Prescription Drug Affordability Act of 1993

Summary: Prescription Drug Affordability Act of 1993 - Amends the Internal Revenue Code to reduce the amount by which the possession tax credit exceeds the manufacturer's wage base in the case of manufacturers of single source or innovator multiple source drugs. 
Allocates additional revenues received in the Treasury as a result of this Act as follows:  (1) 75 percent for deficit reduction; and (2) 25 percent for developing or supplementing State prescription drug assistance programs for States with the highest percentage of elderly or poor populations.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Prescription Drug Affordability Act 
of 1993''.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress finds that--
            (1) although prescription drugs represent one of the most 
        frequently used medical care interventions in treating common 
        acute and chronic diseases, many Americans, especially elderly 
        and other vulnerable populations, are unable to afford their 
        medications because of excessive and persistent prescription 
        drug price inflation;
            (2) between 1980 and 1990, prescription drug price 
        inflation was 3 times the rate of general inflation;
            (3) between 1985 and 1991, the prices of the 20 top selling 
        prescription drugs, which account for almost a third of 
        prescription sales, rose 79 percent--nearly 4 times the general 
        rate of inflation;
            (4) prescription drug manufacturers continue to make 
        enormous profits on the backs of the elderly, poor, and other 
        vulnerable populations that are unable to afford their 
        medications;
            (5) because of the limited availability of private or 
        public prescription drug coverage for the elderly, prescription 
        drugs represent the highest out-of-pocket medical care cost for 
        3 of 4 elderly patients, surpassed only by costs of long-term 
        care services;
            (6) individuals over 65 fill an average of 15 prescriptions 
        a year to treat chronic health conditions compared to 5 
        prescriptions for those under 65;
            (7) the Federal Government and American taxpayer provide 
        substantial subsidies to the pharmaceutical industry in the 
        form of tax incentives, tax write-offs, and grants for non-
        research activities;
            (8) for example, in 1987 alone, the pharmaceutical industry 
        received a section 936 tax credit of more than $1,400,000,000, 
        and such credit is estimated to have yielded over 
        $2,000,000,000 in tax breaks in 1990 to such industry;
            (9) when Congress enacted section 936 in 1976, it sought to 
        help Puerto Rico obtain employment-producing investments, 
        however, in 1987 the pharmaceutical industry received over half 
        of the tax benefits provided by section 936 but employed less 
        than 20 percent of the workers;
            (10) the Department of the Treasury will lose 
        $15,000,000,000 in tax revenues during the 1993 through 1997 
        period due to section 936; and
            (11) 17 of the 21 most prescribed drugs in the United 
        States in 1990 are authorized for Puerto Rican manufacture.
    (b) Purposes.--The purposes of this Act are to insure that the 
elderly, the chronically ill, and all Americans have access to 
reasonably-priced pharmaceutical products.

SEC. 3. REDUCTION IN POSSESSIONS TAX CREDIT FOR EXCESSIVE 
              PHARMACEUTICAL INFLATION.

    (a) In General.--Section 936 of the Internal Revenue Code of 1986 
(relating to Puerto Rico and possession tax credit) is amended by 
adding at the end the following new subsection:
    ``(i) Reduction for Excessive Pharmaceutical Inflation.--
            ``(1) In general.--In the case of any manufacturer of 
        single source drugs or innovator multiple source drugs, the 
        amount by which the credit under this section for the taxable 
        year (determined without regard to this subsection) exceeds the 
        manufacturer's wage base for such taxable year shall be reduced 
        by the product of--
                    ``(A) the amount of such excess, multiplied by
                    ``(B) the sum of the reduction percentages for each 
                single source drug or innovator multiple source drug of 
                the manufacturer for such taxable year.
            ``(2) Manufacturer's wage base.--For purposes of this 
        subsection--
                    ``(A) In general.--The manufacturer's wage base for 
                any taxable year is equal to the total amount of wages 
                paid during such taxable year by the manufacturer to 
                eligible employees in Puerto Rico with respect to the 
                manufacture of single source drugs and innovator 
                multiple source drugs.
                    ``(B) Eligible employees.--The term `eligible 
                employee' means any employee of the manufacturer (as 
                defined in section 3121(d)) who is a bona fide resident 
                of Puerto Rico and subject to tax by Puerto Rico on 
                income from sources within and without Puerto Rico 
                during the entire taxable year.
                    ``(C) Wages.--The term `wages' has the meaning 
                given such term by section 3121(a).
            ``(3) Reduction percentage.--For purposes of this 
        subsection--
                    ``(A) In general.--The reduction percentage for any 
                drug for any taxable year is the percentage determined 
                by multiplying--
                            ``(i) the sales percentage for such drug 
                        for such taxable year, by
                            ``(ii) the price increase percentage for 
                        such drug for such taxable year.
                    ``(B) Sales percentage.--The sales percentage for 
                any drug for any taxable year is the percentage 
                determined by dividing--
                            ``(i) the total sales of such drug by the 
                        manufacturer for such taxable year, by
                            ``(ii) the total sales of all single source 
                        drugs and innovator multiple source drugs by 
                        the manufacturer for such taxable year.
                    ``(C) Price increase percentage.--The price 
                increase percentage for any drug for any taxable year 
                is the percentage determined by multiplying--
                            ``(i) 20, times
                            ``(ii) the excess (if any) of--
                                    ``(I) the percentage increase in 
                                the average manufacturer's price for 
                                such drug for the taxable year over 
                                such average price for the base taxable 
                                year, over
                                    ``(II) the percentage increase in 
                                the Consumer Price Index (as defined in 
                                section 1(g)(5)) for the taxable year 
                                over the base taxable year.
                    ``(D) Total sales.--
                            ``(i) Domestic sales only.--Total sales 
                        shall only include sales for use or consumption 
                        in the United States.
                            ``(ii) Sales to related parties not 
                        included.--Total sales shall not include sales 
                        to any related party (as defined in section 
                        267(b)).
                    ``(E) Average manufacturer's price.--The term 
                `average manufacturer's price' for any taxable year 
                means the average price paid to the manufacturer by 
                wholesalers or direct buyers and purchasers for each 
                single source drug or innovator multiple source drug 
                sold to the various classes of purchasers.
                    ``(F) Base taxable year.--The base taxable year for 
                any single source drug or innovator multiple source 
                drug is the later of--
                            ``(i) the last taxable year ending in 1991, 
                        or
                            ``(ii) the first taxable year beginning 
                        after the date on which the marketing of such 
                        drug begins.
            ``(4) Other definitions.--For purposes of this subsection--
                    ``(A) Manufacturer.--
                            ``(i) In general.--The term `manufacturer' 
                        means any person which is engaged in--
                                    ``(I) 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
                                    ``(II) 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.
                            ``(ii) Controlled groups.--For purposes of 
                        clause (i)--
                                    ``(I) Controlled group of 
                                corporations.--All corporations which 
                                are members of the same controlled 
                                group of corporations shall be treated 
                                as 1 person. For purposes of the 
                                preceding sentence, the term 
                                `controlled group of corporations' has 
                                the meaning given to such term by 
                                section 1563(a), except that `more than 
                                50 percent' shall be substituted for 
                                `at least 80 percent' each place it 
                                appears in section 1563(a)(1), and the 
                                determination shall be made without 
                                regard to subsections (a)(4) and 
                                (e)(3)(C) of section 1563.
                                    ``(II) Partnerships, 
                                proprietorships, etc., which are under 
                                common control.--Under regulations 
                                prescribed by the Secretary, all trades 
                                or business (whether or not 
                                incorporated) which are under common 
                                control shall be treated as 1 person. 
                                The regulations prescribed under this 
                                subclause shall be based on principles 
                                similar to the principles which apply 
                                in the case of subclause (I).
                    ``(B) Single source drug.--The term `single source 
                drug' means a drug or biological which is produced or 
                distributed under an original new drug application or 
                product licensing application, including a drug product 
                or biological marketed by any cross-licensed producers 
                or distributors operating under the new drug 
                application or product licensing application.
                    ``(C) Innovator multiple source drug.--The term 
                `innovator multiple source drug' means a multiple 
                source drug (within the meaning of section 
                1927(k)(7)(A)(i) of the Social Security Act) that was 
                originally marketed under an original new drug 
                application or a product licensing application approved 
                by the Food and Drug Administration.
            ``(5) Special rules.--For purposes of this subsection--
                    ``(A) Dosage treatment.--Except as provided by the 
                Secretary, each dosage form and strength of a single 
                source drug or innovator multiple source drug shall be 
                treated as a separate drug.
                    ``(B) Rounding of percentages.--Any percentage 
                shall be rounded to the nearest hundredth of a 
                percent.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

SEC. 4. ALLOCATION OF ADDITIONAL REVENUES.

    The additional revenues received in the Treasury during any fiscal 
year by reason of the provisions of section 936(i) of the Internal 
Revenue Code of 1986 (as added by section 3 of this Act) are hereby 
allocated for accounting purposes to a separate account in the Treasury 
to be used as follows:
            (1) 75 percent of such additional revenues shall be used 
        for deficit reduction purposes.
            (2) 25 percent of such additional revenues shall be used 
        for purposes of developing State prescription drug assistance 
        programs (or supplementing existing State prescription drug 
        assistance programs) for those States with the highest 
        percentage of elderly or poor populations (as determined by the 
        Bureau of the Census).