# H.R. 3200/Division B/Title I/Subtitle E
## SUBTITLE E — IMPROVEMENTS TO MEDICARE PART D
### Sec. 1181. Elimination of Coverage Gap.

    (a) In General.—
       Section 1860D–2(b) of such Act (42 U.S.C. 1395w–102(b)) is amended—
          (1) in paragraph (3)(A), by striking ``paragraph (4)´´ and inserting ``paragraphs (4) and (7)´´;
          (2) in paragraph (4)(B)(i), by inserting ``subject to paragraph (7)´´ after ``purposes of this part´´; and
          (3) by adding at the end the following new paragraph:
             ``(7) Phased-in elimination of coverage gap.—
                ``(A) In general.—For each year beginning with 2011, the Secretary shall consistent with this paragraph progressively increase the initial coverage limit (described in subsection (b)(3)) and decrease the annual out-of-pocket threshold from the amounts otherwise computed until there is a continuation of coverage from the initial coverage limit for expenditures incurred through the total amount of expenditures at which benefits are available under paragraph (4).
                ``(B) Increase in initial coverage limit.—For a year beginning with 2011, the initial coverage limit otherwise computed without regard to this paragraph shall be increased by ½ of the cumulative phase-in percentage (as defined in subparagraph (D)(ii) for the year) times the out-of-pocket gap amount (as defined in subparagraph (E)) for the year.
                ``(C) Decrease in annual out-of-pocket threshold.—For a year beginning with 2011, the annual out-of-pocket threshold otherwise computed without regard to this paragraph shall be decreased by ½ of the cumulative phase-in percentage of the out-of-pocket gap amount for the year multiplied by 1.75.
                ``(D) Phase–in.—For purposes of this paragraph:
                   ``(i) Annual phase-in percentage.—The term ‘annual phase-in percentage’ means—
                      ``(I) for 2011, 13 percent;
                      ``(II) for 2012, 2013, 2014, and 2015, 5 percent;
                      ``(III) for 2016 through 2018, 7.5 percent; and
                      ``(IV) for 2019 and each subsequent year, 10 percent.
                   ``(ii) Cumulative phase-in percentage.—The term ‘cumulative phase-in percentage’ means for a year the sum of the annual phase-in percentage for the year and the annual phase-in percentages for each previous year beginning with 2011, but in no case more than 100 percent.
                ``(E) Out-of-pocket gap amount.—For purposes of this paragraph, the term ‘out-of-pocket gap amount’ means for a year the amount by which—
                   ``(i) the annual out-of-pocket threshold specified in paragraph (4)(B) for the year (as determined as if this paragraph did not apply), exceeds
                   ``(ii) the sum of—
                      ``(I) the annual deductible under paragraph (1) for the year; and
                      ``(II) 1⁄4 of the amount by which the initial coverage limit under paragraph (3) for the year (as determined as if this paragraph did not apply) exceeds such annual deductible.´´.
    (b) Requiring Drug Manufacturers to Provide Drug Rebates for Full-Benefit Dual Eligibles.—
          (1) In General.—
             Section 1860D–2 of the Social Security Act (42 U.S.C. 1396r–8) is amended—
                (A) in subsection (e)(1), in the matter before subparagraph (A), by inserting ``and subsection (f)´´ after ``this subsection´´; and
                (B) by adding at the end the following new subsection:
                   ``(f) Prescription drug rebate agreement for full-Benefit dual eligible individuals.—
                      ``(1) In general.—In this part, the term ‘covered part D drug’ does not include any drug or biologic that is manufactured by a manufacturer that has not entered into and have in effect a rebate agreement described in paragraph (2).
                      ``(2) Rebate agreement.—A rebate agreement under this subsection shall require the manufacturer to provide to the Secretary a rebate for each rebate period (as defined in paragraph (6)(B)) ending after December 31, 2010, in the amount specified in paragraph (3) for any covered part D drug of the manufacturer dispensed after December 31, 2010, to any full-benefit dual eligible individual (as defined in paragraph (6)(A)) for which payment was made by a PDP sponsor under part D or a MA organization under part C for such period. Such rebate shall be paid by the manufacturer to the Secretary not later than 30 days after the date of receipt of the information described in section 1860D–12(b)(7), including as such section is applied under section 1857(f)(3).
                      ``(3) Rebate for full-benefit dual eligible Medicare drug plan enrollees.—
                         ``(A) In general.—The amount of the rebate specified under this paragraph for a manufacturer for a rebate period, with respect to each dosage form and strength of any covered part D drug provided by such manufacturer and dispensed to a full-benefit dual eligible individual, shall be equal to the product of—
                            ``(i) the total number of units of such dosage form and strength of the drug so provided and dispensed for which payment was made by a PDP sponsor under part D or a MA organization under part C for the rebate period (as reported under section 1860D–12(b)(7), including as such section is applied under section 1857(f)(3)); and
                            ``(ii) the amount (if any) by which—
                               ``(I) the Medicaid rebate amount (as defined in subparagraph (B)) for such form, strength, and period, exceeds
                               ``(II) the average Medicare drug program full-benefit dual eligible rebate amount (as defined in subparagraph (C)) for such form, strength, and period.
                         ``(B) Medicaid rebate amount.—For purposes of this paragraph, the term ‘Medicaid rebate amount’ means, with respect to each dosage form and strength of a covered part D drug provided by the manufacturer for a rebate period—
                            ``(i) in the case of a single source drug or an innovator multiple source drug, the amount specified in paragraph (1)(A)(ii) of section 1927(b) plus the amount, if any, specified in paragraph (2)(A)(ii) of such section, for such form, strength, and period; or
                            ``(ii) in the case of any other covered outpatient drug, the amount specified in paragraph (3)(A)(i) of such section for such form, strength, and period.
                         ``(C) Average Medicare drug program full-benefit dual eligible rebate amount.—For purposes of this subsection, the term ‘average Medicare drug program full-benefit dual eligible rebate amount’ means, with respect to each dosage form and strength of a covered part D drug provided by a manufacturer for a rebate period, the sum, for all PDP sponsors under part D and MA organizations administering a MA–PD plan under part C, of—
                            ``(i) the product, for each such sponsor or organization, of—
                               ``(I) the sum of all rebates, discounts, or other price concessions (not taking into account any rebate provided under paragraph (2) for such dosage form and strength of the drug dispensed, calculated on a per-unit basis, but only to the extent that any such rebate, discount, or other price concession applies equally to drugs dispensed to full-benefit dual eligible Medicare drug plan enrollees and drugs dispensed to PDP and MA–PD enrollees who are not full-benefit dual eligible individuals; and
                               ``(II) the number of the units of such dosage and strength of the drug dispensed during the rebate period to full-benefit dual eligible individuals enrolled in the prescription drug plans administered by the PDP sponsor or the MA–PD plans administered by the MA–PD organization; divided by
                            ``(ii) the total number of units of such dosage and strength of the drug dispensed during the rebate period to full-benefit dual eligible individuals enrolled in all prescription drug plans administered by PDP sponsors and all MA–PD plans administered by MA–PD organizations.
                         ``(4) Length of agreement.—The provisions of paragraph (4) of section 1927(b) (other than clauses (iv) and (v) of subparagraph (B)) shall apply to rebate agreements under this subsection in the same manner as such paragraph applies to a rebate agreement under such section.
                         ``(5) Other terms and conditions.—The Secretary shall establish other terms and conditions of the rebate agreement under this subsection, including terms and conditions related to compliance, that are consistent with this subsection.
                         ``(6) Definitions.—In this subsection and section 1860D–12(b)(7):
                            ``(A) Full-benefit dual eligible individual.—The term ‘full-benefit dual eligible individual’ has the meaning given such term in section 1935(c)(6).
                            ``(B) Rebate period.—The term ‘rebate period’ has the meaning given such term in section 1927(k)(8).´´.
          (2) Reporting requirement for the determination and payment of rebates by manufactures related to rebate for full-benefit dual eligible Medicare drug plan enrollees.—
                (A) Requirements for PDP sponsors.—
                   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 paragraph:
                      ``(7) Reporting requirement for the determination and payment of rebates by manufacturers related to rebate for full-benefit dual eligible Medicare drug plan enrollees.—
                         ``(A) In general.—For purposes of the rebate under section 1860D–2(f) for contract years beginning on or after January 1, 2011, each contract entered into with a PDP sponsor under this part with respect to a prescription drug plan shall require that the sponsor comply with subparagraphs (B) and (C).
                         ``(B) Report form and contents.—Not later than 60 days after the end of each rebate period (as defined in section 1860D–2(f)(6)(B)) within such a contract year to which such section applies, a PDP sponsor of a prescription drug plan under this part shall report to each manufacturer—
                            ``(i) information (by National Drug Code number) on the total number of units of each dosage, form, and strength of each drug of such manufacturer dispensed to full-benefit dual eligible Medicare drug plan enrollees under any prescription drug plan operated by the PDP sponsor during the rebate period;
                            ``(ii) information on the price discounts, price concessions, and rebates for such drugs for such form, strength, and period;
                            ``(iii) information on the extent to which such price discounts, price concessions, and rebates apply equally to full-benefit dual eligible Medicare drug plan enrollees and PDP enrollees who are not full-benefit dual eligible Medicare drug plan enrollees; and
                            ``(iv) any additional information that the Secretary determines is necessary to enable the Secretary to calculate the average Medicare drug program full-benefit dual eligible rebate amount (as defined in paragraph (3)(C) of such section), and to determine the amount of the rebate required under this section, for such form, strength, and period.
                         ``Such report shall be in a form consistent with a standard reporting format established by the Secretary.
                         ``(C) Submission to Secretary.—Each PDP sponsor shall promptly transmit a copy of the information reported under subparagraph (B) to the Secretary for the purpose of audit oversight and evaluation.
                         ``(D) Confidentiality of information.—The provisions of subparagraph (D) of section 1927(b)(3), relating to confidentiality of information, shall apply to information reported by PDP sponsors under this paragraph in the same manner that such provisions apply to information disclosed by manufacturers or wholesalers under such section, except—
                            ``(i) that any reference to ‘this section’ in clause (i) of such subparagraph shall be treated as being a reference to this section;
                            ``(ii) the reference to the Director of the Congressional Budget Office in clause (iii) of such subparagraph shall be treated as including a reference to the Medicare Payment Advisory Commission; and
                            ``(iii) clause (iv) of such subparagraph shall not apply.
                         ``(E) Oversight.—Information reported under this paragraph may be used by the Inspector General of the Department of Health and Human Services for the statutorily authorized purposes of audit, investigation, and evaluations.
                         ``(F) Penalties for failure to provide timely information and provision of false information.—In the case of a PDP sponsor—
                            ``(i) that fails to provide information required under subparagraph (B) on a timely basis, the sponsor is subject to a civil money penalty in the amount of $10,000 for each day in which such information has not been provided; or
                            ``(ii) that knowingly (as defined in section 1128A(i)) provides false information under such subparagraph, the sponsor is subject to a civil money penalty in an amount not to exceed $100,000 for each item of false information.
                         ``Such civil money penalties are in addition to other penalties as may be prescribed by law. The provisions of section 1128A (other than subsections (a) and (b)) shall apply to a civil money penalty under this subparagraph in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a).´´.
                (B) Application to MA Organizations.—
                   Section 1857(f)(3) of the Social Security Act (42 U.S.C. 1395w–27(f)(3)) is amended by adding at the end the following:
                      ``(D) Reporting requirement related to rebate for full-benefit dual eligible Medicare drug plan enrollees.—Section 1860D–12(b)(7).´´.
          (3) Deposit of Rebates into Medicare Prescription Drug Account.—
             Section 1860D–16(c) of such Act (42 U.S.C. 1395w–116(c)) is amended by adding at the end the following new paragraph:
                ``(6) Rebate for full-benefit dual eligible Medicare drug plan enrollees.—Amounts paid under a rebate agreement under section 1860D–2(f) shall be deposited into the Account and shall be used to pay for all or part of the gradual elimination of the coverage gap under section 1860D–2(b)(7).´´.

### Sec. 1182. Discounts for Certain PART D Drugs in Original Coverage Gap.

    Section 1860D–2 of the Social Security Act (42 U.S.C. 1395w–102), as amended by section 1181(a), is amended—
          (1) in subsection (b)(4)(C)(ii), by inserting ``subject to subsection (g)(2)(C),´´ after ``(ii)´´;
          (2) in subsection (e)(1), in the matter before subparagraph (A), by striking ``subsection (f)´´ and inserting ``subsections (f) and (g)´´ after ``this subsection´´; and
          (3) by adding at the end the following new subsection:
             ``(g) Requirement for manufacturer discount agreement for certain qualifying drugs.—
                ``(1) In general.—In this part, the term ‘covered part D drug’ does not include any drug or biologic that is manufactured by a manufacturer that has not entered into and have in effect for all qualifying drugs (as defined in paragraph (5)(A)) a discount agreement described in paragraph (2).
                ``(2) Discount agreement.—
                   ``(A) Periodic discounts.—A discount agreement under this paragraph shall require the manufacturer involved to provide, to each PDP sponsor with respect to a prescription drug plan or each MA organization with respect to each MA–PD plan, a discount in an amount specified in paragraph (3) for qualifying drugs (as defined in paragraph (5)(A)) of the manufacturer dispensed to a qualifying enrollee after December 31, 2010, insofar as the individual is in the original gap in coverage (as defined in paragraph (5)(E)).
                   ``(B) Discount agreement.—Insofar as not inconsistent with this subsection, the Secretary shall establish terms and conditions of such agreement, including terms and conditions relating to compliance, similar to the terms and conditions for rebate agreements under paragraphs (2), (3), and (4) of section 1927(b), except that—
                      ``(i) discounts shall be applied under this subsection to prescription drug plans and MA–PD plans instead of State plans under title XIX;
                      ``(ii) PDP sponsors and MA organizations shall be responsible, instead of States, for provision of necessary utilization information to drug manufacturers; and
                      ``(iii) sponsors and MA organizations shall be responsible for reporting information on drug-component negotiated price, instead of other manufacturer prices.
                   ``(C) Counting discount toward true out-of-pocket costs.—Under the discount agreement, in applying subsection (b)(4), with regard to subparagraph (C)(i) of such subsection, if a qualified enrollee purchases the qualified drug insofar as the enrollee is in an actual gap of coverage (as defined in paragraph (5)(D)), the amount of the discount under the agreement shall be treated and counted as costs incurred by the plan enrollee.
                ``(3) Discount amount.—The amount of the discount specified in this paragraph for a discount period for a plan is equal to 50 percent of the amount of the drug-component negotiated price (as defined in paragraph (5)(C)) for qualifying drugs for the period involved.
                ``(4) Additional terms.—In the case of a discount provided under this subsection with respect to a prescription drug plan offered by a PDP sponsor or an MA–PD plan offered by an MA organization, if a qualified enrollee purchases the qualified drug—
                   ``(A) insofar as the enrollee is in an actual gap of coverage (as defined in paragraph (5)(D)), the sponsor or plan shall provide the discount to the enrollee at the time the enrollee pays for the drug; and
                   ``(B) insofar as the enrollee is in the portion of the original gap in coverage (as defined in paragraph (5)(E)) that is not in the actual gap in coverage, the discount shall not be applied against the negotiated price (as defined in subsection (d)(1)(B)) for the purpose of calculating the beneficiary payment.
                ``(5) Definitions.—In this subsection:
                   ``(A) Qualifying drug.—The term ‘qualifying drug’ means, with respect to a prescription drug plan or MA–PD plan, a drug or biological product that—
                      ``(i)(I) is a drug produced or distributed under an original new drug application approved by the Food and Drug Administration, including a drug product marketed by any cross-licensed producers or distributors operating under the new drug application;
                         ``(II) is a drug that was originally marketed under an original new drug application approved by the Food and Drug Administration; or
                         ``(III) is a biological product as approved under Section 351(a) of the Public Health Services Act;
                      ``(ii) is covered under the formulary of the plan; and
                      ``(iii) is dispensed to an individual who is in the original gap in coverage.
                   ``(B) Qualifying enrollee.—The term ‘qualifying enrollee’ means an individual enrolled in a prescription drug plan or MA–PD plan other than such an individual who is a subsidy-eligible individual (as defined in section 1860D–14(a)(3)).
                   ``(C) Drug-component negotiated price.—The term ‘drug-component negotiated price’ means, with respect to a qualifying drug, the negotiated price (as defined in subsection (d)(1)(B)), as determined without regard to any dispensing fee, of the drug under the prescription drug plan or MA–PD plan involved.
                   ``(D) Actual gap in coverage.—The term ‘actual gap in coverage’ means the gap in prescription drug coverage that occurs between the initial coverage limit (as modified under subparagraph (B) of subsection (b)(7)) and the annual out-of-pocket threshold (as modified under subparagraph (C) of such subsection).
                   ``(E) Original gap in coverage.—The term ‘original in gap coverage’ means the gap in prescription drug coverage that would occur between the initial coverage limit (described in subsection (b)(3)) and the out-of-pocket threshold (as defined in subsection (b)(4))(B) if subsection (b)(7) did not apply.´´.

### Sec. 1183. Repeal of Provision Relating to Submission of Claims by Pharmacies Located in or Contracting with Long-term Care Facilities.

    (a) Part D Submission.—
       Section 1860D–12(b) of the Social Security Act (42 U.S.C. 1395w–112(b)), as amended by section 172(a)(1) of Public Law 110–275, is amended by striking paragraph (5) and redesignating paragraph (6) and paragraph (7), as added by section 1181(b)(2), as paragraph (5) and paragraph (6), respectively.
    (b) Submission to MA–PD Plans.—
       Section 1857(f)(3) of the Social Security Act (42 U.S.C. 1395w–27(f)(3)), as added by section 171(b) of Public Law 110–275 and amended by section 172(a)(2) of such Public Law, is amended by striking subparagraph (B) and redesignating subparagraph (C) as subparagraph (B).
    (c) Effective Date.—
       The amendments made by this section shall apply for contract years beginning with 2010.

### Sec. 1184. Including Costs Incurred by AIDS Drug Assistance Programs and Indian Health Service in Providing Prescription Drugs Toward the Annual Out-of-Pocket Tthreshold Under PART D.

    (a) In General.—
       Section 1860D–2(b)(4)(C) of the Social Security Act (42 U.S.C. 1395w–102(b)(4)(C)) is amended—
          (1) in clause (i), by striking ``and´´ at the end;
          (2) in clause (ii)—
                (A) by striking ``such costs shall be treated as incurred only if´´ and inserting ``subject to clause (iii), such costs shall be treated as incurred only if´´;
                (B) by striking ``, under section 1860D–14, or under a State Pharmaceutical Assistance Program´´; and
                (C) by striking the period at the end and inserting ``; and´´; and
          (3) by inserting after clause (ii) the following new clause:
             ``(iii) such costs shall be treated as incurred and shall not be considered to be reimbursed under clause (ii) if such costs are borne or paid—
                ``(I) under section 1860D–14;
                ``(II) under a State Pharmaceutical Assistance Program;
                ``(III) by the Indian Health Service, an Indian tribe or tribal organization, or an urban Indian organization (as defined in section 4 of the Indian Health Care Improvement Act); or
                ``(IV) under an AIDS Drug Assistance Program under part B of title XXVI of the Public Health Service Act.´´.
    (b) Effective Date.—
       The amendments made by subsection (a) shall apply to costs incurred on or after January 1, 2011.

### Sec. 1185. Permitting Mid-Year Changes in Eenrollment for Formulary Changes That Adversely Impact an Enrollee.

    (a) In General.—
       Section 1860D–1(b)(3) of the Social Security Act (42 U.S.C. 1395w–101(b)(3)) is amended by adding at the end the following new subparagraph:
          ``(F) Change in formulary resulting in increase in cost-sharing.—
             ``(i) In general.—Except as provided in clause (ii), in the case of an individual enrolled in a prescription drug plan (or MA–PD plan) who has been prescribed and is using a covered part D drug while so enrolled, if the formulary of the plan is materially changed (other than at the end of a contract year) so to reduce the coverage (or increase the cost-sharing) of the drug under the plan.
             ``(ii) Exception.—Clause (i) shall not apply in the case that a drug is removed from the formulary of a plan because of a recall or withdrawal of the drug issued by the Food and Drug Administration, because the drug is replaced with a generic drug that is a therapeutic equivalent, or because of utilization management applied to—
                ``(I) a drug whose labeling includes a boxed warning required by the Food and Drug Administration under section 210.57(c)(1) of title 21, Code of Federal Regulations (or a successor regulation); or
                ``(II) a drug required under subsection (c)(2) of section 505–1 of the Federal Food, Drug, and Cosmetic Act to have a Risk Evaluation and Management Strategy that includes elements under subsection (f) of such section.´´.
    (b) Effective Date.—
       The amendment made by subsection (a) shall apply to contract years beginning on or after January 1, 2011.