McKesson Wins $31.6 Billion Veterans Agency Drug Contract

McKesson Corp. (MCK) won a Department of Veterans Affairs drug contract valued at as much as $31.6 billion over as many as eight years, the agency said in a statement today.

The San Francisco-based company has been the VA’s primary medicine supplier for veterans hospitals and the department’s mail-order pharmacies since 2004. McKesson, the largest U.S. drug distributor based on revenue, has received as much as $27 billion in orders under the current contract.

It beat Cardinal Health Inc. (CAH), based in Dublin, Ohio, and the Valley Forge, Pennsylvania-based AmerisourceBergen Corp. (ABC) for the new contract.

The agreement “will provide an overall savings to the government of approximately $3.26 billion,” according to the VA statement posted on the Federal Business Opportunities website.

McKesson shares rose as much as 4.7 percent to $91.99 in late trading. The shares had risen 13 percent this year before today’s announcement.

VA officials had hoped to award the new contract by the end of March, according to a December letter from Eric Shinseki, the VA secretary, to a U.S. lawmaker. The award was delayed after two small businesses challenged the VA’s decision to exclude small businesses from the new drug contract.

GAO Protests

The Government Accountability Office, which arbitrates contract disputes, denied one protest on April 6. The second company withdrew its GAO protest on April 9, though it also filed a separate challenge with the department.

McKesson is “extremely pleased” to continue its work as the VA’s primary drug supplier, John Hammergren, the company’s chairman and chief executive officer, said in a statement.

“We are confident in our ability to meet the VA’s growing needs over the term of our relationship, and in the process create significant value for the VA and for McKesson’s shareholders,” he said.

Josh Taylor, a VA spokesman, didn’t immediately respond to an e-mail seeking comment.

Congress and the VA’s inspector general are investigating illegal spending through the current contract with McKesson, which is also used by other agencies, including the U.S. Bureau of Prisons and the Indian Health Service.

VA officials have said the McKesson contract was used to make as much as $1.2 billion in unauthorized and potentially illegal purchases that weren’t explicitly covered by the agreement. The items bought included generic drugs, condoms and sunscreen.

W. Scott Gould, a deputy VA secretary, told lawmakers at a February hearing that some of the spending was illegal. Agency staff didn’t always seek competitive bids for some items bought from McKesson, as required by federal acquisition regulations, he said.

McKesson abided by the terms of the contract, Gould said.

Cardinal Health and AmerisourceBergen spokesmen didn’t immediately respond to e-mails and phone calls seeking comment.

To contact the reporter on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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