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Witness Testimony of Sharon Longwell, Vice President, Health Systems, National Accounts McKesson Corporation

Good morning,  Chairman Miller, Ranking Member Filner and members of the Committee. My name is Sharon Longwell and I am the Vice President of Health Systems, National Accounts, for McKesson Corporation.  I appreciate the opportunity to appear before you today to discuss the Department of Veterans Affairs’Pharmaceutical Prime Vendor (PPV) contract.

I would like to begin by emphasizing four points:

1)      McKesson has delivered excellent quality and service to the VA as the pharmaceutical prime vendor.  Through the deep negative distribution fee in our contract with the VA, we have provided the Department with $526 million in savings over the terms of the prior PPV contract.

2)      McKesson has consistently exceeded the requirements of the contract and is providing state of the art technology and unparalleled quality and value to the Department, including 99.9% accuracy in fulfilling orders.

3)      For 179 years, McKesson has had an unwavering commitment to the safe, rapid and cost effective delivery of FDA-approved pharmaceuticals to all of our customers, from the largest hospital system and chain drug store to the smallest neighborhood pharmacy and all government contracts.  All pharmaceutical products purchased from McKesson by the VA, whether under VA “contract” or an “open market” item, have the required FDA approvals.  McKesson complies with all federal and state laws and regulations governing sourcing, pedigree, chain of custody and drug integrity.

 

4)      We are a proud member of the Department’s mentor-protégé program as we offer partnership opportunities to veteran-owned and disabled veteran-owned small businesses, and we continue to actively recruit, hire and retain veterans as a vital part of our workforce.

For 179 years, McKesson has led the industry in the delivery of medicines and healthcare products to drug stores.  Today, a Fortune 15 corporation, we deliver vital medicines, medical supplies, care management services, automation, and health information technology solutions that touch the lives of over 100 million patients in healthcare settings that include more than 25,000 retail pharmacies, 5,000 hospitals, 200,000 physician practices, and over 10,000 extended care facilities and 700 home care agencies.  In addition to the Department of Veterans Affairs system, McKesson delivers medicines to a significant number of Department of Defense and other government facilities.  We are also one of the nation’s largest distributors of biotechnology and specialty pharmaceutical products and services for providers and patients. 

The Role of the Pharmaceutical Prime Vendor:  Service, Savings, Safety

Service

In our role as the pharmaceutical prime vendor, McKesson delivers pharmaceutical and certain medical/surgical products to more than 700 VA locations, including over 270 medical centers and seven consolidated mail order facilities (CMOPs), providing the highest quality service to more than five million veterans.   We have invested an additional nine million dollars in dedicated software, hardware, facilities and staff for the PPV contract to improve service and drive down costs for the VA.   As the prime vendor, McKesson is responsible for providing thousands of products at prices set under a federal supply contract which the VA has secured through negotiations with manufacturers.  McKesson’s state of the art technology allows authorized VA buyers to purchase products through an electronic order entry system which drives them to the lowest priced contract item.  If the authorized buyer attempts to purchase product that is not on a VA negotiated contract with the manufacturer, our system directs them to the lowest priced contract item.  If a product is out of stock, the system suggests the lowest priced generic equivalent product that is on contract.  Through the transparency afforded by our electronic ordering and inventory management systems, the VA can manage and track their inventory and has real-time access to invoice and ordering data.  

There are circumstances, however, when contracted pharmaceuticals are in short supply or where the VA may not have contracted with manufacturers for critical medicines, even though they are needed to treat patients in a timely manner.  Among the very specific and detailed requirements of the Department’s Statement of Work (SOW) for the pharmaceutical prime vendor, it states that, in addition to supplying the VA with products that the VA has secured with a federal supply contract, “the PPV may be requested by the customer to supply and distribute open market drug/pharmaceutical products/items/units on their behalf.”  Under that provision, purchases of open market products from McKesson are permitted by this contract.  It is important to note that, when the VA decided to purchase open market products from McKesson, it paid the same or less than our private sector hospital and institutional customers paid for the same products.  Purchases of open market products are a standard practice in the private sector.  Based on our experience, the VA’s purchases of open market products, which are less than 5% of their total, are quite low.  In the private sector, for instance, 30-40% of the purchases of hospital and institutional customers are of open market products.   

McKesson has a dedicated “VA-only” customer service department.  When an authorized VA buyer orders product by 6pm, it is delivered the next morning, thereby assisting the VA with inventory management and saving the Department millions of dollars in working capital.   Our accuracy in fulfilling orders is 99.9%.  At any time, the VA can access a full listing of McKesson’s current inventory for any one of our 31 distribution centers nationwide, many of which are strategically located near VA facilities in order to provide maximum coverage in instances of immediate need.  Furthermore, McKesson holds the largest inventory of any pharmaceutical distributor to ensure our world-class service levels.  I am proud to say that we have not only met the requirements of our contract, but we have, in fact, consistently exceeded its requirements for service and quality.

Savings

When McKesson was awarded the Pharmaceutical Prime Vendor contract for the Department of Veterans Affairs in 2004 after a highly competitive bidding process, the negative distribution fee that we offered the VA in our contract was so aggressive that we were publicly criticized within the industry.  In fact, allegations were made that we could not service the contract with such unprecedented and deep cuts in our distribution fee.

 McKesson offered the best proposal on price and technology to win the award.  The VA has had an opportunity to review the prime vendor relationship every two years, and has chosen to renew our contract at each option period as an endorsement of our continued savings and high level of performance.  McKesson’s performance with the VA has resulted in a federal ‘budget multiplier’, saving the Department over half a billion in taxpayer dollars.   

Safety

All pharmaceuticals purchased for the VA through McKesson, whether they are under VA negotiated contracts or open market products, have the required U.S. Food and Drug Administration (FDA) approvals.  McKesson complies with federal and state laws and regulations governing sourcing, pedigree, chain of custody and drug integrity.  McKesson purchases pharmaceuticals directly from the manufacturer.   Manufacturers, whether domestic or foreign, have facilities that are registered with and subject to inspection by the FDA.  While manufacturers are ultimately responsible for the safety and efficacy of the prescription drugs they manufacture, the FDA enforces the applicable statutes and regulations to ensure that prescription drugs marketed in the United States are safe and effective, regardless of the point of manufacture.

McKesson’s quality and safety standards are equally rigorous regardless of customer, contract, or any other factor.  In fact,  all of the products bought by the VA from McKesson, including open market products, come through the same secure supply chain that serves your local hospital, chain or neighborhood pharmacy.  McKesson leads the industry in innovative solutions to make the nation’s pharmaceutical supply chain, already the best in the world, stronger and more secure. 

In summary, McKesson has delivered significant, measurable value under the Pharmaceutical Prime Vendor contract.  

1)      McKesson has delivered excellent quality and service to the VA as the pharmaceutical prime vendor.  Through the deep negative distribution fee in our contract with the VA, we have provided the Department with $526 million in savings over the prior PPV contract.

2)      McKesson has consistently exceeded the requirements of the contract and is providing state of the art technology and unparalleled quality and value to the Department, including 99.9% accuracy in fulfilling orders.  

3)      For 179 years, McKesson has had an unwavering commitment to the safe, rapid and cost effective delivery of FDA-approved pharmaceuticals to all of our customers, from the largest hospital system and chain drug store to the smallest neighborhood pharmacy and all government contracts.   All pharmaceutical products purchased from McKesson by the VA, whether under VA “contract” or an “open market” item, have the required FDA approvals.  McKesson complies with all federal and state laws and regulations governing sourcing, pedigree, chain of custody and drug integrity.

4)      We are a proud member of the Department’s mentor-protégé program as we offer partnership opportunities to veteran-owned and disabled veteran-owned small businesses, and we continue to actively recruit, hire and retain veterans as a vital part of our workforce.  Specifically:

  • McKesson has advanced veteran-owned small business goals.  We currently contract with over 100 veteran-owned business suppliers and 2,800 small, veteran and minority-owned businesses overall.
  • McKesson is one of 20 prime vendors and the only healthcare company chosen to participate in the prestigious Department of Veterans Affairs mentor-protégé program.
  • RelayHealth, McKesson’s connectivity business, won the Department of Veterans Affairs “Blue Button for All Americans” contest in 2011 by making a Blue Button personal health record system available to all patients, including veterans.  We donated the $50,000 award to the Wounded Warrior Project.
  • Missouri presented McKesson with a “Flag of Freedom” award in 2011 for our commitment to hiring veterans in the state.
  • The McKesson Military Resource Group, comprised of employees who are military veterans and military family members, advocate McKesson’s efforts to respect, honor and partner with the military community.  They are also engaged in supporting the company’s focus on hiring and retaining veterans.
  • McKesson sponsors events focused on the veteran community, including San Francisco’s Fleet Week, the National Veteran Small Business Conference, and the California Disabled Veteran Business Alliance’s annual Keeping the Promise Exposition.
  • Our annual “Community Days” have brought together over 15,000 McKesson employees across the country in 2011 to assemble tens of thousands of care packages for active duty troops deployed around the world and wounded warriors recuperating stateside.

At McKesson, we take enormous pride in driving efficiencies that improve the quality and delivery of healthcare for our nation’s veterans.  We have been and will always be committed to providing the highest levels of service as we safely and rapidly deliver cost-effective medications to the VA and the veterans they serve.