[Federal Register Volume 73, Number 144 (Friday, July 25, 2008)]
[Proposed Rules]
[Pages 43394-43397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17024]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

[DoD-2008-HA-0029; 0720-AB22]


Civilian Health and Medical Program of the Uniformed Services 
(CHAMPUS)/TRICARE: Inclusion of TRICARE Retail Pharmacy Program in 
Federal Procurement of Pharmaceuticals

AGENCY: Office of the Secretary, Department of Defense (DoD).

ACTION: Proposed rule.

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SUMMARY: Section 703 of the National Defense Authorization Act for 
Fiscal Year 2008 (NDAA-08) states with respect to any prescription 
filled on or after the date of enactment of the NDAA, the TRICARE 
retail pharmacy program (TRRx) shall be treated as an element of the 
DoD for purposes of procurement of drugs by Federal agencies under 
section 8126 of title 38, United States Code (U.S.C.), to the extent 
necessary to ensure pharmaceuticals paid for by the DoD that are 
provided by network retail pharmacies under the program to eligible 
covered beneficiaries are subject to the pricing standards in such 
section 8126. NDAA-08 was enacted on January 28, 2008. The statute 
requires implementing regulations. This

[[Page 43395]]

proposed rule is to implement section 703 of the NDAA 2008.

DATES: Written comments received at the address indicated below by 
September 23, 2008 will be considered and addressed in the final rule.

ADDRESSES: You may submit comments, identified by docket number and/or 
RIN number and title, by any of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail: Federal Docket Management System Office, 1160 Defense 
Pentagon, Washington, DC 20301-1160.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
Federal Register document. The general policy for comments and other 
submissions from members of the public is to make these submissions 
available for public viewing on the Internet at http://www.regulations.gov as they are received without change, including any 
personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Captain William Blanche, TRICARE 
Management Activity, telephone (703) 681-2890.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 703 of the National Defense Authorization Act for Fiscal 
Year 2008 (NDAA-08) (Pub. L. 110-181) enacted 10 U.S.C. 1074g(f). It 
provides that with respect to any prescription filled on or after the 
date of enactment of the NDAA, the TRRx shall be treated as an element 
of the DoD for purposes of procurement of drugs by Federal agencies 
under section 8126 of title 38, United States Code (U.S.C.), to the 
extent necessary to ensure pharmaceuticals paid for by the DoD that are 
provided by network retail pharmacies under the program to eligible 
covered beneficiaries are subject to the pricing standards in such 
section 8126. NDAA-08 was enacted on January 28, 2008. The statute 
requires implementing regulations.
    The Veterans Health Care Act (VHCA) of 1992, codified at 38 U.S.C. 
8126, established Federal Ceiling Prices (FCPs) of covered 
pharmaceuticals (requiring a minimum 24% discount off non-Federal 
average manufacturing prices--``non-FAMP'') procured by the four 
designated agencies covered in the Act: Department of Veterans Affairs 
(VA), DoD, Coast Guard, and the Public Health Service/Indian Health 
Service. The non-FAMP is the average price paid to the manufacturer by 
wholesalers (or, if there are insufficient wholesale sales, others who 
purchase directly from the manufacturer) for drugs distributed to non-
federal purchasers, taking into account any cash discounts or similar 
reductions given to those purchasers. The VA administers the VHCA 
discount program on behalf of the four specified agencies. The DoD 
consulted closely with the VA in the development of this proposed rule.
    The TRICARE Pharmacy Benefits Program operates under the authority 
of 10 U.S.C. 1074g. It provides outpatient drugs to TRICARE 
beneficiaries through Military Treatment Facility (MTF) pharmacies, the 
TRICARE mail order pharmacy program (TMOP), and a TRRx consisting of 
TRICARE Retail Pharmacy Network and retail non-network pharmacies. As 
implemented, the new statutory requirement will only apply to 
pharmaceuticals paid for by DoD and provided to eligible beneficiaries 
through the TRICARE Retail Pharmacy Network.
    The TRICARE Retail Pharmacy Network is managed under a single 
Pharmacy Benefits Manager contract, linked to the DoD Pharmacy Benefits 
Office, and enabled by a management information system to verify 
beneficiary eligibility, check for potential drug interactions, and 
authorize payment for the pharmaceuticals used to fill the 
beneficiary's prescription. The management information system also 
records data on all prescriptions filled through the Retail Pharmacy 
Network, permitting an accurate accounting of all retail network 
pharmaceuticals paid for by DoD under the TRICARE Pharmacy Benefits 
Program. Since the beginning of the FCP program, outpatient 
pharmaceuticals provided by DoD through MTF pharmacies have been 
subject to FCPs, as have those under the TMOP program since it began. 
Implementation of similar applicability to the TRICARE Retail Pharmacy 
Network component of the Program is the subject of this proposed 
regulation.

B. Provisions of the Rule

    The proposed rule would add a new paragraph (q) to Sec.  199.21. 
Paragraph (q)(1) repeats the new statutory requirement. Paragraph 
(q)(2) provides that an agreement by a manufacturer to honor the FCPs 
in the Retail Pharmacy Network component of the Pharmacy Benefits 
Program is a condition of inclusion of a drug on the uniform formulary. 
Further, it states that a drug not under such an agreement requires 
preauthorization to be provided through the Retail Pharmacy Network. In 
addition, it indicates that drugs covered by this requirement are 
TRICARE Retail Pharmacy Network provided drugs that are covered by the 
VA's FCP program, except any prescription for which the TRICARE 
Pharmacy Benefits Program is the second payer. While DoD proposes in 
this rulemaking to enter into voluntary agreements with manufacturers 
that would make prescriptions filled on or after the date of enactment 
of NDAA-08 subject to FCPs, the Department solicits comment regarding 
any other appropriate and legally permissible implementation approach 
and/or date from which to begin making prescriptions filled in the 
Retail Pharmacy Network subject to FCPs. DoD is specifically interested 
in the legal justification, including under section 703 of NDAA-08, for 
any alternative implementation approaches and/or dates that commenters 
may propose.
    Paragraph (q)(3) establishes refund procedures to, in the words of 
the statute, ``ensure that pharmaceuticals paid for by the DoD that are 
provided by pharmacies under the program to eligible covered 
beneficiaries under this section are subject to the pricing standards'' 
of the FCP program. The refund procedures will, to the extent 
practicable, incorporate common industry practices for implementing 
pricing agreements between manufacturers and large pharmacy benefit 
plan sponsors. Such procedures shall provide the manufacturer at least 
70 days from the date of submission by TMA to the manufacturer 
(initially expected to be on a quarterly basis) of the TRICARE 
pharmaceutical utilization data needed to calculate the refund before 
the refund payment is due. The basis of the refund will be the 
difference between the average non-federal price of the drug sold by 
the manufacturer to wholesalers, as represented by the most recent 
annual non-FAMP (reported to VA) and the FCP or, in the discretion of 
the manufacturer, the difference between FCP and direct commercial 
contract sales prices specifically attributable to TRICARE paid 
pharmaceuticals, determined for each applicable National Drug Code 
(NDC) listing. Further, this paragraph of the rule provides that a 
refund due under the statute is subject to the overpayment recovery 
procedures of Sec.  199.11 of the TRICARE regulation.
    Finally, paragraph (q)(4) states that in the case of the failure of 
a manufacturer of a covered drug to make or honor an agreement to 
ensure that DoD pays no more than the FCP for covered drugs provided 
through the TRICARE Retail Pharmacy Network component of the program, 
the Director, TMA, in addition

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to other actions referred to in the rule, may take any other action 
authorized by law.

C. Regulatory Procedures

Executive Order 12866, ``Regulatory Planning and Review''

    Executive Order (EO) 12866 requires that a comprehensive regulatory 
impact analysis be performed on any economically significant regulatory 
action, defined primarily as one that would result in an effect of $100 
million or more in any one year. The DoD has examined the economic, 
legal, and policy implications of this proposed rule and has concluded 
that it is an economically significant regulatory action under section 
3(f)(1) of the EO. The economic impact of applying Federal Ceiling 
Prices to the TRICARE Retail Pharmacy Network is in the form of 
reducing the prices of drugs paid for by DoD in the retail pharmacy 
component of the TRICARE Pharmacy Benefits Program, making them 
comparable to the prices paid by DoD in the Military Treatment Facility 
and Mail Order Pharmacy components of the program.
    A recent Government Accountability Office Report, ``DoD Pharmacy 
Program: Continued Efforts Needed to Reduce Growth in Spending at 
Retail Pharmacies,'' April 2008 (GAO-08-327), found that DoD's drug 
spending ``more than tripled from $1.6 billion in fiscal year 2000 to 
$6.2 billion in fiscal year 2006'' and that retail pharmacy spending 
``drove most of this increase, rising almost nine-fold from $455 
million to $3.9 billion and growing from 29 percent of overall drug 
spending to 63 percent.'' DoD concurs in these findings. The principal 
economic impact of this proposed rule is to moderate somewhat the rate 
of growth in the retail pharmacy component of the program.
    DoD has estimated the reduced spending associated applying Federal 
Ceiling Prices to the Retail Pharmacy Network. DoD funds the Military 
Health System through two separate mechanisms. One is the Defense 
Health Program (DHP) appropriation, which pays for health care for all 
beneficiaries except those who are also eligible for Medicare. DoD-
funded health care for DoD beneficiaries who are also eligible for 
Medicare is paid for by way of an accrual fund called the Medicare-
Eligible Retiree Health Care Fund (MERHCF) under 10 U.S.C Chapter 56. 
Funds are paid into the MERHCF from military personnel appropriations 
and the general U.S. treasury. DoD estimated cost reductions from 
applying Federal Ceiling Prices to the TRICARE Retail Pharmacy Network 
in Fiscal Years 2009 through 2011 are:

------------------------------------------------------------------------
                                                               Millions
------------------------------------------------------------------------
FY-2009 DHP Reduced Spending................................        $352
FY-2009 MERHCF Reduced Spending.............................         367
FY-2010 DHP Reduced Spending................................         388
FY-2010 MERHCF Reduced Spending.............................         404
FY-2011 DHP Reduced Spending................................         427
FY-2011 MERHCF Reduced Spending.............................         444
------------------------------------------------------------------------

As a frame of reference, total TRICARE Pharmacy Benefits Program 
spending (incorporating these spending reductions) is estimated to be 
$8 billion in FY-2009, $8.4 billion in FY-2010, and $9.3 billion in FY-
2011.

Congressional Review Act, 5 U.S.C. 801, et seq.

    Under the Congressional Review Act, a major rule may not take 
effect until at least 60 days after submission to Congress of a report 
regarding the rule. A major rule is one that would have an annual 
effect on the economy of $100 million or more or have certain other 
impacts. This proposed rule is a major rule under the Congressional 
Review Act. As noted above, applying Federal Ceiling Prices to the 
TRICARE Retail Pharmacy Network will reduce DoD spending on 
pharmaceuticals by more than $100 million per year.

Sec. 202, Pub. L. 104-4, ``Unfunded Mandates Reform Act''

    This rule does not contain a Federal mandate that may result in the 
expenditure by State, local and tribunal governments, in aggregate, or 
by the private sector, of $100 million or more (adjusted for inflation) 
in any one year.

Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

    The Regulatory Flexibility Act (RFA) requires that each Federal 
agency prepare and make available for public comment, a regulatory 
flexibility analysis when the agency issues a regulation which would 
have a significant impact on a substantial number of small entities. 
DoD does not anticipate that this regulation will result in changes 
that would impact small entities, including retail pharmacies, whose 
reimbursements are not affected by the proposed rule. In addition, 
drugs newly subject to implementation of Federal Ceiling Prices under 
the proposed rule represent less than 2% of manufacturers' prescription 
drug sales. Therefore, this proposed rule is not expected to result in 
significant impacts on a substantial number of small entities.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)

    This proposed rule contains information collection requirements 
subject to the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-
3511). This consists of responding to the periodic TMA report of the 
TRICARE prescription utilization data needed to calculate the refund. 
This information collection has been approved with OMB Control Number 
0720-0032. No person is required to respond to, nor shall any person be 
subject to a penalty for failure to comply with, a collection of 
information subject to the requirements of the PRA, unless that 
collection of information displays a currently valid OMB Control 
Number.

Executive Order 13132, ``Federalism''

    This proposed rule does not have federalism implications, as set 
forth in Executive Order 13132. This rule does not have substantial 
direct effects on the States; the relationship between the National 
Government and the States; or the distribution of power and 
responsibilities among the various levels of Government.

Public Comments Invited

    This is a proposed rule. DoD invites public comments on all of its 
provisions.

List of Subjects in 32 CFR Part 199

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

    Accordingly, 32 CFR part 199 is proposed to be amended as follows:

PART 199--[AMENDED]

    1. The authority citation for part 199 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 10 U.S.C. chapter 55.

    2. Section 199.21 is amended by adding a new paragraph (q), to read 
as follows:


Sec.  199.21.  Pharmacy Benefits Program.

* * * * *
    (q) Pricing standards for retail pharmacy program.--(1) Statutory 
requirement.--As required by 10 U.S.C. 1074g(f), with respect to any 
prescription filled on or after the date of the enactment of the 
National Defense Authorization Act for Fiscal Year 2008, the TRICARE 
retail pharmacy program shall be treated as an element of the

[[Page 43397]]

DoD for purposes of the procurement of drugs by Federal agencies under 
38 U.S.C. 8126 to the extent necessary to ensure pharmaceuticals paid 
for by the DoD that are provided by pharmacies under the program to 
eligible covered beneficiaries under this section are subject to the 
pricing standards in such section 8126.
    (2) Manufacturer written agreement. (i) A written agreement by a 
manufacturer to honor the pricing standards required by 10 U.S.C. 
1074g(f) and referred to in paragraph (q)(1) of this section for 
pharmaceuticals provided through retail network pharmacies shall with 
respect to a particular covered drug be a condition for:
    (A) Inclusion of that drug on the uniform formulary under this 
section; and
    (B) Availability of that drug through retail network pharmacies 
without preauthorization under paragraph (k) of this section.
    (ii) A covered drug not under an agreement under paragraph 
(q)(2)(i) of this section requires preauthorization under paragraph (k) 
of this section to be provided through a retail network pharmacy under 
the Pharmacy Benefits Program. This preauthorization requirement does 
not apply to other points of service under the Pharmacy Benefits 
Program.
    (iii) For purposes of this paragraph (q)(2), a covered drug does 
not include:
    (A) A drug that is not a covered drug under 38 U.S.C. 8126;
    (B) A drug provided under a prescription that is not covered by 10 
U.S.C. 1074g(f);
    (C) A drug that is not provided through a retail network pharmacy 
under this section;
    (D) Any pharmaceutical for which the TRICARE Pharmacy Benefits 
Program is the second payer under paragraph (m) of this section; and
    (E) Any other exception, consistent with law, established by the 
Director, TMA.
    (3) Refund procedures. (i) The agreement referred to in paragraph 
(q)(2) of this section shall include refund procedures to ensure that 
pharmaceuticals paid for by the DoD that are provided by retail network 
pharmacies under the pharmacy benefits program are subject to the 
pricing standards referred to in paragraph (q)(1) of this section.
    (ii) The refund procedures referred to in paragraph (q)(3)(i) of 
this section shall, to the extent practicable, incorporate common 
industry practices for implementing pricing agreements between 
manufacturers and large pharmacy benefit plan sponsors. Such procedures 
shall provide the manufacturer at least 70 days from the date of the 
submission of the TRICARE pharmaceutical utilization data needed to 
calculate the refund before the refund payment is due. The basis of the 
refund will be the difference between the average non-federal price of 
the drug sold by the manufacturer to wholesalers, as represented by the 
most recent annual non-Federal average manufacturing prices (non-FAMP) 
(reported to the Department of Veterans Affairs (VA)) and the FCP or, 
in the discretion of the manufacturer, the difference between the FCP 
and direct commercial contract sales prices specifically attributable 
to the reported TRICARE paid pharmaceuticals, determined for each 
applicable NDC listing.
    (iii) A refund due under this paragraph (q) is subject to Sec.  
199.11 of this part.
    (4) Remedies. In the case of the failure of a manufacturer of a 
covered drug to make or honor an agreement under this paragraph (q), 
the Director, TMA, in addition to other actions referred to in this 
paragraph (q), may take any other action authorized by law.
* * * * *

    Dated: July 18, 2008.
Patricia L. Toppings,
OSD Federal Register Liaison Officer, Department of Defense.
 [FR Doc. E8-17024 Filed 7-24-08; 8:45 am]
BILLING CODE 5001-06-P