Section 703 of the National Defense Authorization Act for Fiscal Year 2008 (NDAA-08) sets the maximum price the US Department of Defense (DOD) may pay for certain drugs dispensed to TRICARE beneficiaries through the TRICARE Retail Pharmacy Program (TRRx) at the Federal Ceiling Price (FCP) as that term has long been defined by the Veterans Health Care Act of 1992, codified at 38 U.S.C. § 8126. On July 25, 2008, DOD published a proposed rule designed to implement the NDAA-08 price cap (73 Fed. Reg. 43394 (July 25, 2008)). The proposal will remain open to public comment through September 23, 2008.

According to proposed rule, manufacturers will be asked to sign a voluntary TRRx agreement with the DOD, which would be separate and apart from the Master Agreements and Pharmaceutical Pricing Agreements they hold with the US Department of Veterans Affairs (VA). Those signing the agreement would be contractually obligated to participate in the TRRx rebate program and pay rebates to DOD on TRRx utilization for prescriptions filled on or after January 28, 2008 when the NDAA-08 was enacted. 

Under that TRRx rebate agreement, the DOD will collect rebates on most single source and innovator multiple source drugs calculated as the annual non-FAMP reported to the VA minus FCP, determined at the National Drug Code (NDC) level. If a manufacturer makes direct sales to customers under discounted contracts, that manufacturer may, at its sole discretion (and presumably with auditable supporting documentation), elect to calculate its rebate obligation for a given NDC as the difference between the direct commercial contract price and FCP. 

DOD will furnish TRRx utilization data to manufacturers electronically on a quarterly basis.  According to the proposed rule, manufacturers will be given at least 70 days from the date their utilization data for the prior quarter is submitted to them to calculate the rebate due and remit payment. No rebates will be requested on drugs that are dispensed to TRICARE beneficiaries by military treatment facilities, the TRICARE mail-order pharmacy or out-of-network retail pharmacies. Furthermore, no rebates will be due on any prescription for which the TRICARE Pharmacy Benefits Program is the secondary payer. Overdue rebates and applicable interest will be collected under the authority of the Federal Claims Collection Act.

Drugs sold by manufacturers that elect not to sign a voluntary TRRx agreement would not be included on the TRICARE uniform formulary. That formulary controls the drugs available to TRICARE beneficiaries at military treatment facilities and through the TRICARE mail-order pharmacy as well as drugs available to TRICARE enrollees through TRRx. Since DOD is required by statue to “assure the availability to eligible covered beneficiaries of pharmaceutical agents not included on the uniform formulary” (10 U.S.C. § 1074g(5)), drugs sold by manufacturers that choose not to sign a voluntary agreement will be subject to prior authorization at retail pharmacies. There will be no links, however, between an agreement to pay TRRx rebates and the Medicaid program, the 340B program or a manufacturer’s Master Agreement or Pharmaceutical Pricing Agreement with the VA. 

If you have additional questions about the TRRx rebate proposed rule or need help with comment drafting, please contact:

Larri A. Short
short.larri@arentfox.com
202.775.5786