To amend title XVIII of the Social Security Act to provide for pharmacy benefits manager standards under the Medicare prescription drug program to further fair audits of and payments to pharmacies.

Summary: Medicare Pharmacy Transparency and Fair Auditing Act - Amends part D (Voluntary Prescription Drug Benefit Program) of title XVIII (Medicare) of the Social Security Act to require each contract entered into with a prescription drug plan (PDP) sponsor for the offering of a prescription drug plan to prohibit the PDP sponsor from contracting with any pharmacy benefits manager (PBM) to manage the prescription drug coverage under such plan, or to control the costs of such coverage, unless the manager satisfies specified PBM audit and disclosure requirements.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Pharmacy Transparency and 
Fair Auditing Act''.

SEC. 2. PHARMACY BENEFITS MANAGER STANDARDS UNDER MEDICARE FOR FAIR 
              AUDITS AND PAYMENTS TO PHARMACIES.

    Section 1860D-12(b) of the Social Security Act (42 U.S.C. 1395w-
112(b)) is amended by adding at the end the following new paragraphs:
            ``(7) Pharmacy benefits manager transparency and proper 
        operations requirements.--Each contract entered into with a PDP 
        sponsor for the offering of a prescription drug plan under this 
        part for a plan year beginning after 2013 shall provide that 
        the PDP sponsor may not enter into a contract with any pharmacy 
        benefits manager to manage the prescription drug coverage 
        provided under such plan, or to control the costs of the 
        prescription drug coverage under such plan, unless the pharmacy 
        benefits manager satisfies the following requirements:
                    ``(A) PBM audit requirements.--The following shall 
                apply to each audit of a pharmacy conducted by or for 
                the pharmacy benefits manager with respect to such 
                prescription drug plan:
                            ``(i) The period covered by the audit may 
                        not exceed 2 years from the date the claim 
                        involved was submitted to or adjusted by the 
                        pharmacy benefits manager.
                            ``(ii) In the case the audit involves 
                        clinical or professional judgment, the audit 
                        shall be conducted by, or in consultation with, 
                        a pharmacist licensed in the State of the audit 
                        or the State board of pharmacy.
                            ``(iii) The pharmacy benefits manager may 
                        not apply recordkeeping requirements on the 
                        pharmacy that are more stringent than such 
                        requirements applied under Federal law or the 
                        State law involved.
                            ``(iv) The pharmacy benefits manager, or 
                        the entity conducting the audit for the 
                        pharmacy benefits manager, shall have in place 
                        a written appeals process that shall include 
                        procedures for appeals for preliminary reports 
                        and final reports related to such audit.
                            ``(v) The pharmacy, practice site, or other 
                        entity may use the records of a hospital, 
                        physician, or other authorized practitioner to 
                        validate the pharmacy records and any legal 
                        prescription (one that complies with State 
                        Board of Pharmacy requirements) may be used to 
                        validate claims submitted by the pharmacy in 
                        connection with prescriptions, refills, or 
                        changes in prescriptions.
                            ``(vi) The pharmacy benefits manager may 
                        not, pursuant to the audit, disallow or reduce 
                        payment with respect to a claim submitted by 
                        the pharmacy because of a clerical or 
                        recordkeeping error (such as a typographical 
                        error, scrivener's error, or computer error) if 
                        there is an absence of intent to commit fraud.
                            ``(vii) The pharmacy benefits manager or 
                        other entity conducting the audit may not use 
                        extrapolation or other statistical expansion 
                        techniques in calculating any recoupment or 
                        penalty pursuant to the audit.
                            ``(viii) The pharmacy benefits manager 
                        shall disclose the amount of each payment 
                        recovered pursuant to the audit to the PDP 
                        sponsor with a copy to the pharmacy.
                            ``(ix) Any payment recovered by the 
                        pharmacy benefit manager pursuant to the audit 
                        shall be returned to the PDP sponsor.
                    ``(B) Disclosure requirements.--In the case of a 
                pharmacy benefits manager that uses a maximum allowable 
                cost list with respect to determining reimbursements to 
                pharmacies for multiple source drugs (as defined in 
                section 1927(k)), with respect to any contract between 
                the pharmacy benefits manager and a pharmacy, with 
                respect to the prescription drug plan offered by the 
                PDP sponsor, the pharmacy benefits manager shall--
                            ``(i) include in such contract the 
                        methodology and resources utilized for such 
                        maximum allowable cost list;
                            ``(ii) update pricing information on such 
                        list at least weekly, starting on January 1 of 
                        each calendar year; and
                            ``(iii) establish a process to provide 
                        prompt notification of such pricing information 
                        updates to the pharmacy.''.