Military Update: White House said to back drugmakers in dispute with DOD on Tricare
July 27, 2006
As the Justice Department prepares to battle drug manufacturers in court to win what U.S. lawyers say are overdue price rebates for the Tricare retail pharmacy network, the White House quietly is pressuring Congress not to interfere by passing legislation to support the cause.
Bush administration politicos, in effect, have aligned the president behind the drugmakers, and have undercut the Defense Department’s plea for legislative relief from high retail drug costs.
The administration’s cozy relationship with the pharmaceutical industry is costing the military at least $260 million a year in drug rebates, sources said. Those costs, in turn, could encourage Congress soon to crimp access to the Tricare retail network for beneficiaries needing maintenance drugs.
The charges leveled here come from various informed government sources. Most of them are Democrats but a few are disgruntled Republicans.
Drug store chains also are upset. Their lobbyists worry too that efforts to protect drug manufacturers will keep government costs so high in the Tricare retail network that Congress and Defense officials will take other actions to curb costs. These could include forcing beneficiaries to have prescriptions filled by mail order or enticing them through co-pay changes.
The controversy involving the White House surfaces as defense officials are desperate to ease the growth of pharmacy costs. Total costs have climbed since 2000 from $1.6 billion to almost to $6 billion. The sharpest growth has been in the retail network. Tricare prescriptions filled by commercial druggists have tripled over five years.
The cost of the Tricare retail network has climbed even faster because brand-name drug manufacturers refuse to grant discount prices, as they already do on drugs dispensed on base or through Tricare mail order. Lawyers for the departments of Veterans Affairs and Defense agreed last year that the Veterans Health Care Act of 1992 directs drug manufacturers to grant discounts on all drugs supplied to DOD, VA, the Public Health Service and the Coast Guard. The discounts are provided as rebates, which, on average, lower government costs by 30 percent to 40 percent.
Last fall the big pharmaceutical companies answered that finding by filing a federal lawsuit. It argues that the usual federal rebates do not apply to the Tricare retail program.
William Winkenwerder, assistant secretary of defense for health affairs, appeared before the Senate armed services subcommittee on military personnel in April and asked for help. He said drugmakers already owed rebates to Tricare worth more than $450 million, and the tab is rising.
“In other words,” Winkenwerder told senators, “our budget issues would be relieved by that much if we had what we think is due us.”
The Defense Department’s 2007 budget assumes payment of the drug industry rebates for the Tricare retail network. Yet Congress never received a specific legislative proposal from DOD asking to clarify the law. The Office of Management and Budget blocked it, sources said.
The Senate stepped in on DOD’s behalf to include in its version of the 2007 defense authorization language to clarify that the 1992 law requires manufacturers to pay rebates on drugs dispensed in the retail network.
The House subcommittee on military personnel endorsed a similar provision. But Rep. Duncan Hunter, R-Calif., chairman of the full committee, had it pulled before the full committee marked up the bill. The change came at the behest of a senior administration official, sources said.
Hunter pulled it from the House bill even though he personally favors forcing drugmakers to adhere to federal discounts, sources said.
A House-Senate conference committee will iron out differences in the two versions of the bill and decide the fate of the Senate rebate provision. It also will vote on another Senate provision that would mandate mail order refills for beneficiaries on maintenance medications.
A final compromise defense bill is due to be unveiled by late September. Pitted against each other for the ear of conferees are two powerful lobby groups.
The well-financed Pharmaceutical Research and Manufacturers Association, with its close ties to the White House, is led by Billy Tauzin, the retired Republican congressman from Louisiana. PhRMA declined to make Tauzin available or to comment on the Tricare rebate issue.
Supporting the Senate rebate provision, but opposed to its call for mandatory refills by mail, is the National Association of Chain Drug Stores.
“As community pharmacies we are very concerned,” said NACDS president Bob Hannan. His association represents about 200 companies operating 35,000 pharmacies.
The goal, he said, is to retain “choice” for military beneficiaries on where they can get prescriptions filled. In 2005, he said, they filled 51.7 million prescriptions in retail outlets and only 6.7 million by mail.
NACDS has met with Winkenwerder, with House and Senate members and staff, and with service associations. All of them agree, Hannan said, that preserving access to retail outlets is tied now to the fight over lowering the cost of drugs for Tricare in the retail network.
“If the federal supply pricing is not in place for the retail piece of the business,” Hannan said, “then [given] the increasing cost of benefits, the Department of Defense and Congress need to move business toward mail.”
With the White House privately urging Republicans to deny Tricare a swift legislative victory on the drug pricing issue, defense officials have changed their own rhetoric. In June when asked to comment on the Senate pricing initiative, Winkenwerder said carefully, “The administration does not have a position either in favor of or against that particular provision.”
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