BNUMBER: B-279073
DATE: May 4, 1998
TITLE: Hoechst Marion Roussel, Inc., B-279073, May 4, 1998
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Matter of:Hoechst Marion Roussel, Inc.
File: B-279073
Date:May 4, 1998
David C. Hammond, Esq., W. Bruce Shirk, Esq., and Mary Baroody Lowe,
Esq., Powell, Goldstein, Frazer & Murphy, for the protester.
Samantha L. Southall, Esq., Frank M. Rapoport, Esq., and Charles H.
Carpenter, Esq., Pepper, Hamilton & Scheetz, for Forest
Pharmaceuticals, an intervenor.
Maura C. Brown, Esq., Philip S. Kauffman, Esq., and Phillipa L.
Anderson, Esq., Department of Veterans Affairs, for the agency.
Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Solicitation for various dosages of a drug is improper where the
solicitation fails to realistically state agency's estimated
requirements for the various dosages; prohibits vendors from offering
larger dosages of the drug, although agency concedes that doing so
would lead to cost savings and agency has an identified need for the
larger dosages; and the solicitation reflects an intent to modify the
contract after award, on a sole-source basis without adequate
justification, to add the larger dosages.
2. Agency properly may seek offers for different formulations of a
drug under a single solicitation, and make a single award based on low
price, where the agency determines that any of the available
formulations will meet its requirements; agency's medical judgment
regarding the relative efficacy of the different formulations is not
appropriate for review within the context of a bid protest.
3. General Accounting Office will not consider protest that
solicitation requirement violates Federal Healthcare Anti-Kickback
Act, because the Act provides for obtaining advisory opinions on such
matters from the Secretary of Health and Human Services, and those
opinions are binding on the parties seeking the Secretary's opinion.
DECISION
Hoechst Marion Roussel, Inc. (HMR) protests the terms of request for
proposals (RFP) No. M5-Q1-98, issued by the Department of Veterans
Affairs (VA) for sustained action (administered once daily) Diltiazem,
a calcium channel blocker used primarily in the treatment of
hypertension. HMR argues that the RFP improperly permits VA to make a
post-award sole-source modification of the resulting contract to
include dosage strengths and package sizes not subject to evaluation
during the acquisition.[1] HMR also maintains that the RFP fails to
provide for consideration of the competing products' relative efficacy
in connection with the agency's technical evaluation, and improperly
calls for the winning vendor to bear the cost of recalibrating VA's
automatic drug dispensing equipment.
We sustain the protest.
The RFP contemplates the award of a single requirements-type contract
for all of VA's requirement for Diltiazem for a base year and four
1-year options. This drug is currently available under multiple-award
Federal Supply Schedule (FSS) contracts (the three potential
competitors each have an FSS contract for Diltiazem). VA currently
dispenses some 23 million doses of Diltiazem per year in varying
strengths and, depending on the vendor, the product is commercially
available in 120, 180, 240, 300 and 360 milligram (mg.) dosages.
Pursuant to VA's national formulary program, the agency seeks to
establish, through the current procurement, a single, nationwide
supplier of Diltiazem to ensure the availability and consistency of
the drug, and to take advantage of volume-based pricing.
For evaluation and award purposes, the RFP provides that price and
past performance will be considered, with price more important. The
contract line items are divided among several dosage strengths and
package sizes (for example, 120 mg. dosages available in 30, 90 and
either 1,000 or 5,000 dose packages), and the RFP provides that an
aggregate price for each offer will be arrived at by adding the
cumulative total of the proposed prices for all contract line items.
The RFP further provides that some, but not all, of the commercially
available dosage strengths will be evaluated for award purposes,
specifically, that only 120, 180 and 240 mg. dosages will be
evaluated. As for other available strengths, the RFP provides:
If additional strengths are available, they should be included in
the offer, however they will not be made part of the evaluation
process. Any additional strength may be added after award by
mutual agreement through negotiation between the contractor and
Government. Furthermore, any commercially offered packaging
sizes should be made available to the Government after award.
VA states that it has a known requirement for higher dosages
(specifically 300 mg. and 360 mg. dosages), and will meet that
requirement either through a single, large pill under the terms of the
above provision (if the contractor manufactures larger pills), or with
a combination of lower dosage pills (if the contractor manufactures
only the three lower dosages). VA explains that it has limited the
RFP to only the lower dosage strengths because these are common to all
three of the prospective vendors, and maintains that this will foster
broader competition, since only one firm manufactures the full range
of dosage strengths (i.e., up to 360 mg.).
DOSAGE REQUIREMENTS
HMR alleges that the solicitation does not accurately reflect the
agency's needs and that any modification under the provision quoted
above will constitute an improper sole-source award to the successful
contractor for dosage strengths that were not evaluated. For example,
HMR has a 300 mg. dosage available, and the intervenor in this
protest, Forest Pharmaceuticals, has 300 and 360 mg. dosages
available. HMR maintains that, since the agency has a clearly-defined
need for these larger dosages, it must state its requirement in the
RFP and procure them competitively, rather than on a sole-source basis
by means of the modification provision.
When issuing a solicitation for a requirements-type contract, agencies
are required to include realistic estimates of the total quantities of
goods or services being procured. Federal Acquisition Regulation sec.
16.503 (a)(1). Where a solicitation lacks realistic estimates, firms
cannot prepare bids or offers that reflect the agency's actual,
anticipated needs, and the agency cannot determine whether award to
one firm versus another will result in the lowest possible cost to the
government. Beldon Roofing & Remodeling Co., B-277651, Nov. 7, 1997,
97-2 CPD para. 131 at 7.
Here, the record shows that VA has a known requirement for
approximately 1.7 million 300 mg. strength dosages, and 33,000 dosages
at the 360 mg. strength. These estimates are based on historical data
showing the dosages prescribed during the preceding year for
outpatient use, and VA does not contest that this represents a
realistic estimate of its requirement for these higher strengths.
Rather than include estimates for these dosage requirements and allow
offerors alternatives to meeting the requirements (e.g., offer
combinations of 120 mg. and 180 mg. dosages to meet the 300 mg.
requirement, or offer a 300 mg. dosage if available), the agency
increased the estimated quantity for 180 mg. dosages by 3.4 million
dosages to cover needed 300 mg. dosages. Moreover, by accounting for
the requirement for 300 mg. dosages in terms of 180 mg. dosages, the
RFP's quantity estimates overstate the agency's actual requirement for
180 mg. dosages by approximately 566,000 dosages.[2] Because of this
unrealistic estimate, offerors will be proposing to supply dosages
that the agency may not order.
The agency argues that its approach maximizes competition and will
ensure that VA obtains the lowest prices. The record, however, does
not support the agency's position. Under the Competition in
Contracting Act, solicitations shall "include restrictive provisions
or conditions only to the extent necessary to satisfy the needs of the
executive agency or as authorized by law." 41 U.S.C. sec. 253a(a)(2)
(1994). Rather than increasing competition, the agency's approach of
allowing offerors to propose only smaller dosage pills constitutes a
restrictive provision that appears to lack any basis in the agency's
needs. The solicitation precludes firms such as the protester from
proposing larger dosage pills to satisfy the need, whose existence the
agency concedes, for larger dosages.
Moreover, there is no basis to believe that this restriction will
ensure that VA obtains the lowest prices. Indeed, VA concedes that
prescribing single 300 and 360 mg. dosage pills might be more cost
effective than prescribing smaller dosage pills in combination. For
example, the protester's FSS price for its large dosage pill is lower
than the price for a combination of its smaller dosage pills.
Allowing offerors to propose only small dosage pills may mean that
manufacturers of the larger dosage pills, such as the protester, are
precluded from offering their lowest possible price in the course of
the competition, and the contract thus may be awarded at other than
the lowest possible cost to the government. Including the larger
dosages in the evaluation would not prevent any firm from
competing--indeed, competition could be increased, if firms are
allowed to offer either a single pill or a combination of pills to
meet the larger dosages--and including the larger dosage pills in the
evaluation may result in a cost saving to the agency. Since the
reasons offered by the agency for not allowing offerors to propose
larger dosage pills do not demonstrate that this restriction is
necessary to satisfy the needs of the agency, we conclude that the
restriction is improper.
Our conclusion in this regard is reinforced by the RFP provision
allowing for a post-award contract modification in the event that the
awardee manufactures higher strength dosages. This provision
demonstrates that the agency already anticipates a need for the larger
dosage pills, and thus lacks any basis for precluding offerors from
proposing prices for those pills. The agency's recognition of the
need for the larger pills establishes another defect in the agency's
procurement strategy, as set out in the solicitation: the agency
apparently intends to modify the contract after award to add items
(the larger dosage pills) that were not subject to the competition
originally obtained. An agency may not properly competitively award a
contract with the intention of materially modifying it after award;
such a modification would be tantamount to an improper sole-source
award. Falcon Carriers, Inc., B-232562.2, Jan. 30, 1989, 89-1 CPD para.
96 at 4.
In sum, we conclude that the dosage requirements provisions of the RFP
do not realistically state the agency's requirements, impose a
restriction not necessary to satisfy the agency's needs, and reflect
the intent to modify the contract on a sole-source basis after award.
DIFFERENCES IN EFFICACY
HMR contends that the RFP's evaluation scheme fails to provide for an
assessment of the differences in the efficacy among the three
prospective offerors' products. According to the protester, the three
drugs have important medical differences arising from the fact that
each firm formulates its product differently. HMR contends, for
example, that there are differences in the absorption rate of the
three products, and that there is a so-called "food effect" that
changes the absorption rate of one of the products. HMR argues that
the evaluation scheme should take these clinical differences into
account, and that the agency has not produced a medical study or other
adequate medical evidence to show that its conclusion regarding the
therapeutic equivalence of the three drugs is reasonable. In support
of its position, HMR has submitted a forthcoming study that it
maintains shows that there are potential clinical differences in the
offerors' products.
Where an agency has deliberated and reached a considered judgment
concerning a medical policy, we do not believe that policy or judgment
is appropriate for review under our bid protest function. Pfizer,
Inc., B-277733, Oct. 27, 1997, 97-2 CPD para. 119 at 2-3. This includes
the need for, and accuracy of, evidence supporting the agency's
medical judgments. Id. at 3 n.3. The record shows that VA's Pharmacy
Benefits Management and Medical Advisory Panel (MAP) reviewed the
three drugs in question to determine whether any one of the three
manufacturers could be selected as VA's primary formulary for
Diltiazem. The MAP concluded that the sustained action Diltiazem
products available were therapeutically equivalent for contracting
purposes. The record also contains affidavits executed by two doctors
who participated in the MAP review. The first agrees with the MAP's
conclusion that any one of the three available drugs could be placed
on the national formulary, and that the difference between them lies
solely in the release mechanism employed. The second doctor states
that the differences between the three drugs are not clinically
significant, and will not induce important side effects. The record
thus shows that VA considered the therapeutic comparability of the
three drugs, concluded that any one of the three would be satisfactory
for the agency's purposes and found that, while there were differences
in the three products, none was significant for the agency's purposes.
While the protester disagrees with the agency's conclusion, we will
not review the agency's considered medical judgment.
FEDERAL HEALTHCARE ANTI-KICKBACK ACT
The RFP calls for the contractor to bear the cost of recalibrating
VA's automatic pill dispensing equipment. (The equipment must be
recalibrated to accommodate each manufacturer's unique pill size and
shape.) HMR contends that this requirement violates the Federal
Healthcare Anti-Kickback Act, 42 U.S.C.A. sec. 1320a-7b(b) (West Supp.
1998). According to HMR, payment of the cost of recalibrating the
machines could constitute a prohibited remuneration under the terms of
the Act.
The statutory and regulatory scheme at issue provides for the
Secretary of Health and Human Services (HHS) to issue advisory
opinions regarding whether a given arrangement constitutes a violation
of the Act's substantive provisions, and those advisory opinions are
binding on the Secretary and the parties requesting the opinion. 42
U.S.C.A. sec. 1320a-7d(b)(4)(A). Detailed regulatory procedures exist
for requesting and obtaining such advisory opinions, 42 C.F.R. pt.
1008 (1997), and determinations regarding what constitutes "prohibited
remuneration" are specifically among the matters subject to the
Secretary's review. 42 U.S.C.A. sec. 1320a-7d(b)(2)(A); 42 C.F.R. sec.
1008.5(a)(1).
Congress envisioned the Secretary of HHS as the government's
centralized source for information and guidance concerning application
of the Act's fraud provisions:
Providers want to comply with the fraud and abuse statute, but
many are unsure of how the statute affects them. These providers
should be able to receive guidance from the government regarding
financial arrangements. Little or no guidance is currently
provided because there are no regulations and only insufficient
safe harbors.
. . . . .
The Secretary shall issue written advisory opinions regarding (i)
what constitutes prohibited remuneration . . . . Advisory
opinions shall be binding as to the Secretary and the party
requesting the opinion.
H.R. Rep. No. 104-496, at 84-85 (1996), reprinted in 1996 U.S.C.C.A.N.
1884-85.
Where, as here, Congress has vested oversight and guidance authority
in a particular federal official or agency, our Office will not
consider protests involving issues which are properly for review by
that official or agency, especially where the determinations of the
federal official or agency are binding on the parties. Mississippi
State Dep't of Rehabilitation Servs., B-250783.8, Sept. 7, 1994, 94-2
CPD para. 99 at 3-4. Given the comprehensive nature of the regulatory and
statutory scheme that exists for obtaining advisory opinions regarding
application of the Act, and in light of the binding nature of the
Secretary's opinions, we decline to consider this aspect of HMR's
protest. This is a matter that the protester instead should address
to the Secretary, through the procedures outlined in the governing
regulations.
RECOMMENDATION
In view of the foregoing, we recommend that the agency amend the RFP
to state VA's estimated requirements for all dosages, rather than
permitting offerors to propose only the three smaller dosages. As
indicated above, the agency may, if consistent with its needs, allow
offerors to satisfy the requirements for larger dosages by offering
either single large dosage pills or multiple small dosage ones. We
also recommend that HMR be reimbursed the cost of filing and pursuing
its protest, including reasonable attorneys' fees. 4 C.F.R. sec.
21.8(d)(1) (1997). The protester should submit to the agency its
certified claim for those costs, detailing the time spent and the
expenses incurred, within 60 days of receiving this decision. 4
C.F.R. sec. 21.8(f)(1).
The protest is sustained.
Comptroller General
of the United States
1. HMR's protest originally included several allegations relating to
the way in which the agency was to evaluate different package sizes in
arriving at the offerors' aggregate pricing for award purposes. In
its report to our Office, VA explained that it had issued an amendment
to clarify and correct this aspect of the RFP. HMR did not further
pursue its contentions in its comments, and we deem those arguments
abandoned. TMI Servs., Inc., B-276624.2, July 9, 1997, 97-2 CPD para. 24
at 4 n.3.
2. The agency increased the estimate of 180 mg. dosages by 3.4 million
to account for its requirement of 1.7 million 300 mg. dosages. This,
however, overstates the agency's need by 60 mg. per 300 mg. dosage
(180 x 2 = 360, rather than 300). On the other hand, the agency
represents in its legal memorandum that, where a 300 mg. dosage is
required, it could prescribe a combination of one 120 mg. pill and one
180 mg. It follows that the agency will either be prescribing 360 mg.
where only 300 are required (if two 180 mg. pills are prescribed), or
that the RFP in fact inaccurately overstates VA's requirement for 180
mg. dosages by 566,666 pills (1,700,000 x 60 mg. / 180 mg. = 566,666)
(if one 180 mg. and one 120 mg. pill are prescribed). If the latter
is the case, the RFP understates the agency's requirement for 120 mg.
pills.