“TRICARE Final Rule – Tips for Manufacturers to Ensure That They Are Prepared”

By: Dave Rice, FSS Director, daverice@cis-partners.com
John Avicolli, FSS Project Manager, johnavicolli@cis-partners.com
Jeff Blake, FSS Associate, jeffblake@cis-partners.com

On November 30, 2009, the U.S. District Court for the District of Columbia held that remand of the Final Rule was necessary so that TRICARE Management Activity (TMA) could exercise its discretion in implementing the statute. However, the court was clear that the Department of Defense (DoD) could, in exercising its discretion, reissue a rule with the same substantive requirements. In view of this conclusion, the court decided not to void the TRICARE Final Rule, thereby leaving the voluntary agreement program in place.

The U.S. District Court has directed TMA to reissue the Final Rule. Specifically, TMA is to remove references in the pre-amble indicating that the law requires manufacturers to pay refunds for products purchased by the government at a price that was in excess of the calculated Federal Ceiling Price. Currently, the statute requires that FCPs apply to all retail pharmacy program prescriptions filled on or after January 28, 2008. However, the statute does not address who is responsible for the cost differential between the FCP and the actual price paid. In other words, the statute does not specifically state that the manufacturer is on the hook to retroactively reimburse the government for purchase prices greater than the FCP price dating back to January 28, 2008. This was the basis of the case brought on by the Coalition for Common Sense in Government Procurement back in May 2009.

Per the U.S. District Court’s ruling, TMA was also required to show that they have considered options other than manufacturer refunds for getting to the required FCP price. However, it will be at the discretion of the agency to determine which of the different options is best for implementing the Final Rule. It is most likely that TMA will continue along the manufacturer refund course and document that they have, in fact, evaluated other options.
The court rejected the Coalition's argument that the Final Rule was impermissibly retroactive, on the grounds that it is the statute, not the rule itself, which made transactions on or after January 28, 2008 subject to FCPs. This ruling will most likely be appealed as many legal arguments remain related to this ruling. Currently, the DoD is in the process of collecting comments from the general public before the revised Final Ruling is issued. The comment period ends on March 11, 2010, and any individual who wishes to make an official comment can do so on the Federal eRulemaking Portal at http://www.regulations.gov/. [1]

Given all of this information, we are currently recommending to our clients to take a wait-and-see approach and recommend the following to ensure potential financial obligations are accounted for and to ensure that companies have unencumbered access to the TRICARE retail market:

1. Calculate and accrue for any retroactive liabilities.
2. Sign a Pricing Agreement with TMA agreeing to pay refunds going forward on a voluntary basis. (This agreement helps to ensure that products are assigned a Tier 1 or Tier 2 Uniform Formulary Status. Tier 1 and 2 products have a $3 and $9 co-pay, respectively, while Tier 3 products require a $22 co-pay [2]. Further, a pricing agreement can help ensure that there are no pre-authorizations associated with the product.)
3. Wait for a formal request for payment prior to making any refund payments.
4. Monitor progress of any appeals by individual companies or the Coalition for Common Sense in Government Procurement.

Sources:
[1] http://www.tricare.mil/pharm_mfg/downloads/PharmFCP-FR2-9-10.pdf
[2] http://www.tricare.mil/News/news.aspx?fid=306