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Committee forwards $677M in DPH distributor agreements after legal timing and pricing questions
Summary
The Budget & Finance Committee forwarded two retroactive distribution agreements with McKesson entities — totaling roughly $677M over five years — and discussed pricing controls, federal 340B access, and the effect of a recently amended administrative code on DPH purchasing authority.
The Budget and Finance Committee forwarded two Department of Public Health agreements with McKesson and McKesson Plasma and Biologic LSC to the Board for consideration at a later meeting, after questions about timing and pricing controls.
David Woods, DPH chief pharmacy officer, described the two group‑purchasing/distribution agreements: a five‑year contract with a not‑to‑exceed amount of approximately $381 million, and a second five‑year agreement for plasma/biologics not to exceed about $295.9 million. Woods said DPH uses distributors to streamline procurement and does not allow McKesson to set manufacturer prices: "McKesson does not determine or negotiate drug prices for the DPH," he said, adding that the department purchases drugs using several pricing 'buckets' and selects the lowest applicable price.
Budget analyst staff noted that the contracts include increases to account for price inflation and contingencies and recommended approval contingent on DPH providing a report to the Health Commission every five years as required by the amended administrative code. Deputy City Attorney Anne Pearson told the committee the Board approved an amendment to Chapter 21A of the Administrative Code yesterday that allows DPH to join multiple group purchasing organizations, but that ordinance will not become effective for 40 days. Pearson recommended the committee consider timing so that contracts are implemented consistent with the new ordinance’s effective date.
Supervisor Walton asked whether safeguards exist to prevent price gouging. Woods replied DPH sources drugs through Vizient (the GPO), the federal 340B program available to safety‑net providers, and wholesale acquisition costs, and that DPH chooses the lowest price across those buckets.
Because the amended administrative code becomes effective after a waiting period, the committee elected to forward the contracts to the Board for consideration at a future meeting (the committee discussed returning the item at the March 25 Board meeting) and requested the department follow up with the Health Commission report required by the code change.
