I 
112TH CONGRESS 
1ST SESSION H. R. 2674 
To amend section 340B of the Public Health Service Act to improve the 
provision of discounts on drug purchases for certain safety net providers. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 27, 2011 
Mrs. MCMORRIS RODGERS (for herself, Mr. RUSH, Mrs. EMERSON, Ms. 
BROWN of Florida, Mr. OWENS, Mr. CLARKE of Michigan, Mrs. CAPITO, 
Mr. CLEAVER, and Mr. YOUNG of Florida) 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 subse-
quently 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 section 340B of the Public Health Service Act 
to improve the provision of discounts on drug purchases 
for certain safety net providers. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘340B Program Im-
provement Act’’. 
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SEC. 2. EXTENSION OF DISCOUNTS TO INPATIENT DRUGS. 
(a) IN GENERAL.—Section 340B of the Public 
Health Service Act (42 U.S.C. 256b) is amended— 
(1) in subsection (a)— 
(A) in paragraphs (1), (2), and (5), by 
striking ‘‘covered outpatient drug’’ each place 
such term appears and inserting ‘‘covered 
drug’’; and 
(B) in paragraphs (1), (7), and (9), by 
striking ‘‘covered outpatient drugs’’ each place 
such term appears and inserting ‘‘covered 
drugs’’; 
(2) in subsection (b)(2)(B) by striking ‘‘para-
graph (3)(A)’’ and inserting ‘‘paragraph (3)’’; and 
(3) in subsection (d), by striking ‘‘covered out-
patient drugs’’ each place such term appears and in-
serting ‘‘covered drugs’’. 
(b) MEDICAID CREDITS ON INPATIENT DRUGS.— 
Section 340B of the Public Health Service Act (42 U.S.C. 
256b) is amended by inserting after subsection (b) the fol-
lowing new subsection: 
‘‘(c) MEDICAID CREDITS ON INPATIENT DRUGS.— 
‘‘(1) IN GENERAL.—For each cost reporting pe-
riod, based on the most recently filed Medicare cost 
report under title XVIII of the Social Security Act 
and subject to paragraph (5), a hospital described in 
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subparagraph (L), (M), (N), or (O) of subsection 
(a)(4) and enrolled to participate in the drug dis-
count program under this section shall provide to 
each State that has a plan for medical assistance 
under title XIX of such Act and that makes pay-
ment to such hospital for covered drugs provided to 
Medicaid recipients for inpatient use, a credit on the 
estimated annual purchases by such hospital of such 
covered drugs provided to such Medicaid recipients. 
‘‘(2) AMOUNT OF CREDIT.— 
‘‘(A) IN GENERAL.—The credit described 
in paragraph (1), with respect to a hospital and 
cost reporting period described in such para-
graph shall be equal to— 
‘‘(i) the product of— 
‘‘(I) the sum of the annual credit 
amounts (described in subparagraph 
(B)) calculated under subparagraph 
(B)(i) for each dosage form and 
strength of each covered drug pur-
chased by the hospital during the cost 
reporting period; and 
‘‘(II) the estimated percentage of 
the purchases of covered drugs by the 
hospital during such period attrib-
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utable to Medicaid recipients for inpa-
tient use, as determined in accordance 
with subparagraph (D); and 
‘‘(ii) subject to paragraph (3)(D), re-
duced by the amount by which the Med-
icaid inpatient reimbursement (as defined 
in subparagraph (E)(ii)) of the hospital for 
such period was reduced as a result of par-
ticipation in the drug discount program 
under this section during such period by 
the hospital, as determined in accordance 
with subparagraph (E). 
‘‘(B) ANNUAL
CREDIT
AMOUNTS.—For 
purposes of subparagraph (A)(i)(I), an annual 
credit amount, with respect to a covered drug 
purchased by a hospital described in paragraph 
(1) during a cost reporting period of the hos-
pital— 
‘‘(i) is equal to the sum of the quar-
terly credit amounts calculated under sub-
paragraph (C)(i), for each of the 4 quar-
ters of the cost reporting period for such 
covered drug; and 
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‘‘(ii) shall be calculated for each dos-
age form and strength of such covered 
drug. 
‘‘(C) QUARTERLY CREDIT AMOUNTS.—For 
purposes of subparagraph (B)(ii), a quarterly 
credit amount, with respect to a covered drug 
purchased by a hospital described in paragraph 
(1) during a quarter of the cost reporting pe-
riod of the hospital— 
‘‘(i) is equal to the product of— 
‘‘(I) the total number of units of 
each dosage form and strength of 
such covered drug purchased by the 
hospital during such quarter; 
‘‘(II) the average manufacturer 
price of the covered drug (for the unit 
of the dosage form and strength in-
volved) during such quarter; and 
‘‘(III) half of the rebate percent-
age for the covered drug, as defined in 
subsection (a)(2); and 
‘‘(ii) shall be calculated for— 
‘‘(I) 
each 
dosage 
form 
and 
strength of the covered drug pur-
chased by the hospital; and 
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‘‘(II) each of the 4 quarters of 
such cost reporting period. 
‘‘(D) PERCENTAGE OF DRUG PURCHASES 
ATTRIBUTABLE TO MEDICAID RECIPIENTS FOR 
IMPATIENT
USE.—For purposes of subpara-
graph (A)(i)(II), the estimated percentage of 
the drug purchases of the hospital attributable 
to Medicaid recipients for inpatient use shall be 
equal to the Medicaid inpatient drug charges as 
reported on the most recently filed Medicare 
cost report of the hospital, divided by the total 
drug charges reported on the cost report. 
‘‘(E) CREDIT OFFSET.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A)(ii), the amount by which 
the Medicaid inpatient reimbursement of a 
hospital, with respect to a cost reporting 
period, is reduced as a result of the partici-
pation in the drug discount program under 
this section by the hospital shall be com-
puted as the difference between— 
‘‘(I) the Medicaid inpatient reim-
bursement that would have otherwise 
been payable to the hospital for the 
cost reporting period if the hospital 
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