[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3140 Introduced in House (IH)]







110th CONGRESS
  1st Session
                                H. R. 3140

  To amend title XIX of the Social Security Act to ensure and foster 
   continued beneficiary access to generic drugs under the Medicaid 
 Program by setting pharmacy reimbursement based on retail acquisition 
             cost and to promote the use of generic drugs.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 24, 2007

   Mrs. Boyda of Kansas (for herself, Mr. Weiner, Mrs. Emerson, Mr. 
Aderholt, Mr. Alexander, Mr. Berry, Mr. Bonner, Mr. Boren, Mr. Boucher, 
 Mr. Boustany, Mr. Braley of Iowa, Mr. Carney, Mr. Cummings, Mr. David 
Davis of Tennessee, Mr. Davis of Kentucky, Mr. Etheridge, Mr. Farr, Mr. 
  Gordon of Tennessee, Mr. Higgins, Mr. Jones of North Carolina, Mr. 
 LoBiondo, Mr. Loebsack, Mr. Moore of Kansas, Mr. Moran of Kansas, Mr. 
 Ortiz, Mr. Rogers of Alabama, Mr. Ross, Mr. Skelton, Mr. Tiahrt, and 
    Mr. Walz of Minnesota) introduced the following bill; which was 
            referred to the Committee on Energy and Commerce

_______________________________________________________________________

                                 A BILL


 
  To amend title XIX of the Social Security Act to ensure and foster 
   continued beneficiary access to generic drugs under the Medicaid 
 Program by setting pharmacy reimbursement based on retail acquisition 
             cost and to promote the use of generic drugs.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Saving Our Community Pharmacies Act 
of 2007''.

SEC. 2. USING MEDIAN RETAIL ACQUISITION COST AS BASIS FOR MEDICAID 
              REIMBURSEMENT LIMITS ON GENERIC DRUGS.

    (a) In General.--Subsection (e) of section 1927 of the Social 
Security Act (42 U.S.C. 1396r-8) is amended by striking paragraph (5) 
and inserting the following:
            ``(5) Application of federal upper payment limits.--
                    ``(A) Continued use of awp.--Effective January 1, 
                2007, and until subparagraph (B) is in effect, in 
                applying the Federal upper reimbursement limit under 
                paragraph (4) and section 447.332(b) of title 42 of the 
                Code of Federal Regulations, the Secretary shall 
                continue to apply the methodology in effect before the 
                date of the enactment of the Deficit Reduction Act of 
                2005.
                    ``(B) Use of median retail acquisition cost.--
                Effective on the first day of the second quarter that 
                begins after the date of the enactment of the Saving 
                Our Community Pharmacies Act of 2007, in applying the 
                Federal upper reimbursement limit under paragraph (4) 
                and section 447.332(b) of title 42 of the Code of 
                Federal Regulations (as in effect but for subparagraph 
                (A)), the Secretary shall substitute the median retail 
                acquisition cost (as computed under subparagraph (C)) 
                for the published price.
                    ``(C) Computation of median retail acquisition 
                cost.--
                            ``(i) Smoothing and transitions.--Except as 
                        otherwise provided in this subparagraph, the 
                        Secretary shall calculate the median retail 
                        acquisition cost for a multiple source drug 
                        subject to a Federal upper limit for months in 
                        a calendar quarter by computing the median of 
                        the retail acquisition costs (as defined in 
                        subsection (k)(10)) over the 4-calendar-quarter 
                        period ending with the second preceding 
                        calendar quarter.
                            ``(ii) Limitation on sales to be counted.--
                        In computing the median retail acquisition cost 
                        for a drug, the Secretary shall not take into 
                        account sales other than sales to community 
                        retail pharmacies and shall not include the 
                        following:
                                    ``(I) Sales to mail order 
                                facilities.
                                    ``(II) Prices paid under a State 
                                supplemental program, State only 
                                program, or a State Pharmacy Assistance 
                                Programs (SPAP).
                            ``(iii) Transition for first 
                        implementation.--For the first 4 calendar 
                        quarters in which subparagraph (B) is in 
                        effect, subject to clause (iv), in calculating 
                        the median retail acquisition cost for all 
                        drugs the Secretary shall only use the retail 
                        acquisition costs for those quarters beginning 
                        with the last calendar quarter that began 
                        before the date of the enactment of this 
                        paragraph for which data are released.
                            ``(iv) Transition for drugs newly 
                        qualifying as multiple source.--In the case of 
                        a drug product for the first four calendar 
                        quarters in which it qualifies as a multiple 
                        source drug, in calculating the median retail 
                        acquisition cost for the drug the Secretary 
                        shall only use the retail acquisition costs for 
                        the drug beginning with the first such quarter 
                        for which data are collected.''.
    (b) Definition of Retail Acquisition Cost and Related 
Definitions.--Subsection (k) of such section is amended by adding at 
the end the following new paragraph:
            ``(10) Retail acquisition cost and related definitions.--
                    ``(A) Retail acquisition cost.--The term `retail 
                acquisition cost' means, for a multiple source drug 
                furnished, the costs of community retail pharmacies (as 
                defined in subparagraph (D)) to obtain the drug, as 
                determined under subsection (f)(5).
                    ``(B) Items not included in retail acquisition 
                cost.--In computing the retail acquisition costs for a 
                drug, the following shall not be taken into account:
                            ``(i) Discounts, rebates, and price 
                        concessions to pharmacy benefit managers.
                            ``(ii) Non-contingent free goods.
                            ``(iii) Patient assistance programs, such 
                        as specialty services for cancer treatment.
                            ``(iv) Administrative service agreements.
                            ``(v) Inventory management fees.
                            ``(vi) Fee-for-service agreements to 
                        wholesalers.
                            ``(vii) Adjustments that reduce the actual 
                        price realized, except to the extent that they 
                        are not reflective of purchasing costs of 
                        retail pharmacies.
                            ``(viii) Costs of other classes of trade 
                        not reflective of retail pharmacy purchasing 
                        costs.
                            ``(ix) Prompt pay discounts extended to 
                        retail community pharmacies.
                    ``(C) Items taken into account in determining 
                retail acquisition cost.--In computing the retail 
                acquisition cost for a drug, the Secretary shall take 
                into account the following:
                            ``(i) Volume (or comparable discounts) 
                        discounts, chargebacks, and allowances for free 
                        goods contingent on purchase requirements, to 
                        the extent actually paid or credited to the 
                        retail pharmacy. Discounts that may be paid in 
                        a calendar quarter for an aggregate purchase of 
                        generic drugs, applied to each drug in 
                        proportion to the percentage purchased.
                            ``(ii) An estimate of the rebates and 
                        discounts that may be earned by retail 
                        community pharmacies but not credited in the 
                        time period in which the average retail 
                        acquisition cost is calculated for each drug in 
                        the survey, as determined in accordance with a 
                        methodology specified by the survey contractor 
                        after consultation with the affected 
                        stakeholders.
                            ``(iii) In the event of a reduction in the 
                        acquisition price of a drug by a manufacturer 
                        where that manufacturer issues a credit to the 
                        pharmacy to lower the cost of existing 
                        inventory to the new acquisition price, such 
                        credit shall be applied to the existing 
                        inventory, acquired at the higher cost, to 
                        lower the cost basis of that existing inventory 
                        and such lower cost basis shall be the 
                        acquisition price for such inventory in any 
                        price reported.
                            ``(iv) With respect to drugs dispensed by 
                        pharmacies that own and operate their own 
                        warehouse distribution systems, insofar as the 
                        retail acquisition costs takes into account the 
                        costs associated with the ownership and 
                        operation of such distribution system, such 
                        costs shall be a fixed percentage of the 
                        average wholesaler markup, as promulgated each 
                        year by the Secretary.
                    ``(D) Community retail pharmacy.--The term 
                `community retail pharmacy' means a traditional 
                independent, chain, mass merchandise, or supermarket 
                pharmacy.
                    ``(E) Pharmacy benefits manager.--The term 
                `pharmacy benefits manager' means an entity that 
                contracts with a managed care organization, self-
                insured company, or government program to provide a 
                range of pharmacy management benefit services, 
                including pharmacy network management, drug utilization 
                review, outcomes management, and disease management.
                    ``(F) Widely available.--The term `widely 
                available' means, with respect to a multiple source 
                drug, that the drug is available for purchase by retail 
                community pharmacies throughout the nation from at 
                least two national wholesalers.''.
    (c) Surveys of Community Retail Prices.--Subsection (f) of such 
section is amended by adding at the end the following new paragraph:
            ``(5) Surveys for determining community retail prices for 
        multiple source drugs.--The following rules apply to the 
        determination of retail acquisition costs for multiple source 
        drugs for purposes of computing the median retail acquisition 
        cost under subsection (e)(5):
                    ``(A) In general.--The Secretary shall conduct 
                national surveys on a quarterly basis of community 
                retail pharmacies using the criteria described in such 
                subsection to determine retail acquisition costs for 
                all multiple source drugs. The first such survey shall 
                be for the calendar quarter in which Saving Our 
                Community Pharmacies Act of 2007 is enacted.
                    ``(B) Sample.--Each such survey shall consist of a 
                randomly selected sample that--
                            ``(i) represents at least 5 percent of the 
                        community retail pharmacies; and
                            ``(ii) contains a representative percentage 
                        of business among the types of community retail 
                        pharmacies, including independent, chain, mass 
                        merchandise, and supermarket pharmacies.
                    ``(C) Survey information.--The cost surveys shall 
                include surveys of the elements used in computing 
                retail acquisition costs, including those items 
                excluded (or included) in computing such costs under 
                subparagraphs (B) and (C) of subsection (k)(10). In 
                completing the cost surveys and disclosing other 
                information under this section, retail community 
                pharmacies may make reasonable assumptions and 
                interpretations that are reasonably consistent with the 
                terms of this section.
                    ``(D) Treatment of pharmacies under common 
                ownership or purchasing arrangements.--In the case of 
                retail community pharmacies that purchase a multiple 
                source drug through common ownership, management, or 
                other arrangements, such pharmacies shall report the 
                average price paid for the multiple source drug across 
                all pharmacies operating under such common ownership, 
                management, or arrangement.
                    ``(E) Confidentiality.--The information disclosed 
                in response to surveys under this paragraph is 
                confidential and the Secretary (or any contractor 
                therewith) shall not disclose such information in a 
                form which discloses the identity of a specific 
                pharmacy or company, or the retail acquisition costs 
                for multiple source drugs of such a pharmacy or 
                company, except--
                            ``(i) as the Secretary determines to be 
                        necessary to carry out this section;
                            ``(ii) to permit the Comptroller General to 
                        review the information provided;
                            ``(iii) to permit the Director of the 
                        Congressional Budget Office to review the 
                        information provided; and
                            ``(iv) to the Secretary to disclose 
                        (through a website accessible to the public) 
                        median retail acquisition costs.
                The Secretary shall post on a public Federal website 
                for the Medicaid program (and otherwise make available 
                to States) the median retail acquisition costs for 
                multiple source drugs.
                    ``(F) Contractor bidding.--The Secretary shall 
                provide for surveys under this paragraph to be 
                conducted through a contract with a qualified entity. 
                In contracting for such services, the Secretary shall 
                competitively bid for an outside vendor in accordance 
                with the Federal Acquisition Regulations. The Secretary 
                shall consult with retail community pharmacies during 
                the process of developing a request for proposals, 
                receiving and reviewing bids, and contracting with such 
                a vendor. Any contract entered into as part of this 
                bidding process shall require the successful bidder to 
                keep confidential and not disclose to any other Federal 
                agency or other third parties, including State 
                agencies, all survey responses and any other disclosure 
                made by a retail community pharmacy under this section.
                    ``(G) Auditing.--If the Secretary has reasonable 
                cause to believe that a survey response submitted by a 
                retail community pharmacy is not complete or accurate, 
                the Secretary may conduct an audit of the records used 
                by the retail community pharmacy to develop that survey 
                response. In conducting such inspection the Secretary 
                may require a retail community pharmacy to produce for 
                inspection, consistent with subparagraph (C), only the 
                records actually relied upon by the retail community 
                pharmacy in completing the survey. Retail community 
                pharmacies shall retain such records for one year, and 
                the Secretary shall not commence an inspection of 
                records related to a survey response more than one year 
                after the survey response was submitted by a retail 
                community pharmacy.
                    ``(H) Penalty for failure to cooperate in audit for 
                provision of false information.--The Secretary may 
                impose a civil monetary penalty on a retail community 
                pharmacy, if the pharmacy refuses a request by the 
                Secretary for information in connection with an audit 
                under subparagraph (G) or knowingly provides false 
                information in such an audit or in a survey under this 
                paragraph. The amount of such penalty shall not exceed 
                $10,000 in the case of such a refusal or $10,000 for 
                each item of false information provided. The provisions 
                of section 1128A (other than subsections (a) and (b)) 
                shall apply to a civil money penalty under this 
                subparagraph in the same manner as such provisions 
                apply to a penalty or proceeding under section 
                1128A(a).''.

SEC. 3. ENCOURAGING GENERIC UTILIZATION AND OTHER EVIDENCE-BASED COST 
              CONTROL PROGRAMS UNDER THE MEDICAID PROGRAM.

    Section 1927 of the Social Security Act (42 U.S.C. 1396r-8) is 
further amended by adding at the end the following new subsection:
    ``(l) Establishment of Evidence-Based Prescription Drug Program.--
            ``(1) In general.--In order to control costs without 
        reducing the quality of care when providing payment for covered 
        outpatient drugs. under the State plan under this title, each 
        State agency shall establish and implement (beginning with the 
        second calendar quarter that begins after the date of the 
        enactment of this subsection), an evidence-based prescription 
        drug program in accordance with paragraph (3). Each such 
        program shall be designed in a manner so as to result in a 
        generic dispensing rate for a fiscal year (or, in the case of 
        implementation after the beginning of a fiscal year for the 
        remainder of such fiscal year) that is at least the target 
        generic dispensing rate specified in paragraph (2) for the 
        State and fiscal year (or portion thereof) involved. The 
        Secretary is authorized to reduce the Federal financial 
        participation under this title for quarters in the fiscal year 
        with respect to covered outpatient drugs to such amount as 
        would reflect the State's achievement of such a target generic 
        dispensing rate for such quarters and drugs.
            ``(2) Target generic dispensing rate.--The target generic 
        dispensing rate for a State for a fiscal year (or portion 
        thereof) is the lesser of--
                    ``(A) 65 percent; or
                    ``(B) in the case of--
                            ``(i) a State with a generic dispensing 
                        rate for the previous fiscal year that is below 
                        the national average of such rate for such 
                        fiscal year, 3 percentage points above rate for 
                        the State in the previous fiscal year; or
                            ``(ii) any other State, at least 1 percent 
                        point above such rate for the State in the 
                        previous fiscal year.
            ``(3) Requirements.--Each such program shall--
                    ``(A) prohibit reimbursement for covered outpatient 
                drugs that are determined to be ineffective by the 
                Commissioner of Food and Drugs;
                    ``(B) adopt rules in order to ensure that less 
                expensive generic drugs will be used in as many cases 
                as possible with approval of the physician;
                    ``(C) consider the use of drugs with lower abuse 
                potential in substitution for drugs with significant 
                abuse potential; and
                    ``(D) establish an independent pharmacy and 
                therapeutics committee to evaluate the effectiveness of 
                covered outpatient drugs in the development of such 
                program.
            ``(4) Generic dispensing rate.--For purposes of this 
        subsection, the term `generic dispensing rate' means, with 
        respect to a multiple source drug, the proportion of the total 
        volume of such drugs dispensed, that are generic drugs.''.

SEC. 4. CHANGES TO DEFINITION OF MULTIPLE SOURCE DRUG AND APPLICATION 
              TO UPPER PAYMENT LIMITS.

    (a) In General.--Section 1927 of the Social Security Act (42 U.S.C. 
1396r-8) is further amended--
            (1) in subsection (e)(4)--
                    (A) by striking ``each multiple source drug'' and 
                inserting ``each widely available multiple source 
                drug''; and
                    (B) by striking ``(or effective January 1, 2007, 
                two or more)''; and
            (2) in subsection (k)(7)(A)(i)--
                    (A) in the matter before subclause (I), by striking 
                ``1 other drug product'' and inserting ``2 other drug 
                products''; and
                    (B) in each of subclauses (I), (II), and (III), by 
                striking ``is'' and inserting ``are''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the first day of the second calendar quarter beginning after 
the date of the enactment of this Act.

SEC. 5. GAO STUDY OF COMMUNITY PHARMACY DISPENSING COSTS.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study on the costs of community retail pharmacies to dispense 
prescription drugs.
    (b) Report.--Not later than one year after the date of the 
enactment of this Act, the Comptroller General shall submit a report to 
Congress on the study conducted under subsection (a).
                                 <all>