II 

111TH CONGRESS 

1ST SESSION S. 1239 

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

expand the drug discount program under that section to improve the 

provision of discounts on drug purchases for certain safety net providers. 

IN THE SENATE OF THE UNITED STATES 

JUNE 11, 2009 

Mr. BINGAMAN (for himself, Mr. THUNE, and Mrs. GILLIBRAND) introduced 

the following bill; which was read twice and referred to the Committee 

on Health, Education, Labor, and Pensions 

A BILL 

To amend section 340B of the Public Health Service Act 

to revise and expand the drug discount program under 

that section to improve the provision of discounts on 

drug purchases for certain safety net providers. 

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 ‘‘340B Program Im5 provement and Integrity Act of 2009’’. 


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1 SEC. 2. EXPANDED PARTICIPATION IN SECTION 340B PRO2 GRAM. 

3 (a) EXPANSION OF COVERED ENTITIES RECEIVING

4 DISCOUNTED PRICES.—Section 340B(a)(4) of the Public 

5 Health Service Act (42 U.S.C. 256b(a)(4)) is amended by 

6 adding at the end the following: 

7 ‘‘(M) A children’s hospital excluded from 

8 the Medicare prospective payment system pur9 suant to section 1886(d)(1)(B)(iii) of the Social 

10 Security Act which would meet the require11 ments of subparagraph (L), including the dis12 proportionate share adjustment percentage re13 quirement under clause (ii) of such subpara14 graph, if the hospital were a subsection (d) hos15 pital as defined by section 1886(d)(1)(B) of the 

16 Social Security Act. 

17 ‘‘(N) An entity that is a critical access hos18 pital (as determined under section 1820(c)(2) 

19 of the Social Security Act), and that meets the 

20 requirements of subparagraph (L)(i). 

21 ‘‘(O) An entity that is a rural referral cen22 ter, as defined by section 1886(d)(5)(C)(i) of 

23 the Social Security Act, or a sole community 

24 hospital, as defined by section 

25 1886(d)(5)(C)(iii) of such Act, and that both 

26 meets the requirements of subparagraph (L)(i) 


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1 and has a disproportionate share adjustment 

2 percentage equal to or greater than 8 percent.’’. 

3 (b) EXTENSION OF DISCOUNTS TO INPATIENT

4 DRUGS.—Section 340B of the Public Health Service Act 

5 (42 U.S.C. 256b) is amended— 

6 (1) in subsection (a), by striking ‘‘outpatient’’ 

7 each place that such appears in paragraphs (2), (5), 

8 (7), and (9); and 

9 (2) in subsection (b)— 

10 (A) by striking ‘‘In this section’’ and in11 serting the following: 

12 ‘‘(A) IN GENERAL.—In this section’’; and 

13 (B) by adding at the end the following: 

14 ‘‘(B) COVERED DRUG.—In this section, the 

15 term ‘covered drug’— 

16 ‘‘(i) means a covered outpatient drug 

17 (as defined in section 1927(k)(2) of the 

18 Social Security Act); and 

19 ‘‘(ii) includes, notwithstanding para20 graph (3)(A) of such section 1927(k), a 

21 drug used in connection with an inpatient 

22 or outpatient service provided by a hospital 

23 described in subparagraph (L), (M), (N), 

24 or (O) of subsection (a)(4) that is enrolled 


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1 to participate in the drug discount pro2 gram under this section. 

3 ‘‘(C) PURCHASING ARRANGEMENTS FOR

4 INPATIENT DRUGS.—The Secretary shall ensure 

5 that a hospital described in subparagraph (L), 

6 (M), (N), or (O) of subsection (a)(4) that is en7 rolled to participate in the drug discount pro8 gram under this section shall have multiple op9 tions for purchasing covered drugs for inpa10 tients including by utilizing a group purchasing 

11 organization or other group purchasing ar12 rangement, establishing and utilizing its own 

13 group purchasing program, purchasing directly 

14 from a manufacturer, and any other purchasing 

15 arrangements that the Secretary may deem ap16 propriate to ensure access to drug discount 

17 pricing under this section for inpatient drugs 

18 taking into account the particular needs of 

19 small and rural hospitals.’’. 

20 (c) PROHIBITION ON GROUP PURCHASING ARRANGE21 MENTS.—Section 340B(a) of the Public Health Service 

22 Act (42 U.S.C. 256b(a)) is amended— 

23 (1) in paragraph (4)(L)— 

24 (A) in clause (i), by adding ‘‘and’’ at the 

25 end; 


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1 (B) in clause (ii), by striking ‘‘; and’’ and 

2 inserting a period; and 

3 (C) by striking clause (iii); and 

4 (2) in paragraph (5)— 

5 (A) by redesignating subparagraphs (C) 

6 and (D) as subparagraphs (D) and (E); respec7 tively; and 

8 (B) by inserting after subparagraph (B), 

9 the following: 

10 ‘‘(C) PROHIBITING THE USE OF GROUP

11 PURCHASING ARRANGEMENTS.— 

12 ‘‘(i) IN GENERAL.—A hospital de13 scribed in subparagraphs (L), (M), (N), or 

14 (O) of paragraph (4) shall not obtain cov15 ered outpatient drugs through a group 

16 purchasing organization or other group 

17 purchasing arrangement, except as per18 mitted or provided for pursuant to clauses 

19 (ii) or (iii). 

20 ‘‘(ii) INPATIENT DRUGS.—Clause (i) 

21 shall not apply to drugs purchased for in22 patient use. 

23 ‘‘(iii) EXCEPTIONS.—The Secretary 

24 shall establish reasonable exceptions to 

25 clause (i)— 


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1 ‘‘(I) with respect to a covered 

2 outpatient drug that is unavailable to 

3 be purchased through the program 

4 under this section due to a drug 

5 shortage problem, manufacturer non6 compliance, or any other circumstance 

7 beyond the hospital’s control; 

8 ‘‘(II) to facilitate generic substi9 tution when a generic covered out10 patient drug is available at a lower 

11 price; or 

12 ‘‘(III) to reduce in other ways 

13 the administrative burdens of man14 aging both inventories of drugs sub15 ject to this section and inventories of 

16 drugs that are not subject to this sec17 tion, so long as the exceptions do not 

18 create a duplicate discount problem in 

19 violation of subparagraph (A) or a di20 version problem in violation of sub21 paragraph (B).’’. 

22 (d) MEDICAID CREDITS ON INPATIENT DRUGS.— 

23 Section 340B(a)(5) of the Public Health Service Act (42 

24 U.S.C. 256b(a)(5)) is amended by adding at the end the 

25 following: 


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1 ‘‘(E) MEDICAID CREDITS.—Not later than 

2 90 days after the date of filing of the hospital’s 

3 most recently filed Medicare cost report, the 

4 hospital shall issue a credit as determined by 

5 the Secretary to the State Medicaid program 

6 for inpatient covered drugs provided to Med7 icaid recipients.’’. 

8 (e) INTEGRITY IMPROVEMENTS.—Subsection (c) of 

9 section 340B of the Public Health Service Act (42 U.S.C. 

10 256b(c)) is amended to read as follows: 

11 ‘‘(c) IMPROVEMENTS IN PROGRAM INTEGRITY.— 

12 ‘‘(1) MANUFACTURER COMPLIANCE.— 

13 ‘‘(A) IN GENERAL.—From amounts appro14 priated under paragraph (4), the Secretary 

15 shall provide for improvements in compliance by 

16 manufacturers with the requirements of this 

17 section in order to prevent overcharges and 

18 other violations of the discounted pricing re19 quirements specified in this section. 

20 ‘‘(B) IMPROVEMENTS.—The improvements 

21 described in subparagraph (A) shall include the 

22 following: 

23 ‘‘(i) The development of a system to 

24 enable the Secretary to verify the accuracy 

25 of ceiling prices calculated by manufacturVerDate Nov 24 2008 05:08 Jun 12, 2009 Jkt 079200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1239.IS S1239

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1 ers under subsection (a)(1) and charged to 

2 covered entities, which shall include the 

3 following: 

4 ‘‘(I) Developing and publishing 

5 through an appropriate policy or regu6 latory issuance, precisely defined 

7 standards and methodology for the 

8 calculation of ceiling prices under 

9 such subsection. 

10 ‘‘(II) Comparing regularly the 

11 ceiling prices calculated by the Sec12 retary with the quarterly pricing data 

13 that is reported by manufacturers to 

14 the Secretary. 

15 ‘‘(III) Performing spot checks of 

16 sales transactions by covered entities. 

17 ‘‘(IV) Inquiring into the cause of 

18 any pricing discrepancies that may be 

19 identified and either taking, or requir20 ing manufacturers to take, such cor21 rective action as is appropriate in re22 sponse to such price discrepancies. 

23 ‘‘(ii) The establishment of procedures 

24 for manufacturers to issue refunds to cov25 ered entities in the event that there is an 


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1 overcharge by the manufacturers, including 

2 the following: 

3 ‘‘(I) Providing the Secretary with 

4 an explanation of why and how the 

5 overcharge occurred, how the refunds 

6 will be calculated, and to whom the 

7 refunds will be issued. 

8 ‘‘(II) Oversight by the Secretary 

9 to ensure that the refunds are issued 

10 accurately and within a reasonable pe11 riod of time, both in routine instances 

12 of retroactive adjustment to relevant 

13 pricing data and exceptional cir14 cumstances such as erroneous or in15 tentional overcharging for covered 

16 drugs. 

17 ‘‘(iii) The provision of access through 

18 the Internet website of the Department of 

19 Health and Human Services to the applica20 ble ceiling prices for covered drugs as cal21 culated and verified by the Secretary in ac22 cordance with this section, in a manner 

23 (such as through the use of password pro24 tection) that limits such access to covered 

25 entities and adequately assures security 


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1 and protection of privileged pricing data 

2 from unauthorized re-disclosure. 

3 ‘‘(iv) The development of a mecha4 nism by which— 

5 ‘‘(I) rebates and other discounts 

6 provided by manufacturers to other 

7 purchasers subsequent to the sale of 

8 covered drugs to covered entities are 

9 reported to the Secretary; and 

10 ‘‘(II) appropriate credits and re11 funds are issued to covered entities if 

12 such discounts or rebates have the ef13 fect of lowering the applicable ceiling 

14 price for the relevant quarter for the 

15 drugs involved. 

16 ‘‘(v) Selective auditing of manufactur17 ers and wholesalers to ensure the integrity 

18 of the drug discount program under this 

19 section. 

20 ‘‘(vi) The imposition of sanctions in 

21 the form of civil monetary penalties, 

22 which— 

23 ‘‘(I) shall be assessed according 

24 to standards established in regulations 

25 to be promulgated by the Secretary 


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1 within 180 days of the date of enact2 ment of the 340B Program Improve3 ment and Integrity Act of 2009; 

4 ‘‘(II) shall not exceed $5,000 for 

5 each instance of overcharging a cov6 ered entity that may have occurred; 

7 and 

8 ‘‘(III) shall apply to any manu9 facturer with an agreement under this 

10 section that knowingly and inten11 tionally charges a covered entity a 

12 price for purchase of a drug that ex13 ceeds the maximum applicable price 

14 under subsection (a)(1). 

15 ‘‘(2) COVERED ENTITY COMPLIANCE.— 

16 ‘‘(A) IN GENERAL.—From amounts appro17 priated under paragraph (4), the Secretary 

18 shall provide for improvements in compliance by 

19 covered entities with the requirements of this 

20 section in order to prevent diversion and viola21 tions of the duplicate discount provision and 

22 other requirements specified under subsection 

23 (a)(5). 


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1 ‘‘(B) IMPROVEMENTS.—The improvements 

2 described in subparagraph (A) shall include the 

3 following: 

4 ‘‘(i) The development of procedures to 

5 enable and require covered entities to regu6 larly update (at least annually) the infor7 mation on the Internet website of the De8 partment of Health and Human Services 

9 relating to this section. 

10 ‘‘(ii) The development of a system for 

11 the Secretary to verify the accuracy of in12 formation regarding covered entities that is 

13 listed on the website described in clause 

14 (i). 

15 ‘‘(iii) The development of more de16 tailed guidance describing methodologies 

17 and options available to covered entities for 

18 billing covered drugs to State Medicaid 

19 agencies in a manner that avoids duplicate 

20 discounts pursuant to subsection (a)(5)(A). 

21 ‘‘(iv) The establishment of a single, 

22 universal, and standardized identification 

23 system by which each covered entity site 

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1 retary for purposes of facilitating the or2 dering, purchasing, and delivery of covered 

3 drugs under this section, including the 

4 processing of chargebacks for such drugs. 

5 ‘‘(v) The imposition of sanctions, in 

6 appropriate cases as determined by the 

7 Secretary, additional to those to which cov8 ered entities are subject under subpara9 graph (a)(5)(E), through one or more of 

10 the following actions: 

11 ‘‘(I) Where a covered entity 

12 knowingly and intentionally violates 

13 subparagraph (a)(5)(B), the covered 

14 entity shall be required to pay a mon15 etary penalty to a manufacturer or 

16 manufacturers in the form of interest 

17 on sums for which the covered entity 

18 is found liable under paragraph 

19 (a)(5)(E), such interest to be com20 pounded monthly and equal to the 

21 current short term interest rate as de22 termined by the Federal Reserve for 

23 the time period for which the covered 

24 entity is liable. 


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1 ‘‘(II) Where the Secretary deter2 mines a violation of subparagraph 

3 (a)(5)(B) was systematic and egre4 gious as well as knowing and inten5 tional, removing the covered entity 

6 from the drug discount program 

7 under this section and disqualifying 

8 the entity from re-entry into such pro9 gram for a reasonable period of time 

10 to be determined by the Secretary. 

11 ‘‘(III) Referring matters to ap12 propriate Federal authorities within 

13 the Food and Drug Administration, 

14 the Office of Inspector General of De15 partment of Health and Human Serv16 ices, or other Federal agencies for 

17 consideration of appropriate action 

18 under other Federal statutes, such as 

19 the Prescription Drug Marketing Act. 

20 ‘‘(3) ADMINISTRATIVE DISPUTE RESOLUTION

21 PROCESS.— 

22 ‘‘(A) IN GENERAL.—Not later than 180 

23 days after the date of enactment of the 340B 

24 Program Improvement and Integrity Act of 

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1 tions to establish and implement an administra2 tive process for the resolution of claims by cov3 ered entities that they have been overcharged 

4 for drugs purchased under this section, and 

5 claims by manufacturers, after the conduct of 

6 audits as authorized by subsection (a)(5)(D), of 

7 violations of subsections (a)(5)(A) or (a)(5)(B), 

8 including appropriate procedures for the provi9 sion of remedies and enforcement of determina10 tions made pursuant to such process through 

11 mechanisms and sanctions described in para12 graphs (1)(B) and (2)(B). 

13 ‘‘(B) DEADLINE AND PROCEDURES.—Reg14 ulations promulgated by the Secretary under 

15 subparagraph (A) shall— 

16 ‘‘(i) designate or establish a decision17 making official or decision-making body 

18 within the Department of Health and 

19 Human Services to be responsible for re20 viewing and finally resolving claims by cov21 ered entities that they have been charged 

22 prices for covered drugs in excess of the 

23 ceiling price described in subsection (a)(1), 

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1 tions of subsection (a)(5)(A) or (a)(5)(B) 

2 have occurred; 

3 ‘‘(ii) establish such deadlines and pro4 cedures as may be necessary to ensure that 

5 claims shall be resolved fairly, efficiently, 

6 and expeditiously; 

7 ‘‘(iii) establish procedures by which a 

8 covered entity may discover and obtain 

9 such information and documents from 

10 manufacturers and third parties as may be 

11 relevant to demonstrate the merits of a 

12 claim that charges for a manufacturer’s 

13 product have exceeded the applicable ceil14 ing price under this section, and may sub15 mit such documents and information to the 

16 administrative official or body responsible 

17 for adjudicating such claim; 

18 ‘‘(iv) require that a manufacturer con19 duct an audit of a covered entity pursuant 

20 to subsection (a)(5)(D) as a prerequisite to 

21 initiating administrative dispute resolution 

22 proceedings against a covered entity; 

23 ‘‘(v) permit the official or body des24 ignated under clause (i), at the request of 

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1 solidate claims brought by more than one 

2 manufacturer against the same covered en3 tity where, in the judgment of such official 

4 or body, consolidation is appropriate and 

5 consistent with the goals of fairness and 

6 economy of resources; and 

7 ‘‘(vi) include provisions and proce8 dures to permit multiple covered entities to 

9 jointly assert claims of overcharges by the 

10 same manufacturer for the same drug or 

11 drugs in one administrative proceeding, 

12 and permit such claims to be asserted on 

13 behalf of covered entities by associations or 

14 organizations representing the interests of 

15 such covered entities and of which the cov16 ered entities are members. 

17 ‘‘(C) FINALITY OF ADMINISTRATIVE RESO18 LUTION.—The administrative resolution of a 

19 claim or claims under the regulations promul20 gated under subparagraph (A) shall be a final 

21 agency decision and shall be binding upon the 

22 parties involved, unless invalidated by an order 

23 of a court of competent jurisdiction. 

24 ‘‘(4) AUTHORIZATION OF APPROPRIATIONS.— 

25 There are authorized to be appropriated to carry out 


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1 this subsection, such sums as may be necessary for 

2 fiscal year 2010, and each succeeding fiscal year.’’. 

3 (f) CONFORMING AMENDMENTS.— 

4 (1) SOCIAL SECURITY ACT.—Section 1927 of 

5 the Social Security Act (42 U.S.C. 1396r–8), is 

6 amended— 

7 (A) in subsection (a)(5)— 

8 (i) in subparagraph (A), by striking 

9 ‘‘covered outpatient drugs’’ and inserting 

10 ‘‘covered drugs (as defined in section 

11 340B(b)(2) of the Public Health Service 

12 Act)’’; 

13 (ii) by striking subparagraph (D); and 

14 (iii) by redesignating subparagraph 

15 (E) as subparagraph (D); 

16 (B) in subsection (c)(1)(C)(i), by redesig17 nating subclauses (II) through (IV) as sub18 clauses (III) through (V), respectively and by 

19 inserting after subclause (I) the following new 

20 subclause: 

21 ‘‘(II) any prices charged for a 

22 covered drug (as defined in section 

23 340B(b)(2) of the Public Health Serv24 ice Act);’’; and 

25 (C) in subsection (k)(1)— 


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1 (i) in subparagraph (A), by striking 

2 ‘‘subparagraph (B)’’ and inserting ‘‘sub3 paragraphs (B) and (D)’’; and 

4 (ii) by adding at the end the following 

5 new subparagraph: 

6 ‘‘(D) CALCULATION FOR COVERED

7 DRUGS.—With respect to a covered drug (as de8 fined in section 340B(b)(2) of the Public 

9 Health Service Act), the average manufacturer 

10 price shall be determined in accordance with 

11 subparagraph (A) except that, in the event a 

12 covered drug is not distributed to the retail 

13 pharmacy class of trade, it shall mean the aver14 age price paid to the manufacturer for the drug 

15 in the United States by wholesalers for drugs 

16 distributed to the acute care class of trade, 

17 after deducting customary prompt pay dis18 counts. The Secretary shall establish a mecha19 nism for collecting the necessary data for the 

20 acute care class of trade from manufacturers.’’. 

21 (2) PUBLIC HEALTH SERVICE ACT.—Section 

22 340B(a) of such Act (42 U.S.C. 256b(a)) is amend23 ed— 

24 (A) in subsection (a)(1), by adding at the 

25 end the following: ‘‘Each such agreement shall 


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1 require that the manufacturer furnish the Sec2 retary with reports, on a quarterly basis, of the 

3 price for each covered drug subject to the 

4 agreement that, according to the manufacturer, 

5 represents the maximum price that covered en6 tities may permissibly be required to pay for the 

7 drug (referred to in this section as the ‘ceiling 

8 price’), and shall require that the manufacturer 

9 offer each covered entity covered drugs for pur10 chase at or below the applicable ceiling price if 

11 such drug is made available to any other pur12 chaser at any price.’’; and 

13 (B) in the first sentence of subsection 

14 (a)(5)(E), as so redesignated by subsection 

15 (c)(2), by inserting ‘‘after an audit as described 

16 in subparagraph (D), and’’ after ‘‘finds,’’. 

17 SEC. 3. EFFECTIVE DATES. 

18 (a) IN GENERAL.—The amendments made by this 

19 Act shall take effect on January 1, 2010, and shall apply 

20 to drugs purchased on or after January 1, 2010. 

21 (b) EFFECTIVENESS.—The amendments made by 

22 this Act shall be effective, and shall be taken into account 

23 in determining whether a manufacturer is deemed to meet 

24 the requirements of section 340B(a) of the Public Health 

25 Service Act (42 U.S.C. 256b(a)) and of section 1927(a)(5) 


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1 of the Social Security Act (42 U.S.C. 1396r–8(a)(5)), not2 withstanding any other provision of law. 

Æ 


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