I 
110TH CONGRESS 
1ST SESSION H. R. 2606 
To amend section 340B of the Public Health Service Act to revise and 
expand the drug discount program under that section to improve the 
provision of discounts on drug purchases for certain safety net providers. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 7, 2007 
Mr. RUSH (for himself, Mrs. EMERSON, and Mr. STUPAK) introduced the 
following bill; which was referred to the Committee on Energy and Commerce 
A BILL 
To amend section 340B of the Public Health Service Act 
to revise and expand the drug discount program under 
that section 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; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘340B Program Improvement and Integrity Act of 2007’’. 
(b) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows: 
Sec. 1. Short title; table of contents. 
Sec. 2. Expanded participation in 340B program. 
Sec. 3. Extension of discounts to inpatient drugs. 
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Sec. 4. Improvements to 340B program integrity. 
Sec. 5. Other improvements in 340B program. 
Sec. 6. Effective dates. 
SEC. 2. EXPANDED PARTICIPATION IN 340B PROGRAM. 
(a) EXPANSION OF COVERED ENTITIES RECEIVING 
DISCOUNTED PRICES.—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 subparagraphs: 
‘‘(M) A children’s hospital excluded from 
the Medicare prospective payment system pur-
suant to section 1886(d)(1)(B)(iii) of the Social 
Security Act (42 U.S.C. 1395ww(d)(1)(B)(iii)) 
which would meet the requirements of sub-
section (a)(4)(L), including the disproportionate 
share adjustment percentage requirement under 
clause (ii), if the hospital were a subsection (d) 
hospital as defined by Section 1886(d)(1)(B) of 
the Social Security Act. 
‘‘(N) An entity that is a critical access hos-
pital (as determined under section 1820(c)(2) 
of the Social Security Act (42 U.S.C. 1395i– 
4(c)(2)). 
‘‘(O) An entity receiving funds under title 
V of the Social Security Act (relating to mater-
nal and child health) for the provision of health 
services. 
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‘‘(P) An entity receiving funds under sub-
part I of part B of title XIX of the Public 
Health Service Act (relating to comprehensive 
mental health services) for the provision of com-
munity mental health services. 
‘‘(Q) An entity receiving funds under sub-
part II of such part B (relating to the preven-
tion and treatment of substance abuse) for the 
provision of treatment services for substance 
abuse. 
‘‘(R) 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). 
‘‘(S) An entity that is a sole community 
hospital 
(as 
defined 
in 
section 
1886(d)(5)(D)(iii) of the Social Security Act). 
‘‘(T) An entity that is classified as a rural 
referral center under section 1886(d)(5)(C) of 
the Social Security Act.’’. 
(b) PROHIBITION ON GROUP PURCHASING ARRANGE-
MENTS.—Section 340B(a) of such Act (42 U.S.C. 
256b(a)) is amended— 
(1) in paragraph (4)(L)— 
(A) by adding ‘‘and’’ at the end of clause 
(i); 
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(B) by striking ‘‘; and’’ at the end of 
clause (ii) and inserting a period; and 
(C) by striking clause (iii); 
(2) in subsection (a)(5), by redesignating the 
subparagraphs (C) and (D) as subparagraphs (D) 
and (E), respectively, and by inserting after sub-
paragraph (B) the following new subparagraph: 
‘‘(C) PROHIBITING
USE
OF
GROUP
PUR-
CHASING ARRANGEMENTS.— 
‘‘(i) A hospital described in subpara-
graph (L), (M), (N), (R), (S), or (T) of 
subsection (a)(4) shall not obtain covered 
outpatient drugs through a group pur-
chasing organization or other group pur-
chasing arrangement, except as permitted 
or provided pursuant to clause (ii) or (iii). 
‘‘(ii) Clause (i) shall not apply to 
drugs purchased for inpatient use. 
‘‘(iii) The Secretary shall establish 
reasonable exceptions to the requirement of 
clause (i)— 
‘‘(I) with respect to a covered 
outpatient drug that is unavailable to 
be purchased through the program 
under this section due to a drug 
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shortage problem, manufacturer non- 
compliance, or any other reason be-
yond the hospital’s control; 
‘‘(II) to facilitate generic substi-
tution when a generic covered out-
patient drug is available at a lower 
price; or 
‘‘(III) to reduce in other ways 
the administrative burdens of man-
aging both inventories of drugs ob-
tained under this section and not 
under this section, if such exception 
does not create a duplicate discount 
problem in violation of subparagraph 
(A) or a diversion problem in violation 
of subparagraph (B).’’. 
SEC. 3. 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 (b)— 
(A) by designating the matter beginning 
‘‘In this section’’ as a paragraph (1) with the 
heading ‘‘IN GENERAL’’ ; and 
(B) by adding at the end the following new 
paragraph: 
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‘‘(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-
graph (L), (M), (N), (R), (S), or (T) of sub-
section (a)(4) that is enrolled to participate in 
the drug discount program under this section.’’; 
and 
(2) in paragraphs (5), (7), and (9), by striking 
‘‘outpatient’’ each place it appears. 
(b) MEDICAID CREDITS ON INPATIENT DRUGS.— 
Subsection (c) of section 340B of the Public Health Serv-
ice 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 (L), (M), (N), 
(R), (S), or (T) of subsection (a)(4) and enrolled to 
participate in the drug discount program under this 
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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 
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 
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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— 
‘‘(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) 
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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 
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, 
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‘‘(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 
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; 
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‘‘(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 
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— 
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‘‘(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 
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 of the 340B Program Improvement 
Act of 2007.’’. 
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(c) CONFORMING AMENDMENTS.—Section 1927 of 
the Social Security Act (42 U.S.C. 1396r-8), is amend-
ed— 
(1) in subsection (a)(5)(A), by striking ‘‘covered 
outpatient drugs’’ and inserting ‘‘covered drugs (as 
defined in section 340B(b)(2) of the Public Health 
Service Act)’’; 
(2) in subsection (a)(5)(D), by striking ‘‘title 
VI of the Veterans Health Care Act of 1992’’ and 
inserting ‘‘the 340B Program Improvement and In-
tegrity Act of 2007’’; 
(3) in subsection (c)(1)(C)(i), by redesignating 
subclauses (II) through (IV) as subclauses (III) 
through (V), respectively and by inserting after sub-
clause (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 
(4) in subsection (k)(1)— 
(A) in subparagraph (A), by striking ‘‘sub-
paragraph (B)’’ and inserting ‘‘subparagraph 
(B) and (D)’’; and 
(B) by adding at the end the following new 
subparagraph: 
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