[Federal Register: March 17, 2009 (Volume 74, Number 50)]
[Rules and Regulations]
[Page 11279-11293]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17mr09-3]
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DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 199
[DoD-2008-HA-0029; 0720-AB22]
Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)/TRICARE: Inclusion of TRICARE Retail Pharmacy Program in
Federal Procurement of Pharmaceuticals
AGENCY: Office of the Secretary, Department of Defense (DoD).
ACTION: Final rule.
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SUMMARY: Section 703 of the National Defense Authorization Act for
Fiscal Year 2008 (NDAA-08) states with respect to any prescription
filled on or after the date of enactment of the NDAA, the TRICARE
Retail Pharmacy Program shall be treated as an element of the DoD for
purposes of procurement of drugs by Federal agencies under section 8126
of title 38, United States Code (U.S.C.), to the extent necessary to
ensure pharmaceuticals paid for by the DoD that are provided by network
retail pharmacies under the program to eligible covered beneficiaries
are subject to the pricing standards in such section 8126. NDAA-08 was
enacted on January 28, 2008. The statute requires implementing
regulations. This final rule is to implement section 703 of the NDAA-
08.
DATES: Effective Date: This final rule is effective May 26, 2009.
FOR FURTHER INFORMATION CONTACT: Rear Admiral Thomas McGinnis, Chief,
Pharmacy Operations Directorate, TRICARE Management Activity, telephone
703-681-2890.
SUPPLEMENTARY INFORMATION:
A. Background
Section 703 of the National Defense Authorization Act for Fiscal
Year 2008 (NDAA-08) (Pub. L. 110-181) enacted 10 U.S.C. 1074g(f). It
provides that with respect to any prescription filled on or after the
date of enactment of the NDAA, the TRICARE Retail Pharmacy Program
shall be treated as an element of the DoD for purposes of procurement
of drugs by Federal agencies under section 8126 of title 38, United
States Code (U.S.C.), to the extent necessary to ensure pharmaceuticals
paid for by the DoD that are provided by network retail pharmacies
under the program to eligible covered beneficiaries are subject to the
pricing standards in such section 8126. NDAA-08 was enacted on January
28, 2008. The statute requires implementing regulations.
The Veterans Health Care Act (VHCA) of 1992, codified at 38 U.S.C.
8126, established Federal Ceiling Prices (FCPs) of covered
pharmaceuticals (requiring a minimum 24% discount off non-Federal
average manufacturing prices--``non-FAMP'') procured by the four
designated agencies covered in the Act: Department of Veterans Affairs
(VA), DoD, Coast Guard, and the Public Health Service/Indian Health
Service. The non-FAMP is the average price paid to the manufacturer by
wholesalers (or, if there are insufficient wholesale sales, others who
purchase directly from the manufacturer) for drugs distributed to non-
federal purchasers, taking into account any cash discounts or similar
reductions given to those purchasers. The VA administers the VHCA
discount program on behalf of the four specified agencies. The DoD
consulted closely with the VA in the development of this final rule and
also, consistent with 10 U.S.C. 1073, consulted with the Departments of
Health and Human Services and Homeland Security.
The TRICARE Pharmacy Benefits Program operates under the authority
of 10 U.S.C. 1074g. It provides outpatient drugs to TRICARE
beneficiaries through Military Treatment Facility (MTF) pharmacies, the
TRICARE mail order pharmacy program (TMOP), and a TRICARE Retail
Pharmacy program consisting of TRICARE Retail Pharmacy Network and
retail non-network pharmacies. As implemented, the new statutory
requirement will only apply to pharmaceuticals paid for by DoD and
provided to eligible beneficiaries through the TRICARE Retail Pharmacy
Network. There are approximately 60,000 retail pharmacies in the Retail
Pharmacy Network. Section 1074g requires DoD to establish a Uniform
Formulary of pharmaceutical agents, selected based on clinical and cost
effectiveness, as evaluated by the DoD Pharmacy and Therapeutics (P&T)
Committee, reviewed by the Beneficiary Advisory Panel, and decided by
the Director, TRICARE Management Activity (TMA). The Uniform Formulary
has three tiers: Tier 1 contains generic drugs; Tier 2 brand name
Uniform Formulary drugs; and Tier 3 non-Formulary drugs. Drugs in all
three tiers are covered by the TRICARE Pharmacy Benefits Program, but
cost sharing and other program differences encourage the use of generic
drugs and Uniform Formulary brand name drugs.
The TRICARE Retail Pharmacy Network is managed under a single
Pharmacy Benefits Manager contract,
[[Page 11280]]
linked to the DoD Pharmacy Benefits Office, and enabled by a management
information system to verify beneficiary eligibility, check for
potential drug interactions, and authorize payment for the
pharmaceuticals used to fill the beneficiary's prescription. The
management information system also records data on all prescriptions
filled through the Retail Pharmacy Network, permitting an accurate
accounting of all retail network pharmaceuticals paid for by DoD under
the TRICARE Pharmacy Benefits Program. Since the beginning of the
Federal Ceiling Price program, outpatient pharmaceuticals provided by
DoD through MTF pharmacies have been subject to FCPs, as have those
under the TMOP program since it began. Implementation of similar
applicability to the TRICARE Retail Pharmacy Network component of the
Program is the subject of this final regulation.
B. Provisions of the Proposed Rule
The proposed rule, published for public comment July 25, 2008,
proposed to add a new paragraph (q) to 32 CFR 199.21. Paragraph (q)(1)
repeated the new statutory requirement. Paragraph (q)(2) provided that
an agreement by a manufacturer to honor the FCPs in the Retail Pharmacy
Network component of the Pharmacy Benefits Program is a condition of
inclusion of a drug on the Uniform Formulary. Further, it stated that a
drug not under such an agreement would require preauthorization to be
provided through the Retail Pharmacy Network. In addition, it indicated
that drugs covered by this requirement are TRICARE Retail Pharmacy
Network provided drugs that are covered by the VA's FCP program, except
any prescription for which the TRICARE Pharmacy Benefits Program is the
second payer. While DoD proposed in this rulemaking to enter into
voluntary agreements with manufacturers that would make prescriptions
filled on or after the date of enactment of NDAA-08 subject to FCPs,
the Department solicited comment regarding any other appropriate and
legally permissible implementation approach and/or date from which to
begin making prescriptions filled in the Retail Pharmacy Network
subject to FCPs. DoD was specifically interested in the legal
justification, including under section 703 of NDAA-08, for any
alternative implementation approaches and/or dates that commenters may
propose.
Proposed paragraph (q)(3) established refund procedures to, in the
words of the statute, ``ensure that pharmaceuticals paid for by the DoD
that are provided by pharmacies under the program to eligible covered
beneficiaries under this section are subject to the pricing standards''
of the FCP program. The refund procedures will, to the extent
practicable, incorporate common industry practices for implementing
pricing agreements between manufacturers and large pharmacy benefit
plan sponsors. Such procedures shall provide the manufacturer at least
70 days from the date of submission by TMA to the manufacturer
(initially expected to be on a quarterly basis) of the TRICARE
pharmaceutical utilization data needed to calculate the refund before
the refund payment is due. The basis of the refund will be the
difference between the average non-federal price of the drug sold by
the manufacturer to wholesalers, as represented by the most recent
annual non-FAMP (reported to VA) and the FCP or, in the discretion of
the manufacturer, the difference between FCP and direct commercial
contract sales prices specifically attributable to TRICARE paid
pharmaceuticals, determined for each applicable National Drug Code
(NDC) listing. Further, this paragraph of the proposed rule provided
that a refund due under the statute is subject to the overpayment
recovery procedures of Sec. 199.11 of the TRICARE regulation.
Finally, proposed paragraph (q)(4) stated that in the case of the
failure of a manufacturer of a covered drug to make or honor an
agreement to ensure that DoD pays no more than the FCP for covered
drugs provided through the TRICARE Retail Pharmacy Network component of
the program, the Director, TMA, in addition to other actions referred
to in the rule, may take any other action authorized by law.
C. Public Comments
The proposed rule was published in the Federal Register July 25,
2008, for a 60-day comment period. DoD received 16 public comments.
Most of these were from or on behalf of the pharmaceutical industry.
Several were from or on behalf of the retail pharmacy sector.
Significant comments are discussed below.
1. Statutory Requirement (Paragraph (q)(1))
a. Statutory Interpretation
Comments: A number of comments by or on behalf of the
pharmaceutical industry expressed the view that 10 U.S.C. 1074g(f),
which was added by section 703(a) of NDAA-08, does not require that
prescriptions filled in the TRICARE Retail Pharmacy Network are subject
to Federal Ceiling Prices. Rather, they say, it authorizes DoD to use
procedures of the TRICARE Pharmacy Benefits Program to encourage drug
manufacturers to enter into agreements to apply FCPs to Retail Pharmacy
Network prescriptions. Some commenters said the statute only
establishes a general ``goal'' of applying FCPs and that the references
in the preamble to the proposed rule to voluntary agreements with
manufacturers should be taken to signal that the statute has no effect
absent a manufacturer's agreement. On the other hand, commenters
representing retail pharmacies strongly supported the interpretation
that FCPs now apply equally in all three TRICARE Pharmacy Benefits
Program venues.
Response: DoD does not agree with the interpretation of the statute
recommended by the pharmaceutical industry representatives. 10 U.S.C
1074g(f) provides:
(f) Procurement of pharmaceuticals by TRICARE retail pharmacy
program. With respect to any prescription filled on or after the
date of the enactment of the National Defense Authorization Act for
Fiscal Year 2008, the TRICARE retail pharmacy program shall be
treated as an element of the Department of Defense for purposes of
the procurement of drugs by Federal agencies under section 8126 of
title 38 to the extent necessary to ensure that pharmaceuticals paid
for by the Department of Defense that are provided by pharmacies
under the program to eligible covered beneficiaries under this
section are subject to the pricing standards in such section 8126.
Setting aside the start date issue, which will be discussed below, DoD
interprets the statute as follows. First, DoD interprets the phrase,
``the pricing standards in such section 8126'' to mean Federal Ceiling
Prices. This is based on the text of 38 U.S.C. 8126(a) and (b), which
provide that ``[e]ach manufacturer of covered drugs shall enter into a
master agreement with the Secretary [of Veterans Affairs] under which''
``with respect to each covered drug of the manufacturer procured by''
the Department of Veterans Affairs, the Department of Defense, the
Public Health Service, or the Coast Guard, ``that is purchased under
depot contracting systems or listed on the Federal Supply Schedule, the
manufacturer has entered into and has in effect a pharmaceutical
pricing agreement with the Secretary * * * under which the price
charged * * * may not exceed 76 percent of the non-Federal average
manufacturer price.'' The end result of the pricing calculations
required by section 8126 is referred to as the Federal Ceiling Price.
Second, DoD interprets the phrase ``treated as an element of the
Department of Defense for purposes of
[[Page 11281]]
the procurement of drugs by Federal agencies under section 8126'' to
mean treated the same as a covered drug directly procured by DoD. The
phrase does not require that the retail pharmacy actually was involved
in a procurement by a Federal agency under section 8126 or that the
retail pharmacy was acting as an agent of a Federal agency. An
interpretation that would require such an actual procurement by DoD is
unsupportable because the words ``shall be treated as'' would be
rendered meaningless, as would the entire section since any such actual
procurement was undisputedly already covered within section 8126. In
addition, DoD interprets this phrase as precluding an interpretation of
the statute that would apply FCPs to what the retail pharmacy may be
paid by DoD. In referring to the procurement of drugs by Federal
agencies under section 8126, the statute is addressing manufacturers'
prices, which are the focus of section 8126. Retail pharmacies are
specifically excluded from the definition of ``manufacturer'' in 38
U.S.C. 8126(h)(4).
Third, DoD interprets the phrase ``pharmaceuticals paid for by the
Department of Defense that are provided by pharmacies under the program
to eligible covered beneficiaries under this section'' to mean
pharmaceuticals paid for through the TRICARE Retail Pharmacy Program.
More specifically, DoD interprets the provision as limited to the
TRICARE Retail Pharmacy Network because prescriptions filled by non-
network retail pharmacies are not subject to the pre-screening and
authorization process incorporated into the information systems
referred to in 10 U.S.C. 1074g and relied upon by DoD to document DoD
payment for the specific prescriptions covered and because of
legislative history on this point, specifically, a Conference Report
statement (discussed below).
Fourth, DoD interprets ``any prescription filled'' to mean all
prescriptions filled, regardless of whether the drugs are on the
TRICARE Uniform Formulary or are non-formulary drugs. Provisions of the
rule making a manufacturer's agreement to honor Federal Ceiling Prices
in the Retail Pharmacy Network a condition for Uniform Formulary status
in no way suggests that the statutory provision has such a limited
scope.
Taken together, DoD interprets 10 U.S.C. 1074g(f) to mean that all
TRICARE Retail Pharmacy Network prescriptions shall be treated the same
as drugs procured directly by DoD for purposes of the Federal Ceiling
Price program to the extent necessary to ensure that pharmaceuticals
provided under those prescriptions are subject to Federal Ceiling
Prices. Stated even more simply, DoD interprets 10 U.S.C. 1074g(f) to
mean that all covered drug TRICARE Retail Pharmacy Network
prescriptions are subject to Federal Ceiling Prices.
This interpretation is almost a verbatim restatement of the primary
statement of legislative history concerning 10 U.S.C. 1074g(f). The
Conference Report accompanying the legislation described it as a
provision ``that would require that any prescription filled * * *
through the TRICARE retail pharmacy network will be covered by the
federal pricing limits applicable to covered drugs under section 8126
of title 38, United States Code.'' H. Conf. Rept. 110-477, p. 938. This
simplified restatement of the statutory requirement has been added to
paragraph (q)(1).
Comment: Some commenters representing the pharmaceutical industry
recommended that instead of establishing regulatory requirements for
benchmark pricing, DoD should pursue voluntary negotiations with
manufacturers to reduce costs. Some commenters said that applying
Federal Ceiling Prices in the Retail Pharmacy Program would hurt
millions of other Americans because drug companies will raise prices to
make up their reduced profits from DoD sales, and that retail refunds
will cause DoD to push patients to retail pharmacies where their co-
payments are higher. On the other hand, comments from the retail
pharmacy sector expressed approval for equalizing ingredient costs
across all TRICARE Pharmacy Benefits Program venues.
Response: While there are many policy arguments for and against
various potential strategies for reducing the dramatically increasing
costs of the TRICARE Pharmacy Program, the issue in this rule making is
implementing the statutory requirement of section 703, under which all
covered TRICARE Retail Pharmacy Network prescriptions are subject to
Federal Ceiling Prices. DoD will continue voluntary negotiations
concerning prices, but does not have the authority to agree to prices
above Federal Ceiling Prices. It may be noteworthy that over the past
20 years, Congress has enacted and DoD has implemented through
regulations (32 CFR 199.14) a long series of payment reforms for
TRICARE, including payment limits for acute care hospitals, psychiatric
hospitals, hospital outpatient services, partial hospitalization
programs, substance abuse treatment programs, ambulatory surgery
centers, skilled nursing facilities, residential treatment centers,
hospice programs, home health agencies, physicians and other individual
health care professionals, durable medical equipment, and military
treatment facility and mail order program pharmaceuticals. The last
significant segment of the TRICARE program to be covered by payment
reform is the $4.5 Billion Retail Pharmacy Network program.
b. Relationship Between 10 U.S.C. 1074g(f) and the Master Agreements
Under 38 U.S.C. 8126
Comment: A number of comments from or on behalf of the
pharmaceutical industry expressed the view that section 1074g(f) has no
relationship to the VA Master Agreements under 38 U.S.C. 8126 and that
therefore the final rule would also have no relationship. Some of these
commenters also stated that under section 8126(g), their Master
Agreement rights and obligations were frozen as of November 4, 1992,
and cannot be enlarged by any subsequent enactment, including 10 U.S.C.
1074g(f).
Response: DoD does not agree with this opinion, but has endeavored
to construct a rule that could stand on common ground between the view
that the Master Agreements encompass the TRICARE Retail Pharmacy
Network and the view that they utterly do not. This disagreement has
some history. As noted above, section 8126 includes ``depot contracting
systems'' within the scope of Federal Ceiling Price coverage. The term
``depot'' is defined in section 8126(h)(3) to include ``a centralized
commodity management system through which covered drugs procured by an
agency'' are ``delivered directly from the commercial source to the
entity using such covered drugs.'' Pharmacy Benefits Program reforms
adopted by DoD in response to 10 U.S.C. 1074g included restructured
management of the Retail Pharmacy Program, including the establishment
of a Retail Pharmacy Network of pharmacies linked to DoD through the
Pharmacy Data Transaction Service required by section 1074g(e). This
led to: A 2002 determination by the Secretary of Veterans Affairs that
the restructuring, when completed, would make drugs provided by the
Retail Pharmacy Network subject to Federal Ceiling Prices; a 2004 Dear
Manufacturer letter from the Department of Veterans Affairs requiring
manufacturers to refund to DoD costs above the FCPs; and a legal
challenge in a case called Coalition for Common Sense in Government
Procurement v. Secretary of Veterans Affairs, 464 F. 3d 1306 (Fed.Cir.
2006). In that case, the Federal Circuit Court of
[[Page 11282]]
Appeals set aside the VA's action on the grounds that it should have
been taken through notice and comment rulemaking; the Court did not
reach the merits of the Secretary's interpretation of the ``depot''
definition as covering the TRICARE Retail Pharmacy Network.
Fifteen days after the Court decision, the Conference Report on the
National Defense Authorization Act for Fiscal Year 2007 (NDAA-07)
explained that the House-Senate Conference Committee considered but did
not adopt a Senate-passed provision, which was quite similar to section
703 of NDAA-08, to ``clarify'' the underlying issue of the Secretary's
interpretation of section 8126: ``The conferees concluded that there is
no need for additional legislation at this time because prescriptions
dispensed by the Department of Defense Retail Pharmacy Program qualify
for discounted prices under section 8126.'' H. Conf. Rept. 109-702, p.
772. In other words, the conferees on NDAA-07 agreed with the
determination of the Secretary of Veterans Affairs. It is a reasonable
inference that the comparable conferees for NDAA-08, in again
considering a Senate-passed provision, decided to enact into law an
affirmation of the determination of the Secretary of Veterans Affairs
and the full Congress agreed.
With respect to the section 8126(g) argument, DoD understands the
VA view to be that section 8126 already encompassed coverage of a depot
contracting system such as the TRICARE Retail Pharmacy Network program,
and that therefore it is not limited by section 8126(g), and DoD agrees
with that view. Thus, there is a basis to conclude that Congress
affirmed the determination of the Secretary of Veterans Affairs that
the TRICARE Retail Pharmacy Network program was already covered by 38
U.S.C. 8126, and required that determination to be implemented as of
the date of enactment of NDAA-08. This issue, however, remains a matter
of controversy. The determination of the Secretary of Veterans Affairs,
with which DoD has always strongly agreed, has never been withdrawn,
nor has it been further acted upon, and there was no judicial
resolution.
Based on this history, DoD decided to propose a rule that would
allow the agencies and pharmaceutical companies to ``agree to
disagree'' on that issue and seek common ground on a regulation
centered on incentives within the TRICARE Pharmacy Benefits Program and
encouraging voluntary, separate agreements between manufacturers and
DoD, independent of the Master Agreements, under which manufacturers
would agree to make TRICARE Retail Pharmacy Network prescriptions
subject to Federal Ceiling Prices. That DoD considers these to be
voluntary agreements does not indicate that DoD believes there is no
legal obligation in the background. It means that, as with most laws,
voluntary action consistent with the law is far preferable to reliance
on enforcement action. It also means that, if there is voluntary
agreement, whatever uncertainties there are about the existence or
scope of potential enforcement actions can be set aside as moot. DoD
contacts with pharmaceutical companies led DoD to believe that most
companies might find this approach acceptable. Therefore, both the
proposed and final rule focus primarily on DoD program elements and DoD
market share for implementing the requirement that covered TRICARE
Retail Pharmacy Network prescriptions are subject to Federal Ceiling
Prices. The only reference in the rule to any matter outside the scope
of the TRICARE program is the reservation by DoD of rights to pursue as
a remedy (paragraph (q)(4)) ``any other action authorized by law.'' The
scope of any such other actions is a matter that need not and, because
it potentially involves agencies other than DoD, cannot be settled in
this rule making.
c. Relationship Between the FCP Statutory Requirement and Other
Statutory Requirements of 10 U.S.C. 1074g
Comment: Several commenters addressed the relationship between the
new subsection (f) of section 1074g, which established the requirement
that covered Retail Pharmacy Network prescriptions shall be subject to
FCPs, and other provisions of the statute, such as the requirement (in
subsection (a)(2)(A)) that the Uniform Formulary shall assure the
availability of pharmaceutical agents in the complete range of
therapeutic classes and the requirement (in subsection (a)(2)(D)) that
no pharmaceutical agent may be excluded from the Uniform Formulary
except upon the recommendation of the Pharmacy and Therapeutics
Committee. Some commenters argued that there are limitations on the
applicability of FCPs. Several comments from representatives of retail
pharmacies expressed agreement with the policy of the statute and the
proposed rule in making Retail Pharmacy Network prescriptions subject
to FCPs, noting that this would equalize ingredient prices between
retail pharmacies and the TRICARE Mail Order Pharmacy program, and thus
eliminate any need for TRICARE policies that encourage use of TMOP over
retail pharmacies. Another commenter noted a prior statute that
referred to ``best business practices of the private sector'' and
suggested this limited the applicability of Federal Ceiling Prices.
Response: DoD interprets the interaction of section 1074g(f) and
these provisions of 1074g(a) to be that cost-effectiveness
determinations of the P&T Committee are now based on both a relative
standard and a fixed standard. The relative standard is the cost-
effectiveness of the drug relative to other drugs in the class. The
fixed standard is that a drug cannot be considered cost effective if
its price exceeds the maximum price allowed by law, the FCP. Thus, the
P&T Committee will recommend Tier 3 (non-Formulary) status for any drug
not covered by a manufacturer's agreement to honor FCPs for Retail
Pharmacy Network prescriptions. However, there is a potential conflict
with the requirement to ensure that all pharmacy classes are
represented on the Uniform Formulary in the event that no drug in a
class is covered by a manufacturer's agreement to honor FCPs. To deal
with that possibility, even though remote, DoD has added a subparagraph
to this part of the final rule to state that the requirement for Tier 2
status to be conditioned on a manufacturer's agreement to honor FCPs
for Retail Pharmacy Network prescriptions may, upon the recommendation
of the P&T Committee, be waived to ensure that at least one drug in the
drug class is included on the Uniform Formulary (Tier 1 or Tier 2). It
must be understood, however, that any such waiver does not waive the
statutory requirement that Retail Network Pharmacy prescriptions are
subject to FCPs, only the usual regulatory requirement of exclusion
from the Uniform Formulary of drugs not covered by agreements.
Based on these interpretations of the statute, the TMA will ask
manufacturers to sign agreements to honor FCPs in Retail Pharmacy
Network prescriptions. On or soon after the effective date of the final
rule, separate from the usual practice of individual drug class reviews
of both clinical and cost effectiveness, the P&T Committee will
determine whether drugs are or are not covered by such agreements. A
drug that is on the Uniform Formulary and is covered by such an
agreement will be continued on the Uniform Formulary for the time
being, pending the next review of the drug class. A drug that is on the
Uniform Formulary (Tier 2) but not covered by such an agreement will be
recommended for Tier 3, subject to the requirement for maintaining
[[Page 11283]]
representation on Tiers 1 or 2 for all drug classes. A drug that is on
Tier 3 that is covered by such an agreement will be subject to review
at a later time to determine if it should be changed to Tier 2.
Regarding the issue of preserving incentives for use of TMOP, as
permitted by 10 U.S.C. 1074g, copayment amounts are currently lower in
TMOP than in retail pharmacies for the purpose of encouraging TMOP use.
Possible future changes to this are outside the scope of this rule
making process. With respect to the comment about the prior statute
that referred to ``best business practices of the private sector,''
this reference was in section 703 of the National Defense Authorization
Act for Fiscal Year 1999, Public Law 104-261. The reference was in the
context of a requirement for DoD to submit a plan to Congress for
redesign of the military pharmacy system. This predates the primary
statute that now governs the TRICARE Pharmacy Benefits Program, 10
U.S.C. 1074g, as well as the 2008 amendment on Federal Ceiling Prices.
Whatever might be associated with the general notion of best business
practices of the private sector, it does not limit the applicability of
the later enacted statutory specification that all covered TRICARE
Retail Pharmacy Network prescriptions are subject to Federal Ceiling
Prices.
d. Start Date for FCP Coverage of Prescriptions Filled
Comments: All commenters representing the pharmaceutical industry
argued that the final rule should state that only prescriptions filled
on or after the effective date of the final rule are subject to FCPs,
and that prescriptions filled on or after the effective date of the
statute (January 28, 2008) and prior to the effective date of the final
rule should not be subject to FCPs. In support of this position, these
commenters cited legal precedents generally disfavoring retroactive
application of regulations unless there is very clear legal requirement
for retroactive application, including Bowen v. Georgetown Univ. Hosp.,
488 U.S. 204, 208 (1988). They argued that the fact that the statute
required regulations to be issued supports the view that implementation
of the statute was conditioned on the regulations; the fact that they
could not be issued instantaneously, as Congress seemed to expect, does
not obviate the need for regulations before the statutory requirement
could apply. They further argued that because 10 U.S.C. 1074g(f) does
not expressly address refunds, a refund requirement can only be
established by regulation and by a contract or agreement, which cannot
be retroactive. Also in response to the request in the proposed rule
for legal justification, including under section 703 of NDAA-08, for
any alternative implementation dates commenters may propose, a number
of commenters argued that the statutory phrase, ``[w]ith respect to any
prescription filled on or after the date of the enactment of the
National Defense Authorization Act for Fiscal Year 2008,'' should be
construed as precluding any applicability to prescriptions filled prior
to that date, not as requiring applicability as of that date. On the
other hand, comments from representatives of retail pharmacies strongly
supported the provision of the proposed rule incorporating the
statutory date of applicability of FCPs in the retail network of
January 28, 2008.
Response: The legal standard applicable to a question regarding
impermissible retroactivity of a regulation is well summarized in
National Mining Ass'n v. Dept. of Labor, 292 F.3d 849, 859 (D.C. Cir.
2002):
The general legal principles governing retroactivity are
relatively easy to state, although not as easy to apply. An agency
may not promulgate retroactive rules absent express congressional
authority. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208
(1988). A provision operates retroactively when it ``impairs rights
a party possessed when he acted, increases a party's liability for
past conduct, or imposes new duties with respect to transactions
already completed.'' Landgraf v. USI Film Prods., 511 U.S. 244, 280,
(1994). In the administrative context, a rule is retroactive if it
```takes away or impairs vested rights acquired under existing law,
or creates a new obligation, imposes a new duty, or attaches a new
disability in respect to transactions or considerations already
past.''' Nat'l Mining Ass'n v. United States Dep't of Interior, 177
F.3d 1, 8 (D.C. Cir. 1999) (quoting Ass'n of Accredited Cosmetology
Sch. v. Alexander, 979 F.2d 859, 864 (D.C. Cir. 1992)). The critical
question is whether a challenged rule establishes an interpretation
that ``changes the legal landscape.'' Id. (quoting Health Ins. Ass'n
of Am., Inc. v. Shalala, 23 F.3d 412, 423 (D.C. Cir. 1994)).
The rule does not create any retroactive obligation on drug
companies. Paragraph (q)(1) simply restates the statute. The statute
applies according to its terms and the regulation cannot modify those
terms. The major provision of the regulation that ``changes the legal
landscape'' is paragraph (q)(2). It requires an agreement from
manufacturers to honor the statute as a condition of DoD Uniform
Formulary status and unrestricted availability through the TRICARE
Retail Pharmacy Network. This paragraph is prospective; a refusal to
agree will not affect a drug's formulary status prior to the effective
date of the final rule. If a drug company does not want to maintain
formulary status and refuses to sign an agreement to honor the statute,
the regulation does not say anything that would affect the legal rights
and obligations of the parties--i.e., ``change the legal landscape''--
with respect to prescriptions filled between the dates of January 28,
2008, and the effective date of the final rule.
The question of ``retroactivity'' of the regulation should not be
confused with the effective date of the statute. The statute commands
that ``[w]ith respect to any prescription filled on or after the date
of the enactment of the National Defense Authorization Act for Fiscal
Year 2008,'' which was January 28, 2008, ``the TRICARE retail pharmacy
program shall be treated as an element of the Department of Defense for
purposes of the procurement of drugs by Federal agencies under'' 38
U.S.C. 8126 ``to the extent necessary to ensure that pharmaceuticals
paid for by the Department of Defense that are provided by pharmacies
under the program * * * are subject to the pricing standards in such
section 8126.'' The statute changed the legal landscape, and did so
prospectively. The fact that the statute also requires implementing
regulations does not mean that the statute has no legal effect until
implementing regulations are issued. On the contrary, the statute by
its express terms requires that all prescriptions filled on or after
the date of enactment ``shall'' be treated so as to ``ensure'' that
they are subject to Federal Ceiling Prices. The Conference Report
accompanying the proposed legislation reinforces that express statutory
requirement:
Inclusion of TRICARE retail pharmacy program in federal procurement
of pharmaceuticals (sec. 703)
* * * * *
The Senate amendment contained a provision (sec. 701) that would
require that any prescription filled on or after October 1, 2007
through the TRICARE retail pharmacy network will be covered by the
federal pricing limits applicable to covered drugs under section
8126 of title 38, United States Code.
The House recedes with an amendment that would change the
implementation date from October 1, 2007 to the date of enactment of
this Act.
H. Conf. Rept. 110-477, p. 938. The date of enactment is clearly
established as the ``implementation date'' of the statutory
requirement. The fact that conforming regulatory modifications are also
required by section 703(b) does not
[[Page 11284]]
alter the fact that the statutory command to apply Federal Ceiling
Prices to all covered drugs in Retail Pharmacy Network prescriptions
filled on or after January 28, 2008 applies according to its explicit
terms.
Therefore, with respect to prescriptions filled on or after January
28, 2008, drug companies had a right to payment at the Federal Ceiling
Price and no more. The transaction of pharmaceuticals moving from
manufacturer to patient, if not completed through the filling of a
prescription before January 28, became subject to a new obligation: the
transaction ``shall be treated'' as a DoD purchase under 38 U.S.C. 8126
``to the extent necessary to ensure'' that the Federal Ceiling Price
applies. With respect to the applicability of FCPs. the rule does not
change that legal landscape, nor does it add to or subtract from that
obligation. Under the statute, with respect to any covered TRICARE
Retail Pharmacy Network prescriptions filled on or after January 28,
2008, if a manufacturer received more than the Federal Ceiling Price,
the transaction produced an overpayment and an overpayment requires a
refund.
The fact of the overpayment is purely a function of the statutory
effective date, and has nothing to do with the date the Department of
Defense asks for the refund of the overpayment or of the Uniform
Formulary status of the drug. Separate from mandating the applicability
of Federal Ceiling Prices to all prescriptions filled on or after
January 28, the statute also commanded the Secretary of Defense to
``modify the regulations under'' the TRICARE Pharmacy Benefits Program
``to implement the requirements of'' the new subsection 1074g(f). The
rule, when it becomes effective, will implement the requirements
through means including agreements between manufacturers and DoD. Those
agreements will call on manufacturers to honor the statute. Honoring
the statute includes refunding any overpayments that accrued on or
after January 28. Nothing in the rule and nothing in the agreements
will operate to change the legal landscape that was created, effective
January 28, by the statute.
Concerning the argument that the ``with respect to any prescription
filled on or after the date of the enactment'' clause of the statute
should be construed as only precluding any applicability to
prescriptions filled prior to that date, not as requiring applicability
as of that date, DoD does not believe that is a credible
interpretation. Had Congress intended that FCPs would apply only ``with
respect to any prescription filled on or after the date of promulgation
of regulations under section 703(b) of the National Defense
Authorization Act for Fiscal Year 2008,'' Congress would have said
that. The words chosen by Congress are quite different and cannot be
dismissed as imprecise drafting. Further, as noted above, the
legislative history, in the form of the Conference Report,
unequivocally refers to the date of enactment of the statute as the
``implementation date'' for ensuring that prescriptions filled through
the TRICARE Retail Pharmacy Network shall be subject to Federal Ceiling
Prices.
DoD interprets section 703 as precluding any start date for
applying FCPs to covered Retail Pharmacy Network prescriptions filled
other than the date of enactment, January 28, 2008. The only legal
authority DoD has found that would allow it to disregard the
overpayment and/or waive the refund is the Federal Debt Collection Act
and related statutes. In an effort to find an acceptable resolution,
DoD has added to the final rule provisions to address requests for
compromise or waiver of overpayment refunds under those authorities.
These provisions are discussed below.
Comment: In addition to the legal arguments, a number of commenters
advanced several practical arguments and what they considered to be
fairness arguments. One was the need to recalculate non-FAMPs if
manufacturers' commercial sales into retail distribution between the
statutory enactment date and the regulatory effective date have to be
reclassified as DoD sales. Another practical problem was that if
refunds are required for prescriptions filled throughout 2008, by the
time refund demands are made, manufacturers will be forced to review
and evaluate stale utilization data to determine the accuracy of the
data. Another concern expressed was that companies already accounted
for 2008 sales as commercial sales and reported profits based on
regular commercial prices, and should not have to redo financial
statements and accounting and profit reports, which would be costly and
burdensome, especially for small companies. Commenters also cited a
contemporaneous statement in the Congressional Record from Senator
Nelson which they said was to the effect that section 703 was not
intended to modify any existing agreements with drug companies, and
that existing Uniform Formulary Voluntary Agreements for Retail Refunds
(UF-VARRs) for amounts higher than FCPs, or other agreements pertaining
to drugs dispensed in military hospitals and through TMOP, would be
breached by a demand for an additional refund under the statute. In
relation to this breach of contract argument, some commenters cited
Winstar Corp. v. United States, 518 U.S. 839 (1996), for the
proposition that the government's contract obligations cannot be
reduced by subsequent legislation. Further, commenters argued that in
the case of a drug that had previously been moved to Tier 3 because the
manufacturer refused to offer a refund, it would be unfair to now
require a refund for a time period for which the drug was on Tier 3.
Response: DoD does not agree with all of these arguments, but
believes some may have merit in relation to particular drugs. First,
with respect to recalculating non-FAMPs, DoD understands that the
Department of Veterans Affairs has addressed that concern, as it
relates to the 2008 annual non-FAMP reports, by advising manufacturers
that there is no need for reclassification of 2008 sales data to
redesignate commercial sales as DoD sales because of section 1074g(f).
Second, DoD believes all drug manufacturers were promptly aware of the
enactment of section 703 and were thus on notice regarding the
statutory date for applying FCPs to prescriptions filled. This
situation is not like the Winstar case. In that case, the legislation
purported to reduce the government's contract obligation after the
contractors had already performed their part of the bargain. In this
case, the statute changed nothing regarding transactions completed
before January 28, 2008. And the companies were on notice as of that
date that covered prescriptions filled on or after that date in the
TRICARE Retail Pharmacy Network were subject to FCPs. Third, with
respect to Senator Nelson's statement, what he said was that with
respect to the ``section of the bill that would require that
prescriptions dispensed through the TRICARE retail pharmacy program be
procured at or below Federal ceiling prices,'' ``it is the intent of
the language and the intent of the conferees not to modify the current
master agreements.'' (153 Cong. Rec. S-15,613-14, Dec. 14, 2007.) DoD's
consistent position, both prior to and since the enactment of section
703, has been that the law does not require an amendment to the master
agreements between the VA and drug manufacturers. But DoD does not
believe there is any legislative history, including Senator Nelson's
statement, suggesting a statutory implementation
[[Page 11285]]
date other than January 28, 2008, or making any point regarding UF-
VARRs.
However, DoD agrees there may be merit to some of the other
concerns that in particular circumstances concerning stale utilization
data, prior incentive pricing agreements between DoD and drug
manufacturers, and other situations, there may be a reasonable basis to
waive or compromise a refund for prescriptions filled between January
28, 2008 and the effective date of the final rule. The proposed rule
included a paragraph ((q)(3)) stating that a refund due under paragraph
(q) is subject to section 199.11 of the TRICARE regulation, which is
the section of the regulation addressing overpayments recovery,
including administration of procedures under the Federal Debt
Collection Act and related laws for compromise or waiver of overpayment
refunds. DoD has revised this provision of paragraph (q) to address
specifically a request for waiver or compromise of a refund amount in
the context of section 1074g(f) and the new 32 CFR 199.21(q). It
provides that a manufacturer may request waiver or compromise of a
refund amount and that during the pendency of any request for waiver or
compromise, a manufacturer's written agreement to honor FCPs for
covered Retail Pharmacy Network prescriptions shall be deemed to
exclude the matter that is the subject of the request for waiver or
compromise. Further, during the pendency of any such request, the
matter that is the subject of the request shall not be considered a
failure of a manufacturer to make or honor an agreement for purposes of
the remedies paragraph of the regulation. In other words, a
manufacturer can request a waiver or compromise of a refund DoD
believes is owing on any grounds the manufacturer believes appropriate,
and the matter that is the subject of the request will not be
considered noncompliance with any provision of the regulation while the
request is pending. This provision for waiver or compromise is
available at any time, but DoD intends that it especially be available
to address and resolve in a reasonable way issues arising from the
period between the date of enactment of the statute and the effective
date of the regulation.
Thus, to give one possible example, a company might propose that if
it agrees that for all of its covered drugs, all TRICARE retail
pharmacy network prescriptions will prospectively be priced at or below
Federal Ceiling Prices, it might further propose to compromise refunds
for prescriptions filled during the period beginning January 28, 2008,
and ending on the date this final rule becomes effective. One
formulation for such a compromise could be to propose a date that is in
between January 28, 2008, and the effective date of the final rule,
proposing that DoD waive collection of refunds for prescriptions filled
prior to that date, and for the company promptly to pay refunds for
prescriptions filled on or after that date. (This example is merely
illustrative and does not commit the Department of Defense to any
response.)
Comment: One commenter said that DoD's failure to meet the
statutory deadline for issuing implementing regulations, which was
December 31, 2007, did not give DoD the right to make drug
manufacturers bear the cost of DoD's delay.
Response: Nothing in the final rule requires manufacturers to bear
the cost of DoD's delay in issuing final regulations. As noted above,
section 1074g(f) requires that all covered TRICARE Retail Pharmacy
Network prescriptions are subject to Federal Ceiling Prices, beginning
with prescriptions filled on or after the date of enactment. Drug
manufacturers were aware of the law and were on notice of their
obligations. It is not clear how they were somehow prejudiced by the
delay in issuing regulations. In some ways they benefited by the delay
because it deferred the due date of the refund necessary to resolve the
statutory overpayment. Nonetheless, the final rule provides any company
that believes it has been prejudiced in some way to apply for a waiver
or compromise of the refund necessary for prescriptions filled between
the date of enactment and the effective date of the regulation to be
subject to FCPs. DoD will consider all such applications and their
supporting rationale.
Comment: One commenter said there are constitutional limitations
on laws that alter rights under existing contracts, and that this
reinforced the need for not applying FCPs to prescriptions filled
before the effective date of the regulation.
Response: The existing contract rights referred to by this
commenter are not identified. If the commenter is referring to the
Master Agreements with VA, DoD does not believe they are altered by
section 703. If the commenter means existing UF-VARRs, DoD does not
believe section 1074g(f) is dependent on such an agreement. DoD is
unaware of any constitutional or legal right of a vendor to sell its
goods or services to the Federal government at a price dictated by the
vendor. The law set a ceiling price for covered prescriptions filled in
the TRICARE Retail Pharmacy Network, beginning on the date of
enactment. A company that thought the statute breached an existing
contract had the ability to mitigate the alleged contract damages by
canceling the agreement. Even now, a company that does not wish to
provide its drugs to the TRICARE Pharmacy Benefits Program is not
forced to do so. If a company believes it has incurred some contract
damages based on the enactment of section 1074g(f), it can take action
to mitigate those damages and apply to DoD to waive or compromise any
refund required by that law.
Comment: Several commenters argued that applicability of Federal
Ceiling Prices to prescriptions filled on or after the date of
enactment but before the effective date of regulations and agreements
would violate Health and Human Services regulations as 42 CFR
1001.952(h)(4), which require that in order to be within a safe harbor
from anti-kickback rules, a ``rebate'' must be ``disclosed in writing
to the buyer at the time of sale of the initial purchase to which the
discount applies,'' and that this can only be achieved after
regulations and agreements are in effect. Some commenters also said
applicability of Federal Ceiling Prices to prescriptions filled on or
after the date of enactment but before the effective date of
regulations and agreements would be contrary to the Sarbanes-Oxley Act
of 2002 and accounting principles for recording anticipated payment
liabilities.
Response: DoD disagrees. Under section 1074g(f), DoD is the buyer
in a sales transaction that occurs when the prescription is filled for
a covered beneficiary by a retail network pharmacy. As of the date of
enactment, DoD and the manufacturer both had written notice that
Federal Ceiling Prices apply. Further, the statute clearly indicated
that FCPs applied to prescriptions filled on or after the effective
date, giving companies and their accountants notice of the anticipated
payment liability. Nevertheless, if there were a case in which a
manufacturer is charged with an illegal kickback or some other
violation as a result of a refund under section 1074g(f), DoD would
welcome a request to waive or compromise the refund under paragraph
(q)(3)(iii) of the regulation.
Comment: Some commenters went further than arguing that FCPs only
start to apply when the final rule becomes effective, and argued that
they only start to apply when an agreement between DoD and the
manufacturer becomes effective. In support of this position they stated
that because the statute says
[[Page 11286]]
``the TRICARE retail pharmacy program shall be treated as an element of
the Department of Defense for purposes of the procurement of drugs by
Federal agencies,'' some agreement in the nature of a procurement
contract has to be made before the statute has any effect.
Response: DoD disagrees. As noted previously, DoD interprets 10
U.S.C. 1074g(f) to mean that for all covered drugs, TRICARE Retail
Pharmacy Network prescriptions are subject to Federal Ceiling Prices.
DoD interprets the statutory phrase ``treated as an element of the
Department of Defense for purposes of the procurement of drugs by
Federal agencies under section 8126 of title 38 to the extent necessary
to ensure that pharmaceuticals paid for by'' DoD in the Retail Pharmacy
Network ``are subject to'' FCPs to mean treated the same as a covered
drug directly procured by DoD vis-[agrave]-vis the applicability of
FCPs; the phrase does not require that there be some other transaction
comparable to a direct procurement by a Federal agency under section
8126. The transaction of a covered drug prescription filled in the
Retail Pharmacy Network is all that is required. Further, as previously
noted, DoD interprets the phrase, ``[w]ith respect to any prescription
filled on or after the date of the enactment'' to mean that FCPs apply
with respect to any prescription filled on or after the date of the
enactment.
2. Manufacturer Written Agreement (Paragraph (q)(2))
a. Agreement in General
Comment: Some commenters expressed the view that an agreement
between DoD and a manufacturer is necessary for the manufacturer to
have any requirement to pay refunds to DoD for amounts received for
drugs dispensed under prescriptions filled in the TRICARE Retail
Pharmacy Network. These commenters said a manufacturer's agreement to
pay refunds must be met with contractual consideration from DoD in the
form of Uniform Formulary status or something similar, comparable to
the current Uniform Formulary Voluntary Agreements for Retail Refunds
(UF-VARRs). They also argued that if a drug is not included on Tier 2,
the manufacturer would have no obligation to refund to DoD any amount
it received above the FCP for that drug dispensed under prescriptions
filled in the TRICARE Retail Pharmacy Network.
Response: DoD does not agree with this view. As noted above, DoD
interprets 10 U.S.C. 1074g(f) to mean that all covered TRICARE Retail
Pharmacy Network prescriptions are subject to Federal Ceiling Prices.
This means that if a manufacturer was paid more than the FCP for a
covered drug that was provided through the TRICARE Retail Pharmacy
Network, the transaction resulted in an overpayment in what DoD paid
the pharmacy and in what the manufacturer received from the pharmacy
(directly or through an intermediary). To resolve the overpayment, the
manufacturer must pay DoD a refund of the amount above the FCP. If the
amount above the FCP was the difference between FCP and the average
commercial price for the drug sold to buyers other than the Federal
government--represented by the non-Federal Average Manufacturer's Price
(non-FAMP)--then the refund amount is the difference between the non-
FAMP and FCP. DoD interprets the statute as establishing the fact of an
overpayment and the need for a refund. These things are not dependent
on the agreement to exist; they exist by operation of law under the
statute. The purpose of the agreement, therefore, is simply to
acknowledge the existence of the obligation and promise to meet it.
This is a change from the UF-VARRs, which are not premised on a
statutory requirement that prescriptions filled in the Retail Pharmacy
Network are subject to FCPs.
However, as noted above, DoD wishes to emphasize voluntary
compliance by manufacturers. To this end, DoD has included in the new
regulatory provision for waiver or compromise of refunds, discussed
above, a waiver criteria (subparagraph (q)(3)(iii)(C)) premised on a
written request by the manufacturer for voluntary removal of a drug
from coverage in the TRICARE Pharmacy Benefits Program. Thus if there
were ever a case in which a manufacturer was really involuntarily
involved with DoD in relation to drugs sold into the normal commercial
market, the manufacturer could request voluntary exclusion of a drug
from coverage in the TRICARE Pharmacy Benefits Program and waiver of
the refund obligation. This reinforces the voluntariness of drug
manufacturers' participation in the commercial transaction covered by
section 1074g(f), a transaction that features sales by the company and
payment by DoD through the TRICARE Retail Pharmacy Network.
b. Product-by-Product Review
Comment: A number of pharmaceutical industry commenters agreed with
the proposed rule's approach of product-by-product review of drugs for
compliance with Federal Ceiling Prices, rather than requiring a
manufacturer to agree to provide all covered drugs produced by the
manufacturer as a condition for any of the manufacturer's drugs to be
included on the Uniform Formulary.
Response: This is another area where DoD is seeking an
accommodation with drug companies. DoD believes it has statutory
authority to require a manufacturer to agree to provide all covered
drugs produced by the manufacturer as a condition for any of the
manufacturer's drugs to be included on the Uniform Formulary because
the statute applies to all covered drugs. However, DoD chooses in this
rule at this time to follow a product-by-product approach for Uniform
Formulary status. DoD urges pharmaceutical companies to honor Federal
Ceiling Prices for all covered drugs and thereby preserve eligibility
for each drug for the Uniform Formulary, as well as show their
compliance with the law.
c. Relationship Between Federal Ceiling Prices and Uniform Formulary
Status
Comment: A number of pharmaceutical industry representatives
recommended that because non-compliance with Federal Ceiling Prices
generally disqualifies a covered drug for Uniform Formulary status,
compliance with Federal Ceiling Prices should automatically qualify a
covered drug for Uniform Formulary status. These comments indicated
that Uniform Formulary status is a necessary quid-pro-quo for a
company's agreement to honor FCPs.
Response: DoD does not agree. Under 10 U.S.C. 1074g(a), Uniform
Formulary (Tier 2) status is based on the relative clinical and cost
effectiveness of drugs within a drug class. Under section 1074g(f), all
covered TRICARE Retail Pharmacy Network prescriptions are subject to
Federal Ceiling Prices. Both requirements apply. A company's obligation
to honor FCPs is not dependent on Uniform Formulary placement. Further,
there are drugs that at their particular Federal Ceiling Prices are not
cost-effective within their respective drug classes. Subject to the
judgment of the Pharmacy and Therapeutics Committee and the other steps
in the statutory and regulatory process, such drugs are likely to be
classified as non-Formulary drugs. However, during the initial period
of implementation of this final rule, DoD anticipates that drugs
currently on the Uniform Formulary that become covered by manufacturer
agreements to honor FCPs in the Retail Pharmacy Network will remain on
the Uniform Formulary in Tier 2, pending the next
[[Page 11287]]
periodic review of the drug class involved.
Comment: A number of commenters asked how the requirement for an
agreement to honor FCPs would affect drugs previously placed on the
Uniform Formulary or in non-Formulary status, as well as newly approved
drugs.
Response: For covered drugs, continuation on the Uniform Formulary
is conditioned on the manufacturer signing an agreement to honor
Federal Ceiling Prices for that drug. If there is currently in effect a
UF-VARR at a price above the FCP, that agreement fails to achieve the
statutory requirement; DoD anticipates canceling it. For a drug
previously placed in Tier 3, if the manufacturer signs an agreement to
honor FCPs, it will be eligible for reclassification to Tier 2 upon the
next review by the P&T Committee of the drug class involved. That will
not necessarily occur when the initial adjustments to the Uniform
Formulary are made upon the final rule becoming effective. For newly
approved drugs, DoD will continue its current practice of scheduling
P&T Committee review at the next practicable quarterly meeting.
Comment: A number of commenters suggested that the requirement for
a manufacturer's agreement to honor FCPs for TRICARE Retail Pharmacy
Network prescriptions as a condition for Tier 2 status should be waived
by DoD if a drug is more cost-effective, or if a weighted average of
prices in all three venues is no higher than the FCP, or if otherwise
in the best interests of beneficiaries. Also, some commenters suggested
that the Uniform Formulary process should not be changed to leverage
drug manufacturers to agree to honor FCPs in the retail network, and
that the process of P&T Committee and Beneficiary Advisory Panel review
by drug class should not be usurped and should continue unchanged.
These commenters said the beneficiaries should not have to pay higher
copays or bother with preauthorization because the drug company does
not comply with the law.
Response: DoD has modified the final rule to provide for a waiver
if necessary to ensure that each drug class is represented on the
Uniform Formulary. Beyond this, DoD does not see a need for further
waiver. As noted above, DoD interprets the statute as now establishing
for determining cost-effectiveness a relative standard and a fixed
standard and the fixed standard must be met, except as noted. With
respect to protecting beneficiary interests, preauthorization
procedures ensure that beneficiaries will continue to have access to
whatever drugs they need. Also, the P&T Committee and Beneficiary
Advisory Panel will continue to be involved in the process.
With respect to the argument that beneficiaries should not be
inconvenienced by the refusal of drug companies to honor FCPs as
required by law, DoD believes this will very much be the exception to
the norm. To minimize inconvenience to beneficiaries, DoD has added a
new paragraph (q)(5) to provide beneficiary transition provisions. It
provides that in cases in which a pharmaceutical is removed from the
uniform formulary or designated for preauthorization, the Director, TMA
may for transitional time periods determined appropriate by the
Director or for particular circumstances authorize the continued
availability of the pharmaceutical in the retail pharmacy network or in
MTF pharmacies for some or all beneficiaries as if the pharmaceutical
were still on the uniform formulary.
d. Preauthorization for Retail Pharmacy Network Prescriptions for Drugs
for Which the Manufacturer Refuses To Agree To Honor Federal Ceiling
Prices
Comment: A number of commenters argued that DoD should delete the
provisions of the proposed rule that made a manufacturer's agreement to
honor FCPs in the Retail Pharmacy Network a precondition for the
availability of that drug through retail network pharmacies without
preauthorization under section 199.21(k) of the current regulation.
They argued that this preauthorization requirement conflicts with 10
U.S.C. 1074g and the current scope of the preauthorization provisions
of paragraph (k) of the regulation, which are intended to promote broad
beneficiary access to clinically appropriate drugs. These comments
noted that under the current regulation, non-formulary drugs are
generally available in retail pharmacies, and the only statutory
reference to preauthorization (in 10 U.S.C. 1074g(a)(4)) is to assure
clinical appropriateness. They also argued that the preauthorization
requirement would delay beneficiary access to needed pharmaceutical
agents, and should have exceptions for emergencies and other clinical
needs.
Response: These comments misunderstand the current statute and
regulation as they apply to preauthorization. First, the statute does
not require that non-Formulary (Tier 3) drugs be provided in the Retail
Pharmacy Network. It requires (in paragraph (a)(5) of section 1074g)
only that non-Formulary drugs are available through one of the three
pharmacy venues. Non-Formulary drugs are and will remain available in
the TRICARE Mail Order Pharmacy Program (TMOP). Second, the current
paragraph (k) of the regulation is not limited to preauthorization for
medical necessity, but rather provides that: ``Selected pharmaceutical
agents may be subject to prior authorization or utilization review
requirements to assure medical necessity, clinical appropriateness and/
or cost effectiveness.'' The new requirement for preauthorization for
non-Formulary drugs for which manufacturers refuse to honor FCPs as
required by law is entirely consistent with the current law and
regulation, as well as with the policy of assuring beneficiary access
to needed pharmaceutical agents.
In the case of a beneficiary presenting a prescription in a retail
network pharmacy for a drug that is on Tier 3 because of the refusal of
the manufacturer to honor Federal Ceiling Prices, there are several
possible outcomes. First, the pharmacist may consult with the
prescribing physician and the physician may change the prescription to
a Uniform Formulary drug, which can be provided immediately at the Tier
2 co-payment. Second, if the beneficiary has a valid clinical need for
that non-Formulary drug without delay, preauthorization will be
granted. This will take care of emergency needs for pharmaceuticals and
other cases of immediate clinical need. However, depending on the
circumstances, the beneficiary may be advised that any refills will
need to be obtained from TMOP. Third, if there is no urgency, the
beneficiary may be advised to submit the prescription to TMOP. This
approach is consistent with the statutory requirement that non-
Formulary agents be made available in at least one venue, and also with
the statutory requirement that all covered Retail Pharmacy Network
prescriptions are subject to FCPs. Moreover, it continues DoD policy of
meeting beneficiary needs, even in cases in which drug manufacturers
fail to honor the law--a circumstance DoD expects to be very rare. The
concern expressed by manufacturers for unencumbered beneficiary access
to needed pharmaceuticals is admirable, and it should provide
sufficient motivation for the manufacturers to accept the ceiling price
set by law.
Comment: Commenters on behalf of retail pharmacies argued
forcefully that preauthorization requirements for drugs not covered by
manufacturer agreements to honor FCPs apply equally to prescriptions in
the Retail Pharmacy
[[Page 11288]]
Network and TMOP. The rationale for this is to increase the incentive
on pharmaceutical manufacturers to honor FCPs and to avoid the shifting
of prescriptions from retail pharmacies to TMOP. These commenters
believe retail pharmacies better meet beneficiary needs and that to
require preauthorization in retail pharmacies but not in TMOP would be
unfair and contrary to the ``uniform formulary'' requirement of law.
They argued that rather than adopt a procedure disadvantageous to
retail pharmacies, DoD should make sure pharmaceutical companies comply
with the legal requirement to honor Federal Ceiling Prices in the
Retail Pharmacy Network.
Response: DoD's focus is on assuring that beneficiaries receive the
pharmaceuticals they need and that the requirements of the law are
faithfully executed. While there is some merit to this suggestion, DoD
believes the best approach for now is to preserve the option of
referring some prescriptions to TMOP when that is the most direct means
to both provide the pharmaceuticals needed by the beneficiary and
assure the applicability of FCPs. DoD believes it is not unfair or
contrary to the uniform formulary provisions of 10 U.S.C. 1074g to have
differences in co-payments or preauthorization requirements among the
three venues while maintaining the same formulary listing of drugs in
all three venues. These differences are all consistent with statutory
purposes. DoD agrees with retail pharmacy representative commenters
that the right outcome is for all manufacturers to comply with the
obligation to honor FCPs in the Retail Pharmacy Network. DoD's
expectation is that there will not be many drugs that will be subject
to this preauthorization requirement.
e. Covered Drugs
Comment: A number of commenters recommended that DoD exclude from
the regulation drugs covered by section 340B of the Public Health
Service Act. Section 340B limits the cost of covered outpatient drugs
to certain federal grantees, federally-qualified health center look-
alikes and qualified disproportionate share hospitals. The rationale
for this comment is that these prescriptions should not be covered by
double discounts. A number of commenters also requested clarification
on how DoD would report utilization data involving 340B sales or
whether DoD would exclude all pharmacies eligible for the 340B program.
Response: DoD agrees and has revised the rule accordingly in
paragraph (q)(2)(iii)(E). With respect to pharmacies that dispense only
prescriptions covered by the 340B program, those pharmacies will be
excluded from DoD's utilization data reported to manufacturers.
Regarding other pharmacies that are eligible to participate in the 340B
program but also fill other prescriptions, DoD will incorporate into
the process appropriate procedures to identify and exclude 340B covered
prescriptions.
Comment: A number of commenters requested clarification that a
covered drug for purposes of this regulation is a covered drug under 38
U.S.C. 8126.
Response: The final rule includes clarifying language to this
effect.
Comment: A number of commenters recommended expansion of the
exceptions for covered drugs to allow a broad process for drug
manufacturers to obtain exemptions for particular drugs.
Response: DoD does not agree. The statute commands that all covered
TRICARE Retail Pharmacy Network prescriptions are subject to FCPs. DoD
has established a limited waiver of the condition for Uniform Formulary
placement when necessary to preserve representation of all drug classes
on the Uniform Formulary, and has established a process under section
199.11 for waiver or compromise of refunds in appropriate
circumstances. There is also an authority for any other exception,
consistent with law, established by the Director, TMA. This is intended
for special circumstances, analogous to the 340B program. DoD does not
see a need for another procedure for individual drug products to avoid
FCPs.
3. Refund Procedures (Paragraph (q)(3))
a. Refund Procedures in General
Comment: A number of commenters requested further information and/
or specification in the regulation regarding the details of the refund
procedures referred to in the rule. They argued that much more detail
needed to be included in the rule for manufacturers to be expected to
decide whether they wanted to sign agreements. Another comment urged
that all refund procedures be published in the Federal Register for
public comment under 41 U.S.C. 418b.
Response: The only definite requirement in the regulation for a
manufacturer's agreement to be a condition for Uniform Formulary
placement and Retail Pharmacy Network availability without
preauthorization is a simple agreement to honor Federal Ceiling Prices
in the Retail Pharmacy Network. DoD prefers to also include in the
agreement refund procedures, but has revised the final rule (in
paragraph (q)(3)(i)) to clarify that these things need not be in the
same document. Thus, if there are issues that need to be resolved with
respect to refund procedure details, these need not interfere with a
manufacturer's ability to agree to follow the law and thereby maintain
eligibility for Uniform Formulary status. Again, as noted above, DoD
does not interpret 10 U.S.C. 1074g(f) as making the applicability of
FCPs or the collection of refunds for amounts above FCPs subject to the
existence or terms of an agreement between DoD and the manufacturer.
Therefore, any disputes or problems regarding refund procedure details
can be resolved appropriately without disturbing rights or obligations
under the law. Moreover, such details can best be addressed outside the
formalities of the rulemaking process. DoD will continue to provide
means to answer specific manufacturers' questions regarding refund
procedures, Uniform Formulary procedures, and the like. Such means
include the following Web site: http://tricare.mil/tma/Pharmacy.aspx.
DoD supports incorporating into the manufacturer written agreements
effective refund procedures consistent with best commercial practice.
Absent such agreement, the standard collection procedures of the
existing TRICARE Regulation (section 199.11) are available.
Regarding the 41 U.S.C. 418b argument, DoD believes that although
section 1074g(f) requires that the TRICARE Retail Pharmacy Network
``shall be treated as'' an element of the Department of Defense for
purposes of the ``procurement of drugs by Federal agencies'' under 38
U.S.C. 8126 ``to the extent necessary to ensure that'' pharmaceuticals
dispensed are subject to FCPs, this does not result in any legal
requirement, or even an inference, to also treat the transaction as if
it were a procurement for purposes of various procurement statutes.
Thus, DoD does not view refund procedure agreements as falling within
the scope of a ``procurement policy, regulation, procedure, or form''
subject to 41 U.S.C. 418b. In addition, especially while DoD seeks to
work with manufacturers on implementing practical and smooth procedures
for sharing utilization data, resolving issues and problems,
facilitating Uniform Formulary placement consistent with the law and
regulations, and facilitating a positive relationship, DoD does not see
the advantage of chiseling into regulatory stone a detailed set of
procedures which will then become too hard to adapt or improve.
[[Page 11289]]
b. Specific Refund Procedures
Comment: Specific refund procedure issues included whether the
current Uniform Formulary Voluntary Agreements for Retail Refunds (UF-
VARRs) template will be used; whether the non-FAMPs and FCPs that will
be used for the refunds are those applicable to the year in which the
prescription was filled or the year in which the refund is due or the
year in which the agreement was signed; whether UF-VARRs currently in
effect would be cancelled; whether transferred ownership would require
a new agreement; whether DoD would change any VA determinations of non-
FAMP or FCP; the guidance VA and the Centers for Medicare and Medicaid
Services (CMS) would provide on reporting transactions covered by
section 1074g(f) for purposes of non-FAMP, best price, and other
calculations; whether DoD will maintain manufacturer pricing data in
confidence; how DoD will deal with ``penny pricing'' on an FCP or
various data anomalies in the VA's processes; whether drug companies
will have the right to audit DoD utilization data; and whether in any
quarterly utilization period there will be an exclusion of
prescriptions filled significantly before that quarter.
Response: The rule has been clarified to specify that the FCPs that
apply are those in effect in the year in which the prescription is
filled. The non-FAMP that applies will be the one that gave rise to the
applicable FCP. DoD believes the UF-VARR process has been effective and
intends to use that as a base line for refund procedures under the
regulation, but intends to continue to work with industry on
refinements and improvements. Thus, these procedures are not part of
this regulation. DoD anticipates that current UF-VARRs that do not meet
the statutory requirement will be canceled, but they are not cancelled
by this regulation. In cases of transferred ownership of a drug, DoD
will look to the parties to advise DoD of the transfer and its effect
on existing relationships. DoD will not change any VA determinations of
non-FAMPs or FCPs; DoD will accept VA determinations. This includes
deferring to VA determinations on penny pricing and the VA procedures
for resolution of data anomalies and relief from unfair calculations.
DoD is already under legal obligation to maintain manufacturer pricing
data in confidence and will comply with that obligation. DoD cannot
speak for VA and CMS but has consulted with those agencies and will do
everything possible to facilitate responses to manufacturers' questions
to those agencies. With respect to the audit question, the dispute
resolution process provides the manufacturer the opportunity to dispute
any utilization on which its data and DoD's data are in conflict. All
pertinent pricing information is already in the hands of the
manufacturer. Thus, DoD sees no need for routine manufacturer audits of
DoD utilization data, other than what might be appropriate in a dispute
resolution context. Other details will be worked out consistent to the
extent practicable with common industry practices for implementing
pricing agreements between manufacturers and large pharmacy benefit
plan sponsors.
c. Dispute Resolution Procedures
Comment: Several commenters representing the pharmaceutical
industry urged that in cases in which drug companies dispute DoD
utilization reports, the companies are not required to pay refunds
pending the outcome of the dispute resolution process. At the
conclusion of the dispute resolution process, refund amounts would then
include interest charges from the original payment due date. These
commenters pointed out that this would be a change from the current DoD
standard procedure under the Uniform Formulary Voluntary Agreement for
Retail Refunds (UF-VARRs), but would be consistent with the current
practice under Medicaid rebate agreements.
Response: DoD agrees to this proposal and has added a new paragraph
(q)(3)(iv) to defer refund payments pending resolution of disputes over
the accuracy of the utilization data.
d. Overpayments Recovery
Comment: A number of commenters questioned the portion of the
proposed rule stating that a refund due under the new paragraph (q) is
subject to section 199.11 of the TRICARE Regulation. That section
governs overpayments recovery. These commenters recommended that refund
procedures should be negotiated between DoD and manufacturers, rather
than handled under section 199.11.
Response: As noted above, DoD interprets section 1074g(f) as
requiring that all prescriptions for covered drugs in the Retail
Pharmacy Network are subject to Federal Ceiling Prices. To the extent
the ingredient costs for the prescriptions paid for in the Retail
Pharmacy Network exceed the FCP, the prescription transaction produced
an overpayment to the manufacturer, giving rise to a DoD right to a
refund. There are existing statutes that govern refunds of government
payments that exceed the legally authorized purposes, circumstances, or
amounts. TRICARE's implementing regulations under these statutes are at
section 199.11. This does not preclude mutually agreeable refund
procedures, but section 199.11 is a necessary baseline of authority and
procedures.
4. Remedies (Paragraph (q)(4))
Comment: A number of comments from or on behalf of the
pharmaceutical industry urged revision to the proposed rule provision
that in the case of the failure of a manufacturer of a covered drug
``to make or honor an agreement'' to honor FCPs in the Retail Pharmacy
Network, the Director of TMA, in addition to other actions referred to
in this paragraph (q), may take ``any other action authorized by law.''
These comments argued that agreements to honor FCPs in the retail
network should be completely voluntary, so there should be no
``remedy'' or ``penalty'' for failure to make such an agreement. Some
commenters described this provision as purporting to give the Director
of TMA arbitrary power or unlimited discretion.
Response: As discussed above, while DoD wants to emphasize
voluntary compliance, the statute unambiguously commands that all
covered Retail Pharmacy Network prescriptions are subject to Federal
Ceiling Prices. As a result, DoD has no reason to and expressly does
not waive the right to pursue any action authorized by law. This in no
way is arbitrary, unlimited, or unreasonable because it is strictly
limited to authorities under the law.
Comment: A comment from the retail pharmacy sector urged DoD to
revise the final rule to state that a failure of a manufacturer to
honor FCPs in the Retail Pharmacy Program is a violation of 38 U.S.C.
8126 and bars the manufacturer from eligibility to sell pharmaceuticals
to the referenced Federal agencies and in Medicaid.
Response: It is DoD's view that a failure of a manufacturer to
comply with 10 U.S.C. 1074g(f) does also constitute a failure to comply
with 38 U.S.C. 8126. However, as noted above, there are no judicial
rulings on this point and the state of the law is not settled on it. In
any event, it is outside any regulatory authority of the Department of
Defense to make rules or issue legally controlling interpretations
regarding 38 U.S.C. 8126. Thus, this matter is not addressed in this
rule. This rule only addresses matters within the regulatory authority
of the Department of Defense.
D. Provisions of the Final Rule
Like the proposed rule, the final rule adds to section 199.21 of
the TRICARE regulation a new paragraph (q) regarding
[[Page 11290]]
pricing standards for the retail pharmacy program. Paragraph (1)(i)
repeats the statutory requirement, virtually verbatim. Paragraph
(1)(ii) has been added to state in simpler terms DoD's interpretation
of the statute as requiring that all covered drug TRICARE Retail
Pharmacy Network prescriptions are subject to Federal Ceiling Prices
under 38 U.S.C. 8126.
Paragraph (2) provides that a written agreement by a manufacturer
to honor Federal Ceiling Prices in the retail pharmacy network as
required by the statute is with respect to a particular covered drug a
condition for inclusion of that drug on the Uniform Formulary (Tier 2)
and for the availability of that drug through retail network pharmacies
without preauthorization. A covered drug not under such an agreement
requires preauthorization to be provided through a retail network
pharmacy. This preauthorization requirement does not apply to other
points of service. The final rule has been modified a bit to clarify
that a covered drug for this purpose is a drug that is a covered drug
under 38 U.S.C. 8126. A covered drug does not include a drug that is
not a covered drug under 38 U.S.C. 8126; a drug provided under a
prescription that is not covered by 10 U.S.C. 1074g(f); a drug that is
not provided through a TRICARE retail network pharmacy; any
pharmaceutical for which the TRICARE Pharmacy Benefits Program is the
second payer; and any other exception, consistent with law, established
by the Director, TMA. The final rule adds to the list of non-covered
drugs for this purpose any drug provided under a prescription and
dispensed by a pharmacy under the Section 340B program.
The final rule adds a new paragraph (q)(2)(iv) stating that the
requirement for a manufacturer's agreement to honor FCPs in the Retail
Pharmacy Network as a precondition to Uniform Formulary (Tier 2)
placement may, upon the recommendation of the P&T Committee, be waived
by the Director, TMA if necessary to ensure that at least one drug in
the applicable drug class is included on the Uniform Formulary. Any
such waiver, however, does not waive the statutory requirement that all
covered TRICARE Retail Pharmacy Network prescriptions are subject to
Federal Ceiling Prices; it only waives the exclusion from the Uniform
Formulary of drugs not covered by agreements.
Paragraph (q)(3) addresses refund procedures. Paragraph (q)(3)(i)
states that refund procedures to ensure that pharmaceuticals paid for
by DoD that are provided by retail network pharmacies under the
Pharmacy Benefits Program are subject to Federal Ceiling Prices shall
be established. Such procedures may be established as part of the
agreement referred to above, or in a separate agreement, or pursuant to
section 199.11. This paragraph of the final rule has been revised
somewhat from the proposed rule. The options for procedures to be
addressed in a separate agreement between the manufacturer and DoD or
to be adopted under the overpayment recovery rules of section 199.11
are added in the final rule to ensure that any problems regarding
specific refund procedures need not get in the way of manufacturers
agreeing to honor FCPs and thereby preserve eligibility for their drugs
for Uniform Formulary Tier 2 placement. Paragraph (q)(3)(ii) provides
that the refund procedures shall, to the extent practicable,
incorporate common industry practices for implementing pricing
agreements between manufacturers and large pharmacy benefit plan
sponsors. The procedures will provide the manufacturer at least 70 days
from the date of the submission of the TRICARE pharmaceutical
utilization data needed to calculate the refund before the refund
payment is due. The basis of the refund will be the difference between
the average non-federal price of the drug sold by the manufacturer to
wholesalers, as represented by the most recent annual non-Federal
average manufacturing prices (non-FAMP) (reported to the Department of
Veterans Affairs (VA)) and the corresponding FCP or, in the discretion
of the manufacturer, the difference between the FCP and direct
commercial contract sales prices specifically attributable to the
reported TRICARE paid pharmaceuticals, determined for each applicable
NDC listing. The current annual FCP and the non-FAMP on which it was
based will be those applicable during the calendar year in which the
prescription was filled.
As under the proposed rule, paragraph (q)(3)(iii) provides that a
refund due under the law is subject to section 199.11 of the TRICARE
regulation, the section that governs recovery of overpayments. The
final rule provision has been revised to clarify that the refund amount
will be treated, in the vernacular of section 199.11, as an erroneous
payment. The final rule has also been revised to elaborate that the
applicability of section 199.11 brings with it a procedure for a
manufacturer to request waiver or compromise of a refund amount due
under the statute. During the pendency of any request for such a waiver
or compromise, a manufacturer's written agreement to honor FCPs shall
be deemed to exclude the matter that is the subject of the request for
waiver or compromise so that the agreement, if otherwise sufficient,
will continue to be sufficient for purposes of satisfying the
precondition to Uniform Formulary Tier 2 placement. Also, during the
pendency of any such request, the matter that is the subject of the
request shall not be considered a failure of a manufacturer to honor an
agreement for purposes of remedies for noncompliance. The final rule is
further revised to state that a request for waiver may also be premised
on the voluntary removal by the manufacturer in writing of a drug from
coverage in the TRICARE Pharmacy Benefit Program. This change further
protects a manufacturer from involuntary involvement in the program.
One other change to the refund procedures paragraph is that a new
paragraph (q)(3)(iv) has been added to state that in the case of
disputes by the manufacturer of the accuracy of TMA's utilization data,
a refund obligation as to the amount in dispute will be deferred
pending good faith efforts to resolve the dispute. If the dispute is
not resolved within 60 days, the Director, TMA will issue an initial
administrative decision and provide the manufacturer with opportunity
to request reconsideration or appeal consistent with procedures under
the TRICARE regulation. When the dispute is ultimately resolved, any
refund owed relating to the amount in dispute will be subject to an
interest charge consistent with the normal regulatory practice.
Paragraph (q)(4) provides that in the case of the failure of a
manufacturer of a covered drug to make or honor an agreement under
paragraph (q), the Director, TMA, in addition to other actions referred
to in the paragraph, may take any other action authorized by law. This
paragraph is unchanged from the proposed rule.
Finally, a new paragraph (q)(5) has been added. It provides that in
cases in which a pharmaceutical is removed from the Uniform Formulary
or designated for preauthorization, the Director, TMA may for
transitional time periods determined appropriate by the Director or for
particular circumstances authorize the continued availability of the
pharmaceutical in the retail pharmacy network or in MTF pharmacies for
some or all beneficiaries as if the pharmaceutical were still on the
Uniform Formulary.
[[Page 11291]]
E. Regulatory Procedures
Executive Order 12866, ``Regulatory Planning and Review''
Executive Order (EO) 12866 requires that a comprehensive regulatory
impact analysis be performed on any economically significant regulatory
action, defined primarily as one that would result in an effect of $100
million or more in any one year. The DoD has examined the economic,
legal, and policy implications of this final rule and has concluded
that it is an economically significant regulatory action under section
3(f)(1) of the EO. The economic impact of applying Federal Ceiling
Prices to the TRICARE Retail Pharmacy Network is in the form of
reducing the prices of drugs paid for by DoD in the retail pharmacy
component of the TRICARE Pharmacy Benefits Program, making them
comparable to the prices paid by DoD in the Military Treatment Facility
and Mail Order Pharmacy components of the program.
A recent Government Accountability Office Report, ``DoD Pharmacy
Program: Continued Efforts Needed to Reduce Growth in Spending at
Retail Pharmacies,'' April 2008 (GAO-08-327), found that DoD's drug
spending ``more than tripled from $1.6 billion in fiscal year 2000 to
$6.2 billion in fiscal year 2006'' and that retail pharmacy spending
``drove most of this increase, rising almost nine-fold from $455
million to $3.9 billion and growing from 29 percent of overall drug
spending to 63 percent.'' DoD concurs in these findings. The principal
economic impact of this final rule is to moderate somewhat the rate of
growth in the retail pharmacy component of the program.
DoD has estimated the reduced spending associated applying Federal
Ceiling Prices to the Retail Pharmacy Network. DoD funds the Military
Health System through two separate mechanisms. One is the Defense
Health Program (DHP) appropriation, which pays for health care for all
beneficiaries except those who are also eligible for Medicare. DoD-
funded health care for DoD beneficiaries who are also eligible for
Medicare is paid for by way of an accrual fund called the Medicare-
Eligible Retiree Health Care Fund (MERHCF) under 10 U.S.C. Chapter 56.
Funds are paid into the MERHCF from military personnel appropriations
and the general U.S. treasury. The FY-2009 budget approved by the
President and Congress incorporated savings of $352 million in the
Defense Health Program appropriation. DoD estimated cost reductions
from applying Federal Ceiling Prices to the TRICARE Retail Pharmacy
Network in Fiscal Years 2010 through 2015 appear in the following
table. It should be noted that these estimates have been updated from
those available at the time the proposed rule was issued. The estimates
included with the proposed rule were the standing out-year budget
estimates developed several years ago from an FY-2003 utilization and
cost baseline. New estimates are from an FY-2007 utilization and cost
baseline. The significant increase in retail utilization and costs
between 2003 and 2007 results in a significant increase in overall
budget impact of implementing section 1074g(f). Finally, it should be
noted that the budget estimates include amounts DoD would have expected
to receive from voluntary refunds under the current Uniform Formulary
Voluntary Agreements for Retail Refunds (UF-VARRs). In FY-2010, for
example, even if FCPs were not required by the statute, DoD would have
expected the UF-VARR program to produce Defense Health Program refunds
of $100 million to $150 million of the projected $761 million in
reduced spending.
Millions of Dollars
------------------------------------------------------------------------
------------------------------------------------------------------------
FY-2010 DHP Reduced Spending................................... 761
FY-2010 MERHCF Reduced Spending................................ 910
FY-2011 DHP Reduced Spending................................... 842
FY-2011 MERHCF Reduced Spending................................ 1,007
FY-2012 DHP Reduced Spending................................... 919
FY-2012 MERHCF Reduced Spending................................ 1,099
FY-2013 DHP Reduced Spending................................... 993
FY-2013 MERHCF Reduced Spending................................ 1,188
FY-2014 DHP Reduced Spending................................... 1,072
FY-2014 MERHCF Reduced Spending................................ 1,282
FY-2015 DHP Reduced Spending................................... 1,177
FY-2015 MERHCF Reduced Spending................................ 1,408
------------------------------------------------------------------------
As a frame of reference, total TRICARE Pharmacy Benefits Program
spending is estimated to be $8 billion in FY-2009.
Congressional Review Act, 5 U.S.C. 801, et seq.
Under the Congressional Review Act, a major rule may not take
effect until at least 60 days after submission to Congress of a report
regarding the rule. A major rule is one that would have an annual
effect on the economy of $100 million or more or have certain other
impacts. This final rule is a major rule under the Congressional Review
Act. As noted above, applying Federal Ceiling Prices to the TRICARE
Retail Pharmacy Network will reduce DoD spending on pharmaceuticals by
more than $100 million per year.
Section 202, Public Law 104-4, ``Unfunded Mandates Reform Act''
This rule does not contain a Federal mandate that may result in the
expenditure by State, local and tribunal governments, in aggregate, or
by the private sector, of $100 million or more (adjusted for inflation)
in any one year. The economic impact of this regulation, described
above, is not in the form of a mandated expenditure by a State, local,
or tribal government or the private sector, but by reduced Federal
expenditures.
Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)
The Regulatory Flexibility Act (RFA) requires that each Federal
agency prepare and make available for public comment, a regulatory
flexibility analysis when the agency issues a regulation which would
have a significant impact on a substantial number of small entities.
DoD does not anticipate that this regulation will result in changes
that would impact small entities, including retail pharmacies, whose
reimbursements are not affected by the final rule. In addition, drugs
newly subject to implementation of Federal Ceiling Prices under the
final rule represent less than 2% of manufacturers' prescription drug
sales. Therefore, this final rule is not expected to result in
significant impacts on a substantial number of small entities.
Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)
This final rule contains information collection requirements
subject to the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-
3511). This consists of responding to the periodic TMA report of the
TRICARE prescription utilization data needed to calculate the refund.
This information collection has been approved with OMB Control Number
0720-0032. No person is required to respond to, nor shall any person be
subject to a penalty for failure to comply with, a collection of
information subject to the requirements of the PRA, unless that
collection of information displays a currently valid OMB Control
Number.
Executive Order 13132, ``Federalism''
This final rule does not have federalism implications, as set forth
in Executive Order 13132. This rule does not have substantial direct
effects on the States; the relationship between the National Government
and the States; or the distribution of power and responsibilities among
the various levels of Government.
[[Page 11292]]
List of Subjects in 32 CFR Part 199
Claims, Health care, Health insurance, Military personnel, Pharmacy
benefits.
0
Accordingly, 32 CFR part 199 is amended as follows:
PART 199--[AMENDED]
0
1. The authority citation for part 199 continues to read as follows:
Authority: 5 U.S.C. 301; 10 U.S.C. chapter 55.
0
2. Section 199.21 is amended by adding a new paragraph (q), to read as
follows:
Sec. 199.21. Pharmacy benefits program.
* * * * *
(q) Pricing standards for retail pharmacy program--(1) Statutory
requirement. (i) As required by 10 U.S.C. 1074g(f), with respect to any
prescription filled on or after the date of the enactment of the
National Defense Authorization Act for Fiscal Year 2008, the TRICARE
retail pharmacy program shall be treated as an element of the DoD for
purposes of the procurement of drugs by Federal agencies under 38
U.S.C. 8126 to the extent necessary to ensure pharmaceuticals paid for
by the DoD that are provided by pharmacies under the program to
eligible covered beneficiaries under this section are subject to the
pricing standards in such section 8126.
(ii) Under subparagraph (q)(1)(i) of this section, all covered drug
TRICARE retail pharmacy network prescriptions are subject to Federal
Ceiling Prices under 38 U.S.C. 8126.
(2) Manufacturer written agreement. (i) A written agreement by a
manufacturer to honor the pricing standards required by 10 U.S.C.
1074g(f) and referred to in paragraph (q)(1) of this section for
pharmaceuticals provided through retail network pharmacies shall with
respect to a particular covered drug be a condition for:
(A) Inclusion of that drug on the uniform formulary under this
section; and
(B) Availability of that drug through retail network pharmacies
without preauthorization under paragraph (k) of this section.
(ii) A covered drug not under an agreement under paragraph
(q)(2)(i) of this section requires preauthorization under paragraph (k)
of this section to be provided through a retail network pharmacy under
the Pharmacy Benefits Program. This preauthorization requirement does
not apply to other points of service under the Pharmacy Benefits
Program.
(iii) For purposes of this paragraph (q)(2), a covered drug is a
drug that is a covered drug under 38 U.S.C. 8126, but does not include:
(A) A drug that is not a covered drug under 38 U.S.C. 8126;
(B) A drug provided under a prescription that is not covered by 10
U.S.C. 1074g(f);
(C) A drug that is not provided through a retail network pharmacy
under this section;
(D) A drug provided under a prescription which the TRICARE Pharmacy
Benefits
Program is the second payer under paragraph (m) of this section;
(E) A drug provided under a prescription and dispensed by a
pharmacy under section 340B of the Public Health Service Act; or
(F) Any other exception for a drug, consistent with law,
established by the Director, TMA.
(iv) The requirement of this paragraph (q)(2) may, upon the
recommendation of the Pharmacy and Therapeutics Committee, be waived by
the Director, TMA if necessary to ensure that at least one drug in the
drug class is included on the Uniform Formulary. Any such waiver,
however, does not waive the statutory requirement referred to in
paragraph (q)(1) that all covered TRICARE retail network pharmacy
prescriptions are subject to Federal Ceiling Prices under 38 U.S.C.
8126; it only waives the exclusion from the Uniform Formulary of drugs
not covered by agreements under this paragraph (q)(2).
(3) Refund procedures. (i) Refund procedures to ensure that
pharmaceuticals paid for by the DoD that are provided by retail network
pharmacies under the pharmacy benefits program are subject to the
pricing standards referred to in paragraph (q)(1) of this section shall
be established. Such procedures may be established as part of the
agreement referred to in paragraph (q)(2), or in a separate agreement,
or pursuant to Sec. 199.11.
(ii) The refund procedures referred to in paragraph (q)(3)(i) of
this section shall, to the extent practicable, incorporate common
industry practices for implementing pricing agreements between
manufacturers and large pharmacy benefit plan sponsors. Such procedures
shall provide the manufacturer at least 70 days from the date of the
submission of the TRICARE pharmaceutical utilization data needed to
calculate the refund before the refund payment is due. The basis of the
refund will be the difference between the average non-Federal price of
the drug sold by the manufacturer to wholesalers, as represented by the
most recent annual non-Federal average manufacturing prices (non-FAMP)
(reported to the Department of Veterans Affairs (VA)) and the
corresponding FCP or, in the discretion of the manufacturer, the
difference between the FCP and direct commercial contract sales prices
specifically attributable to the reported TRICARE paid pharmaceuticals,
determined for each applicable NDC listing. The current annual FCP and
the annual non-FAMP from which it was derived will be applicable to all
prescriptions filled during the calendar year.
(iii) A refund due under this paragraph (q) is subject to section
199.11 of this part and will be treated as an erroneous payment under
that section.
(A) A manufacturer may under Sec. 199.11 of this part request
waiver or compromise of a refund amount due under 10 U.S.C. 1074g(f)
and this paragraph (q).
(B) During the pendency of any request for waiver or compromise
under subparagraph (q)(3)(iii)(A) of this section, a manufacturer's
written agreement under paragraph (q)(2) shall be deemed to exclude the
matter that is the subject of the request for waiver or compromise. In
such cases the agreement, if otherwise sufficient for the purpose of
the condition referred to in paragraph (q)(2), will continue to be
sufficient for that purpose. Further, during the pendency of any such
request, the matter that is the subject of the request shall not be
considered a failure of a manufacturer to honor an agreement for
purposes of paragraph (q)(4).
(C) In addition to the criteria established in Sec. 199.11 of this
section, a request for waiver may also be premised on the voluntary
removal by the manufacturer in writing of a drug from coverage in the
TRICARE Pharmacy Benefit Program.
(iv) In the case of disputes by the manufacturer of the accuracy of
TMA's utilization data, a refund obligation as to the amount in dispute
will be deferred pending good faith efforts to resolve the dispute in
accordance with procedures established by the Director, TMA. If the
dispute is not resolved within 60 days, the Director, TMA will issue an
initial administrative decision and provide the manufacturer with
opportunity to request reconsideration or appeal consistent with
procedures under Sec. 199.10 of this part. When the dispute is
ultimately resolved, any refund owed relating to the amount in dispute
will be subject to an interest charge from the
[[Page 11293]]
date payment of the amount was initially due, consistent with Sec.
199.11 of this part.
(4) Remedies. In the case of the failure of a manufacturer of a
covered drug to make or honor an agreement under this paragraph (q),
the Director, TMA, in addition to other actions referred to in this
paragraph (q), may take any other action authorized by law.
(5) Beneficiary transition provisions. In cases in which a
pharmaceutical is removed from the uniform formulary or designated for
preauthorization under paragraph (q)(2) of this section, the Director,
TMA may for transitional time periods determined appropriate by the
Director or for particular circumstances authorize the continued
availability of the pharmaceutical in the retail pharmacy network or in
MTF pharmacies for some or all beneficiaries as if the pharmaceutical
were still on the uniform formulary.
Dated: March 10, 2009.
Patricia L. Toppings,
OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. E9-5702 Filed 3-16-09; 8:45 am]
BILLING CODE 5001-06-P