I
107TH CONGRESS
2D SESSION
H. R. 5167
To amend title XVIII of the Social Security Act with respect to reform
of payment for drugs and biologicals under the Medicare Program.
IN THE HOUSE OF REPRESENTATIVES
JULY 18, 2002
Mr. STARK 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 juris-
diction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act with respect
to reform of payment for drugs and biologicals under
the Medicare Program.
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 ‘‘Medicare Market Ac-
quisition Drug Price Act of 2002’’.
SEC. 
2. 
REFORM 
OF 
PAYMENT 
FOR 
DRUGS 
AND
BIOLOGICALS UNDER THE MEDICARE PRO-
GRAM.
(a) PAYMENT REFORM.—
(1) IN GENERAL.—Section 1842(o) of the So-
cial Security Act (42 U.S.C. 1395u(o)) is amended
to read as follows:
‘‘(o) PAYMENT FOR DRUGS AND BIOLOGICALS.—
‘‘(1) GENERAL RULE.—If a physician’s, sup-
plier’s, or any other person’s bill or request for pay-
ment for services includes a charge for a drug or bi-
ological for which payment may be made under this
part and the drug or biological is not paid on a cost
or prospective payment basis as otherwise provided
in this part, the amount payable for the drug or bio-
logical shall be based on the following:
‘‘(A) MULTI-SOURCE (GENERIC) DRUGS.—
In the case of a drug or biological that meets
the requirements for a multi-source drug under
subclauses 
(I) 
and 
(II) 
of 
section
1927(k)(7)(A)(i), 105 percent of the volume-
weighted median average acquisition price for
any drug or biological covered under the same
medicare HCPCS code.
‘‘(B) SINGLE SOURCE (BRAND) DRUGS AND
BIOLOGICALS.—In the case of a drug or biologi-
volved an appropriate payment for the drug or
biological for such average acquisition price.
‘‘(E) APPLICATION OF NDC CODES.—If the
Secretary determines that it is appropriate to
provide for payment under this subsection using
national drug code (NDC) instead of HCPCS
codes, in applying subparagraph (A) the ref-
erence to the same HCPCS code shall be
deemed a reference to the appropriate national
drug codes for those drugs or biologicals that
are therapeutically and pharmaceutically equiv-
alent and bioequivalent (as defined for purposes
of section 1927(k)(7)(A)).
‘‘(2) DEFINITION
OF
AVERAGE
ACQUISITION
PRICE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘average acquisition price’
means, with respect to a drug or biological and
with respect to each dosage form and strength
of the drug or biological product (without re-
gard to any special packaging, labeling, or iden-
tifiers on the dosage form or product or pack-
age), the average of all final sales prices
charged by the manufacturer of the drug or bio-
logical product in the United States, excluding
sales exempt from inclusion in the calculation
of best price under section 1927(c)(1)(C) (other
than under clause (ii)(III) of such section) and
excluding sales subject to a rebate under section
1927, as reported under paragraph (3).
‘‘(B) NET PRICE.—Such average acquisi-
tion price shall be calculated net of all of the
following (as estimated by the Secretary):
‘‘(i) Volume discounts.
‘‘(ii) Prompt pay discounts and cash
discounts.
‘‘(iii) Charge-backs.
‘‘(iv) Short-dated product discounts
(for spoilage and other factors).
‘‘(v) Free goods and services.
‘‘(vi) Rebates.
‘‘(vii) All other price concessions pro-
vided by the drug manufacturer.
The Secretary may make subsequent adjust-
ments in such average acquisition price to take
into account updated information and dif-
ferences between the price previously estimated
and the actual average acquisition price.
‘‘(C) WEIGHTING.—The average of all
final sales prices described in subparagraph (A)
shall be determined by dividing—
‘‘(i) the sum of all final prices charged
by the manufacturer (net of the adjust-
ments made under subparagraph (B)) for
sales in the period involved that are in-
cluded in subparagraph (A) for the drug or
biological, by
‘‘(ii) the total number of units of such
sales in the period.
‘‘(D) DISTRIBUTION
OF
REPORTS.—The
Secretary shall promptly distribute applicable
payment rates under this subsection to carriers
and fiscal intermediaries and other contractors
that make payment for drugs and biologicals
under this section in order to apply a uniform
reimbursement rate under this section.
‘‘(3) PRICE REPORTING REQUIREMENT.—
‘‘(A) IN
GENERAL.—As a condition for
payment for any drug or biological of a manu-
facturer under this subsection, the manufac-
turer of the drug or biological shall—
‘‘(i) report, on a quarterly basis, to
the Secretary (or the Secretary’s designee)
the manufacturer’s average acquisition
price and the information required under
subparagraph (C) for all drugs and
biologicals of the manufacturer by national
drug code (NDC);
‘‘(ii) maintain such records (in written
or electronic form) regarding such sales
and prices for all such drugs and
biologicals as may be necessary to audit
the information so reported or required to
be reported; and
‘‘(iii) provide the Secretary with ac-
cess to such records in order to permit the
Secretary to audit information so reported
or required to be reported.
‘‘(B) PENALTIES.—The provisions of sec-
tion 1927(b)(3)(C) shall apply with respect to
the reporting of information under subpara-
graph (A) in the same manner as it applies to
the reporting of information under section
1927(b)(3)(A), except that the reference in
clause (i) of such section to $10,000 is deemed
a reference to $100,000 and any reference to a
suspension of an agreement is deemed a ref-
erence to a suspension of payment for the drug
or biological involved under this part. The Sec-
retary shall promptly refer to the Inspector
General of the Department of Health and
Human Services and, if appropriate, to appro-
priate officials in the Department of Justice
cases in which the Secretary becomes aware of
a false price representation made in the infor-
mation submitted under this paragraph.
‘‘(C) FORM OF REPORTING.—Information
required to be reported under subparagraph
(A)(i) shall be reported in a form and manner
specified by the Secretary. The information re-
quired to be reported shall include the identi-
fication of the generic name of the drug or bio-
logical and its brand name (if any), the national
drug code (NDC) and the HCPCS code as-
signed to the drug or biological, the dosage
form, strength, volume, and package size in-
volved. The information for a quarter shall be
submitted not later than 30 days after the end
of the quarter. The information shall be accom-
panied by a written and signed certification by
an officer of the manufacturer attesting to the
accuracy of the information reported. Such in-
formation shall include updated information on
the net price realized (taking into account re-
bates and other amounts affecting net price),
regardless of the period for which such a rebate
or other adjustment in net price might have
been earned.
‘‘(D) 
AUDITING.—The 
Secretary 
shall
audit on a periodic basis information reported
or required to be reported under this para-
graph. The Secretary may conduct such inde-
pendent price gathering activities, such as sur-
veys and review of published catalog informa-
tion or other transactional information, as may
be appropriate to verify the accuracy of the in-
formation reported.
‘‘(4) DISPENSING FEE.—If payment for a drug
or biological is made to a licensed pharmacy ap-
proved to dispense drugs or biologicals under this
part, the Secretary shall pay a dispensing fee (less
the applicable deductible and coinsurance amounts)
to the pharmacy. Such a dispensing fee shall be sub-
ject to adjustment from year to year based upon
changes in the consumer price index over time and
may be adjusted as the Secretary determines to be
appropriate to reflect differences in the costs of dis-
pensing different drugs and biologicals.
‘‘(5) PAYMENT REQUIRED ON AN ASSIGNMENT-
RELATED BASIS.—
‘‘(A) IN GENERAL.—Payment for a charge
for any drug or biological for which payment
may be made under this part may be made only
on an assignment-related basis.
‘‘(B) 
APPLICATION
OF
ENFORCEMENT
PROVISIONS.—The 
provisions 
of 
subsection
(b)(18)(B) shall apply to charges for such
drugs or biologicals in the same manner as they
apply to services furnished by a practitioner de-
scribed in subsection (b)(18)(C).’’.
(2) EFFECTIVE DATE.—Subject to subsection
(c)(2), the amendment made by paragraph (1) shall
apply to drugs and biologicals furnished on or after
January 1, 2003.
(b) REVISION IN PRACTICE EXPENSE PAYMENTS.—
(1) ADJUSTMENT
IN
ONCOLOGIST
MEDICAL
SUPPLY EXPENSES.—In computing the practice ex-
pense component of the physician fee schedule under
section 1848 of the Social Security Act (42 U.S.C.
1395w–4) with respect to payment for services of
oncologists, the Secretary of Health and Human
Services shall make adjustments to oncologists’ re-
ported medical supply expenses in order to ensure
that such expenses better reflect the actual supply
costs of providing such services.
(2) ALLOCATION OF INDIRECT EXPENSES.—In
establishing such fee schedule, the Secretary shall
change the allocation of indirect expenses in a man-
ner so that all services, including services without di-
rect physician involvement, are allocated the appro-
priate share of indirect expenses.
(3) SERVICES WITHOUT DIRECT PHYSICIAN IN-
VOLVEMENT.—In establishing such fee schedule, the
Secretary shall calculate payments, for those services
without direct physician involvement under the basic
method, using information on the resources required
for each services and, if deemed necessary, shall vali-
date the underlying resource-based estimates of di-
rect practice expenses required to provide each serv-
ice.
(4) BUDGET
NEUTRAL
ADJUSTMENT.—The
changes in payment made by this subsection shall
not be treated as a change in law or regulation de-
scribed in section 1848(f)(2)(D) of the Social Secu-
rity Act (42 U.S.C. 1395w–4(f)(2)(D)).
(5) EFFECTIVE DATE.—The provisions of this
subsection apply to payments for services furnished
on or after January 1, 2003.
(c) STUDY OF PAYMENTS FOR BLOOD CLOTTING
FACTORS AND OTHER BIOLOGICALS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall provide for a study of the ap-
propriateness of the medicare payment methodology
for blood clotting factors and other biologicals under
part B of title XVIII of the Social Security Act. Not
later than 9 months after the date of the enactment
of this Act, the Secretary shall submit to Congress
a report on such study and shall include in such re-
port recommendations regarding whether to apply
the payment methodology provided under the
amendment made by subsection (a)(1) and alter-
native recommendations for appropriate dispensing
fees.
(2) DELAY IN EFFECTIVE DATE.—The amend-
ment made by subsection (a)(1) shall not apply to
blood clotting factors furnished before the first day
of the first calendar year that begins at least 6
months after the date the report under paragraph
(1) has been submitted to the Congress.
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