(2) PHYSICIAN, 
PRACTITIONER.—The terms 
‘‘physician’’ and ‘‘practitioner’’ have the meaning 
given those terms in subparagraphs (D) and (E), re-
spectively, of such section. 
(3) MEDICARE PROGRAM.—The term ‘‘Medicare 
program’’ means the program of health insurance 
administered by the Secretary of Health and Human 
Services under title XVIII of the Social Security Act 
(42 U.S.C. 1395 et seq.). 
SEC. 406. EXPANDED APPLICATION OF THE 340B PROGRAM 
TO DRUGS PROVIDED IN RURAL HOSPITALS. 
(a) EXPANDED PARTICIPATION IN 340B PROGRAM 
TO CERTAIN RURAL HOSPITALS.—Section 340B(a)(4) of 
the Public Health Service Act (42 U.S.C. 256b(a)(4)) is 
amended by adding at the end the following new subpara-
graphs: 
‘‘(M) An entity that is a critical access 
hospital 
(as 
determined 
under 
section 
1820(c)(2) of the Social Security Act (42 
U.S.C. 1395i–4(c)(2)). 
‘‘(N) An entity that is a Medicare-depend-
ent, small rural hospital (as defined in section 
1886(d)(5)(G)(iv) of the Social Security Act). 
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‘‘(O) An entity that is a sole community 
hospital 
(as 
defined 
in 
section 
1886(d)(5)(D)(iii) of the Social Security Act). 
‘‘(P) An entity that is classified as a rural 
referral center under section 1886(d)(5)(C) of 
the Social Security Act.’’. 
(b) EXTENSION
OF
DISCOUNTS
TO
INPATIENT 
DRUGS.— 
(1) IN GENERAL.—Section 340B of the Public 
Health Service Act (42 U.S.C. 256b) is amended— 
(A) in subsection (b)— 
(i) by designating the matter begin-
ning ‘‘In this section’’ as a paragraph (1) 
with the heading ‘‘IN GENERAL’’ ; and 
(ii) by adding at the end the following 
new paragraph: 
‘‘(2) COVERED DRUG.—In this section, the term 
‘covered drug’— 
‘‘(A) means a covered outpatient drug (as 
defined in section 1927(k)(2) of the Social Se-
curity Act); and 
‘‘(B) includes, notwithstanding the section 
1927(k)(3)(A) of such Act, a drug used in con-
nection with an inpatient or outpatient service 
provided by a hospital described in subpara-
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graph (M), (N), (O), or (P) of subsection (a)(4) 
that is enrolled to participate in the drug dis-
count program under this section.’’; and 
(B) in paragraphs (5), (7), and (9), by 
striking ‘‘outpatient’’ each place it appears. 
(2) 
MEDICAID
CREDITS
ON
INPATIENT 
DRUGS.—Subsection (c) of section 340B of the Pub-
lic Health Service Act (42 U.S.C. 256b(c)) is 
amended to read as follows: 
‘‘(c) MEDICAID CREDITS ON INPATIENT DRUGS.— 
‘‘(1) IN GENERAL.—For the cost reporting pe-
riod covered by the most recently filed Medicare cost 
report under title XVIII of the Social Security Act, 
a hospital described in subparagraph (M), (N), (O), 
or (P) of subsection (a)(4) and enrolled to partici-
pate in the drug discount program under this section 
shall provide to each State under its plan under title 
XIX of such Act — 
‘‘(A) a credit on the estimated annual 
costs to such hospital of single source and inno-
vator multiple source drugs provided to Med-
icaid recipients for inpatient use; and 
‘‘(B) a credit on the estimated annual 
costs to such hospital of noninnovator multiple 
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source drugs provided to Medicaid recipients for 
inpatient use. 
‘‘(2) CALCULATION OF CREDITS.— 
‘‘(A) SINGLE
SOURCE
AND
INNOVATOR 
MULTIPLE
SOURCE
DRUGS.—For purposes of 
paragraph (1)(A)— 
‘‘(i) the credit under such paragraph 
shall be equal to the product of— 
‘‘(I) the estimated annual costs 
of single source and innovator mul-
tiple source drugs provided by the 
hospital to Medicaid recipients for in-
patient use; 
‘‘(II) the average manufacturer 
price adjustment; and 
‘‘(III) the minimum rebate per-
centage 
described 
in 
section 
1927(c)(1)(B) of the Social Security 
Act; 
‘‘(ii) the estimated annual costs of 
single source drugs and innovator multiple 
source drugs provided by the hospital to 
Medicaid recipients for inpatient use under 
clause (i)(I) shall be equal to the product 
of— 
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‘‘(I) the hospital’s actual acquisi-
tion costs of all drugs purchased dur-
ing the cost reporting period for inpa-
tient use; 
‘‘(II) the Medicaid inpatient drug 
charges as reported on the hospital’s 
most recently filed Medicare cost re-
port divided by total inpatient drug 
charges reported on the cost report; 
and 
‘‘(III) the percent of the hos-
pital’s annual inpatient drug costs de-
scribed in subclause (I) arising out of 
the purchase of single source and in-
novator multiple source drugs; 
‘‘(iii) the average manufacturer price 
adjustment referenced in clause (i)(II) 
shall be determined annually by the Sec-
retary for single source and innovator mul-
tiple source drugs by dividing on an aggre-
gate basis the average manufacturer price 
as defined in section 1927(k)(1)(D) of the 
Social Security Act, averaged across all 
covered drugs reported to the Secretary 
pursuant to section 1927(b)(3) of such Act 
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by the average 340B ceiling price for cov-
ered drugs calculated pursuant to sub-
section (a)(1); and 
‘‘(iv) the terms ‘single source drug’ 
and ‘innovator multiple source drug’ have 
the meanings given such terms in section 
1927(k)(7) of the Social Security Act. 
‘‘(B) NONINNOVATOR
MULTIPLE
SOURCE 
DRUGS.—For 
purposes 
of 
subparagraph 
(1)(B)— 
‘‘(i) the credit under such paragraph 
shall be calculated by multiplying— 
‘‘(I) the estimated annual costs 
to the hospital of noninnovator mul-
tiple source drugs provided to Med-
icaid recipients for inpatient use, 
‘‘(II) the average manufacturer 
price adjustment, and 
‘‘(III) the applicable percentage 
as defined in section 1927(c)(3)(B) of 
the Social Security Act; 
‘‘(ii) the estimated annual costs to a 
hospital of noninnovator multiple source 
drugs provided to Medicaid recipients for 
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inpatient use under clause (i)(I) shall be 
equal to the product of— 
‘‘(I) the hospital’s actual acquisi-
tion cost of all drugs purchased dur-
ing the cost reporting period for inpa-
tient use; 
‘‘(II) the Medicaid inpatient drug 
charges as reported on the hospital’s 
most recently filed Medicare cost re-
port divided by total inpatient drug 
charges reported on the cost report; 
‘‘(III) the percent of the hos-
pital’s annual inpatient drug costs de-
scribed in subclause (I) arising out of 
the purchase of noninnovator multiple 
source drugs; 
‘‘(iii) the average manufacturer price 
adjustment referenced in clause (i)(II) 
shall be determined annually by the Sec-
retary for noninnovator multiple source 
drugs by dividing on an aggregate basis 
the average manufacturer price as defined 
in Section 1927(k)(1)(D) of the Social Se-
curity Act, averaged across all covered 
drugs reported to the Secretary pursuant 
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to Section 1927(b)(3) of such Act by the 
average 340B ceiling price for covered 
drugs 
calculated 
pursuant 
to 
section 
340B(a)(1) of the Public Health Service 
Act; and 
‘‘(iv) the term ‘noninnovator multiple 
source drug’ has the meaning given such 
term in section 1927(k)(7) of the Social 
Security Act. 
‘‘(3) PAYMENT
DEADLINE.—The credits pro-
vided by a hospital under paragraph (1) shall be 
paid within 90 days of the filing of the hospital’s 
most recently filed Medicare cost report. 
‘‘(4) OPT
OUT.—A hospital shall not be re-
quired to provide the Medicaid credit required under 
paragraph (1) if— 
‘‘(A) it can demonstrate to the State that 
the amount of the credit would not exceed the 
loss of reimbursement under the State plan re-
sulting from the extension of discounts to inpa-
tient drugs under subsection (b)(2); or 
‘‘(B) the hospital and State agree to an al-
ternative arrangement. 
Any dispute between the hospital and the State 
under this paragraph shall be adjudicated through 
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the administrative dispute resolution process under 
this section. 
‘‘(5) OFFSET AGAINST MEDICAL ASSISTANCE.— 
Amounts received by a State under this subsection 
in any quarter shall be considered to be a reduction 
in the amount expended under the State plan in the 
quarter for medical assistance for purposes of sec-
tion 1903(a)(1) of the Social Security Act. 
‘‘(6) REFERENCES TO SOCIAL SECURITY ACT 
PROVISIONS.—Notwithstanding any other provision 
of law, all references to provisions of the Social Se-
curity Act in this section shall be deemed to be ref-
erences to the Social Security Act as in effect on the 
effective date specified in section 406(c)(1) of the 
Health Care Access and Rural Equity (H–CARE) 
Act of 2007.’’. 
(3) CONFORMING AMENDMENTS.—Section 1927 
of the Social Security Act (42 U.S.C. 1396r–8), is 
amended— 
(A) in subsection (a)(5)(A), by striking 
‘‘covered outpatient drugs’’ and inserting ‘‘cov-
ered drugs (as defined in section 340B(b)(2) of 
the Public Health Service Act)’’; 
(B) in subsection (a)(5)(D), by striking 
‘‘title VI of the Veterans Health Care Act of 
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1992’’ and inserting the ‘‘Health Care Access 
and Rural Equity (H–CARE) Act of 2007’’; 
(C) in subsection (c)(1)(C)(i), by redesig-
nating subclauses (II) through (IV) as sub-
clauses (III) through (V), respectively and by 
inserting after subclause (I) the following new 
subclause: 
‘‘(II) any prices charged for a 
covered drug as defined in section 
340B(b)(2) of the Public Health Serv-
ice Act;’’; and 
(D) in subsection (k)(1)— 
(i) in subparagraph (A), by striking 
‘‘subparagraph (B)’’ and inserting ‘‘sub-
paragraph (B) and (D)’’; and 
(ii) by adding at the end the following 
new subparagraph: 
‘‘(D) 
CALCULATION
FOR
COVERED 
DRUGS.—With respect to a covered drug (as de-
fined in section 340B(b)(2) of the Public 
Health Service Act), the average manufacturer 
price is the average price paid to the manufac-
turer for the drug in the United States by 
wholesalers for drugs distributed to both the re-
tail pharmacy and acute care classes of trade, 
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after deducting customary prompt pay dis-
counts.’’. 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by 
this section shall take effect on January 1, 2008, 
and shall apply to drugs purchased on or after Jan-
uary 1, 2008. 
(2) GENERAL CONFORMING REFERENCE.—Sec-
tion 340B(d) of the Public Health Service Act (42 
U.S.C. 256b(d)) is amended by striking ‘‘Veterans 
Health Care Act of 1992’’ and inserting ‘‘the effec-
tive date specified in section 406(c)(1) of the Health 
Care Access and Rural Equity (H–CARE) Act of 
2007’’. 
(3) EFFECTIVENESS.—The amendments made 
by this section shall be effective, and shall be taken 
into account in determining whether a manufacturer 
is deemed to meet the requirements of section 
340B(a) of the Public Health Service Act (42 
U.S.C. 256b(a)) and of section 1927(a)(5) of the 
Social Security Act (42 U.S.C. 1396r–8(a)(5)), not-
withstanding any other provision of law. 
Æ 
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