SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Fair Medicaid Drug Payment Act of 
2007''.

SEC. 2. PROVIDING ADEQUATE PHARMACY REIMBURSEMENT UNDER MEDICAID.

    (a) Pharmacy Reimbursement Limits.--
            (1) In general.--Section 1927(e) of the Social Security Act 
        (42 U.S.C. 1396r-8(e)) is amended--
                    (A) in paragraph (4), by striking ``(or, effective 
                January 1, 2007, two or more)''; and
                    (B) by striking paragraph (5) and inserting the 
                following:
            ``(5) Use of amp in upper payment limits.--The Secretary 
        shall calculate the Federal upper reimbursement limit 
        established under paragraph (4) as no less than 300 percent of 
        the weighted average (determined on the basis of utilization) 
        of the most recent average manufacturer prices for 
        pharmaceutically and therapeutically equivalent multiple source 
        drug products that are available for purchase by retail 
        community pharmacies on a nationwide basis. The Secretary shall 
        implement a smoothing process for average manufacturer prices 
        to ensure that Federal upper reimbursement limits do not vary 
        significantly from month to month as a result of rebates, 
        discounts, and other pricing practices. Such process shall be 
        similar to the smoothing process used in determining the 
        average sales price of a drug or biological under section 
        1847A.''.
            (2) Definition of amp.--Section 1927(k)(1) of such Act (42 
        U.S.C. 1396r-8(k)(1)) is amended--
                    (A) in subparagraph (A), by striking ``by'' and all 
                that follows through the period and inserting ``by--
                            ``(i) wholesalers for drugs distributed to 
                        retail community pharmacies; and
                            ``(ii) retail community pharmacies that 
                        purchase drugs directly from the 
                        manufacturer.''; and
                    (B) in subparagraph (B)--
                            (i) in the subparagraph heading, by 
                        striking ``extended to wholesalers'' and 
                        inserting ``and other payments''; and
                            (ii) by striking ``regard to'' and all that 
                        follows through the period and inserting 
                        ``regard to--
                            ``(i) customary prompt pay discounts 
                        extended to wholesalers;
                            ``(ii) bona fide service fees paid by 
                        manufacturers to wholesalers or retail 
                        community pharmacies, including (but not 
                        limited to) distribution service fees, 
                        inventory management fees, product stocking 
                        allowances, and fees associated with 
                        administrative services agreements and patient 
                        care programs (such as medication compliance 
                        programs and patient education programs);
                            ``(iii) reimbursement by manufacturers for 
                        recalled, damaged, expired, or otherwise 
                        unsalable returned goods, including (but not 
                        limited to) reimbursement for the cost of the 
                        goods and any reimbursement of costs associated 
                        with return goods handling and processing, 
                        reverse logistics, and drug destruction;
                            ``(iv) payments received from, and rebates 
                        or discounts provided to, pharmacy benefit 
                        managers, managed care organizations, health 
                        maintenance organizations, insurers, hospitals, 
                        clinics, mail order pharmacies, long term care 
                        providers, manufacturers, or any other entity 
                        that does not conduct business primarily as a 
                        wholesaler or a retail community pharmacy;
                            ``(v) any payments made by manufacturers 
                        that are associated with drugs dispensed by 
                        retail community pharmacies; and
                            ``(vi) any other discounts, rebates, 
                        payments, or other financial transactions that 
                        are not received by, paid by, or passed through 
                        to, retail community pharmacies.''.
            (3) Definition of multiple source drug.--Section 
        1927(k)(7)(A)(i) of such Act (42 U.S.C. 1396r-8(k)(7)(A)(i)) is 
        amended--
                    (A) in the matter preceding subclause (I), by 
                striking ``there at least 1 other drug product'' and 
                inserting ``there are at least 2 other drug products''; 
                and
                    (B) in subclauses (I), (II), and (III), by striking 
                ``is'' each place it appears and inserting ``are''.
            (4) Definitions of retail community pharmacy; wholesaler.--
        Section 1927(k) of such Act (42 U.S.C. 1396r-8(k)) is amended 
        by adding at the end the following new paragraphs:
            ``(10) Retail community pharmacy.--The term `retail 
        community pharmacy' means a traditional independent pharmacy, 
        traditional chain pharmacy, a supermarket pharmacy, or a mass 
        merchandiser pharmacy that is licensed as a pharmacy by a State 
        and that dispenses medications to the general public at retail 
        prices. Such term does not include a pharmacy that dispenses 
        prescription medications to patients primarily through the 
        mail, nursing home pharmacies, long-term care facility 
        pharmacies, hospital pharmacies, clinics, charitable or not-
        for-profit pharmacies, government pharmacies, or pharmacy 
        benefit managers.
            ``(11) Wholesaler.--The term `wholesaler' means a drug 
        wholesaler that is licensed as a wholesaler by a State and that 
        is engaged in wholesale distribution of prescription drugs to 
        retail community pharmacies, including (but not limited to) 
        manufacturers, repackers, own-label distributors, private-label 
        distributors, jobbers, brokers, warehouses (including 
        manufacturer's and distributor's warehouses, chain drug 
        warehouses, and wholesale drug warehouses) independent 
        wholesale drug traders, and retail pharmacies that conduct 
        wholesale distributions.''.
    (b) Requirements of Prior Authorization Programs.--Section 
1927(d)(5) of such Act (42 U.S.C. 1396r-8(d)(5)) is amended--
            (1) in the matter preceding subparagraph (A), by striking 
        ``of the drug before its dispensing for any medically accepted 
        indication (as defined in subsection (k)(6)) only if the system 
        providing for such approval'' and inserting ``by the State of 
        the use of the drug before its dispensing for any medically 
        accepted indication (as defined in subsection (k)(6)). A State 
        plan under this title shall, as a condition of coverage or 
        payment for a covered outpatient drug for which Federal 
        financial participation is available in accordance with this 
        section, subject to prior authorization all covered outpatient 
        drug products that are innovator multiple source drugs if such 
        drug products are more expensive than other biologically and 
        therapeutically equivalent drug products that are available for 
        purchase in that State by retail community pharmacies. The 
        system providing for such approval shall'';
            (2) in each of subparagraphs (A) and (B), by striking 
        ``provides'' and inserting ``provide'';
            (3) by redesignating subparagraphs (A) and (B) (as so 
        amended) as subparagraphs (C) and (D), respectively; and
            (4) by inserting before subparagraph (C) (as so 
        redesignated), the following new subparagraphs:
                    ``(A) require the prescriber to request prior 
                authorization by substantiating the medical necessity 
                of dispensing the covered outpatient drug as opposed to 
                dispensing a substitute covered outpatient drug;
                    ``(B) require that a prior authorization number 
                assigned to the approved request by the State be 
                included on the order for the covered outpatient drug 
                issued by the prescriber or relayed to the dispensing 
                pharmacist by the prescriber if the prescription is 
                orally transmitted;''.
    (c) Disclosure of Price Information to the Public.--Section 
1927(b)(3) of such Act (42 U.S.C. 1396r-8(b)(3)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), in the matter preceding 
                subclause (I), by inserting ``month of a'' after 
                ``each''; and
                    (B) in the last sentence, by striking ``and 
                shall,'' and all that follows through the period; and
            (2) in subparagraph (D)--
                    (A) in clause (iii), by inserting ``and'' after the 
                comma;
                    (B) in clause (iv), by striking ``, and'' and 
                inserting a period; and
                    (C) by striking clause (v).
    (d) Technical Amendment.--Section 1927(d)(1) of such Act (42 U.S.C. 
1396r-8(d)(1)) is amended in the paragraph heading by inserting ``and 
mandatory'' after ``permissible''.
    (e) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect as if 
        included in the enactment of the Deficit Reduction Act of 2005 
        (Public Law 109-171).
            (2) Exception.--The amendments made by subsection (b) shall 
        take effect on the date that is 180 days after the date of 
        enactment of this Act.
Output: Fair Medicaid Drug Payment Act of 2007 - Amends title XIX (Medicaid) of the Social Security Act to direct the Secretary of Health and Human Services to calculate the federal upper reimbursement limit as no less than 300% of the weighted average (based on utilization) of the most recent average manufacturer prices (AMPs) for pharmaceutically and therapeutically equivalent multiple source drug products available for purchase by retail community pharmacies on a nationwide basis. Directs the Secretary to implement a smoothing process for AMPs to ensure that federal upper reimbursement limits do not vary significantly from month to month as a result of rebates, discounts, and other pricing practices.

Requires a state plan to subject to prior authorization all covered outpatient drug products that are innovator multiple source drugs, if such drug products are more expensive than other biologically and therapeutically equivalent drug products available for purchase in that state by retail community pharmacies.

Revises requirements for monthly reports to the Secretary of price information by manufacturers subject to rebate agreements.