To amend section 340B of the Public Health Service Act to improve the provision of discounts on drug purchases for certain safety net providers.

Summary: 340B Program Improvement Act - Amends the Public Health Service Act to make revisions to the 340B drug discount program (a program limiting the cost of covered outpatient drugs to certain federal grantees).

Includes drugs used in connection with an inpatient or outpatient service by enrolled hospitals as covered drugs under the program (currently, only outpatient drugs are covered under the program).

Requires hospitals enrolled in the 340B program to provide to each state a credit on the estimated annual purchases by such hospitals of covered drugs provided to Medicaid recipients for inpatient use. Sets forth a formula for calculating the credit. Allows a hospital to avoid paying such credits under certain circumstances.

Eliminates the requirement that hospitals enrolled in the 340B program report the National Drug Code numbers for drugs administered by a physician if the state is precluded from seeking a rebate on such drugs because they were purchased at a discount under the 340B program.

Removes the exclusion that prohibited covered entities added to the 340B program under the Patient Protection and Affordable Care Act from purchasing drugs for a rare disease or condition as covered outpatient drugs.

Treats a facility or organization that is eligible for the 340B program as satisfying any geographic location requirements in relation to a hospital or a critical access hospital for purposes of determining provider-based status under Medicare.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``340B Program Improvement Act''.

SEC. 2. EXTENSION OF DISCOUNTS TO INPATIENT DRUGS.

    (a) In General.--Section 340B of the Public Health Service Act (42 
U.S.C. 256b) is amended--
            (1) in subsection (a)--
                    (A) in paragraphs (1), (2), and (5), by striking 
                ``covered outpatient drug'' each place such term 
                appears and inserting ``covered drug''; and
                    (B) in paragraphs (1), (7), and (9), by striking 
                ``covered outpatient drugs'' each place such term 
                appears and inserting ``covered drugs'';
            (2) in subsection (b)(2)(B) by striking ``paragraph 
        (3)(A)'' and inserting ``paragraph (3)''; and
            (3) in subsection (d), by striking ``covered outpatient 
        drugs'' each place such term appears and inserting ``covered 
        drugs''.
    (b) Medicaid Credits on Inpatient Drugs.--Section 340B of the 
Public Health Service Act (42 U.S.C. 256b) is amended by inserting 
after subsection (b) the following new subsection:
    ``(c) Medicaid Credits on Inpatient Drugs.--
            ``(1) In general.--For each cost reporting period, based on 
        the most recently filed Medicare cost report under title XVIII 
        of the Social Security Act and subject to paragraph (5), a 
        hospital described in subparagraph (L), (M), (N), or (O) of 
        subsection (a)(4) and enrolled to participate in the drug 
        discount program under this section shall provide to each State 
        that has a plan for medical assistance under title XIX of such 
        Act and that makes payment to such hospital for covered drugs 
        provided to Medicaid recipients for inpatient use, a credit on 
        the estimated annual purchases by such hospital of such covered 
        drugs provided to such Medicaid recipients.
            ``(2) Amount of credit.--
                    ``(A) In general.--The credit described in 
                paragraph (1), with respect to a hospital and cost 
                reporting period described in such paragraph shall be 
                equal to--
                            ``(i) the product of--
                                    ``(I) the sum of the annual credit 
                                amounts (described in subparagraph (B)) 
                                calculated under subparagraph (B)(i) 
                                for each dosage form and strength of 
                                each covered drug purchased by the 
                                hospital during the cost reporting 
                                period; and
                                    ``(II) the estimated percentage of 
                                the purchases of covered drugs by the 
                                hospital during such period 
                                attributable to Medicaid recipients for 
                                inpatient use, as determined in 
                                accordance with subparagraph (D); and
                            ``(ii) subject to paragraph (3)(D), reduced 
                        by the amount by which the Medicaid inpatient 
                        reimbursement (as defined in subparagraph 
                        (E)(ii)) of the hospital for such period was 
                        reduced as a result of participation in the 
                        drug discount program under this section during 
                        such period by the hospital, as determined in 
                        accordance with subparagraph (E).
                    ``(B) Annual credit amounts.--For purposes of 
                subparagraph (A)(i)(I), an annual credit amount, with 
                respect to a covered drug purchased by a hospital 
                described in paragraph (1) during a cost reporting 
                period of the hospital--
                            ``(i) is equal to the sum of the quarterly 
                        credit amounts calculated under subparagraph 
                        (C)(i), for each of the 4 quarters of the cost 
                        reporting period for such covered drug; and
                            ``(ii) shall be calculated for each dosage 
                        form and strength of such covered drug.
                    ``(C) Quarterly credit amounts.--For purposes of 
                subparagraph (B)(ii), a quarterly credit amount, with 
                respect to a covered drug purchased by a hospital 
                described in paragraph (1) during a quarter of the cost 
                reporting period of the hospital--
                            ``(i) is equal to the product of--
                                    ``(I) the total number of units of 
                                each dosage form and strength of such 
                                covered drug purchased by the hospital 
                                during such quarter;
                                    ``(II) the average manufacturer 
                                price of the covered drug (for the unit 
                                of the dosage form and strength 
                                involved) during such quarter; and
                                    ``(III) half of the rebate 
                                percentage for the covered drug, as 
                                defined in subsection (a)(2); and
                            ``(ii) shall be calculated for--
                                    ``(I) each dosage form and strength 
                                of the covered drug purchased by the 
                                hospital; and
                                    ``(II) each of the 4 quarters of 
                                such cost reporting period.
                    ``(D) Percentage of drug purchases attributable to 
                medicaid recipients for impatient use.--For purposes of 
                subparagraph (A)(i)(II), the estimated percentage of 
                the drug purchases of the hospital attributable to 
                Medicaid recipients for inpatient use shall be equal to 
                the Medicaid inpatient drug charges as reported on the 
                most recently filed Medicare cost report of the 
                hospital, divided by the total drug charges reported on 
                the cost report.
                    ``(E) Credit offset.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), the amount by which the 
                        Medicaid inpatient reimbursement of a hospital, 
                        with respect to a cost reporting period, is 
                        reduced as a result of the participation in the 
                        drug discount program under this section by the 
                        hospital shall be computed as the difference 
                        between--
                                    ``(I) the Medicaid inpatient 
                                reimbursement that would have otherwise 
                                been payable to the hospital for the 
                                cost reporting period if the hospital 
                                did not participate in such drug 
                                discount program; and
                                    ``(II) the actual Medicaid 
                                inpatient reimbursement payable to the 
                                hospital for the cost reporting period.
                            ``(ii) Medicaid inpatient reimbursement 
                        defined.--For purposes of this subsection, the 
                        term `Medicaid inpatient reimbursement' means 
                        the total payments received by the hospital 
                        under the State plan under title XIX of the 
                        Social Security Act for providing inpatient 
                        services to Medicaid recipients.
            ``(3) Requirements.--
                    ``(A) In general.--A hospital shall not be required 
                to provide a credit under paragraph (1) to a State 
                unless, not later than 30 days after receiving the 
                information described in subparagraph (B), the State 
                calculates in accordance with paragraph (2) the amount 
                of the credit owed by the hospital under paragraph (1) 
                and provides the hospital with both the amount of such 
                credit so owed and an explanation of how the State 
                calculated such credit.
                    ``(B) Hospital provision of information.--Not later 
                than 30 days after the date of the filing of the most 
                recently filed Medicare cost report of a hospital 
                described in paragraph (1), the hospital shall provide 
                the State involved with the information described in 
                subparagraphs (C)(i)(I) and (D) of paragraph (2). With 
                respect to each covered drug purchased during the cost 
                reporting period, the hospital shall provide the 
                National Drug Code, date of purchase, and the number of 
                units purchased. Submission of such information shall 
                not be required if a covered drug has not been assigned 
                a National Drug Code at the time of purchase.
                    ``(C) Access to amp and rebate data.--The Secretary 
                shall establish a system for giving States access to 
                the information necessary for them to calculate credits 
                under paragraph (2), with respect to covered drugs, 
                including the average manufacturer price and rebate 
                percentage for such covered drugs.
                    ``(D) Credit offset.--Paragraph (2)(A)(ii) shall be 
                applied, with respect to a credit owed by a hospital 
                under paragraph (1), only if, not later than 30 days 
                after filing the most recent Medicare cost report, the 
                hospital submits to the State involved--
                            ``(i) a request for the State to apply such 
                        paragraph and to calculate the amount described 
                        in such paragraph in accordance with paragraph 
                        (2)(E); and
                            ``(ii) the data needed by the State to 
                        determine the amount of the Medicaid inpatient 
                        reimbursement described in paragraph 
                        (2)(E)(i)(I) for such hospital.
                    ``(E) Disputes.--A State and hospital described in 
                paragraph (1) shall have access to the same State 
                dispute resolution procedures and system applicable to 
                Medicaid reimbursement matters under title XIX of the 
                Social Security Act.
            ``(4) Payment deadline.--A hospital shall provide to a 
        State the credits owed by such hospital under paragraph (1) not 
        later than 60 days after the hospital receives the information 
        described in paragraph (3)(A).
            ``(5) Opt out.--A hospital shall not be required to provide 
        a credit under paragraph (1) to a State if the hospital and 
        State agree to an alternative arrangement.
            ``(6) Offset against medical assistance.--Amounts received 
        by a State under this subsection shall be considered to be a 
        reduction in the amount expended under the State plan for 
        medical assistance for purposes of section 1903(a)(1) of the 
        Social Security Act.
            ``(7) Medicaid recipient defined.--For purposes of this 
        subsection, the term `Medicaid recipient' means, with respect 
        to a State, an individual who receives benefits under the State 
        plan under title XIX of the Social Security Act.''.
    (c) Conforming Amendments.--Section 1927 of the Social Security Act 
(42 U.S.C. 1396r-8) is amended--
            (1) in subsection (a)(5)--
                    (A) in subparagraph (A), by striking ``covered 
                outpatient drugs'' and inserting ``covered drugs (as 
                defined in section 340B(b)(2) of the Public Health 
                Service Act)''; and
                    (B) by striking subparagraphs (D) and (E); and
            (2) in subsection (c)(1)(C)(i)--
                    (A) by redesignating subclauses (II) through (VI) 
                as subclauses (III) through (VII), respectively; and
                    (B) by inserting after subclause (I) the following:
                                    ``(II) any prices charged for a 
                                covered drug, as defined in section 
                                340B(b)(2) of the Public Health Service 
                                Act;''.

SEC. 3. PROHIBITION AGAINST DUPLICATE DISCOUNTS FOR PHYSICIAN 
              ADMINISTERED DRUGS.

    Section 340B(a)(5)(A) of the Public Health Service Act (42 U.S.C. 
256b) is amended by adding at the end the following:
                            ``(iii) Physician administered drugs.--A 
                        hospital described in subparagraph (L), (M), 
                        (N), or (O) of paragraph (4) shall not be 
                        required under section 1927(a)(7) of the Social 
                        Security Act to report National Drug Code 
                        numbers for drugs administered by a physician 
                        (or under a physician's supervision) if the 
                        State is precluded from seeking a rebate on 
                        such drugs because such drugs were purchased at 
                        a discount under this section. Nothing in this 
                        clause shall relieve a hospital of its 
                        obligation to submit National Drug Codes in 
                        accordance with subsection (c)(3)(B).''.

SEC. 4. CONTINUED INCLUSION OF ORPHAN DRUGS IN DEFINITION OF COVERED 
              OUTPATIENT DRUGS; TECHNICAL AMENDMENT.

    (a) In General.--Section 340B of the Public Health Service Act (42 
U.S.C. 256b) is amended by striking subsection (e).
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to drugs purchased on or after March 30, 2010.

SEC. 5. APPLICATION OF RULES FOR DETERMINING PROVIDER-BASED STATUS FOR 
              CERTAIN ENTITIES.

    Notwithstanding any other provision of law, in making 
determinations of provider-based status under title XVIII of the Social 
Security Act, the facility or organization shall be treated as 
satisfying any requirements and standards for geographic location in 
relation to a hospital or a critical access hospital if the facility or 
organization is described in subparagraph (L), (M), (N), or (O) of 
section 340B(a)(4) of the Public Health Service Act (42 U.S.C. 
256b(a)(4)).