[Federal Register Volume 85, Number 107 (Wednesday, June 3, 2020)]
[Rules and Regulations]
[Pages 34101-34104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10215]



[[Page 34101]]

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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

[DOD-2018-HA-0062]
RIN 0720-AB75


TRICARE Pharmacy Benefits Program Reforms

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

ACTION: Final rule.

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SUMMARY: This rule finalizes Department of Defense (DoD) implementation 
of Section 702 of the National Defense Authorization Act for Fiscal 
Year 2018 (NDAA FY18). The law made significant changes to the TRICARE 
Pharmacy Benefits Program; specifically it: Updated co-payment 
requirements; authorized a new process for encouraging use of 
pharmaceutical agents that provide the best clinical effectiveness by 
excluding coverage for particular pharmaceutical agents that provide 
very little or no clinical effectiveness relative to similar agents and 
for giving preferential status to agents that provide enhanced clinical 
effectiveness; and authorized special reimbursement methods, amounts, 
and procedures to encourage use of high-value products and discourage 
use of low-value products with respect to pharmaceutical agents 
provided as part of medical services from authorized providers. This 
rule finalizes the changes made to the TRICARE Pharmacy Benefit Program 
as stated in the interim final rule.

DATES: This final rule is effective July 6, 2020.

FOR FURTHER INFORMATION CONTACT: Col Markus Gmehlin, Acting, Chief, 
Pharmacy Operations, Defense Health Agency (DHA), telephone (703) 681-
2890.

SUPPLEMENTARY INFORMATION: 

I. Executive Summary

A. Public Comments and Responses

    On December 11, 2018 (83 FR 63574-63578), the Department of Defense 
published an interim final rule titled ``TRICARE Pharmacy Benefits 
Program Reforms'' for a 60-day public comment period. The public 
comment period ended on February 11, 2019. Eight public comments were 
received. Two of the comments were written by students enrolled in 
college classes with an assignment involving commenting on Federal 
Register notices. Neither comment was relative to the rule. Two more 
comments received were not pertinent to this rule. This section 
responds to the remaining four public comments.
    One comment was a general statement from an individual who admitted 
not knowing what TRICARE does and to not reading the entire rule but 
commended the Department for attempting to take care of its 
beneficiaries. The individual added that Congress and its agencies 
write laws that are too complicated. This final rule has been carefully 
reviewed to ensure it is as clear as possible to those affected by it 
and no changes have been made in that regard.
    The remaining three comments represent the pharmaceutical industry, 
a biotechnology trade association, and an organization focused on 
patient-centeredness in healthcare. All three comments voiced concerns 
centering on accessibility of medicines, ensuring a robust process of 
evaluation of agents when being considered from a clinical benefit, 
incorporating patient-oriented outcomes that matter, and excluding 
newly approved drugs. In addition, all three commented on the portion 
of the rule pertaining to changes in the physician add-on payment rates 
for medications administered as part of a medical procedure or office 
visit. We appreciate these comments, which are summarized here, along 
with DoD's response.
    The Department of Defense Pharmacy and Therapeutics (P&T) Committee 
will be engaging the authority granted by this rule to exclude agents 
in a judicious manner. Prior to this rule, the DoD was required to 
include all Food and Drug Administration-approved prescription 
medications on the DoD Uniform Formulary regardless of safety, 
effectiveness, or cost. This practice is divergent with current 
formulary management approaches as applied throughout the healthcare 
industry and is inconsistent with commercial practice standards. Not 
only is this practice counter to providing patients with the most 
clinically effective and safest treatment modalities, but also is 
imprudent use of tax payer money. The P&T Committee process for 
evaluating drugs for formulary status is outlined in 32 CFR 
199.21(e)(1)(ii) and (iii) which describes the type of materials that 
may be included as part of the clinical effectiveness and safety 
conclusions for the drug. This robust process will continue to be the 
process for evaluating agents being considered for exclusion. In 
addition to clinical and safety data, patient-oriented outcome data 
relevant to the drugs being considered is a factor included in the 
evaluation process. The committee will be guided by specific criteria 
that will be used in identifying agents and selecting agents for 
consideration for exclusion from the benefit. These criteria will 
include but not be limited to ensuring the availability of alternative 
agents when an agent is excluded, considering agents for exclusion when 
safety concerns may outweigh the benefit of the drug, and when the drug 
is a formulation that includes a combination of drugs that are 
otherwise excluded. Further, in implementing this rule the committee 
will not only evaluate drugs for exclusion from coverage but will also 
include identifying branded drugs that may be moved to Tier 1 status 
with a lower copayment for beneficiaries. The intent of identifying 
agents in this manner as well as the new exclusion authority is to 
yield improved health, smarter spending and better patient outcomes.
    As with all P&T recommendations, the Beneficiary Advisory Panel 
will be able to comment prior to the DHA Director making the final 
decision. Further, all decisions regarding the DoD Uniform Formulary 
are routinely monitored and updated to reflect changes in data, updated 
prescribing criteria, modifications in clinical usage patterns, and 
cost changes. Any decisions resulting from implementation of this rule 
will likewise be monitored and reassessed in line with this well-
established DoD P&T practice.
    In addition to concerns regarding formulary management, four 
comments representing the pharmaceutical industry and a biotechnology 
trade association, voiced overlapping concerns on the portion of the 
rule pertaining to changes in the physician add-on payment rates for 
medications administered as part of a medical procedure or office visit 
and are addressed below.
    Both a pharmaceutical organization and a biotechnology trade 
association disagreed with DoD's assumption that the current approach 
of reimbursing physician administered drugs the Average Sales Price 
(ASP) plus a six percent add-on creates an incentive to use more 
expensive drugs. The commenters stated that physician prescribing 
habits are not driven by the ``cost of drugs'' or the ``payment-per-
drug administration''; their views were supported by a report authored 
by Xcenda, a consulting firm owned by a drug wholesaler. These comments 
were made in response to a DoD proposal that a median add-on payment 
for a certain class or category of drugs might be used for all drugs in 
the group, rather than the current drug-specific six percent

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add-on calculation. We recognize that providers' prescribing decisions 
depend on various factors, and that not all providers may be 
incentivized similarly or act based on the cost or profit margin of a 
particular drug. In some cases, there are not good alternatives or the 
price does not vary greatly among drugs within a particular category, 
in which case the potential proposed change to a median add-on amount 
for the group would not matter. However, published studies do support 
the idea that such incentives may affect prescribing pattern in some 
situations. A recently published article in a peer-reviewed journal 
reviewed 18 studies on the association between reimbursement incentives 
or changes in reimbursement policy and oncology care delivery and found 
that most studies reported an association consistent with financial 
incentives (Mitchell et al., Association Between Reimbursement 
Incentives and Physician Practice in Oncology, A Systematic Review, 
JAMA Oncol. 2019:5(6)). This systematic review found that profitability 
of systemic anticancer agents may affect physicians' choice of drug. 
Thus, we believe that financial incentives do affect prescribing 
patterns in some cases and that DoD's proposal may be appropriate to 
reduce the use of more expensive drugs within a class of drugs when 
there are appropriate alternatives.
    A second comment raised by the pharmaceutical organization and the 
biotechnology trade association was that DoD's proposal would create a 
situation that ``incentivizes or requires'' the use of products that 
may not be the most appropriate in that situation and that this would 
lead to worse health outcomes. One commenter also stated that lowering 
the add-on payment for some drugs could affect the prescribing patterns 
of some physicians who would choose not to use certain drugs ``based on 
cost considerations alone.'' We disagree for three reasons: First, 
DoD's proposal would allow DoD to modify the add-on to the acquisition 
cost of the physician administered drug (which is currently six percent 
of the ASP). Nothing in this proposal would require the use of 
inappropriate products. Second, if DoD does modify the six percent add-
on, it would only be done within classes of drugs recommended by the 
DoD's Pharmacy and Therapeutics Committee and with approval of the DHA 
Director, which will ensure that the classes of drugs which have 
modified add-on payments would be selected carefully. Third, because 
only the add-on payment, not the underlying payment for the drug would 
be modified, we do not believe that this proposal would provide large 
incentives for the use of particular drugs. Rather, we believe that it 
would remove the incentive to use drugs that have higher costs for no 
other reason than the higher add-on payment.
    A third comment made by the biotechnology trade association is that 
modifications to the six percent add-on could limit patient access to 
necessary care and that this could affect patient outcomes. A 
particular concern raised by the commenter is that modifying the six 
percent add-on would exacerbate the current situation in which 
physicians cannot afford to purchase a drug for administration in their 
offices at an amount less than ASP plus the six percent add-on. We do 
not think that access will be adversely affected for two reasons. 
First, DoD is not eliminating the entire add-on; instead it may modify 
it so that it is set equal to the median add-on within a drug class. As 
a result, this approach may actually increase the add-on amounts paid 
for certain drugs. Second, physicians will decide which drugs are 
prescribed and in all cases these physicians would be reimbursed the 
Average Sales Price plus an add-on payment, which will be approximately 
equal to six percent within any drug class. As a result, DoD does not 
think that there will be access problems. However, DoD will monitor 
access carefully for any of the products that receive a modified add-on 
to ensure that there are not access problems for TRICARE beneficiaries.
    A fourth comment made by the pharmaceutical organization stated 
that DoD was ``considering a significant potential change, but leaves 
important terms and standards vague and unclear.'' The commenter noted 
that DoD's changes to reimbursement amounts should be made through 
rulemaking rather than guidance. We have revised the final rule to 
specify that the Director should be able to adopt an add-on amount 
equal to six percent of the median amounts for products within a class 
of products. As a result, the TRICARE reimbursement amount for products 
within a class of products would be equal to the average sales price 
plus six percent of the median average sales price of products in that 
class.
    Public comments received in response to DoD's interim final rule, 
resulted in a revision to the final rule to specify that the physician 
reimbursement add-on would be six percent of the median within a 
product class.

B. Purpose of the Final Rule

    This rule finalizes Section 702 of the National Defense 
Authorization Act for Fiscal Year 2018 (NDAA FY18), which does three 
things: (1) It updates cost-sharing requirements for outpatient 
pharmaceutical prescriptions filled by retail pharmacies and the 
TRICARE mail order pharmacy program. (2) It authorizes a new Uniform 
Formulary process for encouraging use of pharmaceutical agents in the 
TRICARE Pharmacy Benefits Program that provide the best clinical 
effectiveness by excluding coverage for particular pharmaceutical 
agents that provide very little or no clinical effectiveness relative 
to similar agents and giving preferential status to agents that provide 
enhanced clinical effectiveness. (3) It authorizes special 
reimbursement methods, amounts, and procedures to encourage use of 
high-value products and discourage use of low-value products with 
respect to pharmaceutical agents provided as part of medical services 
from authorized providers. This rule finalizes each of these three 
statutory changes as implemented by the interim final rule.

C. Legal Authority for the Regulatory Action

    This final rule is under the primary authority of 10 U.S.C. 1074g, 
1079 and 1086, and Section 702 of NDAA FY18. Specifically, section 
702(b)(3) of NDAA FY18 authorizes DoD to ``prescribe such changes to 
the regulations implementing the TRICARE program . . . by prescribing 
an interim final rule.'' TRICARE program regulations (32 CFR part 199) 
are issued under statutory authorities including 10 U.S.C. 1074g (the 
Pharmacy Benefits Program) and 10 U.S.C. 1079 and 1086 (TRICARE medical 
benefits). Section 702 of NDAA-18 amends both section 1074g and section 
1079 (the section 1079 amendment being automatically applicable to 
section 1086).

D. Summary of Major Provisions of the Final Rule

    This rule finalizes the following major provisions:
    1. Updating Cost-Sharing. Under the authority of section 
1074g(a)(6), as amended by Section 702(a) of NDAA FY18, we amended 32 
CFR 199.21(i) to cross reference the statutory changes.
    2. Uniform Formulary Changes. Based on section 1074g(a)(10), as 
added by Section 702(b)(1) of NDAA FY 18, we changed the Uniform 
Formulary process under 32 CFR 199.21(e) by authorizing the exclusion 
of any pharmaceutical agent that provides very little or no

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clinical effectiveness relative to similar agents, and preferential 
status for pharmaceutical agents that have enhanced clinical 
effectiveness relative to similar agents.
    3. Pharmaceutical Agents as Part of Medical Services. Based on 10 
U.S.C. 1079(q), as added by Section 702(b)(2) of NDAA FY18, we changed 
provisions of 32 CFR 199.14 to authorize the adoption of special 
reimbursement methods, amounts and procedures to encourage the use of 
high value products and discourage the use of low value products--both 
relative to similar agents--in connection with pharmaceutical agents 
provided as part of outpatient medical services covered by TRICARE.

II. Provisions of Final Rule

    As a result of one public comment noting that DoD's changes to 
reimbursement amounts should be made through rulemaking rather than 
guidance the final rule has been revised to specify that the Director 
should be able to adopt an add-on amount equal to six percent of the 
median amounts for products within a class of products. As a result, 
the TRICARE reimbursement amount for products within a class of 
products would be equal to the average sales price plus six percent of 
the median average sales price of products in that class.

III. Regulatory Procedures

Executive Order (E.O.) 13771, ``Reducing Regulation and Controlling 
Regulatory Costs''

    E.O. 13771 seeks to control costs associated with the government 
imposition of private expenditures required to comply with Federal 
regulations and to reduce regulations that impose such costs. 
Consistent with the analysis of transfer payments under OMB Circular A-
4, this final rule does not involve regulatory costs subject to E.O. 
13771. Rather, this final rule affects only health care reimbursement 
payments under the TRICARE program. Aside from the ``housekeeping'' 
change to the regulation to incorporate the updated copayment amounts 
enacted by Congress, the final rule makes two changes to the program: A 
new authority under the Uniform Formulary process and revised payment 
authority for pharmaceutical agents as part of medical services.

Executive Order 12866, ``Regulatory Planning and Review,'' Executive 
Order 13563, ``Improving Regulation and Regulatory Review,'' and 
Executive Order 13771, ``Reducing Regulation and Controlling Regulatory 
Costs''

    Executive Orders 12866 (Regulatory Planning and Review) and 13563 
(Improving Regulation and Regulatory Review) direct agencies to assess 
the costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated as a ``not significant'' 
regulatory action, and not economically significant, under section 3(f) 
of Executive Order 12866. Accordingly, the rule has not been reviewed 
by the Office of Management and Budget (OMB) under the requirements of 
these Executive Orders.
    Executive Order 13771 (Reducing Regulation and Controlling 
Regulatory Costs) directs agencies to reduce regulation and control 
regulatory costs and provides that ``for every one new regulation 
issued, at least two prior regulations be identified for elimination, 
and that the cost of planned regulations be prudently managed and 
controlled through a budgeting process.'' This rule is not subject to 
the requirements of this Executive order because it is not significant 
under Executive Order 12866.
    Additionally, the economic effect of these changes is limited to 
government reimbursements to health care providers/suppliers that under 
Circular A-4 are not considered as costs imposed on the economy. The 
expected reduction in government payments to pharmaceutical companies 
is based on some predicted increase in use of higher value medications 
and a corresponding decrease in the use of lower value medications in 
drug classes where different drugs have comparable clinical effect. The 
expected value of this shift in use of some medications--i.e., the 
quantity of the transfer payments--is $30 million per year.
    An initial analysis identified a sample group of candidate drugs 
that do not offer additional therapeutic benefit over other formulary 
items. By comparing the current costs to those of a lower-priced 
comparator and assuming similar utilization rates, the average cost 
avoidance was $1.5M/drug/year, with a more conservative cost avoidance 
of $1M/drug/year. When fully implemented, this new process could 
average 30 drugs per year at a conservative cost avoidance of $1M/drug/
year.

Congressional Review Act, 5 U.S.C. 804(2)

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

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

    The RFA requires that each Federal agency analyze options for 
regulatory relief of small businesses if a rule has a significant 
impact on a substantial number of small entities. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and small governmental jurisdictions. This final rule is not an 
economically significant regulatory action, and it will not have a 
significant impact on a substantial number of small entities. 
Therefore, this rule is not subject to the requirements of the RFA.

Public Law 104-4, Sec. 202, ``Unfunded Mandates Reform Act''

    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any one year of 
$100M in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $140M. This final rule will not 
mandate any requirements for state, local, or tribal governments or the 
private sector.

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

    This rulemaking does not contain a ``collection of information'' 
requirement, and will not impose additional information collection 
requirements on the public under Public Law 96-511, ``Paperwork 
Reduction Act'' (44 U.S.C. chapter 35).

Executive Order 13132, ``Federalism''

    This final rule has been examined for its impact under E.O. 13132, 
and it does not contain policies that have federalism implications that 
would have substantial direct effects on the States, on the 
relationship between the National Government and the States, or on the 
distribution of powers and responsibilities among the various levels of 
Government. Therefore,

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consultation with State and local officials is not required.

List of Subjects in 32 CFR Part 199

    Claims, Dental health, Health care, Health insurance, Individuals 
with disabilities, Mental health, Mental health parity, Military 
personnel.

    Accordingly, the interim final rule amending 32 CFR part 199 which 
published at 83 FR 63574-63578 on December 11, 2018, is adopted as 
final with the following changes:

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.  199.14 by revising paragraph (j)(1)(xi) to read as 
follows:


Sec.  199.14  Provider reimbursement methods.

* * * * *
    (j) * * *
    (1) * * *
    (xi) Pharmaceutical agents utilized as part of medically necessary 
medical services. In general, the TRICARE-determined allowed amount 
shall be equal to an amount determined to be appropriate, to the extent 
practicable, in accordance with the same reimbursement rules as apply 
to payments for similar services under Medicare. Under the authority of 
10 U.S.C. 1079(q), in the case of any pharmaceutical agent utilized as 
part of medically necessary medical services, the Director may adopt 
special reimbursement methods, amounts, and procedures to encourage the 
use of high-value products and discourage the use of low-value 
products, as determined by the Director. For this purpose, the Director 
may obtain recommendations from the Pharmaceutical and Therapeutics 
Committee under Sec.  199.21 or other entities as the Director, DHA 
deems appropriate with respect to the relative value of products in a 
class of products subject to this paragraph (j)(1)(xi). Among the 
special reimbursement methods the Director may choose to adopt under 
this paragraph (j)(1)(xi) is to reimburse the average sales price of a 
product plus six percent of the median of the average sales prices of 
products in the product class or category. The Director shall issue 
guidance regarding the special reimbursement methods adopted and the 
appropriate reimbursement rates.
* * * * *

    Dated: May 7, 2020.
Aaron T. Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2020-10215 Filed 6-2-20; 8:45 am]
 BILLING CODE 5001-06-P