[Federal Register Volume 75, Number 26 (Tuesday, February 9, 2010)]
[Proposed Rules]
[Pages 6335-6336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-2666]


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DEPARTMENT OF DEFENSE

Office of the Secretary

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

32 CFR Part 199


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.

ACTION: Reconsideration and request for comments.

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SUMMARY: This is notification of an additional opportunity to comment 
on the final rule of March 17, 2009, implementing provisions of section 
703 of the National Defense Authorization Act (NDAA) for Fiscal Year 
2008). This statute extended pharmaceutical Federal Ceiling Prices 
(FCPs) to TRICARE Retail Pharmacy Program prescriptions. The Department 
of Defense (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 ``ordered that the final rule is remanded without vacatur 
for the Defense Department to consider in its discretion whether to 
readopt the current iteration of the rule or adopt another approach to 
implement 10 U.S.C. 1074g(f).'' As part of DoD's reconsideration, DoD 
solicits public comments on the implementation of the statute, DoD's 
resulting regulations, and the matters addressed for DoD's 
consideration in the Court's Memorandum Opinion.

DATES: Written comments received at the address indicated below by 
March 11, 2010 will be considered and addressed in the final rule.

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

FOR FURTHER INFORMATION CONTACT: Rear Admiral Thomas McGinnis, Chief, 
Pharmacy Operations Directorate, TRICARE Management Activity, telephone 
(703) 681-2890.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 703 of NDAA-08 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 FCPs. This 
section 8126 established FCPs for covered drugs (requiring a minimum 24 
percent 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). It 
featured voluntary agreements with manufacturers, tied to preferred 
Uniform Formulary status, to pay DoD refunds for drugs entered into the 
normal commercial chain of transactions that end up as prescriptions 
given to TRICARE beneficiaries and paid for by DoD, the refund amount 
being the portion of the price of the drug sold by the manufacturer 
that exceeds the FCPs. The proposed rule also

[[Page 6336]]

solicited comment regarding any other appropriate and legally 
permissible implementation approach.
    DoD issued a final rule March 17, 2009 (74 FR 11279-93), which was 
similar to the proposed rule. The preamble to the final rule discussed 
DoD's effort, particularly in the use of voluntary agreements tied to 
formulary status, to find ``common ground'' with the drug industry, 
which opposes FCPs. The preamble also stated that DoD interpreted the 
statute as automatically capping the price manufacturers may charge for 
those drugs that enter into the commercial chain of transactions that 
end up as TRICARE-paid 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. After the final rule became 
effective, May 26, 2009, drug companies signed voluntary agreements 
covering approximately 99 percent of TRICARE retail prescriptions.
    However, at the same time, there was a litigation challenge to the 
validity of the final rule in a case called Coalition for Common Sense 
in Government Procurement v. U.S., U.S. District Court for the District 
of Columbia, Civ. No. 08-996 (JDB), 2009 U.S. Dist. LEXIS 110746. The 
Court issued a decision November 30, 2009. This decision had four major 
points:
    <bullet> Although 10 U.S.C. 1074g(f) requires that FCPs shall 
apply, the statute does not specify how they will apply. DoD 
incorrectly interpreted the statute as requiring manufacturer refunds, 
to the exclusion of other possible approaches. DoD must reconsider the 
implementation of the statute as a function of its discretionary 
judgment, rather than only as a legal interpretation. For example, 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.''
    <bullet> While DoD considers whether to readopt the final rule as 
it currently stands or to change it, the final rule will remain in 
effect, as will the manufacturer agreements that cover approximately 99 
percent of TRICARE retail prescriptions. (This is the effect of the 
Court's Order that the final rule is ``remanded without vacatur.'')
    <bullet> DoD correctly interpreted the statute as applying FCPs to 
all prescriptions filled on or after January 28, 2008.
    <bullet> The Court ordered that DoD file a status report with the 
Court by not later than March 1, 2010, ``documenting its consideration 
on remand.''

B. Invitation of Additional Public Comments

    Although the Court did not specifically require more public 
comments, DoD invites public comments on the final rule issued March 
17, 2009, as well as additional comments regarding any other 
appropriate and legally permissible implementation approach. DoD 
recommends that interested parties focus their comments on those 
matters that the Court addressed as requiring DoD reconsideration on 
the remand of the final rule. In considering alternative approaches, 
DoD intends to use at least the following three criteria (and welcomes 
comment on other suggested criteria): (1) Harmony with the statute and 
legislative history; (2) consistency with best business practice; and 
(3) practicability of administration. In addition to the citations 
noted above, to assist interested parties, the final rule and the 
Court's Order and Memorandum Opinion are posted on the TRICARE Pharmacy 
Program Web site at: http://www.tricare.mil/pharm_mfg/default.cfm.

    Dated: February 3, 2010.
Patricia L. Toppings,
OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2010-2666 Filed 2-8-10; 8:45 am]
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