VA MSPV DISTRIBUTION CONTRACT AREAS OF CONCERN

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.