[Federal Register Volume 69, Number 63 (Thursday, April 1, 2004)]
[Rules and Regulations]
[Pages 17035-17052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7129]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN 0720-AA63


Civilian Health and Medical Program of the Uniformed Services 
(CHAMPUS)/TRICARE: Implementation of the Pharmacy Benefits Program

AGENCY: Office of the Secretary, DoD.

ACTION: Final rule.

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SUMMARY: This final rule implements section 701 of the National Defense 
Authorization Act for Fiscal Year 2000. The rule establishes procedures 
for the inclusion of pharmaceutical agents on a uniform formulary based 
upon relative clinical effectiveness and cost effectiveness; 
establishes the cost-sharing requirements including a tiered co-payment 
structure for pharmaceutical agents based on their designation as a 
generic, formulary or non-formulary pharmaceutical agent; establishes 
procedures to assure the availability of pharmaceutical agents not 
included on the uniform formulary to eligible beneficiaries at the non-
formulary tier; establishes procedures to receive pharmaceutical agents 
not included on the uniform formulary, but considered clinically 
necessary, under the same terms and conditions as an agent on the 
uniform formulary; establishes procedures to assure the availability of 
clinically appropriate non-formulary pharmaceutical agents to members 
of the uniformed services; establishes procedures for prior 
authorization when required; and establishes a Department of Defense 
Pharmacy and Therapeutics Committee (DoD P&TC) and a uniform formulary 
Beneficiary Advisory Panel. Other administrative amendments are also 
made to clarify specific policies that relate to the program.

DATES: This final rule is effective May 3, 2004.

ADDRESSES: Pharmacy Benefits Division, TRICARE Management Activity, 
Skyline Five, 5111 Leesburg Pike, Falls Church, VA 22041.

FOR FURTHER INFORMATION CONTACT: COLONEL William Davies, Director, 
Pharmacy Benefits Division, TRICARE Management Activity, Office of the 
Assistant Secretary of Defense (Health Affairs), telephone (703) 681-
0039.

SUPPLEMENTARY INFORMATION:

I. Background and Legislative Changes

    Section 701 of the National Defense Authorization Act for Fiscal 
Year 2000 (Public Law 106-65), codified at Title 10, United States 
Code, Section 1074g, directs the Department to establish an effective, 
efficient, integrated pharmacy benefits program. The current 
prescription drug benefit under TRICARE includes the U.S. Food and Drug 
Administration (FDA) approved drugs and medicines that by United States 
law require a physician's or other authorized individual professional 
provider's prescription (acting within the scope of their license) that 
has been ordered or prescribed by them. The pharmacy benefits program 
does not include prescription drugs which are used in medical 
treatments or

[[Page 17036]]

procedures that are expressly excluded from the TRICARE benefit by 
statute or regulation.

II. Scope of the Program

    The pharmacy benefits program will include a uniform formulary of 
pharmaceutical agents that will assure the availability of 
pharmaceutical agents in the complete range of therapeutic classes 
authorized under the current TRICARE prescription drug benefit. A 
therapeutic class is defined as a group of drugs that are similar in 
chemical structure, pharmacological effect, or clinical use. 
Pharmaceutical agents in each therapeutic class shall be selected for 
inclusion on the uniform formulary based upon the relative clinical 
effectiveness and cost effectiveness of the agents in such class. If a 
pharmaceutical agent in a therapeutic class is determined not to have a 
significant, clinically meaningful therapeutic advantage in terms of 
safety, effectiveness, or clinical outcome compared to other drugs 
included on the uniform formulary, it may be classified as a non-
formulary agent. If a pharmaceutical agent in a therapeutic class is 
not cost effective relative to other pharmaceutical agents in that 
therapeutic class, it may be classified as a non-formulary agent.
    The pharmacy benefits program, which includes the uniform formulary 
and its associated tiered co-payment structure, is applicable to all of 
the uniformed services. Its geographical applicability is all 50 states 
and the District of Columbia, Guam, Puerto Rico, and the Virgin 
Islands. In addition, if authorized by the Assistant Secretary of 
Defense (Health Affairs), the pharmacy benefits program may be 
implemented in areas outside the 50 states and the District of 
Columbia, Guam, Puerto Rico, and the Virgin Islands. In such case, the 
Assistant Secretary of Defense (Health Affairs) may also authorize 
modifications to the pharmacy benefits program rules as may be 
appropriate to the areas involved.

III. Public Comments

    The proposed rule was published in the Federal Register on Friday, 
April 12, 2002, (67 FR 17948) in which DoD proposed to implement its 
pharmacy benefits program and uniform formulary. Interested persons 
were invited to submit comments on DoD's proposed rule by June 11, 
2002. We received more than 3,000 public comments with the majority 
concentrated in five general areas: the proposed non-formulary co-
payment of $22; assurance that the uniform formulary will include a 
broad range of medications most often prescribed in each therapeutic 
class; procedures for documenting and approving clinical necessity for 
doctors should be streamlined; ``grandfathering'' at current co-
payments for patients already receiving a medication that may become 
non-formulary; and ensuring that providers have adequate educational 
materials and access to formulary lists.
    In addition, other comments were received from organizations 
representing various medical fields or corporate entities regarding 
specific aspects of the proposed rule. A discussion of the more 
significant comments concerning DoD's proposed rule, and our responses 
to these comments, are set forth below.

A. Point of Clarification Concerning Availability of Non-Formulary 
Drugs

    Public comments revealed the perception that ``non-formulary'' 
drugs would not be available under the uniform formulary. That 
perception is incorrect. As stated in the proposed rule and as required 
by 10 U.S.C. 1074g(a)(5), we emphasize that drugs categorized as ``non-
formulary'' must be made available through at least one of our 
pharmaceutical venues. DoD will make non-formulary drugs available 
through the TRICARE Mail Order Pharmacy and retail pharmacies at the 
non-formulary co-payment.

B. Co-Payments

    The most frequent public comment concerned the proposed $22 co-
payment for the non-formulary tier of the uniform formulary. It was 
generally stated that ``the jump from $9 to $22 for non-formulary drugs 
is excessively high and presents an undue financial burden upon all 
classes of beneficiaries.''
    DoD was directed by 10 U.S.C. 1074g to establish an effective, 
efficient, and integrated pharmacy benefits program, to include a 
uniform formulary of pharmaceutical agents based upon relative clinical 
and cost effectiveness. DoD is authorized under 10 U.S.C. 1074g(a)(6) 
to establish cost-sharing requirements for generic, formulary, and non-
formulary agents. The latitude given DoD in establishing non-formulary 
co-payments is limited by this section which states in pertinent part, 
``For non-formulary agents, cost-sharing shall be consistent with 
common industry practice and not in excess of amounts generally 
comparable to 20 percent for beneficiaries covered by section 1079 of 
this title or 25 percent for beneficiaries covered by section 1086 of 
this title.'' (emphasis added). Common industry practice is to either 
deny payment completely for non-formulary agents, or as in multi-tiered 
plans, have a difference in the cost-share between formulary and non-
formulary agents that is enough to influence beneficiaries to select 
equally effective, less expensive medications. At the time the proposed 
rule was drafted, common industry practice was to establish a $12 to 
$15 differential between the non-formulary and formulary cost-shares. 
The proposed $22 co-payment creates a $13 differential and is within 
the 20% maximum cost-share limit established by law, based upon the 
average aggregate cost to the government for pharmaceutical agents that 
may be designated as non-formulary. The $22 co-payment is also 
significantly lower than commercial non-formulary co-payments that 
average $29 in retail pharmacies, and $34 to $57 in mail order 
pharmacies. (Source: Novartis Pharmacy Benefit Report: 2001 Facts and 
Figures). Within the TRICARE Mail Order Pharmacy, the proposed $22 co-
payment for a 90 day supply of a non-formulary medication is even less 
than the formulary rate in the retail pharmacy network for a comparable 
90 day supply (3 prescriptions at a $9 cost-share per prescription=$27 
total) and is intended to influence beneficiary choice for mail order. 
Thus, the $22 non-formulary co-payment is in line with the commercial 
best practice business model, influencing beneficiary choice, while 
maintaining access to a broad range of pharmaceutical agents.

C. Formulary Range

    The second most frequent comment concerned reassurance that the 
uniform formulary will include a broad range of frequently prescribed 
medications that offer a spectrum of choices within each therapeutic 
class, recognizing that the ``lowest common denominator'' drug is not 
adequate to meet the health care needs of numerous beneficiaries. The 
Department is directed by 10 U.S.C. 1074g(a)(2)(A) to establish a 
``uniform formulary, which shall assure the availability of 
pharmaceutical agents in the complete range of therapeutic classes.'' 
The selection for inclusion on the uniform formulary of particular 
pharmaceutical agents in each therapeutic class shall be based on the 
relative clinical and cost effectiveness of the agents in such class. 
In considering the relative clinical effectiveness of pharmaceutical 
agents, the Director, TRICARE Management Activity, is required by 10 
U.S.C. 1074g(a)(2)(B) to presume inclusion in a therapeutic class of a 
pharmaceutical agent, unless the DoD Pharmacy and Therapeutics 
Committee finds that a pharmaceutical

[[Page 17037]]

agent does not have a significant, clinically meaningful therapeutic 
advantage in terms of safety, effectiveness, or clinical outcome over 
the other drugs included on the uniform formulary. The DoD Pharmacy and 
Therapeutics Committee, comprised of physicians and pharmacists with 
clinical expertise, will conduct in-depth clinical and cost-effective 
analysis of medications within a therapeutic class. The DoD Pharmacy 
and Therapeutics Committee will recommend that an agent have a non-
formulary status based on clinical effectiveness, only if the agent 
does not have a significant, clinically meaningful therapeutic 
advantage in terms of safety, effectiveness, or clinical outcome over 
other drugs included on the uniform formulary. The Committee's 
recommendations shall be commented upon by the Beneficiary Advisory 
Panel, and the final decision will be made by the Director, TRICARE 
Management Activity (TMA). Those medications designated non-formulary 
will still be accessible through the mail order pharmacy and retail 
pharmacies at the non-formulary cost-share, and at the formulary cost-
share for conditions of medical necessity.

D. Streamlining Medical Necessity Procedures

    The third most frequent comment concerned assurances that 
procedures for documenting and determining ``clinical necessity'' will 
be streamlined, without imposing unnecessary administrative procedures 
upon providers, patients, and pharmacists. Under both the TRICARE Mail 
Order Pharmacy program and the Request for Proposals for the TRICARE 
Retail Pharmacy contract, we have established streamlined processes 
that efficiently and accurately identify instances where it is 
clinically necessary for a beneficiary to use a non-formulary drug. We 
re-emphasized that beneficiaries may obtain non-formulary drugs without 
delay because the clinical necessity determination will, in most cases, 
be a retrospective review completed after the medication is dispensed. 
Under the TRICARE Mail Order Pharmacy Program, beneficiaries have the 
option of submitting evidence to support clinical necessity 
concurrently with their prescriptions. Under the pharmacy benefits 
program, clinical necessity establishes only the co-payment of a non-
formulary medication for a beneficiary and does not impact access to 
medications.

E. Grandfathering Co-Payments

    The fourth most frequent comment concerned the concept of 
``grandfathering'' co-pays at current levels for patients already 
receiving maintenance medications which subsequently may be designated 
as non-formulary when the uniform formulary is implemented.
    Under 10 U.S.C. 1074g(a)(8), the``Secretary shall ensure that en 
eligible covered beneficiary may continue to receive coverage for any 
maintenance pharmaceutical that is not on the uniform formulary and 
that was prescribed for the beneficiary before'' October 5, 1999 [the 
date of enactment of section 1074g] ``and stabilized the medical 
condition of the beneficiary.'' Compliance with this directive is 
achieved in that access to pharmaceuticals designated as ``non-
formulary'' is preserved under this rule, though at the non-formulary 
tier. Where there is clinical necessity for the use of a non-formulary 
agent that is not otherwise excluded as a covered benefit, the drug or 
medicine will be provided at the same co-payment as a formulary agent. 
Clinical necessity for use of a non-formulary agent is established 
when: Use of the formulary agent is contraindicated; the patient is 
likely to experience or has experienced significant adverse effects 
from formulary agents; formulary agents result in therapeutic failure; 
the patient previously responded to a non-formulary agent and changing 
to a formulary agent would incur unacceptable clinical risk; or, there 
is no alternative formulary agent.
    The government will apply the commercial business practice of 
establishing a transition period during which the formulary co-payment 
will apply to pharmaceuticals that were prescribed for a beneficiary 
prior to that pharmaceutical agent being designated as ``non-
formulary''. Transition periods shall be determined by the DoD Pharmacy 
and Therapeutics Committee and included with any recommendation of a 
pharmaceutical for ``non-formulary'' status. The intent of this 
transition period is to allow sufficient time for education and 
communication of this formulary status change, enabling coordination 
between beneficiaries and providers on whether to submit documentation 
of clinical necessity, continue therapy at the non-formulary tier, or 
modify therapy. With these considerations, transition periods may vary 
by drug; however, will not be longer than 180 days from the final 
decision date but may be less.

F. Provider Education and Formulary Access

    The fifth most frequent public comments stated that DoD must ensure 
doctors have educational materials on the program, uncomplicated and 
immediate access to formulary lists, and the ability to identify and 
fulfill clinical necessity documentation requirements in real time via 
the Internet. The Department will incorporate the communication of 
formulary information into TMA's extensive marketing and education 
program that employs both electronic and print media. Dissemination of 
information to beneficiaries, beneficiary advisory groups, providers, 
and TRICARE contractors will be coordinated through TMA's 
Communications and Customer Services Directorate.

G. Financial Responsibility

    A managed care support contractor of the TRICARE program inquired 
as to the status of the requirement under 10 U.S.C. 1074g(d) that in 
the operation of the pharmacy benefits program the Secretary of Defense 
assure through management and new contractual arrangements that 
financial resources are aligned such that the cost of prescriptions is 
borne by the organization that is financially responsible for the 
health care of the eligible covered beneficiary.
    TRICARE, in its next generation of contracts, has announced that it 
is carving out from the managed care support contracts the requirement 
to provide retail pharmacy services. Managed care support contractors 
have had no requirement to provide mail order pharmacy services. Mail 
order pharmacy services were provided under a single, separate 
contract, the TRICARE National Mail Order Pharmacy Program, and are 
being provided now under a similar arrangement with the TRICARE Mail 
Order Pharmacy Program. The TRICARE Retail Pharmacy solicitation is 
structured so that the Government, with overall fiscal responsibility 
for the health care of eligible beneficiaries, bears its share of the 
cost of prescriptions as a Federal procurement.

H. Clinical Effectiveness and Cost Effectiveness

    As explained in the preamble to the proposed rule, it is presumed 
that pharmaceutical agents should be included on the uniform formulary 
unless the Pharmacy and Therapeutics Committee finds by a majority vote 
that a pharmaceutical agent does not have a significant, clinically 
meaningful therapeutic advantage in terms of safety,

[[Page 17038]]

effectiveness, or clinical outcome over other pharmaceutical agents 
included on the uniform formulary. The DoD Pharmacy and Therapeutics 
Committee will exercise collective professional judgment by considering 
pertinent information from a variety of sources. The Committee will 
evaluate the relative clinical effectiveness of pharmaceutical agents 
within a therapeutic class by considering information about their 
safety, effectiveness, and clinical outcome. Information considered by 
the committee may include but is not limited to: FDA approved and other 
studied indications; pharmacology; pharmacokinetics; contraindications: 
warnings/precautions; incidence and severity of adverse effects; drug 
to drug, drug to food, and drug to disease interactions; availability, 
dosing, and method of administration; epidemiology and relevant risk 
factors for diseases/conditions in which the drugs are used; and 
concomitant therapies; results of safety and efficacy studies; results 
of effectiveness/clinical outcomes studies; and results of meta-
analyses.
    In considering the relative cost effectiveness of pharmaceutical 
agents in a therapeutic class authorized under the TRICARE pharmacy 
benefit, the DoD Pharmacy and Therapeutics Committee shall evaluate the 
costs of the agent in relation to the safety, effectiveness, and 
clinical outcomes of other agents in the class. Information considered 
by the Committee concerning the relative cost effectiveness of the 
pharmaceutical agent may include but is not limited to: cost of the 
drug to the Government; impact on overall medical resource utilization 
and costs, cost-efficacy studies; cost-effectiveness studies; cross-
sectional or retrospective economic evaluations; pharmacoeconomic 
models; patent expiration dates; clinical practice guideline 
recommendations; and existence of existing blanket purchase agreements, 
incentive price agreements, or contracts. Based on its assessment of 
the relative clinical and cost effectiveness of agents within a 
therapeutic class, the DoD Pharmacy and Therapeutics Committee will 
recommend that an agent either be included on the uniform formulary or 
designated as non-formulary. The DoD Pharmacy and Therapeutics 
Committee's recommendation will be determined by a majority vote.
    A pharmaceutical company stated its belief that the broadly drafted 
definition of a ``therapeutic class'' in the rule would make it 
difficult for beneficiaries to obtain access to their varied 
pharmaceutical needs because the uniform formulary may cover a limited 
number of drugs per therapeutic class. Therapeutic class is defined as 
a group of drugs that are similar in chemical structure, 
pharmacological effect, or clinical use. The pharmaceutical company 
suggested the following definition: ``a group of covered outpatient 
drugs used to treat the same spectrum of disorders with similar patient 
outcomes, similar effects on all relevant drug receptors or other 
biological targets, and similar tolerability throughout their 
clinically accepted dosing ranges across all relevant patient 
populations.'' The narrow definition proposed by the pharmaceutical 
company would result in an extremely large number of therapeutic 
classes. Many of the classes would contain a single drug, or at most, 
very few drugs. This definition would obviously minimize the number of 
drugs that could possibly be designated as non-formulary. The 
definition in the rule is consistent with commonly accepted definitions 
of a therapeutic class. We are confident that, given the definition of 
a therapeutic class in the rule, the uniform formulary will include a 
sufficient number of pharmaceuticals to meet the clinical needs of DoD 
beneficiaries.
    A pharmacy association suggested adding ``and/or clinical use'' to 
the definition of therapeutic class. We concur with that recommendation 
and have made that change.
    Comments were received from a pharmaceutical manufacturer 
concerning the date that new drugs approved by the Food and Drug 
Administration (FDA) will become available to beneficiaries under the 
pharmacy benefits program. The manufacturer recommended all new drugs 
be automatically included on the uniform formulary if it is in a 
therapeutic class that has not been reviewed; or if a new drug is in a 
class that has already been reviewed, the new agent shall be evaluated 
within six months of the market date. Currently, new drugs approved by 
the FDA are available immediately to our beneficiaries in retail 
pharmacies. Their availability in the TRICARE Mail Order Program is 
contingent upon a decision by the DoD Pharmacy and Therapeutics 
Committee. Their availability in military medical treatment facilities 
(MTFs) is contingent upon either the individual MTF placing them on its 
formulary or the DoD Pharmacy and Therapeutics Committee placing them 
on the Basic Core Formulary, thus mandating their inclusion on every 
MTF formulary.
    Under 10 U.S.C. 1074g, DoD has the option of making a new drug 
available immediately in retail pharmacies at the formulary cost-share 
tier, or delay its availability until it is evaluated by the Pharmacy 
and Therapeutics Committee for placement in either the formulary or 
non-formulary cost-share tier. However, for any drugs newly approved by 
the Food and Drug Administration, the Pharmacy and Therapeutics 
Committee is required under 10 U.S.C. 1074g(b)(2) to consider their 
inclusion on the uniform formulary. Under 10 U.S.C. 1074g(a)(2)(B), it 
is presumed that pharmaceutical agents should be included on the 
uniform formulary unless the Pharmacy and Therapeutics Committee finds 
by a majority vote that a pharmaceutical agent does not have 
significant, clinically meaningful therapeutic advantage in terms of 
safety, effectiveness, or clinical outcome over other pharmaceutical 
agents included on the uniform formulary. The department will continue 
with its current policy, and except for drugs for excluded benefits, 
new drugs approved by the FDA will automatically be included on the 
uniform formulary at the formulary cost-share tier. Newly approved FDA 
drugs will normally by reviewed at the next scheduled Pharmacy and 
Therapeutics Committee meeting for evaluation of the drug's clinical 
and cost effectiveness in comparison to other drugs in the therapeutic 
class.
    A pharmaceutical company stated its belief that the rule should 
require the Pharmacy and Therapeutics Committee to consider certain 
acknowledged sources of reliable clinical information when evaluating 
drugs within a therapeutic class (e.g., clinical studies used for FDA 
approval, drug compendia information and peer-reviewed literature). The 
pharmaceutical company also stated that the rule should require the 
Committee to consult with independent medical specialists. The rule 
allows the Committee to consider all the sources of clinical 
information--including independent medical specialists--suggested by 
the pharmaceutical company. Rather than having the rule dictate the 
specific information sources that must be used in all circumstances, we 
believe it is more appropriate, as well as consistent with the statute 
and industry practice, to rely on the collective professional judgment 
of the Committee members to determine which information sources need to 
be used in order to most effectively evaluate the clinical and cost 
effectiveness.
    A pharmaceutical company noted that the rule does not make any 
reference to the impact on quality of life when making formulary 
decisions. A pharmaceutical manufacturer

[[Page 17039]]

association stated its opinion that in determining clinical 
effectiveness, the Secretary must add ``quality of life'' and 
``compliance'' as factors to consider when determining the therapeutic 
advantage of one drug over another. In 32 CFR 199.21(e)(1)(iii) it 
states that the Pharmacy and Therapeutics Committee will evaluate the 
relative clinical effectiveness of drugs within a therapeutic class by 
considering information about their safety, effectiveness, and clinical 
outcome. In 32 CFR 199.21(e)(1)(iv) it goes on to list various factors 
that the Committee may consider, but is not limited to considering. 
Clinical effectiveness is a composite of many factors. It is not our 
intent to include in the rule an exhaustive list of all factors that 
could potentially affect the clinical effectiveness of pharmaceutical 
agents. Although quality of life and compliance are not explicitly 
identified in the rule, the rule does not preclude or require the 
Committee to consider such information in evaluating the relative 
clinical effectiveness of pharmaceutical agents in a therapeutic class. 
We will rely on the collective professional judgment of the Committee 
to determine if relevant information on quality of life and compliance 
are available and useful for evaluating the relative clinical 
effectiveness of particular pharmaceutical agents.
    A pharmaceutical manufacturer association stated that in 
determining ``cost effectiveness'' the rule must include detailed 
information as to how the Pharmacy and Therapeutics Committee will 
factor in the value of saved lives and improved quality of life. In 32 
CFR 199.21(e)(2)(ii) it lists information the Committee may consider, 
but is not limited to considering in evaluating the relative cost 
effectiveness of drugs in a therapeutic class. Although the value of 
saved lives and improved quality of life are not explicitly identified 
in the rule, the rule does not preclude the Committee from considering 
such information in evaluating the relative cost effectiveness of 
pharmaceutical agents in a therapeutic class. We will rely on the 
collective professional judgment of the Committee to determine if 
relevant information on the value of lives saved and improved quality 
of life are available and useful for evaluating the relative cost 
effectiveness of pharmaceutical agents. However, significant 
differences in clinical outcomes will obviously be a major focus of the 
Committee's actions.
    A pharmaceutical company questioned how relative price is weighed 
against relative effectiveness. The rule states that the Committee will 
evaluate the costs of pharmaceutical agents in relation to the safety, 
effectiveness, and clinical outcomes of the agents in the therapeutic 
class.
    A pharmaceutical company commented that the rule should be 
clarified to allow for cost effectiveness consideration only after the 
Pharmacy and Therapeutics Committee has determined clinical 
effectiveness is firmly established. Under 10 U.S.C. 1074g(a)(2)(A), 
the selection for inclusion on the uniform formulary of particular 
pharmaceutical agents in each therapeutic class shall be based on the 
relative clinical and cost effectiveness of the agents in such class. 
Like the statute, (10 U.S.C. 1074g(a)(2)(B) for clinical effectiveness 
and 1074g(a)(2)C) for cost effectiveness), the rule (32 CFR 
199.21(a)(3)(ii)) specifies a two-step process that will evaluate 
clinical effectiveness first, then cost effectiveness second, and base 
a formulary status recommendation based upon both. Before making a 
recommendation that a therapeutic agent be classified as a non-
formulary agent, both clinical effectiveness and cost effectiveness 
will be evaluated. However, in making the recommendation, a 
determination that an agent is either not as clinically effective or 
not as cost effective as other agents in the class, will be sufficient 
to support the recommendation that the agent will not be added to the 
uniform formulary.
    A professional organization stated an opinion that Sec.  
199.21(a)(3)(ii) of the proposed rule, setting forth the standard for 
designating a pharmaceutical agent as non-formulary is unclear and 
potentially inconsistent with section 1074g(a)(2)(A) of the governing 
statute, which provides that the decision as to whether an agent in a 
particular therapeutic class is included on the uniform formulary will 
be based on ``the relative clinical and cost effectiveness of the 
agents in the class.'' We disagree that the standard in the rule is 
either unclear or inconsistent with the statute. We concur with the 
commenter that the statutory provision envisions a test that takes into 
account both clinical effectiveness and cost. In 32 CFR 
199.21(a)(3)(ii), it states: ``If a pharmaceutical agent in a 
therapeutic class is determined by the Pharmacy and Therapeutics 
Committee not to have a significant, clinically meaningful therapeutic 
advantage in terms of safety, effectiveness, or clinical outcome over 
other pharmaceutical agents included on the uniform formulary, it may 
be classified as a non-formulary agent. In addition, if the evaluation 
of the Pharmacy and Therapeutic Committee concludes that a 
pharmaceutical agent in a therapeutic class is not cost effective 
relative to other pharmaceutical agents in a therapeutic class, 
considering costs, safety, effectiveness, and clinical outcomes, it may 
be classified as a non-formulary agent.'' The rule is simply stating, 
in accordance with section 1074g(a)(2)(A) that ``selection for 
inclusion on the uniform formulary . . . shall be based on the relative 
clinical and cost effectiveness of the agents in such [therapeutic] 
class.'' If it is either not relatively as clinically effective or cost 
effective as other agents in such class, the agent will not be 
considered as clinically effective and cost effective as other agents 
in such class.

I. Evaluation of Pharmaceutical Agents for Determinations Regarding 
Inclusion on the Uniform Formulary

    As explained in the proposed rule, the DoD Pharmacy and 
Therapeutics Committee will periodically evaluate or re-evaluate 
individual drugs and/or drug classes for determinations regarding 
inclusion or continuation on the uniform formulary. Evaluation or re-
evaluation of individual drugs or drug classes may be prompted by a 
variety of circumstances that may include but are not limited to: 
approval of a new drug by the FDA; approval of a new indication for an 
existing drug; changes in the clinical use of existing drugs; new 
information concerning the safety, effectiveness or clinical outcomes 
of existing drugs; price changes; shifts in market share; scheduled 
review of a therapeutic class; and requests from Pharmacy and 
Therapeutics Committee members, military treatment facilities, or other 
Military Health System officials.
    A pharmaceutical company questioned how new Food and Drug 
Administration (FDA) approved drugs will be evaluated. Under 10 U.S.C. 
1074g(b)(2), the Committee is required to meet quarterly to consider 
for inclusion on the uniform formulary any new drugs newly approved by 
the FDA. The Committee will evaluate the clinical effectiveness and 
cost effectiveness as outlined in the rule. Comments were received from 
pharmaceutical manufacturers and pharmaceutical associations on 
evaluation of pharmaceutical agents for determinations regarding 
inclusion on the uniform formulary. Evaluation or revaluations may be 
prompted by a variety of circumstances that may include but are not 
limited to: approval of a new drug by the FDA; approval of a new 
indication for an existing drug;

[[Page 17040]]

changes in the clinical use of existing drugs; new information 
concerning the safety, effectiveness or clinical outcomes of existing 
drugs; price changes; shift in market share; scheduled review of a 
therapeutic class; and requests from Pharmacy and Therapeutics 
Committee members, military treatment facilities, or other Military 
Health System officials.

J. Uniform Formulary at Military Treatment Facilities (MTFs)

    As discussed in the proposed rule, pharmaceutical agents included 
on the uniform formulary shall be available through medical treatment 
facilities of the uniformed services, consistent with the scope of 
health care services offered in such facilities. The Basic Core 
Formulary (BCF) is a subset of the uniform formulary and is a mandatory 
component of all MTF pharmacy formularies. The BCF contains the minimum 
set of drugs that each MTF pharmacy must have on its formulary to 
support the primary care scope of practice for Primary Care Manager 
enrollment sites. Additions to individual MTF formularies are 
determined by local Pharmacy and Therapeutics Committees based upon the 
scope of health care services provided. However, pharmaceutical agents 
that are designated as non-formulary on the uniform formulary shall not 
be included on an MTF pharmacy formulary. All drugs on the MTF 
formulary must be available to all beneficiaries. There are no co-
payments or cost-shares for any beneficiaries utilizing MTF pharmacies.
    A pharmaceutical association comments on the importance of 
standardizing the formulary process within the military treatment 
facilities (MTFs). Under 10 U.S.C. 1074g(a)(2)(E)(i), pharmaceutical 
agents included on the uniform formulary shall be available to eligible 
covered beneficiaries through facilities of the uniformed services, 
consistent with the scope of health care services offered in such 
facilities. Although the formulary process in the MTF Pharmacy and 
Therapeutics Committees is similar to the process outlined in the 
statute and the rule for the DoD Pharmacy and Therapeutics Committee, 
neither govern the procedures of the MTF Pharmacy and Therapeutics 
Committees. Each MTF must evaluate the scope of practice of the 
facility and determine which drugs in addition to those on the Basic 
Core Formulary, which is required for all MTFs, should be on that MTF's 
formulary.
    The same association commented that the rule does not outline the 
steps an MTF must take to determine clinical necessity for non-
formulary items. There are three issues associated with this comment. 
First, not all points of service or venues are required to have non-
formulary pharmaceutical agents available to beneficiaries. Under 10 
U.S.C. 1074g(a)(5), non-formulary agents are required to be available 
only through one of the venues described in 10 U.S.C. 1074g(a)(2)(E), 
specifically, MTFs, retail pharmacies, or the TRICARE Mail Order 
Pharmacy program. A higher cost-share is authorized for non-formulary 
pharmaceutical agents in the venue where they are offered. DoD has 
elected to make non-formulary pharmaceutical agents available at the 
non-formulary tier cost-shares described in this rule in all venues, 
except for the MTFs. Second, in those points of service or venues where 
non-formulary tier pharmaceutical agents are offered, under 10 U.S.C. 
1074g(a)(7), DoD is required to establish procedures for beneficiaries 
to receive pharmaceutical agents at the formulary tier cost-share that 
are not included on the uniform formulary (i.e., non-formulary), if the 
beneficiary establishes that the non-formulary pharmaceutical agent, as 
opposed to the formulary tier pharmaceutical agent, is clinically 
necessary for the beneficiary. Procedures for establishing clinical 
necessity for prescriptions presented at retail pharmacies and the 
TRICARE Mail Order Program are described in 32 CFR 199.21(h)(3). If 
clinical necessity is established, non-formulary tier pharmaceutical 
agents are provided to the beneficiary at the formulary tier cost-
share. Third, non-formulary tier pharmaceutical agents will not be 
routinely available in the MTFs like they are in the other venues. 
These agents can be obtained in all other venues with payment of the 
non-formulary tier cost-share, whereas if available in the MTFs, they 
would be obtained without payment of the higher cost-share, because no 
cost-shares are charged at the MTFs. Although these agents will not 
routinely be available in the MTFs, DoD has decided to make non-
formulary tier pharmaceutical agents available in the MTFs when medical 
necessity for the agent is established. Under 32 CFR 199.21(h)(3)(ii) 
we now state, ``Although not a beneficiary entitlement, non-formulary 
pharmaceutical agents may be made available to eligible covered 
beneficiaries for prescriptions approved through the non-formulary 
special order process of the MTFs that validates the medical necessity 
for the use of the non-formulary pharmaceutical agent.''
    A retiree association comments that beneficiaries should be 
notified regarding changes to the MTFs' Basic Core Formulary. We will 
include all formulary changes in the marketing/education efforts 
described previously.
    A retiree association commented that the rule should include a 
statement regarding quantities of medications available from MTFs, just 
as it does concerning the quantities available from the retail networks 
and mail order pharmacy. Quantity limits in retail pharmacies and the 
TRICARE Mail Order Program are discussed in Sec.  199.21(i)(2) under 
the heading of ``Cost-sharing amounts.'' The purpose of this subsection 
is to describe the cost-share required in each venue, and the maximum 
quantity of a prescribed drug that may be obtained for that cost-share. 
The rule clearly states that there is no cost-share for pharmaceutical 
agents obtained from an MTF. Because there is no cost-share in the MTF, 
regardless of the quantity dispensed, it is unnecessary to describe the 
quantity limit that may apply at a MTF. Omitting any reference to 
quantity limits at the MTF also allows appropriate flexibility to 
change policies as necessary to meet operational requirements in the 
MTFs, without having to revise the Code of Federal Regulations.
    A beneficiary advocacy organization requested assurance that the 
Basic Core Formulary at MTFs will be as robust as possible to provide a 
cost-effective distribution channel for beneficiaries. MTF pharmacies 
are the least costly point of service for the beneficiary. The Basic 
Core Formulary as stated in 199.21(h)(2)(ii) ``contains the minimum set 
of drugs that each MTF pharmacy must have on its formulary to support 
the primary care scope of practice for the Primary Care Manager 
enrollment sites.'' To the extent appropriate based on the scope of 
practice at each MTF, the actual formulary in use at the MTF will 
reflect the needs of the MTF's patients. We believe the result will be 
reasonable access through MTF pharmacies to drugs needed by MTF 
patients.

K. Prior Authorizations

    As noted in the proposed rule, selected pharmaceutical agents may 
be subject to prior authorization or utilization review requirements to 
assure medical necessity, clinical appropriateness and/or cost 
effectiveness. The Pharmacy and Therapeutics Committee will assess the 
need to prior authorize a given agent by considering the relative 
clinical and cost effectiveness of agents within a therapeutic class. 
Agents that require

[[Page 17041]]

prior authorization will be identified by a majority vote of the 
Pharmacy and Therapeutics Committee. The Pharmacy and Therapeutics 
Committee will establish the prior authorization criteria for a given 
agent.
    A medical association stated its opinion that the rule should state 
the time frame to turn around a prior authorization denial and that the 
reasons for the denial must be documented. Similar to other sections of 
Part 199, the rule specifies that the Director, TRICARE Management 
Activity, may issue policies, procedures, instructions, guidelines, 
standards and/or criteria to implement this requirement. Our goal is to 
efficiently, accurately, and promptly process prior authorization 
requests. Our mail order and retail pharmacy services contracts are 
structured to meet these goals and ensure that beneficiaries are 
advised of their right to appeal.
    A medical association stated the opinion that pharmaceutical agents 
can not be subject to prior authorization criteria that apply in all 
circumstances. We disagree. There are similarities but also differences 
between prior authorization and clinical necessity. Prior authorization 
may be required under Sec.  199.21(k) when considering the relative 
clinical and cost effectiveness of agents within a therapeutic class, 
and will require the establishment of prior authorization criteria. For 
example, some drugs should not be used as the first line of therapy. In 
those circumstances, it may be appropriate to require prior 
authorization to ensure medically appropriate care is being given by 
use of the first line therapy before the second line is used.
    A TRICARE managed care support contractor asked if a pharmaceutical 
agent did not previously require prior authorization, but the DoD 
Pharmacy and Therapeutics Committee makes a decision that it should, 
will affected beneficiaries be notified in writing of the new 
requirement? Also, will affected beneficiaries be ``grandfathered'' 
long enough for them to obtain a letter of medical necessity from the 
prescribing physician? We intend to apply the commercial business 
practice of providing an implementation time period that applies to 
pharmaceuticals that were prescribed prior to that agent requiring a 
prior authorization. Transition periods will be recommended by the DoD 
Pharmacy and Therapeutics Committee and will be included with any 
recommendation that a pharmaceutical require prior authorization. The 
intent of the transition period is to allow sufficient time for 
education and communication of this change enabling coordination 
between beneficiaries and providers on whether to continue the therapy 
or modify the therapy. We will use the same methods of education and 
communication previously discussed.
    A pharmaceutical company stated that the rule does not identify the 
prior authorization criteria that will be established. The government 
will rely on the collective professional judgment of the DoD Pharmacy 
and Therapeutics Committee to identify both the pharmaceutical agents 
that require prior authorization and the criteria that apply to any 
particular agent.

L. Cost-Sharing Requirements

    The proposed rule explained that active duty members do not pay a 
cost-share for prescription drugs. Cost-sharing requirements for all 
other beneficiaries will be based upon the pharmaceutical agent's 
classification on the uniform formulary, that is, generic, formulary, 
or non-formulary and the point of service, that is, MTF, retail network 
pharmacy, retail non-network pharmacy, or the TRICARE Mail Order 
Pharmacy (TMOP), from which the agent is acquired. TRICARE Prime point 
of service charges still apply to the pharmacy benefits program.
    There is no co-pay for pharmaceutical agents obtained from a 
military treatment facility.
    For pharmaceutical agents obtained from a retail network pharmacy 
there is a $9.00 co-pay per prescription for up to a 30-day supply of a 
formulary agent, a $3.00 co-pay per prescription for up to a 30-day 
supply of a generic agent, and a $22.00 co-pay per prescription for up 
to a 30-day supply of a non-formulary agent.
    For formulary and generic pharmaceutical agents obtained from a 
retail non-network pharmacy there is a 20 percent or $9.00 co-pay 
(whichever is greater) per prescription for up to a 30-day supply of 
the pharmaceutical agent.
    For non-formulary pharmaceutical agents obtained from a retail non-
network pharmacy there is a 20 percent or $22.00 co-pay (whichever is 
greater) per prescription for up to a 30-day supply of the 
pharmaceutical agent.
    For pharmaceutical agents obtained under the TMOP program there is 
a $9.00 co-pay per prescription for up to a 90-day supply of a 
formulary agent, a $3.00 co-pay per prescription for up to a 90-day 
supply of a generic agent, and a $22.00 co-pay per prescription for up 
to a 90-day supply of a non-formulary agent.
    A point of service cost-share of 50 percent applies in lieu of the 
20 percent co-pay for TRICARE Prime beneficiaries who obtain 
prescriptions from retail non-network pharmacies.
    Except as provided below, for prescription drugs acquired by 
TRICARE Standard beneficiaries from retail non-network pharmacies, 
beneficiaries are subject to the $150.00 per individual or $300.00 
maximum per family annual fiscal year deductible.
    Under TRICARE Standard, dependents of members of the uniformed 
services whose pay grade is E-4 or below are subject to the $50.00 per 
individual or $100.00 maximum per family annual fiscal year deductible.
    The TRICARE catastrophic loss limits apply to pharmacy benefits. 
For dependents of active duty members, the maximum family liability is 
$1,000 for cost-shares and deductibles based on allowable charges for 
TRICARE Basic Program services and supplies received in a fiscal year. 
For all other categories of beneficiary families, the maximum family 
liability is $3,000 in a fiscal year.
    A comment was received from a pharmaceutical association stating it 
does not support incentives to encourage populations to obtain their 
pharmacy services from mail order over retail pharmacy, and that there 
is little evidence to suggest mail order saves money. The DoD co-
payment structure is established to encourage use of the most 
economical venue to the Department. Prescriptions filled under the 
TRICARE Mail Order Pharmacy Program are currently a more cost effective 
venue then a retail pharmacy for the Department. As the Department 
implements the national retail pharmacy contract, the Department may 
re-evaluate this policy.
    A comment was received from a commercial group recommending that 
the enrollment year deductible for outpatient claims of $300 per 
individual; $600 per family under TRICARE Prime be included with the 
statement that ``a point of service cost-share of 50 percent (50%) 
applies in lieu of the 20 percent (20%) co-payment for TRICARE Prime 
beneficiaries who obtain prescriptions from retail non-network 
pharmacies.'' This clarification of deductibles under TRICARE Prime has 
been included in the final rule.
    A question was received from a commercial group regarding 
pharmaceutical agents obtained under the TMOP program where there is a: 
``$22.00 co-payment for up to a 90-day supply of a non-formulary 
pharmaceutical agent.'' The question was that in the event the 
Government has a contract for a preferred agent within the therapeutic 
class, will the non-preferred agent be designated as

[[Page 17042]]

non-formulary and would it be available from the TMOP with the $22.00 
co-pay for up to a 90-day supply? Whether the non-contracted, non-
preferred agent is designated as a formulary or non-formulary agent 
will be based upon the relative clinical and cost effectiveness of the 
agent in comparison to other agents in the class. Non-formulary agents 
will be available through the TRICARE Mail Order Pharmacy Program at 
the $22.00 co-payment for up to a 90 day supply.
    A question was received from a commercial group asking to which 
tier will compounded prescriptions be assigned. Compounded 
prescriptions will be subject to the same process of evaluation as 
other pharmaceutical agents under the uniform formulary. They will fall 
under the non-formulary tier only as determined by the DoD Pharmacy and 
Therapeutics Committee.
    A military association submitted a comment stating that until a 
national retail pharmacy contract is implemented, beneficiaries who are 
under the age of 65 and who need to purchase drugs while traveling out 
of their region must pay non-network prices even when using a retail 
network pharmacy. The association asserted that procedures need to be 
in place between the implementation of the uniform formulary and the 
implementation of the new retail pharmacy contract that will allow 
beneficiaries obtaining prescriptions out of region to be able to pay 
network prices when using a network pharmacy. The national retail 
pharmacy contract will assure portability, in that a network pharmacy 
will be a part of a national, as opposed to regional, pharmacy network. 
Implementation of the uniform formulary has nothing to do with 
portability of the pharmacy benefit.
    A comment was received from a military association stating 
provisions should be spelled out to allow nursing home patients to pay 
retail network rates even when the nursing home's pharmaceutical 
supplier is not a network provider. Beneficiary cost-shares are based 
on point of service and formulary status of the pharmaceutical agent, 
and not on unique categories of beneficiaries of their residence. The 
Department has not made any changes based on this comment.
    A foundation stated its opinion that brand names should be in the 
lowest co-payment tier. A primary objective of tiered co-pays is to 
encourage beneficiaries to use the most cost-effective pharmaceutical 
agents that will satisfy their clinical needs. Generic drugs are placed 
in the lowest co-pay tier because they are generally much less 
expensive than brand name drugs. It would be contrary to the underlying 
premise of a three tier formulary to place more expensive brand name 
drugs in the lowest co-pay tier.

M. Determination of Generic Drug Classification Under the Pharmacy 
Benefits Program

    As explained in the proposed rule, the designation of a drug as a 
generic for the purpose of applying cost-shares at the generic rate, 
will be determined through the use of standard pharmaceutical 
references as part of commercial best business practices. In 
considering the relative cost effectiveness of pharmaceutical agents in 
a therapeutic class, the Pharmacy and Therapeutics Committee may 
consider the existence of blanket purchase agreements, incentive price 
agreements, or contracts. The existence of these agreements or 
contracts may result in situations where a brand drug is the most cost 
effective pharmaceutical agent for the Government to purchase, even 
more cost effective than generic agents. When this circumstance occurs, 
the Pharmacy and Therapeutics Committee may designate that the branded 
drug cost-share be the same as the lower generic drug cost-share when 
the branded drug is selected as the preferred agent over generic drugs 
because it is more cost effective for the Government. This will assure 
that the beneficiary is not penalized when brand products are competed 
and selected as the formula pharmaceutical agent over generic products 
following a contracting initiative.
    Retiree groups commented that beneficiaries should be notified if a 
brand-name drug is the ``preferred agent'' even when a generic exists 
and the brand-name can be obtained at the lower $3 co-payment. The 
Department will incorporate the communication of formulary and co-pay 
information into TMA's extensive marketing and education program that 
employs both electronic and print media. Dissemination of information 
to beneficiaries, beneficiary advisory groups, providers, and TRICARE 
contractors will be coordinated through TMA's Communications and 
Customer Services Directorate.
    Comments received from a current managed care support contractor 
recommended that brand-name products made available at the generic co-
payment rate apply only to TMOP since government pricing is available 
at TMOP. Likewise, the contractor commented that currently the 
government is not at risk for the retail benefit and should not make 
decisions based on prices that do not apply in the retail sector. This 
comment is counter to the government's intent to implement a uniform, 
consistent, and equitable benefit. Overall cost effectiveness 
evaluations will include price considerations for all venues, since the 
Government if financially responsible for the retail benefit with the 
carve-out of the TRICARE retail pharmacy benefit from the managed care 
support contracts.
    A comment was received asking for confirmation that ``all multi-
source'' brand prescription drugs that have a generic equivalent will 
be classified as non-formulary with a $22 co-payment. This final rule 
re-instates the mandatory generic substitution policy in situations 
where a generic equivalent is available. Therefore, in the situation 
described above, the branded product would not be covered unless 
medical necessity is validated, and then the formulary cost-share would 
apply. Additionally, as stated in Sec.  199.21(j)(3), the Pharmacy and 
Therapeutics Committee may consider the existence of blanket purchase 
agreements, incentive price agreements, or contracts when considering 
the relative cost effectiveness of pharmaceutical agents. The existence 
of these agreements or contracts may result in situations where a brand 
drug is the most cost effective pharmaceutical agent for the Government 
to purchase, even more cost effective than generic equivalents. When 
this circumstance occurs, the Pharmacy and Therapeutics Committee may 
designate that the brand drug cost-share be the same as the lower 
generic cost-share. This will assure that the beneficiary is not 
penalized when brand products are competed and selected as the 
formulary pharmaceutical agent over generic products.
    A managed care support contractor of the TRICARE program asked for 
confirmation that all generic drugs listed with an ``A'' rating in the 
current Approved Drug Products with Therapeutic Equivalence Evaluations 
(Orange Book), published by the FDA, and generic equivalents of 
grandfather or Drug Efficacy Study Implementation (DESI) category drugs 
(with the exception of prescription drugs for medical conditions that 
are expressly excluded from the TRICARE benefit by statute or 
regulation) are included in the uniform formulary and subject to the 
$3.00 co-payment per prescription for up to a 30-day supply from retail 
network pharmacies and $3.00 co-payment per prescription for up to a 
90-day supply from the TMOP (except active duty members of the 
uniformed services do not pay cost-shares for TRICARE covered 
pharmaceutical

[[Page 17043]]

agents). Under the proposed rule it is presumed that pharmaceutical 
agents should be included on the uniform formulary unless the Pharmacy 
and Therapeutics Committee determines that an agent does not have a 
significant, clinically meaningful therapeutic advantage in terms of 
safety, effectiveness, or clinical outcome over other pharmaceutical 
agents included on the uniform formulary. This is consistent with 10 
U.S.C. 1074g(a)(2)(D) which states: ``no pharmaceutical agent may be 
excluded from the uniform formulary except upon the recommendation of 
the Pharmacy and Therapeutics Committee.'' Generic pharmaceutical 
agents that are included on the uniform formulary will be subject to 
the $3.00 co-payment. Generic agents that are categorized as ``non-
formulary'' would be subject to the $22 non-formulary co-payment.

N. Availability of Clinically Appropriate Non-Formulary Pharmaceutical 
Agents to Members of the Uniformed Services

    The proposed rule noted that the Pharmacy Benefits Program is 
required to assure the availability of clinically appropriate 
pharmaceutical agents to members of the uniformed services, including 
where appropriate, agents not included on the uniform formulary. MTFs 
shall establish procedures to evaluate the clinical appropriateness of 
prescriptions written for members of the uniformed services for 
pharmaceutical agents not included on the uniform formulary. If it is 
determined that the prescription is clinically appropriate, the MTF 
will provide the pharmaceutical agent to the member. TRICARE will 
conduct an evaluation for clinical appropriateness when a member 
presents a prescription for a non-formulary pharmaceutical agent to a 
network or non-network pharmacy or the TMOP.
    A commerical group recommended the statement that ``TRICARE will 
conduct an evaluation for clincal appropriateness when a member 
presents a prescription for a non-formulary pharmaceutical agent to a 
network or non-network pharmacy'' be changed to read: ``The TRICARE 
contractor (or servicing TRICARE contractor) will conduct an evaluation 
for clinical appropriateness when a member presents a perscription for 
a non-formulary pharmaceutical agent to a network or non-network 
pharmacy.'' Under 10 U.S.C. 1074g(a)(7), the Department bears the 
responsibility for establishing procedures for beneficiaries to receive 
pharmaceutical agents that are not included on the uniform formulary 
(i.e., non-formulary agents), when clinical necessity is established. 
The rule reflects this fact, and although the Department may choose to 
implement this through the use of a contractor, the rule should not 
require the Department to use one. Therefore, the Department does not 
concur with the suggestion.

O. Availability of Non-Formulary Pharmaceutical Agents to Eligible 
Covered Beneficiaries

    As explained in the proposed rule, non-formulary pharmaceutical 
agents will be available to eligible beneficiaries through the retail 
network pharmacies and the TMOP at the non-formulary co-payment of 
$22.00 per prescription.
    Non-formulary pharmaceutical agents will be available to eligible 
beneficiaries through the retail non-network pharmacies at the non-
formulary co-payment of 20 percent or $22.00, whichever is greater, per 
prescription.
    Non-formulary pharmaceutical agents will be available to eligible 
covered beneficiaries through the MTF pharmacies only for prescriptions 
approved through the non-formulary special order process that validates 
the clinical necessity for use of the non-formulary pharmaceutical 
agent.
    Comments from pharmaceutical industry members and a current managed 
care contractor asked for clarification concerning ``grandfathering'' 
certain medications. Where there is clinical necessity for the use of a 
non-formulary agent that is not otherwise excluded as a covered 
benefit, the drug or medicine will be provided at the same co-payment 
as a formulary agent. clinical necessity for use of a non-formulary 
agent is established when: Use of the formulary agent is 
contraindicated; the patient experiences or is likely to experience 
significant adverse effects from formulary agents; formulary agents 
result in therapeutic failure; the patient previously responded to a 
non-formulary agent and changing to a formulary agent would incur 
unacceptable clinical risk; or, there is no alternative formulary 
agent. As previously discussed, the rule requires a specific transition 
period be recommended by the DoD Pharmacy and Therapeutics Committee 
for any pharmaceutical agent (including maintenance medications) that 
was previously a formulary, as opposed to non-formulary drug.

P. Reduction of Co-Payment for Cases of Clinical Necessity

    As explained in the proposed rule, non-formulary pharmaceutical 
agents will be available to eligible covered beneficiaries through the 
retail network and non-network pharmacies at the same co-payment as a 
formulary pharmaceutical agent in situations of documented clinical 
necessity. In the proposed rule it stated a clinical necessity to use a 
non-formulary drug may exist when either: The use of formulary agents 
is contraindicated; the patient experiences significant adverse effects 
from formulary agents; formulary agents result in therapeutic failure; 
the patient previously responded to a non-formulary agent and changing 
to a formulary agent would incur unacceptable clinical risk; or there 
is no alternative agent on the formulary. A voluntary organization for 
a specific disease proposed that Sec.  199.21(i)(3)(ii)(B) be amended 
as follows: ``The patient experiences or is likely to experience 
significant adverse effects from formulary agents. This would expressly 
allow the view and professional judgment of the prescribing clinician 
to be considered.'' The commenter also propose Sec.  
199.21(i)(3)(ii)(C) be amended to read, ``Formulary agents result in 
therapeutic failure or in the reasonable judgment of the clinician 
would be expected to result in therapeutic failure.'' We concur that 
the likelihood of adverse events or therapeutic failure, with 
appropriate documentation, could be considered when establishing 
medical necessity. Although we have not used the exact wording 
suggested by the voluntary organization, the rule has been modified to 
convey the intent.
    For prescriptions submitted to the TMOP, information to justify the 
clinical necessity for use of a non-formulary agent should be submitted 
with the prescription. The beneficiary may also submit information to 
justify the clinical necessity for use of a non-formulary agent to the 
TMOP after the prescription has been filled. If clinical necessity for 
use of a non-formulary agent is validated, then the patient will 
receive a refund for the co-payment differential. For prescriptions 
submitted to a retail network pharmacy, the beneficiary will submit 
information to justify the clinical necessity for use of a non-
formulary agent to the servicing TRICARE contractor and request a 
refund for the difference in the co-payment between the formulary and 
non-formulary pharmaceutical agent. Determinations of the clinical 
necessity for use of a non-formulary agent will undergo a peer review.
    If the request for the difference is denied, either the beneficiary 
or provider may appeal the decision to the extent allowed and 
consistent with the procedures under Sec.  199.10.

[[Page 17044]]

    A pharmaceutical manufacturer association suggested incorporation 
of a sixth prong that would allow beneficiaries to demonstrate clinical 
necessity by showing that ``a non-formulary agent is expected to have a 
therapeutic advantage'' for a particular patient. Under 32 CFR 
199.21(i)(3)(ii)(A)-(E) we list five circumstances that would 
demonstrate a clinical necessity to use a non-formulary agent. For an 
agent to become a non-formulary agent, the decision would have already 
been made under 10 U.S.C. 1074g(a)(2)(B) that the agent ``does not have 
a significant, clinically meaningful therapeutic advantage'' over 
formulary agents. Based on this, a clinical opinion that a non-
formulary agent is ``expected'' to offer a therapeutic advantage, 
without any showing of a probable problem with the formulary agent, is 
not sufficient to establish clinical necessity. There has to be a 
showing that use of a formulary agent in the therapeutic class is 
problematic in some objective manner before clinical necessity for 
purposes of obtaining the drug at the formulary cost-share is 
established. If the suggested circumstance for establishing clinical 
necessity were incorporated into the rule, a prescriber could simply 
state such an expectation about any non-formulary drug, which would 
essentially render the non-formulary category meaningless. We do not 
believe this would be consistent with the statutory charge that DoD 
``establish an effective, efficient, integrated pharmacy benefits 
program.''
    A pharmaceutical company suggested that the rule should state that 
a beneficiary or provider be able to demonstrate the need for a non-
formulary drug without having to demonstrate a prior failure of a 
formulary drug, i.e. should not have to have a ``fail first'' before 
using a non-formulary drug. Therapeutic failure on a formulary drug is 
but one of the five circumstances listed in the rule that may 
demonstrate clinical necessity to use a non-formulary drug, and is not 
required for any of the other four conditions to apply.
    A military association stated its opinion that the term 
``significant adverse effects'' must be better defined in the rule 
since adverse side effects from a preferred drug can be a reason for 
obtaining a non-formulary drug at a formulary price. The determination 
that an adverse effect experienced by a particular patient is 
``significant enough'' to justify the clinical necessity to use a non-
formulary drug is a medical judgment based on the specific 
circumstances for a specific patient. It is impossible to spell out a 
definition or set of criteria in a regulation that will lead to such a 
determination.
    A professional association expressed pleasure that DoD proposed 
adoption of a three tiered cost-share design to make the patient and 
the provider aware of the cost implications of their choice in drugs. 
The association questions whether it is a wise move for DoD to allow 
beneficiaries to obtain non-formulary tier drugs at the formulary tier 
drug cost-share when clinical necessity has been established. DoD is 
required by 10 U.S.C. 1074g(a)(7) to establish procedures for allowing 
beneficiaries to receive agents that are not included on the uniform 
formulary but that are considered clinically necessary. When clinical 
justification is established, ``the pharmaceutical agent shall be 
provided under the same terms and conditions as an agent on the uniform 
formulary.''
    A pharmaceutical professional association notes that 10 U.S.C. 
1074g(a)(7) requires procedures for beneficiaries to receive 
pharmaceutical agents that are not included on the uniform formulary 
under the same terms and conditions as an agent on the uniform 
formulary if those agents are considered clinically necessary for the 
beneficiary. Section 1074g(a)(7) says in pertinent part, ``Such 
procedures shall include peer review procedures'' under which the 
determination of clinical necessity is made. The commenter presumes 
that the peer review provisions of Sec.  199.15 will apply, and 
requests that these provisions be applied to the Military Treatment 
Facilities as well.
    The rule has been modified to reflect that peer review provisions 
comparable to those of Sec.  199.15 apply to clinical necessity 
determinations for prescriptions submitted to the TMOP or retail 
pharmacies. Although the time periods for peer review under Sec.  
199.15 applicable to the pharmacy benefits program have not been 
specifically modified in the rule, the retail pharmacy benefits program 
have not been specifically modified in the rule, the retail pharmacy 
Request for Proposals has a requirement that the goal is to complete 
95% of the medical necessity reviews within two days, and 100% within 5 
days. In initial determinations are subject to reconsideration, which 
are subject to appeal, with the contract directing shorter time periods 
than allowed under the Quality and Utilization Review Peer Review 
Organization (PRO) Program provisions of Sec.  199.15. Information on 
clinical necessity may be provided by beneficiaries, providers, and 
pharmacies. The peer review provisions of Sec.  199.15 do not apply to 
the Military Treatment Facilities, where there is no beneficiary 
entitlement to non-formulary drugs. The Military Treatment Facilities, 
however, will have procedures for evaluation of clinical necessity 
determinations.
    A professional association commented that the rule does not explain 
patient appeal rights. The association recommended that the rule should 
explicitly incorporate the existing appeal process found at Sec.  
199.10 for all beneficiaries asserting they are entitled to a non-
formulary agent at the formulary cost-share because of clinical 
necessity. An expeditious appeal process is required under 10 U.S.C. 
1074g(a)(7). The rule has been modified to state that policies and 
procedures comparable to those for appealing decisions under Sec.  
199.15 and Sec.  199.10 shall apply to requests that non-formulary 
agents be dispensed by retail pharmacies or TMOP at the formulary co-
pay tier. Appealable issues include medical or clinical necessity 
denials, and denials based on factual coverage issues. Although the 
rule has not been specifically modified with respect to appeal 
timeframes, the retail pharmacy Request for Proposals has a requirement 
that 75% of requests for reconsideration shall be processed to 
completion within 10 working days after the date of receipt by the 
contractor, and 100% within 25 working days.
    A medical association submitted a comment recommending prescribing 
decisions be made exclusively by a specialist provider who must be able 
to override any formulary restriction. Under the uniform formulary the 
medical necessity process allows medical providers to provide 
documentation to justify provision of a non-formulary pharmaceutical 
agent at the formulary cost-share. If clinical necessity is not 
established, the pharmaceutical agents within the TRICARE pharmacy 
benefit are still available to the beneficiary in both the TMOP and 
retail pharmacies, but at the non-formulary cost-share.
    A manufacturer's association notes that the process in the rule for 
requesting a non-formulary prescription at the formulary cost-sharing 
amount requires the beneficiary or his or her provider to submit 
documentation supporting the claim of clinical necessity. The 
association appreciates that the rule does not delay dispensing the 
prescription pending a determination of clinical necessity, however 
expresses an opinion that Congress did not intend the beneficiary to 
incur a financial burden of paying the

[[Page 17045]]

non-formulary cost-share pending a decision on clinical necessity. The 
association recommends the rule be changed so that whenever a 
prescription for a non-formulary agent is accompanied by a request for 
a finding of clinical necessity, that the prescription be dispensed at 
the formulary cost-share. Instead of a beneficiary receiving a refund 
when clinical necessity has been established by the beneficiary, the 
government would have to attempt to collect the difference in cost-
shares if either the beneficiary was unsuccessful in supporting his 
assertion of medical necessity, or the beneficiary submits no 
information in support at all. In establishing a process to implement 
the statutory policy, we have adopted a process that accomplishes the 
legislative intent with minimal transaction costs. The process 
suggested by this comment would have greater transaction costs, with a 
need for a separate billing, accounting, and collection system, not 
commensurate with any benefit associated with beneficiaries potentially 
parting temporarily with the $13 co-pay differential per prescription.

Q. Department of Defense Pharmacy and Therapeutics Committee

    In the proposed rule we explained that the Department of Defense 
Pharmacy and Therapeutics Committee will develop the uniform formulary 
of pharmaceutical agents. The committee will review the formulary on a 
periodic basis, and make additional recommendations regarding the 
formulary as the committee determines necessary and appropriate to the 
Director, TRICARE Management Activity. Committee members will have 
expertise in treating the medical needs of the populations served 
through such entities and in the range of pharmaceutical and biological 
medicines available for treating such populations.
    The committee will identify therapeutic classes of pharmaceutical 
agents. The committee will consider the clinical and cost effectiveness 
of pharmaceutical agents relative to other agents in the class, 
following the guidelines contained in this regulation. Therapeutic drug 
class reviews will be conducted on a scheduled, periodic basis, as 
determined by the committee.
    A professional association asked what procedures will be used by 
the Committee to obtain full information about the cost of 
pharmaceutical agents. The Committee will obtain information on 
existing process from the Federal Supply Schedule (FSS), temporary FSS 
price reductions, national pharmaceutical contracts, blanket purchase 
agreements, and incentive price agreements. The Committee will also 
obtain information on prices that pharmaceutical companies may offer in 
proposed blanket purchase agreements, proposed temporary FSS price 
reductions, and proposed incentive agreements.
    A pharmacy association stated that the approach used to make 
formulary decisions is the antithesis of the approach used in the 
private sector and recommends DoD follow that approach. The association 
stated the private sector requires the value of a drug in terms of 
clinical and/or cost effectiveness must be established before it is 
added to the formulary, rather than having a presumption that a drug is 
a formulary drug. This approach is unavailable to DoD because under 10 
U.S.C. 1074g(a)(2)(B), ``the Secretary shall presume inclusion in a 
therapeutic class of a pharmaceutical agent * * * unless the Pharmacy 
and Therapeutics Committee * * * finds that a pharmaceutical agent does 
not have a significant clinically meaningful therapeutic advantage in 
terms of safety, effectiveness, or clinical outcome over the other 
drugs included on the uniform formulary.''
    A pharmacy association stated that the proposed rule does not 
assure confidentiality regarding proprietary data considered by the 
Pharmacy and Therapeutics Committee. Proprietary information submitted 
is protected under the Freedom of Information Act, specifically 5 
U.S.C. 552(b)(4), which protects trade secrets and commercial or 
financial information obtained from a person that is privileged or 
confidential.
    Comments were received from a pharmaceutical association and 
medical associations stating the proposed rule does not clearly define 
the types of professionals that will be on the DoD Pharmacy and 
Therapeutics Committee. Additional comments were received from a 
medical association, and a pharmaceutical manufacturer recommending 
specific types of physician membership on the Pharmacy and Therapeutics 
committee. In Sec.  199.21(b)(2) we describe the composition of the 
committee. Committee members will have expertise in treating the 
medical needs of the populations served through such entities and in 
the range of pharmaceutical and biological medicines available for 
treating such populations. When such expertise is not available within 
the committee regarding the review of specific pharmaceuticals or 
therapeutic classes, the committee may request assistance from 
consultants with expertise in those areas. The rule is consistent with 
the statute regarding committee membership.
    A comment was received by a medical association stating that 
Pharmacy and Therapeutics Committee decisions must be well documented 
and shared publicly with all concerned parties. The recommendations of 
the Pharmacy and Therapeutics Committee, the comments of the 
Beneficiary Advisory Panel, and the decisions of the Director, TRICARE 
Management Activity will be made public through the TRICARE 
Communications and Customer Service Directorate information systems 
previously described, excluding those materials proprietary in nature.
    Several questions were received from professional associations and 
drug manufacturer's concerning the ethical and conflict of interest 
restrictions, including non-disclosure restrictions that will apply to 
members of the DoD Pharmacy and Therapeutics Committee, and whether the 
Federal Advisory Committee Act (FACA), 5 U.S.C. App. 2, applies.
    All members of the DoD Pharmacy and Therapeutics Committee are 
governed by the DoD Standards of Conduct regulations. The Standards of 
conduct cross-references are published in 32 CFR Part 40, hence, are 
not repeated in the rule. DoD employees are governed by the Office of 
Government Ethics (OGE) regulation, Standards of Ethical Conduct for 
Employees of the Executive Branch, 5 CFR Part 2635, and the Department 
of Defense regulation, DoD 5500.7-R, that supplements the OGE 
regulation. With respect to the Federal Advisory Committee Act (FACA), 
its applicability is dependent upon whether any members are not federal 
employees. The National Defense Authorization Act for Fiscal Year 2004, 
(Pub. L. 108-136), section 725, transferred certain members of the 
Pharmacy and Therapeutics Committee to the Beneficiary Advisory Panel. 
The result is that there will be no members of the Pharmacy and 
Therapeutics Committee who are not federal employees, therefore the 
requirements of FACA do not apply to this committee.
    A professional organization suggests that TRICARE consider having 
cost effectiveness recommendations made by a contracting officer, as 
opposed to the DoD Pharmacy and Therapeutics Committee. Recommendations 
concerning the cost effectiveness of pharmaceutical agents are required 
to be made by the Pharmacy and Therapeutics Committee under 10 U.S.C. 
1074g(a)(2)(C) which states: ``In considering the relative cost

[[Page 17046]]

effectiveness of agents under subparagraph (A), the Secretary shall 
rely on the evaluation by the Pharmacy and Therapeutics Committee of 
the costs of agents in a therapeutic class in relation to the safety, 
effectiveness, and clinical outcomes of such agents.''
    A drug manufacturer commented that DoD should require the Pharmacy 
and Therapeutics Committee to document the rationale (e.g., the 
clinical evidence) behind a decision to include or not include a drug 
on the formulary. The Pharmacy and Therapeutics Committee will document 
its rationale and recommendations, which will be forwarded to the 
Beneficiary Advisory Panel. The Committee will apply the relevant 
criteria listed in the regulation for determining clinical 
effectiveness.
    A drug manufacturer commented that the preamble to the proposed 
rule provided that the decisions of the Pharmacy and Therapeutics 
Committee will occur by majority vote, but the text of the rule is 
silent on this issue. The commenter also recommends that a ``decision 
to exclude a drug from the uniform formulary'' include a requirement 
for two-thirds of the members concurring in the recommendation. The 
rule has been amended to include in the text of the rule that 
recommendations of the Committee will be by majority vote. DoD does not 
believe that two-thirds of the members need to concur in a 
recommendation that a particular pharmaceutical agent be a non-
formulary agent. First, the Committee makes a recommendation, and not a 
final decision on the formulary classification of a pharmaceutical 
agent. Second, any decision by the Director, TRICARE Management 
Activity to classify an agent as non-formulary does not ``exclude'' the 
agent from the list of allowable pharmaceutical agents. Non-formulary 
agents will continue to be available in retail pharmacies and the TMOP, 
only with a higher cost-share. The lower formulary cost-share will be 
applied if it is determined that it is clinically necessary for the 
beneficiary to have that particular agent, rather than a formulary 
agent.
    The rule states that pharmaceutical agents that are used 
exclusively for medical conditions that are expressly excluded from the 
TRICARE benefit by statute or regulation will not be considered for 
inclusion on the uniform formulary. A pharmaceutical industry 
association expressed a belief that this is contrary to the 
requirements of 10 U.S.C. 1074g(a)(2)(D) that ``no pharmaceutical agent 
may be excluded from the uniform formulary except upon the 
recommendation of the Pharmacy and Therapeutics Committee'' and 10 
U.S.C. 1074g(b)(2) that the committee consider for inclusion ``any 
drugs newly approved by the Food and Drug Administration.'' The 
quotation of this language from the statute must be read in the context 
of 10 U.S.C. 1074g(a)(1), which requires the establishment of ``an 
effective, efficient, integrated pharmacy benefits program under this 
chapter'' (emphasis added). This ``chapter'' is chapter 55 of title 10, 
which established some boundaries on the DoD health program. Under 10 
U.S.C. 1079(a)(13), CHAMPUS/TRICARE does not cover ``any service or 
supply which is not medically or psychologically necessary to prevent, 
diagnose, or treat a mental or physical illness, injury or bodily 
malfunction.'' Additionally, certain therapies and treatments are 
expressly prohibited under chapter 55. For example, under 10 U.S.C. 
1079(a)(10), therapy or counseling for sexual dysfunctions or sexual 
inadequacies may not be provided, and under 10 U.S.C. 1079(a)(11) 
treatment of obesity may not be provided if obesity is the sole or 
major condition treated. Only in these very limited types of 
circumstances will the Committee not consider for inclusion on the 
uniform formulary a new FDA approved drug. Except for these types of 
limited circumstances, which are required by other statutes under 
chapter 55 of title 10, United States Code, the Committee shall review 
at each quarterly meeting ``drugs newly approved by the Food and Drug 
Administration.'' No pharmaceutical agent on the uniform formulary 
shall become a non-formulary agent unless recommended by the Committee, 
referred to the Beneficiary Advisory Panel for comment, and acted upon 
by the Director, TRICARE Management Activity.
    A commercial group recommended that we make clear that excluded 
pharmaceutical agents shall not be available as non-formulary agents, 
nor will they be cost-shared under the TRICARE Pharmacy program. We 
concur with that recommendation and have modified the rule.

R. Uniform Formulary Beneficiary Advisory Panel

    The proposed rule stated that a Uniform Formulary Beneficiary 
Advisory Panel will be established to review and comment on the 
development of the uniform formulary. The panel will meet after each 
Pharmacy and Therapeutics Committee quarterly meeting. The panel's 
comments will be submitted to the Director, TRICARE Management 
Activity. The Director will consider the comments before implementing 
the uniform formulary or any recommendations for change made by the 
Pharmacy and Therapeutics Committee.
    Comments were received from a pharmaceutical association and 
pharmaceutical manufacturer recommending the Beneficiary Advisory Panel 
have a member on the DoD Pharmacy and Therapeutics Committee, and the 
Beneficiary Advisory Panel should meet before the Pharmacy and 
Therapeutics Committee meets to provide input to the Pharmacy and 
Therapeutics Committee. The Department non-concurs on both suggestions 
because they would be contrary to the statute. The rule as written is 
consistent with 10 U.S.C. 1074g(c) on both the authorized membership of 
the DoD Pharmacy and Therapeutics Committee and the role of the 
Beneficiary Advisory Panel. Under 10 U.S.C. 1074g(b)(1), Congress has 
defined the membership of the Pharmacy and Therapeutics Committee, and 
we are in compliance with that statute. The purpose of the Beneficiary 
Advisory Panel is to ``review and comment on development of the uniform 
formulary'', while the role of the Pharmacy and Therapeutics committee 
is to actually develop the formulary.
    A comment was received from a military association recommending a 
higher DoD authority than the Director, TRICARE Management Activity, 
should have the responsibility of reviewing the Beneficiary Advisory 
Panel concerns. Additionally, the association proposed that the rule 
should direct the Beneficiary Advisory Panel when submitting comments 
that are contrary to the recommendation of the Pharmacy and 
Therapeutics Committee, to submit the comments to the Assistant 
Secretary of Defense for Health Affairs, with a copy to the Under 
Secretary of Defense for Personnel and Readiness, and the Assistant 
Secretary of Defense for Health Affairs, or his designee, should be 
responsible for responding to the panel's comments in writing prior to 
the next meeting of the panel. The Department non-concurs with these 
suggestions. The responsibilities and functions of the Assistant 
Secretary of Defense for Health Affairs are described in DoD Directive 
5136.1, and the responsibilities and functions of the Director, TRICARE 
Management Activity are described in DoD Directive 5136.12. Operational 
issues are the responsibility of the Director, TRICARE Management 
Activity. The Director, TRICARE Management Activity is responsible for 
serving as the program

[[Page 17047]]

manager for TRICARE health and medical resources, and supervising and 
administering TRICARE programs. A recent reorganization of the TRICARE 
Management Activity has the Assistant Secretary of Defense for Health 
Affairs also serving in the role of Director, TRICARE Management 
Activity. Feedback to the Beneficiary Advisory Panel will occur without 
the need for a regulatory specification in the rule.
    A drug manufacturer association suggested that the rule require the 
Director, TRICARE Management Activity to respond to the comments and 
recommendations of the Beneficiary Advisory Panel in writing to enable 
the public to understand the reasoning and motivation that support his 
decisions.
    This suggestion is neither required by the statute nor consistent 
with Department management. The TMA Director is accountable to senior 
DoD leadership, as well as to Congressional oversight and for 
compliance with all legal requirements. An advisory panel provides 
input to the decision process, but is not the accountable entity for 
the Department's decisions. Information on Department decisions and the 
rationale for them will be a matter of public record, without the need 
for regulatory specifications in the rule.

S. Mandatory Generic Substitution

    As discussed in the proposed rule, mandatory substitution of 
generic drugs listed with an ``A'' rating in the current Approved Drug 
Products with Therapeutic Equivalence Evaluations (Orange Book) (or any 
successor) published by the Food and Drug Administration and generic 
equivalents of grandfather or Drug Efficacy Study Implementation (DESI) 
category drugs is required for brand name drugs.
    Brand name drugs will be available at the non-formulary tier when 
dispensed in lieu of a generic equivalent if selection of the branded 
product is based solely on the personal preference of the provider or 
beneficiary. Section P, ``Reduction of Co-Payment for Cases of Clinical 
Necessity'' of this preamble describes the process for obtaining non-
formulary drugs at the formulary tier in situations of clinical 
necessity.
    A medical association commented that mandatory substitution of one 
product for another should be prohibited. Mandatory generic 
substitution is a cost-effective method of providing FDA approved 
equivalent pharmaceutical products to DoD beneficiaries. In those rare 
situations when the brand name version of a generically available 
product is needed to meet the unique clinical needs of a patient, it 
will be available at the formulary tier with documented clinical 
necessity.
    Comments were received from commercial groups validating and 
encouraging the Department's use of generic pharmaceuticals in place of 
more costly brand-names whenever possible.
    A comment challenged the proposed rule provision that brand name 
drugs will be available at the non-formulary tier when dispensed in 
lieu of a generic equivalent if based solely on the personal preference 
of the provider or beneficiary. The rule has been changed to modify 
mandatory generic substitution such that the formulary tier co-payment 
applies only when clinical necessity is established. A brand name drug 
that has a generic equivalent is not covered by TRICARE if clinical 
necessity is not established.
    A TRICARE managed care support contractor stated the following in 
regard to Sec.  199.21(i)(2), now designated in the rule as 
199.21(j)(2), on mandatory generic substitution: ``Currently, if a 
pharmacy enters a DAW2 on a MAC-list drug, a 100% beneficiary cost-
share will be passed to the pharmacy. By changing the DAW indicator to 
a DAW1, a $9 brand co-pay results on the same medication. Today, 
different DAWs result in different co-pays/cost-shares. Is it correct 
to assume that, with the new program, how the DAW field of the claim is 
populated (i.e., DAW 0, 1, 2, or 4) will have no bearing on the 
resulting co-pay?'' A DAW-1 (Dispense as Written 1--Medically necessary 
as indicated by the physician on the prescription) designation by 
itself is not sufficient to obtain coverage of a brand name drug at the 
formulary co-payment. For the brand name drug to be covered by TRICARE, 
clinical necessity must also be independently validated by TRICARE. 
Prescriptions designated as DAW-2 (Dispense as Written per patient 
request) and other DAW prescriptions are not covered.
    A medical association stated its opinion that psychotropic drugs 
cannot be substituted for each other. A foundation stated its opinion 
that the formulary must include all anti-epileptic drugs regardless of 
brand name or generic status. A voluntary organization for a specific 
disease has requested that all drugs for treatment of this disease be 
included in the uniform formulary and that these drugs be exempted from 
the mandatory substitution requirements in the rule. We are not aware 
of any clinical reason why psychotropic drugs or anti-epileptic drugs 
or drugs for other specific diseases should be treated differently than 
products in other therapeutic categories. Our three-tiered approach and 
the generic substitution rule apply to all products.

IV. Preemption of State Laws

    The rule was modified to clarify the preemption of State laws as 
applicable to the TRICARE Pharmacy Benefits Program.

V. Fraud, Abuse, and Conflict of Interest

    The rule was modified to clarify the fraud, abuse, and conflict of 
interest requirements under the TRICARE pharmacy benefits program.

VI. Regulatory Procedures

    Executive Order 12866 requires that a comprehensive regulatory 
impact analysis be performed on any economically significant regulatory 
action, defined as one that would result in an annual effect of $100 
million or more on the national economy or which would have other 
substantial impacts. 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. The rule is not an economically significant regulatory 
action. Cost-shares for generic and formulary pharmaceutical agents 
were addressed in the implementation of the TRICARE Senior Pharmacy 
benefit in 2001. Approximately 1.5 million persons are potential 
beneficiaries of this program, and expected benefits per person are 
approximately $2,000 per year. The rule includes the addition of a 
third tier to the uniform formulary cost-share structure by adding non-
formulary pharmaceutical agents, which will have an impact of less than 
$100 million. The rule, although not economically significant under 
Executive Order 12866, is significant under Executive Order 12866, and 
has been reviewed by the Office of Management and Budget.
    The rule is not a major rule under the Congressional Review Act.
    The rule does not require a regulatory flexibility analysis as it 
would have no significant economic impact on a substantial number of 
small entities.
    The rule will not impose additional information collection 
requirements on the public under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501-3511).

List of Subjects in 32 CFR Part 199

    Claims, Health care, Health insurance, Military personnel, Pharmacy 
Benefits.

[[Page 17048]]


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. Amend Sec.  199.2(b) by adding in alphabetical order a definition of 
``Pharmaceutical Agent'' and adding a sentence at the end of the 
current definition of ``Prescription drugs and medicines'' to read as 
follows:


Sec.  199.2  Definitions.

* * * * *
    (b) * * *
    Pharmaceutical Agent. Drugs, biological products, and medical 
devices under the regulatory authority of the Food and Drug 
Administration.
* * * * *
    Prescription drugs and medicines * * * Prescription drugs and 
medicines may also be referred to as ``pharmaceutical agents''.
* * * * *

0
3. Revise Sec.  199.21 to read as follows:


Sec.  199.21  Pharmacy benefits program

    (a) General--(1) Statutory authority. Title 10, U.S. Code, Section 
1074g requires that the Department of Defense establish an effective, 
efficient, integrated pharmacy benefits program for the Military Health 
System. This law is independent of a number of sections of Title 10 and 
other laws that affect the benefits, rules, and procedures of TRICARE, 
resulting in changes to the rules otherwise applicable to TRICARE 
Prime, Standard, and Extra.
    (2) Pharmacy benefits program. The pharmacy benefits program, which 
includes the uniform formulary and its associated tiered co-payment 
structure, is applicable to all of the uniformed services. Its 
geographical applicability is all 50 states and the District of 
Columbia, Guam, Puerto Rico, and the Virgin Islands. In addition, if 
authorized by the Assistant Secretary of Defense (Health Affairs), the 
TRICARE program may be implemented in areas outside the 50 states and 
the District of Columbia, Guam, Puerto Rico, and the Virgin Islands. In 
such case, the Assistant Secretary of Defense (Health Affairs) may also 
authorize modifications to the pharmacy benefits program rules as may 
be appropriate to the areas involved.
    (3) Uniform formulary. The pharmacy benefits program features a 
uniform formulary of pharmaceutical agents as defined in Sec.  199.2.
    (i) The uniform formulary will assure the availability of 
pharmaceutical agents in the complete range of therapeutic classes 
authorized as basic program benefits.
    (ii) As required by 10 U.S.C. 1074g(a)(2) and implemented under the 
procedures established by paragraphs (e) and (f) of this seciton, 
pharmaceutical agents in each therapeutic class are selected for 
inclusion on the uniform formulary based upon the relative clinical 
effectiveness and cost effectiveness of the agents in such class. If a 
pharmaceutical agent in a therapeutic class is determined by the 
Department of Defense Pharmacy and Therapeutics Committee not to have a 
significant, clinically meaningful therapeutic advantage in terms of 
safety, effectiveness, or clinical outcome over other pharmaceutical 
agents included on the uniform formulary, the Committee may recommend 
it be classified as a non-formulary agent. In addition, if the 
evaluation by the Pharmacy and Therapeutics Committee concludes that a 
pharmaceutical agent in a therapeutic class is not cost effective 
relative to other pharmaceutical agents in that therapeutic class, 
considering costs, safety, effectiveness, and clinical outcomes, the 
Committee may recommend it be classified as a non-formulary agent.
    (iii) Pharmaceutical agents which are used exclusively in medical 
treatments or procedures that are expressly excluded from the TRICARE 
benefit by statute or regulation will not be considered for inculsion 
on the uniform formulary. Excluded pharmaceutical agents shall not be 
available as non-formulary agents, nor will they be cost-shared under 
the TRICARE pharmacy benefits program.
    (b) Definitions. For most definitions applicable to the provisions 
of this section, refer to Sec.  199.2. The following definitions apply 
only to this section:
    (1) Clinically necessary. Also referred to as clinical necessity. 
Sufficient evidence submitted by a beneficiary or provider on behalf of 
the beneficiary that establishes that one or more of the following 
conditions exist: The use of formulary pharmaceutical agents is 
contraindicated; the patient experiences significant adverse effects 
from formulary pharmaceutical agents in the therapeutic class, or is 
likely to experience significant adverse effects from formulary 
pharmaceutical agents in the therapeutic class; formulary 
pharmaceutical agents result in therapeutic failure, or the formulary 
pharmaceutical agent is likely to result in therapeutic failure; the 
patient previously responded to a non-formulary pharmaceutical agent 
and changing to a formulary pharmaceutical agent would incur an 
unacceptable clinical risk; or there is no alternative pharmaceutical 
agent on the formulary.
    (2) Therapeutic class. A group of pharmaceutical agents that are 
similar in chemical structure, pharmacological effect, and/or clinical 
use.
    (c) Department of Defense Pharmacy and Therapeutics Committee--(1) 
Purpose. The Department of Defense Pharmacy and Therapeutics Committee 
is established by 10 U.S.C. 1074g to assure that the selection of 
pharmaceutical agents for the uniform formulary is based on broadly 
representative professional expertise concerning relative clinical and 
cost effectiveness of pharmaceutical agents and accomplishes an 
effective, efficient, integrated pharmacy benefits program.
    (2) Composition. As required by 10 U.S.C. 1074g(b), the committee 
includes representatives of pharmacies of the uniformed services 
facilities and representatives of providers in facilities of the 
uniformed services. Committee members will have expertise in treating 
the medical needs of the populations served through such entities and 
in the range of pharmaceutical and biological medicines available for 
treating such populations.
    (3) Executive Council. The Pharmacy and Therapeutics Committee may 
have an Executive Council, composed of those voting and non-voting 
members of the Committee who are military or civilian employees of the 
Department of Defense. The function of the Executive Council is to 
review and analyze issues relating to the operation of the uniform 
formulary, including issues of an inherently governmental nature, 
procurement sensitive information, and matters affecting military 
readiness. The Executive Council presents information to the Pharmacy 
and Therapeutics Committee, but is not authorized to act for the 
Committee.
    (d) Uniform Formulary Beneficiary Advisory Panel. As required by 10 
U.S.C. 1074g(c), a Uniform Formulary Beneficiary Advisory Panel reviews 
and comments on the development of the uniform formulary. The Panel 
includes members that represent non-governmental organizations and 
associations that represent the views and interests of a large number 
of eligible covered beneficiaries, contractors responsible for the 
TRICARE retail pharmacy program, contractors responsible for the 
TRICARE mail-order pharmacy program, and TRICARE network providers. The 
panel will meet

[[Page 17049]]

after each Pharmacy and Therapeutics Committee quarterly meeting. The 
Panel's comments will be submitted to the Director, TRICARE Management 
Activity. The Director will consider the comments before implementing 
the uniform formulary or any recommendations for change made by the 
Pharmacy and Therapeutics Committee. The Panel will function in 
accordance with the Federated Advisory Committee Act (5 U.S.C. App. 2).
    (e) Determinations regarding relative clinical and cost 
effectiveness for the selection of pharmaceutical agents for the 
uniform formulary--(1) Clinical effectiveness. (i) It is presumed that 
pharmaceutical agents in a therapeutic class are clinically effective 
and should be included on the uniform formulary unless the Pharmacy and 
Therapeutics Committee finds by a majority vote that a pharmaceutical 
agent does not have a significant, clinically meaningful therapeutic 
advantage in terms of safety, effectiveness, or clinical outcome over 
the other pharmaceutical agents included on the uniform formulary in 
that therapeutic class. This determination is based on the collective 
professional judgment of the DoD Pharmacy and Therapeutics Committee 
and consideration of pertinent information from a variety of sources 
determined by the Committee to be relevant and reliable. The DoD 
Pharmacy and Therapeutics Committee has discretion based on its 
collective professional judgment in determining what sources should be 
reviewed or relied upon in evaluating the clinical effectiveness of a 
pharmaceutical agent in a therapeutic class.
    (ii) Sources of information may include but are not limited to:
    (A) Medical and pharmaceutical textbooks and reference books;
    (B) Clinical literature;
    (C) U.S. Food and Drug Administration determinations and 
information;
    (D) Information from pharmaceutical companies;
    (E) Clinical practice guidelines, and
    (F) Expert opinion.
    (iii) The DoD Pharmacy and Therapeutics Committee will evaluate the 
relative clinical effectiveness of pharmaceutical agents within a 
therapeutic class by considering information about their safety, 
effectiveness, and clinical outcome.
    (iv) Information considered by the Committee may include but is not 
limited to:
    (A) U.S. Food and Drug Administration approved and other studied 
indications;
    (B) Pharmacology;
    (C) Pharmacokinetics;
    (D) Contraindications;
    (E) Warnings/precautions;
    (F) Incidence and severity of adverse effects;
    (G) Drug to drug, drug to food, and drug to disease interactions;
    (H) Availability, dosing, and method of administration;
    (I) Epidemiology and relevant risk factors for diseases/conditions 
in which the pharmaceutical agents are used;
    (J) Concomitant therapies;
    (K) Results of safety and efficacy studies;
    (L) Results of effectiveness/clinical outcomes studies, and
    (M) Results of meta-analyses.
    (2) Cost effectiveness. (i) In considering the relative cost 
effectiveness of pharmaceutical agents in a therapeutic class, the DoD 
Pharmacy and Therapeutics Committee shall evaluate the costs of the 
agents in relation to the safety, effectiveness, and clinical outcomes 
of the other agents in the class.
    (ii) Information considered by the Committee concerning the 
relative cost effectiveness of pharmaceutical agents may include but is 
not limited to:
    (A) Cost of the pharmaceutical agent to the Government;
    (B) Impact on overall medical resource utilization and costs;
    (C) Cost-efficacy studies;
    (D) Cost-effectiveness studies;
    (E) Cross-sectional or retrospective economic evaluations;
    (F) Pharmacoeconomic models;
    (G) Patent expiration dates;
    (H) Clinical practice guideline recommendations, and
    (I) Existence of existing or proposed blanket purchase agreements, 
incentive price agreements, or contracts.
    (f) Evaluation of pharmaceutical agents for determinations 
regarding inclusion on the uniform formulary. The DoD Pharmacy and 
Therapeutics Committee will periodically evaluate or re-evaluate 
individual pharmaceutical agents and therapeutic classes of 
pharmaceutical agents for determinations regarding inclusion or 
continuation on the uniform formulary. Such evaluation or re-evaluation 
may be prompted by a variety of circumstances including, but not 
limited to:
    (1) Approval of a new pharmaceutical agent by the U.S. Food and 
Drug Administration;
    (2) Approval of a new indication for an existing pharmaceutical 
agent;
    (3) Changes in the clinical use of existing pharmaceutical agents;
    (4) New information concerning the safety, effectiveness or 
clinical outcomes of existing pharmaceutical agents;
    (5) Price changes;
    (6) Shifts in market share;
    (7) Scheduled review of a therapeutic class; and
    (8) Requests from Pharmacy and Therapeutics Committee members, 
military treatment facilities, or other Military Health System 
officials.
    (g) Administrative procedures for establishing and maintaining the 
uniform formulary--(1) Pharmacy and Therapeutics Committee 
determinations. Determinations of the Pharmacy and Therapeutics 
Committee are by majority vote and recorded in minutes of Committee 
meetings. The minutes set forth the determinations of the committee 
regarding the pharmaceutical agents selected for inclusion in the 
uniform formulary and summarize the reasons for those determinations. 
For any pharmaceutical agent (including maintenance medications) for 
which a recommendation is made that the status of the agent be changed 
from the formulary tier to the non-formulary tier of the uniform 
formulary, or that the agent requires a pre-authorization, the 
Committee shall also make a recommendation as to effective date of such 
change that will not be longer than 180 days from the final decision 
date but may be less. The minutes will include a record of the number 
of members voting for and against the Committee's action.
    (2) Beneficiary Advisory Panel. Comments and recommendations of the 
Beneficiary Advisory Panel are recorded in minutes of Panel meetings. 
The minutes set forth the comments and recommendations of the Panel and 
summarize the reasons for those comments and recommendations. The 
minutes will include a record of the number of members voting for or 
against the Panel's comments and recommendations.
    (3) Uniform formulary final decisions. The Director of the TRICARE 
Management Activity makes the final DoD decisions regarding the uniform 
formulary. Those decisions are based on the Director's review of the 
final determinations of the Pharmacy and Therapeutics Committee and the 
comments and recommendations of the Beneficiary Advisory Panel. No 
pharmaceutical agent may be designated as non-formulary on the uniform 
formulary unless it is preceded by such recommendation by the Pharmacy 
and Therapeutics Committee. The decisions of the Director of the 
TRICARE Management Activity are in writing and establish the effective 
date(s) of the uniform formulary actions.

[[Page 17050]]

    (h) Obtaining pharmacy services under the pharmacy benefits 
program--(1) Points of service. There are four outpatient pharmacy 
points of service:
    (i) Military Treatment Facilities (MTFs);
    (ii) Retail network pharmacies: Those are non-MTF pharmacies that 
are a part of the network established for TRICARE retail pharmacy 
services;
    (iii) Retail non-network pharmacies: Those are non-MTF pharmacies 
that are not part of the network established for TRICARE retail 
pharmacy services, and
    (iv) the TRICARE Mail Order Pharmacy (TMOP).
    (2) Availability of formulary pharmaceutical agents--(i) General. 
Subject to paragraph (h)(2)(ii) of this section, formulary 
pharmaceutical agents are available under the Pharmacy Benefits Program 
from all of the points of service identified in paragraph (h)(1) of 
this section.
    (ii) Availability of formulary pharmaceutical agents at military 
treatment facilities. Pharmaceutical agents included on the uniform 
formulary are available through MTFs, consistent with the scope of 
health care services offered in such facilities. The Basic Core 
Formulary (BCF) is a subset of the uniform formulary and is a mandatory 
component of all MTF pharmacy formularies. The BCF contains the minimum 
set of pharmaceutical agents that each MTF pharmacy must have on its 
formulary to support the primary care scope of practice for Primary 
Care Manager enrollment sites. Additions to individual MTF formularies 
are determined by local Pharmacy and Therapeutics Committees based on 
the scope of health care services provided at the respective MTFs. All 
pharmaceutical agents on the local MTF formulary must be available to 
all categories of beneficiaries.
    (3) Availability of non-formulary pharmaceutical agents--(i) 
General. Non-formulary pharmaceutical agents are generally available 
under the pharmacy benefits program from the retail network pharmacies, 
retail non-network pharmacies, and the TRICARE Mail Order Pharmacy 
(TMOP) at the non-formulary cost-share.
    (ii) Availability of non-formulary pharmaceutical agents at 
military treatment facilities. Although not a beneficiary entitlement, 
non-formulary pharmaceutical agents may be made available to eligible 
covered beneficiaries through the MTF pharmacies for prescriptions 
approved through the non-formulary special order process that validates 
the medical necessity for use of the non-formulary pharmaceutical 
agent.
    (iii) Availability of clinically appropriate non-formulary 
pharmaceutical agents to members of the Uniformed Services. The 
pharmacy benefits program is required to assure the availability of 
clinically appropriate pharmaceutical agents to members of the 
uniformed services, including, where appropriate, agents not included 
on the uniform formulary. Clinically appropriate pharmaceutical agents 
will be made available to members of the Uniformed Services, including, 
where medical necessity has been validated, agents not included on the 
uniform formulary. MTFs shall establish procedures to evaluate the 
clinical necessity of prescriptions written for members of the 
uniformed services for pharmaceutical agents not included on the 
uniform formulary. If it is determined that the prescription is 
clinically necessary, the MTF will provide the pharmaceutical agent to 
the member.
    (iv) Availability of clinically appropriate pharmaceutical agents 
to other eligible beneficiaries at retail pharmacies or the TMOP. 
Eligible beneficiaries will receive non-formulary pharmaceutical agents 
at the formulary cost-share when medical necessity has been established 
by the beneficiary and/or his/her provider. The peer review provisions 
of Sec.  199.15 shall apply to the clinical necessity pre-authorization 
determinations. TRICARE may require that the time for review be 
expedited under the pharmacy benefits program.
    (i) Cost-sharing requirements under the pharmacy benefits program--
(1) General. Under 10 U.S.C. 1074g(a)(6), cost-sharing requirements are 
established in this section for the pharmacy benefits program 
independent of those established under other provisions of this Part. 
Cost-shares under this section partially defray government costs of 
administering the pharmacy benefits program when collected by the 
government for prescriptions dispensed through the retail network 
pharmacies or the TRICARE Mail Order Pharmacy. The higher cost-share 
paid for prescriptions dispensed by a non-network retail pharmacy is 
established to encourage the use of the most economical venue to the 
government. Cost-sharing requirements are based on the classification 
of a pharmaceutical agent as generic, formulary, or non-formulary, in 
conjunction with the point of service from which the agent is acquired.
    (2) Cost-sharing amounts. Active duty members of the uniformed 
services do not pay cost-shares. For other categories of beneficiaries, 
cost-sharing amounts are as follows:
    (i) For pharmaceutical agents obtained from a military treatment 
facility, there is no co-payment.
    (ii) For pharmaceutical agents obtained from a retail network 
pharmacy there is a:
    (A) $9.00 co-payment per prescription required for up to a 30-day 
supply of a formularly pharmaceutical agent.
    (B) $3.00 co-payment per prescription for up to a 30-day supply of 
a generic pharmaceutical agent.
    (C) $22.00 co-payment per prescription for up to a 30-day supply of 
a non-formulary pharmaceutical agent.
    (iii) For formulary and generic pharmaceutical agents obtained from 
a retail non-network pharmacy there is a 20 percent or $9.00 co-payment 
(whichever is greater) per prescription for up to a 30-day supply of 
the pharmaceutical agent.
    (iv) For non-formulary pharmaceutical agents obtained at a retail 
non-network pharmacy there is a 20 percent or $22.00 co-payment 
(whichever is greater) per prescription for up to a 30-day supply of 
the pharmaceutical agent.
    (v) For pharmaceutical agents obtained under the TMOP program there 
is a:
    (A) $9.00 co-payment per prescription for up to a 90-day supply of 
a formulary pharmaceutical agent.
    (B) $3.00 co-payment for up to a 90-day supply of a generic 
pharmaceutical agent.
    (C) $22.00 co-payment for up to a 90-day supply of a non-formulary 
pharmaceutical agent.
    (vi) For TRICARE Prime beneficiaries who obtain prescriptions from 
retail non-network pharmacies, the enrollment year deductible for 
outpatient claims is $300 per individual; $600 per family; and a point 
of service cost-share of 50 percent thereafter applies in lieu of the 
20 percent co-payment.
    (vii) Except as provided in paragraph (h)(2)(viii) of this section, 
for pharmaceutical agents acquired by TRICARE Standard beneficiaries 
from retail non-network pharmacies, beneficiaries are subject to the 
$150.00 per individual or $300.00 maximum per family annual fiscal year 
deductible.
    (viii) Under TRICARE Standard, dependents of members of the 
uniformed services whose pay grade is E-4 or below are subject to the 
$50.00 per indiviudal or $100.00 maximum per family annual fiscal year 
deductible.

[[Page 17051]]

    (ix) The TRICARE catastrophic cap limits apply to pharmacy benefits 
program cost-sharing.
    (x) The per prescription co-payments established in this paragraph 
(i)(2) of this section may be adjusted periodically based on experience 
with the uniform formulary, changes in economic circumstances, and 
other appropriate factors. Any such adjustment may be made upon the 
recommendation of the Pharmacy and Therapeutics Committee and approved 
by the Assistant Secretary of Defense (Health Affairs). Any such 
adjusted amount will maintain compliance with the requirements of 10 
U.S.C. 1074g(a)(6).
    (3) Special cost-sharing rule when there is a clinical necessity 
for use of a non-formulary pharmaceutical agent. (i) When there is a 
clinical necessity for the use of a non-formulary pharmaceutical agent 
that is not otherwise excluded as a covered benefit, the pharmaceutical 
agent will be provided at the same co-payment as a formulary 
pharmaceutical agent can be obtained.
    (ii) A clinical necessity for use of a non-formulary pharmaceutical 
agent is established when the beneficiary or their provider submits 
sufficient information to show that one or more of the following 
conditions exist:
    (A) The use of formualry pharmaceutical agents is contraindicated;
    (B) The patient experiences significant adverse effects from 
formulary pharmaceutical agents, or the provider shows that the patient 
is likely to experience significant adverse effects from formulary 
pharmaceutical agents;
    (C) Formulary pharmaceutical agents result in therapeutic failure, 
or the provider shows that the formulary pharmaceutical agent is likely 
to result in therapeutic failure;
    (D) The patient previously responded to a non-formulary 
pharmaceutical agent and changing to a formulary pharmaceutical agent 
would incur unacceptable clinical risk; or
    (E) There is no alternative pharmaceutical agent on the formulary.
    (iii) Information to establish clinical necessity for use of a non-
formulary pharmaceutical agent should be provided to TRICARE for 
prescriptions submitted to a retail network pharmacy.
    (iv) Information to establish clinical necessity for use of a non-
formulary pharmaceutical agent should be provided as part of the claims 
processes for non-formulary pharmaceutical agents obtained through non-
network points of service, claims as a result of other health 
insurance, or any other situations requiring the submission of a manual 
claim.
    (v) Information to establish clinical necessity for use of a non-
formulary pharmaceutical agent may be provided with the prescription 
submitted to the TMOP contractor.
    (vi) Information to establish clinical necessity for use of a non-
formulary pharmaceutical agent may also be provided at a later date, 
but no later than sixty days from the dispensing date, as an appeal to 
reduce the non-formulary co-payment to the same co-payment as a 
formulary drug.
    (vii) The process of establishing clinical necessity will not 
unnecessarily delay the dispensing of a prescription. In situations 
where clinical necessity cannot be determined in a timely manner, the 
non-formulary pharmaceutical agent will be dispensed at the non-
formulary co-payment and a refund provided to the beneficiary should 
clinical necessity be established.
    (viii) Peer review and appeal and hearing procedures. All levels of 
peer review, appeals, and grievances established by the Contractor for 
internal review shall be exhausted prior to forwarding to TRICARE 
Management Activity for a formal review. Procedures comparable to those 
established under Sec. Sec.  199.15 and 199.10 of this part shall 
apply. If it is determined that the prescription is clinically 
necessary, the pharmaceutical agent will be provided to the beneficiary 
at the formulary cost-share. TRICARE may require that the time periods 
for peer review or for appeal and hearing be expedited under the 
pharmacy benefits program. For purposes of meeting the amount in 
dispute requirement of Sec.  199.10(a)(7), the relevant amount is the 
difference between the cost shares of a formulary versus non-formulary 
drug. The amount for each of multiple prescriptions involving the same 
drug to treat the same medical condition and filled within a 12-month 
period may be combined to meet the required amount in dispute.
    (j) Use of generic drugs under the pharmacy benefits program. (1) 
The designation of a drug as a generic, for the purpose of applying 
cost-shares at the generic rate, will be determined through the use of 
standard pharmaceutical references as part of commercial best business 
practices. Pharmaceutical agents will be designated as generics when 
listed with an ``A'' rating in the current Approved Drug Products with 
Therapeutic Equivalence Evaluations (Orange Book) published by the Food 
and Drug Administration, or any successor to such reference. Generics 
are multisource products that must contain the same active ingredients, 
are of the same dosage form, route of administration and are identical 
in strength or concentration.
    (2) The pharmacy benefits program generally requires mandatory 
substitution of generic drugs listed with an ``A'' rating in the 
current Approved Drug Products with Therapeutic Equivalence Evaluations 
(Orange Book) published by the FDA and generic equivalents of 
grandfather or Drug Efficacy Study Implementation (DESI) category drugs 
for brand name drugs. In cases in which there is a clinical 
justification for a brand name drug in lieu of a generic equivalent, 
under the standards and procedures of paragraph (h)(3) of this section, 
the generic substitution policy is waived.
    (3) When a blanket purchase agreement, incentive price agreement, 
Government contract, or other circumstances results in a brand 
pharmaceutical agent being the most cost effective agent for purchase 
by the Government, the Pharmacy and Therapeutics Committee may also 
designate that the drug be cost-shared at the generic rate.
    (k) Preauthorization of certain pharmaceutical agents. (1) Selected 
pharmaceutical agents may be subject to prior authorization or 
utilization review requirements to assure medical necessity, clinical 
appropriateness and/or cost effectiveness.
    (2) The Pharmacy and Therapeutics Committee will assess the need to 
prior authorize a given agent by considering the relative clinical and 
cost effectiveness of pharmaceutical agents within a therapeutic class. 
Pharmaceutical agents that require prior authorization will be 
identified by a majority vote of the Pharmacy and Therapeutics 
Committee. The Pharmacy and Therapeutics Committee will establish the 
prior authorization criteria for the pharamaceutical agent.
    (3) Prescriptions for pharmaceutical agents for which prior 
authorization criteria are not met will not be cost-shared under the 
TRICARE pharmacy benefits program.
    (4) The Director, TRICARE Management Activity, may issue policies, 
procedures, instructions, guidelines, standards or criteria to 
implement this paragraph (k).
    (l) TRICARE Senior Pharmacy Program. Section 711 of the Floyd D. 
Spence National Defense Authorization Act for Fiscal Year 2001 (Public 
Law 106-398, 114 Stat. 1654A-175) established the TRICARE Senior 
Pharmacy Program for Medicare eligible beneficiaries effective April 1, 
2001.

[[Page 17052]]

These beneficiaries are required to meet the eligibility criteria as 
prescribed in Sec.  199.3 of this part. The benefit under the TRICARE 
Senior Pharmacy Program applies to prescription drugs and medicines 
provided on or after April 1, 2001.
    (m) Effect of other health insurance. The double coverage rules of 
Sec.  199.8 of this part are applicable to services provided under the 
pharmacy benefits program. For this purpose, to the extent they provide 
a prescription drug benefit, Medicare supplemental insurance plans or 
Medicare HMO plans are double coverage plans and will be the primary 
payor. Beneficiaries who elect to use this pharmacy benefits shall 
provide DoD with other health insurance information.
    (n) Procedures. The Director, TRICARE Management Activity shall 
establish procedures for the effective operation of the pharmacy 
benefits program. Such procedures may include restrictions of the 
quantity of pharmaceuticals to be included under the benefit, 
encouragement of the use of generic drugs, implementation of quality 
assurance and utilization management activities, and other appropriate 
matters.
    (o) Preemption of State laws. (1) Pursuant to 10 U.S.C. 1103, the 
Department of Defense has determined that in the administration of 10 
U.S.C. chapter 55, preemption of State and local laws relating to 
health insurance, prepaid health plans, or other health care delivery 
or financing methods is necessary to achieve important Federal 
interests, including but not limited to the assurance of uniform 
national health programs for military families and the operation of 
such programs at the lowest possible cost to the Department of Defense, 
that have a direct and substantial effect on the conduct of military 
affairs and national security policy of the United States.
    (2) Based on the determination set forth in paragraph (o)(1) of 
this section, any State or local law relating to health insurance, 
prepaid health plans, or other health care delivery or financing 
methods is preempted and does not apply in connection with TRICARE 
pharmacy contracts. Any such law, or regulation pursuant to such law, 
is without any force or effect, and State or local governments have no 
legal authority to enforce them in relation to the TRICARE pharmacy 
contracts. However, the Department of Defense may by contract establish 
legal obligations on the part of TRICARE contractors to conform with 
requirements similar or identical to requirements of State or local 
laws or regulations.
    (3) The preemption of State and local laws set forth in paragraph 
(o)(1) of this section includes State and local laws imposing premium 
taxes on health or dental insurance carriers or underwriters or other 
plan managers, or similar taxes on such entities. Such laws are laws 
relating to health insurance, prepaid health plans, or other health 
care delivery or financing methods, within the meaning of the statutes 
identified in paragraph (o)(1) of this section. Preemption, however, 
does not apply to taxes, fees, or other payments on net income or 
profit realized by such entities in the conduct of business relating to 
DoD pharmacy services contracts, if those taxes, fees or other payments 
are applicable to a broad range of business activity. For purposes of 
assessing the effect of Federal preemption of State and local taxes and 
fees in connection with DoD pharmacy services contracts, 
interpretations shall be consistent with those applicable to the 
Federal Employees Health Benefits Program under 5 U.S.C. 8909(f).
    (p) General fraud, abuse, and conflict of interest requirements 
under TRICARE pharmacy benefits program. All fraud, abuse, and conflict 
of interest requirements for the basic CHAMPUS program, as set forth in 
this part 199 (see applicable provisions of Sec.  199.9 of this part) 
are applicable to the TRICARE pharmacy benefits program. Some methods 
and procedures for implementing and enforcing these requirements may 
differ from the methods and procedures followed under the basic CHAMPUS 
program.

    Dated: March 25, 2004.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 04-7129 Filed 3-31-04; 8:45 am]
BILLING CODE 5001-06-M