The United States Department of Veterans Affairs (“VA”) recently announced a significant change in policy that will allow it to purchase drug products that were previously unavailable due to the Trade Agreements Act (“TAA”) because they were manufactured in countries with whom the United States does not have a procurement agreement in place.  The VA has issued a mass modification to its Federal Supply Schedule (“FSS”) contracts for pharmaceutical products, Schedule 65 I B, requiring that contractors offer to the Government all single source and multiple source drug products (also referred to as SIN 42-2A products) that do not comply with the TAA (i.e., they are not U.S.-made or designated country end products).  Despite its prior position, less than three years ago, that it would “remove all [SIN] 42-2A covered/branded drug products manufactured in a non-designated country . . . from all 65 I B Schedule contracts,” the VA has decided that “[w]e now accept covered drugs that were formally excluded due to their ‘TAA non-compliant’ nature.”  Although this change in policy could represent significant opportunities for drug manufacturers to sell non-TAA-compliant drug products to the Government, the VA’s anticipated timeline may present a cause for concern.

Under the TAA, contractors may only deliver U.S.-made or designated country end products, unless they identify that they intend to deliver non-TAA-compliant products and the Government makes a determination that an exception to the TAA applies.  Relevant here, a TAA exception provides that the Government may purchase non-TAA-compliant products when it determines that there are no TAA-compliant products available.  It appears that the VA intends for this non-availability exception to apply to all single source and innovator multiple source drug products manufactured outside the U.S. in non-TAA-designated countries, as these products are sufficiently unique to not have an adequate substitute and, by definition, cannot be offered from another source.

According to a recent website post from the VA’s Office of Acquisition and Logistics, drug manufacturers must submit Non-Federal Average Manufacturer’s Price (“NFAMP”) calculations for covered drugs to the Office of Pharmacy Benefits Management Services  by April 26, 2016.  Current Schedule 65 I B contractors must then submit a request for modification by May 6, 2016, to add non-TAA-compliant products to their FSS contracts.  This modification will include a “Trade Agreements Act Non-Availability Determination Request Letter” that lists the non-TAA-compliant covered drugs and requests that the Contracting Officer make the likely determination that the above-described non-availability exception applies.  Drug manufacturers that do not currently hold a Schedule 65 I B contract (e.g., drug manufacturers that previously sold only non-TAA-compliant covered drug products) must also establish an Interim Agreement (“IA”) with the VA in order to bridge the gap until a VA schedule contract is in place and make their products available as soon as possible.  This IA will require drug manufacturers to enter a Master Agreement (outlining the contractor’s responsibilities and obligations) and a Pharmaceutical Pricing Agreement (containing the annual federal ceiling price (“FCP”) for each covered drug, which constitutes the maximum price that may be charged to the Government).  All non-TAA-compliant covered drug products must be on an FSS 65 I B contract or IA by June 6, 2016.

This accelerated timeline could present difficulties for some manufacturers, and presents several unanswered questions.   For example, the VA has not articulated whether the agency will view a contractor’s failure to meet the stated timeline as non-compliance with Veterans Health Care Act obligations, a determination that would have potentially serious consequences for the contractor.   In addition, the stated timeline seems quite aggressive.  Current schedule contract holders may have difficulty listing by June 6th if they have not been calculating NFAMP for non-TAA-compliant products, and even if they have, dual-pricers will likely have significant difficulties negotiating other government agency prices by that time.  The execution of IAs may present similar issues in light of the short period allowed.

We will continue to monitor the VA’s efforts to require contractors to list non-TAA-compliant covered drug products, but drug manufacturers should take note of these changes and quickly assess whether any of their products will require action under the new policy.

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Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.

She…

Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.

She has particular expertise in advising clients on intellectual property and data rights issues under the Federal Acquisition Regulations (FAR) and obligations imposed by the Bayh-Dole Act, including march-in and substantial domestic manufacturing. Jen also has significant experience in negotiation and compliance under non-traditional government agreements including Other Transaction Authority agreements (OTAs), Cooperative Research and Development Agreements (CRADAs), Cooperative Agreements, Grants, and Small Business Innovation Research agreements.

For over 20 years, Jen’s practice has focused on advising clients in the pharmaceutical, biologics and medical device industry on all aspects of both commercial and non-commercial agreements with various government agencies including:

  • the Department of Veterans Affairs (VA);
  • the Department of Health and Human Services (HHS), including the Biomedical Advanced Research and Development Authority (BARDA), the National Institutes of Health (NIH), and the Centers for Disease Control (CDC);
  • the Department of Defense (DoD), including the Defense Threat Reduction Agency (DTRA), the Defense Advanced Research Projects Agency (DARPA), and the Joint Program Executive Office for Chemical Biological Defense (JPEO-CBRN); and
  • the U.S. Agency for International Development (USAID).

She regularly advises on the development, production, and supply to the government of vaccines and other medical countermeasures addressing threats such as COVID-19, Ebola, Zika, MERS-CoV, Smallpox, seasonal and pandemic influenza, tropical diseases, botulinum toxin, nerve agents, and radiation events. In addition, for commercial drugs, biologics, and medical devices, Jen advises on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as on the obligations imposed by participation in the 340B Drug Pricing program.

Jen also has significant experience in domestic sourcing compliance under the Buy American Act (BAA) and the Trade Agreements Act (TAA), including regulatory analysis and comments, certifications, investigations, and disclosures (including under the Acetris decision and Biden Administration Executive Orders). She also advises on prevailing wage requirements, including those imposed through the Davis-Bacon Act and the Service Contract Labor Standards.