II 

109TH CONGRESS 

1ST SESSION S. 1840 

To amend section 340B of the Public Health Service Act to increase the 

affordability of inpatient drugs for Medicaid and safety net hospitals. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 6, 2005 

Mr. THUNE (for himself and Mr. BINGAMAN) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend section 340B of the Public Health Service Act 

to increase the affordability of inpatient drugs for Medicaid and safety net hospitals. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Safety Net Inpatient 

5 Drug Affordability Act’’. 

6 SEC. 2. EXTENSION OF DISCOUNTS TO INPATIENT DRUGS. 

7 (a) IN GENERAL.—Section 340B(b) of the Public 

8 Health Service Act (42 U.S.C. 256b(b)) is amended by 

9 inserting before the period the following: ‘‘, except that, 

10 notwithstanding the limiting definition set forth in section 
2 

•S 1840 IS 

1 1927(k)(3) of the Social Security Act, the terms ‘covered 

2 outpatient drug’ and ‘covered drug’ include any inpatient 

3 or outpatient drug purchased by a hospital described in 

4 subsection (a)(4)(L)’’. 

5 (b) PAYMENT OF MEDICAID REBATES ON INPATIENT

6 DRUGS.—Section 340B(c) of such Act (42 U.S.C. 

7 256b(c)) is amended to read as follows: 

8 ‘‘(c) PAYMENT OF MEDICAID REBATES ON INPA9 TIENT DRUGS.— 

10 ‘‘(1) IN GENERAL.—For the cost reporting pe11 riod covered by the most recently filed Medicare cost 

12 report, a hospital described in subsection (a)(4)(L) 

13 shall provide to each State with an approved State 

14 plan under title XIX of such Act— 

15 ‘‘(A) a rebate on the estimated annual 

16 costs of single source and innovator multiple 

17 source drugs provided to Medicaid recipients for 

18 inpatient use; and 

19 ‘‘(B) a rebate on the estimated annual 

20 costs of noninnovator multiple source drugs 

21 provided to Medicaid recipients for inpatient 

22 use. 

23 ‘‘(2) CALCULATIONS OF REBATES.— 
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•S 1840 IS 

1 ‘‘(A) SINGLE SOURCE AND INNOVATOR

2 MULTIPLE SOURCE DRUGS.—For purposes of 

3 paragraph (1)(A)— 

4 ‘‘(i) the rebate under such paragraph 

5 shall be calculated by multiplying the esti6 mated annual costs of single source and in7 novator multiple source drugs provided to 

8 Medicaid recipients for inpatient use by 

9 the minimum rebate percentage described 

10 in section 1927(c)(1)(B) of the Social Se11 curity Act; 

12 ‘‘(ii) the estimated annual costs of 

13 single source drugs and innovator multiple 

14 source drugs provided to Medicaid recipi15 ents for inpatient use under clause (i) shall 

16 be equal to the product of— 

17 ‘‘(I) the hospital’s actual acquisi18 tion costs of all drugs purchased dur19 ing the cost reporting period for inpa20 tient use; 

21 ‘‘(II) the Medicaid inpatient drug 

22 charges as reported on the hospital’s 

23 most recently filed Medicare cost re24 port divided by total inpatient drug 
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•S 1840 IS 

1 charges reported on the cost report; 

2 and 

3 ‘‘(III) the percent of the hos4 pital’s annual inpatient drug costs de5 scribed in subclause (I) arising out of 

6 the purchase of single source and in7 novator multiple source drugs; and 

8 ‘‘(iii) the terms ‘single source drug’ 

9 and ‘innovator multiple source drug’ have 

10 the meanings given such terms in section 

11 1927(k)(7) of the Social Security Act. 

12 ‘‘(B) NONINNOVATOR MULTIPLE SOURCE

13 DRUGS.—For purposes of subparagraph (1) 

14 (B)— 

15 ‘‘(i) the rebate under such paragraph 

16 shall be calculated by multiplying the esti17 mated annual costs of noninnovator mul18 tiple source drugs provided to Medicaid re19 cipients for inpatient use by the applicable 

20 percentage as defined in section 

21 1927(c)(3)(B) of the Social Security Act; 

22 ‘‘(ii) the estimated annual costs of 

23 noninnovator multiple source drugs pro24 vided to Medicaid recipients for inpatient 

25 use shall be equal to the product of— 
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•S 1840 IS 

1 ‘‘(I) the hospital’s actual acquisi2 tion cost of all drugs purchased dur3 ing the cost reporting period for inpa4 tient use; 

5 ‘‘(II) the Medicaid inpatient drug 

6 charges as reported on the hospital’s 

7 most recently filed Medicare cost re8 port divided by total inpatient drug 

9 charges reported on the cost report; 

10 and 

11 ‘‘(III) the percent of the hos12 pital’s annual inpatient drug costs de13 scribed in subclause (I) arising out of 

14 the purchase of noninnovator multiple 

15 source drugs; and 

16 ‘‘(iii) the term ‘noninnovator multiple 

17 source drug’ has the meaning given such 

18 term in section 1927(k)(7) of the Social 

19 Security Act. 

20 ‘‘(3) PAYMENT DEADLINE.—The rebates pro21 vided by a hospital under paragraph (1) shall be 

22 paid within 90 days of the filing of the hospital’s 

23 most recently filed Medicare cost report. 

24 ‘‘(4) OFFSET AGAINST MEDICAL ASSISTANCE.— 

25 Amounts received by a State under this subsection 
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•S 1840 IS 

1 in any quarter shall be considered to be a reduction 

2 in the amount expended under the State plan in the 

3 quarter for medical assistance for purposes of sec4 tion 1903(a)(1) of the Social Security Act.’’. 

5 (c) CLARIFICATION THAT GROUP PURCHASING PRO6 HIBITION FOR CERTAIN HOSPITALS IS NOT APPLICABLE

7 TO INPATIENT DRUGS.—Section 340B(a)(4)(L)(iii) of 

8 such Act (42 U.S.C. 256b(a)(4)(L)(iii)) is amended by in9 serting ‘‘(not including such drugs purchased for inpatient 

10 use)’’ after ‘‘covered outpatient drugs’’. 

11 SEC. 3. PROVIDING ACCESS TO DISCOUNTED DRUG PRICES 

12 FOR CRITICAL ACCESS HOSPITALS. 

13 (a) IN GENERAL.—Section 340B of the Public 

14 Health Service Act (42 U.S.C. 256b) is amended— 

15 (1) in subsection (a)(4), by adding at the end 

16 the following: 

17 ‘‘(M) An entity that— 

18 ‘‘(i) is a critical access hospital (as de19 termined under section 1820(c)(2) of the 

20 Social Security Act); and 

21 ‘‘(ii) does not obtain covered out22 patient drugs though a group purchasing 

23 organization or other group purchasing ar24 rangement (not including such drugs pur25 chased for inpatient use).’’; 
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1 (2) in subsection (b), as amended by section 

2 2(a), by inserting ‘‘or subsection (a)(4)(M)’’ after 

3 ‘‘subsection (a)(4)(L)’’; and 

4 (3) in subsection (c)(1), as added by inserting 

5 ‘‘or subsection (a)(4)(M)’’ after ‘‘subsection 

6 (a)(4)(L)’’. 

7 (b) EXCLUSION FROM MEDICAID BEST PRICE CAL8 CULATIONS.—Section 1927(c)(1)(C)(i)(I) of the Social Se9 curity Act (42 U.S.C. 1396r–8(c)(1)(C)(i)(I)) is amended 

10 by inserting ‘‘and to critical access hospitals described in 

11 section 340B(a)(4)(M) of such Act’’ after ‘‘Public Health 

12 Service Act’’. 

13 (c) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to drugs purchased on or after 

15 January 1, 2006. 

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