Congress Poised to Revamp TRICARE Retail Pharmacy Rebate Program

December 13, 2007

Department of Defense (“DoD”) authorization bills currently pending in Congress (both H.R. 1585 and S. 1547) contain authority for a new, mandatory TRICARE retail pharmacy rebate program.  TRICARE is the military’s health care program serving active duty service members, retirees, their families, survivors and certain former spouses. 

If the legislation is enacted, then the TRICARE retail pharmacy rebate program would be “treated as an element of the [DoD] for purposes of the procurement of drugs by Federal agencies under [38 U.S.C. § 8126] to the extent necessary to 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 in such section 8126” (H.R. 1585, § 701(a)).  This requirement would apply to prescriptions filled on or after October 1, 2007. The legislation would also require the Secretary of Defense to modify existing regulations to implement the new provision no later than December 31, 2007. 

The legislation described above is viewed as necessary to implement a TRICARE retail pharmacy rebate program in light of the decision last year by the U.S. Court of Appeals for the Federal Circuit in The Coalition for Common Sense in Government Procurement v. Secretary of Veterans Affairs.  In that case, the Court set aside on procedural grounds an October 2004 “Dear Manufacturer” Letter issued by the Department of Veterans Affairs (“VA”) to implement the program. 

Under section 603 of the Veterans Health Care Act of 1992, manufacturers of covered drugs are required to make their covered drugs available for purchase on the Federal Supply Schedule (“FSS”).  Covered drugs (generally, prescription drugs approved under a new drug application) listed on the FSS or purchased under “depot contracting systems” are required to be sold to the DoD, the VA, and other specified federal agencies at a price no greater than a statutorily determined federal ceiling price (“FCP”).  As stated in the October 2004 Dear Manufacturer Letter, in October 2002, the VA determined that the TRICARE retail pharmacy program “was a centralized pharmaceutical commodity management system that met the definition of ‘depot’ contracting system set forth in [the statute].”  According to the VA, covered drug purchases under the TRICARE retail pharmacy program, authorized and paid for by the TRICARE Management Activity’s (“TMA’s”) Pharmacy Benefits Office, qualified for rebates to the FCPs. TMA published procedures and guidelines for the program on its website and began implementation of the program effective October 1, 2004. 

On March 25, 2005, the Coalition for Common Sense in Government Procurement filed a Petition in the U.S. Court of Appeals for the Federal Circuit challenging the refund program.  The VA agreed to stay enforcement of the October 2004 Dear Manufacturer Letter pending judicial review.  In 2006, the Court determined that the 2004 Dear Manufacturer Letter was a substantive rule and concluded that it was required to set the letter aside as procedurally defective because the notice and comment procedures of the Administrative Procedure Act (“APA”) were not followed prior to the issuance of the letter.  Accordingly, the Court remanded the matter to the VA for compliance with the procedures required by the APA.  The Court did not reach the issue of the substantive validity of the TRICARE retail pharmacy rebate program.  To date, neither the DoD nor the VA has initiated rulemaking to implement the TRICARE retail pharmacy rebate program.


By Michelle L. Butler

Categories: Reimbursement