I 

113TH CONGRESS 

1ST SESSION H. R. 1367 

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 

MARCH 21, 2013 

Mr. LYNCH (for himself, Mr. CUMMINGS, Mr. MORAN, and Ms. NORTON) 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 cited as the ‘‘FEHBP Prescription 

5 Drug Integrity, Transparency, and Cost Savings Act’’. 


tjames on DSK6SPTVN1PROD with BILLS
2 

•HR 1367 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 such 

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 a PBM may not be under common cor22 porate control with— 

23 ‘‘(A) a prescription drug manufacturer; or 

24 ‘‘(B) a retail pharmacy. 

25 ‘‘(2) PROFIT RESTRICTION ON CORPORATELY

26 AFFILIATED CARRIERS AND PBMS.—With respect to 


tjames on DSK6SPTVN1PROD with BILLS
3 

•HR 1367 IH

1 a PBM carrier arrangement related to a contract 

2 under this chapter, the Office may not permit a car3 rier under common corporate control with a PBM to 

4 earn a profit resulting from such control. 

5 ‘‘(3) CERTIFICATION.—Each carrier shall cer6 tify annually to the Office of Personnel Management 

7 that any PBM with which it has a PBM carrier ar8 rangement meets the requirements of this sub9 section. 

10 ‘‘(4) DEFINITIONS.—For purposes of this sub11 section— 

12 ‘‘(A) COMMON CORPORATE CONTROL.— 

13 The term ‘common corporate control’ means 

14 that 2 entities are part of a controlled group of 

15 corporations (as such term is defined in section 

16 1563 of the Internal Revenue Code of 1986). 

17 ‘‘(B) RETAIL PHARMACY.—The term ‘re18 tail pharmacy’ excludes any mail order phar19 macy. 

20 ‘‘(b) RESTRICTIONS ON BRAND NAME PRESCRIPTION

21 DRUG SUBSTITUTIONS.— 

22 ‘‘(1) IN GENERAL.—Under a PBM carrier ar23 rangement, and with respect to a prescription drug 

24 prescribed to an enrollee covered under such ar25 rangement, a PBM may not request payment from 


tjames on DSK6SPTVN1PROD with BILLS
4 

•HR 1367 IH

1 a carrier for a brand name prescription drug that 

2 was dispensed to the enrollee, at the request of the 

3 PBM, in substitution for the drug that was origi4 nally prescribed to such enrollee, unless each of the 

5 following requirements is met: 

6 ‘‘(A) LOWER NET COST.—The substitute 

7 drug has a lower net cost than the drug origi8 nally prescribed to such enrollee. 

9 ‘‘(B) AUTHORIZATION BY PRESCRIBER.— 

10 The prescriber of the originally prescribed drug 

11 submits an express, verifiable authorization of 

12 the substitution to the pharmacist and such au13 thorization includes a determination by the pre14 scriber that the drug substitution will not en15 danger the health of the enrollee for whom the 

16 drug is prescribed. 

17 ‘‘(C) ADDITIONAL REQUIREMENTS.—Each 

18 of the requirements described in paragraph (2) 

19 are met. 

20 ‘‘(2) ADDITIONAL REQUIREMENTS.—The re21 quirements described in this paragraph are, with re22 spect to a brand name prescription drug that was 

23 dispensed to an enrollee, at the request of the PBM, 

24 in substitution for the drug that was originally pre25 scribed to such enrollee, the following: 


tjames on DSK6SPTVN1PROD with BILLS
5 

•HR 1367 IH

1 ‘‘(A) To the extent appropriate, the PBM 

2 consults the enrollee concerning such drug sub3 stitution. 

4 ‘‘(B) The PBM discloses to the prescriber 

5 of the originally prescribed drug, the carrier, 

6 and the enrollee for whom such drug was pre7 scribed— 

8 ‘‘(i) the reason why the PBM pro9 posed a drug substitution for such drug; 

10 and 

11 ‘‘(ii) the financial impact of the drug 

12 substitution on the PBM, the carrier, and 

13 the enrollee. 

14 ‘‘(C) In the case of a mail order pharmacy, 

15 the PBM ensures that, at the time the drug is 

16 dispensed, the enrollee receives a written notice 

17 that such drug substitution occurred and that 

18 such substitution occurred with the approval of 

19 the prescriber. 

20 ‘‘(3) DEFINITIONS.—For purposes of this sub21 section— 

22 ‘‘(A) BRAND NAME PRESCRIPTION

23 DRUG.—The term ‘brand name prescription 

24 drug’ means a drug approved pursuant to an 

25 application submitted under section 505(b) of 


tjames on DSK6SPTVN1PROD with BILLS
6 

•HR 1367 IH

1 the Federal Food, Drug, and Cosmetic Act (21 

2 U.S.C. 355(b)). 

3 ‘‘(B) NET COST.—The term ‘net cost’ 

4 means, with respect to a drug, a carrier, and an 

5 enrollee, the sum of— 

6 ‘‘(i) the final cost of the drug to the 

7 carrier after all adjustments (including dis8 counts, rebates, associated dispensing fees 

9 and administrative fees, and enrollee cost 

10 sharing); and 

11 ‘‘(ii) the final cost of the drug to the 

12 enrollee (including cost-sharing). 

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

14 means an individual who is authorized under 

15 State and Federal law to prescribe drugs and 

16 who prescribes a drug to an enrollee of a health 

17 benefits plan under this chapter. 

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

19 PBM carrier arrangement, not later than the last day of 

20 each quarter of the contract year— 

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

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

23 ‘‘(A) all compensation that the PBM re24 ceived during the previous quarter from a pre25 scription drug manufacturer under a PBM 


tjames on DSK6SPTVN1PROD with BILLS
7 

•HR 1367 IH

1 manufacturer contract (to the extent such ar2 rangement relates to the PBM carrier arrange3 ment) including compensation (but excluding 

4 rebates) that the Office of Personnel Manage5 ment categorizes (regardless of how such com6 pensation is categorized by the PBM) as— 

7 ‘‘(i) market share incentives; 

8 ‘‘(ii) prescription drug substitution 

9 programs; 

10 ‘‘(iii) educational support; 

11 ‘‘(iv) commissions; 

12 ‘‘(v) mail service purchase discounts; 

13 ‘‘(vi) administrative or management 

14 fees; or 

15 ‘‘(vii) any other form of compensation; 

16 ‘‘(B) all compensation received by the 

17 PBM during the previous quarter for sales of 

18 utilization or claims data that the PBM pos19 sesses as a result of the PBM carrier arrange20 ment; and 

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

22 the previous quarter by a prescription drug 

23 manufacturer to the extent that such rebates 

24 are based on prescription drugs dispensed 

25 under the PBM carrier arrangement; and 


tjames on DSK6SPTVN1PROD with BILLS
8 

•HR 1367 IH

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

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

3 Office— 

4 ‘‘(A) the compensation described in para5 graph (1)(A), by the amount of compensation 

6 for each category under such paragraph; 

7 ‘‘(B) the compensation described in para8 graph (1)(B); and 

9 ‘‘(C) the rebates described in paragraph 

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

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

12 Under a PBM carrier arrangement, if the PBM intends 

13 to sell utilization or claims data that the PBM possesses 

14 as a result of such arrangement— 

15 ‘‘(1) the PBM shall notify the Office of Per16 sonnel Management before selling such data and 

17 shall provide the Office with the name of the poten18 tial purchaser of such data and the expected use of 

19 such data by such purchaser; and 

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

21 sale complies with all Federal and State laws and 

22 the PBM has received approval for such sale from 

23 the Office. 

24 ‘‘(e) PRICING.— 

25 ‘‘(1) SPREAD PRICING.— 


tjames on DSK6SPTVN1PROD with BILLS
9 

•HR 1367 IH

1 ‘‘(A) LIMITATION ON CHARGES TO A CAR2 RIER.—A PBM under a PBM carrier arrange3 ment shall not charge a carrier an amount for 

4 a prescription drug that is covered under such 

5 arrangement (and is dispensed by a pharmacy) 

6 that is more than the amount (including the in7 gredient cost and the dispensing fee) that the 

8 PBM reimburses the pharmacy for the drug. 

9 ‘‘(B) DISCLOSURES.— 

10 ‘‘(i) INITIAL DISCLOSURE.—Before 

11 entering into a PBM carrier arrangement, 

12 the PBM shall disclose to the carrier and 

13 the Office of Personnel Management the 

14 reimbursement basis (including the type of 

15 benchmark price and the source of the 

16 data for determining such price) and meth17 odology that the PBM uses to compute re18 imbursement amounts for retail and mail 

19 order pharmacies. 

20 ‘‘(ii) UPDATES.—Not later than 30 

21 days after making a change to the reim22 bursement basis or methodology under 

23 clause (i), the PBM shall disclose such 

24 change to the carrier and the Office. 


tjames on DSK6SPTVN1PROD with BILLS
10 

•HR 1367 IH

1 ‘‘(iii) TRANSITION RULE.—In the case 

2 of a PBM carrier arrangement that is in 

3 effect on the effective date of the FEHBP 

4 Prescription Drug Integrity, Transparency, 

5 and Cost Savings Act, the PBM shall dis6 close the information under clause (i) not 

7 later than 1 year after such date. 

8 ‘‘(2) MAXIMUM FOR MAIL ORDER PRESCRIPTION

9 DRUGS PRICES AND DISPENSING FEES.— 

10 ‘‘(A) IN GENERAL.—If a prescription drug 

11 is supplied by a mail order pharmacy to an en12 rollee, under a PBM carrier arrangement, a 

13 PBM may not charge a carrier an amount for 

14 the ingredient cost for such prescription drug 

15 that is greater than an amount that is equal to 

16 the actual acquisition cost for the drug minus 

17 any cost sharing for such drug that is the re18 sponsibility of the enrollee. 

19 ‘‘(B) DISPENSING FEE.—Under a PBM 

20 carrier arrangement, a PBM may not charge a 

21 carrier an amount for a dispensing fee related 

22 to a prescription drug dispensed by a mail order 

23 pharmacy to an enrollee that is greater than 

24 the amount that the PBM charges health plans 


tjames on DSK6SPTVN1PROD with BILLS
11 

•HR 1367 IH

1 for similar services that are not covered under 

2 a PBM carrier arrangement. 

3 ‘‘(C) TRANSPARENCY.—Under a PBM car4 rier arrangement, a PBM shall provide the car5 rier and the Office of Personnel Management, 

6 at the request of such carrier or Office, infor7 mation on the method used to determine the 

8 amount of— 

9 ‘‘(i) the ingredient cost under sub10 paragraph (A); and 

11 ‘‘(ii) the dispensing fee under sub12 paragraph (B). 

13 ‘‘(D) ACTUAL ACQUISITION COST DE14 FINED.—For purposes of this paragraph, the 

15 term ‘actual acquisition cost’ means the amount 

16 a pharmacy pays for a prescription drug, net of 

17 discounts, rebates, charge backs, and other ad18 justments to the price of the drug. 

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

20 a PBM carrier arrangement, not later than 90 days after 

21 the date on which a pharmacy dispenses a prescription 

22 drug covered under the arrangement, the PBM shall pro23 vide (by mail or electronically) to the enrollee to whom 

24 such drug was dispensed an explanation of benefits state25 ment that contains the following information: 


tjames on DSK6SPTVN1PROD with BILLS
12 

•HR 1367 IH

1 ‘‘(1) The date the claim for such drug was 

2 made by the pharmacy. 

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

4 and quantity dispensed to the enrollee. 

5 ‘‘(3) The amount paid by the enrollee for such 

6 drug. 

7 ‘‘(4) The total amount paid to the pharmacy by 

8 the PBM for such drug. Such amount shall include 

9 all amounts paid to the pharmacy with respect to 

10 dispensing such drug, including fees. 

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

12 PBM for such drug. 

13 ‘‘(g) NONDISCRIMINATORY CONTRACT.— 

14 ‘‘(1) IN GENERAL.—Under a PBM carrier ar15 rangement, a PBM may not require that a phar16 macy participate in a pharmacy network managed 

17 by such PBM as a condition of the pharmacy par18 ticipating in another network managed by such 

19 PBM. 

20 ‘‘(2) PHARMACY NETWORK DEFINED.—For 

21 purposes of this subsection, the term ‘pharmacy net22 work’ means a group of pharmacies that have 

23 agreed, through a contract with a PBM or carrier, 

24 to provide prescription medications to enrollees at 


tjames on DSK6SPTVN1PROD with BILLS
13 

•HR 1367 IH

1 rates and with discounts that are specified in such 

2 contract. 

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

4 ‘‘(1) IN GENERAL.—Under a PBM carrier ar5 rangement, at the request of the Office of Personnel 

6 Management, a PBM shall provide to the Office and 

7 to the Inspector General of the Office of Personnel 

8 Management full access to information relating to 

9 contracts entered into by such PBM under such ar10 rangement (such as PBM manufacturer contracts 

11 and PBM contracts with pharmacies). Such informa12 tion shall include— 

13 ‘‘(A) companywide rebate receipt aging re14 ports that cover all of the PBM’s lines of busi15 ness; 

16 ‘‘(B) information and methodology used to 

17 calculate and allocate rebates between the 

18 PBM’s lines of business; 

19 ‘‘(C) information on average wholesale 

20 prices, wholesale acquisition costs, and max21 imum allowable costs; 

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

23 and 


tjames on DSK6SPTVN1PROD with BILLS
14 

•HR 1367 IH

1 ‘‘(E) information and methodologies used 

2 to calculate additional administrative and serv3 ice fees charged to the carrier. 

4 ‘‘(2) CONFIDENTIALITY.—Information provided 

5 by a PBM under this subsection is confidential and 

6 shall not be disclosed by the Office, except that 

7 nothing in this paragraph shall prevent— 

8 ‘‘(A) a disclosure required under the In9 spector General Act of 1978; or 

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

11 sole discretion, considers necessary in order to 

12 carry out this section, if such disclosure is made 

13 in a form which does not disclose the identity 

14 of a specific PBM or carrier or the price 

15 charged for a particular prescription drug. 

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

17 obtained under this subsection shall be exempt from 

18 disclosure under section 552. 

19 ‘‘(4) DEFINITIONS.—For purposes of this sub20 section— 

21 ‘‘(A) GENERIC DRUG.—The term ‘generic 

22 drug’ means a drug approved pursuant to an 

23 abbreviated application submitted under section 

24 505(j) of the Federal Food, Drug, and Cos25 metic Act (21 U.S.C. 355(j)). 


tjames on DSK6SPTVN1PROD with BILLS
15 

•HR 1367 IH

1 ‘‘(B) MAXIMUM ALLOWABLE COST.—The 

2 term ‘maximum allowable cost’ means a cost 

3 that is set by a PBM as the upper payment 

4 limit on the ingredient costs for a generic drug. 

5 ‘‘(C) WHOLESALE ACQUISITION COST.— 

6 The term ‘wholesale acquisition cost’ means a 

7 publicly available list price for sales of a drug 

8 by a manufacturer to a wholesaler. 

9 ‘‘(i) TREATMENT OF NON-COMPLIANCE.— 

10 ‘‘(1) IN GENERAL.—Under a PBM carrier ar11 rangement, a PBM that knowingly provides false in12 formation to a carrier related to a claim made to 

13 such carrier by the PBM under such arrangement 

14 shall be treated, for purposes of chapter 37 of title 

15 31, in the same manner as a person that makes a 

16 false claim to the United States Government under 

17 section 3729 of such chapter. 

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 ‘‘(3) ADDITIONAL PENALTIES.—Any penalties 

23 resulting from the application of paragraph (1) shall 

24 be in addition to any other penalties available to the 


tjames on DSK6SPTVN1PROD with BILLS
16 

•HR 1367 IH

1 Office of Personnel Management under law or regu2 lation. 

3 ‘‘(j) NO APPLICATION TO COMMUNITY-RATED CAR4 RIERS.—The provisions of this section and section 

5 8902(p) of this title— 

6 ‘‘(1) shall apply to experience-rated carriers; 

7 and 

8 ‘‘(2) shall not apply to carriers that use rates 

9 based on a per member per month capitation 

10 amount. 

11 ‘‘(k) LIMITATION OF APPLICATION TO PRESCRIPTION

12 DRUGS.—The provisions of this section and section 

13 8902(p) of this title shall not be construed to apply to 

14 drugs that are not prescription drugs. 

15 ‘‘(l) GENERAL DEFINITIONS.—For purposes of this 

16 section and section 8902(p) of this title: 

17 ‘‘(1) DISPENSING FEE.—The term ‘dispensing 

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

19 of filling or dispensing prescriptions and excludes 

20 any payment for the cost of the drug dispensed. 

21 ‘‘(2) DRUG SUBSTITUTION.—The term ‘drug 

22 substitution’ means any change from one prescrip23 tion drug to another prescription drug that is in24 tended to address or treat the same illness or condi25 tion. 


tjames on DSK6SPTVN1PROD with BILLS
17 

•HR 1367 IH

1 ‘‘(3) PBM CARRIER ARRANGEMENT.—The term 

2 ‘PBM carrier arrangement’ means a contract be3 tween a PBM and a carrier for the provision or ad4 ministration of a program of prescription drug cov5 erage under a health benefits plan under this chap6 ter. Such a contract may provide, among other du7 ties, for the PBM to— 

8 ‘‘(A) process and pay prescription drug 

9 claims; 

10 ‘‘(B) provide programs and services de11 signed to— 

12 ‘‘(i) maximize the effectiveness of pre13 scription drugs dispensed under such plan; 

14 or 

15 ‘‘(ii) contain prescription drug ex16 penditures under such plan; and 

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

18 the administration of such prescription drug 

19 coverage. 

20 ‘‘(4) PBM MANUFACTURER CONTRACT.—The 

21 term ‘PBM manufacturer contract’ means a contract 

22 between a PBM and a prescription drug manufac23 turer for the provision of prescription drugs to en24 rollees of health benefits plans with prescription 


tjames on DSK6SPTVN1PROD with BILLS
18 

•HR 1367 IH

1 drug coverage that is administered or provided by 

2 the PBM. 

3 ‘‘(5) PHARMACY BENEFIT MANAGER; PBM.— 

4 The terms ‘pharmacy benefit manager’ and ‘PBM’ 

5 mean an entity that contracts with a carrier to pro6 vide or administer prescription drug coverage under 

7 a health benefits plan under this chapter.’’. 

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

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

10 by adding at the end the following: 

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

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

12 (1) EFFECTIVE DATE.—The amendments made 

13 by this section shall apply to contract years begin14 ning on or after January 1, 2014. 

15 (2) WAIVER.—The Office of Personnel Manage16 ment may waive the application of 1 or more of the 

17 requirements of section 8915 of title 5, United 

18 States Code, but only for contract year 2014. 

19 (3) EXPEDITING IMPLEMENTATION OF REGULA20 TIONS.—Not later than 6 months after the date of 

21 the enactment of this Act, the Office of Personnel 

22 Management shall issue interim final regulations to 

23 carry out this section which may be effective and 

24 final immediately on an interim basis as of the date 

25 of publication of such regulations. If the Office proVerDate Mar 15 2010 00:33 Mar 30, 2013 Jkt 029200 PO 00000 Frm 00018 Fmt 6652 Sfmt 6201 E:\BILLS\H1367.IH H1367

tjames on DSK6SPTVN1PROD with BILLS
19 

•HR 1367 IH

1 vides for an interim final regulation, the Office shall 

2 provide for a period of public comment on such reg3 ulation after the date of publication. The Office may 

4 change or revise such regulation after completion of 

5 the period of public comment. 

Æ 


tjames on DSK6SPTVN1PROD with BILLS