risks are well-defined, as is often the case with established drug distribution. Under an FFP agreement, the contractor assumes the risk of cost overruns, meaning the VA pays a set price regardless of the contractor's actual costs. This provides significant budget certainty for the VA, making financial planning more predictable. For pharmaceuticals, where pricing can be influenced by market fluctuations and volume discounts, an FFP contract incentivizes the contractor to manage their own costs efficiently to maximize profit. However, it's crucial that the initial price is set competitively and reflects market realities. If the FFP is set too high, the VA may overpay. Conversely, if the FFP is too low and the contractor faces unexpected cost increases, they might cut corners on service or quality, necessitating strong performance oversight.

What does the 'Pharmaceutical Preparation Manufacturing' NAICS code indicate about the contract's scope?

The North American Industry Classification System (NAICS) code '325412 - Pharmaceutical Preparation Manufacturing' indicates that the primary business activity associated with this contract falls under the manufacturing of pharmaceutical preparations. While this specific contract is for a 'Pharmacy Prime Vendor (PPV)', which primarily involves distribution and logistics of pharmaceuticals, the NAICS code suggests that the awarded contractor, McKesson Corporation, is involved in or has capabilities related to the manufacturing aspect of pharmaceuticals. This could mean they are involved in compounding, packaging, or potentially even the synthesis of certain drug preparations. For a PPV contract, the distribution and supply chain management are paramount, but the underlying manufacturing capability of the prime vendor can be relevant for ensuring supply chain integrity, quality control, and potentially offering customized pharmaceutical solutions.

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: $49,934,780

Exercised Options: $49,934,780

Current Obligation: $49,934,780

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline