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DEPARTMENT OF DEFENSE PHARMACEUTICAL PRIME VENDOR CONTRACTS

Executive Summary

DEPARTMENT OF DEFENSE PHARMACEUTICAL PRIME VENDOR CONTRACTS program will begin implementation in December with the selection of a prime supplier for the Washington, D.C. region. Designed to reduce the supply costs of medical goods to Department of Defense (DoD) hospitals, DoD's prime vendor program will offer contracts to one pharmaceutical and one medical/surgical distributor per region; the two distributors will supply all the pharmaceuticals and medical goods needed by DoD hospitals in that area. After selecting prime vendors for the Washington area, DoD will solicit suppliers in the Virginia/North Carolina region in late December, and in the San Francisco and San Diego areas in March 1993. A total of 20 regions eventually will be covered; one of the regions will include shipments to overseas facilities. Currently, the more than 160 DoD hospitals purchase and store drugs and medical supplies from hundreds of individual suppliers. Under the prime vendor system, the two designated prime vendors will utilize "electronic commerce technology" to deliver all needed supplies to DoD hospitals within 24 hours of an order, mostly on an "as-needed" basis. In addition to reducing the amount of stored products in DoD medical centers, the new system will decrease the amount of paperwork handled by the hospitals, DoD said. Prime vendor contracts will last for one year, with an option to extend the arrangement for an additional four years at one-year intervals. Before selecting prime vendors, DoD's Defense Personnel Support Center (DPSC) will first establish distribution and pricing agreements with manufacturers of pharmaceutical and med/surg items. To participate, manufacturers must agree that DoD's chosen prime vendors will distribute their products to the government hospitals. The deals also will establish price "ceilings" that prime vendors can charge DoD hospitals. Price ceilings will be negotiated between the manufacturers and DoD in order to attain a discount for DoD customers and are not expected to exceed the Veterans Administration's federal supply schedule prices for products (see related story, p.3). The arrangements will last for up to five years, but can be cancelled at any point by either the manufacturer or DoD as long as a 30-day notice is provided. DPSC has sent information packets on the pricing and distribution agreements to more than 700 pharmaceutical firms. The packets explain the conditions of the pricing agreements and the prime vendor program and include an application for the agreement. The application asks for a list of the firm's products and proposed prices for the items. The document also inquires as to whether the company has had any recent "problems" with FDA. Applications are due by Aug. 31, but DoD said that it will add manufacturer distribution and pricing pacts as more prime vendors are assigned. DoD expects to maintain a computer database on the agreements whereby manufacturers with appropriate modems will be able to tap into the database to update product and price information. Details on the distribution and pricing agreements will be discussed by DPSC at Aug. 10, 11, and 20 information sessions at DPSC facilities in Philadelphia. The meetings also will provide a forum for pharmaceutical distributors (Aug. 10) and med/surg distributors (Aug. 11) to learn more about the prime vendor program. The Veterans Administration is considering a similar prime vendor program for its network of hospitals, and expects to try out its first prime vendor in early 1993.
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