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Florida DOC's No Bid Pharmaceutical Contract Scrutinized and Criticized

by David M. Reutter

A September 2004 Florida Auditor General's Report found numerous deficiencies in the Florida Department Of Corrections' (FDOC) pharmaceutical contract with Terry Yon & Associates, Inc. (TYA). The current three-year contract became effective January 1, 2004. Its estimated worth is $72 million.

To distribute prescribed pharmaceuticals, FDOC operates four cluster" pharmacies where health services' staff, records, equipment, and pharmaceutical inventories are consolidated. These four pharmacies provide pharmacy support to neighboring institutions.

The FDOC did not put its pharmaceutical contract out for bid prior to signing with TYA, concluding it was not required to under law because the contract was for health services involving examination, diagnoses, treatment, prevention, medical consultation, or administration. The Auditor General, however, concluded the contract with TYA does not appear to provide for health services described by law, making the service susceptible to open bidding.

The Auditor General further found that TYA is providing commodities that are available from other vendors. The repackaging of pharmaceuticals for unit dosing is not included in the list of statutory health services. Absent competitive procurement, FDOC cannot demonstrate the contract provides the best value for the state or that the contract was equitably awarded. That finding was amplified by FDOC's comparison of TYA prices with those of another pharmaceutical vendor, which found the other vendors repackaging prices were lower by about 30 percent than those of TYA.
The Auditor General found the contract disclosed several deficiencies. First, the contract pays TYA the vendor's medication cost plus 1.45 percent, plus a fee for the pharmaceutical package. The contract fails to address rebates or discounts that are common in the pharmaceutical industry. Second, the contract fails to contain a provision requiring TYA to advise FDOC of any complaint filed, investigations made, warning letters or inspection reports issued, or any disciplinary actions imposed on TYA by any federal or state oversight agency. A check of state oversight agencies reveals TYA received a warning letter on August 6, 2002, but the same letter never appeared in FDOC's records. Finally, the contract requires TYA to abide by all pertinent requirements of specified Florida Statutes and Administrative Codes. The contract cites rules repealed or transferred prior to the effective date of the contract.

The Auditor General's review found that TYA did not always fulfill the contract responsibilities and conditions. First, FDOC was never provided a copy of TYA's Florida Department of Health Pharmacy license or Federal Drug Enforcement Agency registration. TYA, also is required to provide FDOC a financial and compliance audit. One has never been provided. Next, TYA is supposed to provide a procedure manual for all four FDOC pharmacies. Two did not have a manual, and the manual the other two had were outdated. Moreover, TYA did not always recognize order limit maximums set by FDOC.
The Auditor General also found that contract monitoring by FDOC was extremely flawed. The Contract Manager had no training and utilized checklists that were not signed or dated, making frequency of monitoring visits undocumented.

TYA was also found by the Auditor General's report to have failed to timely fill orders as required by the contract. Eight of 40 orders reviewed were not timely filled. Those 8 orders were filled 1 to 10 days late. Because the date stamps on receiving reports did not always agree with the invoice, an additional 22 orders could not be determined for timeliness. Yet, the Contract Manager found TYA Met" the contract timeliness requirement.

The Auditor General's review found that 34 of the 40 invoices from TYA were not supported by adequate documentation. Specifically, the order forms or receiving reports for these 34 invoices are not available; did not identify the pharmacy placing the order; or were not properly signed to indicate the person who placed the order, authorized the order, accepted the order, or approved the order received." 37 of the 40 invoices were not reviewed or approved by a FDOC Lead Pharmacist or designee prior to payment. These failures may allow the misappropriation of pharmacy supplies to occur and not be timely detected.

The Auditor General's final finding addressed credits for returned pharmaceuticals. TYA was selected over the cheaper vendor because of its policy on returned medications." Yet, TYA did not comply with that policy when crediting FDOC. TYA's return policy was to credit FDOC the applicable item listing, which is regularly revised. Rather than credit FDOC for the prices it paid, TYA credited FDOC under the most current item listing. Additionally, the Auditor General noted some minor errors in pricing and instances in which the number or type of items credited did not agree with [FDOC] records of the number or types of items returned.

In response to the report, FDOC agreed with most of the findings and agreed to make changes. FDOC, however, flatly disagreed that it must put the pharmaceutical contract out for bidding, but would consider" doing so when the TYA contract expires in 2006. In recent years, FDOC has entered into contracts to privatize its foodservice, canteen operations, transportation of work release prisoners, housing of prisoners, and medical services. Each such contract has been challenged or is under scrutiny by legislative bodies.

Sources: Department of Corrections a Pharmaceutical Contract Operational Audit. Available at

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