Inadequate Oversight of the Medical/Surgical Prime Vendor Program’s Distribution Fee Invoicing

The VA Office of Inspector General (OIG) assessed VA’s oversight of the Medical/Surgical Prime Vendor-Next Generation (MSPV-NG) Program, under which prime vendors maintain inventories of medical and surgical supplies and restock medical facilities when needed. Specifically, the OIG examined whether medical facility-level staff verified the accuracy of distribution fees invoiced by the prime vendors, and national- and Veterans Integrated Service Network-level staff provided proper oversight of this activity.In February 2016, VA’s Strategic Acquisition Center awarded four MSPV-NG contracts with a cumulative value of about $4.6 billion to prime vendors for medical and surgical supplies. VA pays prime vendors for requested products plus a distribution fee to cover the costs associated with managing medical facilities’ inventories. Medical facilities paid approximately $25.4 million in MSPV-NG distribution fees during fiscal year 2018, according to an official from VHA’s Procurement and Logistics Office.The OIG found VA controls were not sufficient to ensure VA medical facility staff accurately reviewed, verified, or certified distribution fee invoices for the MSPV-NG program. VA also did not ensure staff at medical facilities accurately established and applied the on-site representative rates and paid fees based on annual facility purchases. The MSPV-NG pricing schedule establishes fee rates for on-site representatives based on annual facility purchase amounts. VA establishing a flat fee rate will help mitigate on-site representative fee rate disparities, but in the interim VA still needs to ensure facilities reconcile rate disparities that have occurred and continue to occur.The OIG made 10 recommendations designed to improve oversight of verification and certification of distribution fee invoices and ensure the accuracy of on-site representative fees.