September 12, 2006
WASHINGTON, DC – The US Federal Court of Appeals for the Federal Circuit recently ruled that the October 14, 2004 "Dear Manufacturer" letter sent to Veterans Administration (VA ) pharmaceutical contractors classifying sales made through the Tricare Retail Pharmacy program as covered transactions eligible for Federal Ceiling Prices and resultant rebates, is, in fact, a substantive rule that was enacted without compliance with the procedures required by the Administrative Procedures Act. The Court ruled, therefore, that the letter is procedurally defective and remanded the matter back to the VA for resolution. Donna Yesner, Partner at McKenna Long & Aldridge LLP, successfully argued the TRICARE case on behalf of the Coalition for Government Procurement on, saving the pharmaceutical industry millions of dollars in false rebate claims.
“We are very pleased that the Coalition prevailed on this matter. It’s an extremely important issue for everyone,” said Ms. Yesner, a Partner in Washington DC office.
The Coalition for Government Procurement, a non-profit association of companies that sell commercial services and products (including pharmaceuticals) to the federal government primarily through multiple award schedule (MAS) contracts and GWACs, petitioned the Court of Appeals for the Federal Circuit for review of an action of the VA under the putative authority of the Veterans Health Care Act (VHCA). At issue was an October 14, 2004 "Dear Manufacturer" letter sent to VA pharmaceutical contractors classifying sales made through the Tricare Retail Pharmacy program as covered transactions eligible for Federal Ceiling Prices and resultant rebates, pursuant to the terms of agreements the manufacturers had entered into with the VA and rebate rules developed by Department of Defense (DoD). The terms of these agreements, which were proscribed by the VHCA, required manufacturers to charge no more than a fixed percentage of a statutorily calculated price when the VA and the DoD procure drugs under Federal Supply Schedule contracts or through a depot contracting system. The Coalition challenged the legality of the agency requirement for prescription refunds on two grounds: (1) it was, by its nature, a substantive rule that could only be effectuated after notice and comment rulemaking, and (2) the agency decision was arbitrary, capricious and outside the scope of the agency's statutory authority. The Government asserted that the court lacked jurisdiction and that no notice and comment rulemaking was required because the letter was not a substantive rule, and it defended the agency's interpretation of the VHCA.
The court agreed with the Coalition that the action was by its nature a substantive rule that imposed new obligations on manufacturers. Accordingly, because the agency had not followed proper procedures, it found the action defective and remanded the matter to the agency to follow proper procedures.
McKenna Long & Aldridge LLP
McKenna Long & Aldridge is a full-service law and public policy firm of 400 lawyers and public policy advisors with offices in Atlanta, Brussels, Denver, Los Angeles, Philadelphia, San Diego, San Francisco and Washington, DC. The firm provides business solutions in the areas of corporate law, government contracts, intellectual property and technology, complex litigation, public policy and regulatory affairs, international law, real estate, environmental, energy and finance. To learn more about the firm and its services, log on to www.mckennalong.com.