I 

111TH CONGRESS 

2D SESSION H. R. 4489 

To amend chapter 89 of title 5, United States Code, to ensure program 

integrity, transparency, and cost savings in the pricing and contracting 

of prescription drug benefits under the Federal Employees Health Benefits Program. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 21, 2010 

Mr. LYNCH (for himself, Mr. CONNOLLY of Virginia, and Mr. CUMMINGS) introduced the following bill; which was referred to the Committee on Oversight and Government Reform 

A BILL 

To amend chapter 89 of title 5, United States Code, to 

ensure program integrity, transparency, and cost savings 

in the pricing and contracting of prescription drug benefits under the Federal Employees Health Benefits Program. 

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 referred to as the ‘‘FEHBP Pre5 scription Drug Integrity, Transparency, and Cost Savings 

6 Act’’. 


srobinson on DSKHWCL6B1PROD with BILLS
2 

•HR 4489 IH

1 SEC. 2. IMPROVED PROGRAM INTEGRITY, TRANSPARENCY, 

2 AND COST SAVINGS FOR PRESCRIPTION 

3 DRUG BENEFITS IN THE FEDERAL EMPLOY4 EES HEALTH BENEFITS PROGRAM. 

5 (a) CHANGE IN CONTRACTING REQUIREMENTS.— 

6 Section 8902 of title 5, United States Code, is amended 

7 by adding at the end the following: 

8 ‘‘(p) A contract may not be made or a plan approved 

9 under this chapter, with respect to a carrier that is a party 

10 to a PBM carrier arrangement, unless the PBM and the 

11 carrier comply with the requirements of section 8915. The 

12 Office shall terminate such contract or discontinue such 

13 plan for failure to comply with such requirements.’’. 

14 (b) REQUIREMENTS FOR PBMS AND RELATED RE15 QUIREMENTS FOR CARRIERS.—Chapter 89 of title 5, 

16 United States Code, is amended by adding at the end the 

17 following: 

18 ‘‘§ 8915. Requirements for PBM arrangements 

19 ‘‘(a) LIMITATIONS ON CROSS-OWNERSHIP.— 

20 ‘‘(1) IN GENERAL.—Under a PBM carrier ar21 rangement under this chapter— 

22 ‘‘(A) no pharmaceutical drug manufacturer 

23 or retail pharmacy may have a controlling inter24 est in the PBM; and 

25 ‘‘(B) the PBM may not have a controlling 

26 interest in a retail pharmacy. 


srobinson on DSKHWCL6B1PROD with BILLS
3 

•HR 4489 IH

1 ‘‘(2) COMPLIANCE.—Each carrier shall certify 

2 annually to the Office of Personnel Management 

3 that any PBM with which it has a PBM carrier ar4 rangement meets the requirements of paragraph (1). 

5 The Office shall terminate any contract with a car6 rier with a PBM carrier arrangement that does not 

7 comply with such requirements. 

8 ‘‘(3) PROFIT RESTRICTION ON CARRIER CON9 TROLLED PBMS.—The Office may not permit a car10 rier that has a controlling interest in a PBM to earn 

11 a profit from such interest with respect to a contract 

12 under this chapter. 

13 ‘‘(b) DRUG SUBSTITUTION RESTRICTIONS.—Under a 

14 PBM carrier arrangement under this chapter— 

15 ‘‘(1) the PBM shall allow a drug substitution, 

16 if it is not a generic drug substitution, only after the 

17 prescriber (or another individual authorized to pre18 scribe drugs) provides the pharmacist with an ex19 press, verifiable authorization for such substitution; 

20 ‘‘(2) to the extent appropriate, the PBM shall 

21 consult an enrollee concerning any drug substitution 

22 for a drug prescribed to such enrollee; 

23 ‘‘(3) the PBM may not propose that the pre24 scriber or pharmacist substitute a prescription drug 


srobinson on DSKHWCL6B1PROD with BILLS
4 

•HR 4489 IH

1 that has a higher net cost for a prescription drug in 

2 the same class with a lower net cost; 

3 ‘‘(4) the PBM may not propose that the pre4 scriber or pharmacist substitute a prescription drug 

5 that is a single source drug for a prescription drug 

6 in the same class that is a multiple source drug; 

7 ‘‘(5) the PBM may not require a drug substi8 tution if the prescriber determines that such substi9 tution will endanger the health of the enrollee for 

10 whom the drug was prescribed; 

11 ‘‘(6) the PBM will disclose to the prescriber of 

12 a drug, the carrier, and the enrollee for whom such 

13 drug was prescribed— 

14 ‘‘(A) the reason why the PBM is sug15 gesting a drug substitution for such drug; and 

16 ‘‘(B) the financial impact of the drug sub17 stitution on the PBM, the carrier, and the pa18 tient; and 

19 ‘‘(7) if a PBM has a controlling interest in a 

20 mail order pharmacy, such PBM shall ensure that 

21 any drug which is dispensed by such pharmacy to an 

22 enrollee as a result of a drug substitution shall be 

23 dispensed with a written notice that such drug sub24 stitution occurred and that such substitution oc25 curred with the approval of the prescriber. 


srobinson on DSKHWCL6B1PROD with BILLS
5 

•HR 4489 IH

1 ‘‘(c) REIMBURSEMENT OF CARRIERS.—Under a 

2 PBM carrier arrangement under this chapter, by the last 

3 day of each quarter of the contract year— 

4 ‘‘(1) the PBM shall pay to a carrier an amount 

5 that is at least 99 percent of the sum of— 

6 ‘‘(A) all compensation that the PBM re7 ceived during the previous quarter from a phar8 maceutical drug manufacturer under a PBM 

9 manufacturer arrangement (to the extent such 

10 arrangement relates to the PBM carrier ar11 rangement) including compensation that the Of12 fice categorizes (regardless of how such com13 pensation is categorized by the PBM) as mar14 ket share incentives, drug-switch programs, 

15 educational support, commissions, mail service 

16 purchase discounts, administrative or manage17 ment fees, and all other forms of compensation 

18 (excluding rebates); 

19 ‘‘(B) all compensation received by the 

20 PBM during the previous quarter for sales of 

21 utilization or claims data that the PBM pos22 sesses as a result of the PBM carrier arrange23 ment; and 

24 ‘‘(C) all rebates paid to the PBM during 

25 the previous quarter by a pharmaceutical drug 


srobinson on DSKHWCL6B1PROD with BILLS
6 

•HR 4489 IH

1 manufacturer to the extent that such rebates 

2 are based on drugs dispensed under the PBM 

3 carrier arrangement; and 

4 ‘‘(2) the PBM shall disclose to the carrier and 

5 the Office, in a form and manner specified by the 

6 Office— 

7 ‘‘(A) the compensation described in para8 graph (1)(A), reported by the amount of com9 pensation for each category recognized by the 

10 Office; 

11 ‘‘(B) the compensation described in para12 graph (1)(B); and 

13 ‘‘(C) the rebates described in paragraph 

14 (1)(C), reported on a drug-by-drug basis. 

15 ‘‘(d) SALE OF UTILIZATION AND CLAIMS DATA.— 

16 Under a PBM carrier arrangement under this chapter, if 

17 the PBM intends to sell utilization or claims data that 

18 the PBM possesses as a result of such arrangement— 

19 ‘‘(1) the PBM shall notify the Office before sell20 ing such data and shall provide the Office with the 

21 name of the potential purchaser of such data and 

22 the expected use of any utilization or claims data by 

23 such purchaser; and 

24 ‘‘(2) the PBM may not sell such data unless the 

25 sale complies with all Federal and State laws and 


srobinson on DSKHWCL6B1PROD with BILLS
7 

•HR 4489 IH

1 the PBM has received approval for such sale from 

2 the Office. 

3 ‘‘(e) PRICING.— 

4 ‘‘(1) SPREAD PRICING.— 

5 ‘‘(A) LIMITATION ON CHARGES TO CAR6 RIER.—The PBM shall not charge the carrier 

7 more for a drug that is covered under the PBM 

8 carrier arrangement than the amount that the 

9 PBM reimburses a pharmacy which dispensed 

10 such drug for the drug. 

11 ‘‘(B) DISCLOSURES.— 

12 ‘‘(i) INITIAL DISCLOSURE.—Before 

13 entering into a PBM carrier arrangement 

14 under this chapter, the PBM shall disclose 

15 to the carrier and the Office— 

16 ‘‘(I) the reimbursement basis 

17 that the PBM uses (including the type 

18 of benchmark price and the source of 

19 the data for determining such price) 

20 for reimbursing retail and mail order 

21 pharmacies; and 

22 ‘‘(II) the methodology that the 

23 PBM uses to compute reimburse24 ments to retail and mail order phar25 macies that dispense the drug. 


srobinson on DSKHWCL6B1PROD with BILLS
8 

•HR 4489 IH

1 ‘‘(ii) UPDATES.—Not later than 30 

2 days after making a change to the reim3 bursement basis or methodology under 

4 clause (i), the PBM shall disclose such 

5 change to the carrier and the Office. 

6 ‘‘(iii) TRANSITION RULE.—Under a 

7 PBM carrier arrangement under this chap8 ter that is in effect on the effective date of 

9 the FEHBP Prescription Drug Integrity, 

10 Transparency, and Cost Savings Act, the 

11 PBM shall disclose the information under 

12 clause (i) not later than 1 year after such 

13 date. 

14 ‘‘(2) MAXIMUM PRICE FOR PRESCRIPTION

15 DRUGS.— 

16 ‘‘(A) IN GENERAL.—Subject to subpara17 graph (B), a carrier under a PBM carrier ar18 rangement under this chapter may not pay a 

19 PBM an amount for a prescription drug that is 

20 more than an amount that is equal to the aver21 age manufacturer price for the drug minus any 

22 cost-sharing for such drug that is the responsi23 bility of an enrollee. 


srobinson on DSKHWCL6B1PROD with BILLS
9 

•HR 4489 IH

1 ‘‘(B) RULE OF CONSTRUCTION.—Subpara2 graph (A) shall not be construed to affect the 

3 payment— 

4 ‘‘(i) of any applicable cost-sharing to 

5 a pharmacy by an enrollee; or 

6 ‘‘(ii) subject to paragraph (3), the 

7 payment of any dispensing fee to a phar8 macy by a PBM. 

9 ‘‘(3) MAXIMUM DISPENSING FEE.— 

10 ‘‘(A) IN GENERAL.—Under a PBM carrier 

11 arrangement, a PBM may not pay to a phar12 macy a dispensing fee that exceeds the max13 imum dispensing fee determined under subpara14 graph (B). 

15 ‘‘(B) DETERMINATION OF MAXIMUM DIS16 PENSING FEE.—The Office shall, with respect 

17 to each drug covered by a health benefits plan 

18 under this chapter, determine the maximum 

19 dispensing fee. 

20 ‘‘(f) RIGHT TO EXPLANATION OF BENEFITS.—Under 

21 a PBM carrier arrangement under this chapter, not later 

22 than 90 days after the date on which a pharmacy dis23 penses a prescription drug covered under the arrange24 ment, the PBM shall provide (by mail or electronically) 

25 to the enrollee to whom such drug was dispensed an explaVerDate Nov 24 2008 22:42 Jan 22, 2010 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H4489.IH H4489

srobinson on DSKHWCL6B1PROD with BILLS
10 

•HR 4489 IH

1 nation of benefits statement that contains the following 

2 information: 

3 ‘‘(1) The date the claim for such prescription 

4 drug was made by the pharmacy. 

5 ‘‘(2) The name of such drug and the strength 

6 and quantity dispensed to the enrollee. 

7 ‘‘(3) The amount paid by the enrollee for the 

8 prescription drug. 

9 ‘‘(4) The amount paid to the pharmacy by the 

10 PBM to reimburse such pharmacy for the prescrip11 tion drug and the provision of any covered service 

12 related to dispensing such drug. 

13 ‘‘(5) The amount paid by the carrier to the 

14 PBM for such prescription drug. 

15 ‘‘(g) NON-DISCRIMINATORY CONTRACT.—Under a 

16 PBM carrier arrangement under this chapter, a PBM may 

17 not require that a pharmacy participate in a pharmacy 

18 network managed by such PBM in order for the pharmacy 

19 to participate in another network managed by such PBM. 

20 ‘‘(h) ACCESS TO PBM CONTRACT INFORMATION.— 

21 ‘‘(1) IN GENERAL.—Under a PBM carrier ar22 rangement under this chapter, on the request of the 

23 Office of Personnel Management, a PBM shall pro24 vide to the Office and to the Office of Inspector 

25 General of the Office of Personnel Management full 


srobinson on DSKHWCL6B1PROD with BILLS
11 

•HR 4489 IH

1 access to information relating to contracts entered 

2 into by such PBM under such arrangement (such as 

3 PBM manufacturer arrangements and contracts 

4 with pharmacies). Such information shall include— 

5 ‘‘(A) corporate-wide rebate receipt aging 

6 reports that cover all of the PBM’s lines of 

7 business; 

8 ‘‘(B) information and methodology used to 

9 calculate and allocate rebates between the 

10 PBM’s lines of business; 

11 ‘‘(C) information on average wholesale 

12 prices, wholesale acquisition costs, and max13 imum allowable costs; 

14 ‘‘(D) information on dispensing fees paid; 

15 and 

16 ‘‘(E) information and methodologies used 

17 to calculate additional administrative and serv18 ice fees charged to the carrier. 

19 ‘‘(2) CONFIDENTIALITY.—Information disclosed 

20 by a health benefits plan or PBM under this sub21 section is confidential and shall not be disclosed by 

22 the Office or by a plan receiving the information, ex23 cept that nothing in this paragraph shall prevent— 

24 ‘‘(A) a disclosure requird under the Inspec25 tor General Act of 1978; or 


srobinson on DSKHWCL6B1PROD with BILLS
12 

•HR 4489 IH

1 ‘‘(B) any disclosure which the Office, in its 

2 sole discretion, considers necessary in order to 

3 carry out this section, if such disclosure is made 

4 in a form which does not disclose the identity 

5 of a specific PBM or plan or the price charged 

6 for a particular drug. 

7 ‘‘(3) EXEMPTION FROM FOIA.—Any information 

8 obtained under this subsection shall be exempt from 

9 disclosure under section 552 (commonly referred to 

10 as the ‘Freedom of Information Act’). 

11 ‘‘(i) CIVIL MONETARY PENALTIES.— 

12 ‘‘(1) IN GENERAL.—A PBM or a carrier that 

13 makes a false statement or false claim to the Gov14 ernment of the United States with respect to the 

15 disclosure of information required under this section 

16 shall be considered in violation of section 3729 of 

17 title 31. 

18 ‘‘(2) USE OF COLLECTIONS.—Any monetary 

19 penalty collected under paragraph (1) shall be de20 posited into the Employees Health Benefits Fund 

21 under section 8909. 

22 ‘‘(j) COLLECTION OF DATA ON AVERAGE MANUFAC23 TURER PRICE.— 

24 ‘‘(1) MASTER AGREEMENT.—For quarters be25 ginning on or after January 1, 2011— 


srobinson on DSKHWCL6B1PROD with BILLS
13 

•HR 4489 IH

1 ‘‘(A) each manufacturer of covered drugs 

2 shall enter into a master agreement with the 

3 Office under which, not later than 60 days after 

4 the last day of each quarter for which the 

5 agreement is in effect, the manufacturer reports 

6 to the Office the average manufacturer price for 

7 the drug during such quarter; and 

8 ‘‘(B) unless the manufacturer meets the 

9 requirement of subparagraph (A) for a quarter, 

10 the manufacturer may not receive payment 

11 from a carrier under this chapter or from a 

12 PBM under a PBM carrier arrangement under 

13 this chapter for the purchase of such drugs dis14 pensed during the period— 

15 ‘‘(i) beginning with the second subse16 quent quarter; and 

17 ‘‘(ii) ending with the second quarter 

18 after the next quarter for which such re19 quirement is met). 

20 ‘‘(2) APPLICATION OF PROVISIONS.—The provi21 sions of subparagraphs (B), (C), and (D) of section 

22 1927(b)(3) of the Social Security Act shall apply to 

23 covered drugs and the Office under this section with 

24 respect to information required to be reported under 

25 paragraph (1)(A) in the same manner as such proviVerDate Nov 24 2008 22:42 Jan 22, 2010 Jkt 089200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\H4489.IH H4489

srobinson on DSKHWCL6B1PROD with BILLS
14 

•HR 4489 IH

1 sions apply to covered outpatient drugs and the Sec2 retary of Health and Human Services with respect 

3 to information required to be reported under sub4 paragraph (A) of such section 1927(b)(3). 

5 ‘‘(3) COVERED DRUG DEFINED.—For purposes 

6 of this subsection, the term ‘covered drug’ means a 

7 covered outpatient drug (as defined in section 

8 1927(k) of the Social Security Act) for which bene9 fits are payable under a health benefits plan under 

10 this chapter. 

11 ‘‘(k) DEFINITIONS.—For purposes of this section and 

12 section 8902(p): 

13 ‘‘(1) AVERAGE MANUFACTURER PRICE.—The 

14 term ‘average manufacturer price’ means the aver15 age price for a drug that is paid to a manufacturer 

16 by wholesalers, retail pharmacies, and mail order 

17 pharmacies that buy directly from the manufacturer. 

18 ‘‘(2) AVERAGE WHOLESALE PRICE.—The term 

19 ‘average wholesale price’ means a publicly available, 

20 suggested list price for a prescription drug that is 

21 provided by a wholesaler to a pharmacy or other en22 tity that provides prescription drugs directly to con23 sumers. 

24 ‘‘(3) CONTROLLING INTEREST.—An entity that 

25 has a ‘controlling interest’ in a second entity owns 


srobinson on DSKHWCL6B1PROD with BILLS
15 

•HR 4489 IH

1 or otherwise controls at least 20 percent of the sec2 ond entity. 

3 ‘‘(4) DISPENSING FEE.—The term ‘dispensing 

4 fee’ means a fee paid to a pharmacy for the service 

5 of filling or dispensing prescriptions (excluding the 

6 cost of the drug dispensed). 

7 ‘‘(5) DRUG SUBSTITUTION.—The term ‘drug 

8 substitution’ means any change from one prescrip9 tion drug to another prescription drug that is in10 tended to address or treat the same illness or condi11 tion. 

12 ‘‘(6) MAXIMUM ALLOWABLE COST.—The term 

13 ‘maximum allowable cost’ means a cost that is set 

14 by a PBM as the upper payment limit on the ingre15 dient costs for a multiple source drug. 

16 ‘‘(7) MULTIPLE SOURCE DRUG.—The term 

17 ‘multiple source drug’ has the meaning given such 

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

19 Act. 

20 ‘‘(8) NET COST.—The term ‘net cost’ means 

21 the final cost of the drug to the carrier (or an en22 rollee) after all adjustments (including discounts, re23 bates, associated dispensing fees and administrative 

24 fees, and enrollee cost sharing). 


srobinson on DSKHWCL6B1PROD with BILLS
16 

•HR 4489 IH

1 ‘‘(9) PBM.—The term ‘PBM’ means a phar2 macy benefit manager. 

3 ‘‘(10) PBM CARRIER ARRANGEMENT.—The 

4 term ‘PBM carrier arrangement’ means a contract 

5 between a PBM and a carrier for the provision or 

6 administration of a program of prescription drug 

7 coverage under a health benefits plan under this 

8 chapter. Such a contract may provide, among other 

9 duties, for the PBM to— 

10 ‘‘(A) process and pay prescription drug 

11 claims; 

12 ‘‘(B) provide programs and services de13 signed to— 

14 ‘‘(i) maximize the effectiveness of 

15 drugs dispensed under such plan; or 

16 ‘‘(ii) contain drug expenditures under 

17 such plan; and 

18 ‘‘(C) engage in other activities related to 

19 the administration of such prescription drug 

20 coverage. 

21 ‘‘(11) PBM MANUFACTURER ARRANGEMENT.— 

22 The term ‘PBM manufacturer arrangement’ means 

23 a contract between a PBM and a drug manufacturer 

24 for the provision of prescription drugs to enrollees of 


srobinson on DSKHWCL6B1PROD with BILLS
17 

•HR 4489 IH

1 health benefits plans with prescription drug coverage 

2 that is administered or provided by the PBM. 

3 ‘‘(12) PHARMACY BENEFIT MANAGER.—The 

4 term ‘pharmacy benefit manager’ means an entity 

5 that contracts with a carrier to provide or admin6 ister prescription drug coverage under a health bene7 fits plan under this chapter. 

8 ‘‘(13) PRESCRIBER.—The term ‘prescriber’ 

9 means an individual who is authorized under State 

10 and Federal law to prescribe drugs and who pre11 scribes a drug to an enrollee of a health benefits 

12 plan under this chapter. 

13 ‘‘(14) RETAIL PHARMACY.—The term ‘retail 

14 pharmacy’ excludes any mail order pharmacy. 

15 ‘‘(15) SINGLE SOURCE DRUG.—The term ‘single 

16 source drug’ has the meaning given such term in 

17 section 1927(k)(7) of the Social Security Act. 

18 ‘‘(16) WHOLESALE ACQUISITION COST.—The 

19 term ‘wholesale acquisition cost’ means a publicly 

20 available list price for sales of a drug by a manufac21 turer to a wholesaler.’’. 

22 (c) CLERICAL AMENDMENT.—The table of sections 

23 for chapter 89 of title 5, United States Code, is amended 

24 by adding at the end the following: 

‘‘8915. Requirements for PBM arrangements.’’. 

25 (d) EFFECTIVE DATE; WAIVER; REGULATIONS.— 


srobinson on DSKHWCL6B1PROD with BILLS
18 

•HR 4489 IH

1 (1) EFFECTIVE DATE.—The amendments made 

2 by this section shall apply to contract years begin3 ning on or after January 1, 2011. 

4 (2) WAIVER.—The Office of Personnel Manage5 ment may waive the application of 1 or more of the 

6 requirements of section 8915 of title 5, United 

7 States Code, but only for contract year 2011. 

8 (3) EXPEDITING IMPLEMENTATION OF REGULA9 TIONS.—Not later than 6 months after the date of 

10 the enactment of this Act, the Office of Personnel 

11 Management shall issue interim final regulations to 

12 carry out this section which may be effective and 

13 final immediately on an interim basis as of the date 

14 of publication of such regulations. If the Office of 

15 Personnel Management provides for an interim final 

16 regulation, the Office of Personnel Management 

17 shall provide for a period of public comment on such 

18 regulation after the date of publication. The Office 

19 of Personnel Management may change or revise such 

20 regulation after completion of the period of public 

21 comment. 

Æ 


srobinson on DSKHWCL6B1PROD with BILLS