may be charged during each plan year during 
the negotiated price period, with respect to such 
negotiation year, to PDP sponsors and MA or-
ganizations for such covered part D drugs for 
part D eligible individuals who are enrolled 
under a prescription drug plan or under an 
MA–PD plan shall be the lowest of— 
‘‘(i) the contract price applied pursu-
ant to section 8126 of title 38, United 
States Code, for such drug for the contract 
year (as defined in such section 8126) be-
ginning during the first plan year of such 
negotiated price period; 
‘‘(ii) the average of the prices avail-
able, during the most recent 12-month pe-
riod for which data is available prior to the 
beginning of such negotiated price period, 
from the manufacturer to any wholesaler, 
retailer, provider, health maintenance orga-
nization, nonprofit entity, or governmental 
entity in the ten OECD (Organization for 
Economic Cooperation and Development) 
countries that have the largest gross do-
mestic product with a per capita income 
that is not less than half the per capita in-
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come of the United States, as reported by 
the manufacturer to the Secretary; and 
‘‘(iii) the best price determined under 
section 1927(c)(1)(C) for such drug for the 
most recent rebate period (as defined in 
section 1927(k)(8)) applicable to such first 
plan year of such negotiated price period. 
‘‘(C) IDENTIFICATION
OF
NEGOTIATION 
DRUG GROUPINGS.— 
‘‘(i) IN GENERAL.—For each negotia-
tion year, the Secretary shall, during the 
previous year, in accordance with the sub-
sequent clauses of this subparagraph, and 
pursuant to rulemaking, identify covered 
part D drugs for which negotiations under 
subparagraph (A) shall be conducted dur-
ing such negotiation year. In this sub-
section, all such covered part D drugs so 
identified for a negotiation year are collec-
tively referred to as the negotiation drug 
grouping, with respect to such year. 
‘‘(ii) IDENTIFICATION OF PRIORITIZED 
DRUGS.—In carrying out clause (i), except 
as provided under clause (iii), the Sec-
retary may not identify for inclusion within 
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the negotiation drug grouping with respect 
to a negotiation year, a covered part D 
drug that is not a drug prioritized pursu-
ant to subparagraph (D) before all covered 
part D drugs that are so prioritized have 
been identified for inclusion in such group-
ing or in a negotiation drug grouping with 
respect to a previous negotiation year for 
which the negotiated price period has not 
expired. 
‘‘(iii) DRUG
INCLUSIONS
FOR
PRICE 
RENEGOTIATIONS.—In the case of a cov-
ered part D drug that is identified as in-
cluded in a negotiation drug grouping 
under this subparagraph, with respect to a 
negotiation year, such covered part D drug 
shall be identified as included within the 
negotiation drug grouping for each subse-
quent third negotiation year. 
‘‘(iv) REASONABLE
NOTIFICATION.— 
The Secretary shall carry out this subpara-
graph in such manner as to provide for 
public notification of the negotiation drug 
grouping identified with respect to a nego-
tiation year within a reasonable period be-
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fore the beginning of such negotiation 
year. 
‘‘(D) PRIORITIZATION.—For purposes of 
subparagraph (C)(ii), for a negotiation drug 
grouping, with respect to a negotiation year, the 
Secretary shall prioritize covered part D 
drugs— 
‘‘(i) with respect to which the cost of 
such a drug to the part D eligible indi-
vidual involved would exceed the annual 
out-of-pocket threshold applicable under 
section 1860D–2(b)(4)(B) for such nego-
tiation year, if the drug were prescribed to 
the individual for the period of the year or 
with respect to which a single treatment 
regimen is priced above such annual out- 
of-pocket threshold applicable under such 
section 1860D–2(b)(4)(B) for the year; 
‘‘(ii) that are among— 
‘‘(I) the 40 covered part D drugs 
that are utilized by at least 1,000 
Medicare part D beneficiaries and 
with respect to which there were the 
highest total expenditures under this 
part during the most recent 12-month 
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period prior to the beginning of such 
negotiation year for which data is 
available; 
‘‘(II) the 40 covered part D 
drugs that are utilized by at least 
1,000 Medicare part D beneficiaries 
with respect to whom the total annual 
spending per such a beneficiary under 
this part for coverage of such a drug 
is at least $10,000; or 
‘‘(III) the 20 covered part D 
drugs that are utilized by at least 
1,000 Medicare part D beneficiaries 
and with respect to which there are 
unit cost increases at or above the 
95th percentile of overall covered part 
D drug unit cost increases during the 
most recent 12-month period prior to 
the beginning of such negotiation year 
for which data is available; or 
‘‘(iii) that are single-source drugs or 
biologicals 
(as 
defined 
in 
section 
1847A(c)(6)(D)) and that satisfy at least 
one other criterion described in a previous 
clause of this subparagraph. 
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‘‘(E) 
GUIDANCE.—Not 
later 
than 
months before the Secretary begins negotiations 
under subparagraph (A) for the first negotia-
tion year, the Secretary shall issue guidance on 
criteria to be considered for purposes of deter-
mining under subparagraph (B) whether or not 
the Secretary is successful in obtaining an ap-
propriate price for a covered part D drug. Such 
criteria shall include at least the following: 
‘‘(i) The comparative clinical effective-
ness and cost effectiveness, if available, of 
such covered part D drug. 
‘‘(ii) The budgetary impact of pro-
viding coverage under this part for such 
covered part D drug. 
‘‘(iii) The number of similarly effec-
tive drug or alternative treatment regimens 
for each approved use of such covered part 
D drug. 
‘‘(iv) Associated unmet need or sever-
ity of illness. 
‘‘(F) PUBLIC EXPLANATION ON NEGOTIA-
TIONS
OUTCOMES.—Not later than 30 days 
after the date on which the Secretary completes 
negotiations under this section during a nego-
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tiation year with a pharmaceutical manufac-
turer, with respect to the price for a covered 
part D drug for a negotiated price period, with 
respect to such year, the Secretary shall make 
publicly available an explanation of the outcome 
of such negotiations, based on the criteria in-
cluded in the guidance issued pursuant to sub-
paragraph (E). 
‘‘(G) MEDPAC REPORT.— 
‘‘(i) STUDY.—The Medicare Payment 
Advisory Commission shall conduct a study 
on the price negotiations conducted by the 
Secretary under this paragraph, including 
an analysis of— 
‘‘(I) the extent to which such 
price negotiations are achieving lower 
prices for covered part D drugs for 
part D eligible individuals who are en-
rolled under a prescription drug plan 
or under an MA–PD plan; 
‘‘(II) the parties benefitting from 
such lower prices, such as part D eli-
gible individuals described in sub-
clause (I), the Federal Government, 
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States, prescription drug plans and 
MA–PD plans, or other entities; 
‘‘(III) how such price negotia-
tions are affecting drug prices in the 
private market; and 
‘‘(IV) how such price negotiations 
are affecting the list price of covered 
part D drugs. 
‘‘(ii) REPORT.—Not later than Janu-
ary 1, 2022, the Medicare Payment Advi-
sory Commission shall submit to Congress 
a report on the study conducted under 
clause (i), including recommendations for 
improving price negotiations described in 
clause (i). 
‘‘(H) DEFINITIONS.—For purposes of this 
paragraph: 
‘‘(i) NEGOTIATION YEAR.—The term 
‘negotiation year’ means a year beginning 
with 2019. 
‘‘(ii) NEGOTIATED
PRICE
PERIOD.— 
The term ‘negotiated price period’ means, 
with respect to a negotiation year and ne-
gotiation drug grouping, the 3-plan-year 
period beginning with the first plan year 
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beginning after the negotiation year for 
such grouping. 
‘‘(2) ESTABLISHMENT
AND
APPLICATION
OF 
FORMULARY BY THE SECRETARY OR CHANGES IN 
FORMULARIES TO BE REQUIRED BY SECRETARY.— 
‘‘(A) IN GENERAL.—The Secretary shall, 
for plan years beginning with plan year 2019— 
‘‘(i) subject to subparagraphs (B) and 
(C), establish and apply a formulary for 
required use by sponsors of prescription 
drug plans and organizations offering MA– 
PD plans under this part; or 
‘‘(ii) require changes, as necessary, in 
the covered part D drugs included on 
formularies of PDP sponsors of prescrip-
tion drug plans (including changes, as nec-
essary, in the preferred or tiered cost-shar-
ing status of such a drug) to take into ac-
count negotiations carried out by the Sec-
retary pursuant to paragraph (1), regard-
less of whether such a covered part D drug 
is the subject of such negotiations. 
‘‘(B) REQUIRED INCLUSION OF DRUGS IN 
ALL THERAPEUTIC CATEGORIES.—A formulary 
established and applied under subparagraph 
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(A)(i) shall include at least two covered part D 
drugs in each category and class of covered part 
D 
drugs 
as 
described 
in 
section 
423.120(b)(2)(i) of title 42, Code of Federal 
Regulations (as in effect on January 1, 2017). 
‘‘(C) APPLICATION OF DEVELOPMENT AND 
REVISION REQUIREMENTS AND REQUIRED IN-
CLUSION
OF
ALL
DRUGS
IN
CERTAIN
CAT-
EGORIES AND CLASSES.—The requirements de-
scribed in subparagraphs (A) and (B) of section 
1860D–4(b)(3) (relating to development and re-
vision requirements of the formulary) and sub-
paragraph (G) of such section (relating to re-
quired inclusion of all drugs in certain cat-
egories and classes) shall apply to a formulary 
established and applied under subparagraph 
(A)(i) of this paragraph. 
‘‘(3) PLAN FLEXIBILITY TO NEGOTIATE GREAT-
ER DISCOUNTS.—Nothing in this subsection shall be 
construed as preventing the sponsor of a prescrip-
tion drug plan, or an organization offering an MA– 
PD plan, from obtaining a discount or reduction of 
the price for a covered part D drug below the price 
negotiated under paragraph (1), if applicable, in-
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cluding through the use of preferred or tiered cost- 
sharing status. 
‘‘(4) ENSURING
BENEFICIARY
ACCESS
TO 
NEEDED DRUGS.—Beginning with plan year 2019, 
Each PDP sponsor of a prescription drug plan and 
organization offering an MA–PD plan shall have in 
place a process under which an enrollee in the plan 
may request coverage under the plan for a covered 
part D drug that is not on the formulary, or is sub-
ject to utilization management controls, such as 
tiered pricing, prior authorization, or step therapy.’’. 
(b) CONFORMING AMENDMENTS.—Section 1860D–4 
of the Social Security Act (42 U.S.C. 1395w–104) is 
amended— 
(1) in subsection (b)(3), in the matter pre-
ceding subparagraph (A), by striking ‘‘If a PDP’’ 
and inserting ‘‘Subject to section 1860D–11(i)(2), if 
a PDP’’; 
(2) in subsection (g)— 
(A) in paragraph (1), by inserting before 
the period at the end the following: ‘‘, except 
that the PDP sponsor of a prescription drug 
plan shall treat the presentation of a prescrip-
tion to a participating pharmacy, which is 
transmitted to the plan by the pharmacy, as a 
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request for a coverage determination (including 
with respect to prior authorization, step ther-
apy, or quantity limits) and, in applying such 
paragraphs of section 1852(g), the response to 
such transmittal shall be treated as a deter-
mination by the sponsor’’; and 
(B) in paragraph (2), in the first sentence, 
by inserting ‘‘(or a participating pharmacy, on 
behalf of such individual, through transmission 
of a prescription as described in paragraph 
(1))’’ after ‘‘a part D eligible individual who is 
enrolled in the plan’’; and 
(3) in subsection (h)— 
(A) in paragraph (1), in the second sen-
tence, by inserting ‘‘(or a participating phar-
macy, on behalf of such individual)’’ after ‘‘the 
part D eligible individual’’; and 
(B) in paragraph (2), by inserting ‘‘(or a 
participating pharmacy, on behalf of such indi-
vidual)’’ after ‘‘A part D eligible individual who 
is enrolled in a prescription drug plan offered 
by a PDP sponsor’’. 
(4) EFFECTIVE DATE.—The amendments made 
by paragraphs (2) and (3) shall apply to plans years 
beginning on or after January 1, 2019. 
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SEC. 3. REQUIRING DRUG MANUFACTURERS TO PROVIDE 
DRUG REBATES FOR DRUGS DISPENSED TO 
LOW-INCOME INDIVIDUALS. 
(a) IN GENERAL.—Section 1860D–2 of the Social 
Security Act (42 U.S.C. 1395w–102) is amended— 
(1) in subsection (e)(1), in the matter preceding 
subparagraph (A), by inserting ‘‘and subsection (f)’’ 
after ‘‘this subsection’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(f) PRESCRIPTION DRUG REBATE AGREEMENT FOR 
REBATE ELIGIBLE INDIVIDUALS.— 
‘‘(1) REQUIREMENT.— 
‘‘(A) IN GENERAL.—For plan years begin-
ning on or after January 1, 2019, in this part, 
the term ‘covered part D drug’ does not include 
any drug or biological product that is manufac-
tured by a manufacturer that has not entered 
into and have in effect a rebate agreement de-
scribed in paragraph (2). 
‘‘(B) 2019 PLAN YEAR REQUIREMENT.— 
Any drug or biological product manufactured by 
a manufacturer that declines to enter into a re-
bate agreement described in paragraph (2) for 
the period beginning on January 1, 2019, and 
ending on December 31, 2019, shall not be in-
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cluded as a ‘covered part D drug’ for the subse-
quent plan year. 
‘‘(2) REBATE
AGREEMENT.—A rebate agree-
ment under this subsection shall require the manu-
facturer to provide to the Secretary a rebate for 
each rebate period (as defined in paragraph (6)(B)) 
ending after December 31, 2018, in the amount 
specified in paragraph (3) for any covered part D 
drug of the manufacturer dispensed after December 
31, 2018, to any rebate eligible individual (as de-
fined in paragraph (6)(A)) for which payment was 
made by a PDP sponsor or MA organization under 
this part for such period, including payments passed 
through the low-income and reinsurance subsidies 
under sections 1860D–14 and 1860D–15(b), respec-
tively. Such rebate shall be paid by the manufac-
turer to the Secretary not later than 30 days after 
the date of receipt of the information described in 
section 1860D–12(b)(7), including as such section is 
applied under section 1857(f)(3), or 30 days after 
the receipt of information under subparagraph (D) 
of paragraph (3), as determined by the Secretary. 
Insofar as not inconsistent with this subsection, the 
Secretary shall establish terms and conditions of 
such agreement relating to compliance, penalties, 
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and program evaluations, investigations, and audits 
that are similar to the terms and conditions for re-
bate agreements under paragraphs (3) and (4) of 
section 1927(b). 
‘‘(3) REBATE FOR REBATE ELIGIBLE MEDICARE 
DRUG PLAN ENROLLEES.— 
‘‘(A) IN GENERAL.—The amount of the re-
bate specified under this paragraph for a manu-
facturer for a rebate period, with respect to 
each dosage form and strength of any covered 
part D drug provided by such manufacturer 
and dispensed to a rebate eligible individual, 
shall be equal to the product of— 
‘‘(i) the total number of units of such 
dosage form and strength of the drug so 
provided and dispensed for which payment 
was made by a PDP sponsor or an MA or-
ganization under this part for the rebate 
period, including payments passed through 
the low-income and reinsurance subsidies 
under sections 1860D–14 and 1860D– 
15(b), respectively; and 
‘‘(ii) the amount (if any) by which— 
‘‘(I) the Medicaid rebate amount 
(as defined in subparagraph (B)) for 
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such form, strength, and period, ex-
ceeds 
‘‘(II) the average Medicare drug 
program rebate eligible rebate amount 
(as defined in subparagraph (C)) for 
such form, strength, and period. 
‘‘(B) MEDICAID
REBATE
AMOUNT.—For 
purposes of this paragraph, the term ‘Medicaid 
rebate amount’ means, with respect to each 
dosage form and strength of a covered part D 
drug provided by the manufacturer for a rebate 
period— 
‘‘(i) in the case of a single source 
drug or an innovator multiple source drug, 
the 
amount 
specified 
in 
paragraph 
(1)(A)(ii)(II) or (2)(C) of section 1927(c) 
plus the amount, if any, specified in sub-
paragraph (A)(ii) of paragraph (2) of such 
section, for such form, strength, and pe-
riod; or 
‘‘(ii) in the case of any other covered 
outpatient drug, the amount specified in 
paragraph (3)(A)(i) of such section for 
such form, strength, and period. 
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‘‘(C) AVERAGE MEDICARE DRUG PROGRAM 
REBATE ELIGIBLE REBATE AMOUNT.—For pur-
poses of this subsection, the term ‘average 
Medicare drug program rebate eligible rebate 
amount’ means, with respect to each dosage 
form and strength of a covered part D drug 
provided by a manufacturer for a rebate period, 
the sum, for all PDP sponsors under part D 
and MA organizations administering an MA– 
PD plan under part C, of— 
‘‘(i) the product, for each such spon-
sor or organization, of— 
‘‘(I) the sum of all rebates, dis-
counts, or other price concessions (not 
taking into account any rebate pro-
vided under paragraph (2) or any dis-
counts under the program under sec-
tion 1860D–14A) for such dosage 
form and strength of the drug dis-
pensed, calculated on a per-unit basis, 
but only to the extent that any such 
rebate, discount, or other price con-
cession applies equally to drugs dis-
pensed to rebate eligible Medicare 
drug plan enrollees and drugs dis-
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pensed to PDP and MA–PD enrollees 
who are not rebate eligible individuals; 
and 
‘‘(II) the number of the units of 
such dosage and strength of the drug 
dispensed during the rebate period to 
rebate eligible individuals enrolled in 
the prescription drug plans adminis-
tered by the PDP sponsor or the MA– 
PD plans administered by the MA or-
ganization; divided by 
‘‘(ii) the total number of units of such 
dosage and strength of the drug dispensed 
during the rebate period to rebate eligible 
individuals enrolled in all prescription drug 
plans administered by PDP sponsors and 
all MA–PD plans administered by MA or-
ganizations. 
‘‘(D) USE OF ESTIMATES.—The Secretary 
may establish a methodology for estimating the 
average Medicare drug program rebate eligible 
rebate amounts for each rebate period based on 
bid and utilization information under this part 
and may use these estimates as the basis for 
determining the rebates under this section. If 
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