Significant Changes by the VA in Country of Origin Requirements for Federal Supply Schedule Contracts

Recently, the Department of Veterans Affairs (VA) published a significant change of policy with respect to VA Federal Supply Schedule (FSS) contracts that 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 (TAA). 19 U.S.C. 2501 et seq. 

Until this change in policy, there was a contradiction between the requirement that all “covered drugs,” as referenced in the VA Master Agreement, be “made available for procurement under the FSS” and the exclusion from the FSS of covered drugs manufactured or “substantially transformed” in a “non-designated country” under the TAA; for example, covered drugs manufactured or “substantially transformed” in China, India or Malaysia could not be made available to U.S. government customers under the FSS. Now, the VA is requiring that “all covered drugs, regardless of country of substantial transformation, be available on a 65 I B FSS contract,” which means the VA will now require the listing of covered drugs that had been excluded due to TAA restrictions. 

Background on TAA

Contracts that are subject to the TAA, which includes all FSS contracts, incorporate the applicable Federal Acquisition Regulation (FAR) Trade Agreements Act clause, which essentially requires that government customers purchase only U.S. or designated country end products. See, e.g., FAR Subpart 25.4; FAR 52.225-5. Designated countries include those that have entered bilateral or multilateral free trade agreements with the U.S., least developed countries, Caribbean Basin countries and countries that are signatories to the World Trade Organization’s Government Procurement Agreement. See FAR 25.003. While the applicable regulations allow for non-availability exceptions to the requirements if a particular end product is not manufactured in the U.S. or a designated country in a sufficient quantity to fulfill the requirements, before this announced policy change, the VA did not enable such non-availability determinations. 

New VA Policy

Under the new policy, a Contracting Officer may make an individual non-availability determination for any covered drug that does not have a TAA-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 fulfill the requirements. The notice does not provide 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 Tuesday April 26, just one week after the announcement, VA required that manufacturers submit Non-Federal Average Manufacturer Price data to the VA’s Office of Pharmacy Benefits Management Services for all of their TAA non-compliant covered drugs. 

Second, the announcement set a May 6 deadline for submission of either a Mass Modification by current FSS contractors, or a Request for Modification or Interim Agreement (IA) for manufacturers not currently holding FSS contracts, which would be the case for companies whose only covered drugs have been non-compliant with the TAA. 

Third, by June 6, all TAA non-compliant covered drugs must be on an FSS contract or covered by an IA.

Significance for Pharmaceutical Manufacturers

Although the VA did not provide many details in connection with this announcement, this change in policy has a number of significant implications. On the one hand, it provides an opportunity for pharmaceutical manufacturers to increase their sales through FSS contracts. Specifically, manufacturers that produce drugs in non-designated countries, such as China, India or Malaysia, will now have the U.S. government market available to them through the FSS program. On the other hand, the new policy mandates introduction into the U.S. government market via FSS contracts of competitor products that had been excluded; however, exactly how non-availability determinations will be made in this context has not been detailed.

Given the quick 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.