By: Paul Emanuelli
This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its February 2020 report entitled Review of the Federal Bureau of Prisons’ Pharmaceutical Drug Costs and Procurement, the U.S. Department of Justice Office of the Inspector General found that, notwithstanding a decline in the overall prison population, weak contract management practices at the Federal Bureau of Prisons (BOP) resulted in an overall increase in the cost of pharmaceutical drugs for federal inmates. The report made a series of recommendations to control those costs through better contract administration practices.
As the report noted, the BOP “provides federal inmates with medical care, including pharmaceutical drugs (drugs) when needed” and that the BOP “primarily purchases drugs through the U.S. Department of Veterans Affairs (VA) Pharmaceutical Prime Vendor (PPV) Program, which consists of several different types of contracts through which the BOP and other federal agencies can purchase drugs at a discount.” The report also found that between “fiscal year (FY) 2012 and FY 2018, the BOP’s reported drug purchases increased from $74 million to $126.9 million (71 percent) while the BOP’s inmate population decreased during the same period by approximately 7 percent.”
The Inspector General also found that the BOP was unable to access the lower pricing available to other parts of the government, and that it lacked proper data collection to effectively plan and manage its drug purchases:
We identified several issues related to the BOP’s drug procurement process and its ability to control drug costs, including its lack of access to some of the lowest government pricing; certain practices that lack sufficient oversight and risk the BOP paying more than necessary; and lack of complete data and analysis that could help identify strategies to control costs and reduce waste. While the BOP has taken some steps that could improve the efficiency of drug procurement, system upgrades and additional use of data are needed to achieve their full benefits. We also found that managing Hepatitis C is a particular challenge for the BOP and that its efforts to manage and prevent Hepatitis C have been hampered by inconsistent testing and treatment of inmates.
More specifically, with respect to pricing, the Inspector General found that the BOP did not have access to the “Big 4” pricing available to other large government departments and had failed to properly prioritize the objective of obtaining that better pricing:
The BOP Has Made Efforts to Obtain Big 4 Pricing to Control Drug Costs, but the Department Has Not Prioritized This Objective
The prices that the BOP pays for drugs is a major factor affecting its overall drug costs. We found that the BOP does not have access to the “Big 4” price, which is a discounted government price that, by law, is available to only four government agencies: (1) the U.S. Department of Defense; (2) the VA; (3) the U.S. Public Health Service, specifically the Indian Health Service; and (4) the U.S. Coast Guard. The BOP has estimated that if it had had access to the Big 4 price in FY 2017 it could have reduced its total drug spending by approximately $13.1 million (11 percent).
We found that, while the BOP has made some efforts to obtain Big 4 pricing, the Department is not actively pursuing Big 4 pricing on behalf of the BOP or its other components. Similarly, a 2016 OIG report on the BOP’s spending for outside medical services found that the BOP was paying more for certain medical services than other federal agencies. In that instance, federal law set a cap on the price that other federal agencies paid for these medical services. However, we found that the Department, as with Big 4 drug pricing, had not fully explored options to obtain this favorable pricing for the BOP or its other components. We believe that the similarity between these two issues—Big 4 pricing and the medical services pricing cap—presents an opportunity for the Department to explore possible solutions for both issues in tandem.
The Inspector General made a series of recommendations to address this failure, which included the development of a plan to obtain the better pricing available to other government departments, the creation of purchasing guidelines to help identify the lowest priced drugs, the implementation of procedures to ensure that different correctional facilities follow federal procurement regulations to ensure competition for all drug purchases valued over the applicable thresholds, and the proper tracking and reporting of acquisition data to better assist future procurement planning. As this report illustrates, the failure to engage in strategic procurement planning can result in unnecessarily paying higher prices for large commodity purchases.
