Federal Buy American rules for medicines

In fiscal 2021, federal agencies spent about $13.2 billion on drugs bought through the Federal Supply Schedule contracts run by the Department of Veterans Affairs, according to a September 2023 report¹ by the VA's inspector general. As of March 31, 2022, the pharmaceutical schedule listed 14,136 drugs, and 7,071 of them were generics.

Every one of those purchases runs through country-of-origin rules that most pharmacy customers never see. Two federal laws decide where a government-bought medicine may come from: the Buy American statute, first passed in 1933, and the Trade Agreements Act of 1979. For large contracts, the second one shuts out finished products from countries outside U.S. trade agreements, a group that includes India and China. FDA said in 2025 that only 9 percent of API manufacturers² were in the United States, compared with 22 percent in China and 44 percent in India.

This explainer covers the dollar thresholds that decide which law applies, how federal rules decide where a pill "comes from," how the VA schedule treats generics, and what the 2020 executive order on essential medicines asked agencies to do.

Two laws and a dollar line

The Buy American statute applies to supplies bought for use in the United States when the contract exceeds the micro-purchase threshold, under FAR 25.100³. That threshold is now $15,000, according to the definitions in FAR 2.101⁴. A product counts as domestic if it is manufactured in the United States and, for most goods, if U.S. components make up more than 65 percent of the cost of all components for items delivered from 2024 through 2028, rising to 75 percent from 2029, under FAR 25.101⁵. The same section says that component test is waived for commercially available off-the-shelf items, which leaves U.S. manufacture as the test for those.

Buy American does not ban foreign products outright. It adds a penalty when contracting officers compare bids: under FAR 25.106⁶, a foreign offer is evaluated as if it cost 20 percent more when the lowest domestic offer comes from a large business, and 30 percent more when it comes from a small one.

Above a much higher line, the Trade Agreements Act takes over. The U.S. Trade Representative, using authority the president delegated under that law, waives Buy American for eligible products of countries that have signed procurement agreements with the United States, and their offers get equal treatment with domestic ones, according to FAR 25.402⁷. For goods bought by central government agencies, the threshold under the World Trade Organization Agreement on Government Procurement is $174,000 for 2026 and 2027, the Trade Representative set in a January 2, 2026 notice¹⁰. A second notice¹¹ in February updated several free trade agreement figures after delays in Bureau of Labor Statistics data.

That last restriction comes from FAR 25.403⁸, which says agencies covered by the agreement may "acquire only U.S.-made or designated country end products." The same section tells contracting officers to add up recurring awards for the same products over 12 months when deciding whether a purchase crosses the threshold, and bars splitting a purchase to stay under it.

Which countries are in, and where a pill comes from

Designated countries are the members of the procurement agreement, the free trade agreement partners, least developed countries and Caribbean Basin countries, under FAR 25.003⁹. The current list includes Canada, Japan, the United Kingdom, Switzerland, Taiwan, Korea and most of Europe. India and China are absent from it.

For a medicine, the harder question is where it is legally from. The same FAR section defines a U.S.-made end product as one "mined, produced, or manufactured in the United States" or "substantially transformed in the United States into a new and different article of commerce." Federal customs officials have long treated the country where the active ingredient is made as the place a drug is substantially transformed. In February 2020, the U.S. Court of Appeals for the Federal Circuit held in a VA contracting dispute that a tablet manufactured in the United States qualifies as a U.S.-made end product for these purposes even when its active ingredient came from India, because the definition's two tests are alternatives.

So for federal buying, finishing a tablet in a U.S. plant can make it eligible, while the same tablet finished overseas from the same ingredient may be shut out. Our pieces on where ingredients come from, India’s role and China’s role lay out how much of the supply chain sits in those two countries.

How the VA schedule treats generics

VA's schedule rests on a separate law. The Veterans Health Care Act of 1992 requires makers of "covered drugs" to list them on the schedule and sell them to the VA, the Defense Department, the Public Health Service and the Coast Guard at a discount of at least 24 percent off the market price, the VA inspector general¹ explains. Covered drugs are brand-name drugs and authorized generics. Ordinary generics fall outside that mandate, though they made up about half the schedule's listings in 2022.

The VA law is tied to Medicaid. A manufacturer that wants its drugs covered by state Medicaid programs must sign a master agreement with the VA for the schedule as well as a 340B pricing agreement, according to Medicaid.gov¹⁵. GxRadar's article on the Medicaid rebate program covers that side, and our piece on VA and military pharmacy benefits covers how veterans get their prescriptions.

The 2020 order on essential medicines

Executive Order 13944¹², signed August 6, 2020, pushed agencies beyond the two statutes for a defined set of products. It told them, to the extent the law permits, to use existing exceptions to full and open competition to limit purchases of essential medicines, medical countermeasures and their critical inputs to products made in the United States, and to split orders among two or more U.S. manufacturers where appropriate. FDA published the list of covered products¹³ on October 30, 2020; GxRadar covers it in a separate article.

For low-priced generics, the 25 percent cost exception can decide the outcome. If limiting a contract to U.S.-made products would raise its cost by over 25 percent, the agency head can set the preference aside for that contract. The list from the order also became the basis for a December 2023 Defense Production Act determination¹⁴ covering domestic production of the same products, which GxRadar explains in its piece on the Defense Production Act and medicines.

Two changes are already scheduled. The trade agreement thresholds cover 2026 and 2027, and FAR 25.402 says the Trade Representative revises most of them about every two years. The Buy American domestic content requirement rises from 65 percent to 75 percent for items delivered starting in 2029, according to FAR 25.101⁵. The broader federal push to bring production home is tracked in our onshoring overview and in the tariff actions of 2025 and 2026.