The Defense Logistics Agency Troop Support Medical supply chain has “a billion” reasons to celebrate, as one of its programs eclipsed an important milestone.
During a celebratory lunch May 28, Medical recognized its Pharmaceutical National Contracts program for surpassing $1 billion in avoided costs for Department of Defense customers purchasing generic pharmaceutical drugs for the first time in its six-year history.
“Achieving $1 billion in avoided costs is a point of pride for the National Contracts team and it demonstrates to everyone that the work they are doing has a significant impact on our customers who rely on generic pharmaceuticals,” Jason Wray, Medical’s National Contracts integrated supply team chief, said. “It’s a marker that allows everyone on the team to see the work they do every day really matters. It was their hard work that made this milestone possible.”
Wray credits cost-saving contracting strategies and his team’s efforts for reaching the milestone. The team’s hard work led to customers spending on average 40 percent less than a commercial pharmaceutical transaction, adding up to millions of dollars in avoided costs, he said.
“This milestone let’s our customers know that the National Contracts team works hard to negotiate the lowest possible prices and secure contracts in the best interests of the government,” Wray said. “It means our Medical customers have more money in their budgets that can be diverted to other necessities.”
The Pharmaceutical National Contracts program is a requirement-based acquisition-pricing instrument that pools all the specific generic drugs requirements from Medical’s customers and then uses that large quantity of requirements to get favorable pricing for the drugs on five-year contracts, according to Wray.
The cost avoidance total is calculated by comparing the average commercial cost of the drug to the National Contract’s price, and then multiplying the difference by the amount the customer purchased, Wray said. The reported cost avoided is for the initial 5-year contract, and then it is a recalculated if there is a follow-on contract.
It took DOD customers just 78 contracts to accumulate $1 billion in avoided costs.
In 2013, Medical created a supplement to the Department of Veterans Affairs’ National Contracts program with a focus on acquiring generic drugs catered to its DOD customers.
Together with its VA counterpart, the two agencies kicked off the Joint National Contracts program, which has since been declared by the Office of Management and Budget as a “Best-In-Class” practice.
“In 2013, we basically jumped on the National Contracts bandwagon, putting our heads together with the VA to identify those drugs we could get at lower prices,” Daniel Keefe, Medical’s Supplier Operations Director, said during the celebration. “Over the last six years, we achieved legitimate great results, and it was great work by the National Contracts team.”
Even after surpassing the significant milestone, Wray believes there is still more to come.
“If the National Contracts program can work for generic pharmaceuticals, perhaps it can work for other medical items,” Wray said. “It would be interesting to see if the program can be replicated elsewhere. I’d also like to see our program hit a $2 billion milestone, or perhaps another National Contracts program reach $1 billion in cost avoidance.”