that are lower than the price provided for under subsection 
(c). 
SEC. 4. ADMINISTRATION. 
The Secretary shall issue such regulations as may be 
necessary to implement this Act within 180 days after the 
date of the enactment of this Act. 
SEC. 5. REPORTS TO CONGRESS REGARDING EFFECTIVE-
NESS OF ACT. 
(a) IN GENERAL.—Not later than 2 years after the 
date of the enactment of this Act, and annually thereafter, 
the Secretary shall report to the Congress regarding the 
effectiveness of this Act in—
(1) protecting States and local governments 
from drug price inflation, and 
(2) making prescription drugs available to State 
and local government employees, retirees, and bene-
ficiaries at substantially reduced prices. 
(b) CONSULTATION.—In preparing such reports, the 
Secretary shall consult with public health experts, affected 
industries, organizations representing consumers and 
older Americans, and other interested persons. 
(c) RECOMMENDATIONS.—The Secretary shall in-
clude in such reports any recommendations the Secretary 
considers appropriate for changes in this Act to further 
reduce the cost of covered outpatient drugs to States.
SEC. 6. DEFINITIONS. 
In this Act: 
(1) AVERAGE FOREIGN PRICE.—
(A) IN GENERAL.—The term ‘‘average for-
eign price’’ means, with respect to a covered 
outpatient drug, the average price that the 
manufacturer of the drug realizes on the sale of 
drugs with the same active ingredient or ingre-
dients that are consumed in covered foreign na-
tions, taking into account—
(i) any rebate, contract term or condi-
tion, or other arrangement (whether with 
the purchaser or other persons) that has 
the effect of reducing the amount realized 
by the manufacturer on the sale of the 
drugs; 
(ii) adjustments for any differences in 
dosage, formulation, or other relevant 
characteristics of the drugs; and 
(iii) any other contract or side agree-
ment that has the effect of adjusting the 
effective price of the drug, including agree-
ments to purchase non-drug products. 
(B) EXEMPT
TRANSACTIONS.—The Sec-
retary may, by regulation, exempt from the cal-
culation of the average foreign price of a drug
those prices realized by a manufacturer in 
transactions that are entered into for charitable 
purposes, for research purposes, or under other 
unusual circumstances, if the Secretary deter-
mines that the exemption is in the public inter-
est and is consistent with the purposes of this 
Act. 
(2) COVERED
FOREIGN
NATION.—The term 
‘‘covered foreign nation’’ means Canada, France, 
Germany, Italy, Japan, and the United Kingdom. 
(3) COVERED OUTPATIENT DRUG.—The term 
‘‘covered outpatient drug’’ has the meaning given 
that term in section 1927(k)(2) of the Social Secu-
rity Act (42 U.S.C. 1396r–8(k)(2)). 
(4) DEBAR.—The term ‘‘debar’’ means to ex-
clude, pursuant to established administrative proce-
dures, from Government contracting and subcon-
tracting for a specified period of time commensurate 
with the seriousness of the failure or offense or the 
inadequacy of performance. 
(5) 
PARTICIPATING
MANUFACTURER.—The 
term ‘‘participating manufacturer’’ means any man-
ufacturer of drugs or biologicals that, on or after the 
date of the enactment of this Act, enters into a con-
tract or agreement with the United States for the
sale or distribution of covered outpatient drugs to 
the United States. 
(6) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of Health and Human Services. 
SEC. 7. EFFECTIVE DATE. 
This Act shall apply on and after January 1, 2005, 
without regard to whether or not final regulations to carry 
out this Act have been promulgated by such date.
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