Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63383 

11The ICI is an association of U.S. investment 

companies, including mutual funds, closed-end 

funds, exchange-traded funds (ETFs), and unit 

investment trusts (UITs). Members of ICI manage 

total assets of $11.42 trillion and serve 90 million 

shareholders. 

12According to the ICI, most mutual funds and 

transfer agents refrain from implementing material 

modifications or enhancements to their transaction 

processing and recordkeeping systems for varying 

periods beginning in early December (generally 

referred to as a ‘‘freeze’’) to ensure that the systems 

are capable of handling the large number of endof-year fund and shareholder transactions, as well 

as the preparation of year-end account statements 

and tax reporting information. Because the January 

10, 2011 compliance date falls within the period 

when mutual fund transaction processing and 

recordkeeping systems are frozen, mutual funds 

will need to come into compliance with the 

Recordkeeping and Travel Rule by the middle of 

November 2010—before the systems are frozen. A 

three-month extension of the compliance date 

would allow mutual funds sufficient time to come 

into compliance with the Recordkeeping and Travel 

Rule without disrupting the year-end operations 

and reporting functions. 

13According to the ICI, mutual fund transfer 

agents are currently redesigning their systems in 

order to comply with new cost basis reporting 

requirements, which entail significant operational 

and technological changes to allow funds to 

capture, report, and transfer required tax 

information, such as when shareholders transfer 

their accounts (see Basis Reporting by Securities 

Brokers and Basis Determination for Stock, 74 FR 

67010 (Dec. 17, 2009)). In addition, mutual funds 

and their transfer agents are updating their systems 

to comply with a new requirement that money 

market mutual funds and their transfer agents be 

able to process purchases and redemptions 

electronically at a price other than $1.00 per share 

(see Money Market Fund Reform, SEC Release No. 

IC–29132 (Jan. 27, 2010)). 

14See 5 U.S.C. 553(b)(3)(B) (an agency may 

dispense without prior notice and comment when 

it finds, for good cause, that notice and comment 

are ‘‘impracticable, unnecessary, and contrary to the 

public interest’’). The change to the compliance date 

is effective upon publication in the Federal 

Register. The Administrative Procedure Act allows 

effective dates less than 30 days after publication 

in the Federal Register for ‘‘a substantive rule 

which grants or recognizes an exemption or relieves 

a restriction.’’ See 5 U.S.C. 553(d)(1). 

was published in the Federal Register 

(January 10, 2011) was appropriate. 

On July 13, 2010, the Investment 

Company Institute (‘‘ICI’’) 11 submitted a 

letter stating that it will be difficult for 

its members to comply with the 

Recordkeeping and Travel Rule by 

January 10, 2011. Due to unique 

industry end-of-year systems issues,12 as 

well as systems changes necessitated by 

other new regulatory requirements,13

the ICI has requested a three month 

extension of the date by which mutual 

funds are required to comply with the 

requirements of the Recordkeeping and 

Travel Rule. 

II. Extension of Compliance Date for the 

Recordkeeping and Travel Rule 

FinCEN believes that it is appropriate 

to extend the date by which mutual 

funds must comply with the 

Recordkeeping and Travel Rule. 

Therefore, mutual funds now will have 

until April 10, 2011 to comply with 31 

CFR 103.33. We do not anticipate 

granting a further extension beyond 

April 10, 2011 and expect that mutual 

funds thereafter will have adequate 

processes in place to comply with the 

Recordkeeping and Travel Rule. 

III. Proposed Location in Chapter X 

As discussed in a previous Federal 

Register Notice, 73 FR 66414, Nov. 7, 

2008, FinCEN is separately proposing to 

remove Part 103 of Chapter I of Title 31, 

Code of Federal Regulations, and add 

Parts 1000 to 1099 (Chapter X). If the 

notice of proposed rulemaking for 

Chapter X is finalized, the changes in 

the present rule would be reorganized 

according to the proposed Chapter X. 

The planned reorganization will have 

no substantive effect on the regulatory 

changes herein. The regulatory changes 

of this specific rulemaking would be 

renumbered according to the proposed 

Chapter X as follows: § 103.33 would be 

moved to § 1010.410. 

IV. Notice and Comment Under the 

Administrative Procedure Act 

FinCEN for good cause finds that, for 

the reasons cited above, including the 

brief length of the extension we are 

granting, notice and solicitation of 

comment regarding the extension of the 

compliance date are impracticable, 

unnecessary and contrary to the public 

interest. In this regard, FinCEN notes 

that mutual funds need to be informed 

as soon as possible of the extension and 

its length in order to plan and adjust 

their implementation processes 

accordingly.14

Dated: October 6, 2010. 

James H. Freis, Jr., 

Director, Financial Crimes Enforcement 

Network. 

[FR Doc. 2010–25886 Filed 10–14–10; 8:45 am] 

BILLING CODE 4810–02–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

32 CFR Part 199 

[DOD–2008–HA–0029] 

RIN 0720–AB45 

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: Final rule. 

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, the 

TRICARE Retail Pharmacy Program 

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. DoD issued a final rule on March 

17, 2009, implementing the law. On 

November 30, 2009, the U.S. District 

Court for the District of Columbia 

remanded the final rule to DoD (without 

vacating the rule) for DoD to consider in 

its discretion whether to readopt the 

current iteration of the rule or adopt 

another approach. This final rule is the 

product of that reconsideration. DoD is 

readopting the 2009 final rule, with 

some revision. 

DATES: This final rule is effective 

December 27, 2010. 

FOR FURTHER INFORMATION CONTACT: Rear 

Admiral Thomas McGinnis, Chief, 

Pharmacy Operations Directorate, 

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 (January 28, 

2008), the TRICARE Retail Pharmacy 

Program shall be treated as an element 

of 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 DoD 

that are provided by network retail 

pharmacies to TRICARE beneficiaries 

are subject to Federal Ceiling Prices 

(FCPs). This section 8126 established 

FCPs for covered drugs (requiring a 

minimum 24% discount) procured by 

DoD and three other agencies from 

manufacturers. The NDAA required 

implementing regulations. 

DoD issued a proposed rule July 25, 

2008 (73 FR 43394–97) and a final rule 

March 17, 2009 (74 FR 11279–93). 

Among other things, the preamble to the 

final rule stated that DoD interpreted the 

statute as automatically capping the 

price manufacturers may get paid for 

mstockstill on DSKH9S0YB1PROD with RULES

63384 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

those covered drugs that enter into the 

commercial chain of transactions that 

end up as TRICARE-paid retail 

prescriptions, resulting in the 

conclusion that the amount above the 

FCP was an overpayment by DoD, 

which in turn required a refund of the 

overpayment. Ruling on a litigation 

challenge to the final rule in a case 

called Coalition for Common Sense in 

Government Procurement v. U.S., the 

U.S. District Court for the District of 

Columbia decided on November 30, 

2009, that although 10 U.S.C. 1074g(f) 

requires that FCPs shall apply, the 

statute does not specify how they will 

apply. The Court ruled that DoD 

incorrectly interpreted the statute as 

requiring manufacturer refunds, to the 

exclusion of other possible approaches, 

and ordered DoD to reconsider the 

implementation of the statute as a 

function of its discretionary judgment, 

rather than only as a legal 

interpretation. The Court also ruled that 

while DoD considers whether to readopt 

the final rule as it currently stands or to 

change it, the final rule and the 

manufacturer agreements will remain in 

effect. Finally, the Court held that DoD 

correctly interpreted the statute as 

applying Federal Ceiling Prices to all 

prescriptions filled on or after January 

28, 2008. 

To help DoD carry out the 

reconsideration ordered by the Court, on 

February 8, 2010, DoD published a 

notice in the Federal Register inviting 

additional public comments on the 2009 

final rule, as well as additional 

comments regarding any other 

appropriate and legally permissible 

implementation approach. DoD 

recommended that interested parties 

focus their comments on those matters 

addressed by the Court. The Notice 

further advised that in considering 

alternative approaches to implementing 

the statute, DoD intended to use at least 

the following three criteria (and 

welcomed comment on these and other 

suggested criteria): (1) Harmony with 

the statute and legislative history; (2) 

consistency with best business practice; 

and (3) practicability of administration. 

DoD received eleven public 

comments. Five were from 

representatives of the pharmaceutical 

manufacturing industry, two from 

representatives of the retail pharmacy 

industry, two from specialty providers 

participating in the Department of 

Health and Human Services’ 340B 

program, one from a representative of 

pharmaceutical wholesalers, and one 

from a pharmacy benefits manager. 

Before discussing the major issues for 

reconsideration and the public 

comments received, Figure 1 is 

provided to assist in understanding the 

operation of the TRICARE Retail 

Pharmacy Program as it currently 

operates. 

BILLING CODE 5001–06–P 

mstockstill on DSKH9S0YB1PROD with RULES

Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63385 

BILLING CODE 5001–06–C 


mstockstill on DSKH9S0YB1PROD with RULESER15OC10.002</GPH>
63386 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

B. Major Issues for Reconsideration 

There are four major issues for 

reconsideration: (1) Who bears the 

burden of applying FCPs? (2) How will 

FCPs be applied? (3) When do FCPs 

apply? (4) To what do FCPs apply? The 

first two of these issues are the ones that 

the Court specifically ordered DoD to 

reconsider as a matter of DoD’s 

discretionary judgment. The last two 

were not covered by that specific Court 

order to DoD but were addressed by the 

Court and by commenters. These four 

major issues will be addressed in turn. 

1. Who bears the burden of applying 

FCPs? 

The Court framed this issue, stating 

that DoD should exercise its discretion 

to consider ‘‘which of the five parties 

that participate in the retail pharmacy 

program—manufacturers, wholesalers, 

network pharmacies, private pharmacy 

benefit managers, and TRICARE 

beneficiaries—must bear any costs 

associated with imposing the Federal 

Ceiling Prices.’’ 

For purposes of this regulation, DoD 

has considered the five options 

identified by the Court (DoD recognizes 

that a comprehensive analysis of 

distributional effects would involve a 

detailed market analysis). 

Representatives of retail pharmacies, 

wholesalers, and pharmacy benefits 

managers argued strongly that FCPs are 

manufacturer ceiling prices under 38 

U.S.C. 8126 and that the economic 

burden necessarily falls on 

manufacturers. Pharmaceutical industry 

representatives that submitted 

comments did not contest this point, 

propose any of the four alternative 

options, or otherwise comment on this 

issue. 

(a) Assessment of options for harmony 

with the statute and legislative history 

concerning who bears the burden of 

FCPs. 

Section 1074g(f) provides that ‘‘the 

TRICARE retail pharmacy program shall 

be treated as an element of the 

Department of Defense for purposes of 

the procurement of drugs by Federal 

agencies under section 8126 of title 38 

to the extent necessary to ensure that 

pharmaceuticals paid for by the 

Department of Defense * * * are subject 

to the pricing standards in such section 

8126.’’ Section 8126 provides that 

‘‘[e]ach manufacturer of covered drugs 

shall enter into a master agreement with 

the Secretary under which * * * with 

respect to each covered drug of the 

manufacturer procured by [DoD and 

certain other agencies] that is purchased 

under depot contracting systems or 

listed on the Federal Supply Schedule, 

the manufacturer has entered into and 

has in effect a pharmaceutical pricing 

agreement with the Secretary’’ of 

Veterans Affairs ‘‘under which the price 

charged * * * may not exceed 76 

percent of the non-Federal average 

manufacturer price [non-FAMP]. * * *’’ 

Section 8126 goes on to define 

‘‘manufacturer’’ as excluding ‘‘a 

wholesale distributor of drugs or a retail 

pharmacy.’’ 

Taken together, the texts of the two 

statutes support the view that Federal 

Ceiling Prices refer to manufacturer 

prices, not to wholesalers’ prices or 

retail pharmacies’ prices; that FCPs are 

the ceiling prices that manufacturers 

may charge or be paid by the covered 

Federal agencies, which may not exceed 

76 percent of the average manufacturer 

price applicable to non-Federal 

purchasers; that these maximum 

manufacturer prices apply to covered 

drugs procured by the agencies, 

including DoD; and that the TRICARE 

Retail Pharmacy Program shall be 

treated as part of DoD for purposes of 

this procurement to the extent necessary 

to ensure that these maximum 

manufacturer prices apply to covered 

drugs paid for by DoD through this 

Program. 

The other two participants in the 

TRICARE Retail Pharmacy Program are 

the pharmacy benefits manager, which 

is a company that functions essentially 

as a management agent for DoD, and the 

beneficiary. The pharmacy benefits 

manager is not mentioned in section 

1074g or section 8126. The financial 

responsibility of TRICARE beneficiaries 

under the Pharmacy Benefits Program is 

specifically addressed in section 

1074g(a)(6), which provides explicit 

maximums on beneficiary costs. 

Based on these statutory provisions, 

the option that manufacturers bear the 

burden of FCPs is in harmony with the 

statutes, which establish FCPs as a 

ceiling on manufacturer prices. The 

option that retail pharmacies bear the 

burden is not in harmony because 

section 8126 specifically excludes retail 

pharmacies from the definition of 

manufacturer for purposes of identifying 

entities covered by FCPs. The same is 

true of the option that wholesalers bear 

the burden of FCPs. The option that 

beneficiaries bear the burden of FCPs is 

not in harmony with section 1074g, 

which separately specifically establishes 

maximum limits on beneficiary costs. 

The option that pharmacy benefits 

managers bear the burden of FCPs is not 

addressed by the statutory texts. 

In addition to the statutory texts, the 

legislative history of section 1074g(f) is 

noteworthy. As previously addressed, 

section 1074g(f) was enacted as part of 

NDAA–08. A very similar provision was 

included in the Senate-passed version of 

the proposed National Defense 

Authorization Act for Fiscal Year 2007 

(NDAA–07), but was not enacted in the 

final version. That provision, like the 

NDAA–08 provision eventually enacted, 

said the TRICARE Retail Pharmacy 

Network ‘‘shall be treated as an element 

of the Department of Defense for 

purposes of the procurement of drugs by 

Federal agencies under section 8126 of 

title 38.’’ The Senate Armed Services 

Committee explained that the purpose 

of the provision was to ‘‘affirm a 

decision made by the Secretary of 

Veterans Affairs * * * that drugs 

purchased by the TRICARE retail 

pharmacy network are subject to the 

same federal pricing limits that have 

long applied to drugs purchased by the 

Department and provided through 

military hospitals and clinics and the 

national mail order program.’’ (S. Rept. 

109–254, 109th Cong. 2d Sess., May 9, 

2006, pp. 342–343.) The Secretary of 

Veterans Affairs decision that the Senate 

proposed to affirm through language 

quite similar to that eventually enacted 

placed the burden of FCPs on 

manufacturers, not on retail pharmacies, 

wholesalers, pharmacy benefits 

managers, or beneficiaries. Similarly, 

the Federal pricing limits that have long 

applied to military facility pharmacies 

and the mail order program, which the 

Senate proposal sought also to apply to 

drugs provided through the retail 

network, place the financial burden on 

manufacturers, not on any other 

participants in those transactions, such 

as the pharmacies, wholesalers, 

pharmacy benefits managers, or 

beneficiaries. 

The legislative history of 38 U.S.C. 

8126 is also notable. That section was 

enacted by section 603 of the Veterans 

Health Care Act of 1992. The Senate 

Committee Report described the 

provision as one intended to ensure 

‘‘reasonable prices’’ from manufacturers 

and explained that the 24 percent 

discount from non-FAMP was based on 

‘‘the Congressional Budget Office’s 

estimate of the median percentage 

discount received’’ through the 

Medicaid manufacturer rebate program, 

which in turn is based on the ‘‘best 

price’’ manufacturers charge customers. 

(S. Rept. No. 102–401, 102d Cong., 2d. 

Sess., September 15, 1992, pp. 68–70, 

reprinted in 1992 U.S. Code 

Congressional and Administrative 

News, pp. 4158–60.) 

Therefore, the option of 

manufacturers bearing the financial 

burden of FCPs under section 1074g(f) 

is in harmony with the legislative 

history of both 10 U.S.C. 1074g(f) and 38 

mstockstill on DSKH9S0YB1PROD with RULES

Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63387 

U.S.C. 8126. None of the other options 

is in harmony with the legislative 

history. Further, there is no legislative 

history hinting that the financial burden 

of FCPs, which § 8126 places on 

manufacturers, was intended by 

§ 1074g(f) to be shifted to retail 

pharmacies, wholesalers, pharmacy 

benefits managers, or beneficiaries, or 

that § 1074g(f) was intended to regulate 

the financial activities of retail 

pharmacies, wholesalers, pharmacy 

benefits managers, or beneficiaries. 

(b) Assessment of options for 

consistency with best business practice 

concerning who bears the burden of 

FCPs. 

Assuming that the only requirement 

of the statute applies to the amount paid 

by DoD in the retail pharmacy program 

and that DoD can implement that 

requirement by allocating financial 

burden on any of the five identified 

participants, the issue here is to assess 

what allocation is consistent with best 

business practice. As a matter of 

business management, the TRICARE 

Pharmacy Benefits Program provides 

outpatient pharmaceuticals through 

three venues: Military facility 

pharmacies, the mail order pharmacy, 

and retail pharmacies. All three venues 

involve four categories of costs: 

Manufacturing costs, distribution costs, 

management costs, and prescription 

filling costs; and all three have potential 

cost sharing with beneficiaries. In 

military facility pharmacies, 

manufacturing costs for covered drugs 

are subject to FCPs under 38 U.S.C. 

8126, and potentially larger discounts 

through competitive market procedures. 

Distribution costs are paid to 

wholesalers under prime vendor 

contracts based on competitive 

processes. Management costs are 

incurred through direct costs of the 

Defense Logistics Agency, a component 

of the Department of Defense. 

Prescription filling costs are incurred 

through direct costs of military and 

civilian personnel, expenses, and 

operations of outpatient pharmacies in 

military hospitals and clinics. Cost 

sharing by beneficiaries is subject to 

some policy discretion by DoD; there are 

no beneficiary co-payments for 

outpatient services in military facilities. 

In the mail order pharmacy program, 

as in military facility pharmacies, 

manufacturing costs for covered drugs 

are subject to FCPs under 38 U.S.C. 

8126, and potentially larger discounts 

through competitive market procedures. 

Distribution costs are paid by DoD to 

wholesalers under prime vendor 

contracts. Management and prescription 

filling costs are incurred by the mail 

order pharmacy program contractor and 

paid by DoD based on prices set in the 

competitive contracting process. Cost 

sharing by beneficiaries is set by DoD 

regulation, subject to specifications in 

10 U.S.C. 1074g and based on a policy 

structure aimed at encouraging use of 

the mail order venue and more costeffective drugs. 

The retail pharmacy system in the 

United States is part of the American 

health care system, of which the DoD 

health system is a relatively small part. 

In the normal commercial chain, 

manufacturers sell their 

pharmaceuticals to wholesalers. 

Wholesalers add to the manufacturing 

costs (i.e., the costs incurred in 

purchasing the drugs from the 

manufacturers) an amount that covers 

distribution expenses and profit 

(possibly including in these calculations 

prompt payment discounts or other 

incentives) and charge this price to 

retail pharmacies. Retail pharmacies 

take the manufacturing costs and the 

distribution costs and add an amount to 

cover the retail pharmacies’ expenses in 

salaries and operations and a profit 

(possibly factoring in incentives in 

exchange for network agreements with 

pharmacy benefit managers), and arrive 

at a price reflecting manufacturing, 

distribution, and prescription costs. 

This amount is typically billed to a 

pharmacy benefits manager, functioning 

as an administrative agent for a health 

plan sponsor, after collecting a limited 

portion of the amount as the 

beneficiary’s co-payment. The plan 

sponsor ultimately pays the roll-up of 

the manufacturing, distribution, 

prescription, and management costs. 

In this system, prevailing business 

practice for a plan sponsor is to get the 

best value that is feasible at each step of 

the commercial chain. The plan sponsor 

negotiates and contracts directly with 

the pharmacy benefits manager, seeking 

the best value in the management costs 

incurred in return for the success of the 

pharmacy benefits manager in meeting 

overall plan objectives for beneficiary 

services and cost-effectiveness. The plan 

sponsor also sets beneficiary copayment amounts based on applicable 

dynamics that may include collective 

bargain agreements, employer policy, 

and the like, as well as management 

objectives in influencing market share 

toward more cost-effective drugs and 

points of service. Either the plan 

sponsor or the pharmacy benefits 

manager will seek best value regarding 

manufacturing costs, distribution costs, 

and prescription costs through whatever 

tools are feasible in dealing with 

manufacturers, wholesalers, and retail 

pharmacies respectively. 

In this system, best business practice 

for the TRICARE Pharmacy Benefits 

Program is to seek to achieve best value 

with respect to each of the four 

categories of cost and with respect to the 

matter of beneficiary cost sharing. For 

purposes of this assessment of retail 

program options, the assumption is that 

the final cost to DoD must somehow 

reflect the implementation of FCPs 

somewhere in the system, whether in 

relation to manufacturing costs, 

distribution costs, prescription costs, 

management costs, or beneficiary cost 

sharing, or some combination of these. 

The most obvious option is to apply 

FCPs to manufacturing costs in the retail 

program because FCPs apply to 

manufacturing costs in the military 

facility and the mail order components 

of the program. Alternatively, DoD 

could permit higher manufacturing 

costs for the retail program than are 

legal in the military facility or mail 

order programs, and somehow offset 

that higher cost by lowering 

distribution, prescriptions, or 

management costs or increasing 

beneficiary co-payments. Neither DoD 

nor DoD’s pharmacy benefits manager 

has much practical ability to have 

wholesalers pass on to retail pharmacies 

less than their normal amounts in order 

to offset DoD’s ultimate manufacturing 

costs that exceed the FCPs. 

Although drug manufacturers argue 

that retail pharmacies enjoy a mark-up 

over what they pay wholesalers, the 

DoD’s pharmacy benefits manager 

already negotiates network agreements 

with retail pharmacies that seek best 

value, consistent with DoD policy 

objectives on maintaining a very large 

retail pharmacy network, currently more 

than 60,000 pharmacies. In theory, DoD 

could limit payments to retail 

pharmacies so as to offset the absence of 

the FCP 24% discount in manufacturing 

costs, but the predictable effect of this 

would be that most or all retail 

pharmacies would drop out of the 

network, resulting in an inability of DoD 

to extend the benefits of the network 

system to many military families. DoD 

policy favors a very large pharmacy 

network because military families, 

which include spouses and children of 

deployed military members and also 

include Reserve Component families, 

are in communities all over the United 

States. Retail pharmacy industry 

commenters stated they had no 

economic ability to absorb such 

reductions, and that is consistent with 

DoD’s understanding. 

The other two participants in the 

retail pharmacy enterprise are the 

pharmacy benefits manager and the 

beneficiary. With respect to the 

mstockstill on DSKH9S0YB1PROD with RULES

63388 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

pharmacy benefits manager, DoD’s 

management costs are the product of the 

competitive selection of a pharmacy 

benefits manager contractor under the 

Competition in Contracting Act. 

Manufacturing costs are pass-through 

costs under this contract, so there is no 

opportunity for the pharmacy benefits 

manager contractor to absorb the higher 

manufacturing costs that would result 

from not applying FCPs to 

manufacturing costs. Finally, 

beneficiary co-payments are the means 

to encourage beneficiaries to favor more 

cost-effective drugs and service venues, 

and must conform to a set of statutory 

specifications. There is little or no room 

to accommodate these requirements and 

objectives and also to offset the absence 

of a 24% discount in manufacturing 

costs. 

A recent Congressional Budget Office 

report, ‘‘Prescription Drug Pricing in the 

Private Sector,’’ January 2007, used 

available private sector economic data 

to construct a hypothetical example of 

payments for a single-source 

prescription. In this example, the plan 

sponsor paid a total of $88 for a 

prescription, of which $74 went to the 

manufacturer (manufacturing cost), $3 

to the wholesaler (distribution cost), $5 

to the retail pharmacy (prescription fill 

cost), and $6 to the pharmacy benefits 

manager (management cost). The 

economics reflected in the relative 

amounts in this example support the 

view that best business practice is to 

treat FCPs as applicable to 

manufacturing costs, and therefore the 

manufacturer prices. Further, 

pharmaceutical industry representatives 

have never asserted that they do not 

make a profit at the Federal Ceiling 

Price or that the economics could 

support assessing the burden of FCPs on 

any other participant. 

Based on all of these factors, best 

business practice is for DoD to deal with 

management costs through the best 

value competitive selection of a 

pharmacy benefits manager; 

prescription fill costs through the 

pharmacy benefits manager’s network 

pharmacy negotiations, consistent with 

overall health program objectives; 

beneficiary co-payments based on 

incentives for cost-effective utilization, 

consistent with statutory specifications; 

distribution costs, to the extent there is 

any feasibility, indirectly through retail 

network negotiations; and 

manufacturing costs by applying FCPs 

in a manner comparable to the 

application of FCPs to manufacturing 

costs in the military facility and mail 

order programs. Therefore, based on the 

criteria of best business practice, DoD 

has concluded that the financial burden 

of FCPs is properly assigned to drug 

manufacturers. 

(c) Assessment of options for 

practicability of administration 

concerning who bears the burden of 

FCPs. 

Again assuming that the only 

requirement of the statute applies to the 

amount paid by DoD in the retail 

pharmacy program and that DoD can 

implement that requirement by 

allocating financial burden on any of the 

five identified participants, the issue 

here is to assess what allocation is 

consistent with practicability of 

administration. The allocation of the 

financial burden of FCPs to 

manufacturers in the context of a retail 

pharmacy program can be administered 

through a rebate/refund apparatus, 

possibly among other options (which 

will be discussed below). A rebate 

system is common practice in the 

industry and was used by the TRICARE 

Retail Pharmacy Program prior to the 

enactment of NDAA–08 to implement a 

program of formulary-based 

manufacturer discounts. 

Allocating the financial burden to 

wholesalers is not practicable because, 

like most plan sponsors, DoD has no 

relationship with wholesalers in the 

distribution mechanisms of the retail 

pharmacy system in the United States. 

Further, as pointed out by a commenter, 

it is not clear how DoD could identify 

from prescription claims data the 

identity of the wholesaler that sold the 

drugs to the retail pharmacy since there 

is nothing comparable to a National 

Drug Code (NDC) number, which 

identifies the manufacturer. An 

administrative system for imposing 

FCPs on retail pharmacies could 

presumably be created that would limit 

payments to FCPs plus a reasonable 

prescription filling fee, but this would 

not avoid the retail pharmacy losing 

money on each transaction. Under the 

current pharmacy benefit manager 

relationship, there is no practicable way 

to allocate the financial burden of FCPs 

to the TRICARE pharmacy benefits 

manager because manufacturing costs 

are a pass-through to DoD and there is 

no basis to subtract an amount equal to 

24% of total manufacturing costs from 

the management fee DoD pays the 

pharmacy benefits manager, that total 

fee being a far lesser amount. An 

administrative system for allocating the 

financial burden of FCPs to beneficiaries 

in the form of co-payments increased by 

an amount equal to 24% of 

manufacturing costs would be feasible 

to design but not to implement because 

it would far exceed the maximum copayment amounts allowed by 10 U.S.C. 

§ 1074g. Thus, all things considered, 

DoD has concluded that allocating the 

financial burden of FCPs to 

manufacturers is the most practicable of 

administration. 

(d) Conclusion on who bears the 

burden of applying FCPs. 

Considering harmony with the statute 

and legislative history, best business 

practice, and practicability of 

administration, DoD has concluded that 

it is most appropriate that 

manufacturers bear the burden of 

applying FCPs to the TRICARE Retail 

Pharmacy Program. No commenter 

contested this conclusion or proposed a 

different option. 

2. How are FCPs applied? 

Accepting that for the reasons 

discussed above FCPs apply to 

manufacturer prices, the second issue is 

how FCPs will be applied to 

manufacturer prices. In the proposed 

and final rules, DoD applied FCPs to 

manufacturer prices through 

manufacturer refunds to DoD of 

amounts received by the manufacturers 

for covered prescriptions paid for by the 

TRICARE Retail Pharmacy Program. The 

Court’s opinion of November 30, 2009, 

stated that ‘‘Congress did not speak to 

the ‘precise question’ of how the 

Department should implement the 

statute’s requirements.’’ The opinion 

continued: 

Indeed, the Court can imagine several 

other regulatory schemes consistent 

with 10 U.S.C. 1074g(f) that the 

Department could have chosen. For 

example, instead of requiring 

pharmaceutical manufacturers to pay 

DoD the amounts in excess of the 

Federal Ceiling Prices, a rule could 

require manufacturers to reduce the 

price on retail pharmacy program 

pharmaceuticals prospectively until the 

excess proceeds were reimbursed. Or 

DoD arguably could have adjusted the 

retail pharmacy mark-ups or dispensing 

fees to ensure that the Department did 

not pay more than Federal Ceiling 

Prices. The Coalition suggests two 

additional possibilities: ‘‘DoD could 

have contracted with pharmacies to 

purchase TRICARE beneficiaries’ drugs 

* * * at the Federal Ceiling Price,’’ or 

‘‘DoD could have procured drugs 

directly from manufacturers at the 

Federal Ceiling Price and then 

distributed the drugs to pharmacies.’’ 

The manufacturer refund method as 

well as the four alternative options 

noted in the Court’s opinion have been 

considered. DoD also considered two 

other options that are used in other 

parts of the TRICARE Pharmacy Benefits 

Program—vendor charge-backs and 

replacement inventories. No other 

options on how to apply FCPs to 

mstockstill on DSKH9S0YB1PROD with RULES

Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63389 

manufacturer prices were presented by 

commenters, including commenters 

representing pharmaceutical 

manufacturers, and no commenters 

recommended a method other than 

manufacturer rebates or refunds. 

(a) Assessment of options for harmony 

with the statute and legislative history 

concerning how FCPs are applied. 

10 U.S.C. 1074g(f) provides that ‘‘with 

respect to any prescription filled * * *, 

the TRICARE retail pharmacy program 

shall be treated as an element of the 

Department of Defense for purposes of 

the procurement of drugs by Federal 

agencies under section 8126 of title 38 

to the extent necessary to ensure that 

pharmaceuticals paid for by the 

Department of Defense * * * are subject 

to the pricing standards in such section 

8126.’’ 

The manufacturer refund method of 

implementation is in harmony with the 

statute. In the case of Department of 

Defense procurement of drugs under 

§ 8126, the drug manufacturer’s price 

may not exceed the FCP and the 

manufacturer is not paid more than the 

FCP. Under § 1074g(f), a prescription 

filled in the TRICARE retail pharmacy 

program and paid for by DoD should 

produce the same outcome. The 

manufacturer refund method produces 

the same outcome because the 

manufacturer refunds to DoD the 

amount above the FCP that the 

manufacturer had been paid when the 

manufacturer began the chain of 

transactions that ended with the 

prescription being filled through the 

TRICARE retail pharmacy program. 

Thus, DoD’s net manufacturing cost is at 

the FCP and the manufacturer’s net 

price is at the FCP. 

The first alternative option is that 

instead of requiring pharmaceutical 

manufacturers to refund to DoD the 

amounts in excess of the Federal Ceiling 

Prices, a rule could require 

manufacturers to reduce the price on 

retail pharmacy program 

pharmaceuticals prospectively until the 

excess proceeds were reimbursed. If a 

practicable way could be devised to 

identify prospectively the subset of 

drugs that will end up as TRICARE 

retail pharmacy program prescriptions 

out of the entire set of drugs that begin 

the distribution chain through a sale by 

a manufacturer to a wholesaler, this 

alternative could also be in harmony 

with the statute. 

The second alternative option is that 

DoD could perhaps adjust the retail 

pharmacy mark-ups or dispensing fees 

to ensure that the Department did not 

pay more than Federal Ceiling Prices. If 

this occurs after the manufacturer has 

already been paid more than the FCP by 

the wholesaler (e.g., been paid at the 

average manufacturer price) and the 

wholesaler passed that higher price on 

to the retail pharmacy, harmony with 

the statute and the resolution of issue 

number one (on who bears the burden 

of FCPs) would require some further 

transaction between the retail pharmacy 

and the manufacturer (such as a 

manufacturer rebate/refund to the retail 

pharmacy) so that the FCP pricing 

standard actually applies to the 

manufacturer. Were this accomplished, 

then the manufacturing cost portion of 

the amount the retail pharmacy charges 

DoD could be held down to the FCP, 

and the result would be in harmony 

with the statute. 

The third alternative option is that 

DoD could contract with pharmacies to 

allow those pharmacies to purchase 

drugs for distribution to TRICARE 

beneficiaries at the Federal Ceiling 

Price. Were a practicable method 

devised for this approach, it would be 

in harmony with the statute because 

prescriptions filled in the TRICARE 

retail pharmacy program would be with 

drugs for which manufacturers were 

paid at the FCPs and the savings would 

be passed on the DoD through the 

arrangement between DoD and the retail 

pharmacies. 

The fourth alternative option would 

be for DoD to procure drugs directly 

from manufacturers at the Federal 

Ceiling Price and then distribute the 

drugs to retail pharmacies. Were a 

practicable method devised for this 

approach, it would also be in harmony 

with the statute because prescriptions 

filled in the TRICARE retail pharmacy 

program would be with drugs for which 

manufacturers were paid directly by 

DoD at the FCP. 

The fifth alternative option is the 

vendor charge-back method, under 

which the wholesaler obtains a refund 

from the manufacturer for 

pharmaceuticals that the wholesaler 

passes down stream to retail pharmacies 

for TRICARE beneficiaries. This system 

is used in the military system for drugs 

sold by wholesalers to military facility 

pharmacies, the charge-back to the 

manufacturer being based on FCPs or 

lower contracted prices. Were a feasible 

method devised for managing the retail 

transactions for exclusive use for 

TRICARE beneficiaries, this approach 

would be in harmony with the statute. 

The sixth alternative option is the 

replacement inventory approach, under 

which the pharmacy fills TRICARE 

prescriptions from its regular inventory 

of drugs, but is allowed to replace this 

inventory from DoD’s prime vendor 

wholesaler, which then uses the vendor 

charge-back to the manufacturer. This 

system is used for the TRICARE Mail 

Order Program contractor. Were a 

feasible method developed for managing 

the transactions throughout the retail 

pharmacy network to limit replacement 

inventory to actual TRICARE 

prescriptions filled, this approach 

would be in harmony with the statute. 

Thus, the manufacturer refund 

method is in harmony with the statute, 

as are the last four alternative options if 

they could be feasibly implemented. 

The other two alternatives, with 

sufficient other conditions met, could 

also be in harmony. 

(b) Assessment of options for 

consistency with best business practice 

concerning how FCPs are applied. 

The mechanism of manufacturer 

refunds is the established industry 

practice in the retail pharmacy system 

in the United States for manufacturers 

to provide price discounts—i.e., 

reductions below the average 

manufacturer price applicable to sales to 

wholesalers—to health plan sponsors. 

No commenter contested this point. The 

manufacturer refund method of 

implementation is consistent with best 

business practice. 

The first alternative option is that 

instead of requiring pharmaceutical 

manufacturers to refund or rebate to 

DoD the amounts in excess of the 

Federal Ceiling Prices, manufacturers 

could reduce the price on retail 

pharmacy program pharmaceuticals 

prospectively until the excess proceeds 

were reimbursed. This option does not 

fit normal industry practice, which 

cannot identify the subset of drugs that 

will end up as prescriptions paid for by 

a particular health plan sponsor out of 

the entire set of drugs that begin the 

distribution chain through a sale by a 

manufacturer to a wholesaler. No 

commenter recommended this 

alternative option. 

The second alternative option—that 

the plan sponsor reduce payments to 

retail pharmacies by an amount 

corresponding to a manufacturing cost 

discount of 24% below the non-Federal 

average manufacturer price, expecting 

other arrangements among retail 

pharmacies, wholesalers, and 

manufacturers to accommodate those 

participants’ commercial viability—is 

also outside the realm of established 

business practice in the retail pharmacy 

system in the United States. No 

commenter recommended this 

alternative option. 

The third alternative option is that 

pharmacies purchase drugs from 

manufacturers earmarked for particular 

health plan beneficiaries so as to 

achieve different ultimate health plan 

costs for different health plans, 

mstockstill on DSKH9S0YB1PROD with RULES

63390 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

depending on the degree of discount the 

manufacturer intends for the particular 

plan sponsor. With so many different 

plan sponsors and so many thousands of 

retail pharmacies, this is not a system 

that is in use in the industry. No 

commenter recommended such a system 

for implementing FCPs for the TRICARE 

Retail Pharmacy Program. 

The fourth alternative option—that 

the plan sponsor procure drugs directly 

from manufacturers at the Federal 

Ceiling Price and then distribute the 

drugs to retail pharmacies for use in 

filling prescriptions to beneficiaries of 

the plan sponsor—is not an established 

system in the retail prescription drug 

system in the United States. It would 

require multiple product distribution 

and vast inventory management systems 

wholly different from those currently in 

use. No commenter recommended such 

a system. 

The fifth alternative option, the 

vendor charge-back by the wholesaler to 

the manufacturer, is not a prevailing 

method for very large retail networks. It 

is in use in restricted pharmacy systems, 

like military facility pharmacies, where 

all beneficiaries are eligible for 

prescriptions filled with the drugs 

covered by the discounted price so that 

the vendor charge back can be applied 

to all drugs moving from the wholesaler 

to the retailer. In the large, nonrestricted retail pharmacy network 

context, only a relatively small fraction 

of prescription drug customers of those 

pharmacies are TRICARE beneficiaries 

and only this fraction of prescriptions is 

covered by the discounted price. In such 

a context, a business process between 

manufacturers and wholesalers does not 

accommodate the manufacturer’s desire 

to restrict the discount to a small subset 

of eventual retail customers. 

The sixth alternative option, the 

replacement inventory approach, is also 

not a prevailing method for very large 

retail networks because of a need to 

track and audit the retail transactions to 

prevent diversion of discounted drugs to 

customers not eligible for the discounts. 

DoD uses this method with its mail 

order contractor, which is a single 

pharmacy, rather than a network of 

more than 60,000 pharmacies. 

Thus, the manufacturer refund 

method is most consistent with 

established business practice in the 

retail prescription drug pharmacy 

system in the United States, and no 

commenter recommended an approach 

other than manufacturer rebates or 

refunds to apply FCPs to the TRICARE 

Retail Pharmacy Program. 

(c) Assessment of options for 

practicability of administration 

concerning how FCPs are applied. 

The manufacturer refund method of 

implementation is practicable 

administratively. Before the enactment 

of NDAA–08, the TRICARE Retail 

Pharmacy Program implemented a 

system of Voluntary Agreements for 

Retail Rebates (VARRs), which utilized 

the same apparatus as the refund 

program under the 2009 final rule. That 

apparatus includes an accounting 

through the data systems of 

prescriptions provided to TRICARE 

beneficiaries, submission of these data 

to manufacturers on a quarterly basis, 

procedures to reconcile any differences 

or disagreements between the 

manufacturer’s data and DoD’s data, and 

rebate/refund payments by the 

manufacturer to DoD of the amount in 

excess of the target price. Under the 

VARRs system the target price was that 

established in the agreement, which 

could be above or below the FCP. Under 

the final rule, the target price may be no 

higher than the FCP, but may be lower. 

The administrative apparatus, however, 

is the same. It is well established and 

works effectively. 

The first alternative option is that 

instead of pharmaceutical 

manufacturers refunding to DoD the 

amounts in excess of the Federal Ceiling 

Prices, manufacturers could reduce the 

price on retail pharmacy program 

pharmaceuticals prospectively until the 

excess proceeds were reimbursed. This 

option is not practicable to administer 

because there is no existing apparatus to 

identify the very small (relatively) 

subset of drugs that will end up as 

prescriptions paid for by TRICARE out 

of the entire set of drugs that begin the 

distribution chain through a sale by a 

manufacturer to a wholesaler. No 

commenter suggested that such a system 

would be practicable. 

The second alternative option—that 

TRICARE reduce payments to retail 

pharmacies by an amount 

corresponding to a manufacturing cost 

discount of 24% below the non-Federal 

average manufacturer price, expecting 

other arrangements among retail 

pharmacies, wholesalers, and 

manufacturers to accommodate those 

participants’ commercial viability—is 

also not practicable. DoD has no way to 

manage the implementation of such 

other arrangements. It is not practicable 

to expect retail pharmacies to absorb an 

economic loss in order the remain in the 

TRICARE Retail Pharmacy Network. No 

commenter suggested that this 

alternative option is administratively 

practicable. 

The third alternative option is that 

DoD authorize pharmacies to purchase 

drugs directly from manufacturers 

earmarked for TRICARE beneficiaries 

and to do so at the FCP. For example, 

the retail pharmacy could be authorized 

to order off the Federal Supply 

Schedule. This is not practicable 

because the retail pharmacies would 

then have to have a separate inventory 

management system to ensure that those 

drugs are used only for prescriptions 

provided to TRICARE beneficiaries, and 

not diverted to individuals covered by 

other health plans for whom the 

manufacturer is not required to provide 

drugs at the FCP. DoD has no 

administrative apparatus to ensure that 

60,000 network pharmacies strictly 

maintain such a separate inventory 

management system, especially 

considering that TRICARE covered 

prescriptions are generally a very small 

fraction of the retail pharmacy’s total 

prescription drug business. No 

commenter commented that this option 

would be administratively practicable. 

The fourth alternative option—that 

DoD procure drugs directly from 

manufacturers at the Federal Ceiling 

Price and then distribute the drugs to 

retail pharmacies for use in filling 

prescriptions to beneficiaries of the plan 

sponsor—is not practicable because DoD 

would need to establish a separate 

distribution system to deliver drugs to 

more than 60,000 retail pharmacies. 

Further, such pharmacies would then 

have to have a separate inventory 

management system to ensure that these 

drugs are not provided to non-TRICARE 

eligible people. It is not practicable for 

DoD to create separate distribution and 

inventory management systems for the 

vast prescription drug retail pharmacy 

industry, particularly because TRICARE 

beneficiaries make up a very small 

portion of the United States population 

served by that industry. No commenter 

commented that this alternative option 

is administratively practicable. 

The fifth alternative, the vendor 

charge-back approach, is not practicable 

in a very large retail pharmacy network 

because there is no practicable system 

for DoD to ensure that the earmarked 

drugs from the wholesaler would be 

handled by many thousands of retail 

pharmacies for the exclusive benefit of 

TRICARE beneficiaries. No commenter 

recommended this approach as 

administratively practicable. 

The sixth alternative, the replacement 

inventory approach, is also not 

practicable in a very large retail 

pharmacy network because DoD has no 

system to audit the inventory 

replacement for many thousands of 

retail pharmacies. No commenter 

recommended this approach. 

Thus, the manufacturer refund 

method is the most administratively 

practicable system for implementing 

mstockstill on DSKH9S0YB1PROD with RULES

Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63391 

FCPs for the TRICARE Retail Pharmacy 

Program and no commenter suggested 

that any other system was 

administratively practicable. In fact, 

with the exception of arguments made 

in litigation, the pharmaceutical 

industry has consistently endorsed 

manufacturer rebates or refunds as the 

practicable method of administration, 

and no commenter recommended 

otherwise. 

(d) Conclusion on how FCPs are 

applied. 

DoD’s conclusion on how FCPs 

should apply to the TRICARE Retail 

Pharmacy Program is that they should 

apply through a system of manufacturer 

refunds to DoD of the amount the 

manufacturer received above the FCP. 

That system is in harmony with the 

statute and legislative history, 

consistent with best business practice in 

the industry, and administratively 

practicable. None of the alternative 

options is comparable based on these 

criteria and no commenter suggested 

that any of them be adopted. 

3. When do FCPs apply? 

This was not one of the issues that the 

Court ordered DoD to reconsider as a 

matter of DoD’s discretionary judgment. 

However, it was an issue addressed in 

the Court’s ruling and it was the subject 

of several comments. This issue is: 

When do FCPs begin to apply to 

prescriptions filled in the TRICARE 

retail pharmacy program? The Court’s 

order of November 30, 2009, granted 

judgment in favor of DoD ‘‘with respect 

to the Defense Department’s conclusion 

that 10 U.S.C. 1074g(f) required that the 

Federal Ceiling Prices apply to any 

TRICARE retail pharmacy prescriptions 

filled on or after January 28, 2008.’’ The 

Court’s opinion stated ‘‘the precise 

question is whether the statute’s 

requirement that TRICARE drug 

prescriptions are subject to the Federal 

Ceiling Prices—however implemented 

by the agency—is active on January 28, 

2008, or only once DoD promulgates a 

rule to implement the statute.’’ The 

Court answered the question by 

explaining that ‘‘the statutory language 

is clear: ‘With respect to any 

prescription filled on or after the date 

of the enactment of [NDAA–08],’ 

pharmaceuticals purchased through the 

retail pharmacy program are subject to 

the Federal Ceiling Prices.’’ (Emphasis 

in the Court’s opinion.) The opinion 

further concludes that ‘‘no retroactivity 

problem is presented’’ by the final rule 

because all parties ‘‘were aware on 

January 28, 2008, that 10 U.S.C. 1074g(f) 

applied the Federal Ceiling Prices to 

retail pharmacy program transactions as 

of that date.’’ 

DoD understands the Court’s 

conclusion to be that the starting date 

for applying FCPs to TRICARE Retail 

Pharmacy Program prescriptions is 

established by statute and it is not a 

matter of DoD’s discretion in the final 

rule to establish a different starting date. 

DoD agrees with this conclusion. 

However, commenters on behalf of the 

pharmaceutical industry argue that DoD 

can and should establish a starting date 

on or after the effective date of the final 

rule. Therefore, assuming for the sake of 

completeness of the rule making record 

that DoD has discretion to establish a 

starting date for applying FCPs as of the 

effective date of the final rule, rather 

than the effective date of the statute, 

DoD has considered that alternative 

option. 

(a) Assessment of options for harmony 

with the statute and legislative history 

concerning when FCPs apply. 

Under this criterion, DoD agrees with 

the Court that ‘‘the statutory language is 

clear.’’ Moreover, the primary statement 

of legislative history of this section of 

NDAA–08, the accompanying 

Conference Report, expressly stated 

Congressional intent that ‘‘the 

implementation date’’ is ‘‘the date of 

enactment of this Act.’’ (H.Conf. Rept. 

No. 110–477, page 938.) Thus, the 

option of a start date as of the date of 

enactment of NDAA–08 is in harmony 

with the statute and legislative history, 

and the alternative option of a starting 

date as of the effective date of the final 

rule is not. 

(b) Assessment of options for 

consistency with best business practice 

concerning when FCPs apply. 

Pharmaceutical industry commenters 

asserted that standard business practice 

requires that arrangements concerning 

price be adopted prospectively and that 

it is unfair to change those arrangements 

after the fact. However, DoD believes 

this standard was met with respect to 

NDAA–08 because everyone was on 

notice that FCPs applied as of the date 

of enactment. Further, DoD sent a ‘‘Dear 

Pharmaceutical Manufacturer’’ letter to 

each manufacturer three days after the 

date of enactment of the law, providing 

them with a copy of the applicable 

section as well as DoD’s interpretation 

making clear that DoD believed the law 

to apply to manufacturer prices as of the 

date of statutory enactment. Moreover, 

the proposed rule also stated that FCPs 

apply to any prescription filled on or 

after the date of statutory enactment. It 

is also noteworthy that NDAA–08 

followed a four year running debate 

between the government and the 

pharmaceutical industry over the issue 

of applying FCPs to the TRICARE Retail 

Pharmacy Program, a debate that 

included prior litigation and 

Congressional consideration. Thus, no 

one associated with the pharmaceutical 

industry could have been unaware. 

Finally on this point, DoD included in 

the final rule a procedure for waiver or 

compromise of refund amounts to 

permit consideration of any particular 

circumstances where implementation as 

of the statutory effective date would be 

insupportable. On this criterion, DoD 

concludes that the statutory effective 

date option is consistent with best 

business practice of establishing 

prospective terms for transactions. 

(c) Assessment of options for 

practicability of administration 

concerning when FCPs apply. 

Based on the data systems that have 

been in use and the pre-existing VARRs 

process for retail rebates, both options— 

the statutory effective date option and 

the final rule effective date option—are 

administratively practicable. 

(d) Conclusion on when FCPs apply. 

On this issue, DoD has concluded that 

the statutory effective date option is the 

right one to adopt because it is in 

harmony with the statute and legislative 

history, whereas the final rule effective 

date option is not; it is consistent with 

best business practice; and it is on par 

with the final rule effective date option 

regarding administrative practicability. 

4. To what do FCPs apply? 

This also is not an issue the Court 

ordered DoD to reconsider as a matter of 

DoD’s discretion. However, commenters 

on behalf of the pharmaceutical 

industry recommended that DoD 

reconsider it. The industry 

recommendation is that DoD not apply 

FCPs to all covered prescriptions filled 

through the TRICARE Retail Pharmacy 

Program and paid for by DoD, but only 

those prescriptions covered by 

prospective procurement contracts 

between DoD and the manufacturer or 

comparable agreements having certain 

attributes they associate with 

procurement contracts. The Court’s 

November 30, 2009, opinion rejected the 

argument that the statute required a 

procurement-type contract as a 

precondition to applying FCPs, but 

considered this option to be within the 

scope of DoD’s discretionary judgment 

as to implementation method. 

DoD has considered two options on 

the issue of what prescriptions are to be 

covered by manufacturer refunds: 

(1) All covered prescriptions; and 2) 

only those prescriptions covered by 

procurement-type contracts or 

agreements. The 2009 final rule applied 

to all covered drug prescriptions, 

subject to a voluntary opt-out and a 

waiver/compromise process. Covered 

mstockstill on DSKH9S0YB1PROD with RULES

63392 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

drugs for this purpose are drugs covered 

by 38 U.S.C. 8126, paid for by DoD, 

introduced by the manufacturer into the 

normal supply chain, and dispensed to 

a TRICARE beneficiary by a network 

retail pharmacy. The final rule excluded 

drugs not covered by § 8126, drugs for 

which TRICARE was not primary payer, 

drugs provided through the 340B 

program, and (based on legislative 

history and administrative 

practicability) non-network pharmacy 

dispensed drugs. 

The procurement-type contract 

option, as presented by commenters, 

would require a prospective written 

contract or agreement stating that in 

return for FCP-based refunds/rebates the 

manufacturer would receive favorable 

positioning on the uniform formulary, 

and that prescriptions filled in the 

TRICARE Retail Pharmacy Program for 

drugs not covered by such an agreement 

would be exempt from FCPs. (Some 

commenters asserted that the 2008 

proposed rule was consistent with this 

option, but this is incorrect as both the 

2008 proposed rule and the 2009 final 

rule required the application of FCPs to 

any prescription filled on or after the 

date of enactment and incorporated the 

regulatory overpayment recovery 

procedures of 32 CFR 199.11 for all such 

prescriptions.) 

(a) Assessment of options for harmony 

with the statute and legislative history 

concerning FCP applicability. 

As noted above, the statute provides: 

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 

Department of Defense for purposes of the 

procurement of drugs by Federal agencies 

under section 8126 of title 38 to the extent 

necessary to ensure that pharmaceuticals 

paid for by the Department of Defense 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. 

Section 8126 of title 38 is titled, 

‘‘Limitation on prices of drugs procured 

by Department and certain other Federal 

agencies.’’ The Department referred to is 

the Department of Veterans Affairs and 

the other agencies include DoD. The 

statute requires that as a condition of 

doing business under covered Federal 

programs, ‘‘[e]ach manufacturer of 

covered drugs shall enter into a master 

agreement with the Secretary’’ of 

Veterans Affairs under which ‘‘with 

respect to each covered drug of the 

manufacturer procured by a [covered] 

Federal agency * * * the manufacturer 

has entered into and has in effect a 

pharmaceutical pricing agreement 

* * * under which the price charged 

* * * may not exceed 76 percent of the 

non-Federal average manufacturer 

price.’’ The price referred to in this 

statute is the Federal Ceiling Price. The 

purpose and effect of section 8126, as 

applied to DoD, is that all covered drugs 

procured by DoD are subject to the 

Federal Ceiling Price. 

Pharmaceutical industry commenters 

asserted that the ‘‘procurement of drugs’’ 

phrase in § 1074g(f) requires 

implementation through procurementtype contracts. They commented that 

this position is supported by the 

construct of § 8126, which requires an 

agreement and that the application of 

FCPs without such a contract would be 

to treat the TRICARE Retail Pharmacy 

Program better than other elements of 

DoD under § 8126. They further pointed 

to § 8126(g)(2), which they say freezes 

the statute’s requirements in place as of 

the date of enactment, giving the 

resulting pharmaceutical pricing 

agreement precedence over later 

statutory enactments and their 

implementing regulations. 

DoD does not agree that these views 

are in harmony with the statute and 

legislative history. The ‘‘procurement of 

drugs’’ phrase in § 1074g(f) is to identify 

the applicability of § 8126 and to 

establish the applicability of § 8126 as 

the purpose for which the TRICARE 

retail pharmacy program shall be treated 

as an element of DoD. That purpose is 

to bring it within the scope of the 

requirement of § 8126 ‘‘to the extent 

necessary to ensure that 

pharmaceuticals paid for by’’ DoD 

through the TRICARE retail pharmacy 

program ‘‘are subject to the’’ FCP 

‘‘pricing standards.’’ The ‘‘procurement 

of drugs’’ phrase does not in § 1074g(f) 

describe the transaction to which the 

FCP requirement attaches. Rather, the 

transaction to which the FCP 

requirement attaches is clearly 

established as a ‘‘prescription filled’’ for 

a drug ‘‘paid for by’’ DoD ‘‘provided by’’ 

a program pharmacy ‘‘to eligible covered 

beneficiaries.’’ The procurement-type 

contract option requires that the phrase 

‘‘procurement of drugs’’ in § 1074g(f) be 

treated as the TRICARE Retail Pharmacy 

Program transaction to which the FCP 

requirement attaches. This would treat 

the statute as if it read: 

With respect to any procurement of 

drugs by the TRICARE retail pharmacy 

program [rather than ‘‘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 

Department of Defense for purposes of 

the procurement of drugs by Federal 

agencies under section 8126 of title 38 

to the extent necessary to ensure that 

pharmaceuticals procured by the 

TRICARE retail pharmacy program 

[rather than ‘‘paid for by the Department 

of Defense’’] 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. 

This is not in harmony with what 

Congress actually enacted. It would not 

cover ‘‘any prescription filled,’’ but only 

some prescriptions filled. It would not 

‘‘ensure that’’ pharmaceuticals paid for 

by DoD are subject to FCPs; it would 

exempt prescriptions paid for by DoD 

but not covered by a procurement-type 

contract. And it would not provide that 

the retail pharmacy program ‘‘shall’’ be 

treated as an element of DoD for 

purposes of FCP applicability, only that 

it may be so treated if that is provided 

for in a procurement-type contract. 

The pharmaceutical industry’s 

argument on § 8126(g)(2) also does not 

have weight. What this paragraph 

actually says is that a manufacturer 

meets its obligation under that law if it 

‘‘establishes to the satisfaction of the 

Secretary’’ of Veterans Affairs that the 

manufacturer is complying with § 8126 

as enacted, without regard to a future 

legislative change in that section. DoD 

has seen no evidence that the Secretary 

of Veterans Affairs has determined that 

anything in § 1074g(f) or the 2009 final 

rule is beyond the scope of § 8126. 

Rather, it is DoD’s understanding that 

the position of the Secretary of Veterans 

Affairs continues to be that the 

TRICARE Retail Pharmacy Program is 

covered by § 8126. (In the preamble to 

the 2009 final rule, DoD suggested that 

DoD and the pharmaceutical industry 

should ‘‘agree to disagree’’ on whether 

the TRICARE Retail Pharmacy Program 

is covered directly by § 8126 since that 

issue was beyond the scope of the final 

rule and DoD authority, and it would be 

a moot point if manufacturers complied 

with the final rule.) 

Nor is the procurement-type contract 

option in harmony with the legislative 

history of what Congress enacted. The 

Conference Report accompanying 

NDAA–08 described the applicable 

section as a provision ‘‘that would 

require that any prescription filled 

* * * through the TRICARE retail 

pharmacy network will be covered by 

the Federal pricing limits applicable to 

covered drugs under section 8126 of 

title 38, United States Code.’’ (H. Conf. 

Rept. 110–477, p. 938.) In addition, a 

very similar provision that was passed 

by the Senate in its proposed version of 

NDAA–07 but not finally enacted at that 

mstockstill on DSKH9S0YB1PROD with RULES

Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63393 

time (‘‘The TRICARE Retail Pharmacy 

Network * * * shall be treated as an 

element of the Department of Defense 

for purposes of the procurement of 

drugs by Federal agencies under section 

8126 of title 38 * * *.’’) was described 

in the accompanying Senate Committee 

Report as a provision to ‘‘reaffirm a 

decision made by the Secretary of 

Veterans Affairs on October 24, 2002, 

* * * that drugs purchased by the 

Department of Defense through the 

TRICARE retail pharmacy network are 

subject to the same Federal pricing 

limits that have long applied to drugs 

purchased by the Department and 

provided through military hospitals and 

clinics and the national mail order 

program.’’ (S. Rept. No. 109–254, pp. 

342–43.) Thus, the all covered 

prescriptions option is in harmony with 

the statute and legislative history; the 

procurement-type contract option is not. 

In addition to the pre-enactment 

legislative history, recent Congressional 

commentary reinforces this 

understanding of Congressional 

expectations. For example, the Senate 

Appropriations Committee report 

accompanying the Department of 

Defense Appropriations Bill, 2010, 

expressed concern that ‘‘the fiscal years 

2008 and 2009 budgetary savings 

programmed by the Department of 

Defense and the Office of Management 

and Budget for manufacturer refunds for 

TRICARE retail pharmacy prescriptions 

under section 703 of the National 

Defense Authorization Act for Fiscal 

Year 2008 have not been realized,’’ and 

asked for a report from DoD on 

implementation, ‘‘including an 

assessment of whether any additional 

legislation is needed to effectuate the 

purposes of section 703.’’ (S. Rept. No. 

111–74, p. 224.) (The resulting DoD 

report advised that no additional 

legislation is needed.) The House 

Appropriations Committee expressed 

similar concern, noting ‘‘the 

$1,000,000,000 in rebates that are 

currently owed.’’ (H. Rept. No. 111–230, 

p. 307.) 

(b) Assessment of options for 

consistency with best business practice 

concerning FCP applicability. 

Commenters on behalf of the 

pharmaceutical industry assert that best 

business practice calls for the voluntary 

agreement of the parties and that only 

a procurement-type contract is 

consistent with this practice. But the all 

covered prescriptions option also 

provides for the voluntary agreement of 

the parties; no pharmaceutical 

manufacturer is forced to do business 

with DoD under 10 U.S.C. 1074g or 

other agencies under 38 U.S.C. 8126. 

Manufacturers make a voluntary choice 

to do business with DoD under the 

applicable terms. The difference 

between the two options is not in the 

nature of the voluntary participation, it 

is in the terms of the voluntary 

participation. The procurement-type 

contract option seeks more limited 

terms, such as that FCPs will only apply 

if drugs receive preferred status under 

the uniform formulary, rather than 

covered status. The 2009 final rule 

attaches FCP applicability to a voluntary 

decision by the manufacturer to keep its 

drugs covered by TRICARE, rather than 

take the opt-out opportunity provided in 

the rule. Voluntariness is preserved 

under both options. Under the all 

covered prescriptions option, preferred 

formulary status is based on costeffectiveness, which means a price no 

higher than the FCP, and for drug 

classes that have competition among 

covered drugs, generally a price below 

the FCP. Taking advantage of 

competition in drug classes to produce 

prices below FCP (i.e., refunds greater 

than the FCP-level refund) is more 

consistent with best business practice. 

All of this has to do with the terms of 

doing business, not with the nature of 

the business practice. 

(c) Assessment of options for 

practicability of administration 

concerning FCP applicability. 

Both options rely upon the same 

implementation apparatus, so both 

options are administratively practicable. 

(d) Conclusion on the issue of to what 

do FCPs apply. 

DoD has concluded that the option 

that all covered drug TRICARE retail 

pharmacy network prescriptions are 

subject to FCPs is the better option 

because: It is in harmony with the 

statute and legislative history, while the 

alternative, procurement-type contract 

option is not; it is more consistent with 

best business practice; and it is 

comparable in administrative 

practicability. 

C. Additional Issues Raised by Public 

Comments 

What follows is a brief summary of 

the 2009 final rule and a discussion of 

the new public comments received 

pertinent to those provisions. The 2009 

final rule added to section 199.21 of the 

TRICARE regulation, the section 

governing the Pharmacy Benefits 

Program, a new paragraph (q) regarding 

pricing standards for the retail 

pharmacy program. 

1. Section 199.21(q)(1). 

As in paragraph (1) of the 2008 

proposed rule, paragraph (1)(i) of the 

2009 final rule repeated the statutory 

requirement, virtually verbatim. Like 

the statute, both the proposed and final 

rules applied FCPs to ‘‘any prescription 

filled on or after the date of the 

enactment’’ of the statute. Paragraph 

(1)(ii) was added in the 2009 final rule 

to state in simpler terms (similar to the 

primary statement in the legislative 

history of § 1074g(f)) DoD’s 

interpretation of the statute as requiring 

that all covered drug TRICARE Retail 

Pharmacy Network prescriptions are 

subject to FCPs. 

Applicability of FCPs to All Covered 

Drug Prescriptions (Para. (q)(1)(ii)) 

Comment: Pharmaceutical industry 

commenters recommended an 

exemption, which could potentially be 

added to this paragraph, for 

prescriptions filled after January 28, 

2008, but covered by pre-existing 

Uniform Formulary Voluntary 

Agreements for Retail Refunds (UF– 

VARRs) that provided for less than FCPbased discounts, the exemption lasting 

as long as necessary to implement the 

termination clause of the VARR. The 

rationale was that this would show 

appropriate deference to the terms of the 

pre-existing agreements. 

Response: For the reasons given above 

relating to the starting date for applying 

FCPs under the statute, DoD has 

concluded that the final rule should not 

be changed, and that it should, as the 

proposed rule did, mirror the statute’s 

applicability to ‘‘any prescription filled 

on or after the date of enactment.’’ The 

statutory effective date, of which 

everyone had notice, obviated the need 

for DoD to cancel the pre-existing UF– 

VARRs, which also could have been 

canceled at any time by the 

manufacturer. The applicability of FCPs 

on or after January 28, 2008, is not 

dependent on Tier 2 Uniform Formulary 

status or the existence of a VARR or 

pricing agreement. If there is some 

special circumstance regarding any 

particular drug, it can be addressed 

under the waiver/compromise authority 

of paragraph (q)(3)(iii). 

2. Section 199.21(q)(2). 

Paragraph (q)(2) provided, similar to 

the proposed rule, that a written 

agreement by a manufacturer to honor 

Federal Ceiling Prices in the retail 

pharmacy network is with respect to a 

particular covered drug a condition for 

inclusion of that drug on the uniform 

formulary (Tier 2, or in the case of 

covered generic drugs, Tier 1) and for 

the availability of that drug through 

retail network pharmacies without 

preauthorization. 

mstockstill on DSKH9S0YB1PROD with RULES

63394 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

Preauthorization of Tier 3 Drugs (Para. 

(q)(2)(ii)) 

Comment: Pharmaceutical industry 

commenters recommended removal of 

the requirement that drugs not covered 

by voluntary pricing agreements and 

thus disqualified from Tier 2 uniform 

formulary status also become subject to 

preauthorization for dispensing at the 

retail pharmacy. The argument was 

made that this preauthorization 

conflicts with other preauthorization 

requirements in the TRICARE Pharmacy 

Benefits Program regulation. 

Response: There is no conflict. There 

are simply two different types of 

preauthorization. One type of prior 

authorization relates to whether a 

patient needs a particular drug. The 

preauthorization required under this 

paragraph relates to where the patient 

should receive it. If the manufacturer 

refuses to comply with the requirement 

to apply FCPs at the retail venue, 

TRICARE will consider other options to 

meet the patient’s needs, which may 

include dispensing that same drug at the 

mail order venue. 

Comment: Retail pharmacy industry 

commenters also recommended 

elimination of the prior authorization 

requirement on the grounds that it 

potentially shifts business from retail 

pharmacies to the mail order pharmacy 

and that DoD should force 

manufacturers to honor FCPs without 

disadvantaging retail pharmacies. 

Response: DoD hopes it will not be 

necessary to rely on either Tier 3 status 

or the preauthorization process to 

reinforce the FCP requirement under 

paragraph (q), but is unable at this point 

to forgo the option, when needed. 

Therefore, this provision is retained in 

the new final rule. 

Inclusion of Authorized Generics as 

‘‘Covered Drugs’’ (Para. (q)(2)(iii)) 

Comment: Pharmaceutical industry 

commenters recommended exclusion of 

authorized generics from the definition 

of covered drugs. Authorized generics 

are drugs that were approved by the 

Food and Drug Administration under a 

new drug application (NDA), rather than 

an abbreviated new drug application 

(ANDA) under section 505(j) of the 

Food, Drug, and Cosmetic Act, and are 

still marketed under the original NDA 

approval, but are no longer single source 

drugs. The rationale was that generic 

drug competition usually produces a 

low price and it is unfair to impose an 

additional FCP-based discount to the 

authorized generics when their 

competitor ANDA generics have no 

such requirement. 

Response: With awareness of the 

statutory reference to ‘‘the pricing 

standards in * * * section 8126,’’ the 

2009 final rule maintained the section 

8126 definition of covered drugs. 

Covered drugs, including authorized 

generics, are subject to FCPs under 

section 8126 and are sold at the FCP (or 

FSS price if lower) for prescriptions 

filled at military facility pharmacies and 

the mail order pharmacy program. In 

regard to the economics of authorized 

generics, manufacturers still have 

marketing options to protect profits. In 

any event, the Department of Veterans 

Affairs, the lead agency for FCP 

implementation government-wide, has 

not recommended exemption of 

authorized generics as covered drugs, 

and DoD has concluded that following 

the lead agency’s policy on this is 

advisable. Therefore, the new final rule 

is unchanged on this point. 

Exclusion of 340B Drugs (Para. 

(q)(2)(iii)(E)) 

Comment: Pharmaceutical industry 

commenters recommended the 

continued exclusion of 340B program 

drugs. 

Response: This provision is 

unchanged in the new final rule. They 

are excluded. 

Comment: Commenters on behalf of 

specialty providers under the 340B 

program agreed that 340B covered drugs 

should be excluded from covered drugs 

under this rule, but expressed concern 

that this might be causing their newly 

restricted ability to participate in the 

TRICARE Retail Pharmacy Network. 

Response: DoD is aware of and 

seeking to address issues between some 

of these providers, such as 

comprehensive hemophilia treatment 

centers, and TRICARE’s Pharmacy 

Benefits Manager contractor. These 

issues, however, are not affected by the 

exclusion of 340B program drugs from 

this final rule and thus are outside the 

scope of this rulemaking. 

3. Section 199.21(q)(3). 

Paragraph (q)(3) of the 2009 final rule 

addressed refund procedures. As under 

the proposed rule, paragraph (q)(3)(iii) 

of the 2009 final rule stated that a 

refund due under the final rule is 

subject to section 199.11 of the 

TRICARE regulation, the section that 

governs ‘‘overpayments recovery.’’ The 

2009 final rule was revised to elaborate 

that the applicability of section 199.11 

brings with it a procedure for a 

manufacturer to request waiver or 

compromise of a refund amount. Also, 

in response to pharmaceutical industry 

complaints that the rule would make the 

imposition of FCPs involuntary on 

manufacturers since they could not 

control the flow of their products 

through the supply chain that end up as 

prescriptions filled under the TRICARE 

Retail Pharmacy Program, the 2009 final 

rule was revised to state that a request 

for waiver may also be premised on the 

voluntary removal by the manufacturer 

in writing of a drug from coverage in the 

TRICARE Pharmacy Benefit Program. 

Based on such a voluntary opt-out, DoD 

could block the prescription at the retail 

network pharmacy and in other 

transactions pertinent to the military 

facility pharmacies and mail order 

pharmacy, thus preserving the 

manufacturer’s voluntary choice on 

whether it wants to participate in the 

TRICARE Pharmacy Benefits Program. 

FCP Calculation (Para. (q)(3)(ii)) 

Comment: Pharmaceutical industry 

commenters suggested that DoD apply 

an alternative Federal Ceiling Price 

under this rule, one that would not 

include the computation under 

§ 8126(d)(1) that is referred to as the 

‘‘FSS Max Cap.’’ 

Response: Under paragraph (q)(3)(ii), 

DoD applies the FCP as it is calculated 

and provided by the Department of 

Veterans Affairs (DVA). The DVA’s 

calculations in second and subsequent 

years of multi-year contracts take into 

account prices reflected in those 

contacts, referred to as the FSS Max 

Cap. In those years the resulting FCP is 

applicable to all covered drug contracts 

and applicable to the TRICARE Retail 

Pharmacy Program. Based on this 

comment, DoD considered asking DVA 

to produce an alternative set of FCPs for 

the TRICARE Retail Pharmacy Program 

that would exclude any impact of the 

FSS Max Cap. Assuming the technical 

feasibility of this option, it was 

considered under the same criteria used 

for the major issues assessed in this 

rulemaking reconsideration process. 

With respect to consistency with the 

statute and legislative history, there is 

clear legislative history that Congress 

intended ‘‘that drugs purchased by the 

Department of Defense through the 

TRICARE retail pharmacy network are 

subject to the same federal pricing limits 

that have long applied to drugs 

purchased by the Department and 

provided through military hospitals and 

clinics and the national mail order 

program.’’ S. Rept. 109–254, pp. 342– 

343. The use of two sets of FCPs—one 

for military facilities and the mail order 

program and a different set for the retail 

program—would conflict with this 

Congressional intent. In addition, with 

respect to administrative practicability, 

there is currently only one set of FCPs 

calculated by DVA, and while it is not 

impossible to calculate an alternative set 

of FCPs, doing so for one segment of 

mstockstill on DSKH9S0YB1PROD with RULES

Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63395 

covered drugs for one of the ‘‘big four’’ 

agencies covered by section 8126 could 

create confusion and administrative 

difficulties. Further, in connection with 

implementation of the 2009 final rule to 

date and the voluntary agreements made 

under it, DoD is unaware of any request 

from a manufacturer for use of anything 

other than the normal FCPs, nor of any 

request from a manufacturer for a 

waiver or compromise of the refund 

amount based on the possible effect on 

the FCPs of the FSS Max Cap. Were 

there special circumstances relating to 

application of the FCP in a particular 

case, the compromise process would be 

the appropriate one to find a remedy. 

Based on these considerations, it is 

DoD’s judgment that the single set of 

FCPs calculated by DVA under section 

8126 apply to the TRICARE Retail 

Pharmacy Program as they do to the 

TRICARE Pharmacy Benefits Program 

generally. 

Overpayments Recovery Procedures 

(Para. (q)(3)(iii)(A)) 

Comment: Pharmaceutical industry 

commenters recommended deletion of 

the provision stating that the normal 

TRICARE overpayments recovery 

procedures of 32 CFR 199.11 would 

apply to retail refunds due under 

§ 199.21(q), or revision to limit 

overpayments recovery to refunds owed 

under contracts. Comments argued that 

properly constructed voluntary refunds 

do not fit the purposes and scope of 

§ 199.11. 

Response: DoD believes § 199.11, 

which has been incorporated by 

reference since the proposed rule, is 

properly used for all refunds under 

§ 199.21(q), all of which are based on 

the voluntary decision of the 

manufacturer to participate in 

TRICARE. Section 199.11 applies to 

‘‘erroneous payments,’’ which are 

‘‘expenditures of government funds 

which are not authorized by law or this 

part’’ (i.e., Part 199, the TRICARE 

Regulation). Because this final rule is 

intended, in the terms used in the 

statute, to ensure that covered 

prescriptions are subject to the FCP 

pricing standards, it fits § 199.11 very 

well to view the amount paid that 

exceeds FCPs as an expenditure of 

government funds in excess of the 

amount authorized by the TRICARE 

regulation, specifically § 199.21(q), 

which in turn is authorized by the 

statute. 

Opt-Out Provision (Para. (q)(3)(iii)(C)) 

Comment: Pharmaceutical industry 

commenters recommended that 

remedial actions continue to be on a 

drug-by-drug basis, rather than a 

company-by-company basis, to give 

manufacturers flexibility on deciding 

whether they wish to do business with 

TRICARE. 

Response: The opt-out provision 

continues to be on a drug-by-drug basis. 

A manufacturer is not required by this 

regulation to remove all of its drugs 

from TRICARE coverage in order to 

remove any. However, DoD makes no 

representation that selective opt-outs 

would be consistent with the 

manufacturer’s obligations under its 

§ 8126 master agreement, a matter 

which is outside DoD’s authority. 

Comment: Pharmaceutical industry 

commenters commented that 

manufacturers should be given notice 

and an opportunity to opt-out in order 

to avoid liability for prescriptions filled 

prior to the effective date of the 

regulation. 

Response: The opt-out opportunity 

has been available since the effective 

date of the 2009 final rule, May 26, 

2009. The 2009 final rule provided for 

‘‘the voluntary removal by the 

manufacturer in writing of a drug from 

coverage in the TRICARE Pharmacy 

Benefit Program.’’ To date, no 

manufacturer has opted out. DoD takes 

this as a voluntary agreement to 

participate in the TRICARE Pharmacy 

Benefits Program under the terms of the 

TRICARE Regulation. The opt-out 

opportunity remains available under 

this new final rule, and it may be 

coupled with a request for waiver or 

compromise. 

Comment: Pharmaceutical industry 

commenters asserted that in the absence 

of a voluntary agreement between a 

manufacturer and DoD, a refund 

requirement conflicts with the 

Unfunded Mandates Reform Act. 

Response: This program is neither 

unfunded nor a mandate. The opt-out 

provision ensures that the application of 

FCPs is a function of the voluntary 

decision of manufacturers to participate 

in the TRICARE Pharmacy Benefits 

Program under the terms required or 

authorized by statute, including 10 

U.S.C. 1074g(f). The economic impact of 

this regulation is not in the nature of a 

mandatory expenditure by the private 

sector, but in the nature of reduced 

Federal expenditures for 

pharmaceuticals paid for by DoD under 

TRICARE, which is precisely what 

Congress intended. 

Comment: Pharmaceutical industry 

commenters argued that the opt-out 

authority should allow manufacturers to 

opt out of the Retail Pharmacy Program 

only, rather than opt out of the entire 

TRICARE Pharmacy Benefits Program. 

They argued that if they opt out of the 

TRICARE Pharmacy Benefits Program 

completely, this will put them in 

violation of their master agreement with 

the Department of Veterans Affairs, 

which includes a requirement to make 

their products available under the 

Federal Supply Schedule to DoD. 

Response: Again, this is a discussion 

over terms of voluntary participation in 

the TRICARE Pharmacy Benefits 

Program, not over the nature of 

voluntary participation. If the 

pharmaceutical industry is correct that 

39 U.S.C. 8126(g)(2) (which is discussed 

above) freezes their § 8126 obligations as 

of the original enactment of that law and 

that this TRICARE rule creates new 

obligations beyond the scope of § 8126, 

they will be able to remain in 

compliance with § 8126 by 

demonstrating a willingness to adhere to 

the original scope of obligations, 

including a willingness to make their 

drugs available under the Federal 

Supply Schedule. If the industry is not 

correct about that (which DoD believes 

to be the case), manufacturers remain 

free voluntarily to decide whether they 

want to do business with all agencies 

covered by § 8126 under the terms 

Congress has established or authorized. 

For doing business with DoD, DoD 

believes the terms of voluntary 

participation are properly set as 

honoring FCPs in all three venues of the 

TRICARE Pharmacy Benefits Program— 

military facility pharmacies, mail order 

pharmacy, and retail pharmacy network. 

DoD understands that manufacturers 

would prefer more favorable terms, but 

these terms are in harmony with the 

statute and legislative history, 

consistent with best business practice, 

and administratively practicable. 

4. Section 199.21(q)(4), Remedies. 

Paragraph (q)(4) of the 2009 final rule 

provided that in the case of the failure 

of a manufacturer of a covered drug to 

make or honor an agreement under 

paragraph (q), DoD may take any action 

authorized by law. This paragraph was 

unchanged from the 2008 proposed rule. 

Comment: Pharmaceutical industry 

commenters recommended deletion of 

the provision stating that in the case of 

the failure of a manufacturer ‘‘to make’’ 

an agreement under paragraph (q), DoD 

may take any other action authorized by 

law on the grounds that the only 

appropriate remedy would be under 

breach of contract rules concerning an 

agreement that had been voluntarily 

made. 

Response: DoD believes the authority 

to take any action authorized by law, 

which has been included since the 

proposed rule, is properly used for all 

obligations under the regulation, all of 

which are based on the voluntary 

mstockstill on DSKH9S0YB1PROD with RULES

63396 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

decision of the manufacturer to 

participate in the TRICARE Retail 

Pharmacy Program. However, the point 

is well taken that under the rule, a 

failure ‘‘to make’’ an agreement is not an 

action that should be treated as 

noncompliance nor be the subject of a 

remedy. This is because the 

applicability of FCPs is not dependent 

upon the making of an agreement. 

Rather, it is a function of the voluntary 

decision of a manufacturer to continue 

to participate in the TRICARE Pharmacy 

Benefits Program, rather than to take 

advantage of the opt-out opportunity. 

Therefore, this paragraph has been 

revised. The revised paragraph no 

longer premises a remedy on a failure 

‘‘to make or honor an agreement under’’ 

paragraph (q), but on a failure ‘‘to honor 

a requirement of’’ paragraph (q) or ‘‘to 

honor an agreement under’’ paragraph 

(q). An accompanying revision is also 

made to paragraph (q)(3)(iii)(B) to state 

that during the pendency of a request 

for waiver or compromise of a refund 

amount, the matter that is the subject of 

the request will not be treated as a 

failure to honor a requirement of 

paragraph (q). 

5. Section 199.21(q)(5). 

Finally, paragraph (q)(5) of the 2009 

final rule authorized beneficiary 

transition provisions to protect 

beneficiary access to particular 

pharmaceuticals even when 

manufacturers act to avoid the 

application of FCPs. No comments were 

received during this new comment 

period regarding this provision. 

D. Provisions of New Final Rule 

DoD is readopting the 2009 final rule, 

with one substantive change and 

another accompanying revision. The 

substantive change is to paragraph (q)(4) 

concerning remedies. An accompanying 

change is to paragraph (q)(3)(iii)(B) 

concerning the effect of a pending 

request for waiver or compromise of a 

refund amount. Following is a summary 

of the new final rule. 

Section 199.21(q) establishes pricing 

standards for the retail pharmacy 

program. Paragraph (1) restates the 

statutory requirement. With respect to 

any prescription filled on or after the 

statutory effective date (January 28, 

2008), all covered drug TRICARE retail 

pharmacy network prescriptions are 

subject to Federal Ceiling Prices. 

Paragraph (1) is unchanged from the 

2009 final rule. Paragraph (1) answers 

the question, ‘‘When do FCPs apply?’’ 

They apply to all prescriptions filled on 

or after the date of statutory enactment. 

Paragraph (2) states that a 

manufacturer’s written agreement to 

honor the requirement of paragraph (1) 

is a condition for including a drug on 

the preferred tier (Tier 2, or in the case 

of covered drugs that are generics, Tier 

1) of the uniform formulary and the 

availability of that drug through retail 

network pharmacies without 

preauthorization. As under the 2008 

proposed rule and the 2009 final rule, 

an agreement to honor FCPs does not 

guarantee preferred tier placement 

because FCPs are a ceiling price and the 

cost-effectiveness standard for Tier 2 

(and in some cases Tier 1) placement 

may result in the FCP being 

insufficiently cost-effective in particular 

drug classes. Also as under the 2008 

proposed rule and the 2009 final rule, 

the application of FCPs is not 

conditional on preferred formulary 

status. Paragraph (2) also defines 

covered drugs for purposes of the 

applicability of FCPs. Paragraph (2) is 

unchanged from the 2009 final rule. 

This paragraph (2), along with 

paragraph (3), answer the questions, 

‘‘Who bears the burden of FCPs?’’ and 

‘‘How do FCPs apply?’’ Manufacturers 

bear the burden of FCPs, and they apply 

through manufacturer refunds. 

Paragraph (3) establishes refund 

procedures. Such procedures may be 

included in an agreement under 

paragraph (2) or a separate agreement or 

default to the standard overpayments 

recovery procedures of the TRICARE 

regulation, § 199.11. Also under 

§ 199.11, a manufacturer may request a 

waiver or compromise of a refund 

amount due. While a waiver or 

compromise request is pending, the 

matter that is the subject of the request 

will not, under revised wording of this 

paragraph, be treated as a failure to 

honor a requirement of paragraph (q) for 

purposes of DoD pursuing any remedies 

under paragraph (4). Also under 

paragraph (3), in addition to other 

grounds for waiver or compromise, a 

waiver request may be based on the 

voluntary removal by the manufacturer 

in writing of a drug from coverage in the 

TRICARE Pharmacy Benefits Program. 

This paragraph (3) answers the question, 

‘‘To what do FCPs apply?’’ They apply 

to all covered drugs the manufacturer 

has voluntarily chosen to keep in the 

TRICARE Pharmacy Benefits Program. 

Paragraph (4) provides that remedies 

may be based on any action authorized 

by law. Paragraph (4) is changed from 

the 2009 final rule. The revised 

paragraph no longer promises a remedy 

on a failure ‘‘to make or honor an 

agreement under’’ paragraph (q), but on 

a failure ‘‘to honor a requirement of’’ the 

regulation ‘‘or to honor an agreement 

under’’ the regulation. This change 

reinforces that a manufacturer’s failure 

‘‘to make an agreement’’ is not subject to 

a remedial action because the 

applicability of FCPs is not dependent 

upon the ‘‘making’’ of an agreement. 

Rather, a remedy could be based on a 

failure to honor a requirement under the 

final rule for a manufacturer who has 

made the voluntary decision to 

participate in the TRICARE Pharmacy 

Benefits Program by not exercising the 

opt-out opportunity. 

Paragraph (5) authorizes special 

beneficiary transition provisions for the 

continued availability of 

pharmaceuticals to beneficiaries. 

Paragraph (5) is unchanged from the 

2009 final rule. 

E. 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 final 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 

final rule is to moderate somewhat the 

rate of growth in spending in the retail 

pharmacy component of the program. 

At various times since the enactment 

of NDAA–08, DoD estimated the 

reduced spending associated with 

applying Federal Ceiling Prices to the 

Retail Pharmacy Network. DoD funds 

the Military Health System through two 

separate mechanisms. One is the 

mstockstill on DSKH9S0YB1PROD with RULES

Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 63397 

Defense Health Program (DHP) 

appropriation, which pays for health 

care for all beneficiaries except those 

who are also eligible for Medicare. DoDfunded 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. At the time of the 2008 

proposed rule, for example, DoD 

estimated FY–10 reduced spending of 

$388 Million for the DHP and $404 for 

the MERHCF. At the time of the 2009 

final rule, DoD used a different 

estimating model and estimated much 

larger savings, including for FY–10 for 

example, reduced spending of $761 

Million for the DHP and $910 for the 

MERHCF. Based on experience since 

issuance of the final rule and a refined 

estimating model, DoD now estimates 

that the reduced spending will be closer 

to the original, lower estimates. DoD’s 

current estimated cost reductions from 

applying Federal Ceiling Prices to the 

TRICARE Retail Pharmacy Network in 

Fiscal Years 2010 through 2015 appear 

in the following table. FCP savings 

estimates will continue to be updated as 

actual refunds are received and 

estimating methodologies are refined. 

Millions of Dollars 

FY–2010 DHP Reduced Spending ...... 375 

FY–2010 MERHCF Reduced Spending ..................................................... 474 

FY–2011 DHP Reduced Spending ...... 434 

FY–2011 MERHCF Reduced Spending ..................................................... 549 

FY–2012 DHP Reduced Spending ...... 458 

FY–2012 MERHCF Reduced Spending ..................................................... 579 

FY–2013 DHP Reduced Spending ...... 490 

FY–2013 MERHCF Reduced Spending ..................................................... 619 

FY–2014 DHP Reduced Spending ...... 523 

FY–2014 MERHCF Reduced Spending ..................................................... 661 

FY–2015 DHP Reduced Spending ...... 560 

FY–2015 MERHCF Reduced Spending ..................................................... 707 

As a frame of reference, total 

TRICARE Pharmacy Benefits Program 

spending is estimated to be $8.5 billion 

in FY–2010. 

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 final 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, Public Law 104–4, ‘‘Unfunded 

Mandates Reform Act’’ 

This rule does not contain a Federal 

mandate that may result in the 

expenditure by State, local and tribal 

governments, in aggregate, or by the 

private sector, of $100 million or more 

(adjusted for inflation) in any one year. 

The economic impact of this regulation, 

described above, is not in the form of a 

mandated expenditure by a State, local, 

or tribal government or the private 

sector, but by reduced Federal 

expenditures. 

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 final rule. In addition, drugs 

newly subject to implementation of 

Federal Ceiling Prices under the final 

rule represent less than 2% of 

manufacturers’ prescription drug sales. 

Therefore, this final 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 final 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 final 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. 

List of Subjects in 32 CFR Part 199 

Claims, Health care, Health insurance, 

Military personnel, Pharmacy benefits. 

■ Accordingly, 32 CFR part 199 is 

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(q) is revised to read 

as follows: 

§ 199.21 Pharmacy benefits program. 

* * * * * 

(q) Pricing standards for retail 

pharmacy program—(1) Statutory 

requirement. (i) 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 

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. 

(ii) Under paragraph (q)(1)(i) of this 

section, all covered drug TRICARE retail 

pharmacy network prescriptions are 

subject to Federal Ceiling Prices under 

38 U.S.C. 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 

mstockstill on DSKH9S0YB1PROD with RULES

63398 Federal Register / Vol. 75, No. 199 / Friday, October 15, 2010 / Rules and Regulations 

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 is a drug that is 

a covered drug under 38 U.S.C. 8126, 

but 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) A drug provided under a 

prescription which the TRICARE 

Pharmacy Benefits Program is the 

second payer under paragraph (m) of 

this section; 

(E) A drug provided under a 

prescription and dispensed by a 

pharmacy under section 340B of the 

Public Health Service Act; or 

(F) Any other exception for a drug, 

consistent with law, established by the 

Director, TMA. 

(iv) The requirement of this paragraph 

(q)(2) may, upon the recommendation of 

the Pharmacy and Therapeutics 

Committee, be waived by the Director, 

TMA if necessary to ensure that at least 

one drug in the drug class is included 

on the Uniform Formulary. Any such 

waiver, however, does not waive the 

statutory requirement referred to in 

paragraph (q)(1) that all covered 

TRICARE retail network pharmacy 

prescriptions are subject to Federal 

Ceiling Prices under 38 U.S.C. 8126; it 

only waives the exclusion from the 

Uniform Formulary of drugs not covered 

by agreements under this paragraph 

(q)(2). 

(3) Refund procedures. (i) 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 shall be 

established. Such procedures may be 

established as part of the agreement 

referred to in paragraph (q)(2), or in a 

separate agreement, or pursuant to 

§ 199.11. 

(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 corresponding 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. The current annual FCP and the 

annual non-FAMP from which it was 

derived will be applicable to all 

prescriptions filled during the calendar 

year. 

(iii) A refund due under this 

paragraph (q) is subject to § 199.11 of 

this part and will be treated as an 

erroneous payment under that section. 

(A) A manufacturer may under 

section 199.11 of this part request 

waiver or compromise of a refund 

amount due under 10 U.S.C. 1074g(f) 

and this paragraph (q). 

(B) During the pendency of any 

request for waiver or compromise under 

paragraph (q)(3)(iii)(A) of this section, a 

manufacturer’s written agreement under 

paragraph (q)(2) shall be deemed to 

exclude the matter that is the subject of 

the request for waiver or compromise. In 

such cases the agreement, if otherwise 

sufficient for the purpose of the 

condition referred to in paragraph (q)(2), 

will continue to be sufficient for that 

purpose. Further, during the pendency 

of any such request, the matter that is 

the subject of the request shall not be 

considered a failure of a manufacturer to 

honor a requirement or an agreement for 

purposes of paragraph (q)(4). 

(C) In addition to the criteria 

established in § 199.11, a request for 

waiver may also be premised on the 

voluntary removal by the manufacturer 

in writing of a drug from coverage in the 

TRICARE Pharmacy Benefit Program. 

(iv) In the case of disputes by the 

manufacturer of the accuracy of TMA’s 

utilization data, a refund obligation as to 

the amount in dispute will be deferred 

pending good faith efforts to resolve the 

dispute in accordance with procedures 

established by the Director, TMA. If the 

dispute is not resolved within 60 days, 

the Director, TMA will issue an initial 

administrative decision and provide the 

manufacturer with opportunity to 

request reconsideration or appeal 

consistent with procedures under 

section 199.10 of this part. When the 

dispute is ultimately resolved, any 

refund owed relating to the amount in 

dispute will be subject to an interest 

charge from the date payment of the 

amount was initially due, consistent 

with section 199.11 of this part. 

(4) Remedies. In the case of the failure 

of a manufacturer of a covered drug to 

honor a requirement of this paragraph 

(q) or to 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. 

(5) Beneficiary transition provisions. 

In cases in which a pharmaceutical is 

removed from the uniform formulary or 

designated for preauthorization under 

paragraph (q)(2) of this section, the 

Director, TMA may for transitional time 

periods determined appropriate by the 

Director or for particular circumstances 

authorize the continued availability of 

the pharmaceutical in the retail 

pharmacy network or in MTF 

pharmacies for some or all beneficiaries 

as if the pharmaceutical were still on 

the uniform formulary. 

Dated: October 7, 2010. 

Morgan F. Park, 

Alternate OSD Federal Register Liaison 

Officer, Department of Defense. 

[FR Doc. 2010–25712 Filed 10–14–10; 8:45 am] 

BILLING CODE 5001–06–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[Docket No. USCG–2010–0926] 

Drawbridge Operation Regulations; 

Hackensack River, Jersey City, NJ 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of temporary deviation 

from regulations. 

SUMMARY: The Commander, First Coast 

Guard District, has issued a temporary 

deviation from the regulation governing 

the operation of the Route 1 & 9 Lincoln 

Highway Bridge across the Hackensack 

River, mile 1.8, at Jersey City, New 

Jersey. The deviation allows the bridge 

owner to require a two-hour advance 

notice for openings for two and a half 

months and several short term bridge 

closures to facilitate bridge painting 

operations. 

DATES: This deviation is effective with 

constructive notice from October 15, 

2010 through December 15, 2010, and 

for enforcement with actual notice from 

October 4, 2010 through October 15, 

2010. 

mstockstill on DSKH9S0YB1PROD with RULES