The Department of Veterans Affairs Office of Inspector General reported that medical facility staff are buying pharmaceuticals on the open market rather than through the department's prime vendor contract and are not always documenting why. The finding comes from OIG report 25-02487-143, "Audit of Pharmaceutical Purchases Made Outside the Prime Vendor Contract," issued June 25, 2026. The gap matters because the prime vendor program exists to channel buying through a single distributor at negotiated, leveraged prices, and undocumented open-market purchases erode the cost controls that arrangement is built to deliver.
Background
VA runs one of the largest pharmacy operations in the federal government, dispensing medications across its national network of medical centers and outpatient clinics. To buy efficiently at that scale, the Veterans Health Administration relies on a pharmaceutical prime vendor contract. Under the prime vendor model, a single distributor warehouses and delivers drugs to VA facilities under pre-negotiated terms, giving the department predictable pricing and a clean audit trail for what it buys and what it pays.
The scale is enormous. During the audit period — April 1, 2024 through March 31, 2025 — VHA spent roughly $11.7 billion on pharmaceuticals. About $11.4 billion of that ran through the prime vendor contract, while roughly $322.5 million, or about 3 percent, was purchased on the open market outside the contract. The system is designed so that the overwhelming majority of pharmaceutical spending flows through that one channel.
When a facility instead buys a drug on the open market — from another wholesaler or supplier outside the prime vendor agreement — it steps outside those negotiated prices. Open-market purchases are sometimes unavoidable: a product may be on backorder through the prime vendor, an emergency need may arise, or a specific item may not be carried. But because each off-contract buy bypasses the leveraged pricing the program secures, VA's own policy contemplates that staff should be able to show why the exception was warranted.
Key Details
The core finding is that VHA facilities did not always comply with policy on open-market pharmaceutical purchases. In particular, staff did not always document their attempts to purchase through the prime vendor before going off-contract, and did not consistently conduct market research for cost-effectiveness before making open-market purchases. Without that documentation, VA cannot readily demonstrate that off-contract buys were justified, nor measure how much potential savings it gives up each time a purchase routes around the prime vendor.
That documentation gap directly undercuts the purpose of the prime vendor program. The leveraged pricing the contract is meant to deliver only holds value if purchases actually run through it, and if exceptions are limited to genuinely necessary cases. When staff buy elsewhere without recording the reason, the department loses both the price advantage on those transactions and the ability to police whether the exceptions are appropriate.
To close the gap, the OIG made several recommendations. Chief among them, it recommends that VHA develop and establish guidance detailing how medical facility staff must document the evidence supporting their decisions to purchase pharmaceuticals on the open market. The OIG also recommends that facility leaders conduct routine assessments of open-market pharmaceutical purchases for policy compliance, and that VHA develop a visibility mechanism, coordinating across the purchase card program office and Office of General Counsel, to oversee pharmaceutical purchases. The recommendations target the documentation and oversight process rather than prohibiting open-market buys outright. The aim is to make each exception traceable and reviewable, so the department can confirm the purchase was warranted and account for the cost difference.
What It Means for Contractors
For the pharmaceutical prime vendor, the audit underscores a structural reality of the prime vendor model: the contract's value to VA depends on capture rate. Every documented, justified open-market purchase is volume that does not flow through the prime vendor, and undocumented ones make it harder for the department to see how much business is leaking out of the channel. Guidance that forces facilities to record and justify each off-contract buy is likely to surface where the prime vendor is not meeting demand — backorders, gaps in carried products, or delivery timing — which is exactly the information a prime vendor needs to defend and grow its share of VA spend.
For other distributors and suppliers that sell to VA facilities on the open market, tighter documentation requirements raise the bar on the transactions they win outside the prime vendor channel. If staff must capture evidence supporting each open-market decision, off-contract sales will draw more scrutiny, and suppliers should expect facilities to ask for clearer justification before placing orders. That favors vendors who can document availability, pricing, and delivery in a way that supports a facility's case for buying off-contract.
More broadly, the audit is a reminder that prime vendor and consolidated-buying arrangements across the government live or die on compliance with their own exception rules. Contractors holding prime vendor or similar leveraged-pricing contracts should watch for capture-rate and documentation findings as a recurring oversight theme. When auditors find that an agency is not documenting its off-contract spending, the corrective action tends to tighten controls around the very purchases that compete with the prime vendor, reshaping where the agency's dollars flow.
The practical takeaway for any contractor in a prime vendor program is to help the customer keep its capture rate high and its exceptions clean. Demonstrating reliable availability and competitive pricing reduces the agency's reason to buy elsewhere, and helping facilities document the rare necessary exception protects both sides when the inspector general comes looking.
