I 

115TH CONGRESS 

2D SESSION H. R. 7223 

To amend title XIX of the Social Security Act to prevent the misclassification 

of drugs for purposes of the Medicaid drug rebate program. 

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 6, 2018 

Mr. SCHRADER (for himself and Mr. WELCH) introduced the following bill; 

which was referred to the Committee on Energy and Commerce, and in 

addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such 

provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To amend title XIX of the Social Security Act to prevent 

the misclassification of drugs for purposes of the Medicaid drug rebate 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 ‘‘Right Rebate Act of 

5 2018’’. 


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1 SEC. 2. PREVENTING THE MISCLASSIFICATION OF DRUGS 

2 UNDER THE MEDICAID DRUG REBATE PRO3 GRAM. 

4 (a) APPLICATION OF CIVIL MONEY PENALTY FOR

5 MISCLASSIFICATION OF COVERED OUTPATIENT

6 DRUGS.— 

7 (1) IN GENERAL.—Section 1927(b)(3) of the 

8 Social Security Act (42 U.S.C. 1396r–8(b)(3)) is 

9 amended— 

10 (A) in the paragraph heading, by inserting 

11 ‘‘AND DRUG PRODUCT’’ after ‘‘PRICE’’; 

12 (B) in subparagraph (A)— 

13 (i) in clause (ii), by striking ‘‘; and’’ 

14 at the end and inserting a semicolon; 

15 (ii) in clause (iii), by striking the pe16 riod at the end and inserting a semicolon; 

17 (iii) in clause (iv), by striking the 

18 semicolon at the end and inserting ‘‘; 

19 and’’; and 

20 (iv) by inserting after clause (iv) the 

21 following new clause: 

22 ‘‘(v) not later than 30 days after the 

23 last day of each month of a rebate period 

24 under the agreement, such drug product 

25 information as the Secretary shall require 


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1 for each of the manufacturer’s covered out2 patient drugs.’’; and 

3 (C) in subparagraph (C)— 

4 (i) in clause (ii), by inserting ‘‘includ5 ing information related to drug pricing, 

6 drug product information, and data related 

7 to drug pricing or drug product informa8 tion,’’ after ‘‘provides false information,’’; 

9 and 

10 (ii) by adding at the end the following 

11 new clauses: 

12 ‘‘(iii) MISCLASSIFIED OR

13 MISREPORTED INFORMATION.— 

14 ‘‘(I) IN GENERAL.—Any manu15 facturer with an agreement under this 

16 section that knowingly (as defined in 

17 section 1003.110 of title 42, Code of 

18 Federal Regulations (or any successor 

19 regulation)) misclassifies a covered 

20 outpatient drug, such as by knowingly 

21 submitting incorrect drug category in22 formation, is subject to a civil money 

23 penalty for each covered outpatient 

24 drug that is misclassified in an 

25 amount not to exceed 2 times the 


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1 amount of the difference, as deter2 mined by the Secretary, between— 

3 ‘‘(aa) the total amount of 

4 rebates that the manufacturer 

5 paid with respect to the drug to 

6 all States for all rebate periods 

7 during which the drug was 

8 misclassified; and 

9 ‘‘(bb) the total amount of 

10 rebates that the manufacturer 

11 would have been required to pay, 

12 as determined by the Secretary, 

13 with respect to the drug to all 

14 States for all rebate periods dur15 ing which the drug was 

16 misclassified if the drug had been 

17 correctly classified. 

18 ‘‘(II) OTHER PENALTIES AND

19 RECOVERY OF UNDERPAID RE20 BATES.—The civil money penalties de21 scribed in subclause (I) are in addi22 tion to other penalties as may be pre23 scribed by law and any other recovery 

24 of the underlying underpayment for 

25 rebates due under this section or the 


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1 terms of the rebate agreement as de2 termined by the Secretary. 

3 ‘‘(iv) INCREASING OVERSIGHT AND

4 ENFORCEMENT.—Each year the Secretary 

5 shall retain, in addition to any amount re6 tained by the Secretary to recoup inves7 tigation and litigation costs related to the 

8 enforcement of the civil money penalties 

9 under this subparagraph and subsection 

10 (c)(4)(B)(ii)(III), an amount equal to 25 

11 percent of the total amount of civil money 

12 penalties collected under this subparagraph 

13 and subsection (c)(4)(B)(ii)(III) for the 

14 year, and such retained amount shall be 

15 available to the Secretary, without further 

16 appropriation and until expended, for ac17 tivities related to the oversight and en18 forcement of this section and agreements 

19 under this section, including— 

20 ‘‘(I) improving drug data report21 ing systems; 

22 ‘‘(II) evaluating and ensuring 

23 manufacturer compliance with rebate 

24 obligations; and 


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1 ‘‘(III) oversight and enforcement 

2 related to ensuring that manufactur3 ers accurately and fully report drug 

4 information, including data related to 

5 drug classification.’’; and 

6 (iii) in subparagraph (D)— 

7 (I) in clause (iv), by striking ‘‘; 

8 and’’ and inserting a semicolon; 

9 (II) in clause (v), by striking the 

10 period and inserting ‘‘; and’’; and 

11 (III) by inserting after clause (v) 

12 the following new clause: 

13 ‘‘(vi) in the case of categories of drug 

14 product or classification information that 

15 were not considered confidential by the 

16 Secretary on the day before the date of the 

17 enactment of the Right Rebate Act of 

18 2018.’’. 

19 (2) TECHNICAL AMENDMENTS.— 

20 (A) Section 1903(i)(10) of the Social Secu21 rity Act (42 U.S.C. 1396b(i)(10)) is amended— 

22 (i) in subparagraph (C)— 

23 (I) by adjusting the left margin 

24 so as to align with the left margin of 

25 subparagraph (B); and 


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1 (II) by striking ‘‘, and’’ and in2 serting a semicolon; 

3 (ii) in subparagraph (D), by striking 

4 ‘‘; or’’ and inserting ‘‘; and’’; and 

5 (iii) by adding at the end the fol6 lowing new subparagraph: 

7 ‘‘(E) with respect to any amount expended 

8 for a covered outpatient drug for which a sus9 pension under section 1927(c)(4)(B)(ii)(II) is in 

10 effect; or’’. 

11 (B) Section 1927(b)(3)(C)(ii) of the Social 

12 Security Act (42 U.S.C. 1396r–8(b)(3)(C)(ii)) 

13 is amended by striking ‘‘subsections (a) and 

14 (b)’’ and inserting ‘‘subsections (a), (b), (f)(3), 

15 and (f)(4)’’. 

16 (b) RECOVERY OF UNPAID REBATE AMOUNTS DUE

17 TO MISCLASSIFICATION OF COVERED OUTPATIENT

18 DRUGS.— 

19 (1) IN GENERAL.—Section 1927(c) of the So20 cial Security Act (42 U.S.C. 1396r–8(c)) is amended 

21 by adding at the end the following new paragraph: 

22 ‘‘(4) RECOVERY OF UNPAID REBATE AMOUNTS

23 DUE TO MISCLASSIFICATION OF COVERED OUT24 PATIENT DRUGS.— 


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1 ‘‘(A) IN GENERAL.—If the Secretary deter2 mines that a manufacturer with an agreement 

3 under this section paid a lower per-unit rebate 

4 amount to a State for a rebate period as a re5 sult of the misclassification by the manufac6 turer of a covered outpatient drug (without re7 gard to whether the manufacturer knowingly 

8 made the misclassification or should have 

9 known that the misclassification would be 

10 made) than the per-unit rebate amount that the 

11 manufacturer would have paid to the State if 

12 the drug had been correctly classified, the man13 ufacturer shall pay to the State an amount 

14 equal to the product of— 

15 ‘‘(i) the difference between— 

16 ‘‘(I) the per-unit rebate amount 

17 paid to the State for the period; and 

18 ‘‘(II) the per-unit rebate amount 

19 that the manufacturer would have 

20 paid to the State for the period, as 

21 determined by the Secretary, if the 

22 drug had been correctly classified; and 

23 ‘‘(ii) the total units of the drug paid 

24 for under the State plan in the period. 


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1 ‘‘(B) AUTHORITY TO CORRECT

2 MISCLASSIFICATIONS.— 

3 ‘‘(i) IN GENERAL.—If the Secretary 

4 determines that a manufacturer with an 

5 agreement under this section has misclassi6 fied a covered outpatient drug (without re7 gard to whether the manufacturer know8 ingly made the misclassification or should 

9 have known that the misclassification 

10 would be made), the Secretary shall notify 

11 the manufacturer of the misclassification 

12 and require the manufacturer to correct 

13 the misclassification in a timely manner. 

14 ‘‘(ii) ENFORCEMENT.—If, after receiv15 ing notice of a misclassification from the 

16 Secretary under clause (i), a manufacturer 

17 fails to correct the misclassification by 

18 such time as the Secretary shall require, 

19 until the manufacturer makes such correc20 tion, the Secretary may— 

21 ‘‘(I) correct the misclassification 

22 on behalf of the manufacturer; 

23 ‘‘(II) suspend the misclassified 

24 drug and the drug’s status as a cov25 ered outpatient drug under the manuVerDate Sep 11 2014 22:42 Dec 07, 2018 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H7223.IH H7223

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1 facturer’s national rebate agreement; 

2 or 

3 ‘‘(III) impose a civil money pen4 alty (which shall be in addition to any 

5 other recovery or penalty which may 

6 be available under this section or any 

7 other provision of law) for each rebate 

8 period during which the drug is 

9 misclassified not to exceed an amount 

10 equal to the product of— 

11 ‘‘(aa) the total number of 

12 units of each dosage form and 

13 strength of such misclassified 

14 drug paid for under any State 

15 plan during such a rebate period; 

16 and 

17 ‘‘(bb) 23.1 percent of the av18 erage manufacturer price for the 

19 dosage form and strength of such 

20 misclassified drug. 

21 ‘‘(C) REPORTING AND TRANSPARENCY.— 

22 ‘‘(i) IN GENERAL.—The Secretary 

23 shall submit a report to Congress on at 

24 least an annual basis that includes infor25 mation on the covered outpatient drugs 


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1 that have been identified as misclassified, 

2 the steps taken to reclassify such drugs, 

3 the actions the Secretary has taken to en4 sure the payment of any rebate amounts 

5 which were unpaid as a result of such 

6 misclassification, and a disclosure of ex7 penditures from the fund created in sub8 section (b)(3)(C)(iv), including an account9 ing of how such funds have been allocated 

10 and spent in accordance with such sub11 section. 

12 ‘‘(ii) PUBLIC ACCESS.—The Secretary 

13 shall make the information contained in 

14 the report required under clause (i) avail15 able to the public on a timely basis. 

16 ‘‘(D) OTHER PENALTIES AND ACTIONS.— 

17 Actions taken and penalties imposed under this 

18 clause shall be in addition to other remedies 

19 available to the Secretary including terminating 

20 the manufacturer’s rebate agreement for non21 compliance with the terms of such agreement 

22 and shall not exempt a manufacturer from, or 

23 preclude the Secretary from pursuing, any civil 

24 money penalty under this title or title XI, or 


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1 any other penalty or action as may be pre2 scribed by law.’’. 

3 (2) OFFSET OF RECOVERED AMOUNTS AGAINST

4 MEDICAL ASSISTANCE.—Section 1927(b)(1)(B) of 

5 the Social Security Act (42 U.S.C. 1396r– 

6 8(b)(1)(B)) is amended by inserting ‘‘, including 

7 amounts received by a State under subsection 

8 (c)(4),’’ after ‘‘in any quarter’’. 

9 (c) CLARIFYING DEFINITIONS.—Section 

10 1927(k)(7)(A) of the Social Security Act (42 U.S.C. 

11 1396r–8(k)(7)(A)) is amended— 

12 (1) by striking ‘‘an original new drug applica13 tion’’ and inserting ‘‘a new drug application’’ each 

14 place it appears; 

15 (2) in clause (i), by inserting ‘‘but including a 

16 drug product approved for marketing as a non-pre17 scription drug that is regarded as a covered out18 patient drug under paragraph (4)’’ after ‘‘drug de19 scribed in paragraph (5)’’; 

20 (3) in clause (ii), by striking ‘‘was originally 

21 marketed’’ and inserting ‘‘is marketed’’; and 

22 (4) in clause (iv)— 

23 (A) by inserting ‘‘, including a drug prod24 uct approved for marketing as a non-prescrip25 tion drug that is regarded as a covered outVerDate Sep 11 2014 22:42 Dec 07, 2018 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H7223.IH H7223

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1 patient drug under paragraph (4),’’ after ‘‘cov2 ered outpatient drug’’; and 

3 (B) by adding at the end the following new 

4 sentence: ‘‘Such term also includes a covered 

5 outpatient drug that is a biological product li6 censed, produced, or distributed under a bio7 logics license application approved by the Food 

8 and Drug Administration.’’ 

9 (d) EXCLUSION OF MANUFACTURERS FOR KNOWING

10 MISCLASSIFICATION OF COVERED OUTPATIENT

11 DRUGS.—Section 1128(b) of the Social Security Act (42 

12 U.S.C. 1320a–7(b)) is amended by adding at the end the 

13 following new paragraph: 

14 ‘‘(17) KNOWINGLY MISCLASSIFYING COVERED

15 OUTPATIENT DRUGS.—Any manufacturer or officer, 

16 director, agent, or managing employee of such man17 ufacturer that knowingly misclassifies a covered out18 patient drug under an agreement under section 

19 1927, knowingly fails to correct such misclassifica20 tion, or knowingly provides false information related 

21 to drug pricing, drug product information, or data 

22 related to drug pricing or drug product informa23 tion.’’. 

24 (e) EFFECTIVE DATE.—The amendments made by 

25 this section shall take effect on the date of the enactment 


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1 of this Act, and shall apply to covered outpatient drugs 

2 supplied by manufacturers under agreements under sec3 tion 1927 of the Social Security Act (42 U.S.C. 1396r– 

4 8) on or after such date. 

Æ 


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