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September 20, 2022
Introduction: Summary of Congressional Hearing on “VA Major Acquisitions Failure: In Search of Solutions”.
Congressional Hearing Summary
Committee: House Veterans Affairs – Subcommittee on Oversight and Investigations and Subcommittee on Technology Modernization
Subject: VA Major Acquisitions Failures: In Search of Solutions
Date: 9/20/2022
Members Present
Chairman Pappas (D-NH) Rep. Mann (R-KS)
Rep. Takano (D-CA) Rep. Rosendale (R-MT)
Rep. Radewagen (R-AS) Rep. Bergman (R-MI)
Witness Panel
Michael Parish, Chief Acquisition Officer and Principal Executive Director, Office of Acquisition, Logistics, and Construction, U.S. Department of Veterans Affairs
Accompanied by: Michele Foster, Associate Executive Director, Technology Acquisition Center, U.S. Department of Veterans Affairs
Angela Billups, Executive Director, Office of Acquisition and Logistics, U.S. Department of Veterans Affairs
Shelby Oakley, Director of Contracting and National Security Acquisitions, U.S. Government Accountability Office
Overview
On September 20, the House Subcommittee on Investigations and the House Subcommittee on Technology Modernization conducted a joint oversight hearing on VA major acquisition failures. The impetus of the hearing is a frustration on the money being wasted on the Electronic Health Record (EHR) deployment and a lack of accountability on all other acquisitions as well. The Committee has not received any specifics from VA on supply chain modernization and how to ensure another contract failure like Cerner’s occurs.
Opening Remarks
Chairman Pappas
- Chairman Pappas concerned about VA’s history of failure in major acquisitions of new systems (delays, cost overruns, etc)
- Billions of dollars wasted
- $40 billion annual contract obligations – that number has doubled over the past decade
- VA continues to struggle to acquire a modern Electronic Health Record. Deployment plan announced in 2018
- GAO and VA IG have identified mismanagement of EHR rollout
- IG has reported mismanaged EHR has resulted in patient harm
- GAO has also reported multiple times on failed attempts in supply chain modernization
- Modern supply chain system is years from deployment
- VA remains on VA High Risk list for acquisition management
- New Acquisition plan lacks specifics and timetables
- Cautiously optimistic about Parish leadership
Ranking Member Mann
- Mann says DMLSS failures taught VA an important lesson. VA has to get better at deploying its own requirements and cannot blind copy DoD or any other agency
- Parish is working on a new “concept” that will mirror existing policy. Until framework is issued. VA should not begin new acquisitions
- Plans to introduce an authorization bill to establish requirement and metrics on major acquisitions
- Believes Congress needs to provide structural changes to VA to allow more oversight
Chairman Takano
- Applauds Ranking Member’s assessment on DMLSS.
- Not happy about deployment of technology modernization at VA
- Fundamental lack of planning at VA
- Worried about how VA’s IT systems are not capable of handling new claims that will result because of recent passage of the PACT Act
- Where are the checks and balances in VA’s oversight of major acquisitions?
- Worried Parish does not have the appropriate authority
- Key positions at VA need to be filled to allow continuity across administrations
Ranking Member Rosendale
- No rulebook to manage major acquisitions
- EHR modernization - $5.5 billion without a reliable cost estimate
- Not even functional at one facility
- Rosendale proposal for future acquisitions 1. No contractor system can be approved without a business case 2. Must go before a board to approve the business case including, cost, schedule, and performance
- Systems are not developed properly to get veterans benefits
Michael Parish
- Establishing a systems approach is critical to transforming acquisition management at VA
- VA must first identify the business need
- Rigorous governance structures to drive modernization
- Conducting oversight on major technology acquisitions, regularly meet with CIO and CFO to ensure proper stewardship of taxpayer dollars
- Progress has been made to address GAO High Risk list, 80 total GAO recommendations
- Personally involved in trying to make progress on this list
- Acquisition Lifecycle Framework (ALF) not implemented across VA yet
Shelby Oakley
- Since 2012, 89% increase in contract spending
- VA capacity for managing has not kept pace
- Both existing and planned processes at VA for acquisition management could help VA provide uniform oversight
- None of VA major acquisitions followed any acquisition frameworks
- VA conducted analysis to show other solutions other than DMLSS but did not use information to drive decision making
- VA is now on fourth attempt to revamp MSPV
- VA faces many of same challenges: can’t identify programs subject to oversight, workforce issues, no current strategy to enforce
- Recommend VA delay implementation of ALF
- Encouraged by time and attention VA is currently making but there is no coordinated effort
Highlights from Q&A
Cerner/Oracle
- Poster child for major acquisition issues at VA
- Resulted in patient safety issues
- No insights from EHRM leadership
- Parish is focused on contract enforcement with Cerner
- Parish believes his level of involvement is sufficient and he has enough authority with EHR
- Technology Acquisition Center in constant contact with program office on EHR and VA feels the TAC has done an adequate job with Cerner
- Rosendale wants to see documents of business case with Cerner. Parish commits to provide documents
- Change orders from Cerner have resulted in contract modifications because of COVID
- VA has agreed to pay $44.9 million in contract adjustments to Cerner
- Base contract expires in May of 2023
Acquisition Framework
- Supply chain modernization has not done a good job of establishing requirements
- VA has developed a statement of objectives to allow contractors establish how they are going to achieve what VA needs
- A “system of systems” – top four needs – visibility in inventory management, order management, asset management, risk management
- Supposed to be released in August, no cost and schedule information
- VA has identified the business need and what they define as success but no specific metrics
- Parish states VA has received industry and field input
- 68 pages of feedback from industry partners
- Anticipate having another draft out in next few weeks
- No specific date given for an RFP
- GAO wants VA to put metrics and measure in place to assess the new acquisition framework
GAO
- ALF framework is supposed to apply to all acquisitions but VA can’t identify their own acquisition programs
- GAO does not have insight into programs that are following new framework
- VA says major challenge is identifying what a major acquisition is
- Parish says in current structure VA has the ability to stop programs
- GAO believes VA CAO has broad authority but have not seen any CAO exert their authority to make changes in VA acquisition
- GAO to issue new report in the next few weeks on VA’s acquisition workforce
- VA lacks the capacity systemwide to understand who is in their acquisition workforce – took GAO six months to get an accurate number from VA
- Parish acknowledges that data is an issue for VA
- Oakley states she has never seen VA successfully implement a major acquisition
MSPV
- Chairman Pappas frustrated that there has not been an answer on DMLSS and lack of clarity on DMLSS
- Parish states DMLSS only deployed at joint facility in Chicago
- Next Generation contract not tied to DLA
- Supply Chain modernization solicitation early January/February 2023
PACT Act
- Chairman Takano wants VA to assess new technology needs after passage of the PACT Act
August 10, 2022
Introduction: Provided by SDV-MPG members to Senate and House Veterans Affairs Committee staffs to provide background on the issues faced by service-disabled veteran-owned small businesses in operating as a “distributor” under VA’s MSPV program.
RISKY BUSINESS
THE PLIGHT OF A SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS PARTICIPATING
IN VA’S MEDICAL/SURGICAL PRIME VENDOR PROGRAM
Presented by
THE SERVICE-DISABLED VETERAN MEDICAL PRODUCTS GROUP
August 2022
SUMMARY: The service-disabled veteran-owned small business (SDVOSB) community has been involved and interested in the success of the VA Medical/Surgical Prime Vendor Program (MSPV) program since its inception. This involvement was heightened with the passage of Public Law 109-461 in 2006 and implemented in 2011 which established the VETS First contracting program as well as the U.S. Supreme Court decision in Kingdomware Technologies, Inc. vs. United States; No. 14-916, June 16, 2016.
Over the years, the VA Office of Inspector General and the Government Accountability Office have issued numerous reports critical of the VA’s supply chain and the associated inefficiencies. The issues always center around poor management, lack of accountability and the lack of management information systems to track and monitor contracting activities at VA medical facilities. This increases the level of risk for all parties associated with VA’s acquisition process. Unfortunately, as pointed out below, the preponderance of the risk falls on those least prepared to assume the increased risk, the service-disabled veteran-owned small businesses. This is further disheartening given VA’s mission of “caring for him who bore the battle”.
BACKGROUND: For approximately the past 7 years, VA has attempted to develop and manage an effective and efficient Medical/Surgical Prime Vendor (MSPV) program. The goal of the program is to provide clinically vetted commercial medical products to VA medical facilities on a “just-in-time” delivery basis utilizing vendors possessing private sector stocking and distribution expertise. Under this approach, VA pays distribution fees to commercial distributors to maintain and distribute significant medical product inventories as appropriate to support the core medical supply needs of VA medical facilities around the country. A secondary goal is to establish a “formulary” or catalog of VA’s recurring core medical supplies that are priced to VA based on volume purchasing principles and which provide the basis for electronic placement of recurring product orders from VA product suppliers through the prime vendors and thereby reduce VA’s historical dependence on the use of government- issued credit cards to purchase products on a low volume basis. VA has deployed several versions of MSPV, all of which have provided some benefit, but which have failed to attain VA’s original goals.
Although each version of MSPV has brought improvements to VA (see SDV-MPG paper of February 2022) major issues still exist mainly due to VA’s inability to manage the program and hold prime vendors and VA staff accountable to follow the MSPV contracts as well as the VETS First program. Prime vendor contractors are all large for-profit businesses whose first responsibility is to their shareholders. VA lacks a mechanism and staff to ensure procurement rules are followed.
PRE-AWARD RISKS
1. VA continually declines to address or confirm whether the prime vendor contracts are contracts for “distribution” or contracts for “distribution and supply”. Prior to 2016, the prime vendor program and the prime vendor contracts were established as “distribution” contracts. In other words, VA entered into direct contracts with the product suppliers for the products that were approved under the MSPV formulary, and a separate contract with the prime vendors for the stocking and distribution of those products from distribution centers owned and managed by the prime vendors. In March 2018 however, VA acknowledged that its previous efforts to reduce the size of the MSPV formulary to achieve “strategic sourcing” pricing objectives had failed because its formulary was too narrow to support the core supply needs of many VA medical facilities and in response authorized and directed its then 4 prime vendors to leverage their existing commercial networks to provide sources and prices for additional products that were needed to significantly expand the prime vendor formulary. All existing and future suppliers of formulary items to VA were obligated and directed to sell their products directly to the 4 prime vendors. This change was found by the U.S. Court of Claims (Electra-Med vs. United States) (N. 18-927C) to be illegal. VA’s actions to modify the prime vendor contracts resulted in suppliers of products to VA being deemed “subcontractors” to the prime vendors thus losing legal protections afforded them as prime contractors to VA. When one of the prime vendors (American Medical Depot) declared bankruptcy as a result of alleged non-payment by VA, suppliers of products ordered by AMD and accepted and used by VA facilities were not paid millions of dollars for the supplies furnished to VA. Although products were delivered and consumed by VA, VA refused to pay, and VA;’s position is “we are not responsible for AMD’s failure to pay”. Thus, all the risk associated with non-payment by VA’s prime vendors is borne by the suppliers even though the suppliers are contracted by VA to supply products that support the MSPV formulary.
2. VA establishes the MSPV formulary as Indefinite Delivery, Indefinite Quantity contracts that undergo price competition based on the premise that VA has vast requirements for the products. In order to qualify for these contracts SDVOSB suppliers that are not themselves product manufacturers must obtain “letters of commitment” from their suppliers to confirm that VA’s supply needs will be met. These contracts, however, have little or no guarantee of sales. Indeed, whether a particular supply item is deemed a “core item” to be used by VA medical facilities is largely determined by the VA medical facilities themselves in coordination with the prime vendors. Historically, VA greatly overestimates its demand for products. The supplier is therefore exposed to the risk of obtaining a supply allocation, financing that allocation, purchasing and if necessary, storing products that VA may ultimately never order.
3. VA has never through formal policy, defined how contracting officers are to determine a price that is “fair and reasonable” to the government. Therefore, VA contracting officers look for the “lowest possible price” never considering life cycle costs or quality of contractor performance. VA has also never established a reasonable “price differential” it will pay to award a contract to a service-disabled veteran-owned small business. That renders the legally mandated preference for SDVOSB suppliers under VETS First a mirage because the SDVOSB suppliers are, in many instances, being required to offer VA the lowest price available in the marketplace. In addition, many times, VA contracting officers determine price reasonableness based on outdated pricing or pricing under contracts with materially different terms and conditions.
PRE-DELIVERY RISKS
1. Before delivery of products to a prime vendor, suppliers must establish “commercial agreements” with the prime vendors that govern their relationship. VA’s position is these are agreements between two non-government entities, so VA is not involved. The prime vendors set all the terms for fees, delivery, stocking and insurance requirements. The suppliers are given a “take it or leave it” offer from the prime vendors. The agreements never favor the product suppliers. For example, under these agreements, prime vendors seek the right to return product that is not ordered by VA within a ninety-day period after it is taken into inventory by the prime vendor from the product suppliers, even though the prime vendors are responsible for coordinating with VA facilities on their true level of requirements.
2. Prime vendors are expected to determine what products to stock based on historical usage data from each VA medical facility. This process, however, is highly imprecise for two reasons. First VA facilities, often delay providing this data to prime vendors to avoid the inflexibility built into the prime vendor formulary and contracts. Second, prime vendors often prefer to by-pass formulary suppliers in favor of non-formulary suppliers with whom they have preferred pricing or rebate relationships. Prime vendors accomplish this by declining to assign in the prime vendor ordering system a “Prime Vendor Ordering Number” (PVON) for products. Once the PVON is established, prime vendors are required to order the specific product from the supplier who was awarded the formulary contract (BPA) for that item. Prime vendors can and do delay establishing the PVON and provide VA with a different product for which the prime vendor can gain more profit.
CONTRACT PERFORMANCE RISKS
1. Many times, prime vendors do not order products from the required formulary BPA holders and report to VA the product is “out of stock”. The prime vendor will then substitute their own branded product or the product of a third party that offers advantageous rebates giving the prime vendor higher margins. Products awarded to BPA holders have been subject to both rigorous price competition and clinical reviews. Substitution of products based on prime vendor created “out-of-stock” assertions robs VA of the benefits of the clinically driven and competitive sourced formulary selection process and robs SDVOSB suppliers of business they lawfully and competitively earned through the BPA award process.
2. Product prices have been established by VA upon the awarding of formulary BPAs for products. BPAs are priced based on a set maximum distribution fee that may be charged by the prime vendors to the suppliers. Many times, however, prime vendors add fees, invent new fees and increase fees to the point that each order results in a loss to the BPA holder. This is unstainable and results in BPA holders having to decline orders.
3. Prime vendors are required to stock a supply of all products on the “core item list” as established by VA facilities. Purchasing and stocking of supplies cost money. Many times, prime vendors receive orders from VA facilities, but do not have the product in stock. Prime vendors will then direct BPA holders to “drop ship” the products from the BPA holder’s facility directly to VA. The BPA holders then incur additional shipping expenses which the BPA holder is not reimbursed as this cost is also not included in the BPA price of the product. Yet the prime
vendors may still charge VA its contractual distribution fee for the product even though it did not incur any expense to get the product delivered to VA.
4. Prime vendors will order and hold products for inordinate amounts of time, sometimes after product expiration dates. The prime vendors will return products to BPA holders expecting BPA holders to accept the useless products and reimburse the prime vendors. Prime vendors control the entire process at the expense of the BPA holders.
5. Prime vendors place their employee representatives in many VA medical facilities. These representatives have access to all VA purchasing data and, in many instances, control the purchasing of all products regardless of whether the products are on the MSPV formulary. Many of these employees have VA email addresses and telephone numbers. They are allowed to establish separate “accounts” at each VA medical facility thereby controlling all VA purchases with no competition contrary to many procurement regulations, including VETS First.
6. VA formulary BPAs provide for price increases at the discretion of VA. Many of the BPA prices are over 2 years old. The high rate of inflation now causes BPA holders to lose money on each order as VA cannot process price increases in a timely manner.
POST DELIVERY RISKS
1. Prime vendors as a matter of doing business regularly “deduct” from invoices a certain percentage, up to 5%, of the money owed to the BPA holders whether warranted or not. This causes financial strain on BPA holders cash flow as well as requires BPA holders to balance their books multiple times.
2. Prime vendor contracts are considered “mandatory use” contracts. VA, however, has no systems/personnel in place to monitor the usage of the program. Many products on the MSPV formulary are purchased “open market” resulting in lost sales to BPA holders and in some instances VA paying 25-50% more for the item and also charged freight.
CONCLUSION
SDVOSBs participating in VA’s MSPV program are being compelled to absorb a disproportionate risk in seeking to participate in VA’s medical supply chain due to poor program design and management practices of VA. VA will not define the relationships between the parties to ensure that a robust supply of product is maintained and continues to ignore conflicts within its medical supply and distribution base when conflicts arise. Prime vendors as large businesses exist to make money for themselves and their shareholders and they neither understand nor care about business “relationships “with small businesses and the harm their business practices bring to others. Yet VA does not intervene to ensure that its supply chain is managed efficiently, ethically or in accordance with legal mandates.
The federal government has experienced a 50% decline in the number of small businesses doing business with the government over the past decade. Given the risks to small businesses in the federal marketplace as described in this paper is it any wonder? This Administration has identified the growth of the industrial base in “critical” industries as a primary national goal. Healthcare is identified as a critical national security industry requiring new thinking. One way to accomplish these goals is to fix the VA’s MSPV program.
July 22, 2022
Introduction: Provided to VA MSPV staff to identify the concerns raised by SDV-MPG members during meeting on July 21st regarding VA and DLA MSPV programs.
SDV-MPG CONCERNS BY CATEGORY
July, 2022
Members of the SDV-MPG have identified a number of issues regarding VA’s MSPV program as well as the proposed use of DLA’s MSPV program by VA. The issues identified are as follows:
SUPPLY BPA’s
1. VAMC’s have not provided prime vendors with usage data so prime vendors do not stock and order from Supply BPA holders.
2. The result of #1 is a high number of drop ship orders which causes additional expenses.
3. Another result of #1 is prime vendors not assigning prime vendor ordering numbers (PVONs) which causes further delays and confusion for obtaining specific products by VAMCs.
4. VA cannot process the number of modifications which result from the large number of BPAs awarded resulting in Supply BPA holders losing money on each order.
5. Determinations of “fair & reasonable” pricing is inconsistent with each group determining pricing differently. Needs to be VHA policy including SDVOSB “price differential”.
DLA’s MSPV Program
1. No requirement to mandate VETS First.
2. No limitations on fees charged suppliers by the prime vendors.
3. No limitations on product substitutions by DLA.
4. PVONS are difficult to obtain.
5. SDVOSBs attempt to add products via DAPA, DLA determines products are “out of scope” although VA has needs for products.
DMLSS
1. A 25-year-old system that DoD is replacing in 2026. Why should VA implement now?
2. Why expend up to $2 billion by VA in a system VA does not own?
3. DMLSS does not control, which suppliers (SDVOSB BPA holders) that VA can purchase from.
4. Over 50,000 products VA uses are not listed on DMLSS.
5. DMLSS does not point only to SDVOSB suppliers.
6. DMLSS does not report sales to SDVOSBs.
DAPAs
1. Multiple vendors for the same products.
2. No VETS First requirements.
3. Lack of transparency and specificity on fees charged.
4. Attempts to add products to DAPAs by SDVOSBs result in DLA determining products are “out of scope” although products are on VA formulary.
5. Does not meet VA’s needs. See DMLSS #4.
ECAT
1. Can take over a year to obtain E-CAT contract vehicle.
2. No VETS First requirements.
3. Determination of “fair & reasonable” pricing is made using an old GSA model that does not account for current market conditions.
4. Does not meet VA’s needs. See DMLSS #4
July 14, 2022
Introduction: Provided to Dwight Deneal, Director, Office of Small Business Programs, Defense Logistics Agency to explain SDV-MPG members challenges working with DLA’s MSPV Program and requesting a meeting to discuss.
CURRENT CHALLENDGES OF SDVOSB’s WORKING WITH CARDINAL
AND DEFENSE LOGISITCS AGENCY
SERVICE DISABLED VERTERANS MEDICAL PRODUCTS GROUP(SDV-MPG)
July 2022
BACKGROUND: The Defense Logistics Agency, on behalf of the Department of Defense and the Armed Services manages a Medical Surgical Prime Vendor Program (MSPV) to provide medical and surgical products at reasonable costs by aggregating volume, to the services and other customers. DLA does this by establishing Distribution and Pricing Agreements (DAPAs) with suppliers of products at prices deemed fair and reasonable to the government. DLA then enters into firmed fixed price contracts with major distribution contractors for the warehousing and distribution of medical products around the globe. These are called “Prime Vendor” contracts. The distributors (Prime Vendors) then enter into agreements with the DAPA holders to stock and distribute products to DLA customers. Fees for these services are negotiated between the DAPA holders and the prime vendors. One of DLA’s major prime vendors is Cardinal Health.
ISSUE: In April 2022, Cardinal Health send letters/emails to many service-disabled veteran-owned small businesses which are DAPA holders stating that “it is imperative that we are appropriately compensated for the services we provide.” Cardinal further stated that effective May 2nd, 2022, it was increasing distribution fees by 3 percent, enforcing the use of EDI, and enforcing accountability of service level commitments. These are UNILATERAL decisions by Cardinal not open for negotiation. Cardinal further has a history of taking discounts on invoices from DAPA holders with no explanation nor identification of customer or contract vehicle negatively impacting the cash flow of small business DAPA holders. The result is that DAPA holders lose money on each order filled. DAPA holders are often forced to remove items from the DAPAs resulting in reduced choice for DoD clinicians of needed products and less small business participation in DLA contract opportunities. In addition, it empowers Cardinal to favor suppliers that pay Cardinal higher rebates or higher fees, which constitutes a conflict of interest in their management of the DLA medical supply chain. Invariably those suppliers that are paying Cardinal higher fees or rebates are large business concerns that conduct significant commercial business volumes with Cardinal and for whom Cardinal is already stocking medical products independent of DLA’s requirements. Those large business suppliers and Cardinal can thus “game” the system at the taxpayer’s expense as rest assured the fees being paid to Cardinal by the large business suppliers are being borne by DLA customers and the taxpayer.
In discussions with DLA Troop Support, SDV-MPG has been told the only relief DLA can provide is to allow DAPA holders to “adjust their prices to cover their PV assessed supplier fees.” Our experience is that it takes a minimum of 60 days for price increases to be approved while Cardinal has initiated the increased distribution fees for over 60 days already. Also, our members experience has been that Troop Support has been denying the price increase requests submitted, including those which provided the documentation of the distribution fee increase from Cardinal. This has resulted in members removing hundreds of items from DAPAs. Large business suppliers do not appear to face these same delays in approving price adjustments or product additions.
SUMMARY: DLA has effectively put small business DAPA holders and the taxpayers in a “lose/lose” situation. DAPA holders are at the mercy of the prime vendors who can raise fees to any level and any time unilaterally with little to no warning and with no apparent accountability to DLA. The prime vendors benefit from this action by limiting the products they must stock and distribute supplies from large businesses with whom they have an expansive commercial market relationship and for whom they are already stocking and distributing products in the commercial market. If DLA consistently denies price increase requests from small business DAPA holders, the only suppliers that will be left standing are large business suppliers. Is it any wonder small business participation has dropped over 40 percent in DoD in the last 10 years? The quality of DoD healthcare delivery will only decline as required and necessary products are unavailable on DAPAs.
REQUESTED ACTION: We respectfully request that DLA’s OSDBU immediately review this issue with procurement leadership at DLA Troop Support Command to implement corrective action to accomplish the following:
Restrict Cardinal from increasing fees on small business DAPA holders unless it is demonstrated that those same fees are being imposed on all other DAPA holders.
Require DLA contracting personnel to recognize that prices are going up in virtually all commodity classes and that price increases are warranted even if they exceed historical experience. Recently GSA issued a directive to all Federal Supply Schedule contracting officers to confirm that recurring price increases are entirely permissible and that historical limitations on the level of price increases available under their contracts are being lifted. See https://www.gsa.gov/cdnstatic/MV-22-02.pdf. DLA must do the same.
Require DLA contracting personnel to promptly (within days of the request) grant suppliers with requested price increases where suppliers can document that their distribution fees have been increased by a DLA prime vendor.
March 2, 2022
Introduction: Provided to VA staff as a read ahead for a meeting scheduled for March 2, 2022 with SDV-MPG members on suggestions to improve VA’s MSPV program.
VA MSPV DISTRIBUTION CONTRACT AREAS OF CONCERN
SERVICE-DISABLED VETERAN MEDICAL PRODUCTS GROUP
March 2nd, 2022
BACKGROUND: Members of the Service-Disabled Veteran Medical Products Group (SDV-MPG) are committed to helping VA develop a comprehensive Medical Surgical Products Prime Vendor Program (MSPV) to strengthen VA’s ability to provide world class healthcare to veterans. We have been engaged for over 5 years in this effort. We have experienced many versions of a MSPV program and have identified many challenges for a service-disabled veteran-owned small business to participate. A brief history is provided in our paper of February 2022, copy included as an attachment.
We appreciate the willingness of VA’s SAC contracting personnel to engage with the SDV-MPG to continue to improve the MSPV program as VA develops the solicitation package for the next round of MSPV distribution contacts. We offer the following suggestions for VA’s consideration in developing the next version of MSPV distribution contracts.
SUGGESTIONS:
1. Allowable Fees: Product prices have been established by VA with the awarding of BPAs for products. The BPAs were priced assuming a set distribution fee will be charged by the prime vendors. Many times, however, some prime vendors add fees, invent new fees, increase fees to the point that each order results in a loss to the BPA holders. This is unstainable, results in BPA holders having to decline orders and ending in higher total costs to VA whether product is supplied by distributors or purchased open market. Also, distributors charge fees which are never disclosed or explained to the BPA holders. VA NEEDS TO CAP ALL FEES AND REQUIRE FULL DISCLOSURE OF FEES BY THE PRIME VENDORS.
2. Product Substitution: The products awarded to BPA holders have been subject to both rigorous price competition and clinician reviews. Yet many times, prime vendors will not order products from the required BPA holder and falsely report to VA the product is “out of stock” as the prime vendor has never ordered from the BPA holder. The distributor will then substitute their product or the product of a third party that offers advantageous rebates giving the prime vendor higher margins, evade clinician input into supply selection and cutting out the BPA holder. VA NEEDS TO PROHIBIT PRIME VENDORS FROM SUBSTITUTING PRODUCTS.
3. Product Substitution Policy: We recognize there are legitimate reasons why a VAMC may require a substitute product based on clinician preference. This decision should only rest with VA. VA NEEDS TO ESTABLISH A FORMAL SUBSTITUTION POLICY INCLUDING AUTHORITIES TO APPROVE.
4. PVON Assignment: Many times, prime vendors do not establish “prime vendor ordering numbers” (PVON) in their system until VA orders the product in a quantity that the prime vendor considers significant. This then enables the prime vendors to evade their obligations under the prime vendor contracts, and order product from a non-contracted supply sources that are more advantageous to them, including ordering from themselves. REQUIRE PRIME VENDORS TO ESTABLISH PVONs WITHIN 30 DAYS OF DISTRIBUTION CONTRACT AWARD. CONSIDER USING OEM MFG. NUMBERS.
5. Return Policy: Prime vendors will order and hold products for inordinate amounts of time. Then prime vendors will return products to BPA holders after expiration dates expecting BPA holders to accept the useless products and reimburse the prime vendors. This shifts all risk from VA and prime vendors to the BPA holders who have no control over this process. VA NEEDS TO ESTABLISH A RETURN POLICY FAIR TO ALL PARTIES.
6. Product Transfer Policy: When new prime vendor contracts are awarded if the incumbent is not selected, the incumbent should be required to transfer all products to the new prime vendor. Otherwise, products will be returned to the BPA holders along with risks as described in #5.
7. Manage “Drop Shipments”: We understand that some products are required by the manufacturers to be dropped shipped. Prime vendors also require BPA holders to drop ship products increasing costs to the BPA holders. Prime vendors still require their fees for dropped shipped products although they incur no costs. These costs were not figured into the BPA costs thus hurting BPA holders who again have no control but assume the risks. PRIME VENDORS SHOULD NOT COLLECT THEIR FEES ON DROPPED SHIPPED ITEMS AND BPA HOLDERS SHOULD BE REIMBURSED FOR ADDITIONAL COSTS.
8. Prompt Payments: Prime vendors try to extend paying BPA holders for products threatening BPA holders cash flow. Federal Acquisition Regulations require prompt payments to small businesses. REQUIRE PRIME VENDORS TO PAY BPA HOLDERS IN 30 DAYS.
9. Product Order Consolidation: Many times, prime vendors will not stock items in small quantities. Prime vendors can easily consolidate multiple orders from several VAMCs to hit a minimum order level. This would provide VAMCs with better and faster product availability. REQUIRE PRIME VENDORS TO CONSOLIDATE ORDERS.
10. Common Definitions: Prime vendors use certain words and apply different meanings. Words such as “open market’ “backorder” “allocations: “delays”, etc. VA NEEDS TO ESTABLISH DEFINITIONS FOR ACTIVELY USED WORDS.
11. Prime Vendor Representatives & Secondary Accounts: Prime vendors place their employee representatives in many VAMCs. These representatives have access to all VA purchasing data and, in many instances, control the purchasing of all products whether MSPV designated items or others. They are allowed to establish separate “accounts” at each VAMC thereby controlling all VA purchases with no competition contrary to many procurement regulations. PRIME VENDORS MUST BE PROHIBITED FROM HAVING SECONDARY ACCOUNTS AND VA MUST CONTROL ALL OPEN MARKET PURCHASES.
12. Data, Compliance & Accountability: VAMCs tend to take the easy way in all procurements. MSPV, DAPAs, ECATS, and FSS are all mandatory depending on who you talk to. VA has no way to track spend on various contract vehicle. VA does not know if buys are following all acquisition rules and regulations and field personnel know there is no consequences for not following the rules. This results in vast inefficiencies in the acquisition process. VA SHOULD ESTABLISH AN “ACCOUNTABILITY CZAR” TO BRING EFFICIENCIES TO THE BUYING PROCESS.
Bottom line, VA has no ability to effectively track how much it costs VA to purchase and distribute medical/surgical products throughout the system. We believe a process whereby VA negotiated product prices with BPA holders and added a specific negotiated price for the distribution of those products to either a prime vendor or directly to VA, then VA could establish prices with prime vendors to reflect
actual distribution costs. VA would then have a true cost of products and distribution as opposed to the murky environment we currently work in. Also, if VA then had a handle on the quantity of products used, VA could commit a specific volume of products to both BPA holders and prime vendors, thus driving down costs even more with little or no additional risk. No matter what VA does in the , VA must be more responsive to inflation and cost increases in medical/surgical products. The current market is one of ever-increasing costs and supply allocation challenges. VA cannot expect BPA holders to continue with 2-year-old pricing which results in loses on each order. When BPA holders can’t deliver clinician approved supplies due to VA not processing cost increases, then the net result will be far more purchases of non-clinician approved supplies on the open market which greatly increases costs to VA. VA also needs to develop a standardized process for determining fair and reasonable prices. Each contracting officer appears to have their own method which only furthers confusion in the vendor community.
February 22, 2022
Introduction: At the request of Michael Parrish, VA Chief Acquisition Officer & Principal Executive Director, Office of Acquisition, Logistics & Construction SDV-MPG members provided VA a list of specific issues with the MSPV program as seen by the service-disabled veteran-owned small business community.
WHAT SHOULD VA DO TO FIX MSPV DISTRIBUTION
- Establish that BPA holders (suppliers) are PRIME contractors to VA.
- Prohibit distributors from being suppliers.
- Not allow prime vendors to charge fees to suppliers.
- Establish a formal policy for determining “fair and reasonable prices, which includes a “price preference” for SDVOSBs of 10% like the HUB Zone program.
- Establish policy to require VA medical facilities to provide “core list” of products to prime vendors in 15 days of contract award. Put mechanism in place to track compliance.
- Establish policy to require prime vendors to establish Prime Vendor Ordering Numbers (PVONs) within 15 days of receipt of core product list from VA medical facilities. Put mechanism in place to track compliance and establish penalties for non-compliance.
- Require prime vendors on their ordering platform to ONLY show current BPA prices.
- Establish penalties on prime vendors for NOT stocking core items from suppliers.
- Reimburse BPA holders (suppliers) for drop ship charges for core items not stocked by prime vendors.
- Establish formal “return policy” requiring prime vendor to return any products within 60 days of receiving products.
- Prohibit prime vendor representatives from access to any products not on the core MSPV list.
- Establish policy that NO products NOT provided by an SDVOSB BPA holder must undergo the “market research” process required by VETS First prior to purchase.
- Require prime vendors to pay suppliers within 15 days of receiving products from suppliers.
- Prohibit prime vendors from imposing ANY “penalties” on suppliers without VA approval.
- Allow suppliers to choose which prime vendors to supply through.
- Require compliance with Executive Order 13658 requiring prime vendors to pay minimum wages to employees.
- VA must establish a mechanism to monitor prime vendor compliance with all terms and conditions of the prime vendor contracts, staff an office to monitor compliance, and establish penalties for non-compliance.
- Establish a disputes resolution board where suppliers can bring issues and concerns to VA.
- Establish a SDVOSB Advisory Board, chaired by a VA senior level official with authority to implement changes in VA acquisition policies, procedures and contracting personnel.
February 17, 2022
Introduction: This paper was developed by the SDV-MPG as a “read ahead” for a meeting with Michael Parrish, VA Chief Acquisition Officer & Principal Executive Director, Office of Acquisition, Logistics and Construction. As a recent political appointee we wanted to provide him with a concise history of VA’s efforts and results of the Medical/Surgical Prime Vendor program.
VA’s MEDICAL/SURGICAL PRIME VENDOR PROGRAM
Service-Disabled Veteran Medical Products Group
February 2022
BACKGROUND: For approximately the past 7 years, VA has attempted to develop and manage an effective and efficient Medical/Surgical Prime Vendor (MSPV) program independent of its Federal Supply Schedule (FSS) program. The goal being to provide clinically vetted commercial products to VA medical facilities to achieve pricing consistent with volume purchasing combined with a just- in- time delivery program. A secondary goal is to reduce VA’s dependance on the use of government issued credit cards. VA has deployed several versions of MSPV, all of which have provided some benefit, but which have failed to attain VA’s original goals.
According to VA’s goals a robust MSPV program must include the following:
Clinically Driven Sourcing: Clinicians (not acquisition personnel or distributors) determine products to be used
Sufficient quantity of products on a “formulary” to be effective
Commercial products contracted at a fair and reasonable price
Just in time delivery of products by Prime Vendors
Ability to track all purchases for vendor, price, performance, timeliness and quality
Conform to all VA acquisition regulations, including VETS First
HISTORY:
LEGACY PROGRAM: Established by the National Acquisition Center (NAC) in 2010. The “formulary” was very broad as it included all products on FSS. There was no clinical input at the formulary level. Each facility established a “Commodity Committee” to determine what products would be used with heavy input from the VA’s primary Prime Vendor who had embedded service representatives at most VAMCs and controlled the distribution business at approximately 90% of VAMCs. The Prime Vendor picked a large portion of products and suppliers, based on stocking the products of their “preferred suppliers”. If VA wanted other suppliers, they were supplied open market, at higher cost to VA. The Legacy Program preceded the SCOTUS decision in Kingdomware so there were no VETS First considerations.
MSPV-NG PROGRAM: Established by the Strategic Acquisition Center (SAC) in 2015. The formulary covered approximately 8,000 items and lacked sufficient demand to support the four regional prime vendors selected (Cardinal, MedLine, Concordance and AMD). As a result, less than 50% of VA’s Med-Surg demand was fulfilled through the MSPV Program. This led to massive open market spending at high cost and hurt the Prime Vendors who could not afford to stock products for which there was little demand. There was little consideration of VETS First under MSPV-NG.
MSPV 2.0 PROGRAM: Established by the SAC in 2019, the approved list of products expanded to approximately 85,000 items determined clinically acceptable to VA. This provided for objective determination of “core items” at each VAMC based on usage, with all core items required to be stocked by the Prime Vendors. MSPV 2.0 also included significant VETS First contracting opportunities as a waiver of the “nonmanufacturing rule” was submitted and approved by SBA, allowing SDVOSBs the opportunity to provide products manufactured by other than small businesses. Unfortunately, VAMCs have been slow in providing usage data to prime vendors to establish stocking levels. Also, VA has been slow to adjust to the significant price increases in the healthcare industry. MSPV 2.0 should have yielded predictable usage, that would permit prime vendors to stock core items for just in time delivery, decrease the potential for open market spend at higher costs, ensure robust SDVOSB participation and provide for ongoing clinical input in the evaluation of new products.
DLA MSPV PILOT IN VISN 20 AND VA NORTH CHICAGO: In 2020, VA leadership collaborated with the
Department of Defense, Defense Logistics Agency (DLA) to combine the two agencies MSPV programs, even though the MSPV 2.0 supply and distribution contracts were fully awarded and ready to be implemented. As part of its plan to abandon MSPV 2.0 and transition the entire VA MSPV program to DLA which operates the DoD MSPV program, VA transitioned its facilities in VISN 20 and in North Chicago to DLA. Under the transition, VA ordering officers were required to order products through DLA’s DMLSS ordering platform, which is not web-based, and which contains only products available on DLA contract vehicles (DAPA and ECAT). This pilot demonstrated that the DLA program did not provide any clinical input into the selection of the suppliers or products and left it to the DLA Prime Vendors to work with ordering personnel to select suppliers and products based simply on their own preferences. Moreover, the DLA contracting vehicles do not mimic VA‘s MSPV supply contracts, thereby leaving large gaps in coverage. Also, VA pays DLA upon submission of an order, DLA pays the prime vendor, but no one follows up to determine whether products ordered are actually delivered. In addition, DLA requires VA to commit to provide at least $100 million in funding to DLA to pay for desired updates to DMLSS to enable DMLSS to perform the robust ordering processing and spend analysis functions to bring both agencies into the 21st Century, even though web-based commercial order processing alternatives already exist. Finally, the DLA Pilot documented that DLA had no ability or intention of implementing VETS First contracting requirements.
LESSONS LEARNED: To be effective MSPV must have:
Distributors cannot be responsible for selecting products and suppliers. This problem plagued the Legacy Program, MSPV-NG and the DLA Pilot.
Products must be selected by clinicians as validated in the VA’s MSPV 2.0 design.
Products must be available, stocked and delivered directly to VA facilities when and where needed. The DLA Pilot extensively relies on drop shipments of products as opposed to just-in-time delivery from managed inventory, fully demonstrates this imperative.
Formulary based on a sufficient number of products available. Too few means an underutilized program. Too many products cause the program to be inefficient and adds costs.
Committed volume to obtain volume purchasing power. VA has never committed volume for product suppliers or distributors.
VA facilities must communicate usage data to Prime Vendors as confirmed by the MSPV 2.0 Statement of Work.
VA must be staffed/organized and budgeted to manage the program. This is a far more urgent need than transferring funds to DLA to fund DMLSS upgrades.
VA must have real-time data to manage compliance and performance by VA staff and prime vendors. This requires a nominal investment in commercially available ordering solutions.
VA must ensure adherence by its staff and Prime Vendors to all acquisition regulations including VETS First.
VA must prohibit prime vendors from supplying their own products in response to MSPV orders.
All fees paid by and between Prime Vendors and suppliers must be disclosed and approved or capped by VA. VA needs to be able to equitably assess proposals from prime vendors.
VA must establish a formal product substitution policy.
VA must establish a formal “return of stock” policy. Currently suppliers have all the risk while VA and prime vendors have all the benefits.
As documented by recent GAO reports, VA must seek and obtain buy-in from VA field staff.
As documented by recent GAO reports, VA must implement adequate training for all VA staff engaged in MSPV transactions.
November 15, 2021
Service Disabled Veteran Medical Products Group Mission Statement:
Provide ongoing support for advancement in Veteran’s healthcare. We want to lead the unification of Service-Disabled Veteran and Veteran-Owned medical products businesses to be an advocate for compliance with existing public laws and regulations. Ultimately, our aim is to deliver world-class products and services to VA, DoD and other healthcare facilities, while providing for additional business opportunities for Veteran-Owned and Service-Disabled Veteran-Owned businesses.
November 15, 2021
The Service Disabled Veteran Medical Products Group (SDV-MPG) maintains a clear set of goals aligned with our mission:
- Partner with VA to ensure accountability with VETS First and other laws and rules in VA procurements to assist veteran and service-disabled-veteran-owned small businesses.
- Preserve MSPV Supply BPA’s for their intended like.
- Provide “preferences” for SDVOSBs equal or greater to preferences provide for HUB Zone and other designated groups.
- Ensure SDVOSB participation to the maximum extend possible, in all government medical procurements in the future.
- Eliminate the “Non-manufacturer Rule” for all medical procurements.
- Government-wide adoption of a “VETS-First” contracting program.
