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116th Congress }                                       { Rept. 116-257
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                       {    Part 1

======================================================================

 
                  PAYMENT COMMISSION DATA ACT OF 2019

                                _______
                                

October 28, 2019.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Pallone, from the Committee on Energy and Commerce, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1781]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Energy and Commerce, to whom was referred 
the bill (H.R. 1781) to amend titles XVIII and XIX of the 
Social Security Act to provide the Medicare Payment Advisory 
Commission and the Medicaid and CHIP Payment and Access 
Commission with access to certain drug payment information, 
including certain rebate information, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.

                                CONTENTS

                                                                   Page
   I. Purpose and Summary.............................................2
  II. Background and Need for the Legislation.........................3
 III. Committee Hearings..............................................4
  IV. Committee Consideration.........................................4
   V. Committee Votes.................................................4
  VI. Oversight Findings..............................................4
 VII. New Budget Authority, Entitlement Authority, and Tax Expenditure4
VIII. Congressional Budget Office Estimate............................5
  IX. Federal Mandates Statement......................................6
   X. Statement of General Performance Goals and Objectives...........6
  XI. Duplication of Federal Programs.................................6
 XII. Committee Cost Estimate.........................................6
XIII. Earmarks, Limited Tax Benefits, and Limited Tariff Benefits.....6
 XIV. Advisory Committee Statement....................................6
  XV. Applicability to Legislative Branch.............................6
 XVI. Section-by-Section Analysis of the Legislation..................7
XVII. Changes in Existing Law Made by the Bill, as Reported...........7

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Payment Commission Data Act of 2019''.

SEC. 2. PROVIDING THE MEDICARE PAYMENT ADVISORY COMMISSION AND MEDICAID 
                    AND CHIP PAYMENT AND ACCESS COMMISSION WITH ACCESS 
                    TO CERTAIN DRUG PAYMENT INFORMATION, INCLUDING 
                    CERTAIN REBATE INFORMATION.

  (a) Access to Certain Part D Payment Data.--Section 1860D-15(f) of 
the Social Security Act (42 U.S.C. 1395w-115(f)) is amended--
          (1) in paragraph (2)--
                  (A) in subparagraph (A)(ii), by striking ``and'' at 
                the end;
                  (B) in subparagraph (B), by striking the period at 
                the end and inserting ``; and''; and
                  (C) by inserting at the end the following new 
                subparagraph:
                  ``(C) by the Executive Director of the Medicare 
                Payment Advisory Commission for purposes of monitoring, 
                making recommendations, and analysis of the program 
                under this title and by the Executive Director of the 
                Medicaid and CHIP Payment and Access Commission for 
                purposes of monitoring, making recommendations, and 
                analysis of the Medicaid program established under 
                title XIX and the Children's Health Insurance Program 
                under title XXI.''; and
          (2) by adding at the end the following new paragraph:
          ``(3) Additional restrictions on disclosure of information.--
        The Executive Directors described in paragraph (2)(C) shall not 
        disclose any of the following information disclosed to such 
        Executive Directors or obtained by such Executive Directors 
        pursuant to such paragraph, with respect to a prescription drug 
        plan offered by a PDP sponsor or an MA-PD plan offered by an MA 
        organization:
                  ``(A) The specific amounts or the identity of the 
                source of any rebates, discounts, price concessions, or 
                other forms of direct or indirect remuneration under 
                such prescription drug plan or such MA-PD plan.
                  ``(B) Information submitted with the bid submitted 
                under section 1860D-11(b) by such PDP sponsor or under 
                section 1854(a) by such MA organization.
                  ``(C) In the case of such information from 
                prescription drug event records, in a form that would 
                not be permitted under section 423.505(m) of title 42, 
                Code of Federal Regulations, or any successor 
                regulation, if made by the Centers for Medicare & 
                Medicaid Services.''.
  (b) Access to Certain Rebate and Payment Data Under Medicare and 
Medicaid.--Section 1927(b)(3)(D) of the Social Security Act (42 U.S.C. 
1396r-8(b)(3)(D)) is amended--
          (1) in the matter before clause (i), by striking ``subsection 
        (a)(6)(A)(ii)'' and inserting ``subsection (a)(6)(A)'';
          (2) in clause (iv), by striking ``and'' at the end;
          (3) in clause (v), by striking the period at the end and 
        inserting ``, and'';
          (4) by inserting after clause (v) the following new clause:
                          ``(vi) to permit the Executive Director of 
                        the Medicare Payment Advisory Commission and 
                        the Executive Director of the Medicaid and CHIP 
                        Payment and Access Commission to review the 
                        information provided.'';
          (5) in the matter at the end, by striking ``1860D-
        4(c)(2)(E)'' and inserting ``1860D-4(c)(2)(G)''; and
          (6) by adding at the end the following new sentence: ``Any 
        information disclosed to the Executive Director of the Medicare 
        Payment Advisory Commission or the Executive Director of the 
        Medicaid and CHIP Payment and Access Commission pursuant to 
        this subparagraph shall not be disclosed by either such 
        Executive Director in a form which discloses the identity of a 
        specific manufacturer or wholesaler or prices charged for drugs 
        by such manufacturer or wholesaler.''.

                         I. Purpose and Summary

    H.R. 1781, the ``Payment Commission Data Act of 2019'', was 
introduced in the House on March 14, 2019, by Reps. Buddy 
Carter (R-GA), Tom O'Halleran (D-AZ), Tom Rice (R-SC), Jimmy 
Panetta (D-CA), Greg Gianforte (R-MT), and Peter Welch (D-VT), 
and was referred to the Committee on Energy and Commerce. H.R. 
1781 amends titles XVIII and XIX of the Social Security Act to 
provide the Medicare Payment Advisory Commission (MedPAC) and 
the Medicaid and CHIP Payment and Access Commission (MACPAC) 
with access to certain drug payment information, including 
certain proprietary rebate information that is not publicly 
available in order to better analyze and report to Congress on 
drug pricing issues in the Medicare and Medicaid programs.

                II. Background and Need for Legislation

    The Medicare Payment Advisory Commission (MedPAC) and the 
Medicaid and CHIP Payment and Access Commission (MACPAC) are 
independent, nonpartisan commissions that advise Congress on 
issues affecting the Medicare and Medicaid Programs. 
Established in 1997, MedPAC is responsible for advising 
Congress on Medicare's fee-for-service program and private 
health plans that participate in Medicare, as well as access to 
care and quality of care issues that affect Medicare 
beneficiaries. MedPAC meets publicly to discuss policy issues 
and formulate recommendations and publishes two reports to 
Congress each year. MACPAC was established in 2009 and provides 
policy and data analysis on the Medicaid program to Congress, 
as well as states, on issues affecting Medicaid and the 
Children's Health Insurance Program (CHIP). Both commissions 
actively analyze payment and coverage issues with respect to 
prescription drugs available under Medicare and Medicaid. Under 
current law, however, MedPAC and MACPAC lack access to certain 
proprietary drug pricing information, such as data on rebates 
and other price concessions, that is provided to the Department 
of Health and Human Services (HHS) to administer the Medicare 
Part D program, as well as the Medicaid prescription drug 
rebate program.
    The Chairs of MedPAC and MACPAC requested a statutory 
change to eliminate this data barrier in letters to the House 
Committee on Energy and Commerce in August and September 2018 
during the 115th Congress, and again in the current session of 
Congress in March 2019. In their letters to the Committee, the 
Commissions emphasized that access to proprietary drug pricing 
data enhances the capabilities of MedPAC and MACPAC in 
assisting Congress on issues related to prescription drug 
costs.\1\
---------------------------------------------------------------------------
    \1\See Letter to Chairman Frank Pallone, Jr. and Ranking Member 
Greg Walden, et al from Francis J. Crosson, M.D., Chairman, Medicare 
Payment Advisory Commission (March 26, 2019); Letter to Chairman Frank 
Pallone, Jr. and Ranking Member Greg Walden from Penny Thompson, Chair, 
Medicaid and CHIP Payment and Access Commission (March 25, 2019); 
Letter to Chairman Greg Walden and Ranking Member Frank Pallone, Jr., 
et al from Francis J. Crosson, M.D., Chairman, Medicare Payment 
Advisory Commission (Sept. 4, 2018); Letter to Chairman Greg Walden and 
Ranking Member Frank Pallone, Jr. from Penny Thompson, Chair, Medicaid 
and CHIP Payment and Access Commission (Aug. 30, 2018).
---------------------------------------------------------------------------
    H.R. 1781 ensures that HHS can share Medicare Part D and 
Medicaid drug price and rebate data with the Executive 
Directors of MedPAC and MACPAC for the purposes of monitoring, 
making recommendations, and analyzing the programs. The bill 
includes additional restrictions on disclosure of information 
by MedPAC or MACPAC, including the specific amounts or the 
identity of the source of rebates, price concessions, or other 
forms of direct or indirect renumeration, as well as price 
information submitted as part of a bid by a prescription drug 
plan sponsor.
    H.R. 1781 will allow MedPAC and MACPAC to better analyze 
the impact of increasing drug prices on the Medicare and 
Medicaid programs and will ensure the Commissions have access 
to the data they need to accurately, effectively, and fully 
inform Congress on drug pricing issues.

                        III. Committee Hearings

    For the purposes of section 103(i) of H. Res. 6 of the 
116th Congress--the following hearing was used to develop or 
consider H.R. 1781:
    The Subcommittee on Health held a hearing on April 30, 
2019, entitled ``Prescription Drug Coverage in the Medicare 
Program.'' The Subcommittee received testimony from the 
following witness:
         James E. Mathews, Ph.D., Executive Director, 
        Medicare Payment Advisory Commission.

                      IV. Committee Consideration

    H.R. 1781, the ``Payment Commission Data Act of 2019'', was 
introduced in the House on March 14, 2019, by Reps. Carter (R-
GA), O'Halleran (D-AZ), Rice (R-SC), Panetta (D-CA), Gianforte 
(R-MT), and Welch (D-VT), and was referred to the Committee on 
Energy and Commerce. Subsequently, the bill was referred to the 
Subcommittee on Health on March 15, 2019. Following hearings, 
the Subcommittee on Health met in open markup session, pursuant 
to notice, on March 27, 2019, to consider H.R. 1781. No 
amendments were offered to the bill. Subsequently, the 
Subcommittee on Health agreed to a motion by Ms. Eshoo, 
Chairwoman of the Subcommittee, to forward favorably H.R. 1781, 
without amendment, to the full Committee by a voice vote.
    On April 3, 2019, the Committee on Energy and Commerce met 
in open markup session, pursuant to notice, to consider H.R. 
1781 as approved by the Subcommittee on Health. An amendment 
offered by Mr. Carter of Georgia, # 1, was agreed to by a voice 
vote. Subsequently, the full Committee agreed to a motion by 
Mr. Pallone, Chairman of the Committee, to order reported 
favorably to the House the bill H.R. 1781, amended, by a voice 
vote, a quorum being present.

                           V. Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list each record vote 
on the motion to report legislation and amendments thereto. The 
Committee advises that there were no record votes on reporting 
H.R. 1781 to the House nor on any amendments to the bill.

                         VI. Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII and clause 2(b)(1) 
of rule X of the Rules of the House of Representatives, the 
oversight findings and recommendations of the Committee are 
reflected in the descriptive portion of the report.

 VII. New Budget Authority, Entitlement Authority, and Tax Expenditures

    Pursuant to 3(c)(2) of rule XIII of the Rules of the House 
of Representatives, the Committee adopts as its own the 
estimate of new budget authority, entitlement authority, or tax 
expenditures or revenues contained in the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974.

               VIII. Congressional Budget Office Estimate

    With respect to the requirements of clause (3)(c)(3) of 
rule XIII of the Rules of the House of Representatives and 
section 402 of the Congressional Budget Act of 1974, the 
Committee has received the following cost estimate for H.R. 
1781 from the Director of the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 26, 2019.
Hon. Frank Pallone, Jr.,
Chairman, Committee on Energy and Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1781, the Payment 
Commission Data Act of 2019.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Rebecca Yip 
and Lara Robillard.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

    
    

    H.R. 1781 would grant the Medicare Payment Advisory 
Commission (MedPAC) and the Medicaid and CHIP Payment and 
Access Commission (MACPAC) access to data about prescription 
drug spending and utilization in the Medicare Part D program. 
MedPAC and MACPAC would be prohibited from identifying specific 
drug prices or discounts revealed by the data.
    The bill would not affect spending for drugs or other 
services in either Medicare or Medicaid; therefore, CBO 
estimates that H.R. 1781 would not affect direct spending or 
revenues. MedPAC and MACPAC might have to increase spending on 
information technology (IT) to ensure that the data are secure. 
Any such spending would be insignificant and subject to 
appropriation.
    The CBO staff contacts for this estimate are Rebecca Yip 
and Lara Robillard. The estimate was reviewed by Leo Lex, 
Deputy Assistant Director for Budget Analysis.

                     IX. Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

        X. Statement of General Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII, the general 
performance goal or objective of this legislation is to provide 
the Medicare Payment Advisory Commission and the Medicaid and 
CHIP Payment and Access Commission with access to drug pricing 
information available to the Secretary of Health and Human 
Services to monitor, make recommendations, and analyze drug 
pricing issues under Medicare and Medicaid.

                  XI. Duplication of Federal Programs

    Pursuant to clause 3(c)(5) of rule XIII, no provision of 
H.R. 1781 is known to be duplicative of another Federal 
program, including any program that was included in a report to 
Congress pursuant to section 21 of Public Law 111-139 or the 
most recent Catalog of Federal Domestic Assistance.

                      XII. Committee Cost Estimate

    Pursuant to clause 3(d)(1) of rule XIII, the Committee 
adopts as its own the cost estimate prepared by the Director of 
the Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974.

   XIII. Earmarks, Limited Tax Benefits, and Limited Tariff Benefits

    Pursuant to clause 9(e), 9(f), and 9(g) of rule XXI, the 
Committee finds that H.R. 1781 contains no earmarks, limited 
tax benefits, or limited tariff benefits.

                   XIV. Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                XV. Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

          XVI. Section-by-Section Analysis of the Legislation


SECTION 1. Short title

    Section 1 designates that the short title may be cited as 
the ``Payment Commission Data Act of 2019''.

SEC. 2. Providing the Medicare Payment Advisory Commission and Medicaid 
        and CHIP Payment and Access Commission with access to certain 
        drug payment information, including certain rebate information

    Section 2 amends section 1860D-15(f) and section 
1927(b)(3)(D) of the Social Security Act to permit the 
Secretary for the Department of Health and Human Services to 
share the information provided to the Secretary by prescription 
drug plan sponsors and pharmaceutical manufacturers with the 
Executive Directors of the Medicare Payment Advisory Commission 
and the Medicaid and CHIP Payment and Access Commission. 
Section 2 also includes additional restrictions on disclosure, 
noting that the Executive Directors shall not disclose the 
specific amounts or identity of the source of any rebates, 
price concessions, or other forms of direct or indirect 
renumeration. Additionally, the Executive Directors are 
prohibited from disclosing information that would disclose the 
identity of a specific manufacturer or wholesaler.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                          SOCIAL SECURITY ACT




           *       *       *       *       *       *       *
TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

           *       *       *       *       *       *       *



Part D--Voluntary Prescription Drug Benefit Program

           *       *       *       *       *       *       *



Subpart 2--Prescription Drug Plans; PDP Sponsors; Financing

           *       *       *       *       *       *       *



 subsidies for part d eligible individuals for qualified prescription 
                             drug coverage

  Sec. 1860D-15. (a) Subsidy Payment.--In order to reduce 
premium levels applicable to qualified prescription drug 
coverage for part D eligible individuals consistent with an 
overall subsidy level of 74.5 percent for basic prescription 
drug coverage, to reduce adverse selection among prescription 
drug plans and MA-PD plans, and to promote the participation of 
PDP sponsors under this part and MA organizations under part C, 
the Secretary shall provide for payment to a PDP sponsor that 
offers a prescription drug plan and an MA organization that 
offers an MA-PD plan of the following subsidies in accordance 
with this section:
          (1) Direct subsidy.--A direct subsidy for each part D 
        eligible individual enrolled in a prescription drug 
        plan or MA-PD plan for a month equal to--
                  (A) the amount of the plan's standardized bid 
                amount (as defined in section 1860D-13(a)(5)), 
                adjusted under subsection (c)(1), reduced by
                  (B) the base beneficiary premium (as computed 
                under paragraph (2) of section 1860D-13(a) and 
                as adjusted under paragraph (1)(B) of such 
                section).
          (2) Subsidy through reinsurance.--The reinsurance 
        payment amount (as defined in subsection (b)).
This section constitutes budget authority in advance of 
appropriations Acts and represents the obligation of the 
Secretary to provide for the payment of amounts provided under 
this section.
  (b) Reinsurance Payment Amount.--
          (1) In general.--The reinsurance payment amount under 
        this subsection for a part D eligible individual 
        enrolled in a prescription drug plan or MA-PD plan for 
        a coverage year is an amount equal to 80 percent of the 
        allowable reinsurance costs (as specified in paragraph 
        (2)) attributable to that portion of gross covered 
        prescription drug costs as specified in paragraph (3) 
        incurred in the coverage year after such individual has 
        incurred costs that exceed the annual out-of-pocket 
        threshold specified in section 1860D-2(b)(4)(B).
          (2) Allowable reinsurance costs.--For purposes of 
        this section, the term ``allowable reinsurance costs'' 
        means, with respect to gross covered prescription drug 
        costs under a prescription drug plan offered by a PDP 
        sponsor or an MA-PD plan offered by an MA organization, 
        the part of such costs that are actually paid (net of 
        discounts, chargebacks, and average percentage rebates) 
        by the sponsor or organization or by (or on behalf of) 
        an enrollee under the plan, but in no case more than 
        the part of such costs that would have been paid under 
        the plan if the prescription drug coverage under the 
        plan were basic prescription drug coverage, or, in the 
        case of a plan providing supplemental prescription drug 
        coverage, if such coverage were standard prescription 
        drug coverage.
          (3) Gross covered prescription drug costs.--For 
        purposes of this section, the term ``gross covered 
        prescription drug costs'' means, with respect to a part 
        D eligible individual enrolled in a prescription drug 
        plan or MA-PD plan during a coverage year, the costs 
        incurred under the plan, not including administrative 
        costs, but including costs directly related to the 
        dispensing of covered part D drugs during the year and 
        costs relating to the deductible. Such costs shall be 
        determined whether they are paid by the individual or 
        under the plan, regardless of whether the coverage 
        under the plan exceeds basic prescription drug 
        coverage.
          (4) Coverage year defined.--For purposes of this 
        section, the term ``coverage year'' means a calendar 
        year in which covered part D drugs are dispensed if the 
        claim for such drugs (and payment on such claim) is 
        made not later than such period after the end of such 
        year as the Secretary specifies.
  (c) Adjustments Relating to Bids.--
          (1) Health status risk adjustment.--
                  (A) Establishment of risk adjustors.--The 
                Secretary shall establish an appropriate 
                methodology for adjusting the standardized bid 
                amount under subsection (a)(1)(A) to take into 
                account variation in costs for basic 
                prescription drug coverage among prescription 
                drug plans and MA-PD plans based on the 
                differences in actuarial risk of different 
                enrollees being served. Any such risk 
                adjustment shall be designed in a manner so as 
                not to result in a change in the aggregate 
                amounts payable to such plans under subsection 
                (a)(1) and through that portion of the monthly 
                beneficiary prescription drug premiums 
                described in subsection (a)(1)(B) and MA 
                monthly prescription drug beneficiary premiums.
                  (B) Considerations.--In establishing the 
                methodology under subparagraph (A), the 
                Secretary may take into account the similar 
                methodologies used under section 1853(a)(3) to 
                adjust payments to MA organizations for 
                benefits under the original medicare fee-for-
                service program option.
                  (C) Data collection.--In order to carry out 
                this paragraph, the Secretary shall require--
                          (i) PDP sponsors to submit data 
                        regarding drug claims that can be 
                        linked at the individual level to part 
                        A and part B data and such other 
                        information as the Secretary determines 
                        necessary; and
                          (ii) MA organizations that offer MA-
                        PD plans to submit data regarding drug 
                        claims that can be linked at the 
                        individual level to other data that 
                        such organizations are required to 
                        submit to the Secretary and such other 
                        information as the Secretary determines 
                        necessary.
                  (D) Publication.--At the time of publication 
                of risk adjustment factors under section 
                1853(b)(1)(B)(i)(II), the Secretary shall 
                publish the risk adjusters established under 
                this paragraph for the succeeding year.
          (2) Geographic adjustment.--
                  (A) In general.--Subject to subparagraph (B), 
                for purposes of section 1860D-13(a)(1)(B)(iii), 
                the Secretary shall establish an appropriate 
                methodology for adjusting the national average 
                monthly bid amount (computed under section 
                1860D-13(a)(4)) to take into account 
                differences in prices for covered part D drugs 
                among PDP regions.
                  (B) De minimis rule.--If the Secretary 
                determines that the price variations described 
                in subparagraph (A) among PDP regions are de 
                minimis, the Secretary shall not provide for 
                adjustment under this paragraph.
                  (C) Budget neutral adjustment.--Any 
                adjustment under this paragraph shall be 
                applied in a manner so as to not result in a 
                change in the aggregate payments made under 
                this part that would have been made if the 
                Secretary had not applied such adjustment.
  (d) Payment Methods.--
          (1) In general.--Payments under this section shall be 
        based on such a method as the Secretary determines. The 
        Secretary may establish a payment method by which 
        interim payments of amounts under this section are made 
        during a year based on the Secretary's best estimate of 
        amounts that will be payable after obtaining all of the 
        information.
          (2) Requirement for provision of information.--
                  (A) Requirement.--Payments under this section 
                to a PDP sponsor or MA organization are 
                conditioned upon the furnishing to the 
                Secretary, in a form and manner specified by 
                the Secretary, of such information as may be 
                required to carry out this section.
                  (B) Restriction on use of information.--
                Information disclosed or obtained pursuant to 
                subparagraph (A) may be used by officers, 
                employees, and contractors of the Department of 
                Health and Human Services only for the purposes 
                of, and to the extent necessary in, carrying 
                out this section.
          (3) Source of payments.--Payments under this section 
        shall be made from the Medicare Prescription Drug 
        Account.
          (4) Application of enrollee adjustment.--The 
        provisions of section 1853(a)(2) shall apply to 
        payments to PDP sponsors under this section in the same 
        manner as they apply to payments to MA organizations 
        under section 1853(a).
  (e) Portion of Total Payments to a Sponsor or Organization 
Subject to Risk (Application of Risk Corridors).--
          (1) Computation of adjusted allowable risk corridor 
        costs.--
                  (A) In general.--For purposes of this 
                subsection, the term ``adjusted allowable risk 
                corridor costs'' means, for a plan for a 
                coverage year (as defined in subsection 
                (b)(4))--
                          (i) the allowable risk corridor costs 
                        (as defined in subparagraph (B)) for 
                        the plan for the year, reduced by
                          (ii) the sum of (I) the total 
                        reinsurance payments made under 
                        subsection (b) to the sponsor of the 
                        plan for the year, and (II) the total 
                        subsidy payments made under section 
                        1860D-14 to the sponsor of the plan for 
                        the year.
                  (B) Allowable risk corridor costs.--For 
                purposes of this subsection, the term 
                ``allowable risk corridor costs'' means, with 
                respect to a prescription drug plan offered by 
                a PDP sponsor or an MA-PD plan offered by an MA 
                organization, the part of costs (not including 
                administrative costs, but including costs 
                directly related to the dispensing of covered 
                part D drugs during the year) incurred by the 
                sponsor or organization under the plan that are 
                actually paid (net of discounts, chargebacks, 
                and average percentage rebates) by the sponsor 
                or organization under the plan, but in no case 
                more than the part of such costs that would 
                have been paid under the plan if the 
                prescription drug coverage under the plan were 
                basic prescription drug coverage, or, in the 
                case of a plan providing supplemental 
                prescription drug coverage, if such coverage 
                were basic prescription drug coverage taking 
                into account the adjustment under section 
                1860D-11(c)(2). In computing allowable costs 
                under this paragraph, the Secretary shall 
                compute such costs based upon imposition under 
                paragraphs (1)(D) and (2)(E) of section 1860D-
                14(a) of the maximum amount of copayments 
                permitted under such paragraphs.
          (2) Adjustment of payment.--
                  (A) No adjustment if adjusted allowable risk 
                corridor costs within risk corridor.--If the 
                adjusted allowable risk corridor costs (as 
                defined in paragraph (1)) for the plan for the 
                year are at least equal to the first threshold 
                lower limit of the risk corridor (specified in 
                paragraph (3)(A)(i)), but not greater than the 
                first threshold upper limit of the risk 
                corridor (specified in paragraph (3)(A)(iii)) 
                for the plan for the year, then no payment 
                adjustment shall be made under this subsection.
                  (B) Increase in payment if adjusted allowable 
                risk corridor costs above upper limit of risk 
                corridor.--
                          (i) Costs between first and second 
                        threshold upper limits.--If the 
                        adjusted allowable risk corridor costs 
                        for the plan for the year are greater 
                        than the first threshold upper limit, 
                        but not greater than the second 
                        threshold upper limit, of the risk 
                        corridor for the plan for the year, the 
                        Secretary shall increase the total of 
                        the payments made to the sponsor or 
                        organization offering the plan for the 
                        year under this section by an amount 
                        equal to 50 percent (or, for 2006 and 
                        2007, 75 percent or 90 percent if the 
                        conditions described in clause (iii) 
                        are met for the year) of the difference 
                        between such adjusted allowable risk 
                        corridor costs and the first threshold 
                        upper limit of the risk corridor.
                          (ii) Costs above second threshold 
                        upper limits.--If the adjusted 
                        allowable risk corridor costs for the 
                        plan for the year are greater than the 
                        second threshold upper limit of the 
                        risk corridor for the plan for the 
                        year, the Secretary shall increase the 
                        total of the payments made to the 
                        sponsor or organization offering the 
                        plan for the year under this section by 
                        an amount equal to the sum of--
                                  (I) 50 percent (or, for 2006 
                                and 2007, 75 percent or 90 
                                percent if the conditions 
                                described in clause (iii) are 
                                met for the year) of the 
                                difference between the second 
                                threshold upper limit and the 
                                first threshold upper limit; 
                                and
                                  (II) 80 percent of the 
                                difference between such 
                                adjusted allowable risk 
                                corridor costs and the second 
                                threshold upper limit of the 
                                risk corridor.
                          (iii) Conditions for application of 
                        higher percentage for 2006 and 2007.--
                        The conditions described in this clause 
                        are met for 2006 or 2007 if the 
                        Secretary determines with respect to 
                        such year that--
                                  (I) at least 60 percent of 
                                prescription drug plans and MA-
                                PD plans to which this 
                                subsection applies have 
                                adjusted allowable risk 
                                corridor costs for the plan for 
                                the year that are more than the 
                                first threshold upper limit of 
                                the risk corridor for the plan 
                                for the year; and
                                  (II) such plans represent at 
                                least 60 percent of part D 
                                eligible individuals enrolled 
                                in any prescription drug plan 
                                or MA-PD plan.
                  (C) Reduction in payment if adjusted 
                allowable risk corridor costs below lower limit 
                of risk corridor.--
                          (i) Costs between first and second 
                        threshold lower limits.--If the 
                        adjusted allowable risk corridor costs 
                        for the plan for the year are less than 
                        the first threshold lower limit, but 
                        not less than the second threshold 
                        lower limit, of the risk corridor for 
                        the plan for the year, the Secretary 
                        shall reduce the total of the payments 
                        made to the sponsor or organization 
                        offering the plan for the year under 
                        this section by an amount (or otherwise 
                        recover from the sponsor or 
                        organization an amount) equal to 50 
                        percent (or, for 2006 and 2007, 75 
                        percent) of the difference between the 
                        first threshold lower limit of the risk 
                        corridor and such adjusted allowable 
                        risk corridor costs.
                          (ii) Costs below second threshold 
                        lower limit.--If the adjusted allowable 
                        risk corridor costs for the plan for 
                        the year are less the second threshold 
                        lower limit of the risk corridor for 
                        the plan for the year, the Secretary 
                        shall reduce the total of the payments 
                        made to the sponsor or organization 
                        offering the plan for the year under 
                        this section by an amount (or otherwise 
                        recover from the sponsor or 
                        organization an amount) equal to the 
                        sum of--
                                  (I) 50 percent (or, for 2006 
                                and 2007, 75 percent) of the 
                                difference between the first 
                                threshold lower limit and the 
                                second threshold lower limit; 
                                and
                                  (II) 80 percent of the 
                                difference between the second 
                                threshold upper limit of the 
                                risk corridor and such adjusted 
                                allowable risk corridor costs.
          (3) Establishment of risk corridors.--
                  (A) In general.--For each plan year the 
                Secretary shall establish a risk corridor for 
                each prescription drug plan and each MA-PD 
                plan. The risk corridor for a plan for a year 
                shall be equal to a range as follows:
                          (i) First threshold lower limit.--The 
                        first threshold lower limit of such 
                        corridor shall be equal to--
                                  (I) the target amount 
                                described in subparagraph (B) 
                                for the plan; minus
                                  (II) an amount equal to the 
                                first threshold risk percentage 
                                for the plan (as determined 
                                under subparagraph (C)(i)) of 
                                such target amount.
                          (ii) Second threshold lower limit.--
                        The second threshold lower limit of 
                        such corridor shall be equal to--
                                  (I) the target amount 
                                described in subparagraph (B) 
                                for the plan; minus
                                  (II) an amount equal to the 
                                second threshold risk 
                                percentage for the plan (as 
                                determined under subparagraph 
                                (C)(ii)) of such target amount.
                          (iii) First threshold upper limit.--
                        The first threshold upper limit of such 
                        corridor shall be equal to the sum of--
                                  (I) such target amount; and
                                  (II) the amount described in 
                                clause (i)(II).
                          (iv) Second threshold upper limit.--
                        The second threshold upper limit of 
                        such corridor shall be equal to the sum 
                        of--
                                  (I) such target amount; and
                                  (II) the amount described in 
                                clause (ii)(II).
                  (B) Target amount described.--The target 
                amount described in this paragraph is, with 
                respect to a prescription drug plan or an MA-PD 
                plan in a year, the total amount of payments 
                paid to the PDP sponsor or MA-PD organization 
                for the plan for the year, taking into account 
                amounts paid by the Secretary and enrollees, 
                based upon the standardized bid amount (as 
                defined in section 1860D-13(a)(5) and as risk 
                adjusted under subsection (c)(1)), reduced by 
                the total amount of administrative expenses for 
                the year assumed in such standardized bid.
                  (C) First and second threshold risk 
                percentage defined.--
                          (i) First threshold risk 
                        percentage.--Subject to clause (iii), 
                        for purposes of this section, the first 
                        threshold risk percentage is--
                                  (I) for 2006 and 2007, and 
                                2.5 percent;
                                  (II) for 2008 through 2011, 5 
                                percent; and
                                  (III) for 2012 and subsequent 
                                years, a percentage established 
                                by the Secretary, but in no 
                                case less than 5 percent.
                          (ii) Second threshold risk 
                        percentage.--Subject to clause (iii), 
                        for purposes of this section, the 
                        second threshold risk percentage is--
                                  (I) for 2006 and 2007, 5 
                                percent;
                                  (II) for 2008 through 2011, 
                                10 percent; and
                                  (III) for 2012 and subsequent 
                                years, a percentage established 
                                by the Secretary that is 
                                greater than the percent 
                                established for the year under 
                                clause (i)(III), but in no case 
                                less than 10 percent.
                          (iii) Reduction of risk percentage to 
                        ensure 2 plans in an area.--Pursuant to 
                        section 1860D-11(b)(2)(E)(ii), a PDP 
                        sponsor may submit a bid that requests 
                        a decrease in the applicable first or 
                        second threshold risk percentages or an 
                        increase in the percents applied under 
                        paragraph (2).
          (4) Plans at risk for entire amount of supplemental 
        prescription drug coverage.--A PDP sponsor and MA 
        organization that offers a plan that provides 
        supplemental prescription drug benefits shall be at 
        full financial risk for the provision of such 
        supplemental benefits.
          (5) No effect on monthly premium.--No adjustment in 
        payments made by reason of this subsection shall affect 
        the monthly beneficiary premium or the MA monthly 
        prescription drug beneficiary premium.
  (f) Disclosure of Information.--
          (1) In general.--Each contract under this part and 
        under part C shall provide that--
                  (A) the PDP sponsor offering a prescription 
                drug plan or an MA organization offering an MA-
                PD plan shall provide the Secretary with such 
                information as the Secretary determines is 
                necessary to carry out this section; and
                  (B) the Secretary shall have the right in 
                accordance with section 1857(d)(2)(B) (as 
                applied under section 1860D-12(b)(3)(C)) to 
                inspect and audit any books and records of a 
                PDP sponsor or MA organization that pertain to 
                the information regarding costs provided to the 
                Secretary under subparagraph (A).
          (2) Restriction on use of information.--Information 
        disclosed or obtained pursuant to the provisions of 
        this section may be used--
                  (A) by officers, employees, and contractors 
                of the Department of Health and Human Services 
                for the purposes of, and to the extent 
                necessary in--
                          (i) carrying out this section; and
                          (ii) conducting oversight, 
                        evaluation, and enforcement under this 
                        title; [and]
                  (B) by the Attorney General and the 
                Comptroller General of the United States for 
                the purposes of, and to the extent necessary 
                in, carrying out health oversight 
                activities[.]; and
                  (C) by the Executive Director of the Medicare 
                Payment Advisory Commission for purposes of 
                monitoring, making recommendations, and 
                analysis of the program under this title and by 
                the Executive Director of the Medicaid and CHIP 
                Payment and Access Commission for purposes of 
                monitoring, making recommendations, and 
                analysis of the Medicaid program established 
                under title XIX and the Children's Health 
                Insurance Program under title XXI.
          (3) Additional restrictions on disclosure of 
        information.--The Executive Directors described in 
        paragraph (2)(C) shall not disclose any of the 
        following information disclosed to such Executive 
        Directors or obtained by such Executive Directors 
        pursuant to such paragraph, with respect to a 
        prescription drug plan offered by a PDP sponsor or an 
        MA-PD plan offered by an MA organization:
                  (A) The specific amounts or the identity of 
                the source of any rebates, discounts, price 
                concessions, or other forms of direct or 
                indirect remuneration under such prescription 
                drug plan or such MA-PD plan.
                  (B) Information submitted with the bid 
                submitted under section 1860D-11(b) by such PDP 
                sponsor or under section 1854(a) by such MA 
                organization.
                  (C) In the case of such information from 
                prescription drug event records, in a form that 
                would not be permitted under section 423.505(m) 
                of title 42, Code of Federal Regulations, or 
                any successor regulation, if made by the 
                Centers for Medicare & Medicaid Services.
  (g) Payment for Fallback Prescription Drug Plans.--In lieu of 
the amounts otherwise payable under this section to a PDP 
sponsor offering a fallback prescription drug plan (as defined 
in section 1860D-3(c)(4)), the amount payable shall be the 
amounts determined under the contract for such plan pursuant to 
section 1860D-11(g)(5).

           *       *       *       *       *       *       *


TITLE XIX--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

           *       *       *       *       *       *       *



                  payment for covered outpatient drugs

  Sec. 1927. (a) Requirement for Rebate Agreement.--
          (1) In general.--In order for payment to be available 
        under section 1903(a) or under part B of title XVIII 
        for covered outpatient drugs of a manufacturer, the 
        manufacturer must have entered into and have in effect 
        a rebate agreement described in subsection (b) with the 
        Secretary, on behalf of States (except that, the 
        Secretary may authorize a State to enter directly into 
        agreements with a manufacturer), and must meet the 
        requirements of paragraph (5) (with respect to drugs 
        purchased by a covered entity on or after the first day 
        of the first month that begins after the date of the 
        enactment of title VI of the Veterans Health Care Act 
        of 1992) and paragraph (6). Any agreement between a 
        State and a manufacturer prior to April 1, 1991, shall 
        be deemed to have been entered into on January 1, 1991, 
        and payment to such manufacturer shall be retroactively 
        calculated as if the agreement between the manufacturer 
        and the State had been entered into on January 1, 1991. 
        If a manufacturer has not entered into such an 
        agreement before March 1, 1991, such an agreement, 
        subsequently entered into, shall become effective as of 
        the date on which the agreement is entered into or, at 
        State option, on any date thereafter on or before the 
        first day of the calendar quarter that begins more than 
        60 days after the date the agreement is entered into.
          (2) Effective date.--Paragraph (1) shall first apply 
        to drugs dispensed under this title on or after January 
        1, 1991.
          (3) Authorizing payment for drugs not covered under 
        rebate agreements.--Paragraph (1), and section 
        1903(i)(10)(A), shall not apply to the dispensing of a 
        single source drug or innovator multiple source drug if 
        (A)(i) the State has made a determination that the 
        availability of the drug is essential to the health of 
        beneficiaries under the State plan for medical 
        assistance; (ii) such drug has been given a rating of 
        1-A by the Food and Drug Administration; and (iii)(I) 
        the physician has obtained approval for use of the drug 
        in advance of its dispensing in accordance with a prior 
        authorization program described in subsection (d), or 
        (II) the Secretary has reviewed and approved the 
        State's determination under subparagraph (A); or (B) 
        the Secretary determines that in the first calendar 
        quarter of 1991, there were extenuating circumstances.
          (4) Effect on existing agreements.--In the case of a 
        rebate agreement in effect between a State and a 
        manufacturer on the date of the enactment of this 
        section, such agreement, for the initial agreement 
        period specified therein, shall be considered to be a 
        rebate agreement in compliance with this section with 
        respect to that State, if the State agrees to report to 
        the Secretary any rebates paid pursuant to the 
        agreement and such agreement provides for a minimum 
        aggregate rebate of 10 percent of the State's total 
        expenditures under the State plan for coverage of the 
        manufacturer's drugs under this title. If, after the 
        initial agreement period, the State establishes to the 
        satisfaction of the Secretary that an agreement in 
        effect on the date of the enactment of this section 
        provides for rebates that are at least as large as the 
        rebates otherwise required under this section, and the 
        State agrees to report any rebates under the agreement 
        to the Secretary, the agreement shall be considered to 
        be a rebate agreement in compliance with the section 
        for the renewal periods of such agreement.
          (5) Limitation on prices of drugs purchased by 
        covered entities.--
                  (A) Agreement with secretary.--A manufacturer 
                meets the requirements of this paragraph if the 
                manufacturer has entered into an agreement with 
                the Secretary that meets the requirements of 
                section 340B of the Public Health Service Act 
                with respect to covered outpatient drugs 
                purchased by a covered entity on or after the 
                first day of the first month that begins after 
                the date of the enactment of this paragraph.
                  (B) Covered entity defined.--In this 
                subsection, the term ``covered entity'' means 
                an entity described in section 340B(a)(4) of 
                the Public Health Service Act.
                  (C) Establishment of alternative mechanism to 
                ensure against duplicate discounts or 
                rebates.--If the Secretary does not establish a 
                mechanism under section 340B(a)(5)(A) of the 
                Public Health Service Act within 12 months of 
                the date of the enactment of such section, the 
                following requirements shall apply:
                          (i) Entities.--Each covered entity 
                        shall inform the single State agency 
                        under section 1902(a)(5) when it is 
                        seeking reimbursement from the State 
                        plan for medical assistance described 
                        in section 1905(a)(12) with respect to 
                        a unit of any covered outpatient drug 
                        which is subject to an agreement under 
                        section 340B(a) of such Act.
                          (ii) State agency.--Each such single 
                        State agency shall provide a means by 
                        which a covered entity shall indicate 
                        on any drug reimbursement claims form 
                        (or format, where electronic claims 
                        management is used) that a unit of the 
                        drug that is the subject of the form is 
                        subject to an agreement under section 
                        340B of such Act, and not submit to any 
                        manufacturer a claim for a rebate 
                        payment under subsection (b) with 
                        respect to such a drug.
                  (D) Effect of subsequent amendments.--In 
                determining whether an agreement under 
                subparagraph (A) meets the requirements of 
                section 340B of the Public Health Service Act, 
                the Secretary shall not take into account any 
                amendments to such section that are enacted 
                after the enactment of title VI of the Veterans 
                Health Care Act of 1992.
                  (E) Determination of compliance.--A 
                manufacturer is deemed to meet the requirements 
                of this paragraph if the manufacturer 
                establishes to the satisfaction of the 
                Secretary that the manufacturer would comply 
                (and has offered to comply) with the provisions 
                of section 340B of the Public Health Service 
                Act (as in effect immediately after the 
                enactment of this paragraph, and would have 
                entered into an agreement under such section 
                (as such section was in effect at such time), 
                but for a legislative change in such section 
                after the date of the enactment of this 
                paragraph.
                  (6) Requirements relating to master 
                agreements for drugs procured by department of 
                veterans affairs and certain other federal 
                agencies.--
                          (A) In general.--A manufacturer meets 
                        the requirements of this paragraph if 
                        the manufacturer complies with the 
                        provisions of section 8126 of title 38, 
                        United States Code, including the 
                        requirement of entering into a master 
                        agreement with the Secretary of 
                        Veterans Affairs under such section.
                          (B) Effect of subsequent 
                        amendments.--In determining whether a 
                        master agreement described in 
                        subparagraph (A) meets the requirements 
                        of section 8126 of title 38, United 
                        States Code, the Secretary shall not 
                        take into account any amendments to 
                        such section that are enacted after the 
                        enactment of title VI of the Veterans 
                        Health Care Act of 1992.
                          (C) Determination of compliance.--A 
                        manufacturer is deemed to meet the 
                        requirements of this paragraph if the 
                        manufacturer establishes to the 
                        satisfaction of the Secretary that the 
                        manufacturer would comply (and has 
                        offered to comply) with the provisions 
                        of section 8126 of title 38, United 
                        States Code (as in effect immediately 
                        after the enactment of this paragraph) 
                        and would have entered into an 
                        agreement under such section (as such 
                        section was in effect at such time), 
                        but for a legislative change in such 
                        section after the date of the enactment 
                        of this paragraph.
          (7) Requirement for submission of utilization data 
        for certain physician administered drugs.--
                  (A) Single source drugs.--In order for 
                payment to be available under section 1903(a) 
                for a covered outpatient drug that is a single 
                source drug that is physician administered 
                under this title (as determined by the 
                Secretary), and that is administered on or 
                after January 1, 2006, the State shall provide 
                for the collection and submission of such 
                utilization data and coding (such as J-codes 
                and National Drug Code numbers) for each such 
                drug as the Secretary may specify as necessary 
                to identify the manufacturer of the drug in 
                order to secure rebates under this section for 
                drugs administered for which payment is made 
                under this title.
                  (B) Multiple source drugs.--
                          (i) Identification of most frequently 
                        physician administered multiple source 
                        drugs.--Not later than January 1, 2007, 
                        the Secretary shall publish a list of 
                        the 20 physician administered multiple 
                        source drugs that the Secretary 
                        determines have the highest dollar 
                        volume of physician administered drugs 
                        dispensed under this title. The 
                        Secretary may modify such list from 
                        year to year to reflect changes in such 
                        volume.
                          (ii) Requirement.--In order for 
                        payment to be available under section 
                        1903(a) for a covered outpatient drug 
                        that is a multiple source drug that is 
                        physician administered (as determined 
                        by the Secretary), that is on the list 
                        published under clause (i), and that is 
                        administered on or after January 1, 
                        2008, the State shall provide for the 
                        submission of such utilization data and 
                        coding (such as J-codes and National 
                        Drug Code numbers) for each such drug 
                        as the Secretary may specify as 
                        necessary to identify the manufacturer 
                        of the drug in order to secure rebates 
                        under this section.
                  (C) Use of ndc codes.--Not later than January 
                1, 2007, the information shall be submitted 
                under subparagraphs (A) and (B)(ii) using 
                National Drug Code codes unless the Secretary 
                specifies that an alternative coding system 
                should be used.
                  (D) Hardship waiver.--The Secretary may delay 
                the application of subparagraph (A) or (B)(ii), 
                or both, in the case of a State to prevent 
                hardship to States which require additional 
                time to implement the reporting system required 
                under the respective subparagraph.
  (b) Terms of Rebate Agreement.--
          (1) Periodic rebates.--
                  (A) In general.--A rebate agreement under 
                this subsection shall require the manufacturer 
                to provide, to each State plan approved under 
                this title, a rebate for a rebate period in an 
                amount specified in subsection (c) for covered 
                outpatient drugs of the manufacturer dispensed 
                after December 31, 1990, for which payment was 
                made under the State plan for such period, 
                including such drugs dispensed to individuals 
                enrolled with a medicaid managed care 
                organization if the organization is responsible 
                for coverage of such drugs. Such rebate shall 
                be paid by the manufacturer not later than 30 
                days after the date of receipt of the 
                information described in paragraph (2) for the 
                period involved.
                  (B) Offset against medical assistance.--
                Amounts received by a State under this section 
                (or under an agreement authorized by the 
                Secretary under subsection (a)(1) or an 
                agreement described in subsection (a)(4)) in 
                any quarter shall be considered to be a 
                reduction in the amount expended under the 
                State plan in the quarter for medical 
                assistance for purposes of section 1903(a)(1).
                  (C) Special rule for increased minimum rebate 
                percentage.--
                          (i) In general.--In addition to the 
                        amounts applied as a reduction under 
                        subparagraph (B), for rebate periods 
                        beginning on or after January 1, 2010, 
                        during a fiscal year, the Secretary 
                        shall reduce payments to a State under 
                        section 1903(a) in the manner specified 
                        in clause (ii), in an amount equal to 
                        the product of--
                                  (I) 100 percent minus the 
                                Federal medical assistance 
                                percentage applicable to the 
                                rebate period for the State; 
                                and
                                  (II) the amounts received by 
                                the State under such 
                                subparagraph that are 
                                attributable (as estimated by 
                                the Secretary based on 
                                utilization and other data) to 
                                the increase in the minimum 
                                rebate percentage effected by 
                                the amendments made by 
                                subsections (a)(1), (b), and 
                                (d) of section 2501 of the 
                                Patient Protection and 
                                Affordable Care Act, taking 
                                into account the additional 
                                drugs included under the 
                                amendments made by subsection 
                                (c) of section 2501 of such 
                                Act.
                        The Secretary shall adjust such payment 
                        reduction for a calendar quarter to the 
                        extent the Secretary determines, based 
                        upon subsequent utilization and other 
                        data, that the reduction for such 
                        quarter was greater or less than the 
                        amount of payment reduction that should 
                        have been made.
                          (ii) Manner of payment reduction.--
                        The amount of the payment reduction 
                        under clause (i) for a State for a 
                        quarter shall be deemed an overpayment 
                        to the State under this title to be 
                        disallowed against the State's regular 
                        quarterly draw for all Medicaid 
                        spending under section 1903(d)(2). Such 
                        a disallowance is not subject to a 
                        reconsideration under section 1116(d).
          (2) State provision of information.--
                  (A) State responsibility.--Each State agency 
                under this title shall report to each 
                manufacturer not later than 60 days after the 
                end of each rebate period and in a form 
                consistent with a standard reporting format 
                established by the Secretary, information on 
                the total number of units of each dosage form 
                and strength and package size of each covered 
                outpatient drug dispensed after December 31, 
                1990, for which payment was made under the plan 
                during the period, including such information 
                reported by each medicaid managed care 
                organization, and shall promptly transmit a 
                copy of such report to the Secretary.
                  (B) Audits.--A manufacturer may audit the 
                information provided (or required to be 
                provided) under subparagraph (A). Adjustments 
                to rebates shall be made to the extent that 
                information indicates that utilization was 
                greater or less than the amount previously 
                specified.
          (3) Manufacturer provision of price information.--
                  (A) In general.--Each manufacturer with an 
                agreement in effect under this section shall 
                report to the Secretary--
                          (i) not later than 30 days after the 
                        last day of each rebate period under 
                        the agreement--
                          (I) on the average manufacturer price 
                        (as defined in subsection (k)(1)) for 
                        covered outpatient drugs for the rebate 
                        period under the agreement (including 
                        for all such drugs that are sold under 
                        a new drug application approved under 
                        section 505(c) of the Federal Food, 
                        Drug, and Cosmetic Act); and
                          (II) for single source drugs and 
                        innovator multiple source drugs 
                        (including all such drugs that are sold 
                        under a new drug application approved 
                        under section 505(c) of the Federal 
                        Food, Drug, and Cosmetic Act), on the 
                        manufacturer's best price (as defined 
                        in subsection (c)(1)(C)) for such drugs 
                        for the rebate period under the 
                        agreement;
                          (ii) not later than 30 days after the 
                        date of entering into an agreement 
                        under this section on the average 
                        manufacturer price (as defined in 
                        subsection (k)(1)) as of October 1, 
                        1990 for each of the manufacturer's 
                        covered outpatient drugs (including for 
                        such drugs that are sold under a new 
                        drug application approved under section 
                        505(c) of the Federal Food, Drug, and 
                        Cosmetic Act); and
                          (iii) for calendar quarters beginning 
                        on or after January 1, 2004, in 
                        conjunction with reporting required 
                        under clause (i) and by National Drug 
                        Code (including package size)--
                                  (I) the manufacturer's 
                                average sales price (as defined 
                                in section 1847A(c)) and the 
                                total number of units specified 
                                under section 1847A(b)(2)(A);
                                  (II) if required to make 
                                payment under section 1847A, 
                                the manufacturer's wholesale 
                                acquisition cost, as defined in 
                                subsection (c)(6) of such 
                                section; and
                                  (III) information on those 
                                sales that were made at a 
                                nominal price or otherwise 
                                described in section 
                                1847A(c)(2)(B);
                        for a drug or biological described in 
                        subparagraph (C), (D), (E), or (G) of 
                        section 1842(o)(1) or section 
                        1881(b)(13)(A)(ii), and, for calendar 
                        quarters beginning on or after January 
                        1, 2007 and only with respect to the 
                        information described in subclause 
                        (III), for covered outpatient drugs.
                          (iv) not later than 30 days after the 
                        last day of each month of a rebate 
                        period under the agreement, on the 
                        manufacturer's total number of units 
                        that are used to calculate the monthly 
                        average manufacturer price for each 
                        covered outpatient drug;
                Information reported under this subparagraph is 
                subject to audit by the Inspector General of 
                the Department of Health and Human Services. 
                Beginning July 1, 2006, the Secretary shall 
                provide on a monthly basis to States under 
                subparagraph (D)(iv) the most recently reported 
                average manufacturer prices for single source 
                drugs and for multiple source drugs and shall, 
                on at least a quarterly basis, update the 
                information posted on the website under 
                subparagraph (D)(v) (relating to the weighted 
                average of the most recently reported monthly 
                average manufacturer prices).
                  (B) Verification surveys of average 
                manufacturer price and manufacturer's average 
                sales price.--The Secretary may survey 
                wholesalers and manufacturers that directly 
                distribute their covered outpatient drugs, when 
                necessary, to verify manufacturer prices and 
                manufacturer's average sales prices (including 
                wholesale acquisition cost) if required to make 
                payment reported under subparagraph (A). The 
                Secretary may impose a civil monetary penalty 
                in an amount not to exceed $100,000 on a 
                wholesaler, manufacturer, or direct seller, if 
                the wholesaler, manufacturer, or direct seller 
                of a covered outpatient drug refuses a request 
                for information about charges or prices by the 
                Secretary in connection with a survey under 
                this subparagraph or knowingly provides false 
                information. The provisions of section 1128A 
                (other than subsections (a) (with respect to 
                amounts of penalties or additional assessments) 
                and (b)) shall apply to a civil money penalty 
                under this subparagraph in the same manner as 
                such provisions apply to a penalty or 
                proceeding under section 1128A(a).
                  (C) Penalties.--
                          (i) Failure to provide timely 
                        information.--In the case of a 
                        manufacturer with an agreement under 
                        this section that fails to provide 
                        information required under subparagraph 
                        (A) on a timely basis, the amount of 
                        the penalty shall be increased by 
                        $10,000 for each day in which such 
                        information has not been provided and 
                        such amount shall be paid to the 
                        Treasury, and, if such information is 
                        not reported within 90 days of the 
                        deadline imposed, the agreement shall 
                        be suspended for services furnished 
                        after the end of such 90-day period and 
                        until the date such information is 
                        reported (but in no case shall such 
                        suspension be for a period of less than 
                        30 days).
                          (ii) False information.--Any 
                        manufacturer with an agreement under 
                        this section that knowingly provides 
                        false information is subject to a civil 
                        money penalty in an amount not to 
                        exceed $100,000 for each item of false 
                        information. Such civil money penalties 
                        are in addition to other penalties as 
                        may be prescribed by law. The 
                        provisions of section 1128A (other than 
                        subsections (a) and (b)) shall apply to 
                        a civil money penalty under this 
                        subparagraph in the same manner as such 
                        provisions apply to a penalty or 
                        proceeding under section 1128A(a).
                  (D) Confidentiality of information.--
                Notwithstanding any other provision of law, 
                information disclosed by manufacturers or 
                wholesalers under this paragraph or under an 
                agreement with the Secretary of Veterans 
                Affairs described in [subsection (a)(6)(A)(ii)] 
                subsection (a)(6)(A) (other than the wholesale 
                acquisition cost for purposes of carrying out 
                section 1847A) is confidential and shall not be 
                disclosed by the Secretary or the Secretary of 
                Veterans Affairs or a State agency (or 
                contractor therewith) in a form which discloses 
                the identity of a specific manufacturer or 
                wholesaler, prices charged for drugs by such 
                manufacturer or wholesaler, except--
                          (i) as the Secretary determines to be 
                        necessary to carry out this section, to 
                        carry out section 1847A (including the 
                        determination and implementation of the 
                        payment amount), or to carry out 
                        section 1847B,
                          (ii) to permit the Comptroller 
                        General to review the information 
                        provided,
                          (iii) to permit the Director of the 
                        Congressional Budget Office to review 
                        the information provided,
                          (iv) to States to carry out this 
                        title, [and]
                          (v) to the Secretary to disclose 
                        (through a website accessible to the 
                        public) the weighted average of the 
                        most recently reported monthly average 
                        manufacturer prices and the average 
                        retail survey price determined for each 
                        multiple source drug in accordance with 
                        subsection (f)[.], and
                          (vi) to permit the Executive Director 
                        of the Medicare Payment Advisory 
                        Commission and the Executive Director 
                        of the Medicaid and CHIP Payment and 
                        Access Commission to review the 
                        information provided.
                The previous sentence shall also apply to 
                information disclosed under section 1860D-
                2(d)(2) or [1860D-4(c)(2)(E)] 1860D-4(c)(2)(G) 
                and drug pricing data reported under the first 
                sentence of section 1860D-31(i)(1). Any 
                information disclosed to the Executive Director 
                of the Medicare Payment Advisory Commission or 
                the Executive Director of the Medicaid and CHIP 
                Payment and Access Commission pursuant to this 
                subparagraph shall not be disclosed by either 
                such Executive Director in a form which 
                discloses the identity of a specific 
                manufacturer or wholesaler or prices charged 
                for drugs by such manufacturer or wholesaler.
          (4) Length of agreement.--
                  (A) In general.--A rebate agreement shall be 
                effective for an initial period of not less 
                than 1 year and shall be automatically renewed 
                for a period of not less than one year unless 
                terminated under subparagraph (B).
                  (B) Termination.--
                          (i) By the secretary.--The Secretary 
                        may provide for termination of a rebate 
                        agreement for violation of the 
                        requirements of the agreement or other 
                        good cause shown. Such termination 
                        shall not be effective earlier than 60 
                        days after the date of notice of such 
                        termination. The Secretary shall 
                        provide, upon request, a manufacturer 
                        with a hearing concerning such a 
                        termination, but such hearing shall not 
                        delay the effective date of the 
                        termination.
                          (ii) By a manufacturer.--A 
                        manufacturer may terminate a rebate 
                        agreement under this section for any 
                        reason. Any such termination shall not 
                        be effective until the calendar quarter 
                        beginning at least 60 days after the 
                        date the manufacturer provides notice 
                        to the Secretary.
                          (iii) Effectiveness of termination.--
                        Any termination under this subparagraph 
                        shall not affect rebates due under the 
                        agreement before the effective date of 
                        its termination.
                          (iv) Notice to states.--In the case 
                        of a termination under this 
                        subparagraph, the Secretary shall 
                        provide notice of such termination to 
                        the States within not less than 30 days 
                        before the effective date of such 
                        termination.
                          (v) Application to terminations of 
                        other agreements.--The provisions of 
                        this subparagraph shall apply to the 
                        terminations of agreements described in 
                        section 340B(a)(1) of the Public Health 
                        Service Act and master agreements 
                        described in section 8126(a) of title 
                        38, United States Code.
                  (C) Delay before reentry.--In the case of any 
                rebate agreement with a manufacturer under this 
                section which is terminated, another such 
                agreement with the manufacturer (or a successor 
                manufacturer) may not be entered into until a 
                period of 1 calendar quarter has elapsed since 
                the date of the termination, unless the 
                Secretary finds good cause for an earlier 
                reinstatement of such an agreement.
  (c) Determination of Amount of Rebate.--
          (1) Basic rebate for single source drugs and 
        innovator multiple source drugs.--
                  (A) In general.--Except as provided in 
                paragraph (2), the amount of the rebate 
                specified in this subsection for a rebate 
                period (as defined in subsection (k)(8)) with 
                respect to each dosage form and strength of a 
                single source drug or an innovator multiple 
                source drug shall be equal to the product of--
                          (i) the total number of units of each 
                        dosage form and strength paid for under 
                        the State plan in the rebate period (as 
                        reported by the State); and
                          (ii) subject to subparagraph (B)(ii), 
                        the greater of--
                                  (I) the difference between 
                                the average manufacturer price 
                                and the best price (as defined 
                                in subparagraph (C)) for the 
                                dosage form and strength of the 
                                drug, or
                                  (II) the minimum rebate 
                                percentage (specified in 
                                subparagraph (B)(i)) of such 
                                average manufacturer price,
                        of or the rebate period.
                  (B) Range of rebates required.--
                          (i) Minimum rebate percentage.--For 
                        purposes of subparagraph (A)(ii)(II), 
                        the ``minimum rebate percentage'' for 
                        rebate periods beginning--
                                  (I) after December 31, 1990, 
                                and before October 1, 1992, is 
                                12.5 percent;
                                  (II) after September 30, 
                                1992, and before January 1, 
                                1994, is 15.7 percent;
                                  (III) after December 31, 
                                1993, and before January 1, 
                                1995, is 15.4 percent;
                                  (IV) after December 31, 1994, 
                                and before January 1, 1996, is 
                                15.2 percent;
                                  (V) after December 31, 1995, 
                                and before January 1, 2010 is 
                                15.1 percent;and
                                  (VI) except as provided in 
                                clause (iii), after December 
                                31, 2009, 23.1 percent.
                          (ii) Temporary limitation on maximum 
                        rebate amount.--In no case shall the 
                        amount applied under subparagraph 
                        (A)(ii) for a rebate period beginning--
                                  (I) before January 1, 1992, 
                                exceed 25 percent of the 
                                average manufacturer price; or
                                  (II) after December 31, 1991, 
                                and before January 1, 1993, 
                                exceed 50 percent of the 
                                average manufacturer price.
                          (iii) Minimum rebate percentage for 
                        certain drugs.--
                                  (I) In general.--In the case 
                                of a single source drug or an 
                                innovator multiple source drug 
                                described in subclause (II), 
                                the minimum rebate percentage 
                                for rebate periods specified in 
                                clause (i)(VI) is 17.1 percent.
                                  (II) Drug described.--For 
                                purposes of subclause (I), a 
                                single source drug or an 
                                innovator multiple source drug 
                                described in this subclause is 
                                any of the following drugs:
                                          (aa) A clotting 
                                        factor for which a 
                                        separate furnishing 
                                        payment is made under 
                                        section 1842(o)(5) and 
                                        which is included on a 
                                        list of such factors 
                                        specified and updated 
                                        regularly by the 
                                        Secretary.
                                          (bb) A drug approved 
                                        by the Food and Drug 
                                        Administration 
                                        exclusively for 
                                        pediatric indications.
                  (C) Best price defined.--For purposes of this 
                section--
                          (i) In general.--The term ``best 
                        price'' means, with respect to a single 
                        source drug or innovator multiple 
                        source drug of a manufacturer 
                        (including the lowest price available 
                        to any entity for any such drug of a 
                        manufacturer that is sold under a new 
                        drug application approved under section 
                        505(c) of the Federal Food, Drug, and 
                        Cosmetic Act), the lowest price 
                        available from the manufacturer during 
                        the rebate period to any wholesaler, 
                        retailer, provider, health maintenance 
                        organization, nonprofit entity, or 
                        governmental entity within the United 
                        States, excluding--
                                  (I) any prices charged on or 
                                after October 1, 1992, to the 
                                Indian Health Service, the 
                                Department of Veterans Affairs, 
                                a State home receiving funds 
                                under section 1741 of title 38, 
                                United States Code, the 
                                Department of Defense, the 
                                Public Health Service, or a 
                                covered entity described in 
                                subsection (a)(5)(B) (including 
                                inpatient prices charged to 
                                hospitals described in section 
                                340B(a)(4)(L) of the Public 
                                Health Service Act);
                                  (II) any prices charged under 
                                the Federal Supply Schedule of 
                                the General Services 
                                Administration;
                                  (III) any prices used under a 
                                State pharmaceutical assistance 
                                program;
                                  (IV) any depot prices and 
                                single award contract prices, 
                                as defined by the Secretary, of 
                                any agency of the Federal 
                                Government;
                                  (V) the prices negotiated 
                                from drug manufacturers for 
                                covered discount card drugs 
                                under an endorsed discount card 
                                program under section 1860D-31; 
                                and
                                  (VI) any prices charged which 
                                are negotiated by a 
                                prescription drug plan under 
                                part D of title XVIII, by an 
                                MA-PD plan under part C of such 
                                title with respect to covered 
                                part D drugs or by a qualified 
                                retiree prescription drug plan 
                                (as defined in section 1860D-
                                22(a)(2)) with respect to such 
                                drugs on behalf of individuals 
                                entitled to benefits under part 
                                A or enrolled under part B of 
                                such title, or any discounts 
                                provided by manufacturers under 
                                the Medicare coverage gap 
                                discount program under section 
                                1860D-14A.
                          (ii) Special rules.--The term ``best 
                        price''--
                                  (I) shall be inclusive of 
                                cash discounts, free goods that 
                                are contingent on any purchase 
                                requirement, volume discounts, 
                                and rebates (other than rebates 
                                under this section);
                                  (II) shall be determined 
                                without regard to special 
                                packaging, labeling, or 
                                identifiers on the dosage form 
                                or product or package;
                                  (III) shall not take into 
                                account prices that are merely 
                                nominal in amount; and
                          (IV) in the case of a manufacturer 
                        that approves, allows, or otherwise 
                        permits any other drug of the 
                        manufacturer to be sold under a new 
                        drug application approved under section 
                        505(c) of the Federal Food, Drug, and 
                        Cosmetic Act, shall be inclusive of the 
                        lowest price for such authorized drug 
                        available from the manufacturer during 
                        the rebate period to any manufacturer, 
                        wholesaler, retailer, provider, health 
                        maintenance organization, nonprofit 
                        entity, or governmental entity within 
                        the United States, excluding those 
                        prices described in subclauses (I) 
                        through (IV) of clause (i).
                          (iii) Application of auditing and 
                        recordkeeping requirements.--With 
                        respect to a covered entity described 
                        in section 340B(a)(4)(L) of the Public 
                        Health Service Act, any drug purchased 
                        for inpatient use shall be subject to 
                        the auditing and recordkeeping 
                        requirements described in section 
                        340B(a)(5)(C) of the Public Health 
                        Service Act.
                  (D) Limitation on sales at a nominal price.--
                          (i) In general.--For purposes of 
                        subparagraph (C)(ii)(III) and 
                        subsection (b)(3)(A)(iii)(III), only 
                        sales by a manufacturer of covered 
                        outpatient drugs at nominal prices to 
                        the following shall be considered to be 
                        sales at a nominal price or merely 
                        nominal in amount:
                                  (I) A covered entity 
                                described in section 340B(a)(4) 
                                of the Public Health Service 
                                Act.
                                  (II) An intermediate care 
                                facility for the mentally 
                                retarded.
                                  (III) A State-owned or 
                                operated nursing facility.
                                  (IV) An entity that--
                                          (aa) is described in 
                                        section 501(c)(3) of 
                                        the Internal Revenue 
                                        Code of 1986 and exempt 
                                        from tax under section 
                                        501(a) of such Act or 
                                        is State-owned or 
                                        operated; and
                                          (bb) would be a 
                                        covered entity 
                                        described in section 
                                        340(B)(a)(4) of the 
                                        Public Health Service 
                                        Act insofar as the 
                                        entity provides the 
                                        same type of services 
                                        to the same type of 
                                        populations as a 
                                        covered entity 
                                        described in such 
                                        section provides, but 
                                        does not receive 
                                        funding under a 
                                        provision of law 
                                        referred to in such 
                                        section;
                                  (V) A public or nonprofit 
                                entity, or an entity based at 
                                an institution of higher 
                                learning whose primary purpose 
                                is to provide health care 
                                services to students of that 
                                institution, that provides a 
                                service or services described 
                                under section 1001(a) of the 
                                Public Health Service Act, 42 
                                U.S.C. 300.
                                  (VI) Any other facility or 
                                entity that the Secretary 
                                determines is a safety net 
                                provider to which sales of such 
                                drugs at a nominal price would 
                                be appropriate based on the 
                                factors described in clause 
                                (ii).
                          (ii) Factors.--The factors described 
                        in this clause with respect to a 
                        facility or entity are the following:
                                  (I) The type of facility or 
                                entity.
                                  (II) The services provided by 
                                the facility or entity.
                                  (III) The patient population 
                                served by the facility or 
                                entity.
                                  (IV) The number of other 
                                facilities or entities eligible 
                                to purchase at nominal prices 
                                in the same service area.
                          (iii) Nonapplication.--Clause (i) 
                        shall not apply with respect to sales 
                        by a manufacturer at a nominal price of 
                        covered outpatient drugs pursuant to a 
                        master agreement under section 8126 of 
                        title 38, United States Code.
                          (iv) Rule of Construction.--Nothing 
                        in this subparagraph shall be construed 
                        to alter any existing statutory or 
                        regulatory prohibition on services with 
                        respect to an entity described in 
                        clause (i)(IV), including the 
                        prohibition set forth in section 1008 
                        of the Public Health Service Act.
          (2) Additional rebate for single source and innovator 
        multiple source drugs.--
                  (A) In general.--The amount of the rebate 
                specified in this subsection for a rebate 
                period, with respect to each dosage form and 
                strength of a single source drug or an 
                innovator multiple source drug, shall be 
                increased by an amount equal to the product 
                of--
                          (i) the total number of units of such 
                        dosage form and strength dispensed 
                        after December 31, 1990, for which 
                        payment was made under the State plan 
                        for the rebate period; and
                          (ii) the amount (if any) by which--
                                  (I) the average manufacturer 
                                price for the dosage form and 
                                strength of the drug for the 
                                period, exceeds
                                  (II) the average manufacturer 
                                price for such dosage form and 
                                strength for the calendar 
                                quarter beginning July 1, 1990 
                                (without regard to whether or 
                                not the drug has been sold or 
                                transferred to an entity, 
                                including a division or 
                                subsidiary of the manufacturer, 
                                after the first day of such 
                                quarter), increased by the 
                                percentage by which the 
                                consumer price index for all 
                                urban consumers (United States 
                                city average) for the month 
                                before the month in which the 
                                rebate period begins exceeds 
                                such index for September 1990.
                  (B) Treatment of subsequently approved 
                drugs.--In the case of a covered outpatient 
                drug approved by the Food and Drug 
                Administration after October 1, 1990, clause 
                (ii)(II) of subparagraph (A) shall be applied 
                by substituting ``the first full calendar 
                quarter after the day on which the drug was 
                first marketed'' for ``the calendar quarter 
                beginning July 1, 1990'' and ``the month prior 
                to the first month of the first full calendar 
                quarter after the day on which the drug was 
                first marketed'' for ``September 1990''.
                  (C) Treatment of new formulations.--
                          (i) In general.--In the case of a 
                        drug that is a line extension of a 
                        single source drug or an innovator 
                        multiple source drug that is an oral 
                        solid dosage form, the rebate 
                        obligation for a rebate period with 
                        respect to such drug under this 
                        subsection shall be the greater of the 
                        amount described in clause (ii) for 
                        such drug or the amount described in 
                        clause (iii) for such drug.
                          (ii) Amount 1.--For purposes of 
                        clause (i), the amount described in 
                        this clause with respect to a drug 
                        described in clause (i) and rebate 
                        period is the amount computed under 
                        paragraph (1) for such drug, increased 
                        by the amount computed under 
                        subparagraph (A) and, as applicable, 
                        subparagraph (B) for such drug and 
                        rebate period.
                          (iii) Amount 2.--For purposes of 
                        clause (i), the amount described in 
                        this clause with respect to a drug 
                        described in clause (i) and rebate 
                        period is the amount computed under 
                        paragraph (1) for such drug, increased 
                        by the product of--
                                  (I) the average manufacturer 
                                price for the rebate period of 
                                the line extension of a single 
                                source drug or an innovator 
                                multiple source drug that is an 
                                oral solid dosage form;
                                  (II) the highest additional 
                                rebate (calculated as a 
                                percentage of average 
                                manufacturer price) under this 
                                paragraph for the rebate period 
                                for any strength of the 
                                original single source drug or 
                                innovator multiple source drug; 
                                and
                                  (III) the total number of 
                                units of each dosage form and 
                                strength of the line extension 
                                product paid for under the 
                                State plan in the rebate period 
                                (as reported by the State).
                In this subparagraph, the term ``line 
                extension'' means, with respect to a drug, a 
                new formulation of the drug, such as an 
                extended release formulation, but does not 
                include an abuse-deterrent formulation of the 
                drug (as determined by the Secretary), 
                regardless of whether such abuse-deterrent 
                formulation is an extended release formulation.
                  (D) Maximum rebate amount.--In no case shall 
                the sum of the amounts applied under paragraph 
                (1)(A)(ii) and this paragraph with respect to 
                each dosage form and strength of a single 
                source drug or an innovator multiple source 
                drug for a rebate period beginning after 
                December 31, 2009, exceed 100 percent of the 
                average manufacturer price of the drug.
          (3) Rebate for other drugs.--
                  (A) In general.--Except as provided in 
                subparagraph (C), the amount of the rebate paid 
                to a State for a rebate period with respect to 
                each dosage form and strength of covered 
                outpatient drugs (other than single source 
                drugs and innovator multiple source drugs) 
                shall be equal to the product of--
                          (i) the applicable percentage (as 
                        described in subparagraph (B)) of the 
                        average manufacturer price for the 
                        dosage form and strength for the rebate 
                        period, and
                          (ii) the total number of units of 
                        such dosage form and strength dispensed 
                        after December 31, 1990, for which 
                        payment was made under the State plan 
                        for the rebate period.
                  (B) Applicable percentage defined.--For 
                purposes of subparagraph (A)(i), the 
                ``applicable percentage'' for rebate periods 
                beginning--
                          (i) before January 1, 1994, is 10 
                        percent,
                          (ii) after December 31, 1993, and 
                        before January 1, 2010, is 11 percent; 
                        and
                          (iii) after December 31, 2009, is 13 
                        percent.
                  (C) Additional rebate.--
                          (i) In general.--The amount of the 
                        rebate specified in this paragraph for 
                        a rebate period, with respect to each 
                        dosage form and strength of a covered 
                        outpatient drug other than a single 
                        source drug or an innovator multiple 
                        source drug of a manufacturer, shall be 
                        increased in the manner that the rebate 
                        for a dosage form and strength of a 
                        single source drug or an innovator 
                        multiple source drug is increased under 
                        subparagraphs (A) and (D) of paragraph 
                        (2), except as provided in clause (ii).
                          (ii) Special rules for application of 
                        provision.--In applying subparagraphs 
                        (A) and (D) of paragraph (2) under 
                        clause (i)--
                                  (I) the reference in 
                                subparagraph (A)(i) of such 
                                paragraph to ``1990'' shall be 
                                deemed a reference to ``2014'';
                                  (II) subject to clause (iii), 
                                the reference in subparagraph 
                                (A)(ii) of such paragraph to 
                                ``the calendar quarter 
                                beginning July 1, 1990'' shall 
                                be deemed a reference to ``the 
                                calendar quarter beginning July 
                                1, 2014''; and
                                  (III) subject to clause 
                                (iii), the reference in 
                                subparagraph (A)(ii) of such 
                                paragraph to ``September 1990'' 
                                shall be deemed a reference to 
                                ``September 2014'';
                                  (IV) the references in 
                                subparagraph (D) of such 
                                paragraph to ``paragraph 
                                (1)(A)(ii)'', ``this 
                                paragraph'', and ``December 31, 
                                2009'' shall be deemed 
                                references to ``subparagraph 
                                (A)'', ``this subparagraph'', 
                                and ``December 31, 2014'', 
                                respectively; and
                                  (V) any reference in such 
                                paragraph to a ``single source 
                                drug or an innovator multiple 
                                source drug'' shall be deemed 
                                to be a reference to a drug to 
                                which clause (i) applies.
                          (iii) Special rule for certain 
                        noninnovator multiple source drugs.--In 
                        applying paragraph (2)(A)(ii)(II) under 
                        clause (i) with respect to a covered 
                        outpatient drug that is first marketed 
                        as a drug other than a single source 
                        drug or an innovator multiple source 
                        drug after April 1, 2013, such 
                        paragraph shall be applied--
                                  (I) by substituting ``the 
                                applicable quarter'' for ``the 
                                calendar quarter beginning July 
                                1, 1990''; and
                                  (II) by substituting ``the 
                                last month in such applicable 
                                quarter'' for ``September 
                                1990''.
                          (iv) Applicable quarter defined.--In 
                        this subsection, the term ``applicable 
                        quarter'' means, with respect to a drug 
                        described in clause (iii), the fifth 
                        full calendar quarter after which the 
                        drug is marketed as a drug other than a 
                        single source drug or an innovator 
                        multiple source drug.
  (d) Limitations on Coverage of Drugs.--
          (1) Permissible restrictions.--(A) A State may 
        subject to prior authorization any covered outpatient 
        drug. Any such prior authorization program shall comply 
        with the requirements of paragraph (5).
          (B) A State may exclude or otherwise restrict 
        coverage of a covered outpatient drug if--
                  (i) the prescribed use is not for a medically 
                accepted indication (as defined in subsection 
                (k)(6));
                  (ii) the drug is contained in the list 
                referred to in paragraph (2);
                  (iii) the drug is subject to such 
                restrictions pursuant to an agreement between a 
                manufacturer and a State authorized by the 
                Secretary under subsection (a)(1) or in effect 
                pursuant to subsection (a)(4); or
                  (iv) the State has excluded coverage of the 
                drug from its formulary established in 
                accordance with paragraph (4).
          (2) List of drugs subject to restriction.--The 
        following drugs or classes of drugs, or their medical 
        uses, may be excluded from coverage or otherwise 
        restricted:
                  (A) Agents when used for anorexia, weight 
                loss, or weight gain.
                  (B) Agents when used to promote fertility.
                  (C) Agents when used for cosmetic purposes or 
                hair growth.
                  (D) Agents when used for the symptomatic 
                relief of cough and colds.
                  (E) Prescription vitamins and mineral 
                products, except prenatal vitamins and fluoride 
                preparations.
                  (F) Nonprescription drugs, except, in the 
                case of pregnant women when recommended in 
                accordance with the Guideline referred to in 
                section 1905(bb)(2)(A), agents approved by the 
                Food and Drug Administration under the over-
                the-counter monograph process for purposes of 
                promoting, and when used to promote, tobacco 
                cessation.
                  (G) Covered outpatient drugs which the 
                manufacturer seeks to require as a condition of 
                sale that associated tests or monitoring 
                services be purchased exclusively from the 
                manufacturer or its designee.
                  (H) Agents when used for the treatment of 
                sexual or erectile dysfunction, unless such 
                agents are used to treat a condition, other 
                than sexual or erectile dysfunction, for which 
                the agents have been approved by the Food and 
                Drug Administration.
          (3) Update of drug listings.--The Secretary shall, by 
        regulation, periodically update the list of drugs or 
        classes of drugs described in paragraph (2) or their 
        medical uses, which the Secretary has determined, based 
        on data collected by surveillance and utilization 
        review programs of State medical assistance programs, 
        to be subject to clinical abuse or inappropriate use.
          (4) Requirements for formularies.--A State may 
        establish a formulary if the formulary meets the 
        following requirements:
                  (A) The formulary is developed by a committee 
                consisting of physicians, pharmacists, and 
                other appropriate individuals appointed by the 
                Governor of the State (or, at the option of the 
                State, the State's drug use review board 
                established under subsection (g)(3)).
                  (B) Except as provided in subparagraph (C), 
                the formulary includes the covered outpatient 
                drugs of any manufacturer which has entered 
                into and complies with an agreement under 
                subsection (a) (other than any drug excluded 
                from coverage or otherwise restricted under 
                paragraph (2)).
                  (C) A covered outpatient drug may be excluded 
                with respect to the treatment of a specific 
                disease or condition for an identified 
                population (if any) only if, based on the 
                drug's labeling (or, in the case of a drug the 
                prescribed use of which is not approved under 
                the Federal Food, Drug, and Cosmetic Act but is 
                a medically accepted indication, based on 
                information from the appropriate compendia 
                described in subsection (k)(6)), the excluded 
                drug does not have a significant, clinically 
                meaningful therapeutic advantage in terms of 
                safety, effectiveness, or clinical outcome of 
                such treatment for such population over other 
                drugs included in the formulary and there is a 
                written explanation (available to the public) 
                of the basis for the exclusion.
                  (D) The State plan permits coverage of a drug 
                excluded from the formulary (other than any 
                drug excluded from coverage or otherwise 
                restricted under paragraph (2)) pursuant to a 
                prior authorization program that is consistent 
                with paragraph (5).
                  (E) The formulary meets such other 
                requirements as the Secretary may impose in 
                order to achieve program savings consistent 
                with protecting the health of program 
                beneficiaries.
        A prior authorization program established by a State 
        under paragraph (5) is not a formulary subject to the 
        requirements of this paragraph.
          (5) Requirements of prior authorization programs.--A 
        State plan under this title may require, as a condition 
        of coverage or payment for a covered outpatient drug 
        for which Federal financial participation is available 
        in accordance with this section, with respect to drugs 
        dispensed on or after July 1, 1991, the approval of the 
        drug before its dispensing for any medically accepted 
        indication (as defined in subsection (k)(6)) only if 
        the system providing for such approval--
                  (A) provides response by telephone or other 
                telecommunication device within 24 hours of a 
                request for prior authorization; and
                  (B) except with respect to the drugs on the 
                list referred to in paragraph (2), provides for 
                the dispensing of at least 72-hour supply of a 
                covered outpatient prescription drug in an 
                emergency situation (as defined by the 
                Secretary).
          (6) Other permissible restrictions.--A State may 
        impose limitations, with respect to all such drugs in a 
        therapeutic class, on the minimum or maximum quantities 
        per prescription or on the number of refills, if such 
        limitations are necessary to discourage waste, and may 
        address instances of fraud or abuse by individuals in 
        any manner authorized under this Act.
          (7) Non-excludable drugs.--The following drugs or 
        classes of drugs, or their medical uses, shall not be 
        excluded from coverage:
                  (A) Agents when used to promote smoking 
                cessation, including agents approved by the 
                Food and Drug Administration under the over-
                the-counter monograph process for purposes of 
                promoting, and when used to promote, tobacco 
                cessation.
                  (B) Barbiturates.
                  (C) Benzodiazepines.
  (e) Treatment of Pharmacy Reimbursement Limits.--
          (1) In general.--During the period beginning on 
        January 1, 1991, and ending on December 31, 1994--
                  (A) a State may not reduce the payment limits 
                established by regulation under this title or 
                any limitation described in paragraph (3) with 
                respect to the ingredient cost of a covered 
                outpatient drug or the dispensing fee for such 
                a drug below the limits in effect as of January 
                1, 1991, and
                  (B) except as provided in paragraph (2), the 
                Secretary may not modify by regulation the 
                formula established under sections 447.331 
                through 447.334 of title 42, Code of Federal 
                Regulations, in effect on November 5, 1990, to 
                reduce the limits described in subparagraph 
                (A).
          (2) Special rule.--If a State is not in compliance 
        with the regulations described in paragraph (1)(B), 
        paragraph (1)(A) shall not apply to such State until 
        such State is in compliance with such regulations.
          (3) Effect on state maximum allowable cost 
        limitations.--This section shall not supersede or 
        affect provisions in effect prior to January 1, 1991, 
        or after December 31, 1994, relating to any maximum 
        allowable cost limitation established by a State for 
        payment by the State for covered outpatient drugs, and 
        rebates shall be made under this section without regard 
        to whether or not payment by the State for such drugs 
        is subject to such a limitation or the amount of such a 
        limitation.
          (4) Establishment of upper payment Limits.--Subject 
        to paragraph (5), the Secretary shall establish a 
        Federal upper reimbursement limit for each multiple 
        source drug for which the FDA has rated three or more 
        products therapeutically and pharmaceutically 
        equivalent, regardless of whether all such additional 
        formulations are rated as such and shall use only such 
        formulations when determining any such upper limit.
          (5) Use of amp in upper payment limits.--The 
        Secretary shall calculate the Federal upper 
        reimbursement limit established under paragraph (4) as 
        no less than 175 percent of the weighted average 
        (determined on the basis of utilization) of the most 
        recently reported monthly average manufacturer prices 
        for pharmaceutically and therapeutically equivalent 
        multiple source drug products that are available for 
        purchase by retail community pharmacies on a nationwide 
        basis. The Secretary shall implement a smoothing 
        process for average manufacturer prices. Such process 
        shall be similar to the smoothing process used in 
        determining the average sales price of a drug or 
        biological under section 1847A.
  (f) Survey of Retail Prices; State Payment and Utilization 
Rates; and Performance Rankings.--
          (1) Survey of retail prices.--
                  (A) Use of vendor.--The Secretary may 
                contract services for--
                          (i) with respect to a retail 
                        community pharmacy, the determination 
                        on a monthly basis of retail survey 
                        prices for covered outpatient drugs 
                        that represent a nationwide average of 
                        consumer purchase prices for such 
                        drugs, net of all discounts and rebates 
                        (to the extent any information with 
                        respect to such discounts and rebates 
                        is available); and
                          (ii) the notification of the 
                        Secretary when a drug product that is 
                        therapeutically and pharmaceutically 
                        equivalent and bioequivalent becomes 
                        generally available.
                  (B) Secretary response to notification of 
                availability of multiple source products.--If 
                contractor notifies the Secretary under 
                subparagraph (A)(ii) that a drug product 
                described in such subparagraph has become 
                generally available, the Secretary shall make a 
                determination, within 7 days after receiving 
                such notification, as to whether the product is 
                now described in subsection (e)(4).
                  (C) Use of competitive bidding.--In 
                contracting for such services, the Secretary 
                shall competitively bid for an outside vendor 
                that has a demonstrated history in--
                          (i) surveying and determining, on a 
                        representative nationwide basis, retail 
                        prices for ingredient costs of 
                        prescription drugs;
                          (ii) working with retail community 
                        pharmacies, commercial payers, and 
                        States in obtaining and disseminating 
                        such price information; and
                          (iii) collecting and reporting such 
                        price information on at least a monthly 
                        basis.
                In contracting for such services, the Secretary 
                may waive such provisions of the Federal 
                Acquisition Regulation as are necessary for the 
                efficient implementation of this subsection, 
                other than provisions relating to 
                confidentiality of information and such other 
                provisions as the Secretary determines 
                appropriate.
                  (D) Additional provisions.--A contract with a 
                vendor under this paragraph shall include such 
                terms and conditions as the Secretary shall 
                specify, including the following:
                          (i) The vendor must monitor the 
                        marketplace and report to the Secretary 
                        each time there is a new covered 
                        outpatient drug generally available.
                          (ii) The vendor must update the 
                        Secretary no less often than monthly on 
                        the retail survey prices for covered 
                        outpatient drugs.
                          (iii) The contract shall be effective 
                        for a term of 2 years.
                  (E) Availability of information to states.--
                Information on retail survey prices obtained 
                under this paragraph, including applicable 
                information on single source drugs, shall be 
                provided to States on at least a monthly basis. 
                The Secretary shall devise and implement a 
                means for providing access to each State agency 
                designated under section 1902(a)(5) with 
                responsibility for the administration or 
                supervision of the administration of the State 
                plan under this title of the retail survey 
                price determined under this paragraph.
          (2) Annual state report.--Each State shall annually 
        report to the Secretary information on--
                  (A) the payment rates under the State plan 
                under this title for covered outpatient drugs;
                  (B) the dispensing fees paid under such plan 
                for such drugs; and
                  (C) utilization rates for noninnovator 
                multiple source drugs under such plan.
          (3) Annual state performance rankings.--
                  (A) Comparative analysis.--The Secretary 
                annually shall compare, for the 50 most widely 
                prescribed drugs identified by the Secretary, 
                the national retail sales price data (collected 
                under paragraph (1)) for such drugs with data 
                on prices under this title for each such drug 
                for each State.
                  (B) Availability of information.--The 
                Secretary shall submit to Congress and the 
                States full information regarding the annual 
                rankings made under subparagraph (A).
          (4) Appropriation.--Out of any funds in the Treasury 
        not otherwise appropriated, there is appropriated to 
        the Secretary of Health and Human Services $5,000,000 
        for each of fiscal years 2006 through 2010 to carry out 
        this subsection.
  (g) Drug Use Review.--
          (1) In general.--
                  (A) In order to meet the requirement of 
                section 1903(i)(10)(B), a State shall provide, 
                by not later than January 1, 1993, for a drug 
                use review program described in paragraph (2) 
                for covered outpatient drugs in order to assure 
                that prescriptions (i) are appropriate, (ii) 
                are medically necessary, and (iii) are not 
                likely to result in adverse medical results. 
                The program shall be designed to educate 
                physicians and pharmacists to identify and 
                reduce the frequency of patterns of fraud, 
                abuse, gross overuse, or inappropriate or 
                medically unnecessary care, among physicians, 
                pharmacists, and patients, or associated with 
                specific drugs or groups of drugs, as well as 
                potential and actual severe adverse reactions 
                to drugs including education on therapeutic 
                appropriateness, overutilization and 
                underutilization, appropriate use of generic 
                products, therapeutic duplication, drug-disease 
                contraindications, drug-drug interactions, 
                incorrect drug dosage or duration of drug 
                treatment, drug-allergy interactions, and 
                clinical abuse/misuse.
                  (B) The program shall assess data on drug use 
                against predetermined standards, consistent 
                with the following:
                          (i) compendia which shall consist of 
                        the following:
                                  (I) American Hospital 
                                Formulary Service Drug 
                                Information;
                                  (II) United States 
                                Pharmacopeia-Drug Information 
                                (or its successor 
                                publications); and
                                  (III) the DRUGDEX Information 
                                System; and
                          (ii) the peer-reviewed medical 
                        literature.
                  (C) The Secretary, under the procedures 
                established in section 1903, shall pay to each 
                State an amount equal to 75 per centum of so 
                much of the sums expended by the State plan 
                during calendar years 1991 through 1993 as the 
                Secretary determines is attributable to the 
                statewide adoption of a drug use review program 
                which conforms to the requirements of this 
                subsection.
                  (D) States shall not be required to perform 
                additional drug use reviews with respect to 
                drugs dispensed to residents of nursing 
                facilities which are in compliance with the 
                drug regimen review procedures prescribed by 
                the Secretary for such facilities in 
                regulations implementing section 1919, 
                currently at section 483.60 of title 42, Code 
                of Federal Regulations.
          (2) Description of program.--Each drug use review 
        program shall meet the following requirements for 
        covered outpatient drugs:
                  (A) Prospective drug review.--(i) The State 
                plan shall provide for a review of drug therapy 
                before each prescription is filled or delivered 
                to an individual receiving benefits under this 
                title, typically at the point-of-sale or point 
                of distribution. The review shall include 
                screening for potential drug therapy problems 
                due to therapeutic duplication, drug-disease 
                contraindications, drug-drug interactions 
                (including serious interactions with 
                nonprescription or over-the-counter drugs), 
                incorrect drug dosage or duration of drug 
                treatment, drug-allergy interactions, and 
                clinical abuse/misuse. Each State shall use the 
                compendia and literature referred to in 
                paragraph (1)(B) as its source of standards for 
                such review.
                  (ii) As part of the State's prospective drug 
                use review program under this subparagraph 
                applicable State law shall establish standards 
                for counseling of individuals receiving 
                benefits under this title by pharmacists which 
                includes at least the following:
                          (I) The pharmacist must offer to 
                        discuss with each individual receiving 
                        benefits under this title or caregiver 
                        of such individual (in person, whenever 
                        practicable, or through access to a 
                        telephone service which is toll-free 
                        for long-distance calls) who presents a 
                        prescription, matters which in the 
                        exercise of the pharmacist's 
                        professional judgment (consistent with 
                        State law respecting the provision of 
                        such information), the pharmacist deems 
                        significant including the following:
                                  (aa) The name and description 
                                of the medication.
                                  (bb) The route, dosage form, 
                                dosage, route of 
                                administration, and duration of 
                                drug therapy.
                                  (cc) Special directions and 
                                precautions for preparation, 
                                administration and use by the 
                                patient.
                                  (dd) Common severe side or 
                                adverse effects or interactions 
                                and therapeutic 
                                contraindications that may be 
                                encountered, including their 
                                avoidance, and the action 
                                required if they occur.
                                  (ee) Techniques for self-
                                monitoring drug therapy.
                                  (ff) Proper storage.
                                  (gg) Prescription refill 
                                information.
                                  (hh) Action to be taken in 
                                the event of a missed dose.
                          (II) A reasonable effort must be made 
                        by the pharmacist to obtain, record, 
                        and maintain at least the following 
                        information regarding individuals 
                        receiving benefits under this title:
                                  (aa) Name, address, telephone 
                                number, date of birth (or age) 
                                and gender.
                                  (bb) Individual history where 
                                significant, including disease 
                                state or states, known 
                                allergies and drug reactions, 
                                and a comprehensive list of 
                                medications and relevant 
                                devices.
                                  (cc) Pharmacist comments 
                                relevant to the individual's 
                                drug therapy.
                Nothing in this clause shall be construed as 
                requiring a pharmacist to provide consultation 
                when an individual receiving benefits under 
                this title or caregiver of such individual 
                refuses such consultation, or to require 
                verification of the offer to provide 
                consultation or a refusal of such offer.
                  (B) Retrospective drug use review.--The 
                program shall provide, through its mechanized 
                drug claims processing and information 
                retrieval systems (approved by the Secretary 
                under section 1903(r)) or otherwise, for the 
                ongoing periodic examination of claims data and 
                other records in order to identify patterns of 
                fraud, abuse, gross overuse, or inappropriate 
                or medically unnecessary care, among 
                physicians, pharmacists and individuals 
                receiving benefits under this title, or 
                associated with specific drugs or groups of 
                drugs.
                  (C) Application of standards.--The program 
                shall, on an ongoing basis, assess data on drug 
                use against explicit predetermined standards 
                (using the compendia and literature referred to 
                in subsection (1)(B) as the source of standards 
                for such assessment) including but not limited 
                to monitoring for therapeutic appropriateness, 
                overutilization and underutilization, 
                appropriate use of generic products, 
                therapeutic duplication, drug-disease 
                contraindications, drug-drug interactions, 
                incorrect drug dosage or duration of drug 
                treatment, and clinical abuse/misuse and, as 
                necessary, introduce remedial strategies, in 
                order to improve the quality of care and to 
                conserve program funds or personal 
                expenditures.
                  (D) Educational program.--The program shall, 
                through its State drug use review board 
                established under paragraph (3), either 
                directly or through contracts with accredited 
                health care educational institutions, State 
                medical societies or State pharmacists 
                associations/societies or other organizations 
                as specified by the State, and using data 
                provided by the State drug use review board on 
                common drug therapy problems, provide for 
                active and ongoing educational outreach 
                programs (including the activities described in 
                paragraph (3)(C)(iii) of this subsection) to 
                educate practitioners on common drug therapy 
                problems with the aim of improving prescribing 
                or dispensing practices.
          (3) State drug use review board.--
                  (A) Establishment.--Each State shall provide 
                for the establishment of a drug use review 
                board (hereinafter referred to as the ``DUR 
                Board'') either directly or through a contract 
                with a private organization.
                  (B) Membership.--The membership of the DUR 
                Board shall include health care professionals 
                who have recognized knowledge and expertise in 
                one or more of the following:
                          (i) The clinically appropriate 
                        prescribing of covered outpatient 
                        drugs.
                          (ii) The clinically appropriate 
                        dispensing and monitoring of covered 
                        outpatient drugs.
                          (iii) Drug use review, evaluation, 
                        and intervention.
                          (iv) Medical quality assurance.
                The membership of the DUR Board shall be made 
                up at least \1/3\ but no more than 51 percent 
                licensed and actively practicing physicians and 
                at least \1/3\ licensed and actively practicing 
                pharmacists.
                  (C) Activities.--The activities of the DUR 
                Board shall include but not be limited to the 
                following:
                          (i) Retrospective DUR as defined in 
                        section (2)(B).
                          (ii) Application of standards as 
                        defined in section (2)(C).
                          (iii) Ongoing interventions for 
                        physicians and pharmacists, targeted 
                        toward therapy problems or individuals 
                        identified in the course of 
                        retrospective drug use reviews 
                        performed under this subsection. 
                        Intervention programs shall include, in 
                        appropriate instances, at least:
                                  (I) information dissemination 
                                sufficient to ensure the ready 
                                availability to physicians and 
                                pharmacists in the State of 
                                information concerning its 
                                duties, powers, and basis for 
                                its standards;
                                  (II) written, oral, or 
                                electronic reminders containing 
                                patient-specific or drug-
                                specific (or both) information 
                                and suggested changes in 
                                prescribing or dispensing 
                                practices, communicated in a 
                                manner designed to ensure the 
                                privacy of patient-related 
                                information;
                                  (III) use of face-to-face 
                                discussions between health care 
                                professionals who are experts 
                                in rational drug therapy and 
                                selected prescribers and 
                                pharmacists who have been 
                                targeted for educational 
                                intervention, including 
                                discussion of optimal 
                                prescribing, dispensing, or 
                                pharmacy care practices, and 
                                follow-up face-to-face 
                                discussions; and
                                  (IV) intensified review or 
                                monitoring of selected 
                                prescribers or dispensers.
                The Board shall re-evaluate interventions after 
                an appropriate period of time to determine if 
                the intervention improved the quality of drug 
                therapy, to evaluate the success of the 
                interventions and make modifications as 
                necessary.
                  (D) Annual report.--Each State shall require 
                the DUR Board to prepare a report on an annual 
                basis. The State shall submit a report on an 
                annual basis to the Secretary which shall 
                include a description of the activities of the 
                Board, including the nature and scope of the 
                prospective and retrospective drug use review 
                programs, a summary of the interventions used, 
                an assessment of the impact of these 
                educational interventions on quality of care, 
                and an estimate of the cost savings generated 
                as a result of such program. The Secretary 
                shall utilize such report in evaluating the 
                effectiveness of each State's drug use review 
                program.
  (h) Electronic Claims Management.--
          (1) In general.--In accordance with chapter 35 of 
        title 44, United States Code (relating to coordination 
        of Federal information policy), the Secretary shall 
        encourage each State agency to establish, as its 
        principal means of processing claims for covered 
        outpatient drugs under this title, a point-of-sale 
        electronic claims management system, for the purpose of 
        performing on-line, real time eligibility 
        verifications, claims data capture, adjudication of 
        claims, and assisting pharmacists (and other authorized 
        persons) in applying for and receiving payment.
          (2) Encouragement.--In order to carry out paragraph 
        (1)--
                  (A) for calendar quarters during fiscal years 
                1991 and 1992, expenditures under the State 
                plan attributable to development of a system 
                described in paragraph (1) shall receive 
                Federal financial participation under section 
                1903(a)(3)(A)(i) (at a matching rate of 90 
                percent) if the State acquires, through 
                applicable competitive procurement process in 
                the State, the most cost-effective 
                telecommunications network and automatic data 
                processing services and equipment; and
                  (B) the Secretary may permit, in the 
                procurement described in subparagraph (A) in 
                the application of part 433 of title 42, Code 
                of Federal Regulations, and parts 95, 205, and 
                307 of title 45, Code of Federal Regulations, 
                the substitution of the State's request for 
                proposal in competitive procurement for advance 
                planning and implementation documents otherwise 
                required.
  (i) Annual Report.--
          (1) In general.--Not later than May 1 of each year 
        the Secretary shall transmit to the Committee on 
        Finance of the Senate, the Committee on Energy and 
        Commerce of the House of Representatives, and the 
        Committees on Aging of the Senate and the House of 
        Representatives a report on the operation of this 
        section in the preceding fiscal year.
          (2) Details.--Each report shall include information 
        on--
                  (A) ingredient costs paid under this title 
                for single source drugs, multiple source drugs, 
                and nonprescription covered outpatient drugs;
                  (B) the total value of rebates received and 
                number of manufacturers providing such rebates;
                  (C) how the size of such rebates compare with 
                the size or rebates offered to other purchasers 
                of covered outpatient drugs;
                  (D) the effect of inflation on the value of 
                rebates required under this section;
                  (E) trends in prices paid under this title 
                for covered outpatient drugs; and
                  (F) Federal and State administrative costs 
                associated with compliance with the provisions 
                of this title.
  (j) Exemption of Organized Health Care Settings.--
          (1) Covered outpatient drugs are not subject to the 
        requirements of this section if such drugs are--
                  (A) dispensed by health maintenance 
                organizations, including Medicaid managed care 
                organizations that contract under section 
                1903(m); and
                  (B) subject to discounts under section 340B 
                of the Public Health Service Act.
  (2) The State plan shall provide that a hospital (providing 
medical assistance under such plan) that dispenses covered 
outpatient drugs using drug formulary systems, and bills the 
plan no more than the hospital's purchasing costs for covered 
outpatient drugs (as determined under the State plan) shall not 
be subject to the requirements of this section.
  (3) Nothing in this subsection shall be construed as 
providing that amounts for covered outpatient drugs paid by the 
institutions described in this subsection should not be taken 
into account for purposes of determining the best price as 
described in subsection (c).
  (k) Definitions.--In the section--
          (1) Average manufacturer price.--
                  (A) In general.--Subject to subparagraph (B), 
                the term ``average manufacturer price'' means, 
                with respect to a covered outpatient drug of a 
                manufacturer for a rebate period, the average 
                price paid to the manufacturer for the drug in 
                the United States by--
                          (i) wholesalers for drugs distributed 
                        to retail community pharmacies; and
                          (ii) retail community pharmacies that 
                        purchase drugs directly from the 
                        manufacturer.
                  (B) Exclusion of customary prompt pay 
                discounts and other payments.--
                          (i) In general.--The average 
                        manufacturer price for a covered 
                        outpatient drug shall exclude--
                                  (I) customary prompt pay 
                                discounts extended to 
                                wholesalers;
                                  (II) bona fide service fees 
                                paid by manufacturers to 
                                wholesalers or retail community 
                                pharmacies, including (but not 
                                limited to) distribution 
                                service fees, inventory 
                                management fees, product 
                                stocking allowances, and fees 
                                associated with administrative 
                                services agreements and patient 
                                care programs (such as 
                                medication compliance programs 
                                and patient education 
                                programs);
                                  (III) reimbursement by 
                                manufacturers for recalled, 
                                damaged, expired, or otherwise 
                                unsalable returned goods, 
                                including (but not limited to) 
                                reimbursement for the cost of 
                                the goods and any reimbursement 
                                of costs associated with return 
                                goods handling and processing, 
                                reverse logistics, and drug 
                                destruction;
                                  (IV) payments received from, 
                                and rebates or discounts 
                                provided to, pharmacy benefit 
                                managers, managed care 
                                organizations, health 
                                maintenance organizations, 
                                insurers, hospitals, clinics, 
                                mail order pharmacies, long 
                                term care providers, 
                                manufacturers, or any other 
                                entity that does not conduct 
                                business as a wholesaler or a 
                                retail community pharmacy, 
                                unless the drug is an 
                                inhalation, infusion, 
                                instilled, implanted, or 
                                injectable drug that is not 
                                generally dispensed through a 
                                retail community pharmacy; and
                                  (V) discounts provided by 
                                manufacturers under section 
                                1860D-14A.
                          (ii) Inclusion of other discounts and 
                        payments.--Notwithstanding clause (i), 
                        any other discounts, rebates, payments, 
                        or other financial transactions that 
                        are received by, paid by, or passed 
                        through to, retail community pharmacies 
                        shall be included in the average 
                        manufacturer price for a covered 
                        outpatient drug.
                  (C) Inclusion of section 505(c) drugs.--In 
                the case of a manufacturer that approves, 
                allows, or otherwise permits any drug of the 
                manufacturer to be sold under a new drug 
                application approved under section 505(c) of 
                the Federal Food, Drug, and Cosmetic Act, such 
                term shall be inclusive of the average price 
                paid for such drug by wholesalers for drugs 
                distributed to retail community pharmacies.
          (2) Covered outpatient drug.--Subject to the 
        exceptions in paragraph (3), the term ``covered 
        outpatient drug'' means--
                  (A) of those drugs which are treated as 
                prescribed drugs for purposes of section 
                1905(a)(12), a drug which may be dispensed only 
                upon prescription (except as provided in 
                paragraph (5)), and--
                          (i) which is approved for safety and 
                        effectiveness as a prescription drug 
                        under section 505 or 507 of the Federal 
                        Food, Drug, and Cosmetic Act or which 
                        is approved under section 505(j) of 
                        such Act;
                          (ii)(I) which was commercially used 
                        or sold in the United States before the 
                        date of the enactment of the Drug 
                        Amendments of 1962 or which is 
                        identical, similar, or related (within 
                        the meaning of section 310.6(b)(1) of 
                        title 21 of the Code of Federal 
                        Regulations) to such a drug, and (II) 
                        which has not been the subject of a 
                        final determination by the Secretary 
                        that it is a ``new drug'' (within the 
                        meaning of section 201(p) of the 
                        Federal Food, Drug, and Cosmetic Act) 
                        or an action brought by the Secretary 
                        under section 301, 302(a), or 304(a) of 
                        such Act to enforce section 502(f) or 
                        505(a) of such Act; or
                          (iii)(I) which is described in 
                        section 107(c)(3) of the Drug 
                        Amendments of 1962 and for which the 
                        Secretary has determined there is a 
                        compelling justification for its 
                        medical need, or is identical, similar, 
                        or related (within the meaning of 
                        section 310.6(b)(1) of title 21 of the 
                        Code of Federal Regulations) to such a 
                        drug, and (II) for which the Secretary 
                        has not issued a notice of an 
                        opportunity for a hearing under section 
                        505(e) of the Federal Food, Drug, and 
                        Cosmetic Act on a proposed order of the 
                        Secretary to withdraw approval of an 
                        application for such drug under such 
                        section because the Secretary has 
                        determined that the drug is less than 
                        effective for some or all conditions of 
                        use prescribed, recommended, or 
                        suggested in its labeling; and
                  (B) a biological product, other than a 
                vaccine which--
                          (i) may only be dispensed upon 
                        prescription,
                          (ii) is licensed under section 351 of 
                        the Public Health Service Act, and
                          (iii) is produced at an establishment 
                        licensed under such section to produce 
                        such product; and
                  (C) insulin certified under section 506 of 
                the Federal Food, Drug, and Cosmetic Act.
          (3) Limiting definition.--The term ``covered 
        outpatient drug'' does not include any drug, biological 
        product, or insulin provided as part of, or as incident 
        to and in the same setting as, any of the following 
        (and for which payment may be made under this title as 
        part of payment for the following and not as direct 
        reimbursement for the drug):
                  (A) Inpatient hospital services.
                  (B) Hospice services.
                  (C) Dental services, except that drugs for 
                which the State plan authorizes direct 
                reimbursement to the dispensing dentist are 
                covered outpatient drugs.
                  (D) Physicians' services.
                  (E) Outpatient hospital services.
                  (F) Nursing facility services and services 
                provided by an intermediate care facility for 
                the mentally retarded.
                  (G) Other laboratory and x-ray services.
                  (H) Renal dialysis.
        Such term also does not include any such drug or 
        product for which a National Drug Code number is not 
        required by the Food and Drug Administration or a drug 
        or biological used for a medical indication which is 
        not a medically accepted indication. Any drug, 
        biological product, or insulin excluded from the 
        definition of such term as a result of this paragraph 
        shall be treated as a covered outpatient drug for 
        purposes of determining the best price (as defined in 
        subsection (c)(1)(C)) for such drug, biological 
        product, or insulin.
          (4) Nonprescription drugs.--If a State plan for 
        medical assistance under this title includes coverage 
        of prescribed drugs as described in section 1905(a)(12) 
        and permits coverage of drugs which may be sold without 
        a prescription (commonly referred to as ``over-the-
        counter'' drugs), if they are prescribed by a physician 
        (or other person authorized to prescribe under State 
        law), such a drug shall be regarded as a covered 
        outpatient drug.
          (5) Manufacturer.--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.
          (6) Medically accepted indication.--The term 
        ``medically accepted indication'' means any use for a 
        covered outpatient drug which is approved under the 
        Federal Food, Drug, and Cosmetic Act, or the use of 
        which is supported by one or more citations included or 
        approved for inclusion in any of the compendia 
        described in subsection (g)(1)(B)(i).
          (7) Multiple source drug; innovator multiple source 
        drug; noninnovator multiple source drug; single source 
        drug.--
                  (A) Defined.--
                          (i) Multiple source drug.--The term 
                        ``multiple source drug'' means, with 
                        respect to a rebate period, a covered 
                        outpatient drug (not including any drug 
                        described in paragraph (5)) for which 
                        there at least 1 other drug product 
                        which--
                                  (I) is rated as 
                                therapeutically equivalent 
                                (under the Food and Drug 
                                Administration's most recent 
                                publication of ``Approved Drug 
                                Products with Therapeutic 
                                Equivalence Evaluations''),
                                  (II) except as provided in 
                                subparagraph (B), is 
                                pharmaceutically equivalent and 
                                bioequivalent, as defined in 
                                subparagraph (C) and as 
                                determined by the Food and Drug 
                                Administration, and
                                  (III) is sold or marketed in 
                                the United States during the 
                                period.
                          (ii) Innovator multiple source 
                        drug.--The term ``innovator multiple 
                        source drug'' means a multiple source 
                        drug that was originally marketed under 
                        an original new drug application 
                        approved by the Food and Drug 
                        Administration.
                          (iii) Noninnovator multiple source 
                        drug.--The term ``noninnovator multiple 
                        source drug'' means a multiple source 
                        drug that is not an innovator multiple 
                        source drug.
                          (iv) Single source drug.--The term 
                        ``single source drug'' means a covered 
                        outpatient drug which is produced or 
                        distributed under an original new drug 
                        application approved by the Food and 
                        Drug Administration, including a drug 
                        product marketed by any cross-licensed 
                        producers or distributors operating 
                        under the new drug application.
                  (B) Exception.--Subparagraph (A)(i)(II) shall 
                not apply if the Food and Drug Administration 
                changes by regulation the requirement that, for 
                purposes of the publication described in 
                subparagraph (A)(i)(I), in order for drug 
                products to be rated as therapeutically 
                equivalent, they must be pharmaceutically 
                equivalent and bioequivalent, as defined in 
                subparagraph (C).
                  (C) Definitions.--For purposes of this 
                paragraph--
                          (i) drug products are 
                        pharmaceutically equivalent if the 
                        products contain identical amounts of 
                        the same active drug ingredient in the 
                        same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity; and
                          (ii) drugs are bioequivalent if they 
                        do not present a known or potential 
                        bioequivalence problem, or, if they do 
                        present such a problem, they are shown 
                        to meet an appropriate standard of 
                        bioequivalence.
          (8) Rebate period.--The term ``rebate period'' means, 
        with respect to an agreement under subsection (a), a 
        calendar quarter or other period specified by the 
        Secretary with respect to the payment of rebates under 
        such agreement.
          (9) State agency.--The term ``State agency'' means 
        the agency designated under section 1902(a)(5) to 
        administer or supervise the administration of the State 
        plan for medical assistance.
          (10) Retail community pharmacy.--The term ``retail 
        community pharmacy'' means an independent pharmacy, a 
        chain pharmacy, a supermarket pharmacy, or a mass 
        merchandiser pharmacy that is licensed as a pharmacy by 
        the State and that dispenses medications to the general 
        public at retail prices. Such term does not include a 
        pharmacy that dispenses prescription medications to 
        patients primarily through the mail, nursing home 
        pharmacies, long-term care facility pharmacies, 
        hospital pharmacies, clinics, charitable or not-for-
        profit pharmacies, government pharmacies, or pharmacy 
        benefit managers.
          (11) Wholesaler.--The term ``wholesaler'' means a 
        drug wholesaler that is engaged in wholesale 
        distribution of prescription drugs to retail community 
        pharmacies, including (but not limited to) 
        manufacturers, repackers, distributors, own-label 
        distributors, private-label distributors, jobbers, 
        brokers, warehouses (including manufacturer's and 
        distributor's warehouses, chain drug warehouses, and 
        wholesale drug warehouses) independent wholesale drug 
        traders, and retail community pharmacies that conduct 
        wholesale distributions.

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