Department of Defense Issues Proposed Rule for the TRICARE Retail Pharmacy Refund ProgramJuly 29, 2008
On July 25, 2008, the Department of Defense (“DOD”) issued a proposed rule to implement section 703 of the National Defense Authorization Act for Fiscal Year 2008 (“NDAA-2008”). Section 703 of NDAA-2008 provides that the TRICARE retail pharmacy program (“TRRx”) is to be treated as an element of the DOD to the extent necessary for prescription drugs provided by TRRx pharmacies and paid for by the DOD to be subject to the Federal Ceiling Price requirements of section 603 of the Veterans Health Care Act of 1992, 38 U.S.C. § 8126. Under the latter statute, manufacturers of “covered drugs” (generally, prescription drugs approved under a new drug application) must, in order for their outpatient drugs to be federally reimbursed under Medicaid and Medicare Part B, enter into a Master Agreement and Pharmaceutical Pricing Agreement with the Department of Veterans Affairs (“VA”) agreeing to charge no greater than a statutory Federal Ceiling Price for drugs sold on the Federal Supply Schedule to four federal agencies: DOD, the VA, the Public Health Service, and the Coast Guard. Congress determined that Section 703 was necessary to establish a TRRx refund program in light of a September 2006 decision by the U.S. Court of Appeals for the Federal Circuit in The Coalition for Common Sense in Government Procurement v. Secretary of Veterans Affairs. In that case, the Court set aside on procedural grounds an October 2004 “Dear Manufacturer” Letter issued by the VA that sought to establish authority for a TRRx refund program.
Although NDAA-2008 required promulgation of implementing regulations, the substantive provisions of the statute were effective as of the date of enactment of the statute, which was January 28, 2008. DOD’s view has been that refunds are due on TRRx drugs dispensed as of that date, even in the absence of final regulations. Written comments on the proposed rule are due by September 23, 2008.
The proposed rule would amend 32 C.F.R. § 199.21 (the TRICARE pharmacy benefit regulation) by adding a new paragraph (q) that would require written agreements to be entered into by manufacturers, and provide for refund procedures and remedies. The proposed rule would define a “covered drug” for the purpose of this regulation as excluding, among other things, a drug that is not a covered drug under 38 U.S.C. § 8126, a drug that is not provided through a retail network pharmacy, and a drug for which the TRRx Pharmacy Benefits Program is the secondary payor.
The proposed rule would require manufacturers to enter into written refund agreements, as a condition for inclusion of the manufacturer’s covered drugs on the TRICARE uniform formulary and the availability of covered drugs through the TRRx pharmacies without preauthorization. A covered drug that is not the subject of a written agreement would require preauthorization in order to be provided through a TRRx pharmacy.
The proposed rule would require the written agreements described above to include refund procedures to ensure that prescription drugs dispensed by network pharmacies under the TRRx program would be paid for by the DOD at the Federal Ceiling Prices available to the DOD pursuant to 38 U.S.C. § 8126. The refund procedures would “incorporate common industry practices for implementing pricing agreement between manufacturers and large pharmacy benefit plan sponsors.” Beyond this, the proposed rule does not prescribe any details of the refund procedures, except that manufacturers must be provided “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.”
Under the proposed rule, the refund due on a covered drug would be the difference between the Federal Ceiling Price and either (a) the most recent annual non-Federal average manufacturer price (“Non-FAMP”) reported to the VA, or (b), at the manufacturer’s option, “direct commercial contract sales prices specifically attributable to the reported TRICARE paid pharmaceuticals, determined for each applicable NDC listing.”
The proposed rule would also provide that refunds due are subject to the overpayments recovery regulation at 32 C.F.R. § 199.11. The proposed regulation would further permit the Director of the TRICARE Management Activity to take any action authorized by law if a manufacturer of a covered drug fails to make or honor an agreement under the regulation. Although the proposal does not state this, a failure to provide a section 703 refund to DOD might be viewed by the government as a violation of the manufacturer’s Master Agreement with the VA. Termination of that Agreement for breach would result in the manufacturer’s covered outpatient drugs being ineligible for federal payment under Medicaid and Medicare Part B, and ineligibility of the manufacturer to sell its drugs to the federal government.
The preamble to the proposed regulation notes that the DOD has proposed to enter into voluntary agreements with manufacturers for prescriptions filled on or after the date of enactment of NDAA-2008, and specifically asks for comments on alternative legally permissible implementation approaches and/or dates.