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mechanism to ensure that covered entities 
comply with clause (i). If the Secretary does 
not establish a mechanism under the pre-
vious sentence within 12 months of the en-
actment of this section, the requirements of 
section 1927(a)(5)(C) of the Social Security 
Act shall apply. 
‘‘(iii) PROHIBITING
DISCLOSURE
TO 
GROUP
PURCHASING
ORGANIZATIONS.—In 
the event that a covered entity is a member 
of a group purchasing organization, such 
entity shall not disclose the price or any 
other information pertaining to any pur-
chases under this section directly or indi-
rectly to such group purchasing organiza-
tion. 
‘‘(B) PROHIBITING
RESALE, DISPENSING, 
OR ADMINISTRATION OF DRUGS EXCEPT TO CER-
TAIN PATIENTS.—With respect to any covered in-
patient drug that is subject to an agreement 
under this subsection, a covered entity shall not 
dispense, administer, resell, or otherwise transfer 
the covered inpatient drug to a person unless— 
‘‘(i) such person is a patient of the en-
tity; and
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‘‘(ii) such person does not have health 
plan coverage (as defined in subsection 
(c)(3)) that provides prescription drug cov-
erage in the inpatient setting with respect 
to such covered inpatient drug. 
For purposes of clause (ii), a person shall be 
treated as having health plan coverage (as de-
fined in subsection (c)(3)) with respect to a cov-
ered inpatient drug if benefits are not payable 
under such coverage with respect to such drug for 
reasons such as the application of a deductible or 
cost sharing or the use of utilization manage-
ment. 
‘‘(C) AUDITING.—A covered entity shall per-
mit the Secretary and the manufacturer of a cov-
ered inpatient drug that is subject to an agree-
ment under this subsection with the entity (act-
ing in accordance with procedures established by 
the Secretary relating to the number, duration, 
and scope of audits) to audit at the Secretary’s 
or the manufacturer’s expense the records of the 
entity that directly pertain to the entity’s com-
pliance with the requirements described in sub-
paragraph (A) or (B) with respect to drugs of 
the manufacturer. The use or disclosure of infor-
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mation for performance of such an audit shall be 
treated as a use or disclosure required by law for 
purposes of section 164.512(a) of title 45, Code 
of Federal Regulations. 
‘‘(D) ADDITIONAL
SANCTION
FOR
NON-
COMPLIANCE.—If the Secretary finds, after no-
tice and hearing, that a covered entity is in vio-
lation of a requirement described in subpara-
graph (A) or (B), the covered entity shall be lia-
ble to the manufacturer of the covered inpatient 
drug that is the subject of the violation in an 
amount equal to the reduction in the price of the 
drug (as described in subparagraph (A)) pro-
vided under the agreement between the Secretary 
and the manufacturer under this subsection. 
‘‘(E) MAINTENANCE OF RECORDS.— 
‘‘(i) IN
GENERAL.—A covered entity 
shall establish and maintain an effective 
recordkeeping system to comply with this 
section and shall certify to the Secretary 
that such entity is in compliance with sub-
paragraphs (A) and (B). The Secretary 
shall require that hospitals that purchase 
covered inpatient drugs for inpatient dis-
pensing or administration under this sub-
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section appropriately segregate inventory of 
such covered inpatient drugs, either phys-
ically or electronically, from drugs for out-
patient use, as well as from drugs for inpa-
tient dispensing or administration to indi-
viduals who have (for purposes of subpara-
graph (B)) health plan coverage described 
in clause (ii) of such subparagraph. 
‘‘(ii) CERTIFICATION
OF
NO
THIRD- 
PARTY
PAYER.—A covered entity shall 
maintain records that contain certification 
by the covered entity that no third party 
payment was received for any covered inpa-
tient drug that is subject to an agreement 
under this subsection and that was dis-
pensed to an inpatient. 
‘‘(5) TREATMENT OF DISTINCT UNITS OF HOS-
PITALS.—In the case of a covered entity that is a dis-
tinct part of a hospital, the distinct part of the hos-
pital shall not be considered a covered entity under 
this subsection unless the hospital is otherwise a cov-
ered entity under this subsection. 
‘‘(6) NOTICE
TO
MANUFACTURERS.—The Sec-
retary shall notify manufacturers of covered inpatient 
drugs and single State agencies under section
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1902(a)(5) of the Social Security Act of the identities 
of covered entities under this subsection, and of enti-
ties that no longer meet the requirements of para-
graph (4), by means of timely updates of the Internet 
website supported by the Department of Health and 
Human Services relating to this section. 
‘‘(7) NO PROHIBITION ON LARGER DISCOUNT.— 
Nothing in this subsection shall prohibit a manufac-
turer from charging a price for a drug that is lower 
than the maximum price that may be charged under 
paragraph (1). 
‘‘(b) COVERED ENTITY DEFINED.—In this section, the 
term ‘covered entity’ means an entity that meets the re-
quirements described in subsection (a)(4) and is one of the 
following: 
‘‘(1) A subsection (d) hospital (as defined in sec-
tion 1886(d)(1)(B) of the Social Security Act) that— 
‘‘(A) is owned or operated by a unit of 
State or local government, is a public or private 
non-profit corporation which is formally granted 
governmental powers by a unit of State or local 
government, or is a private nonprofit hospital 
which has a contract with a State or local gov-
ernment to provide health care services to low in-
come individuals who are not entitled to benefits
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under title XVIII of the Social Security Act or 
eligible for assistance under the State plan for 
medical assistance under title XIX of such Act; 
and 
‘‘(B) for the most recent cost reporting pe-
riod that ended before the calendar quarter in-
volved, had a disproportionate share adjustment 
percentage (as determined using the methodology 
under section 1886(d)(5)(F) of the Social Secu-
rity Act as in effect on the date of enactment of 
this section) greater than 20.20 percent or was 
described in section 1886(d)(5)(F)(i)(II) of such 
Act (as so in effect on the date of enactment of 
this section). 
‘‘(2) A children’s hospital excluded from the 
Medicare prospective payment system pursuant to 
section 1886(d)(1)(B)(iii) of the Social Security Act 
that would meet the requirements of paragraph (1), 
including the disproportionate share adjustment per-
centage requirement under subparagraph (B) of such 
paragraph, if the hospital were a subsection (d) hos-
pital as defined by section 1886(d)(1)(B) of the Social 
Security Act. 
‘‘(3) A free-standing cancer hospital excluded 
from the Medicare prospective payment system pursu-
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•HR 4213 EAH1S 
ant to section 1886(d)(1)(B)(v) of the Social Security 
Act that would meet the requirements of paragraph 
(1), including the disproportionate share adjustment 
percentage requirement under subparagraph (B) of 
such paragraph, if the hospital were a subsection (d) 
hospital as defined by section 1886(d)(1)(B) of the 
Social Security Act. 
‘‘(4) An entity that is a critical access hospital 
(as determined under section 1820(c)(2) of the Social 
Security Act), and that meets the requirements of 
paragraph (1)(A). 
‘‘(5) An entity that is a rural referral center, as 
defined by section 1886(d)(5)(C)(i) of the Social Secu-
rity Act, or a sole community hospital, as defined by 
section 1886(d)(5)(C)(iii) of such Act, and that both 
meets the requirements of paragraph (1)(A) and has 
a disproportionate share adjustment percentage equal 
to or greater than 8 percent. 
‘‘(c) OTHER DEFINITIONS.—In this section: 
‘‘(1) AVERAGE MANUFACTURER PRICE.— 
‘‘(A) IN
GENERAL.—The term ‘average 
manufacturer price’— 
‘‘(i) has the meaning given such term 
in section 1927(k) of the Social Security 
Act, except that such term shall be applied
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•HR 4213 EAH1S 
under this section with respect to covered 
inpatient drugs in the same manner (as ap-
plicable) as such term is applied under such 
section 1927(k) with respect to covered out-
patient drugs (as defined in such section); 
and 
‘‘(ii) with respect to a covered inpa-
tient drug for which there is no average 
manufacturer price (as defined in clause 
(i)), shall be the amount determined under 
regulations promulgated by the Secretary 
under subparagraph (B). 
‘‘(B) RULEMAKING.—The Secretary shall by 
regulation, in consultation with the Adminis-
trator of the Centers for Medicare & Medicaid 
Services, establish a method for determining the 
average manufacturer price for covered inpatient 
drugs for which there is no average manufacturer 
price (as defined in subparagraph (A)(i)). Regu-
lations promulgated with respect to covered in-
patient drugs under the preceding sentence shall 
provide for the application of methods for deter-
mining the average manufacturer price that are 
the same as the methods used to determine such 
price in calculating rebates required for such
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•HR 4213 EAH1S 
drugs under an agreement between a manufac-
turer and a State that satisfies the requirements 
of section 1927(b) of the Social Security Act, as 
applicable. 
‘‘(2) COVERED INPATIENT DRUG.—The term ‘cov-
ered inpatient drug’ means a drug— 
‘‘(A) that is described in section 1927(k)(2) 
of the Social Security Act; 
‘‘(B) 
that, 
notwithstanding 
paragraph 
(3)(A) of section 1927(k) of such Act, is used in 
connection with an inpatient service provided by 
a covered entity that is enrolled to participate in 
the drug discount program under this section; 
and 
‘‘(C) that is not purchased by the covered 
entity through or under contract with a group 
purchasing organization. 
‘‘(3) HEALTH
PLAN
COVERAGE.—The term 
‘health plan coverage’ means— 
‘‘(A) health insurance coverage (as defined 
in section 2791, and including coverage under a 
State health benefits risk pool); 
‘‘(B) coverage under a group health plan 
(as defined in such section, and including cov-
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•HR 4213 EAH1S 
erage under a church plan, a governmental plan, 
or a collectively bargained plan); 
‘‘(C) coverage under a Federal health care 
program (as defined by section 1128B(f) of the 
Social Security Act); or 
‘‘(D) such other health benefits coverage as 
the Secretary recognizes for purposes of this sec-
tion. 
‘‘(4) MANUFACTURER.—The term ‘manufacturer’ 
has the meaning given such term in section 1927(k) 
of the Social Security Act. 
‘‘(d) PROGRAM INTEGRITY.— 
‘‘(1) MANUFACTURER COMPLIANCE.— 
‘‘(A) IN GENERAL.—From amounts appro-
priated under subsection (f), the Secretary shall 
provide for improvements in compliance by 
manufacturers with the requirements of this sec-
tion in order to prevent overcharges and other 
violations of the discounted pricing requirements 
specified in this section. 
‘‘(B) IMPROVEMENTS.—The improvements 
described in subparagraph (A) shall include the 
following: 
‘‘(i) The establishment of a process to 
enable the Secretary to verify the accuracy
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•HR 4213 EAH1S 
of ceiling prices calculated by manufactur-
ers under subsection (a)(1) and charged to 
covered entities, which shall include the fol-
lowing: 
‘‘(I) Developing and publishing 
through an appropriate policy or regu-
latory 
issuance, 
precisely 
defined 
standards and methodology for the cal-
culation of ceiling prices under such 
subsection. 
‘‘(II) Comparing regularly the 
ceiling prices calculated by the Sec-
retary with the quarterly pricing data 
that is reported by manufacturers to 
the Secretary. 
‘‘(III) Conducting periodic moni-
toring of sales transactions by covered 
entities. 
‘‘(IV) Inquiring into any discrep-
ancies between ceiling prices and man-
ufacturer pricing data that may be 
identified and taking, or requiring 
manufacturers to take, corrective ac-
tion in response to such discrepancies, 
including the issuance of refunds pur-
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•HR 4213 EAH1S 
suant to the procedures set forth in 
clause (ii). 
‘‘(ii) The establishment of procedures 
for manufacturers to issue refunds to cov-
ered entities in the event that there is an 
overcharge by the manufacturers, including 
the following: 
‘‘(I) Providing the Secretary with 
an explanation of why and how the 
overcharge occurred, how the refunds 
will be calculated, and to whom the re-
funds will be issued. 
‘‘(II) Oversight by the Secretary 
to ensure that the refunds are issued 
accurately and within a reasonable pe-
riod of time. 
‘‘(iii) The provision of access through 
the Internet website supported by the De-
partment of Health and Human Services to 
the applicable ceiling prices for covered in-
patient drugs as calculated and verified by 
the Secretary in accordance with this sec-
tion, in a manner (such as through the use 
of password protection) that limits such ac-
cess to covered entities and adequately