Earlier this week, the Department of Veterans Affairs (“VA”) announced a seismic shift in policy that opens VA Schedule 65 IB to covered drugs that do not comply with the Trade Agreements Act (19 U.S.C. §2501 et seq.) (“TAA”). While the VA’s prior policy prohibited contractors from offering TAA non-compliant drugs from on a Federal Supply Schedule (“FSS”) contract, the VA’s new policy requires “that all covered drugs, regardless of county of substantial transformation, be available on a 65 I B FSS contract.”
Under the TAA, the Buy American Act is waived for end products that are “substantially transformed” in so-called “designated countries”; i.e. those countries with which the U.S. is a party to bilateral and multilateral free trade agreements as well as certain other countries receiving preferential treatment (“Least Developed” and “Caribbean Basin” countries). At the same time, the TAA prohibits the procurement of end products whose country of origin is a non-designated country (e.g., China, India, Malaysia). The TAA has a “non-availability” exception where the end products required are not offered, or cannot be fulfilled by U.S. or designated country end products. However, VA policy prohibited contracting officers from making non-availability determinations for FSS contracts – until now.
The shift in policy empowers VA Contracting Officers to make individual non-availability determinations and waive TAA requirements when two hurdles are overcome (i) the offered drugs or similar drugs are not TAA-compliant and (ii) the drug being offered is a covered drug under the Veterans Healthcare Act. This policy change allows the VA to make available on 65 IB Schedule contracts those covered drugs formerly excluded due to the TAA non-compliant status. Given the requirements under the new policy, it appears the VA intends to apply this non-availability exception to all covered drugs from non-designated countries, such as China and India.
The VA has set an aggressive timeline for implementing its new policy. The first deadline is this Tuesday– April 26, 2016. By this date, pharmaceutical manufacturers must submit their Non-Federal Average Manufacturer’s Price (“Non-FAMP”) calculations to the VA’s Office of Pharmacy Benefits Management Services (“PBM”) for TAA non-compliant drugs.
By May 6, 2016, manufacturers currently holding VA FSS contracts must submit a Request for Modification (“RFM”) to add non-TAA compliant products to their existing FSS contracts. Additionally, these contractors must execute a mass modification, which includes a “Trade Agreements Act Non-Availability Determination Request Letter”. This letter requires contractors to list all non-TAA compliant covered drugs and verify that their currently marketed National Drug Codes (“NDC”) have no TAA compliant versions, including authorized generics. The Contracting Officer may then make a non-availability determination based on this statement and its representations in the System for Award Management (“SAM”).
Manufacturers without a VA FSS contract, likely because their only covered drugs are TAA non-compliant, are required to at least enter into Interim Agreement (“IA”) by the May 6, 2016. The purpose of the IA is to require the manufacturer to make its covered drugs available to the Government while negotiating a VA FSS contract – a process that can take several months.
All TAA non-compliant drugs must be on an existing FSS 65 IB contract or a new IA by June 6, 2016.
Impact on Manufacturers
This change in VA policy should be music to the ears of pharmaceutical companies that manufacture covered drugs in China, India and other non- designated countries. By adding these products to VA FSS contracts, these manufacturers will have the opportunity for increased sales to various VA hospitals and other Government purchasers.
However, the VA’s ambitious deadlines may prove challenging for some manufacturers. Manufacturers that are not already calculating Non-FAMP pricing information for TAA non-compliant drugs will need to perform these calculations right away. Additionally, if a manufacturer prefers to dual-price, a calculation option under 38 U.S.C. 8126 that allows for the Big 4 (VA, Department of Defense, Public Health Service and Coast Guard) to be provided a lower price than other federal purchases under the FSS, it will likely require additional time and effort to negotiate the dual pricing under the FSS. Because the new guidance provides no information on the impact of failing to make these deadlines, manufacturer should make every effort to meet these deadlines and alert the VA of its compliance efforts if a deadline may be missed.