Title 38, Veterans' BenefitsRelease 119-110
§8126 Limitation on Prices of Drugs Procured by Department and Certain Other Federal Agencies
Title 38 › PART VI — ACQUISITION AND DISPOSITION OF PROPERTY › CHAPTER 81 — ACQUISITION AND OPERATION OF HOSPITAL AND DOMICILIARY FACILITIES; PROCUREMENT AND SUPPLY; ENHANCED-USE LEASES OF REAL PROPERTY › SUBCHAPTER II — PROCUREMENT AND SUPPLY › § 8126
Summary
Drug makers must sign a master agreement with the Secretary and put their covered drugs on the General Services Administration Federal Supply Schedule starting January 1, 1993. For covered drugs bought by certain federal agencies under depot contracts or from the Federal Supply Schedule on or after January 1, 1993, the maker must have a pharmaceutical pricing agreement that keeps the price for the first year at no more than 76 percent of the non‑Federal average manufacturer price (after any extra discount required). The Secretary can allow a small exception if it is in the government’s interest. Drugs bought by State homes getting funds under section 1741 must not cost more than the price on the Federal Supply Schedule at the time of purchase. If a maker does not meet these rules, it cannot get paid for its drugs by a State plan under title XIX of the Social Security Act (except as allowed under section 1927(a)(3)), by the listed federal agencies, or by entities that get Public Health Service funds. The federal agencies covered are the Department, the Department of Defense, the Public Health Service (including the Indian Health Service), and the Coast Guard. Makers must report their non‑Federal average manufacturer price to the Secretary on a schedule: an initial report no later than 30 days after the first day of the last quarter before the agreement starts (or by December 4, 1992 for agreements that start January 1, 1993), and quarterly reports within 30 days after each quarter ends. The Secretary may audit maker or wholesaler records to check prices. Reported or audited information stays confidential except as needed to run these rules and to let the Comptroller General and the Congressional Budget Office review it. The Secretary must share manufacturer names when master agreements start or end and must send a quarterly list to the Secretary of Health and Human Services. Definitions in the law include short descriptions of: change in non‑Federal price; covered drug; depot; manufacturer; non‑Federal average manufacturer price; weighted average price; and contract year.
Full Legal Text
Title 38, §8126
Veterans' Benefits, Source: USLM XML via OLRC
(a)Each manufacturer of covered drugs shall enter into a master agreement with the Secretary under which—
(1)beginning January 1, 1993, the manufacturer shall make available for procurement on the Federal Supply Schedule of the General Services Administration each covered drug of the manufacturer;
(2)with respect to each covered drug of the manufacturer procured by a Federal agency described in subsection (b) on or after January 1, 1993, that is purchased under depot contracting systems or listed on the Federal Supply Schedule, the manufacturer has entered into and has in effect a pharmaceutical pricing agreement with the Secretary (or the Federal agency involved, if the Secretary delegates to the Federal agency the authority to enter into such a pharmaceutical pricing agreement) under which the price charged during the one-year period beginning on the date on which the agreement takes effect may not exceed 76 percent of the non-Federal average manufacturer price (less the amount of any additional discount required under subsection (c)) during the one-year period ending one month before such date (or, in the case of a covered drug for which sufficient data for determining the non-Federal average manufacturer price during such period are not available, during such period as the Secretary considers appropriate), except that such price may nominally exceed such amount if found by the Secretary to be in the best interests of the Department or such Federal agencies;
(3)with respect to each covered drug of the manufacturer procured by a State home receiving funds under section 1741 of this title, the price charged may not exceed the price charged under the Federal Supply Schedule at the time the drug is procured; and
(4)unless the manufacturer meets the requirements of paragraphs (1), (2), and (3), the manufacturer may not receive payment for the purchase of drugs or biologicals from—
(A)a State plan under title XIX of the Social Security Act, except as authorized under section 1927(a)(3) of such Act,
(B)any Federal agency described in subsection (b), or
(C)any entity that receives funds under the Public Health Service Act.
(b)The Federal agencies described in this subsection are as follows:
(1)The Department.
(2)The Department of Defense.
(3)The Public Health Service, including the Indian Health Service.
(4)The Coast Guard.
(c)With respect to any covered drug the price of which is determined in accordance with a pharmaceutical pricing agreement entered into pursuant to subsection (a)(2), beginning on or after January 1, 1993, the manufacturer shall provide a discount in an amount equal to the amount by which the change in non-Federal price exceeds the amount equal to—
(1)the non-Federal average manufacturer price of the drug during the 3-month period that ends one year before the last day of the month preceding the month during which the contract for the covered drug goes into effect (or, in the case of a covered drug for which sufficient data for determining the non-Federal average manufacturer price during such period is not available, during such period as the Secretary considers appropriate); multiplied by
(2)the percentage increase in the Consumer Price Index for all urban consumers (U.S. city average) between the last month of the period described in paragraph (1) and the last month preceding the month during which the contract goes into effect for which Consumer Price Index data is available.
(d)In the case of a covered drug of a manufacturer that has entered into a multi-year contract with the Secretary under subsection (a)(2) for the procurement of the drug—
(1)during any one-year period that follows the first year for which the contract is in effect, the contract price charged for the drug may not exceed the contract price charged during the preceding one-year period, increased by the percentage increase in the Consumer Price Index for all urban consumers (U.S. city average) during the 12-month period ending with the last month of such preceding one-year period for which Consumer Price Index data is available; and
(2)in applying subsection (c) to determine the amount of the discount provided with respect to the drug during a year that follows the first year for which the contract is in effect, any reference in such subsection to “the month during which the contract goes into effect” shall be considered a reference to the first month of such following year.
(e)(1)The manufacturer of any covered drug the price of which is determined in accordance with a pharmaceutical pricing agreement entered into pursuant to subsection (a)(2) shall—
(A)not later than 30 days after the first day of the last quarter that begins before the agreement takes effect (or, in the case of an agreement that takes effect on January 1, 1993, not later than December 4, 1992), report to the Secretary the non-Federal average manufacturer price for the drug during the one-year period that ends on the last day of the previous quarter; and
(B)not later than 30 days after the last day of each quarter for which the agreement is in effect, report to the Secretary the non-Federal average manufacturer price for the drug during such quarter.
(2)The provisions of subparagraphs (B) and (C) of section 1927(b)(3) of the Social Security Act shall apply to drugs described in paragraph (1) and the Secretary in the same manner as such provisions apply to covered outpatient drugs and the Secretary of Health and Human Services under such subparagraphs, except that references in such subparagraphs to prices or information reported or required under “subparagraph (A)” shall be deemed to refer to information reported under paragraph (1).
(3)In order to determine the accuracy of a drug price that is reported to the Secretary under paragraph (1), the Secretary may audit the relevant records of the manufacturer or of any wholesaler that distributes the drug, and may delegate the authority to audit such records to the appropriate Federal agency described in subsection (b).
(4)Any information contained in a report submitted to the Secretary under paragraph (1) or obtained by the Secretary through any audit conducted under paragraph (3) shall remain confidential, except as the Secretary determines necessary to carry out this section and to permit the Comptroller General and the Director of the Congressional Budget Office to review the information provided.
(f)The Secretary shall supply to the Secretary of Health and Human Services—
(1)upon the execution or termination of any master agreement, the name of the manufacturer, and
(2)on a quarterly basis, a list of manufacturers who have entered into master agreements under this section.
(g)(1)Any reference in this section to a provision of the Social Security Act shall be deemed to be a reference to the provision as in effect on November 4, 1992.
(2)A manufacturer is deemed to meet the requirements of subsection (a) if the manufacturer establishes to the satisfaction of the Secretary that the manufacturer would comply (and has offered to comply) with the provisions of this section (as in effect immediately after the enactment of this section), and would have entered into an agreement under this section (as such section was in effect at such time), but for a legislative change in this section after November 4, 1992.
(h)In this section:
(1)The term “change in non-Federal price” means, with respect to a covered drug that is subject to an agreement under this section, an amount equal to—
(A)the non-Federal average manufacturer price of the drug during the 3-month period that ends with the month preceding the month during which a contract goes into effect (or, in the case of a covered drug for which sufficient data for determining the non-Federal average manufacturer price during such period is not available, during such period as the Secretary considers appropriate); minus
(B)the non-Federal average manufacturer price of the drug during the 3-month period that ends one year before the end of the period described in subparagraph (A) (or, in the case of a covered drug for which sufficient data for determining the non-Federal average manufacturer price during such period is not available, during such period preceding the period described in subparagraph (A) as the Secretary considers appropriate).
(2)The term “covered drug” means—
(A)a drug described in section 1927(k)(7)(A)(ii) of the Social Security Act, or that would be described in such section but for the application of the first sentence of section 1927(k)(3) of such Act;
(B)a drug described in section 1927(k)(7)(A)(iv) of the Social Security Act, or that would be described in such section but for the application of the first sentence of section 1927(k)(3) of such Act; or
(C)any biological product identified under section 600.3 of title 21, Code of Federal Regulations.
(3)The term “depot” means a centralized commodity management system through which covered drugs procured by an agency of the Federal Government are—
(A)received, stored, and delivered through—
(i)a federally owned and operated warehouse system, or
(ii)a commercial entity operating under contract with such agency; or
(B)delivered directly from the commercial source to the entity using such covered drugs.
(4)The term “manufacturer” means any entity which is engaged in—
(A)the production, preparation, propagation, compounding, conversion, or processing of prescription drug products, either directly or indirectly by extraction from substances of natural origin, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis, or
(B)in the packaging, repackaging, labeling, relabeling, or distribution of prescription drug products.
Such term does not include a wholesale distributor of drugs or a retail pharmacy licensed under State law.
(5)The term “non-Federal average manufacturer price” means, with respect to a covered drug and a period of time (as determined by the Secretary), the weighted average price of a single form and dosage unit of the drug that is paid by wholesalers in the United States to the manufacturer, taking into account any cash discounts or similar price reductions during that period, but not taking into account—
(A)any prices paid by the Federal Government; or
(B)any prices found by the Secretary to be merely nominal in amount.
(6)The term “weighted average price” means, with respect to a covered drug and a period of time (as determined by the Secretary) an amount equal to—
(A)the sum of the products of the average price per package unit of each quantity of the drug sold during the period and the number of package units of the drug sold during the period; divided by
(B)the total number of package units of the drug sold during the period.
(i)(1)If the Secretary modifies a multi-year contract described in subsection (d) to include a covered drug of the manufacturer that was not available for inclusion under the contract at the time the contract went into effect, the price of the drug shall be determined as follows:
(A)For the portion of the first contract year during which the drug is so included, the price of the drug shall be determined in accordance with subsection (a)(2), except that the reference in such subsection to “the one-year period beginning on the date the agreement takes effect” shall be considered a reference to such portion of the first contract year.
(B)For any subsequent contract year, the price of the drug shall be determined in accordance with subsection (d), except that each reference in such subsection to “the first year for which the contract is in effect” shall be considered a reference to the portion of the first contract year during which the drug is included under the contract.
(2)In this subsection, the term “contract year” means any one-year period for which a multi-year contract described in subsection (d) is in effect.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The Social Security Act, referred to in subsecs. (a)(4)(A), (e)(2), (g)(1), and (h)(2)(A), (B), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, which is classified generally to chapter 7 (§ 301 et seq.) of Title 42, The Public Health and Welfare. Title XIX of the Act is classified generally to subchapter XIX (§ 1396 et seq.) of chapter 7 of Title 42. section 1927 of the Act is classified to section 1396r–8 of Title 42. For complete classification of this Act to the Code, see section 1305 of Title 42 and Tables. The Public Health Service Act, referred to in subsec. (a)(4)(C), is act July 1, 1944, ch. 373, 58 Stat. 682, as amended, which is classified generally to chapter 6A (§ 201 et seq.) of Title 42. For complete classification of this Act to the Code, see
Short Title
note set out under section 201 of Title 42 and Tables. Enactment of this section, referred to in subsec. (g)(2), means enactment of Pub. L. 102–585, which enacted this section and was approved Nov. 4, 1992.
Amendments
1997—Subsec. (h)(2). Pub. L. 105–115 inserted “or” at end of subpar. (B), substituted a period for “; or” at end of subpar. (C), and struck out subpar. (D), which read as follows: “insulin certified under section 506 of the Federal Food, Drug, and Cosmetic Act.” 1996—Subsec. (b)(4). Pub. L. 104–106 added par. (4). 1994—Subsec. (e)(1)(A). Pub. L. 103–446, § 1201(e)(27)(A), (f)(6)(A), substituted “
December 4, 1992” for “30 days after the date of the enactment of this section” and “one-year period” for “1-year period”. Subsec. (f)(2). Pub. L. 103–446, § 1201(e)(27)(B), substituted a period for “, and” at end. Subsec. (g)(1), (2). Pub. L. 103–446, § 1201(f)(6)(B), substituted “
November 4, 1992” for “the date of the enactment of this section”. 1993—Subsec. (a)(2). Pub. L. 103–18, § 1(a)(1), struck out “preceding such date” before “as the Secretary considers appropriate”. Subsec. (c). Pub. L. 103–18, § 1(a)(2), in introductory provisions, struck out “for calendar quarters” after “subsection (a)(2),”, and in par. (1), struck out “preceding the month during which the contract goes into effect” after “during such period” and substituted “multiplied by” for “increased by”. Subsec. (d)(1). Pub. L. 103–18, § 1(a)(3), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “during any one-year period that follows the first year for which the contract is in effect, the price charged may not exceed the price charged during the preceding one-year period, increased by the percentage increase in the Consumer Price Index for all urban consumers (U.S. city average) between the last months of such one-year periods for which Consumer Price Index data is available; and”. Subsec. (i). Pub. L. 103–18, § 1(a)(4), added subsec. (i).
Statutory Notes and Related Subsidiaries
Effective Date
of 1996 Amendment Pub. L. 104–106, div. A, title VII, § 737(b), Feb. 10, 1996, 110 Stat. 383, provided that: “The amendment made by subsection (a) [amending this section] shall take effect as if included in the enactment of section 603 of the Veterans Health Care Act of 1992 (Public Law 102–585; 106 Stat. 4971).”
Effective Date
of 1993 Amendment Pub. L. 103–18, § 1(b), Apr. 12, 1993, 107 Stat. 54, provided that: “The
Amendments
made by subsection (a) [amending this section] shall take effect as if included in the enactment of section 603 of the Veterans Health Care Act of 1992 [Pub. L. 102–585].”
Transfer of Functions
For transfer of authorities, functions, personnel, and assets of the Coast Guard, including the authorities and functions of the Secretary of Transportation relating thereto, to the Department of Homeland Security, and for treatment of related references, see section 468(b), 551(d), 552(d), and 557 of Title 6, Domestic Security, and the Department of Homeland Security Reorganization Plan of November 25, 2002, as modified, set out as a note under section 542 of Title 6.
Reference
Citations & Metadata
Citation
38 U.S.C. § 8126
Title 38, Veterans' Benefits
Last Updated
Sep 22, 2026
Release point: 119-110