SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Prescription Drug Program 
Integrity and Transparency Act of 2013''.

SEC. 2. PHARMACY BENEFITS MANAGER STANDARDS UNDER THE MEDICARE PROGRAM.

    (a) In General.--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.--
                    ``(A) In general.--Each contract entered into with 
                a PDP sponsor under this part with respect to a 
                prescription drug plan offered by such sponsor shall 
                provide that the PDP may not enter into a contract with 
                any pharmacy benefits manager (referred to in this 
                paragraph as a `PBM') 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 PBM satisfies the requirements 
                described in subparagraph (B).
                    ``(B) Requirements.--The requirements described in 
                this subparagraph are as follows:
                            ``(i) Proper audit procedures.--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) Assuring recoveries to 
                                medicare.--
                                            ``(aa) The PBM (or auditing 
                                        entity) shall disclose the 
                                        amount of each payment 
                                        recovered pursuant to the audit 
                                        to the PDP sponsor with a copy 
                                        to the pharmacy.
                                            ``(bb) Any payment 
                                        recovered by the PBM (or 
                                        auditing entity) pursuant to 
                                        the audit shall be returned to 
                                        the PDP sponsor.
                                    ``(II) Assuring clinical decisions 
                                in audits.--
                                            ``(aa) 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.
                                            ``(bb) The pharmacy, 
                                        practice site, or other entity 
                                        may use a nursing home's 
                                        medication administration 
                                        record (MAR), the records of a 
                                        hospital, physician, 
                                        rehabilitation facility, State-
                                        licensed healthcare facility, 
                                        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, proof 
                                        of delivery, or changes in 
                                        prescriptions during any phase 
                                        of the audit, including appeal.
                                    ``(III) Assuring proper 
                                procedures.--
                                            ``(aa) The PBM (or auditing 
                                        entity) may not apply 
                                        recordkeeping or other 
                                        requirements on the pharmacy 
                                        that are more stringent than 
                                        such requirements applied under 
                                        Federal law or the State law 
                                        involved.
                                            ``(bb) The PBM (or auditing 
                                        entity) shall accept all 
                                        pharmacy prescription records 
                                        related to the audit in an 
                                        electronic format or other 
                                        digital media.
                                            ``(cc) The PBM (or auditing 
                                        entity) may not, pursuant to 
                                        the audit, disallow the entire 
                                        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, as 
                                        defined in section 1347 of 
                                        title 18, United States Code. 
                                        In the case of errors that have 
                                        no financial harm to the 
                                        patient or plan, the PBM shall 
                                        not assess any chargebacks.
                                            ``(dd) The PBM (or auditing 
                                        entity) may not use 
                                        extrapolation or other 
                                        statistical expansion 
                                        techniques in calculating any 
                                        recoupment or penalty pursuant 
                                        to the audit.
                                            ``(ee) The period covered 
                                        by the audit may not exceed 2 
                                        years from the date the claim 
                                        involved was submitted to, or 
                                        adjusted by, the PBM (or 
                                        auditing entity).
                                            ``(ff) The PBM (or auditing 
                                        entity) shall have in place a 
                                        written appeals process that 
                                        affords the pharmacy a minimum 
                                        of 60 days to respond to the 
                                        auditor findings, shall include 
                                        procedures for appeals from 
                                        preliminary reports and final 
                                        reports related to such audit, 
                                        and shall permit the pharmacy 
                                        to introduce any documentation 
                                        which would validate a claim 
                                        contested in the audit until 
                                        the final written decision is 
                                        issued on appeal.
                            ``(ii) Business practice predictability.--A 
                        PBM shall provide a particular aggregate 
                        average reimbursement rate for generics or a 
                        maximum average discount off of an accepted 
                        pharmaceutical pricing benchmark for multi-
                        source generics as a whole (often referred to 
                        as a `generic effective rate') and provide a 
                        process for the generic effective rate to be 
                        appealed. For the purposes of this rate or 
                        benchmark amount, the PBM shall utilize a 
                        pharmaceutical pricing benchmark published by a 
                        nationally available compendium. The aggregate 
                        average reimbursement rate for generics 
                        (generic effective rate) shall be calculated 
                        using the actual amount paid to the pharmacy 
                        (typically the amount of reimbursement to the 
                        PBM plus the patient co-pay), excluding the 
                        dispensing fee, shall not be calculated solely 
                        according to the amount allowed by the plan, 
                        and shall include all generics dispensed, 
                        regardless of whether they are subject to MAC 
                        pricing.
                            ``(iii) Protecting patient and claims 
                        related data.--A PBM shall adhere to the 
                        following criteria when handling personally 
                        identifiable utilization and claims data or 
                        other sensitive patient data:
                                    ``(I) A PBM may not transmit any 
                                personally identifiable utilization or 
                                claims data to a pharmacy owned by a 
                                PBM if the plan enrollee has not 
                                voluntarily elected in writing or via 
                                secure electronic means to fill that 
                                particular prescription at the PBM-
                                owned pharmacy.
                                    ``(II) A PBM may not require that a 
                                plan enrollee use a retail pharmacy, 
                                mail order pharmacy, specialty 
                                pharmacy, or other pharmacy entity 
                                providing pharmacy services in which 
                                the PBM has an ownership interest or 
                                that has an ownership interest in the 
                                PBM or provide an incentive to a 
                                beneficiary to encourage the individual 
                                to use a retail pharmacy, mail order 
                                pharmacy, specialty pharmacy, or other 
                                pharmacy entity providing pharmacy 
                                services in which the PBM has an 
                                ownership interest or that has an 
                                ownership interest in the PBM, if the 
                                incentive is applicable only to such 
                                pharmacies.''.
    (b) Disclosure and Regular Update of Prescription Drug 
Reimbursement.--Section 1860D-12(b) of the Social Security Act (42 
U.S.C. 1395w-112(b)) is amended to read as follows:
            ``(6) Disclosure and regular update of prescription drug 
        reimbursement.--Each contract entered into with a PDP sponsor 
        under this part with respect to a prescription drug plan 
        offered by such sponsor shall provide that the sponsor or 
        subcontractor of such sponsor shall--
                    ``(A) disclose to a pharmacy, at the time when a 
                contract is offered, the methodology and actual per 
                unit reimbursement amount for each covered drug for 
                each such pharmacy; and
                    ``(B) not less frequently than once every 7 days, 
                beginning with an initial update on January 1 of each 
                year--
                            ``(i) update such reimbursement amount to 
                        accurately reflect the market price of 
                        acquiring the drug; and
                            ``(ii) disclose to each contracted pharmacy 
                        such methodology and reimbursement amounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after January 1, 2015.
Medicare Prescription Drug Program Integrity and Transparency Act of 2013 - 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 with respect to a PDP the sponsor offers to prohibit the PDP from entering into a contract with any pharmacy benefits manager (PBM) to manage the prescription drug coverage provided under such plan, or to control the costs of the prescription drug coverage under it, unless the manager satisfies specified PBM audit and disclosure requirements. Requires a PBM to provide: (1) a particular aggregate average reimbursement rate for generics or a maximum average discount off of an accepted pharmaceutical pricing benchmark for multi-source generics as a whole (&quot;generic effective rate&quot;), and (2) a process for the generic effective rate to be appealed. Revises requirements for contracts with PDP sponsors to require that the PDP sponsor or a subcontractor of the sponsor disclose to a pharmacy, at the time when a contract is offered and at least once every seven days, the methodology and actual per unit reimbursement amount for each covered drug for each contracted pharmacy.
Medicare Prescription Drug Program Integrity and Transparency Act of 2013