Murphy, Warren, Scott, Lawmakers Warn Of Risks To National Security, Military Readiness Due To Reliance On Foreign Pharmaceuticals

WASHINGTON-U.S. Senator Chris Murphy (D-Conn.), a member of the U.S. Senate Health, Education, Labor, and Pensions Committee, on Tuesday joined U.S. Senators Elizabeth Warren (D-Mass.),Rick Scott (R-Fla.), Marco Rubio (R-Fla.), Joni Ernst (R-Iowa), and Mike Rounds (R-S.D.) in sending a letter to the Department of Defense (DoD) seeking an update on its pharmaceutical acquisition strategy following the decision in Acetris Health, LLC v. United States (Acetris), which loosened requirements on federal agencies to preference American-made products in purchasing decisions. The lawmakers raised concerns about the decision's potential to increase DoD's reliance on foreign pharmaceuticals.

Federal agencies typically make decisions about acquiring medications and drugs based on the Federal Acquisition Regulations (FAR), which prohibit federal agencies from purchasing products from a country that does not comply with the Trade Agreements Act (TAA). In Acetris, the Court considered the Department of Veterans Affairs' (VA) restriction on drugs manufactured by Acetris, a New Jersey-based pharmaceutical company, whose products were formed with active ingredients from India, a TAA non-compliant country. Evidence from Customs and Border Patrol showed that the Acetris manufacturing process did not substantially transform the India-sourced active ingredients, confirming "that the tablets were a product of India for purposes of U.S. government procurement ..." Despite this evidence, the Court found that Acetris's drugs were in compliance with the FAR, thereby rendering the VA's restriction improper.

This decision poses significant risks to the military's drug supply chain, which is already over-reliant on foreign-sourced pharmaceuticals. DoD's interim report on Pharmaceutical Supply Chain Risks revealed that "54% of the DoD pharmaceutical supply chain is considered either high or very high risk, with dependency on non-(TAA) compliant suppliers, sourcing from China and India, or unknown."

At a hearing of the Senate Armed Services' Subcommittee on Personnel in April 2024, Col(ret) Victor Suarez explained that as a result of this decision, "a Chinese firm could make all the [active pharmaceutical ingredients] and precursor materials for a medicine, ship it to a U.S. subsidiary that does packaging and final labeling, and still be able to label it as American made. This would be considered an American-made drug and principally illustrates this loophole." The senators requested that DoD explain how the Acetris decision has affected its pharmaceutical acquisition strategy by September 30, 2024.

Full text of the letter is available HERE and below:

Dear Secretary Austin,

We write regarding the Department of Defense's (DOD's or the Department's) pharmaceutical acquisition strategy, including whether, and if so, how, such strategy has changed due to the February 2020 Circuit Court decision in Acetris Health, LLC v. United States, which loosened Buy American requirements for federal agencies purchasing pharmaceuticals. We are concerned that the decision may be exacerbating the Department's reliance on foreign pharmaceutical products, increasing national security risks and potentially compromising military readiness.

Historically, federal agencies have made pharmaceutical acquisition decisions based on the Federal Acquisition Regulations (FAR), which prohibits federal agencies from procuring products from a country that does not comply with the Trade Agreements Act (TAA). Accordingly, prior to the Acetris Health, LLC v. United States decision, the Department of Veterans Affairs (VA) placed purchasing restrictions on drug manufacturers whose products were formed with active pharmaceutical ingredients (API) from TAA non-compliant countries, typically following Customs and Border Protection (CBP) country-of-origin determinations.

In Acetris Health, LLC v. United States, the U.S. Court of Appeals for the Federal Circuit (the Court) considered the VA's strategy, and specifically, the agency's purchasing restriction on a number of drugs manufactured by Acetris, a New Jersey-based pharmaceutical company. The VA contended that Acetris's drugs violated the FAR, given that the products were formed with a single API sourced from India - a TAA non-compliant country. In defending its policy, the VA relied on CBP's country-of-origin determination, which found that "the manufacturing process at the [Acetris] New Jersey facility did not result in substantial transformation [of the API] in the US and that the tablets were a product of India for purposes of US government procurement under relevant CBP precedent."

Despite this evidence, the Court found that Acetris's drugs were in compliance with the FAR, thereby rendering the VA's restriction improper. At a hearing of the U.S. Senate Committee on Armed Services' Personnel Subcommittee in April, Col(ret) Victor Suarez explained the ramifications of the decision: "Today, a Chinese firm could make all the API and precursor materials for a medicine, ship it to a U.S. subsidiary that does packaging and final labeling, and still be able to label it as American made. This would be considered an American-made drug and principally illustrates this loophole." This decision poses significant risks to the military's drug supply chain, which is already over reliant on foreign sourced pharmaceuticals. For example, in the DOD's interim report on Pharmaceutical Supply Chain Risks, the Department revealed that "54% of the DoD pharmaceutical supply chain is considered either high or very high risk, with dependency on non-[TAA] compliant suppliers, sourcing from China and India, or unknown." As witnessed by the Covid-19 pandemic, an over-reliance on foreign countries for critical materials, including pharmaceuticals, leaves the U.S. vulnerable to international supply shocks.

Thank you for your attention to this important matter.

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