I 
111TH CONGRESS 
1ST SESSION 
H. R. 444 
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 
JANUARY 9, 2009 
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 2009’’. 
(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; and 
‘‘(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) of sub-
section (a), 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 replaced 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 
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participate 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 
source drugs provided to Medicaid recipients for 
inpatient use. 
‘‘(2) AMOUNT 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 annual value of single 
source and innovator multiple source 
drugs purchased under this section by 
the hospital based on the drugs’ aver-
age manufacturer price; 
‘‘(II) the estimated percentage of 
the hospital’s drug purchases attrib-
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most recently filed Medicare cost re-
port, divided by 
‘‘(II) total drug charges reported 
on the cost report; 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 equal to the product of— 
‘‘(I) the annual value of noninno-
vator multiple source drugs purchased 
under this section by the hospital 
based on the drugs’ average manufac-
turer price; 
‘‘(II) the estimated percentage of 
the hospital’s drug purchases attrib-
utable to Medicaid recipients for inpa-
tient use; and 
‘‘(III) the applicable percentage 
as defined in section 1927(c)(3)(B) of 
the Social Security Act; 
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‘‘(ii) the reference in clause (i)(I) to 
the annual value of noninnovator multiple 
source drugs purchased under this section 
by the hospital based on the drugs’ average 
manufacturer price shall be equal to the 
sum of— 
‘‘(I) the annual quantity of each 
noninnovator multiple source drug 
purchased during the cost reporting 
period, multiplied by 
‘‘(II) the average manufacturer 
price for that drug; 
‘‘(iii) the reference in clause (i)(II) to 
the estimated percentage of the hospital’s 
drug purchases attributable to Medicaid 
recipients for inpatient use shall be equal 
to— 
‘‘(I) the Medicaid inpatient drug 
charges as reported on the hospital’s 
most recently filed Medicare cost re-
port, divided by 
‘‘(II) total drug charges reported 
on the cost report; and 
‘‘(iv) the term ‘noninnovator multiple 
source drug’ has the meaning given such 
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term in section 1927(k)(7) of the Social 
Security Act. 
‘‘(3) CALCULATION OF CREDITS.— 
‘‘(A) IN
GENERAL.—Not later than 30 
days after receiving the information specified in 
subparagraph (B), the State shall calculate the 
credits owed by the hospital under paragraph 
(1) and provide the hospital with both the 
amounts and an explanation of how it cal-
culated the credits. In performing the calcula-
tions specified in paragraphs (2)(A)(ii) and 
(2)(B)(ii), the State shall use the average man-
ufacturer price applicable to the calendar quar-
ter in which the drug was purchased by the 
hospital. 
‘‘(B) HOSPITAL PROVISION OF INFORMA-
TION.—Not later than 30 days after the date of 
the filing of the hospital’s most recently filed 
Medicare cost report, the hospital shall provide 
the State with the information described in 
paragraphs (2)(A)(ii) and (2)(B)(ii). With re-
spect to each drug purchased during the cost 
reporting period, the hospital shall provide the 
dosage form, strength, package size, date of 
purchase and the number of units purchased. 
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‘‘(4) PAYMENT
DEADLINE.—The credits pro-
vided by a hospital under paragraph (1) shall be 
paid within 60 days after receiving the information 
specified in paragraph (3)(A). 
‘‘(5) 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 
it will lose reimbursement under the State plan 
resulting from the extension of discounts to in-
patient drugs under subsection (b)(2) and that 
the loss of reimbursement will exceed the 
amount of the credit otherwise owed by the hos-
pital; 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. 
‘‘(6) 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 
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quarter for medical assistance for purposes of sec-
tion 1903(a)(1) of the Social Security Act.’’. 
(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) by striking subsection (a)(5)(D) in its en-
tirety; 
(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 ‘‘subparagraphs 
(B) and (D)’’; and 
(B) by adding at the end the following new 
subparagraph: 
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‘‘(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 shall be determined in accordance with 
subparagraph (A) except that, in the event a 
covered drug is not distributed to the retail 
pharmacy class of trade, it shall mean the aver-
age price paid to the manufacturer for the drug 
in the United States by wholesalers for drugs 
distributed to the acute care class of trade, 
after deducting customary prompt pay dis-
counts.’’. 
SEC. 4. IMPROVEMENTS TO 340B PROGRAM INTEGRITY. 
(a) INTEGRITY IMPROVEMENTS.—Subsection (d) of 
section 340B of the Public Health Service Act (42 U.S.C. 
256b) is replaced as follows: 
‘‘(d) IMPROVEMENTS IN PROGRAM INTEGRITY.— 
‘‘(1) MANUFACTURER COMPLIANCE.— 
‘‘(A) IN GENERAL.—From amounts appro-
priated under paragraph (4), the Secretary 
shall provide for improvements in compliance by 
manufacturers with the requirements of this 
section in order to prevent overcharges and 
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other violations of the discounted pricing re-
quirements specified in this section. 
‘‘(B) IMPROVEMENTS.—The improvements 
described in subparagraph (A) shall include the 
following: 
‘‘(i) The development of a system to 
enable the Secretary to verify the accuracy 
of ceiling prices calculated by manufactur-
ers under subsection (a)(1) and charged to 
covered entities, which shall include the 
following: 
‘‘(I) Developing and publishing 
through an appropriate policy or regu-
latory 
issuance, 
precisely 
defined 
standards and methodology for the 
calculation 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) Performing spot checks of 
sales transactions by covered entities. 
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‘‘(IV) Inquiring into the cause of 
any pricing discrepancies that may be 
identified and either taking, or requir-
ing manufacturers to take, such cor-
rective action as is appropriate in re-
sponse to such price discrepancies. 
‘‘(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 
refunds will be issued. 
‘‘(II) Oversight by the Secretary 
to ensure that the refunds are issued 
accurately and within a reasonable pe-
riod of time, both in routine instances 
of retroactive adjustment to relevant 
pricing data and exceptional cir-
cumstances such as erroneous or in-
tentional overcharging for covered 
drugs. 
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‘‘(iii) The provision of access through 
the Internet website of the Department of 
Health and Human Services to the applica-
ble ceiling prices for covered drugs as cal-
culated and verified by the Secretary in ac-
cordance with this section, in a manner 
(such as through the use of password pro-
tection) that limits such access to covered 
entities and adequately assures security 
and protection of privileged pricing data 
from unauthorized re-disclosure. 
‘‘(iv) The development of a mecha-
nism by which— 
‘‘(I) rebates and other discounts 
provided by manufacturers to other 
purchasers subsequent to the sale of 
covered drugs to covered entities are 
reported to the Secretary; and 
‘‘(II) appropriate credits and re-
funds are issued to covered entities if 
such discounts or rebates have the ef-
fect of lowering the applicable ceiling 
price for the relevant quarter for the 
drugs involved. 
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‘‘(v) Selective auditing of manufactur-
ers and wholesalers to ensure the integrity 
of the drug discount program under this 
section. 
‘‘(vi) The imposition of sanctions in 
the form of civil monetary penalties, 
which— 
‘‘(I) shall be assessed according 
to standards established in regulations 
to be promulgated by the Secretary 
within 180 days of enactment of this 
subsection; 
‘‘(II) shall not exceed $5,000 for 
each instance of overcharging a cov-
ered entity that may have occurred; 
and 
‘‘(III) shall apply to any manu-
facturer with an agreement under this 
section that knowingly and inten-
tionally charges a covered entity a 
price for purchase of a drug that ex-
ceeds the maximum applicable price 
under subsection (a)(1). 
‘‘(2) COVERED ENTITY COMPLIANCE.— 
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‘‘(A) IN GENERAL.—From amounts appro-
priated under paragraph (4), the Secretary 
shall provide for improvements in compliance by 
covered entities with the requirements of this 
section in order to prevent diversion and viola-
tions of the duplicate discount provision and 
other requirements specified under subsection 
(a)(5). 
‘‘(B) IMPROVEMENTS.—The improvements 
described in subparagraph (A) shall include the 
following: 
‘‘(i) The development of procedures to 
enable and require covered entities to regu-
larly update (at least annually) the infor-
mation on the Internet website of the De-
partment of Health and Human Services 
relating to this section. 
‘‘(ii) The development of a system for 
the Secretary to verify the accuracy of in-
formation regarding covered entities that is 
listed on the website described in clause 
(i). 
‘‘(iii) The development of more de-
tailed guidance describing methodologies 
and options available to covered entities for 
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billing covered drugs to State Medicaid 
agencies in a manner that avoids duplicate 
discounts pursuant to subsection (a)(5)(A). 
‘‘(iv) The establishment of a single, 
universal, and standardized identification 
system by which each covered entity site 
can be identified by manufacturers, dis-
tributors, covered entities, and the Sec-
retary for purposes of facilitating the or-
dering, purchasing, and delivery of covered 
drugs under this section, including the 
processing of chargebacks for such drugs. 
‘‘(v) The imposition of sanctions, in 
appropriate cases as determined by the 
Secretary, additional to those to which cov-
ered entities are subject under subpara-
graph (a)(5)(E), through one or more of 
the following actions: 
‘‘(I) Where a covered entity 
knowingly and intentionally violates 
subparagraph (a)(5)(B), the covered 
entity shall be required to pay a mon-
etary penalty to a manufacturer or 
manufacturers in the form of interest 
on sums for which the covered entity 
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is 
found 
liable 
under 
paragraph 
(a)(5)(E), such interest to be com-
pounded monthly and equal to the 
current short term interest rate as de-
termined by the Federal Reserve for 
the time period for which the covered 
entity is liable. 
‘‘(II) Where the Secretary deter-
mines a violation of subparagraph 
(a)(5)(B) was systematic and egre-
gious as well as knowing and inten-
tional, removing the covered entity 
from the drug discount program 
under this section and disqualifying 
the entity from re-entry into such pro-
gram for a reasonable period of time 
to be determined by the Secretary. 
‘‘(III) Referring matters to ap-
propriate Federal authorities within 
the Food and Drug Administration, 
the Office of Inspector General of De-
partment of Health and Human Serv-
ices, or other Federal agencies for 
consideration of appropriate action 
under other Federal statutes, such as 
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the Prescription Drug Marketing Act 
(21 U.S.C. 353). 
‘‘(3) ADMINISTRATIVE
DISPUTE
RESOLUTION 
PROCESS.— 
‘‘(A) IN
GENERAL.—Not later than 180 
days after the date of enactment of this sub-
section, the Secretary shall promulgate regula-
tions to establish and implement an administra-
tive process for the resolution of claims by cov-
ered entities that they have been overcharged 
for drugs purchased under this section, and 
claims by manufacturers, after the conduct of 
audits as authorized by subsection (a)(5)(D), of 
violations of subsections (a)(5)(A) or (a)(5)(B), 
including appropriate procedures for the provi-
sion of remedies and enforcement of determina-
tions made pursuant to such process through 
mechanisms and sanctions described in para-
graphs (1)(B) and (2)(B). 
‘‘(B) DEADLINES
AND
PROCEDURES.— 
Regulations promulgated by the Secretary 
under subparagraph (A) shall— 
‘‘(i) designate or establish a decision-
making official or decisionmaking body 
within the Department of Health and 
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Human Services to be responsible for re-
viewing and finally resolving claims by cov-
ered entities that they have been charged 
prices for covered drugs in excess of the 
ceiling price described in subsection (a)(1), 
and claims by manufacturers that viola-
tions of subsection (a)(5)(A) or (a)(5)(B) 
have occurred; 
‘‘(ii) establish such deadlines and pro-
cedures as may be necessary to ensure that 
claims shall be resolved fairly, efficiently, 
and expeditiously; 
‘‘(iii) establish procedures by which a 
covered entity may discover and obtain 
such information and documents from 
manufacturers and third parties as may be 
relevant to demonstrate the merits of a 
claim that charges for a manufacturer’s 
product have exceeded the applicable ceil-
ing price under this section, and may sub-
mit such documents and information to the 
administrative official or body responsible 
for adjudicating such claim; 
‘‘(iv) require that a manufacturer 
must conduct an audit of a covered entity 
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pursuant to subsection (a)(5)(D) as a pre-
requisite to initiating administrative dis-
pute resolution proceedings against a cov-
ered entity; 
‘‘(v) permit the official or body des-
ignated in clause (i), at the request of a 
manufacturer or manufacturers, to consoli-
date claims brought by more than one 
manufacturer against the same covered en-
tity where, in the judgment of such official 
or body, consolidation is appropriate and 
consistent with the goals of fairness and 
economy of resources; and 
‘‘(vi) include provisions and proce-
dures to permit multiple covered entities to 
jointly assert claims of overcharges by the 
same manufacturer for the same drug or 
drugs in one administrative proceeding, 
and permit such claims to be asserted on 
behalf of covered entities by associations or 
organizations representing the interests of 
such covered entities and of which the cov-
ered entities are members. 
‘‘(C) FINALITY OF ADMINISTRATIVE RESO-
LUTION.—The administrative resolution of a 
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claim or claims under the regulations promul-
gated under subparagraph (A) shall be a final 
agency decision and shall be binding upon the 
parties involved, unless invalidated by an order 
of a court of competent jurisdiction. 
‘‘(4) AUTHORIZATION
OF
APPROPRIATIONS.— 
There are authorized to be appropriated to carry out 
this subsection, such sums as may be necessary for 
fiscal year 2010 and each succeeding fiscal year.’’. 
(b) CONFORMING AMENDMENTS.—Section 340B(a) 
of such Act (42 U.S.C. 256b(a)) is amended— 
(1) in subsection (a)(1), by adding at the end 
the following: ‘‘Each such agreement shall require 
that the manufacturer furnish the Secretary with re-
ports, on a quarterly basis, of the price for each cov-
ered drug subject to the agreement that, according 
to the manufacturer, represents the maximum price 
that covered entities may permissibly be required to 
pay for the drug (referred to in this section as the 
‘ceiling price’), and shall require that the manufac-
turer offer each covered entity covered drugs for 
purchase at or below the applicable ceiling price if 
such drug is made available to any other purchaser 
at any price.’’; and 
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(2) in the first sentence of subsection (a)(5)(E), 
as redesignated by section 2(b), by inserting ‘‘after 
audit as described in subparagraph (D) and’’ after 
‘‘finds,’’. 
SEC. 5. OTHER IMPROVEMENTS IN 340B PROGRAM. 
Section 340B of the Public Health Service Act (42 
U.S.C. 256b), as amended by section 4(a), is further 
amended by adding at the end the following new sub-
sections: 
‘‘(f) USE
OF MULTIPLE CONTRACT PHARMACIES 
PERMITTED.—Nothing in this section shall be construed 
as prohibiting a covered entity from entering into con-
tracts with more than one pharmacy for the provision of 
covered drugs, including such a contract that supplements 
the use of an in-house pharmacy arrangement or as re-
quiring the approval of the Secretary for entering into 
such a contract. 
‘‘(g) INTRA-AGENCY COORDINATION.—The Secretary 
shall establish specific measures, policies, and procedures 
to ensure effective communication and coordination be-
tween the Centers for Medicare & Medicaid Services and 
the Health Resources and Services Administration with 
respect to all agency actions and all aspects of policy and 
administration affecting or pertaining to the drug discount 
program under this section and in which the functions and 
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