Three things to know about the challenges of VA/FSS contracting.

The Veterans/Federal Supply Schedule (VA/FSS) is likely the most complex and time-consuming government contracting process you will face. Public Law 102-585 requires brand manufacturers to participate in the VA/FSS program if their product meets the definition of a covered drug. This federal program provides coverage for all prescription medications.

Here are three things you should know about it before attempting to scale this contracting behemoth.

1. DISCLOSURES – BUILD YOUR CASE

While working through the contracting process, manufacturers are required to disclose all contract pricing that is equal to or better than what is being proposed for the VA. In addition, the VA will ask that manufacturers identify their most favored customer (customer receiving best price after all discounts) and identify a tracking customer.

The tracking customer is intended to be a customer that will be benchmarked for the purpose of establishing final VA pricing. While the price of the drug for a branded product is typically based upon the Annual NFAMP calculation that manufacturers complete, if the price of the tracking customer falls, the VA may expect that their price will fall in relation to the decrease of the tracking customer price as well.

These prices are negotiated with the VA, and it is important that manufacturers spend the time to build a case for what customer they would like to identify as the tracking customer and explain why that customer is the best representation for the VA to benchmark against as this can have major ramifications on the contracted pricing.

2. UNDERSTAND DUAL AND SINGLE PRICING

It’s also important that manufacturers understand the difference between dual pricing and single pricing. A single price award grants the same price to all entities eligible to purchase from the VA, while a dual price award allows manufacturers to establish two different price points:

• One price point will be awarded to the Big Four: Veterans Affairs, Department of Defense, Public Health Service and Coast Guard. The Big Four will always receive calculated pricing, based on the NFAMPs submitted and tracking customers.
• The other price point will be awarded to OGAs (Other Government Agencies). In a dual price award, the OGA pricing can be negotiated. Therefore, while the workload is larger for a dual price award, it may make sense for some manufacturers to enter into a dual price contract.

3. MANAGE ONGOING OBLIGATIONS

After the lengthy submission and negotiation process, the VA will finalize the agreement with an award. Once the final award is granted (typically a five-year contract), manufacturers are required to regularly submit quarterly and annual NFAMP calculations (for branded drugs) and disclose changes that may impact the contract price awarded.

Every year, the VA recalculates the pricing with the manufacturers, based on changes to contract pricing as well as the NFAMP calculations that are submitted by manufacturers.

Without factoring in implications due to tracking customer pricing or any inflationary penalties, the basic calculation for determining the price that the VA receives is Annual NFAMP – 24%.

In addition to performing regular calculations for the term of the agreement with the VA, manufacturers are obligated to maintain their business registration in the “System for Award Management (SAM)” with a minimum of one annual update, file certain employment reports and, if the entity contracting with the VA is not a small business, manufacturers are required to complete, maintain and report on a Small Business Subcontracting Plan focused on disclosing the manufacturer’s annual spend and finding ways for the manufacturer to move that spend to small businesses in the United States.