REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
July 23, 2024
FROM
ANDREW GOLDFRACH, ARMC Chief Executive Officer, Arrowhead Regional Medical Center
SUBJECT
Title
Amendment to Contract with Cardinal Health, LLC and Vizient, Inc. for the Purchase of Pharmaceuticals
End
RECOMMENDATION(S)
Recommendation
Approve Amendment No. 5 to Contract No. 20-1251 with Cardinal Health, LLC, and Vizient, Inc., for the purchase of pharmaceuticals, increasing the contract amount by $190,000,000, from $355,500,000 to $545,500,000, and extending the contract period by five years, for a total contract period of May 1, 2015 through July 31, 2029.
(Presenter: Andrew Goldfrach, ARMC Chief Executive Officer, 580-6150)
Body
COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
Provide for the Safety, Health and Social Service Needs of County Residents.
FINANCIAL IMPACT
Approval of the item will not result in the use of Discretionary General Funding (Net County Cost), as the cost of $190,000,000 is funded by State Medi-Cal, Federal Medicare, private insurances, and other departmental revenue. Funding sources may change in the future pending any legislative activity related to the repeal and/or replacement of the Affordable Care Act. Adequate appropriation and revenue have been included in the Arrowhead Regional Medical Center (ARMC) 2024-25 budget and will be included in future recommended budgets.
BACKGROUND INFORMATION
Amendment No. 5 (Amendment) to Contract No. 20-151 will allow ARMC to continue to purchase pharmaceuticals and related supplies. Providing pharmaceuticals will improve patient outcomes and quality of life thus providing for the safety, health and social services needs of county residents.
Cardinal Health, LLC (Cardinal) is one of the major drug distributors in the nation. Over the past several years, the quality of service provided to ARMC has been superior. In an era of drug shortages, where many vital medications are subject to allocation, it is important to have a wholesaler such as Cardinal, which maintains a history of ARMC’s past usage. Cardinal utilizes this past usage history to assure proper allocation of drugs when drug shortages occur.
On April 21, 2015 (Item No. 13), the Board of Supervisors (Board) authorized the Purchasing Agent to issue Master Blanket Purchaser Order No. 153834 (PO) with Cardinal for the acquisition of pharmaceutical products, in the amount of $72,000,000, for the period of May 1, 2015 through April 30, 2017.
On May 1, 2015, Cardinal and Vizient, Inc. (Vizient) entered into a pharmacy distributor agreement (Base Agreement), under which Cardinal agreed to distribute pharmaceutical products to members of Vizient, including ARMC, based on the terms and conditions set forth in the Base Agreement. Consistent with the authority granted by the Board, the Purchasing Agent executed an addendum (between Vizient, Cardinal, and ARMC) to the Base Agreement that provided ARMC with enhanced financial benefits (price reductions) beyond those available under the Base Agreement. The addendum was for the period of May 1, 2015 through April 30, 2017.
On October 4, 2016 (Item No. 6), the Board authorized an increase to the Cardinal PO, for the purchase of pharmaceuticals, in the amount of $32,000,000 from $72,000,000 to $104,000,000, with no change to the termination date of April 30, 2017.
On April 4, 2017 (Item No. 8), the Board authorized an increase to the Cardinal PO, for pharmaceuticals, in the amount of $156,000,000, from $104,000,000 to a not to exceed amount of $260,000,000, and extended the expiration from April 30, 2017 to April 30, 2020. Consistent with this authority, on May 1, 2017, the Purchasing Agent executed a second addendum to the Base Agreement that provided ARMC with enhanced financial benefits beyond those available under the Base Agreement, with a termination date of April 30, 2020.
On March 24, 2020 (Item No. 5), the Board approved an amendment to the Cardinal PO, which was subsequently converted to Contract No. 440006429, and then was issued County Contract No. 20-1251 (Contract). This amendment became Amendment No. 1 to the Contract with Cardinal and Vizient for the purchase of pharmaceuticals and extended the term of the Contract for a total period of May 1, 2015 through April 30, 2021, with no change to the amount of $260,000,000. The second addendum to the Base Agreement previously approved on May 1, 2017, is now referenced as the Contract. Consistent with this authority, the Purchasing Agent executed Amendment No. 1 to the Contract, extending the term of the Contract through April 30, 2021.
On April 20, 2021 (Item No. 14), the Board approved Amendment No. 2 to the Contract , extending the Contract period by two years, for a total period of May 1, 2015 through April 30, 2023, and authorized the Purchasing Agent to increase the contract amount by $46,000,000, from $260,000,000 to $306,000,000, for the purchase of pharmaceuticals.
On April 25, 2023 (Item No. 15), the Board approved Amendment No. 3 to the Contract increasing the Contract amount by $40,000,000, from $306,000,000 to $346,000,000, for the purchase of pharmaceuticals, and extending the Contract period by one year, for a total period of May 1, 2015 through April 30, 2024.
On April 23, 2024 (Item No. 20), the Board approved Amendment No. 4 to the Contract increasing the Contract amount by $9,500,000, from $346,000,000 to $355,500,000, for the purchase of pharmaceuticals, and extending the Contract period by three months, for a total period of May 1, 2015 through July 31, 2024.
ARMC recommends the approval of the Amendment to allow continued procurement of necessary pharmaceuticals to provide for the safety, health and social services needs of county residents.
PROCUREMENT
The Board approved Vizient as the primary Group Purchasing Organization (GPO) on December 7, 2021 (Item No. 46), for five years, based on the Request for Proposals (RFP) No. AGENCY21-PURC-4090. Vizient negotiates competitive agreements by leveraging the collective buying power of their client base to secure lower pricing than individual entities could achieve alone. Awards are based on RFPs evaluated using the American Bar Model Procurement Code, which is in compliance with County Procurement Policy. Vizient allows ARMC access to an extensive catalog of competitive, pre-negotiated agreements for various medical supplies and services.
After reviewing the options with Vizient, Cardinal was selected due to best pricing, availability of extensive drug catalog, and a capacity to sustain ARMC’s monthly drug volume. Established vendor relationship and purchase history allows Cardinal to prioritize ARMCs monthly allocation in case of global drug shortages, which will ensure ARMC receives adequate monthly drug quantities. The Purchasing Department supports this competitive procurement based on Vizient Agreement No. DPCARD. Agreement No. DPCARD, which is valid from May 2015 to July 31, 2024, guarantees the lowest rate available and provides no rate can be raised more than 3% during the contract period. This is a short-term extension necessary to ensure the continuity of Agreement No. DPCARD, while Cardinal and Vizient finalize negotiations to extend its term.
The recommended Amendment to the Contract with Cardinal and Vizient will provide an additional discount based on ARMC’s monthly purchase volume, adjusted quarterly based on the average of the prior three months, up to 6.75%. All rates were reviewed in 2020 to ensure the low-price guarantee.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Charles Phan, Supervising Deputy County Counsel, 387-5455) on June 26, 2024; Purchasing (Veronica Pedace, Buyer, 387-2464) on March 28, 2024; ARMC Finance (Chen Wu, Finance and Budget Officer, 580-3165) on June 27, 2024; Finance (Jenny Yang, Administrative Analyst, 387-4884) on June 27, 2024; and County Finance and Administration (Valerie Clay, Deputy Executive Officer, 387-5423) on June 27, 2024.