Our prior Pharmaceutical Contracts Operational Audit report (No. 2005‑037, dated September 2004) disclosed numerous deficiencies related to Department pharmaceutical repackaging contracts with TYA Pharmaceuticals.  These deficiencies included the lack of competitive procurement, contract document omissions, nonfulfillment of responsibilities and conditions in accordance with contract terms, ineffective contract monitoring, untimely filling of pharmaceutical orders, pricing that was not in accordance with contract terms, payments made absent adequate invoice support and approval, and credits not issued in accordance with the contract terms. 

Our current audit disclosed that, although the Department has implemented some corrective actions related to the pharmaceutical repackaging contract (No. C2116), including amending the contract effective April 1, 2005, deficiencies still exist.  In addition, we noted similar deficiencies related to the recent pill‑splitting contract (No. C2197) with TYA Pharmaceuticals.

Finding No. 1:    The Department did not utilize a competitive process for selecting TYA Pharmaceuticals as the vendor for the pill‑splitting contract (No. C2197) with a 71‑month term and an expected cost of $12 million.  In addition, the Deputy Assistant Secretary of Health Services Administration (who has since resigned) had a prior financial relationship with TYA Pharmaceuticals and participated in the decision to contract with TYA Pharmaceuticals for the service.  Also, two documents used by the Department to ensure that proper contracting processes are utilized were not adequately completed.

Finding No. 2:    The Department was unable to provide records related to the employment of the Deputy Assistant Secretary of Health Services Administration who had a prior financial relationship with TYA Pharmaceuticals.

Finding No. 3:    Contrary to the terms of the pill‑splitting contract (No. C2197), the Department was not provided the information necessary to perform background checks for some TYA Pharmaceuticals’ employees prior to the individuals being hired or assigned to work under the contract.  Additionally, the Department has not requested TYA Pharmaceuticals’ staff to submit to fingerprinting.

Finding No. 4:    Department records and procedures were not sufficient to ensure that pharmaceutical orders were properly approved, accurately priced, and filled within the time periods prescribed in the contracts (Nos. C2116 and C2197).

Finding No. 5:    The Department had not established procedures to effectively measure TYA Pharmaceuticals’ performance in timely filling and delivering pharmaceutical orders as stipulated in the performance measure in the contracts (Nos. C2116 and C2197).

Finding No. 6:    The Department did not always record contract payments to the applicable pharmaceutical contract in Department accounting records, limiting the Department’s decision‑making and monitoring abilities (Nos. C2116 and C2197). 

Finding No. 7:    Although required by the repackaging contracts (most recently by contract No. C2116), the Department did not obtain an annual financial reporting package from TYA Pharmaceuticals until November 2005 (for the year ended December 31, 2004).  The provision of an annual financial and compliance audit to the Department has been a contract condition in repackaging contracts between the Department and TYA Pharmaceuticals since January 1998.

Finding No. 8:    TYA Pharmaceuticals did not notify the Contract Manager in writing within seven days of receiving a Department of Health inspection report.

The Secretary’s response is included in its entirety at the end of this report as Appendix B.