A bill to amend section 340B of the Public Health Service Act to increase the affordability of inpatient drugs for Medicaid and safety net hospitals.

SECTION 1. SHORT TITLE.

     This Act may be cited as the ``Safety Net Inpatient Drug 
Affordability Act''.

SEC. 2. EXTENSION OF DISCOUNTS TO INPATIENT DRUGS.

    (a) In General.--Section 340B(b) of the Public Health Service Act 
(42 U.S.C. 256b(b)) is amended by inserting before the period the 
following: ``, except that, notwithstanding the limiting definition set 
forth in section 1927(k)(3) of the Social Security Act, the terms 
`covered outpatient drug' and `covered drug' include any inpatient or 
outpatient drug purchased by a hospital described in subsection 
(a)(4)(L)''.
    (b) Payment of Medicaid Rebates on Inpatient Drugs.--Section 
340B(c) of such Act (42 U.S.C. 256b(c)) is amended to read as follows:
    ``(c) Payment of Medicaid Rebates on Inpatient Drugs.--
            ``(1) In general.--For the cost reporting period covered by 
        the most recently filed Medicare cost report, a hospital 
        described in subsection (a)(4)(L) shall provide to each State 
        with an approved State plan under title XIX of such Act--
                    ``(A) a rebate on the estimated annual costs of 
                single source and innovator multiple source drugs 
                provided to Medicaid recipients for inpatient use; and
                    ``(B) a rebate on the estimated annual costs of 
                noninnovator multiple source drugs provided to Medicaid 
                recipients for inpatient use.
            ``(2) Calculations of rebates.--
                    ``(A) Single source and innovator multiple source 
                drugs.--For purposes of paragraph (1)(A)--
                            ``(i) the rebate under such paragraph shall 
                        be calculated by multiplying the estimated 
                        annual costs of single source and innovator 
                        multiple source drugs provided to Medicaid 
                        recipients for inpatient use by the minimum 
                        rebate percentage 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 to Medicaid recipients for 
                        inpatient use under clause (i) shall be equal 
                        to the product of--
                                    ``(I) the hospital's actual 
                                acquisition costs of all drugs 
                                purchased during the cost reporting 
                                period for inpatient use;
                                    ``(II) the Medicaid inpatient drug 
                                charges as reported on the hospital's 
                                most recently filed Medicare cost 
                                report divided by total inpatient drug 
                                charges reported on the cost report; 
                                and
                                    ``(III) the percent of the 
                                hospital's annual inpatient drug costs 
                                described in subclause (I) arising out 
                                of the purchase of single source and 
                                innovator multiple source drugs; and
                            ``(iii) 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 rebate under such paragraph shall 
                        be calculated by multiplying the estimated 
                        annual costs of noninnovator multiple source 
                        drugs provided to Medicaid recipients for 
                        inpatient use by the applicable percentage as 
                        defined in section 1927(c)(3)(B) of the Social 
                        Security Act;
                            ``(ii) the estimated annual costs of 
                        noninnovator multiple source drugs provided to 
                        Medicaid recipients for inpatient use shall be 
                        equal to the product of--
                                    ``(I) the hospital's actual 
                                acquisition cost of all drugs purchased 
                                during the cost reporting period for 
                                inpatient use;
                                    ``(II) the Medicaid inpatient drug 
                                charges as reported on the hospital's 
                                most recently filed Medicare cost 
                                report divided by total inpatient drug 
                                charges reported on the cost report; 
                                and
                                    ``(III) the percent of the 
                                hospital's annual inpatient drug costs 
                                described in subclause (I) arising out 
                                of the purchase of noninnovator 
                                multiple source drugs; and
                            ``(iii) 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 rebates provided 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) 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 section 1903(a)(1) of the Social Security Act.''.
    (c) Clarification That Group Purchasing Prohibition for Certain 
Hospitals Is Not Applicable to Inpatient Drugs.--Section 
340B(a)(4)(L)(iii) of such Act (42 U.S.C. 256b(a)(4)(L)(iii)) is 
amended by inserting ``(not including such drugs purchased for 
inpatient use)'' after ``covered outpatient drugs''.

SEC. 3. PROVIDING ACCESS TO DISCOUNTED DRUG PRICES FOR CRITICAL ACCESS 
              HOSPITALS.

    (a) In General.--Section 340B of the Public Health Service Act (42 
U.S.C. 256b) is amended--
            (1) in subsection (a)(4), by adding at the end the 
        following:
                    ``(M) An entity that--
                            ``(i) is a critical access hospital (as 
                        determined under section 1820(c)(2) of the 
                        Social Security Act); and
                            ``(ii) does not obtain covered outpatient 
                        drugs though a group purchasing organization or 
                        other group purchasing arrangement (not 
                        including such drugs purchased for inpatient 
                        use).'';
            (2) in subsection (b), as amended by section 2(a), by 
        inserting ``or subsection (a)(4)(M)'' after ``subsection 
        (a)(4)(L)''; and
            (3) in subsection (c)(1), as added by inserting ``or 
        subsection (a)(4)(M)'' after ``subsection (a)(4)(L)''.
    (b) Exclusion From Medicaid Best Price Calculations.--Section 
1927(c)(1)(C)(i)(I) of the Social Security Act (42 U.S.C. 1396r-
8(c)(1)(C)(i)(I)) is amended by inserting ``and to critical access 
hospitals described in section 340B(a)(4)(M) of such Act'' after 
``Public Health Service Act''.
    (c) Effective Date.--The amendments made by this section shall 
apply to drugs purchased on or after January 1, 2006.

Summary: Safety Net Inpatient Drug Affordability Act - Amends the Public Health Service Act to expand the discount drug program to include any inpatient or outpatient drug purchased by qualified hospitals without a group purchasing arrangement. (Currently, such hospitals are only allowed to purchase discounted outpatient drugs.) Requires such hospitals to provide the state with a rebate on the estimated annual costs of single source, innovator multiple source, and noninnovator multiple source drugs provided to Medicaid recipients for inpatient use. Sets forth a method for calculating the amount of such rebate.

Allows critical access hospitals that do not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement to participate in the discount drug program.