A bill to amend title XIX of the Social Security Act to provide for increased rebates under the medicaid program for prescription drugs that are directly advertised to consumers, to require other Federal programs purchasing or reimbursing for such drugs to establish payment and reimbursement mechanisms that reduce the costs of those drugs, and for other purposes.

Summary: Pharmaceutical Advertising and Prudent Purchasing Act - Amends title XIX (Medicaid) of the Social Security Act to provide for increased rebates under the Medicaid program for prescription drugs directly advertised to consumers.

Requires the Secretary of Health and Human Services (Secretary) and the Secretary of Veterans Affairs to develop and implement procedures under which any master agreement, pricing agreement, or contract for the procurement or purchase of a covered drug or a covered outpatient drug by a federal agency or reimbursement program shall provide that the agency or program shall pay a negotiated reduced price for such drug unless the manufacturer has certified to the head of the agency or program that the drug was not directly advertised to consumers during the 12-month period preceding the date of such procurement or purchase.

Requires the Secretary to report to Congress on strategies to reduce the cost of prescription drugs covered under the Medicare and other federal programs directly advertised to consumers.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Pharmaceutical Advertising and 
Prudent Purchasing Act''.

SEC. 2. INCREASED REBATES UNDER THE MEDICAID PROGRAM FOR PRESCRIPTION 
              DRUGS DIRECTLY ADVERTISED TO CONSUMERS.

    (a) In General.--Section 1927(b) of the Social Security Act (42 
U.S.C. 1396r-8(b)) is amended by adding at the end the following:
            ``(5) Increase in amount of rebate for covered outpatient 
        drugs directly advertised to consumers.--
                    ``(A) In general.--A rebate agreement under this 
                subsection shall provide for an increase in the amount 
                of the rebate determined under subsection (c) with 
                respect to each covered outpatient drug of a 
                manufacturer for which payment is made under the State 
                program under this title if the manufacturer of such 
                drug fails to certify to the Secretary that the drug 
                was not directly advertised to consumers during the 
                rebate period applicable to such agreement.
                    ``(B) Adjustment of rebate formula.--
                            ``(i) In general.--Not later than 180 days 
                        after the date of enactment of this paragraph, 
                        the Secretary shall determine appropriate 
                        adjustments to make to the formula used to 
                        calculate the amount of a rebate under 
                        subsection (c) to determine the increased 
                        amount of the rebate required under 
                        subparagraph (A), including, to the extent the 
                        Secretary determines appropriate, to the 
                        application of the average manufacturer price 
                        and best price in such formula.
                            ``(ii) Requirements.--In determining the 
                        adjustments required under clause (i), the 
                        Secretary shall--
                                    ``(I) take into account the 
                                increased costs to the State program 
                                established under this title resulting 
                                from the purchase of covered outpatient 
                                drugs that are directly advertised to 
                                consumers; and
                                    ``(II) consult with manufacturers.
                    ``(C) Definition of directly advertised to 
                consumers.--In this section, the term `directly 
                advertised to consumers' means a reminder ad or product 
                claim regarding a covered outpatient drug that is 
                disseminated through radio, television, or other 
                electronic media, print media, or outdoor 
                advertising.''.
    (b) Effective Date.--The amendment made by this section applies to 
rebate agreements entered into or renewed under section 1927 of the 
Social Security Act (42 U.S.C. 1396r-8) on or after the date that is 
180 days after the date of enactment of this Act.

SEC. 3. REDUCED PAYMENT AND REIMBURSEMENT MECHANISMS FOR OTHER FEDERAL 
              PROGRAMS THAT PURCHASE OR PROVIDE REIMBURSEMENT FOR 
              PRESCRIPTION DRUGS THAT ARE DIRECTLY ADVERTISED TO 
              CONSUMERS.

    (a) In General.--Not later than 180 days after the date of 
enactment of this Act, the Secretary of Health and Human Services and 
the Secretary of Veterans Affairs each shall develop and implement 
procedures under which any master agreement, pricing agreement, or 
contract entered into on or after that date for the procurement or 
purchase of a covered drug or a covered outpatient drug by a Federal 
agency or reimbursement program described in subsection (b) shall 
provide that the agency or program shall pay a negotiated reduced price 
for such drug unless the manufacturer has certified to the head of the 
agency or program that the drug was not directly advertised to 
consumers during the 12-month period preceding the date of such 
procurement or purchase.
    (b) Federal Agencies and Programs Described.--For purposes of 
subsection (a), the Federal agencies and reimbursement programs 
described in this subsection are the following:
            (1) The Public Health Service, including health-related 
        programs administered by the Indian Health Service, and health-
        related programs funded under the Public Health Service Act, 
        including the drug pricing agreement program established under 
        section 340B of such Act (42 U.S.C. 256b).
            (2) The Department of Veterans Affairs and the program of 
        medical care furnished by the Secretary of Veterans Affairs.
            (3) The Department of Defense and the Defense Health 
        Program.
    (c) Definitions.--In this section:
            (1) Covered drug.--The term ``covered drug'' has the 
        meaning given that term in section 8126(h)(2) of title 38, 
        United States Code.
            (2) Covered outpatient drug.--The term ``covered outpatient 
        drug'' has the meaning given that term in section 1927(k)(2) of 
        the Social Security Act (42 U.S.C. 1396r-8(k)(2)).
            (3) Directly advertised to consumers.--The term ``directly 
        advertised to consumers'' means a reminder ad or product claim 
        regarding a covered drug or a covered outpatient drug that is 
        disseminated through radio, television, or other electronic 
        media, print media, or outdoor advertising.
            (4) Manufacturer.--The term ``manufacturer'' has the 
        meaning given that term in section 8126(h)(4) of title 38, 
        United States Code, and section 1927(k)(5) of the Social 
        Security Act (42 U.S.C. 1936r-8(k)(5)).
    (d) Conforming Amendments.--
            (1) Prescription drugs purchased by covered entities under 
        agreements entered into under the public health service act.--
        Section 340B(a) of the Public Health Service Act (42 U.S.C. 
        256b(a)) is amended--
                    (A) in paragraph (1), by inserting ``or required 
                under paragraph (11)'' after ``as provided by the 
                Secretary''; and
                    (B) by adding at the end the following:
            ``(11) Reduced negotiated price for covered drugs 
        advertised directly to consumers.--
                    ``(A) In general.--An agreement entered into under 
                paragraph (1) shall provide that with respect to each 
                covered drug of the manufacturer that is purchased by a 
                covered entity, the price charged shall not exceed the 
                reduced negotiated price for that drug in accordance 
                with the procedures established under section 3(a) of 
                the Pharmaceutical Advertising and Prudent Purchasing 
                Act if the manufacturer fails to certify to the 
                Secretary that the drug was not directly advertised to 
                consumers during the 12-month period preceding the date 
                of such purchase.
                    ``(B) Definition of directly advertised to 
                consumers.--In subparagraph (A), the term `directly 
                advertised to consumers' means a reminder ad or product 
                claim regarding a covered outpatient drug that is 
                disseminated through radio, television, or other 
                electronic media, print media, or outdoor 
                advertising.''.
            (2) Procurement of prescription drugs by the department of 
        veterans affairs, department of defense, the public health 
        service (including the indian health service) and the coast 
        guard.--Section 8126 of title 38, United States Code, is 
        amended--
                    (A) in subsection (a)--
                            (i) in paragraph (3), by striking ``and'' 
                        at the end;
                            (ii) by redesignating paragraph (4) as 
                        paragraph (5);
                            (iii) in paragraph (5) (as redesignated by 
                        clause (ii)), by striking ``and (3)'' and 
                        inserting ``(3), and (4)''; and
                            (iv) by inserting after paragraph (3), the 
                        following:
            ``(4) with respect to each covered drug of the manufacturer 
        that is procured by a Federal agency described in subsection 
        (b) under depot contracting systems, a national contract 
        entered into by the Secretary, or under the Federal Supply 
        Schedule, the price charged shall not exceed the reduced 
        negotiated price for that drug in accordance with the 
        procedures established under section 3(a) of the Pharmaceutical 
        Advertising and Prudent Purchasing Act if the manufacturer 
        fails to certify to the Secretary or the head of the Federal 
        agency involved that the drug was not directly advertised to 
        consumers during the 12-month period preceding the date of such 
        procurement;''; and
                    (B) in subsection (h), by adding at the end the 
                following:
            ``(7) Directly advertised to consumers.--The term `directly 
        advertised to consumers' means a reminder ad or product claim 
        regarding a covered drug that is disseminated through radio, 
        television, or other electronic media, print media, or outdoor 
        advertising.''.
    (e) Effective Date.--The amendments made by this section apply to 
master agreements, pricing agreements, and contracts entered into or 
renewed on or after the date that is 180 days after the date of 
enactment of this Act.

SEC. 4. REPORT TO CONGRESS ON STRATEGIES TO REDUCE THE COST OF 
              PRESCRIPTION DRUGS COVERED UNDER MEDICARE AND OTHER 
              FEDERAL PROGRAMS THAT ARE DIRECTLY ADVERTISED TO 
              CONSUMERS.

    (a) In General.--Not later than January 1, 2007, the Secretary of 
Health and Human Services, in consultation with the Secretary of 
Veterans Affairs, shall submit a report to Congress that contains the 
following information:
            (1) The percentage of costs for prescription drugs that are 
        directly advertised to consumers that are passed on to Federal 
        agencies and programs that purchase or provide reimbursement 
        for such drugs.
            (2) The 25 most frequently prescribed drugs that are 
        directly advertised to consumers and are purchased or 
        reimbursed by Federal agencies and programs.
            (3) The 25 most costly prescription drugs that are directly 
        advertised to consumers and are purchased or reimbursed by 
        Federal agencies and programs.
            (4) The aggregate amount spent by manufacturers of 
        prescription drugs--
                    (A) to directly advertise to consumers; and
                    (B) for the 25 most costly prescription drugs that 
                are directly advertised to consumers.
            (5) Mechanisms for Federal agencies and programs to share 
        information concerning--
                    (A) which prescription drugs are directly 
                advertised to consumers;
                    (B) the costs to Federal agencies and programs of 
                such drugs; and
                    (C) utilization, cost, and reimbursement data 
                regarding the purchase of such drugs, separately 
                identified with respect to the medicare program and 
                other Federal agencies and programs, and disaggregated 
                for age cohorts, gender, and diagnoses of the 
                individuals using such drugs.
            (6) Recommendations for legislative or administrative 
        changes or alternative strategies, separately identified with 
        respect to the medicare program and other Federal agencies and 
        programs, to ensure that Federal payments for prescription 
        drugs are reduced for prescription drugs directly advertised to 
        consumers.
            (7) Strategies to ensure that prescription drug utilization 
        under Federal agencies and programs is based on health needs.
            (8) Such other recommendations for legislation or 
        administrative action as the Secretary determines to be 
        appropriate.
    (b) Definitions.--In this section:
            (1) Directly advertised to consumers.--The term ``directly 
        advertised to consumers'' has the meaning given that term in 
        section 1927(b)(5)(C) of the Social Security Act (as added by 
        section 2(a)).
            (2) Federal agency and program.--The term ``Federal agency 
        and program'' means the Federal agencies and programs described 
        in section 3(b) and includes the medicare program established 
        under title XVIII of the Social Security Act (42 U.S.C. 1395 et 
        seq.).
            (3) Manufacturer.--The term ``manufacturer'' has the 
        meaning given that term in section 8126(h)(4) of title 38, 
        United States Code, and section 1927(k)(5) of the Social 
        Security Act (42 U.S.C. 1396r-8(k)(5)).