Introduction

The Department of Veterans Affairs (VA) recently published a significant change of policy with respect to VA federal supply schedule (FSS) contracts, which could have an immediate effect on pharmaceutical manufacturers. The announcement broadens mandatory VA Schedule 65 I B coverage to drugs that were previously excluded from that schedule because of their non-compliance with the country-of-origin requirements of the Trade Agreements Act (19 USC 2501 and following).

Until this change in policy, the requirement that all covered drugs under the VA Master Agreement be "made available for procurement under the FSS" contradicted the exclusion from the FSS of covered drugs manufactured or "substantially transformed" in a "non-designated country" under the Trade Agreements Act. For example, covered drugs manufactured or "substantially transformed" in China, India or Malaysia could not be made available to US government customers under the FSS. The VA is now requiring that "all covered drugs, regardless of country of substantial transformation, be available on a 65 I B FSS contract", which means that the VA will now require the listing of covered drugs that had been excluded due to Trade Agreements Act restrictions.

Background on Trade Agreements Act

Contracts that are subject to the Trade Agreements Act (including all FSS contracts) incorporate the applicable Federal Acquisition Regulation Trade Agreements Act clause (ie, see Federal Acquisition Regulation Subpart 25.4 and clause at Federal Acquisition Regulation 52.225-5), which essentially requires that government customers purchase only US or designated country end products. Under Federal Acquisition Regulation 25.003, designated countries include:

  • countries that have entered bilateral or multilateral free trade agreements with the United States;
  • least developed countries;
  • Caribbean Basin countries; and
  • countries that are signatories to the World Trade Organisation's Government Procurement Agreement.

While the applicable regulations allow for non-availability exceptions to the requirements if a particular end product is not manufactured in the United States or a designated country in a sufficient quantity to fulfil the requirements, the VA did not previously enable such non-availability determinations.

New VA policy

Under the new VA policy, a contracting officer may make an individual non-availability determination for any covered drug that does not have a Trade Agreements Act-compliant country of origin, as a result of information provided by the manufacturer or distributor that neither the offered end product nor similar or like items are mined, produced or manufactured in the United States or a designated country in sufficient quantity to fulfil requirements. The notice provides few details of how such procedures will be conducted; however, very short deadlines were published for providing data and submitting contract modifications.

Upcoming deadlines

This announcement provided very tight deadlines. First, by April 26 2016 – just one week after the announcement – the VA required that manufacturers submit non-federal average manufacturer price data to the VA's Office of Pharmacy Benefits Management Services for all Trade Agreements Act non-compliant covered drugs.

Second, the announcement set a May 6 2016 deadline for submission of either a mass modification by current FSS contractors or a request for modification or interim agreement for manufacturers not currently holding FSS contracts (which would be the case for companies whose only covered drugs have been non-compliant with the Trade Agreements Act).

Third, by June 6 2016 all Trade Agreements Act non-compliant covered drugs must be on an FSS contract or covered by an interim agreement.

Significance for pharmaceutical manufacturers

Although the VA provided few details in connection with this announcement, the change in policy has a number of significant implications. It provides an opportunity for pharmaceutical manufacturers to increase their sales through FSS contracts. Specifically, manufacturers that produce drugs in non-designated countries (eg, China, India or Malaysia) will now have the US government market available to them through the FSS programme. However, the new policy mandates the introduction into the US government market via FSS contracts of competitor products that had been excluded – although exactly how non-availability determinations will be made in this context has not been detailed.

Given the close and demanding deadlines imposed by the VA and the limited guidance provided in the announcement, it will likely prove challenging for manufacturers to meet the deadlines and implement the new requirements as the VA intends.

For further information on this topic, please contact Howard J Stanislawski, William Sarraille or Wandaly E Fernandez at Sidley Austin LLP by telephone (+1 202 736 8000) or email (hstanislawski@sidley.com, wsarraille@sidley.com or wfernandez@sidley.com). The Sidley Austin website can be accessed at www.sidley.com.

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