The TRICARE Final Rule: What’s in the Comments?

By: Clarissa Crain, Senior Compliance Consultant
clarissacrain@cis-partners.com

The issuance of the Final Rule, TRICARE: Inclusion of TRICARE Retail Pharmacy Program in Federal Procurement of Pharmaceuticals, amends 32 CFR 199 and implements standards outlined in the National Defense Authorization Act for Fiscal Year 2008 (NDAA-08). The Final Rule states that prescriptions for covered drugs procured by the DoD through the TRICARE Retail Pharmacy Program (TRRx) are eligible for pricing under 38 U.S.C 8126(a) and (b), thereby making FCP pricing related to TRRx a reality.

While the amendments to 32 CFR 199 are not lengthy, the Final Rule document itself is lengthy. Interpreting the regulatory changes is important, however, much of the most pertinent information to manufacturers is within the “Public Comments” section (Section C). In this article I’ve highlighted sections of the Final Rule Comments that respond to some of the most pressing questions coming from manufacturers. Please note that, in some cases, language within this post is pulled directly from the TRICARE Final Rule. However, in other instances, the document has been paraphrased. Please reference the actual Final Rule for direct quotes from the DoD. Additionally, this article is merely informational in nature, and is based on my personal interpretation of the Final Rule. This article is not meant to act as legal guidance or interpretation, and should not be used as such.

What does the TRICARE Final Rule address?

The Final Rule sets out to implementing regulations in response to the National Defense Authorization Act for Fiscal Year 2008 (NDAA-08).

The NDAA-08 states that any prescription filled on or after January 28, 2008 (the date of enactment for NDAA-08) shall be treated as an element of the DoD for purposes of procurement, and be covered by pricing requirements of 38 U.S.C. 8126 (a) and (b) (commonly known as the Veterans Health Care Act of 1992). The pricing calculation requirement outlined by section 8126 is referred to as the Federal Ceiling Price (FCP).

Debate exists between manufacturers and the DoD as to whether or not section 8126 can be extended to TRRx. The DoD argues that TRRx acts as a “depot contracting system” - defined in 8126 as within the scope of FCP:

“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,” 8126(h)(3)

This issue was contested as part of earlier legal actions taken by manufacturers (resulting in the 2006 overturning of the DoD’s previous attempt at obtaining FCP pricing for TRRx), however, the issue of whether or not 8126 extends to TRRx through the interpretation of the “depot” definition was not heard by the court. The overturning of the DoD’s earlier efforts was based on the DoD’s failure to use the proper rule-making channels, and therefore the question of the definition of depot was not explored. This issue could be raised again by manufacturers as contest to the DoD’s current regulation.

Is participation in the TRICARE Retail Pharmacy Program (TRRx) mandatory?

The DoD acknowledges that, in large part, the pharmaceutical industry does not agree with its interpretation of 8126 to extend TRRx through the definition of depot, therefore the DoD is requesting that manufacturers partake in the TRRx Program through voluntary, separate agreements between manufacturers and DoD, independent of the VA Master Agreements. Independent agreements would indicate that a manufacturer agrees to make TRRx prescriptions subject to FCP, unrelated to VA agreements and therefore unrelated to 8126.

By making the TRRx program voluntary, the DoD is not saying that it believes there is no legal obligation to participate, however, it feels that voluntary action consistent with the law is preferable to reliance on enforcement action. Further, the DoD states that it has no reason to, and expressly does not, waive the right to pursue any action authorized by law. The DoD suggests that in order for manufacturers to remedy uncertainties that may exist with respect to the potential existence or scope of enforcement actions, they should enter into voluntary agreements, making uncertainties moot.

While the DoD believes it has the statutory authority to require a manufacturer to agree to provide all covered products at FCP, the DoD is allowing agreements to be negotiated on a product-by-product basis.

What products fall within the purview of the Final Rule?

The DoD states that regardless of whether drugs are currently on the TRICARE Uniform Formulary or are non-formulary drugs, any prescriptions for covered drugs filled on or after January 28, 2008 are subject to FCP pricing (FCPs that apply are those in effect in the year in which the prescription is filled). Therefore, any drug meeting the definition of a covered drug falls within the parameters of 10 U.S.C. 1074g(f) and is subject to FCPs. Manufacturers have argued that U.S.C. 1074 g(f) does not expressly address refunds and, therefore, that refunds can only be required by establishing regulation or entering into contract/agreement with a given manufacturer. With this argument, overpayment reconciliation as requested by the DoD will most likely be contested. Expect to see manufacturers argue this in their request for waiver/compromise on refunds from the NDAA-08 enactment date through final rule effective date, if not as a more formal industry appeal.

It should be noted, however, that if a drug was on formulary during the timeframe of January 28, 2008 through enactment of the Final Rule, and a manufacturer elects not to sign an agreement to honor FCP going forward, the DoD is stating in commentary that this does not change the legal obligation with respect to prescriptions filled on or after the enactment of NDAA-08. Therefore, the DoD seems to expect that overpayments will be reconciled, despite the fact that the manufacturer is not agreeing to honor FCP.

How has the Pharmacy and Therapeutics (P&T) Committee and the Uniform Formulary process been affected?

There are three tiers of drugs on the Uniform Formulary:
Tier 1 – Generics
Tier 2 – Brand name Uniform Formulary Drugs
Tier 3 – Non-Formulary Drugs

Tier 2 drugs are provided at co-payment values of $9, as opposed to higher copayments of $22 dollars for non-Formulary drugs in the TRRx program. In order for Tier 3 drugs to be dispensed through TRRx, a pre-authorization is required. The DoD provides details on how pre-authorization and the utilization of the TRICARE Mail Order Pharmacy Program relate to Uniform Formulary for TRRx.

Based on the DoD’s interpretation of 1074 g(f) and 1074g(a), DoD decisions made by the P&T Committee with respect to Uniform Formulary status will be based on both relative and fixed standards. Relative standards will relate a drug’s cost effectiveness to other drugs in the class. The fixed standard will not allow for a drug to be placed on formulary if its price exceeds the maximum price – FCP. Based on the standards outlined by the DoD, a manufacturer’s agreement to honor FCP pricing has become a condition of Tier 2 status. The only time at which the fixed standard will be waived is when there is not at least one drug in a given drug class (Tier 1 or 2).

Products that have already gone through formulary review, for which uniform formulary status has been granted based on an agreement to honor pricing at or below FCP, will remain on formulary. Products on formulary based on agreements for pricing exceeding FCP, continuation of formulary status will be subject to the requirement that an agreement to honor FCP be in place. Failure to agree to honor FCP pricing will result in the product being reclassified as Tier 3. For drugs remaining on Uniform Formulary through agreement to honor FCP pricing, the secondary, relative review requirement for cost effectiveness will be waived pending the next periodic review of the drug class involved.

Are refunds retrospective?

The NDAA-08 required that regulations be put into place implementing the statute. Manufacturers argued that despite the statute’s intent, in the absence of a regulation the statute had no legal effect. The DoD counters this by arguing that the absence of a regulation does not mean the statute has no legal effect. Therefore, from the enactment of the NDAA-08 on January 28, 2008 through the effective date of the Final Rule, the statute states in express terms that all prescriptions filled on or after the date of enactment “shall” be treated so as to “ensure” that they are subject to FCP. Therefore, with respect to prescriptions filled on or after January 28, 2008, drug companies have a right to payment at FCP and no more. If payment was received in excess of FCP for prescriptions during this timeframe, the transaction produced an overpayment and an overpayment refund is required.

In order to enter into an agreement to honor FCP on a “going forward” basis, manufacturers will be required to refund overpayments accrued on or after January 28, 2008. Overpayments are calculated as either based on average commercial sales price less FCP or non-FAMP less FCP, dependent on how the product was procured.

However, understanding that manufacturers will site a multitude of legalities surrounding overpayment refunds, the DoD has added a provision to the final rule to address the request for compromise or waiver of overpayment refunds.

Paragraph (q) of the final rule addresses a request for waiver or compromise of a refund amount. Although the DoD prefers that agreements to honor FCP also include refund procedures, the DoD provides that manufactures may request waiver or compromise of a refund amount separate from a manufacturer’s written agreement to honor FCPs. Therefore, during the pendency of the refund amount waiver/compromise, a manufacturer may honor the FCP pricing agreement on a go forward basis and not be considered to fail to uphold regulation.

Possible reasons for waiver/compromise request already sited by the industry in comments submitted to the final rule include safe harbor issues with respect to anti-kickbacks, financial reporting issues for historical periods, the lack of appropriate utilization data, and the existence of prior incentive pricing agreements between the DoD and a given manufacturer. It should be noted that waiver criteria (q)93)(iii)(c) does allow a manufacturer to request voluntary exclusion of a covered drug from TRRx and a waiver of refund obligations.

***note: the VA has already provided guidance stating that the there is no need for reclassification of 2008 sales data to redesignate commercial sales as DoD sales because of section 1074g(f).***

What happens to existing Uniform Formulary Voluntary Agreements?

The DoD will continue voluntary negotiation concerning price, but does not have the authority to accept prices above FCP. For existing UF-VARR agreements above FCP, cancelation by the FCP is anticipated. However, it should be noted that they are not canceled merely by the issuance of the Final Rule.

Where will the DoD be responding to additional questions?

The DoD will continue to provide means to answer specific manufacturers’ questions regarding refund procedures, Uniform Formulary, etc. at http://tricare.mil/tma/Pharmacy.aspx

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