To provide for substantial reductions in the price of prescription drugs purchased by States for its employees, retirees, and pharmaceutical assistance beneficiaries.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``State and Local Access to Fair 
Prescription Drug Prices Act''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--
            (1) The majority of States are facing their worst fiscal 
        crisis since World War II. Soaring healthcare costs are 
        deepening the crisis. Healthcare costs grew an average of 11 
        percent in 2002 and are expected to grow to 13 percent in 
        fiscal year 2004. Healthcare spending currently accounts for 
        approximately 30 percent of total State budgets.
            (2) As the economy continues to struggle, State revenues 
        continue to fall dramatically while spending pressure has 
        grown. Thirty-seven States reduced fiscal 2003 enacted budgets 
        by nearly $14,500,000,000, the largest spending cut since 1979.
            (3) State drug expenditures for public employees, 
        dependents and retirees, medicaid beneficiaries, and the 
        uninsured are rising each year. As more Americans lose jobs and 
        health care coverage for themselves and their dependents, 
        States' share of medicaid costs grew by 13 percent in fiscal 
        year 2002. This growth is expected to rise by an estimated 8 
        percent in fiscal year 2003 and 4.9 percent in fiscal year 2004 
        based on governors' fiscal 2004 budget proposals.
            (4) In February 2002, the National Governor's Association 
        passed a resolution urging Congress to review Federal laws 
        which may be contributing to the ``high cost of prescription 
        drugs''.
            (5) Several States and localities are currently seeking to 
        reimport drugs from Canada and other foreign countries in an 
        attempt to lower prescription drug costs.
            (6) Foreign nations and Federally funded health care 
        programs use purchasing power to obtain prescription drugs at 
        low prices. States and localities are not legally allowed to 
        reimport prescription drugs. This Act will provide an 
        appropriate alternative by allowing states and localities to 
        purchase prescription drugs domestically at prices roughly 
        equivalent to those available in foreign nations and Federally 
        funded health care programs.
            (7) Implementation of the policy set forth in this Act may 
        reduce prices for brand name prescription drugs for many States 
        and localities by up to 40 percent.
    (b) Purpose.--The purpose of this Act is to make prescription drugs 
available to States and local governments and residents thereof at 
prices that are substantially lower than current United States prices.

SEC. 3. PARTICIPATING MANUFACTURERS.

    (a) Availability of Drugs for Purchase.--
            (1) In general.--Each participating manufacturer of a 
        covered outpatient drug shall make available for purchase in 
        whole or in part by each State for the benefit of residents 
        within the State whose cost of covered outpatient drugs are 
        paid for by the State through a group health program, a retiree 
        health program, a State or local pharmaceutical assistance 
        program, or other similar program (including, to the extent 
        provided under subsection (f)(2), a State medicaid program), 
        such covered outpatient drug in the amount described in 
        subsection (b) at the price described in subsection (c).
            (2) Direct purchases by agents.--The requirements of 
        paragraph (1) shall apply in the case of purchases by an 
        organization or agent of the State that directly purchases 
        covered outpatient prescription drugs on behalf of the State, 
        or on behalf of a county or municipality of such State, for 
        residents described in such paragraph.
    (b) Description of Amount of Drugs.--The amount of a covered 
outpatient drug that a participating manufacturer shall make available 
for purchase by a State or local government (or agent thereof) is an 
amount equal to the aggregate amount of the covered outpatient drug 
sold or distributed to residents described in subsection (a) in that 
State.
    (c) Description of Price.--
            (1) In general.--The price at which a participating 
        manufacturer shall make a covered outpatient drug available for 
        purchase by a pharmacy is a price no greater than the 
        manufacturer's average foreign price.
            (2) Handling fee.--Nothing in this subsection shall be 
        construed to prevent a pharmacy from assessing a reasonable (as 
        determined by the Secretary in consultation with pharmacy 
        stakeholders) handling fee in connection with the provision of 
        covered outpatient prescription drugs to residents described in 
        subsection (a)(1).
    (d) Enforcement.--
            (1) In general.--The Secretary, any wholesaler or retailer 
        in the United States, or any resident described in subsection 
        (a)(1) that is aggrieved by a violation of this Act may bring a 
        civil action in a United States district court against a 
        manufacturer or other person that violates this Act for an 
        order enjoining the violation and awarding damages in the 
        amount that is equal to 3 times the amount of the value of the 
        difference between--
                    (A) the price that the manufacturer or other person 
                sold a covered outpatient prescription drug to the 
                wholesaler, retailer, or individual; and
                    (B) the manufacturer's average foreign price for 
                the prescription drug.
            (2) Repeat violations.--The United States shall debar a 
        manufacturer of drugs or biologicals that commits repeated 
        violations of the provisions of this Act.
    (e) Application to Local Governments.--The provisions of this 
section shall apply with respect to the purchase of covered outpatient 
drugs by local governments if such purchase was made for the benefit of 
individuals within the jurisdiction of the local government whose cost 
of covered outpatient drugs are paid for by the local government (or 
agent thereof) through a group health program, a retiree health 
program, a local pharmaceutical assistance program, or other similar 
program, in the same manner as such provisions apply to States.
    (f) Relation to Medicaid Rebate Agreement.--A State, with respect 
to its provision of medical assistance for covered outpatient drugs 
under title XIX of the Social Security Act, may elect for a year (or 
other period specified by the Secretary) either of the following to 
apply (and such election shall apply to all such covered outpatient 
drugs under such title):
            (1) Continuation of rebate agreement.--
                    (A) In general.--The provisions of section 1927 of 
                such Act (42 U.S.C. 1396r-8) shall continue to apply.
                    (B) Disregard of manufacturer's average foreign 
                price in determining best price under rebate 
                agreement.--The price under subsection (c) at which a 
                participating manufacturer makes a covered outpatient 
                drug available under this Act shall be disregarded for 
                purposes of determining the best price under a rebate 
                agreement under such section 1927 of the Social 
                Security Act.
            (2) Use of manufacturer's foreign price.--The provisions of 
        such section do not apply and such drugs shall be made 
        available for purposes of such title in the quantities under 
        subsection (b) and at the prices specified under subsection 
        (c).
    (g) Rule of Construction.--Nothing in this section shall be 
construed to prevent a State or local government from implementing 
programs that provide for the purchase and distribution of outpatient 
drugs at prices that are lower than the price provided for under 
subsection (c).

SEC. 4. ADMINISTRATION.

    The Secretary shall issue such regulations as may be necessary to 
implement this Act within 180 days after the date of the enactment of 
this Act.

SEC. 5. REPORTS TO CONGRESS REGARDING EFFECTIVENESS OF ACT.

    (a) In General.--Not later than 2 years after the date of the 
enactment of this Act, and annually thereafter, the Secretary shall 
report to the Congress regarding the effectiveness of this Act in--
            (1) protecting States and local governments from drug price 
        inflation, and
            (2) making prescription drugs available to State and local 
        government employees, retirees, and beneficiaries at 
        substantially reduced prices.
    (b) Consultation.--In preparing such reports, the Secretary shall 
consult with public health experts, affected industries, organizations 
representing consumers and older Americans, and other interested 
persons.
    (c) Recommendations.--The Secretary shall include in such reports 
any recommendations the Secretary considers appropriate for changes in 
this Act to further reduce the cost of covered outpatient drugs to 
States.

SEC. 6. DEFINITIONS.

    In this Act:
            (1) Average foreign price.--
                    (A) In general.--The term ``average foreign price'' 
                means, with respect to a covered outpatient drug, the 
                average price that the manufacturer of the drug 
                realizes on the sale of drugs with the same active 
                ingredient or ingredients that are consumed in covered 
                foreign nations, taking into account--
                            (i) any rebate, contract term or condition, 
                        or other arrangement (whether with the 
                        purchaser or other persons) that has the effect 
                        of reducing the amount realized by the 
                        manufacturer on the sale of the drugs;
                            (ii) adjustments for any differences in 
                        dosage, formulation, or other relevant 
                        characteristics of the drugs; and
                            (iii) any other contract or side agreement 
                        that has the effect of adjusting the effective 
                        price of the drug, including agreements to 
                        purchase non-drug products.
                    (B) Exempt transactions.--The Secretary may, by 
                regulation, exempt from the calculation of the average 
                foreign price of a drug those prices realized by a 
                manufacturer in transactions that are entered into for 
                charitable purposes, for research purposes, or under 
                other unusual circumstances, if the Secretary 
                determines that the exemption is in the public interest 
                and is consistent with the purposes of this Act.
            (2) Covered foreign nation.--The term ``covered foreign 
        nation'' means Canada, France, Germany, Italy, Japan, and the 
        United Kingdom.
            (3) Covered outpatient drug.--The term ``covered outpatient 
        drug'' has the meaning given that term in section 1927(k)(2) of 
        the Social Security Act (42 U.S.C. 1396r-8(k)(2)).
            (4) Debar.--The term ``debar'' means to exclude, pursuant 
        to established administrative procedures, from Government 
        contracting and subcontracting for a specified period of time 
        commensurate with the seriousness of the failure or offense or 
        the inadequacy of performance.
            (5) Participating manufacturer.--The term ``participating 
        manufacturer'' means any manufacturer of drugs or biologicals 
        that, on or after the date of the enactment of this Act, enters 
        into a contract or agreement with the United States for the 
        sale or distribution of covered outpatient drugs to the United 
        States.
            (6) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.

SEC. 7. EFFECTIVE DATE.

    This Act shall apply on and after January 1, 2005, without regard 
to whether or not final regulations to carry out this Act have been 
promulgated by such date.

Summary: State and Local Access to Fair Prescription Drug Prices Act - Requires a participating manufacturer of a covered outpatient drug to make available for purchase by each State for the benefit of its residents whose cost of covered outpatient drugs is paid for by the State through a group health program, a retiree health program, a State or local pharmaceutical assistance program, or other similar program (including a State Medicaid program), such covered outpatient drug in an amount equal to the aggregate amount of a covered drug sold in a State at a price that is no greater than the manufacturer's average foreign price. (Makes such provision applicable to local governments under similar outpatient drug purchase arrangements.)

Applies such requirement to direct purchases by State or local organizations or agents.

Sets forth enforcement provisions, including manufacturer debarment for repeat violations.

Permits a State, with respect to its provision of Medicaid assistance for covered outpatient drugs, to: (1) continue its Medicaid rebate agreement; or (2) disregard the manufacturer's average foreign price in determining the best price under a rebate agreement.

Defines specified terms.