# Patient Protection and Affordable Care Act/Title II/Subtitle F
## Subtitle F&madsh;Medicaid Prescription Drug Coverage
### SEC. 2501. PRESCRIPTION DRUG REBATES.

    (a) Increase in Minimum Rebate Percentage for Single Source Drugs and Innovator Multiple Source Drugs-
       (1) IN GENERAL- Section 1927(c)(1)(B) of the Social Security Act (42 U.S.C. 1396r-8(c)(1)(B)) is amended--
          (A) in clause (i)--
             (i) in subclause (IV), by striking `and' at the end;
             (ii) in subclause (V)--
                (I) by inserting `and before January 1, 2010' after `December 31, 1995,'; and
                (II) by striking the period at the end and inserting `; and'; and
             (iii) by adding at the end the following new subclause:
                         `(VI) except as provided in clause (iii), after December 31, 2009, 23.1 percent.'; and
          (B) by adding at the end the following new clause:
                      `(iii) MINIMUM REBATE PERCENTAGE FOR CERTAIN DRUGS-
                         `(I) IN GENERAL- In the case of a single source drug or an innovator multiple source drug described in subclause (II), the minimum rebate percentage for rebate periods specified in clause (i)(VI) is 17.1 percent.
                         `(II) DRUG DESCRIBED- For purposes of subclause (I), a single source drug or an innovator multiple source drug described in this subclause is any of the following drugs:
                            `(aa) A clotting factor for which a separate furnishing payment is made under section 1842(o)(5) and which is included on a list of such factors specified and updated regularly by the Secretary.
                            `(bb) A drug approved by the Food and Drug Administration exclusively for pediatric indications.'.
       (2) RECAPTURE OF TOTAL SAVINGS DUE TO INCREASE- Section 1927(b)(1) of such Act (42 U.S.C. 1396r-8(b)(1)) is amended by adding at the end the following new subparagraph:
                   `(C) SPECIAL RULE FOR INCREASED MINIMUM REBATE PERCENTAGE-
                      `(i) IN GENERAL- In addition to the amounts applied as a reduction under subparagraph (B), for rebate periods beginning on or after January 1, 2010, during a fiscal year, the Secretary shall reduce payments to a State under section 1903(a) in the manner specified in clause (ii), in an amount equal to the product of--
                         `(I) 100 percent minus the Federal medical assistance percentage applicable to the rebate period for the State; and
                         `(II) the amounts received by the State under such subparagraph that are attributable (as estimated by the Secretary based on utilization and other data) to the increase in the minimum rebate percentage effected by the amendments made by subsections (a)(1), (b), and (d) of section 2501 of the Patient Protection and Affordable Care Act, taking into account the additional drugs included under the amendments made by subsection (c) of section 2501 of such Act.
          The Secretary shall adjust such payment reduction for a calendar quarter to the extent the Secretary determines, based upon subsequent utilization and other data, that the reduction for such quarter was greater or less than the amount of payment reduction that should have been made.
                      `(ii) MANNER OF PAYMENT REDUCTION- The amount of the payment reduction under clause (i) for a State for a quarter shall be deemed an overpayment to the State under this title to be disallowed against the State's regular quarterly draw for all Medicaid spending under section 1903(d)(2). Such a disallowance is not subject to a reconsideration under section 1116(d).'.
    (b) Increase in Rebate for Other Drugs- Section 1927(c)(3)(B) of such Act (42 U.S.C. 1396r-8(c)(3)(B)) is amended--
       (1) in clause (i), by striking `and' at the end;
       (2) in clause (ii)--
          (A) by inserting `and before January 1, 2010,' after `December 31, 1993,'; and
          (B) by striking the period and inserting `; and'; and
       (3) by adding at the end the following new clause:
                      `(iii) after December 31, 2009, is 13 percent.'.
    (c) Extension of Prescription Drug Discounts to Enrollees of Medicaid Managed Care Organizations-
       (1) IN GENERAL- Section 1903(m)(2)(A) of such Act (42 U.S.C. 1396b(m)(2)(A)) is amended--
          (A) in clause (xi), by striking `and' at the end;
          (B) in clause (xii), by striking the period at the end and inserting `; and'; and
          (C) by adding at the end the following:
                      `(xiii) such contract provides that (I) covered outpatient drugs dispensed to individuals eligible for medical assistance who are enrolled with the entity shall be subject to the same rebate required by the agreement entered into under section 1927 as the State is subject to and that the State shall collect such rebates from manufacturers, (II) capitation rates paid to the entity shall be based on actual cost experience related to rebates and subject to the Federal regulations requiring actuarially sound rates, and (III) the entity shall report to the State, on such timely and periodic basis as specified by the Secretary in order to include in the information submitted by the State to a manufacturer and the Secretary under section 1927(b)(2)(A), information on the total number of units of each dosage form and strength and package size by National Drug Code of each covered outpatient drug dispensed to individuals eligible for medical assistance who are enrolled with the entity and for which the entity is responsible for coverage of such drug under this subsection (other than covered outpatient drugs that under subsection (j)(1) of section 1927 are not subject to the requirements of that section) and such other data as the Secretary determines necessary to carry out this subsection.'.
       (2) CONFORMING AMENDMENTS- Section 1927 (42 U.S.C. 1396r-8) is amended--
          (A) in subsection (b)--
             (i) in paragraph (1)(A), in the first sentence, by inserting `, including such drugs dispensed to individuals enrolled with a medicaid managed care organization if the organization is responsible for coverage of such drugs' before the period; and
             (ii) in paragraph (2)(A), by inserting `including such information reported by each medicaid managed care organization,' after `for which payment was made under the plan during the period,'; and
          (B) in subsection (j), by striking paragraph (1) and inserting the following:
                `(1) Covered outpatient drugs are not subject to the requirements of this section if such drugs are--
                   `(A) dispensed by health maintenance organizations, including Medicaid managed care organizations that contract under section 1903(m); and
                   `(B) subject to discounts under section 340B of the Public Health Service Act.'.
    (d) Additional Rebate for New Formulations of Existing Drugs-
       (1) IN GENERAL- Section 1927(c)(2) of the Social Security Act (42 U.S.C. 1396r-8(c)(2)) is amended by adding at the end the following new subparagraph:
                   `(C) TREATMENT OF NEW FORMULATIONS-
                      `(i) IN GENERAL- Except as provided in clause (ii), in the case of a drug that is a new formulation, such as an extended-release formulation, of a single source drug or an innovator multiple source drug, the rebate obligation with respect to the drug under this section shall be the amount computed under this section for the new formulation of the drug or, if greater, the product of--
                         `(I) the average manufacturer price for each dosage form and strength of the new formulation of the single source drug or innovator multiple source drug;
                         `(II) the highest additional rebate (calculated as a percentage of average manufacturer price) under this section for any strength of the original single source drug or innovator multiple source drug; and
                         `(III) the total number of units of each dosage form and strength of the new formulation paid for under the State plan in the rebate period (as reported by the State).
                      `(ii) NO APPLICATION TO NEW FORMULATIONS OF ORPHAN DRUGS- Clause (i) shall not apply to a new formulation of a covered outpatient drug that is or has been designated under section 526 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360bb) for a rare disease or condition, without regard to whether the period of market exclusivity for the drug under section 527 of such Act has expired or the specific indication for use of the drug.'.
       (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to drugs that are paid for by a State after December 31, 2009.
    (e) Maximum Rebate Amount- Section 1927(c)(2) of such Act (42 U.S.C. 1396r-8(c)(2)), as amended by subsection (d), is amended by adding at the end the following new subparagraph:
                   `(D) MAXIMUM REBATE AMOUNT- In no case shall the sum of the amounts applied under paragraph (1)(A)(ii) and this paragraph with respect to each dosage form and strength of a single source drug or an innovator multiple source drug for a rebate period beginning after December 31, 2009, exceed 100 percent of the average manufacturer price of the drug.'.
    (f) Conforming Amendments-
       (1) IN GENERAL- Section 340B of the Public Health Service Act (42 U.S.C. 256b) is amended--
          (A) in subsection (a)(2)(B)(i), by striking `1927(c)(4)' and inserting `1927(c)(3)'; and
          (B) by striking subsection (c); and
          (C) redesignating subsection (d) as subsection (c).
       (2) EFFECTIVE DATE- The amendments made by this subsection take effect on January 1, 2010.

### SEC. 2502. ELIMINATION OF EXCLUSION OF COVERAGE OF CERTAIN DRUGS.

    (a) In General- Section 1927(d) of the Social Security Act (42 U.S.C. 1397r-8(d)) is amended--
       (1) in paragraph (2)--
          (A) by striking subparagraphs (E), (I), and (J), respectively; and
          (B) by redesignating subparagraphs (F), (G), (H), and (K) as subparagraphs (E), (F), (G), and (H), respectively; and
       (2) by adding at the end the following new paragraph:
                `(7) NON-EXCLUDABLE DRUGS- The following drugs or classes of drugs, or their medical uses, shall not be excluded from coverage:
                   `(A) Agents when used to promote smoking cessation, including agents approved by the Food and Drug Administration under the over-the-counter monograph process for purposes of promoting, and when used to promote, tobacco cessation.
                   `(B) Barbiturates.
                   `(C) Benzodiazepines.'.
    (b) Effective Date- The amendments made by this section shall apply to services furnished on or after January 1, 2014.

### SEC. 2503. PROVIDING ADEQUATE PHARMACY REIMBURSEMENT.

    (a) Pharmacy Reimbursement Limits-
       (1) IN GENERAL- Section 1927(e) of the Social Security Act (42 U.S.C. 1396r-8(e)) is amended--
          (A) in paragraph (4), by striking `(or, effective January 1, 2007, two or more)'; and
          (B) by striking paragraph (5) and inserting the following:
                `(5) USE OF AMP IN UPPER PAYMENT LIMITS- The Secretary shall calculate the Federal upper reimbursement limit established under paragraph (4) as no less than 175 percent of the weighted average (determined on the basis of utilization) of the most recently reported monthly average manufacturer prices for pharmaceutically and therapeutically equivalent multiple source drug products that are available for purchase by retail community pharmacies on a nationwide basis. The Secretary shall implement a smoothing process for average manufacturer prices. Such process shall be similar to the smoothing process used in determining the average sales price of a drug or biological under section 1847A.'.
       (2) DEFINITION OF AMP- Section 1927(k)(1) of such Act (42 U.S.C. 1396r-8(k)(1)) is amended--
          (A) in subparagraph (A), by striking `by' and all that follows through the period and inserting `by--
                      `(i) wholesalers for drugs distributed to retail community pharmacies; and
                      `(ii) retail community pharmacies that purchase drugs directly from the manufacturer.'; and
          (B) by striking subparagraph (B) and inserting the following:
                   `(B) EXCLUSION OF CUSTOMARY PROMPT PAY DISCOUNTS AND OTHER PAYMENTS-
                      `(i) IN GENERAL- The average manufacturer price for a covered outpatient drug shall exclude--
                         `(I) customary prompt pay discounts extended to wholesalers;
                         `(II) bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies, including (but not limited to) distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative services agreements and patient care programs (such as medication compliance programs and patient education programs);
                         `(III) reimbursement by manufacturers for recalled, damaged, expired, or otherwise unsalable returned goods, including (but not limited to) reimbursement for the cost of the goods and any reimbursement of costs associated with return goods handling and processing, reverse logistics, and drug destruction; and
                         `(IV) payments received from, and rebates or discounts provided to, pharmacy benefit managers, managed care organizations, health maintenance organizations, insurers, hospitals, clinics, mail order pharmacies, long term care providers, manufacturers, or any other entity that does not conduct business as a wholesaler or a retail community pharmacy.
                      `(ii) INCLUSION OF OTHER DISCOUNTS AND PAYMENTS- Notwithstanding clause (i), any other discounts, rebates, payments, or other financial transactions that are received by, paid by, or passed through to, retail community pharmacies shall be included in the average manufacturer price for a covered outpatient drug.'; and
          (C) in subparagraph (C), by striking `the retail pharmacy class of trade' and inserting `retail community pharmacies'.
       (3) DEFINITION OF MULTIPLE SOURCE DRUG- Section 1927(k)(7) of such Act (42 U.S.C. 1396r-8(k)(7)) is amended--
          (A) in subparagraph (A)(i)(III), by striking `the State' and inserting `the United States'; and
          (B) in subparagraph (C)--
             (i) in clause (i), by inserting `and' after the semicolon;
             (ii) in clause (ii), by striking `; and' and inserting a period; and
             (iii) by striking clause (iii).
       (4) DEFINITIONS OF RETAIL COMMUNITY PHARMACY; WHOLESALER- Section 1927(k) of such Act (42 U.S.C. 1396r-8(k)) is amended by adding at the end the following new paragraphs:
                `(10) RETAIL COMMUNITY PHARMACY- The term `retail community pharmacy' means an independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses medications to the general public at retail prices. Such term does not include a pharmacy that dispenses prescription medications to patients primarily through the mail, nursing home pharmacies, long-term care facility pharmacies, hospital pharmacies, clinics, charitable or not-for-profit pharmacies, government pharmacies, or pharmacy benefit managers.
                `(11) WHOLESALER- The term `wholesaler' means a drug wholesaler that is engaged in wholesale distribution of prescription drugs to retail community pharmacies, including (but not limited to) manufacturers, repackers, distributors, own-label distributors, private-label distributors, jobbers, brokers, warehouses (including manufacturer's and distributor's warehouses, chain drug warehouses, and wholesale drug warehouses) independent wholesale drug traders, and retail community pharmacies that conduct wholesale distributions.'.
    (b) Disclosure of Price Information to the Public- Section 1927(b)(3) of such Act (42 U.S.C. 1396r-8(b)(3)) is amended--
       (1) in subparagraph (A)--
          (A) in the first sentence, by inserting after clause (iii) the following:
                      `(iv) not later than 30 days after the last day of each month of a rebate period under the agreement, on the manufacturer's total number of units that are used to calculate the monthly average manufacturer price for each covered outpatient drug;'; and
          (B) in the second sentence, by inserting `(relating to the weighted average of the most recently reported monthly average manufacturer prices)' after `(D)(v)'; and
       (2) in subparagraph (D)(v), by striking `average manufacturer prices' and inserting `the weighted average of the most recently reported monthly average manufacturer prices and the average retail survey price determined for each multiple source drug in accordance with subsection (f)'.
    (c) Clarification of Application of Survey of Retail Prices- Section 1927(f)(1) of such Act (42 U.S.C. 1396r-8(b)(1)) is amended--
       (1) in subparagraph (A)(i), by inserting `with respect to a retail community pharmacy,' before `the determination'; and
       (2) in subparagraph (C)(ii), by striking `retail pharmacies' and inserting `retail community pharmacies'.
    (d) Effective Date- The amendments made by this section shall take effect on the first day of the first calendar year quarter that begins at least 180 days after the date of enactment of this Act, without regard to whether or not final regulations to carry out such amendments have been promulgated by such date.