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[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 1699 Introduced in Senate (IS)]

112th CONGRESS
  1st Session
                                S. 1699

 To reduce the costs of prescription drugs under the Medicare program, 
                        and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                            October 12, 2011

   Mr. Kohl introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
 To reduce the costs of prescription drugs under the Medicare program, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Prescription Drug 
Cost Reduction Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Medicare part B drug rebate program.
Sec. 3. Negotiation of drug prices under Medicare part B.
Sec. 4. Payment for least costly alternative for Medicare part B drugs.
Sec. 5. Study and report on physician reimbursement for drugs and 
                            biologicals under Medicare part B.
Sec. 6. Requirements of pharmacy benefit managers.
Sec. 7. Certification for off-label prescribing of certain drugs 
                            prescribed in a nursing home setting.
Sec. 8. Expansion of 340B program covered entities to include PACE 
                            programs.

SEC. 2. MEDICARE PART B DRUG REBATE PROGRAM.

    Section 1842 of the Social Security Act (42 U.S.C. 1395u) is 
amended by adding at the end the following new subsection:
    ``(v)(1) Not later than 2 years after the date of enactment of this 
subsection, the Secretary shall establish a program under which a 
manufacturer shall provide a rebate to the Secretary for drugs or 
biologicals of the manufacturer that are furnished under this part.
    ``(2) The program established under paragraph (1)--
            ``(A) shall be similar to rebate agreements under section 
        1927 (including the application of an additional rebate for 
        certain drugs whose costs exceed an annual inflation target as 
        described in subsection (c)(2) of such section); and
            ``(B) may use the average manufacturer price (as determined 
        under section 1927(k)(1)) or the average sales price (as 
        defined in section 1847A(c)) as the basis for calculating the 
        amount of the rebate under the program.
    ``(3) The Secretary shall promulgate regulations to carry out this 
subsection.''.

SEC. 3. NEGOTIATION OF DRUG PRICES UNDER MEDICARE PART B.

    (a) In General.--Section 1842 of the Social Security Act (42 U.S.C. 
1395u), as amended by section 2, is amended by adding at the end the 
following new subsection:
    ``(w) Negotiation of Prices for Drugs and Biologicals.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, the Secretary shall negotiate a contract with a 
        manufacturer to establish the amount of payment under this part 
        for any drug or biological for which the program under this 
        part is the majority purchaser (as determined under paragraph 
        (2)). The Secretary shall negotiate such contracts with the 
        goal of ensuring appropriate and adequate access to necessary 
        drugs and biologicals for individuals enrolled under this part, 
        while minimizing costs to such individuals and to the program 
        under this part to the greatest extent possible.
            ``(2) Majority purchaser.--For purposes of paragraph (1), 
        the Secretary shall, by regulation, establish a method to 
        identify, based upon drug utilization rates, any drug or 
        biological for which greater than 50 percent of the units sold 
        by the manufacturer of such drug or biological in the preceding 
        calendar year were provided to individuals enrolled under this 
        part.
            ``(3) Definitions.--In this subsection:
                    ``(A) Drugs and biologicals.--The term `drug' and 
                the term `biological' have the same meaning as provided 
                under section 1861(t).
                    ``(B) Manufacturer.--The term `manufacturer' has 
                the same meaning as provided under section 
                1847A(c)(6)(A).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to drugs and biologicals that are furnished on or after July 1, 
2012.

SEC. 4. PAYMENT FOR LEAST COSTLY ALTERNATIVE FOR MEDICARE PART B DRUGS.

    Section 1847A(b) of the Social Security Act (42 U.S.C. 1395w-3a(b)) 
is amended--
            (1) in paragraph (1), in the matter preceding subparagraph 
        (A), by striking ``paragraph (7)'' and inserting ``paragraphs 
        (7) and (9)''; and
            (2) by adding at the end the following new paragraph:
            ``(9) Treatment of functionally equivalent drugs and 
        biologicals.--In the case of a drug or biological furnished on 
        or after the date that is 180 days after the date of enactment 
        of this paragraph, for which payment is determined under this 
        section, if the drug or biological is functionally equivalent 
        (as defined by the Secretary) to another drug or biological for 
        which payment is determined under this section, the amount of 
        payment for both such drugs or biologicals shall be equal to 
        the payment amount otherwise determined under this section 
        (without regard to the application of this paragraph) for the 
        least costly of such drugs or biologicals.''.

SEC. 5. STUDY AND REPORT ON PHYSICIAN REIMBURSEMENT FOR DRUGS AND 
              BIOLOGICALS UNDER MEDICARE PART B.

    (a) Study.--The Secretary of Health and Human Services (in this 
section referred to as the ``Secretary'') shall conduct a study on 
physician reimbursement for drugs and biologicals furnished under part 
B of title XVIII of the Social Security Act (42 U.S.C. 1395j et seq.). 
Such study shall include an evaluation and assessment of the following:
            (1) The ability of physicians to afford and profit from 
        drugs and biologicals purchased at the current reimbursement 
        rate of average sales price plus 6 percent under section 1847A 
        of the Social Security Act (42 U.S.C. 1395w-3a), including any 
        profit margins with respect to such drugs and biologicals.
            (2) The rate at which physicians furnish the higher priced 
        drug or biological under such part when there is a cheaper 
        alternative drug or biological.
            (3) The feasibility and merits of other reimbursement 
        structures that are not based on the price of the drug or 
        biological, such as a flat, universal fee issued for every drug 
        or biological furnished under such part, or any other relevant 
        reimbursement structures.
    (b) Consultation.--In conducting the study under subsection (a), 
the Secretary shall consult with the Administrator of the Centers for 
Medicare & Medicaid Services and the Inspector General of the 
Department of Health and Human Services.
    (c) Report.--
            (1) In general.--Not later than 1 year after the date of 
        enactment of this Act, the Secretary shall submit to Congress a 
        report containing the results of the study conducted under 
        subsection (a), together with recommendations for changing 
        physician reimbursement for drugs and biologicals under 
        Medicare part B.
            (2) Consideration of recommendations to remove incentives 
        to prescribe higher priced drugs.--In making recommendations 
        under paragraph (1), the Secretary shall consider including 
        recommendations that would--
                    (A) move reimbursement for drugs and biologicals 
                under Medicare part B away from being based on the 
                price of the drug or biological; and
                    (B) reduce or eliminate incentives to furnish 
                higher priced drugs and biologicals under such part.

SEC. 6. REQUIREMENTS OF PHARMACY BENEFIT MANAGERS.

    (a) In General.--A pharmacy benefit manager (referred to in this 
section as a ``PBM'') shall owe a fiduciary duty, in accordance with 
this section, to each covered entity.
    (b) Covered Entity Defined.--In this section, the term ``covered 
entity'' means the head of each Federal agency with which the PBM 
contracts, including--
            (1) the Secretary of Health and Human Services with respect 
        to the programs under part C of title XVIII of the Social 
        Security Act (42 U.S.C. 1395w-21 et seq.) and part D of such 
        title;
            (2) the Secretary of Veterans Affairs with respect to 
        health coverage offered through the Department of Veterans 
        Affairs;
            (3) the Secretary of Defense with respect to the TRICARE 
        program under chapter 55 of title 10, United States Code; and
            (4) the Director of the Office of Personnel Management with 
        respect to the Federal employee health benefits program under 
        chapter 89 of title 5, United States Code.
    (c) Requirements.--
            (1) In general.--The fiduciary duty described in subsection 
        (a) shall include the duty to--
                    (A) notify each covered entity, on a quarterly 
                basis, if the PBM substitutes a drug that costs more 
                than the drug prescribed to an individual by a 
                practitioner, and disclose the aggregate costs of the 
                drug prescribed and the drug provided by the PBM and 
                any benefit or payment directly or indirectly received 
                by the PBM as a result of the substitution for all 
                individuals receiving such substitute drug during the 
                applicable quarter;
                    (B) pass through any benefit, rebate, or payment 
                the PBM receives for promoting a drug that is more 
                expensive than a drug prescribed;
                    (C) in the case that a PBM receives a payment or 
                benefit for increasing volume of sales for a particular 
                drug, class of drug, or brand of drug, disclose the 
                payment or benefit with the covered entity; and
                    (D) disclose to covered entities all financial 
                terms and arrangements between the PBM and a 
                pharmaceutical drug company, including formulary 
                management and drug-switch agreements, educational 
                support, claims processing and pharmacy network fees 
                that are charged from retail pharmacies, data sales 
                fees, and other direct or indirect remunerations, 
                including discounts, charge backs or rebates, cash 
                discounts, free goods contingent on a purchase 
                agreement, up-front payments, coupons, goods in-kind, 
                free or reduced-price services, grants, or other price 
                concessions or similar benefits offered to some or all 
                purchasers from any source, including manufacturers, 
                pharmacies, enrollees, or any other person that would 
                serve to decrease the costs incurred under the plan.
            (2) Reporting of drug substitutions.--The Secretary of 
        Health and Human Services shall establish categories that 
        describe reasons, such as a concern about drug interactions or 
        discretion of the PBM, for a PBM to substitute a drug that 
        costs more than the drug prescribed to an individual by a 
        practitioner, as described in paragraph (1)(A). In reporting 
        drug substitutions under such paragraph, a PBM shall state the 
        category under which each type of substitution falls.
            (3) Direct or indirect remuneration.--For purposes of 
        paragraph (1)(D), the term ``direct or indirect remuneration'' 
        includes discounts, chargebacks or rebates, cash discounts, 
        free goods contingent on a purchase agreement, up-front 
        payments, coupons, goods in-kind, free or reduced-price 
        services, grants, or other price concessions or similar 
        benefits from manufacturers, pharmacies or similar entities 
        obtained by an intermediary contracting organization with which 
        the plan sponsor has contracted, regardless of whether the 
        intermediary contracting organization retains all or a portion 
        of the direct and indirect remuneration or passes the entire 
        direct and indirect remuneration to the plan sponsor and 
        regardless of the terms of the contract between the plan 
        sponsor and the intermediary contracting organization.
    (d) Confidentiality.--
            (1) In general.--A PBM may require covered entities to keep 
        the information described in subsection (c)(4) confidential.
            (2) Restrictions on the use of information.--
                    (A) In general.--Officers, employees, and 
                contractors of the Department of Health and Human 
                Services may use the information disclosed or obtained 
                in accordance with the provisions of this Act only for 
                the purposes of, and to the extent necessary in, 
                carrying out this Act, including determination of 
                payments, payment-related oversight, and program 
                integrity activities.
                    (B) Limitations.--
                            (i) Authority of the oig.--The restriction 
                        described in subparagraph (A) does not limit 
                        the authority of the Inspector General of the 
                        United States to fulfill the responsibilities 
                        of the Inspector General in accordance with 
                        applicable Federal law.
                            (ii) Authority of cms.--The restriction 
                        described in subparagraph (A) does not limit 
                        the authority of the Centers for Medicare & 
                        Medicaid Services to use data regarding drug 
                        claims in accordance with section 1848(m) of 
                        the Social Security Act (42 U.S.C. 1395w-4(m)).
    (e) Audits.--To ensure compliance with the requirements of this 
section, each covered entity shall conduct audits of the PBMs with 
which the covered entity contracts.

SEC. 7. CERTIFICATION FOR OFF-LABEL PRESCRIBING OF CERTAIN DRUGS 
              PRESCRIBED IN A NURSING HOME SETTING.

    Title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) is 
amended by adding at the end the following new section:

 ``certification for off-label prescribing of certain drugs prescribed 
                       in a nursing home setting

    ``Sec. 1899B.  (a) In General.--The Secretary shall develop a form 
for use by physicians and practitioners (as defined in section 
1842(b)(18)(C)) to certify that, in the case of an applicable drug 
prescribed for an off-label use under this title, such use is for a 
medically accepted indication.
    ``(b) Definitions.--In this section:
            ``(1) Applicable drug.--The term `applicable drug' means an 
        atypical antipsychotic prescribed for use in a nursing home 
        setting (as defined by the Secretary).
            ``(2) Off-label use.--The term `off-label use' means a use 
        which has not been approved by the Food and Drug 
        Administration.
            ``(3) Medically accepted indication.--The term `medically 
        accepted indication' means the applicable drug is included in 
        the compendia described in section 1861(t)(1) or is approved by 
        a committee described in such section (or, in the case of an 
        applicable drug that is a covered part D drug (as defined in 
        section 1860D-2(e)), has the meaning given such term in 
        paragraph (4) of such section 1860D-2(e)).
    ``(c) Regulations.--The Secretary shall establish by regulation 
requirements that, effective not later than 1 year after the date of 
enactment of this section, physicians and practitioners use the form 
developed under subsection (a) to make the certification under such 
subsection with respect to an applicable drug prescribed by the 
physician or practitioner for an off-label use under this title. In 
order to carry out these requirements in a timely manner, the Secretary 
shall promulgate regulations that take effect on an interim basis, 
after notice and pending opportunity for public comment.''.

SEC. 8. EXPANSION OF 340B PROGRAM COVERED ENTITIES TO INCLUDE PACE 
              PROGRAMS.

    (a) Expansion.--Section 340B(a) of the Public Health Service Act 
(42 U.S.C. 256b(a)) is amended--
            (1) in paragraph (4), by adding at the end the following:
                    ``(P) An entity that is a PACE provider offering a 
                PACE program under section 1894 and section 1934 of the 
                Social Security Act.''; and
            (2) in paragraph (5)(A), by adding at the end the 
        following:
                            ``(iii) Additional mechanism.--The 
                        Secretary shall establish a mechanism to ensure 
                        that a manufacturer does not pay a duplicate 
                        discount with respect to a drug that is subject 
                        to an agreement under this section if the PACE 
                        program receives any rebate (including any 
                        negotiated price concessions) for the drug 
                        under part D of title XVIII of the Social 
                        Security Act. Such mechanism shall be similar 
                        to the mechanism established under clause 
                        (ii).''.
    (b) Requirements.--
            (1) Medicare.--Section 1894(e) of the Social Security Act 
        (42 U.S.C. 1395eee(e)) is amended by adding at the end the 
        following new paragraph:
            ``(9) Participation in 340B program.--
                    ``(A) In general.--In the case of a PACE program 
                that serves part D eligible individuals who are 
                enrolled under such program, the PACE program agreement 
                for such program shall require the PACE provider 
                offering the program to participate in the drug 
                discount program under section 340B of the Public 
                Health Service Act for purposes of purchasing covered 
                part D drugs with respect to qualified prescription 
                drug coverage provided to such individuals.
                    ``(B) Attestation.--The Secretary may accept an 
                attestation by a PACE provider, at the time of 
                submitting a bid pursuant to section 1860D-21(f), as 
                sufficient evidence of participation in the drug 
                discount program under section 340B of the Public 
                Health Service Act for purposes of subparagraph (A).
                    ``(C) Ensuring timely access to covered outpatient 
                drugs.--Nothing in this paragraph shall prevent a PACE 
                program from providing enrollees access to covered 
                outpatient drugs (including covered part D drugs) 
                through a retail community pharmacy (as defined in 
                section 1927(k)(10)) that is not a contract pharmacy 
                under the drug discount program under section 340B of 
                the Public Health Service Act in the case where such 
                access is necessary to ensure that such drugs are 
                dispensed to enrollees on a timely basis.
                    ``(D) Definitions.--In this paragraph:
                            ``(i) Covered outpatient drug.--The term 
                        `covered outpatient drug' has the meaning given 
                        such term for purposes of section 340B of the 
                        Public Health Service Act.
                            ``(ii) Covered part d drug.--The term 
                        `covered part D drug' has the meaning given 
                        such term in section 1860D-2(e).
                            ``(iii) Part d eligible individual.--The 
                        term `part D eligible individual' has the 
                        meaning given such term in section 1860D-
                        1(a)(3)(A).
                            ``(iv) Qualified prescription drug 
                        coverage.--The term `qualified prescription 
                        drug coverage' has the meaning given such term 
                        in section 1860D-2(a).''.
            (2) Medicaid.--Section 1934(e) of the Social Security Act 
        (42 U.S.C. 1396u-4(e)) is amended by adding at the end the 
        following new paragraph:
            ``(9) Participation in 340B program.--
                    ``(A) In general.--In the case of a PACE program 
                that serves part D eligible individuals who are 
                enrolled under such program, the PACE program agreement 
                for such program shall require the PACE provider 
                offering the program to participate in the drug 
                discount program under section 340B of the Public 
                Health Service Act for purposes of purchasing covered 
                part D drugs with respect to qualified prescription 
                drug coverage provided to such individuals.
                    ``(B) Attestation.--The Secretary may accept an 
                attestation by a PACE provider, at the time of 
                submitting a bid pursuant to section 1860D-21(f), as 
                sufficient evidence of participation in the drug 
                discount program under section 340B of the Public 
                Health Service Act for purposes of subparagraph (A).
                    ``(C) Ensuring timely access to covered outpatient 
                drugs.--Nothing in this paragraph shall prevent a PACE 
                program from providing enrollees access to covered 
                outpatient drugs (including covered part D drugs) 
                through a retail community pharmacy (as defined in 
                section 1927(k)(10)) that is not a contract pharmacy 
                under the drug discount program under section 340B of 
                the Public Health Service Act in the case where such 
                access is necessary to ensure that such drugs are 
                dispensed to enrollees on a timely basis.
                    ``(D) Definitions.--In this paragraph:
                            ``(i) Covered outpatient drug.--The term 
                        `covered outpatient drug' has the meaning given 
                        such term for purposes of section 340B of the 
                        Public Health Service Act.
                            ``(ii) Covered part d drug.--The term 
                        `covered part D drug' has the meaning given 
                        such term in section 1860D-2(e).
                            ``(iii) Part d eligible individual.--The 
                        term `part D eligible individual' has the 
                        meaning given such term in section 1860D-
                        1(a)(3)(A).
                            ``(iv) Qualified prescription drug 
                        coverage.--The term `qualified prescription 
                        drug coverage' has the meaning given such term 
                        in section 1860D-2(a).''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to PACE program agreements entered into on or after 
        the date that is 2 years after the date of enactment of this 
        section.
    (c) Inclusion of Savings in Bids Submitted by PACE Programs 
Providing Qualified Prescription Drug Coverage.--
            (1) In general.--Section 1860D-21(f) of the Social Security 
        Act (42 U.S.C. 1395w-131(f)) is amended by adding at the end 
        the following new paragraph:
            ``(4) Participation in 340B program.--
                    ``(A) Inclusion of savings in bids submitted.--
                            ``(i) Determination of savings.--An 
                        organization offering prescription drug 
                        coverage under this subsection shall determine 
                        the estimated annual savings to the 
                        organization as a result of participation in 
                        the drug discount program under section 340B of 
                        the Public Health Service Act (as described in 
                        sections 1894(e)(2)(C) and 1934(e)(2)(C)).
                            ``(ii) Inclusion in bids submitted.--The 
                        bid of an organization offering prescription 
                        drug coverage under this subsection shall 
                        reflect the estimated savings determined by the 
                        organization under clause (i) for the plan year 
                        involved, and shall take into account any 
                        additional costs to the organization as a 
                        result of the implementation and administration 
                        of such drug discount program during the plan 
                        year involved. Such bid shall include an 
                        attestation by the organization that such 
                        savings are reflected in the bid amount.
                            ``(iii) Consideration of applicable ceiling 
                        prices.--In making the determination under 
                        clause (i), the organization shall consider the 
                        applicable ceiling prices for covered 
                        outpatient drugs (using the access provided 
                        under section 340B(d)(1)(B)(iii) of the Public 
                        Health Service Act).
                    ``(B) Receipt of percentage of savings.--
                            ``(i) In general.--Subject to clause (ii), 
                        an organization offering prescription drug 
                        coverage under this subsection shall be 
                        eligible to receive from the Secretary an 
                        amount equal to 10 percent of the estimated 
                        annual savings to the Federal government (as 
                        determined by the Secretary under regulations 
                        promulgated under subparagraph (C)) to the 
                        organization as a result of participation in 
                        the drug discount program under section 340B of 
                        the Public Health Service Act (as described in 
                        sections 1894(e)(2)(C) and 1934(e)(2)(C)). In 
                        making the determination under the preceding 
                        sentence, the Secretary shall consider the 
                        determination of the organization under 
                        subparagraph (A)(i).
                            ``(ii) Requirements.--An organization shall 
                        only be eligible to receive the amount under 
                        clause (i) for the plan year involved if the 
                        organization--
                                    ``(I) submits to the Secretary an 
                                application in such form and manner, 
                                and containing such information, as the 
                                Secretary may specify; and
                                    ``(II) has in effect a plan 
                                approved by the Secretary for the use 
                                of any amounts received under such 
                                clause to--
                                            ``(aa) provide to enrollees 
                                        enhanced formulary coverage, 
                                        medication management, or 
                                        disease management;
                                            ``(bb) invest in the 
                                        development of the organization 
                                        (including through the use of a 
                                        significant proportion of the 
                                        savings to invest in the 
                                        development and use of 
                                        qualified electronic health 
                                        records (as defined in section 
                                        3000(13) of the Public Health 
                                        Service Act) or other health 
                                        information technology); or
                                            ``(cc) carry out other 
                                        initiatives approved by the 
                                        Secretary.
                    ``(C) Regulations.--The Secretary shall promulgate 
                regulations to carry out this paragraph and sections 
                1894(e)(9) and 1934(e)(9).''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to plan years beginning on or after the date that 
        is 2 years after the date of enactment of this Act.
    (d) Not Treated as Change in Law for Purposes of Determining 
Manufacturer Compliance.--Section 1927(a)(5) of the Social Security Act 
(42 U.S.C. 1396r-8(a)(5)) is amended--
            (1) in subparagraph (D)--
                    (A) by striking ``amendments.--In determining'' and 
                inserting ``amendments.--
                            ``(i) In general.--Subject to clause (ii), 
                        in determining''; and
                    (B) by adding at the end the following new clause:
                            ``(ii) Exception.--The Secretary shall take 
                        into account the amendments made by section 9 
                        of the Prescription Drug Cost Reduction Act for 
                        purposes of determining whether an agreement 
                        under subparagraph (A) meets the requirements 
                        of section 340B of the Public Health Service 
                        Act and an agreement under such subparagraph 
                        shall not be determined to meet such 
                        requirements if it does not meet the 
                        requirements under such section with respect to 
                        covered outpatient drugs purchased by a covered 
                        entity described in subsection (a)(4)(P) of 
                        such section on or after the date that is 1 
                        year after the date of enactment of such 
                        Act.''; and
            (2) in subparagraph (E)--
                    (A) by striking ``compliance.--A manufacturer'' and 
                inserting ``compliance.--
                            ``(i) In general.--Subject to clause (ii), 
                        a manufacturer''; and
                    (B) by adding at the end the following new clause:
                            ``(ii) Exception.--The amendments made by 
                        section 9 of the Prescription Drug Cost 
                        Reduction Act shall not be treated as a 
                        legislative change for purposes of applying 
                        clause (i) and a manufacturer shall not be 
                        deemed to be in compliance with the 
                        requirements of this paragraph if the 
                        manufacturer has not entered into an agreement 
                        with the Secretary that meets the requirements 
                        under section 340B of the Public Health Service 
                        Act with respect to covered outpatient drugs 
                        purchased by a covered entity described in 
                        subsection (a)(4)(P) of such section on or 
                        after the date that is 1 year after the date of 
                        enactment of such Act.''.
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