To amend the Public Health Service Act to ensure transparency and proper operation of pharmacy benefit managers.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Pharmacy Competition and Consumer 
Choice Act of 2011''.

SEC. 2. PHARMACY BENEFITS MANAGER TRANSPARENCY AND PROPER OPERATION 
              REQUIREMENTS.

    (a) Amendment to the Public Health Service Act Relating to the 
Group Market.--
            (1) In general.--Subpart 2 of part A of title XXVII of the 
        Public Health Service Act (42 U.S.C. 300gg-4 et seq.) is 
        amended by adding at the end the following:

``SEC. 2729. PHARMACY BENEFITS MANAGER TRANSPARENCY AND PROPER 
              OPERATION REQUIREMENTS.

    ``(a) In General.--Notwithstanding any other provision of law, a 
group health plan, and a health insurance issuer providing health 
insurance coverage in connection with a group health plan 
(collectively, a `plan sponsor'), shall not enter into a contract with 
any pharmacy benefits manager (referred to in this section as a `PBM') 
to manage the prescription drug coverage provided under such plan or 
insurance coverage, or to control the costs of such prescription drug 
coverage, unless the PBM satisfies the following requirements:
            ``(1) Required disclosures to plan sponsor in annual 
        report.--The PBM shall provide at least annually a report to 
        each plan sponsor, including, at a minimum--
                    ``(A) information on the number and total cost of 
                prescriptions under the contract filled at mail order 
                and at retail pharmacies;
                    ``(B) an estimate of aggregate average payments 
                under the contract, per prescription (weighted by 
                prescription volume), made to mail order and retail 
                pharmacies, and the average amount per prescription 
                that the PBM was paid by the plan for prescriptions 
                filled at mail order and retail pharmacies;
                    ``(C) an estimate of the aggregate average payment 
                per prescription (weighted by prescription volume) 
                under the contract received from pharmaceutical 
                manufacturers, including all rebates, discounts, price 
                concessions, or administrative and other payments from 
                pharmaceutical manufacturers, and a description of the 
                types of payments, the amount of such payments that 
                were shared with the plan, and the percentage of 
                prescriptions for which the PBM received such payments;
                    ``(D) information on the overall percentage of 
                generic drugs dispensed under the contract separately 
                at retail and mail order pharmacies, and the percentage 
                of cases in which a generic drug is dispensed when 
                available; and
                    ``(E) information on the percentage and number of 
                cases under the contract in which individuals who had 
                been receiving a prescribed drug that had a lower cost 
                for the plan were later given a drug with a higher cost 
                for the plan, because of PBM policies or at the direct 
                or indirect control of the PBM, and the rationale for 
                such changes and a description of the applicable PBM 
                policies.
            ``(2) PBM requirements with respect to pharmacies.--With 
        respect to contracts between a PBM and a pharmacy, the PBM 
        shall--
                    ``(A) include in such contracts, the methodology 
                and resources utilized for the Maximum Allowable Cost 
                (referred to in this section as `MAC') pricing of the 
                PBM, update pricing information on such list at least 
                weekly, and establish a process for the prompt 
                notification of such pricing updates to network 
                pharmacies;
                    ``(B) agree to provide timely updates, not less 
                than once every 3 business days, to pharmacy product 
                pricing files used to calculate prescription prices 
                that will be used to reimburse pharmacies;
                    ``(C) agree to pay pharmacies promptly for clean 
                claims under section 1860D-12(b)(4) of the Social 
                Security Act (42 U.S.C. 1395w-112(b)(4));
                    ``(D) not require that a pharmacist or pharmacy 
                participate in a pharmacy network managed by such PBM 
                as a condition for the pharmacy to participate in 
                another network managed by such PBM, and shall not 
                exclude an otherwise qualified pharmacist or pharmacy 
                from participation in a particular network provided 
                that the pharmacist or pharmacy--
                            ``(i) accepts the terms, conditions and 
                        reimbursement rates of the PBM;
                            ``(ii) meets all applicable Federal and 
                        State licensure and permit requirements; and
                            ``(iii) has not been excluded from 
                        participation in any Federal or State program;
                    ``(E) not automatically enroll a pharmacy in a 
                contract or modify an existing contract without written 
                agreement from the pharmacy or pharmacist; and
                    ``(F) require each pharmacy to sign a contract 
                before assuming responsibility to fill prescriptions 
                for the PBM.
            ``(3) PBM ownership interests and conflicts of interest; 
        pharmacy choice.--A PBM shall not--
                    ``(A) mandate that a covered individual use a 
                specific retail pharmacy, mail order pharmacy, 
                specialty pharmacy, or other pharmacy practice site or 
                entity if the PBM has an ownership interest in such 
                pharmacy, practice site, or entity or the pharmacy, 
                practice site, or entity has an ownership interest in 
                the PBM; or
                    ``(B) provide incentives to covered plan 
                beneficiaries, in the form of variations in premiums, 
                deductibles, co-payments, or co-insurance rates, to 
                encourage plan beneficiaries to use a specific pharmacy 
                if such incentives are only applicable to a pharmacy, 
                practice site, or entity that the PBM has an ownership 
                interest in, unless such incentives are applicable to 
                all network pharmacies.
            ``(4) PBM audit of pharmacy providers.--The following shall 
        apply to audits of pharmacy providers by a PBM:
                    ``(A) The period covered by an audit may not exceed 
                2 years from the date the claim was submitted to or 
                adjusted by the PBM.
                    ``(B) An audit that involves clinical or 
                professional judgment shall be conducted by, or in 
                consultation with, a pharmacist licensed in the State 
                of the audit or the State board of pharmacy.
                    ``(C) The PBM may not require more stringent 
                recordkeeping than that required by State or Federal 
                law.
                    ``(D) The PBM or the entity conducting an audit for 
                the PBM shall establish a written appeals process that 
                shall include procedures for appeals for preliminary 
                reports and final reports.
                    ``(E) 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 in connection with prescriptions, 
                refills, or changes in prescriptions.
                    ``(F) Any clerical or recordkeeping error, such as 
                a typographical error, scrivener's error, or computer 
                error, regarding a required document or record shall 
                not be subject to recoupment unless proof of intent to 
                commit fraud or unless such discrepancy results in 
                actual financial harm to an interested party.
                    ``(G) The entity conducting the audit shall not use 
                extrapolation or other statistical expansion techniques 
                in calculating the recoupment or penalties for audits.
                    ``(H) The PBM shall disclose any audit recoupment 
                to the group health plan or health insurance issuer 
                with a copy to the pharmacy.
            ``(5) PBM conduct regarding covered individuals.--A PBM 
        shall--
                    ``(A) notify a plan sponsor if such PBM intends to 
                sell utilization or claims data that the PBM possesses 
                as a result of an arrangement described in this 
                section;
                    ``(B) notify the plan sponsor in writing at least 
                30 days before selling, leasing, or renting such data 
                and shall provide the plan sponsor with the name of the 
                potential purchaser of such data and the expected use 
                of any utilization or claims data by such purchaser;
                    ``(C) not sell such data unless the sale complies 
                with all Federal and State laws and the PBM has 
                received written approval for such sale from the plan 
                sponsor;
                    ``(D) not directly contact a covered individual by 
                any means (including via electronic delivery, 
                telephonic, SMS text or direct mail) without the 
                express written permission of the plan sponsor and the 
                covered individual;
                    ``(E) not transmit any personally identifiable 
                utilization or claims data to a pharmacy owned by the 
                PBM if the patient has not voluntarily elected in 
                writing to fill that particular prescription at the 
                PBM-owned pharmacy; and
                    ``(F) provide each covered individual with an 
                opportunity to affirmatively opt out of the sale of his 
                or her data prior to entering into any arrangement for 
                the lease, rental, or sale of such information.
    ``(b) Definition.--For purposes of this section, the term `fraud' 
has the meaning given the term `health care fraud' in section 1347 of 
title 18, United States Code.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to plan sponsors for plan years beginning on or 
        after the date of enactment of this Act.
    (b) Amendments to the Public Health Service Act Relating to the 
Individual Market.--
            (1) In general.--Subpart 2 of part B of title XXVII of the 
        Public Health Service Act (42 U.S.C. 300gg-51 et seq.) is 
        amended by adding at the end the following:

``SEC. 2754. PHARMACY BENEFITS MANAGER TRANSPARENCY AND PROPER 
              OPERATION REQUIREMENTS.

    ``The provisions of section 2729 of the Public Health Service Act 
shall apply to health insurance coverage offered by a health insurance 
issuer in the individual market in the same manner as they apply to a 
group health plan and a health insurance issuer providing health 
insurance coverage under that section.''.
            (2)  Conforming amendments.--
                    (A) ERISA amendment.--
                            (i) In general.--Subpart B of part 7 of 
                        subtitle B of title I of the Employee 
                        Retirement Income Security Act of 1974 (29 
                        U.S.C. 1185 et seq.) is amended by adding at 
                        the end the following:

``SEC. 716. PHARMACY BENEFITS MANAGER TRANSPARENCY AND PROPER OPERATION 
              REQUIREMENTS.

    ``The provisions of section 2729 of the Public Health Service Act 
shall apply to a group health plan, and a health insurance issuer 
providing health insurance coverage in connection with a group health 
plan, in the same manner as such provisions apply to a group health 
plan and a health insurance issuer providing health insurance coverage 
under that section.''.
                            (ii) Clerical amendment.--The table of 
                        contents in section 1 of the Employee 
                        Retirement Income Security Act of 1974 is 
                        amended by inserting after the item relating to 
                        section 714 the following:

``Sec. 715. Additional market reforms.
``Sec. 716. Pharmacy benefits manager transparency and proper operation 
                            requirements.''.
                    (B) IRC amendment.--
                            (i) In general.--Subpart B of chapter 100 
                        of the Internal Revenue Code of 1986 (26 U.S.C. 
                        9811 et seq.) is amended by adding at the end 
                        the following:

``SEC. 9814. PHARMACY BENEFITS MANAGER TRANSPARENCY AND PROPER 
              OPERATION REQUIREMENTS.

    ``The provisions of section 2729 of the Public Health Service Act 
shall apply to a group health plan, and a health insurance issuer 
providing health insurance coverage in connection with a group health 
plan, in the same manner as such provisions apply to a group health 
plan and a health insurance issuer providing health insurance coverage 
under that section.''.
                            (ii) Clerical amendment.--The table of 
                        sections for subpart B of chapter 100 of the 
                        Internal Revenue Code of 1986 is amended by 
                        inserting after the item relating to section 
                        9813 the following new item:

``Sec. 9814. Pharmacy benefits manager transparency and proper 
                            operation requirements.''.
            (3) Effective date.--The amendments made by paragraphs (1) 
        and (2) shall apply with respect to health insurance coverage 
        offered, sold, issued, renewed, in effect, or operated in the 
        individual market on or after the date of enactment of this 
        Act.
    (c) Medicare Prescription Drug Plans.--
            (1) In general.--Subpart 2 of part D of title XVIII of the 
        Social Security Act (42 U.S.C. 1395w-111 et seq.) is amended by 
        adding at the end the following:

``SEC. 1860D-17. PHARMACY BENEFITS MANAGER TRANSPARENCY AND PROPER 
              OPERATION REQUIREMENTS.

    ``The provisions of section 2729 of the Public Health Service Act 
shall apply to health insurance coverage offered by a prescription drug 
plan under this part in the same manner as such provisions apply to a 
group health plan and a health insurance issuer providing health 
insurance coverage under that section.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply with respect to plan years beginning on or after 
        the date of enactment of this Act.

Summary: Pharmacy Competition and Consumer Choice Act of 2011 - Amends the Public Health Service Act, the Employee Retirements Income Security Act of 1974 (ERISA), the Internal Revenue Code, and part D of title XVIII (Medicare) of the Social Security Act to prohibit a group or individual health plan 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 such coverage unless the PBM satisfies the requirements of this Act. Directs a PBM to provide at least annually a report to each plan sponsor that includes information on the number and total costs of prescriptions under the contract, payments to pharmacies, payments from pharmaceutical manufacturers, and generic drugs and brand name drugs dispensed. Sets forth provisions governing the interaction between a PBM and pharmacies that contract with the PBM, including requiring a PBM to: (1) include in contracts drug pricing information and agree to provide timely updates on pricing, (2) agree to pay pharmacies promptly for clean claims, (3) not exclude qualifying pharmacies willing to accept terms and conditions of the PBM, and (4) require each pharmacy to sign a contract before assuming responsibility to fill prescriptions for the PBM. Prohibits a PBM from mandating or providing incentives to beneficiaries for use of a pharmacy in which the PBM has an ownership interest. Sets forth limits on audits of pharmacy providers by a PBM, including with respect to record keeping, appeals, and recoupment. Establishes limits and notice requirements related to PBMs selling claims or utilization data.