REIMBURSEMENT FOR PRESCRIBED DRUGS.

SEC. 4401. REIMBURSEMENT FOR PRESCRIBED DRUGS. (a) In General.— (1) Denial of federal financial participation unless rebate agreements and drug use review in effect.— Section 1903(i) (42 U.S.C. 1396b(i)) is amended— (A) by striking the period at the end of paragraph (9) and inserting “; or”, and (B) by inserting after paragraph (9) the following new paragraph: “(10) with respect to covered outpatient drugs of a manufacturer dispensed in any State unless, (A) except as provided in section 1927(a)(3), the manufacturer complies with the rebate requirements of section 1927(a) with respect to the drugs so dispensed in all States, and (B) effective January 1, 1993, the State provides for drug use review in accordance with section 1927(g).”. (2) Prohibiting state plan drug access limitations for drugs covered under a rebate agreement.— Section 1902(a) of such Act (42 U.S.C. 1396a(a)) is amended— (A) by striking “and” at the end of paragraph (52), (B) by striking the period at the end of paragraph (53) and inserting and”, and (C) by inserting after paragraph (53) the following new paragraph: “(54) (A) provide that, any formulary or similar restriction (except as provided in section 1927(d)) on the coverage of covered outpatient drugs under the plan shall permit the coverage of covered outpatient drugs of any manufacturer which has entered into and complies with an agreement under section 1927(a), which are prescribed for a medically accepted indication (as defined in subsection 1927(k)(6)), and “(B) comply with the reporting requirements of section 1927(b)(2)(A) and the requirements of subsections (d) and (g) of section 1927.”. (3) Rebate agreements for covered outpatient drugs, drug use review, and related provisions.—Title XIX of the Social Security Act is amended by redesignating section 1927 as section 1928 and by inserting after section 1926 the following new section: “payment for covered outpatient drugs “Sec. 1927. (a) Requirement for Rebate Agreement.— (1) In general.—In order for payment to be available under section 1903(a) for covered outpatient drugs of a manufacturer, the manufacturer must have entered into and have in effect a rebate agreement described in subsection (b) with the Secretary, on behalf of States (except that, the Secretary may authorize a State to enter directly into agreements with a manufacturer). Any agreement between a State and a manufacturer prior to April 1, 1991, shall be deemed to have been entered into on January 1, 1991, and payment to such manufacturer shall be retroactively calculated as if the agreement between the manufacturer and the State had been entered into on January 1, 1991. If a manufacturer has not entered into such an agreement 104 STAT. 1388–144before March 1, 1991, such an agreement, subsequently entered into, shall not be effective until the first day of the calendar quarter that begins more than 60 days after the date the agreement is entered into. “(2) Effective date.—Paragraph (1) shall first apply to drugs dispensed under this title on or after January 1, 1991. “(3) Authorizing payment for drugs not covered under rebate agreements.—Paragraph (1), and section 1903(i)(10)(A), shall not apply to the dispensing of a single source drug or innovator multiple source drug if (A)(i) the State has made a determination that the availability of the drug is essential to the health of beneficiaries under the State plan for medical assistance; (ii) such drug has been given a rating of 1-A by the Food and Drug Administration; and (iii)(I) the physician has obtained approval for use of the drug in advance of its dispensing in accordance with a prior authorization program described in subsection (d), or (II) the Secretary has reviewed and approved the State’s determination under subparagraph (A); or (B) the Secretary determines that in the first calendar quarter of 1991, there were extenuating circumstances. “(4) Effect on existing agreements.—In the case of a rebate agreement in effect between a State and a manufacturer on the date of the enactment of this section, such agreement, for the initial agreement period specified therein, shall be considered to be a rebate agreement in compliance with this section with respect to that State, if the State agrees to report to the Secretary any rebates paid pursuant to the agreement and such agreement provides for a minimum aggregate rebate of 10 percent of the State’s total expenditures under the State plan for coverage of the manufacturer’s drugs under this title. If, after the initial agreement period, the State establishes to the satisfaction of the Secretary that an agreement in effect on the date of the enactment of this section provides for rebates that are at least as large as the rebates otherwise required under this section, and the State agrees to report any rebates under the agreement to the Secretary, the agreement shall be considered to be a rebate agreement in compliance with the section for the renewal periods of such agreement. “(b) Terms of Rebate Agreement.— “(1) Periodic rebates.— “(A) In general.—A rebate agreement under this subsection shall require the manufacturer to provide, to each State plan approved under this title, a rebate each calendar quarter (or periodically in accordance with a schedule specified by the Secretary) in an amount specified in subsection (c) for covered outpatient drugs of the manufacturer dispensed under the plan during the quarter (or such other period as the Secretary may specify). Such rebate shall be paid by the manufacturer not later than 30 days after the date of receipt of the information described in paragraph (2) for the period involved. “(B) Offset against medical assistance.—Amounts received by a State under this section (or under an agreement authorized by the Secretary under subsection (a)(1) or an agreement described in subsection (a)(4)) in any quarter shall be considered to be a reduction in the amount ex-104 STAT. 1388–145pended under the State plan in the quarter for medical assistance for purposes of section 1903(a)(1). “(2) State provision of information.— “(A) State responsibility.—Each State agency under this title shall report to each manufacturer not later than 60 days after the end of each calendar quarter and in a form consistent with a standard reporting format established by the Secretary, information on the total number of dosage units of each covered outpatient drug dispensed under the plan during the quarter, and shall promptly transmit a copy of such report to the Secretary. “(B) Audits.—A manufacturer may audit the information provided (or required to be provided) under subparagraph (A). Adjustments to rebates shall be made to the extent that information indicates that utilization was greater or less than the amount previously specified. “(3) Manufacturer provision of price information.— “(A) In general.— Each manufacturer with an agreement in effect under this section shall report to the Secretary— “(i) not later than 30 days after the last day of each quarter (beginning on or after January 1, 1991), on the average manufacturer price (as defined in subsection (k)(l)) and, (for single source drugs and innovator multiple source drugs), the manufacturer’s best price (as defined in subsection (c)(2)(B)) for covered outpatient drugs for the quarter, and “(ii) not later than 30 days after the date of entering into an agreement under this section on the average manufacturer price (as defined in subsection (k)(D) as of October 1, 1990 3131So in original. Probably should be “1990,” for each of the manufacturer’s covered outpatient drugs. “(B) Verification surveys of average manufacturer price.—The Secretary may survey wholesalers and manufacturers that directly distribute their covered outpatient drugs, when necessary, to verify manufacturer prices reported under subparagraph (A). The Secretary may impose a civil monetary penalty in an amount not to exceed $100,000 on a wholesaler, manufacturer, or direct seller, if the wholesaler, manufacturer, or direct seller of a covered outpatient drug refuses a request for information about charges or prices by the Secretary in connection with a survey under this subparagraph or knowingly provides false information. The provisions of section 1128A (other than subsections (a) (with respect to amounts of penalties or additional assessments) 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). “(C) Penalties.— “(i) Failure to provide timely information.—In the case of a manufacturer with an agreement under this section that fails to provide information required under subparagraph (A) on a timely basis, the amount of the penalty shall be increased by $10,000 for each day in which such information has not been provided and such amount shall be paid to the Treasury, and, if such 104 STAT. 1388–146information is not reported within 90 days of the dead-line imposed, the agreement shall be suspended for services furnished after the end of such 90-day period and until the date such information is reported (but in no case shall such suspension be for a period of less than 30 days). “(ii) False information.—Any manufacturer with an agreement under this section that knowingly provides false information is subject to a civil money penalty in an amount not to exceed $100,000 for each item of false information. Such civil money penalties are in addition to other penalties as may be prescribed by law. 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). “(D) Confidentiality of information.—Notwithstanding any other provision of law, information disclosed by manufacturers or wholesalers under this paragraph is confidential and shall not be disclosed by the Secretary or a State agency (or contractor therewith) in a form which discloses the identity of a specific manufacturer or wholesaler, prices charged for drugs by such manufacturer or wholesaler, except as the Secretary determines to be necessary to carry out this section and to permit the Comptroller General to review the information provided. “(4) Length of agreement.— “(A) In general.—A rebate agreement shall be effective for an initial period of not less than 1 year and shall be automatically renewed for a period of not less than one year unless terminated under subparagraph (B). “(B) Termination.— “(i) By the secretary.—The Secretary may provide for termination of a rebate agreement for violation of the requirements of the agreement or other good cause shown. Such termination shall not be effective earlier than 60 days after the date of notice of such termination. The Secretary shall provide, upon request, a manufacturer with a hearing concerning such a termination, but such hearing shall not delay the effective date of the termination. “(ii) By a manufacturer.—A manufacturer may terminate a rebate agreement under this section for any reason. Any such termination shall not be effective until such period after the date of the notice as the Secretary may provide (but not beyond the term of the agreement). • “(iii) Effectiveness of termination.—Any termination under this subparagraph shall not affect rebates due under the agreement before the effective date of its termination. “(C) Delay before reentry.—In the case of any rebate agreement with a manufacturer under this section which is terminated, another such agreement with the manufacturer (or a successor manufacturer) may not be entered into until a period of I calendar quarter has elapsed since the 104 STAT. 1388–147date of the termination, unless the Secretary finds good cause for an earlier reinstatement of such an agreement. “(c) Amount of Rebate.— “(1) Basic rebate for single source drugs and innovator multiple source drugs.— With respect to single source drugs and innovator multiple source drugs, each manufacturer shall remit a basic rebate to the State medical assistance plan. Except as otherwise provided in this subsection, the amount of the rebate to a State for a calendar quarter (or other period specified by the Secretary) with respect to each dosage form and strength of single source drugs and innovator multiple source drugs shall be equal to the product of— “(A) the total number of units of each dosage form and strength dispensed under the plan under this title in the quarter (or other period) reported by the State under subsection (b)(2); and “(B) (i) for quarters (or periods) beginning after December 31, 1990, and before January 1, 1993, the greater of— “(I) the difference between the average manufacturer price (after deducting customary prompt payment dis-counts) and 87.5 percent of such price for the quarter (or other period), or “(II) the difference between the average manufacturer price for a drug and the best price (as defined in paragraph (2)(B)) for such quarter (or period) for such drug (except that for calendar quarters beginning after December 31, 1990, and ending before January 1, 1992, the rebate shall not exceed 25 percent of the average manufacturer price, and for calendar quarters beginning after December 31, 1991, and ending before January 1, 1993, the rebate shall not exceed 50 percent of the average manufacturer price); and “(ii) for quarters (or other periods) beginning after December 31, 1992, the greater of— “(I) the difference between the average manufacturer price for a drug and 85 percent of such price, or “(II) the difference between the average manufacturer price for a drug and the best price (as defined in paragraph (2)(B)) for such quarter (or period) for such drug. “(C) For the purposes of this paragraph, the term ‘best price’ means, with respect to a single source drug or innovator multiple source drug of a manufacturer, the lowest price available from the manufacturer to any wholesaler, retailer, nonprofit entity, or governmental entity within the United States (excluding depot prices and single award contract prices, as defined by the Secretary, of any agency of the Federal Government). The best price shall be inclusive of cash discounts, free goods, volume discounts, and rebates (other than rebates under this section) and shall be determined without regard to special packaging, labeling, or identifiers on the dosage form or product or package, and shall not take into account prices that are merely nominal in amount; 3232So in original. Probably should be “.”. “(D) In the case of a covered outpatient drug approved for marketing after October 1, 1990, any reference in this paragraph to ‘October 1, 1990’ shall be a reference to the first day of the first month during which the drug was marketed. 104 STAT. 1388–148 “(2) Additional rebate for single source and innovator multiple source drugs.— (A) Each manufacturer shall remit an additional rebate to the State medical assistance plan in an amount equal to: “(i) For calendar quarters (or other periods) beginning after December 31, 1990 and ending before January 1, 1994— “(I) the total number of each dosage form and strength of a single source or innovator multiple source drug dispensed during the calendar quarter (or other period); multiplied by “(II) (aa) the average manufacturer price for each dosage form and strength, minus “(bb) the average manufacturer price for each such dosage form and strength in effect on October 1, 1990, increased by the percentage increase in the Consumer Price Index for all urban consumers (U.S. average) from October 1, 1990, to the month before the beginning of the calendar quarter (or other period) involved; 3333So in original. Probably should be “.”, “(ii) For calendar quarters (or other periods) beginning after December 31, 1993— “(I) the total number of each dosage form and strength of a single source or innovative multiple source drug dispensed during the calendar quarter (or other period); multiplied by “(II) the amount, if any, by which the weighted aver-age manufacturer price for single source and innovator multiple source drugs of a manufacturer exceeds the weighted average manufacturer price for the manufacturer as of October 1, 1990, increased by the percentage increase in the Consumer Price Index for all urban consumers (U.S. average) from October 1, 1990, to the month before the beginning of the calendar quarter (or other period) involved. “(B) (i) For the purposes of subparagraph (A)(ii), the term ‘weighted average manufacturer price’ means (with respect to a calendar quarter or other period) the ratio of— “(I) the sum of the products (for all covered drugs of the manufacturer purchased under a State program under this title) of— “(aa) the average manufacturer price for each such covered drug; and “(bb) the number of units of the covered drug sold to any State program under this title during such period, to “(II) the total number of units of all such covered drugs sold under a State program under this title in such period, except that the Secretary may exclude certain new drugs from the calculation of the weighted average if the inclusion of any such drug in such calculation has the effect of— “(aa) reducing the rebate otherwise calculated pursuant to subparagraph (A)(ii); or “(bb) increasing the rebate otherwise calculated pursuant to subparagraph (A)(ii) (in cases where such calculation under the conditions outlined in clause (ii).3434So in original. Probably should be “(ii))”. 104 STAT. 1388–149 “(ii) (I) The Secretary may exclude drugs approved by the Food and Drug Administration on or after October 1, 1990, from the calculation of weighted average manufacturer price if inclus3535So in original. The “inclus” probably should be “the”.manufacturer demonstrates through a petition, in a form and manner prescribed by the Secretary, undue hardship on such manufacturer as a result of the inclusion of such drug in such calculation).3636So in original. Probably should be “calculation.”. “(II) The Secretary may promulgate guidelines to restrict the conditions under which the Secretary may consider such petitions. “(C) For each of 8 calendar quarters beginning after December 31, 1991, the Secretary shall compare the aggregate amount of the rebates under subparagraph (A)(U to the aggregate amount of rebates under subparagraph (A)(ii). Based on any such comparison, the Secretary may propose and utilize an alternative formula for the purpose of calculating an aggregate rebate. “(3) Rebate for other drugs.— The amount of the rebate to a State for a calendar quarter (or other period specified by the Secretary) with respect to covered outpatient drugs (other than single source drugs and innovator multiple source drugs) shall be equal to the product of— “(A) the applicable percentage (as described in paragraph (4)3737So in original. Probably should be “(4)” of the average manufacturer price for each dosage form and strength of such drugs (after deducting customary prompt payment discounts) for the quarter (or other period), and “(B) the number of units of such form and dosage dispensed under the plan under this title in the quarter (or other period) reported by the State under subsection (b)(2). “(4) For the purposes of paragraph (3), the applicable percent-age is— “(A) with respect to calendar quarters beginning after December 31, 1990, and ending before January 1, 1994, 10 percent; and “(B) with respect to calendar quarters beginning on or after December 31, 1993, 11 percent. “(d) Limitations on Coverage of Drugs.— “(1) Permissible restrictions.— (A) Except as provided in paragraph (6), a State may subject to prior authorization any covered outpatient drug. Any such prior authorization program shall comply with the requirements of paragraph (5). “(B) A State may exclude or otherwise restrict coverage of a covered outpatient drug if— “(i) the prescribed use is not for a medically accepted indication (as defined in (k)(6)); “(ii) the drug is contained in the list referred to in paragraph (2); or “(iii) the drug is subject to such restrictions pursuant to an agreement between a manufacturer and a State authorized by the Secretary under subsection (a)(l) or in effect pursuant to subsection (a)(4). “(2) List of drugs subject to restriction.— The following drugs or classes of drugs, or their medical uses, may be excluded from coverage or otherwise restricted: “(A) Agents when used for anorexia or weight gain. “(B) Agents when used to promote fertility. 104 STAT. 1388–150 “(C) Agents when used for cosmetic purposes or hair growth. “(D) Agents when used for the symptomatic relief of cough and colds. “(E) Agents when used to promote smoking cessation. “(F) Prescription vitamins and mineral products, except prenatal vitamins and fluoride preparations. “(G) Nonprescription drugs. “(H) Covered outpatient drugs which the manufacturer seeks to require as a condition of sale that associated tests or monitoring services be purchased exclusively from the manufacturer or its designee. “(I) Drugs described in section 107(c)(3) of the Drug Amendments of 1962 and identical,. Similar, or related drugs (within the meaning of section 310.6(b)(1) of title 21 of the Code of Federal Regulations (‘DESI’ drugs)). “(J) Barbiturates. “(K) Benzodiazepines. “(3) Update of drug listings.—The Secretary shall (except with respect to new drugs approved by the FDA for the first 6 months following the date of approval of such drugs shall not be subject to being listed in paragraph (2) under the provisions of this paragraph), by regulation, periodically update the list of drugs described in paragraph (2) or classes of drugs, or their medical uses, which the Secretary has determined, based on data collected by surveillance and utilization review programs of State medical assistance programs, to be subject to clinical abuse or inappropriate use. “(4) Innovator multiple-source drugs.—Innovator multiple-source drugs shall be treated under applicable State and Federal law and regulation. “(5) Prior authorization programs.— A State plan under this title may not require, as a condition of coverage or payment for a covered outpatient drug for which Federal financial participation is available in accordance with this section, the approval of the drug before its dispensing for any medically accepted indication (as defined in subsection (k)(6)) unless the system providing for such approval— “(A) provides response by telephone or other telecommunication device within 24 hours of a request for prior authorization; and “(B) except with respect to the drugs on the list referred to in paragraph (2), provides for the dispensing of at least a 72-hour supply of a covered outpatient prescription drug in an emergency situation (as defined by the Secretary). “(6) Treatment of new drugs.—A State may not exclude for coverage, subject to prior authorization, or otherwise restrict any new biological or drug approved by the Food and Drug Administration after the date of enactment of this section, for a period of 6 months after such approval. “(7) Other permissible restrictions.—A State may impose limitations, with respect to all such drugs in a therapeutic class, on the minimum or maximum quantities per prescription or on the number of refills, provided such limitations are necessary to discourage waste. Nothing in this section shall restrict the ability of a State to address individual instances of fraud or abuse in any manner authorized under the Social Security Act. 104 STAT. 1388–151 “(8) Delayed effective date.—The provisions of paragraph (5) shall become effective with respect to drugs dispensed under this title on or after July 1, 1991. “(e) Denial of Federal Financial Participation in Certain Cases.—The Secretary shall provide that no payment shall be made to a State under section 1903(a) for an innovator multiple-source drug dispensed on or after July 1, 1991, if, under applicable State law, a less expensive no innovator multiple source drug (other than the innovator multiple-source drug) could have been dispensed. “(f) Pharmacy Reimbursement.— “(1) No reductions in reimbursement limits.— (A) During the period of time beginning on January 1, 1991, and ending on December 31, 1994, the Secretary may not modify by regulation the formula used to determine reimbursement limits described in the regulations under 42 CFR 447.331 through 42 CFR 447.334 (as in effect on the date of the enactment of the Omnibus Budget Reconciliation Act of 1990) to reduce such limits for covered outpatient drugs. (B) 3838So in original. Probably should be ““”. During the period of time described in subparagraph (A), any State that was in compliance with the regulations described in subparagraph (A) may not reduce the limits for covered outpatient drugs described in subparagraph (A) or dispensing fees for such drugs. “(2) Establishment of upper payment limits.—HCFA shall establish a Federal upper reimbursement limit for each multiple source drug for which the FDA has rated three or more products therapeutically and pharmaceutically equivalent, regardless of whether all such additional formulations are rated as such and shall use only such formulations when determining any such upper limit. “(g) Drug Use Review.— “(1) In general.— “(A) In order to meet the requirement of section 1903(i)(10)(B), a State shall provide, by not later than January 1, 1993, for a drug use review program described in paragraph (2) for covered outpatient drugs in order to assure that prescriptions (i) are appropriate, (ii) are medically necessary, and (iii) are not likely to result in adverse medical results. The program shall be designed to educate physicians and pharmacists to identify and reduce the frequency of patterns of fraud, abuse, gross overuse, or inappropriate or medically unnecessary care, among physicians, pharmacists, and patients, or associated with specific drugs or groups of drugs, as well as potential and actual severe adverse reactions to drugs including education on therapeutic appropriateness, overutilization and under-utilization, appropriate use of generic products, therapeutic duplication, drug-disease contraindications, drug-drug interactions, incorrect drug dosage or duration of drug treatment, drug-allergy interactions, and clinical abuse/ misuse. “(B) The program shall assess data on drug use against predetermined standards, consistent with the following: “(i) compendia which shall consist of the following: 104 STAT. 1388–152 “(I) American Hospital Formulary Service Drug Information; “(II) United States Pharmacopeia-Drug Information; and “(III) American Medical Association Drug Evaluations; and “(ii) the peer-reviewed medical literature. “(C) The Secretary, under the procedures established in section 1903, shall pay to each State an amount equal to 75 per centum of so much of the sums expended by the State plan during calendar years 1991 through 1993 as the Secretary determines is attributable to the statewide adoption of a drug use review program which conforms to the requirements of this subsection. “(D) States shall not be required to perform additional drug use reviews with respect to drugs dispensed to residents of nursing facilities which are in compliance with the drug regimen review procedures prescribed by the Secretary for such facilities in regulations implementing section 1919, currently at section 483,60 of title 42, Code of Federal Regulations. “(2) Description of program.— Each drug use review program shall meet the following requirements for covered out-patient drugs: “(A) Prospective drug review.— (i) The State plan shall provide for a review of drug therapy before each prescription is filled or delivered to an individual receiving benefits under this title, typically at the point-of-sale or point of distribution. The review shall include screening for potential drug therapy problems due to therapeutic duplication, drug-disease contraindications, drug-drug interactions (including serious interactions with nonprescription or over-the-counter drugs), incorrect drug dosage or duration of drug treatment, drug-allergy interactions, and clinical abuse/misuse. Each State shall use the compendia and literature referred to in paragraph (1)(B) as its source of standards for such review. “(ii) As part of the State’s prospective drug use review program under this subparagraph applicable State law shall establish standards for counseling of individuals receiving benefits under this title by pharmacists which includes at least the following: “(I) The pharmacist must offer to discuss with each individual receiving benefits under this title or caregiver of such individual (in person, whenever practicable, or through access to a telephone service which is toll-free for long-distance calls) who presents a prescription, matters which in the exercise of the pharmacist’s professional judgment (consistent with State law respecting the provision of such information), the pharmacist deems significant including the following: “(aa) The name and description of the medication. “(bb) The route, dosage form, dosage, route of administration, and duration of drug therapy. 104 STAT. 1388–153 “(cc) Special directions and precautions for preparation, administration and use by the patient. “(dd) Common severe side or adverse effects or interactions and therapeutic contraindications that may be encountered, including their avoidance, and the action required if they occur. “(ee) Techniques for self-monitoring drug therapy. “(ff) Proper storage. “(gg) Prescription refill information. “(hh) Action to be taken in the event of a missed dose. “(II) A reasonable effort must be made by the pharmacist to obtain, record, and maintain at least the following information regarding individuals receiving benefits under this title: “(aa) Name, address, telephone number, date of birth (or age) and gender. “(bb) Individual history where significant, including disease state or states, known allergies and drug reactions, and a comprehensive list of medications and relevant devices. “(cc) Pharmacist comments relevant to the individuals drug therapy. Nothing in this clause shall be construed as requiring a pharmacist to provide consultation when an individual receiving benefits under this title or caregiver of such individual refuses such consultation. “(B) Retrospective drug use review.—The program shall provide, through its mechanized drug claims processing and information retrieval systems (approved by the Secretary under section 1903(r)) or otherwise, for the on-going periodic examination of claims data and other records in order to identify patterns of fraud, abuse, gross overuse, or inappropriate or medically unnecessary care, among physicians, pharmacists and individuals receiving benefits under this title, or associated with specific drugs or groups of drugs. “(C) Application of standards.—The program shall, on an ongoing basis, assess data on drug use against explicit predetermined standards (using the compendia and literature referred to in subsection (1)(B) as the source of standards for such assessment) including but not limited to monitoring for therapeutic appropriateness, overutilization and underutilization, appropriate use of generic products, therapeutic duplication, drug-disease contraindications, drug-drug interactions, incorrect drug dosage or duration of drug treatment, and clinical abuse/misuse and, as necessary, introduce remedial strategies, in order to improve the quality of care and to conserve program funds or personal expenditures. “(D) Educational program.—The program shall, through its State drug use review board established under paragraph (3), either directly or through contracts with accredited health care educational institutions. State medical societies or State pharmacists associations/societies or other organizations as specified by the State, and using data 104 STAT. 1388–154provided by the State drug use review board on common drug therapy problems, provide for active and ongoing educational outreach programs (including the activities described in paragraph (3)(C)(ih) of this subsection) to educate practitioners on common drug therapy problems with the aim of improving prescribing or dispensing practices. “(3) State drug use review board.— “(A) Establishment.—Each State shall provide for the establishment of a drug use review board (hereinafter referred to as the ‘DUR Board’) either directly or through a contract with a private organization. “(B) Membership.— The membership of the DUR Board shall include health care professionals who have recognized knowledge and expertise in one or more of the following: “(i) The clinically appropriate prescribing of covered outpatient drugs. “(ii) The clinically appropriate dispensing and monitoring of covered outpatient drugs. “(iii) Drug use review, evaluation, and intervention. “(iv) Medical quality assurance. The membership of the DUR Board shall be made up at least ½ but no more than 51 percent licensed and actively practicing physicians and at least ⅓ * * * licensed and actively practicing pharmacists. “(C) Activities.— The activities of the DUR Board shall include but not be limited to the following: “(i) Retrospective DUR as defined in section (2)(B). “(ii) Application of standards as defined in section (2)(0. “(iii) Ongoing interventions for physicians and pharmacists, targeted toward therapy problems or individuals identified in the course of retrospective drug use reviews performed under this subsection. Intervention programs shall include, in appropriate instances, at least: “(I) information dissemination sufficient to ensure the ready availability to physicians and pharmacists in the State of information concerning its duties, powers, and basis for its standards; “(II) written, oral, or electronic reminders containing patient-specific or drug-specific (or both) information and suggested changes in prescribing or dispensing practices, communicated in a manner designed to ensure the privacy of patient-related information; “(III) use of face-to-face discussions between health care professionals who are experts in rational drug therapy and selected prescribers and pharmacists who have been targeted for educational intervention, including discussion of optimal prescribing, dispensing, or pharmacy care practices, and follow-up face-to-face discussions; and “(IV) intensified review or monitoring of selected prescribers or dispensers. The Board shall re-evaluate interventions after an appropriate period of time to determine if the intervention im-104 STAT. 1388–155proved the quality of drug therapy, to evaluate the success of the interventions and make modifications as necessary. “(D) Annual report.—Each State shall require the DUR Board to prepare a report on an annual basis. The State shall submit a report on an annual basis to the Secretary which shall include a description of the activities of the Board, including the nature and scope of the prospective and retrospective drug use review programs, a summary of the interventions used, an assessment of the impact of these educational interventions on quality of care, and an estimate of the cost savings generated as a result of such program. The Secretary shall utilize such report in evaluating the effectiveness of each State’s drug use review program. “(h) Electronic Claims Management.— “(1) In general.—In accordance with chapter 35 of title 44, United States Code (relating to coordination of Federal information policy), the Secretary shall encourage each State agency to establish, as its principal means of processing claims for covered outpatient drugs under this title, a point-of-sale electronic claims management system, for the purpose of performing on-line, real time eligibility verifications, claims data capture, adjudication of claims, and assisting pharmacists (and other authorized persons) in applying for and receiving payment. “(2) Encouragement.— In order to carry out paragraph (1)— “(A) for calendar quarters during fiscal years 1991 and 1992, expenditures under the State plan attributable to development of a system described in paragraph (1) shall receive Federal financial participation under section 1903(a)(3)(A)(i) (at a matching rate of 90 percent) if the State acquires, through applicable competitive procurement process in the State, the most cost-effective telecommunications network and automatic data processing services and equipment; and “(B) the Secretary may permit, in the procurement described in subparagraph (A) in the application of part 433 of title 42, Code of Federal Regulations, and parts 95, 205, and 307 of title 45, Code of Federal Regulations, the substitution of the State’s request for proposal in competitive procurement for advance planning and implementation documents otherwise required. “(i) Annual Report.— “(1) In general.—Not later than May 1 of each year the Secretary shall transmit to the Committee on Finance of the Senate, the Committee on Energy and Commerce of the House of Representatives, and the Committees on Aging of the Senate and the House of Representatives a report on the the operation of this section in the preceding fiscal year. “(2) Details.— Each report shall include information on— “(A) ingredient costs paid under this title for single source drugs, multiple source drugs, and nonprescription covered outpatient drugs; “(B) the total value of rebates received and number of manufacturers providing such rebates; “(C) how the size of such rebates compare with the size or rebates offered to other purchasers of covered outpatient drugs; 104 STAT. 1388–156 “(D) the effect of inflation on the value of rebates required under this section; “(E) trends in prices paid under this title for covered outpatient drugs; and “(F) Federal and State administrative costs associated with compliance with the provisions of this title. “(j) Exemption of Organized Health Care Settings.— (1) Covered outpatient drugs dispensed by * * * Health Maintenance Organizations, including those organizations that contract under section 1903(m), are not subject to the requirements of this section. “(2) The State plan shall provide that a hospital (providing medical assistance under such plan) that dispenses covered outpatient drugs using drug formulary systems, and bills the plan no more than the hospital’s purchasing costs for covered outpatient drugs (as determined under the State plan) shall not be subject to the requirements of this section. “(3) Nothing in this subsection shall be construed as providing that amounts for covered outpatient drugs paid by the institutions described in this subsection should not be taken into account for purposes of determining the best price as described in subsection (c). “(k) Definitions.—In this section— “(1) Average manufacturer price.—The term ‘average manufacturer price’ means, with respect to a covered outpatient drug of a manufacturer for a calendar quarter, the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail pharmacy class of trade. “(2) Covered outpatient drug.— Subject to the exceptions in paragraph (3), the term ‘covered outpatient drug’ means— “(A) of those drugs which are treated as prescribed drugs for purposes of section 1905(a)(12), a drug which may be dispensed only upon prescription (except as provided in paragraph (5)), and— “(i) which is approved for safety and effectiveness as a prescription drug under section 505 or 507 of the Federal Food, Drug, and Cosmetic Act or which is approved under section 505(j) of such Act; “(ii) (I) which was commercially used or sold in the United States before the date of the enactment of the Drug Amendments of 1962 or which is identical, similar, or related (within the meaning of section 310.6(b)(l) of title 21 of the Code of Federal Regulations) to such a drug, and (II) which has not been the subject of a final determination by the Secretary that it is a ‘new drug’ (within the meaning of section 201(p) of the Federal Food, Drug, and Cosmetic Act) or an action brought by the Secretary under section 301, 302(a), or 304(a) of such Act to enforce section 502(f) or 505(a) of such Act; or “(iii) (I) which is described in section 107(c)(3) of the Drug Amendments of 1962 and for which the Secretary has determined there is a compelling justification for its medical need, or is identical, similar, or related (within the meaning of section 310.6(b)(l) of title 21 of the Code of Federal Regulations) to such a drug, and (II) for which the Secretary has not issued a notice of an opportunity for a hearing under section 505(e) of the 104 STAT. 1388–157Federal Food, Drug, and Cosmetic Act on a proposed order of the Secretary to withdraw approval of an application for such drug under such section because the Secretary has determined that the drug is less than effective for some or all conditions of use prescribed, recommended, or suggested in its labeling; and “(B) a biological product, other than a vaccine which— “(i) may only be dispensed upon prescription, “(ii) is licensed under section 351 of the Public Health Service Act, and “(iii) is produced at an establishment licensed under such section to produce such product; and “(C) insulin certified under section 506 of the Federal Food, Drug, and Cosmetic Act. “(3) Limiting definition.— The term ‘covered outpatient drug’ does not include any drug, biological product, or insulin provided as part of, or as incident to and in the same setting as, any of the following (and for which payment may be made under this title as part of payment for the following and not as direct reimbursement for the drug): “(A) Inpatient hospital services. “(B) Hospice services. “(C) Dental services, except that drugs for which the State plan authorizes direct reimbursement to the dispensing dentist are covered outpatient drugs. “(D) Physicians ‘services. “(E) Outpatient hospital services * * * * 3939So in original. Probably should be “services emergency”. emergency room visits. “(F) Nursing facility services. “(G) Other laboratory and x-ray services. “(H) Renal dialysis. Such term also does not include any such drug or product which is used for a medical indication which is not a medically accepted indication. “(4) Nonprescription drugs.—If a State plan for medical assistance under this title includes coverage of prescribed drugs as described in section 1905(a)(12) and permits coverage of drugs which may be sold without a prescription (commonly referred to as ‘over-the-counter’ drugs), if they are prescribed by a physician (or other person authorized to prescribe under State law), such a drug shall be regarded as a covered outpatient drug. “(5) Manufacturer.— The term ‘manufacturer means any entity which is engaged in— “(A) the production, preparation, propagation, compounding, conversion, or processing of prescription drug products, either directly or indirectly by extraction from substances of natural origin, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis, or “(B) in the packaging, repackaging, labeling, relabeling, or distribution of prescription drug products. Such term does not include a wholesale distributor of drugs or a retail pharmacy licensed under State law. “(6) Medically accepted indication.—The term ‘medically accepted indication’ means any use for a covered outpatient drug which is approved under the Federal Food, Drug, and Cosmetic Act, which appears in peer-reviewed medical lit-104 STAT. 1388–158erature or which is accepted by one or more of the following compendia: the American Hospital Formulary Service-Drug Information, the American Medical Association Drug Evaluations, and the United States Pharmacopeia-Drug Information. “(7) Multiple source drug; innovator multiple source drug; noninnovator multiple source drug; single source drug.— “(A) Defined.— “(i) Multiple source drug.— The term ‘multiple source drug’ means, with respect to a calendar quarter, a covered outpatient drug (not including any drug described in paragraph (5)) for which there are 2 or more drug products which— “(I) are rated as therapeutically equivalent (under the Food and Drug Administration’s most recent publication of ‘Approved Drug Products with Therapeutic Equivalence Evaluations’), “(II) except as provided in subparagraph (B), are pharmaceutically equivalent and bioequivalent, as defined in subparagraph (C) and as determined by the Food and Drug Administration, and “(III) are sold or marketed in the State during the period. “(ii) Innovator multiple source drug.—The term ‘innovator multiple source drug’ means a multiple source drug that was originally marketed under an original new drug application approved by the Food and Drug Administration. “(iii) Noninnovator multiple source drug.—The term ‘noninnovator multiple source drug’ means a multiple source drug that is not an innovator multiple source drug. “(iv) Single source drug.—The term ‘single source drug’ means a covered outpatient drug which is produced or distributed under an original new drug application approved by the Food and Drug Administration, including a drug product marketed by any cross-licensed producers or distributers4040So in original. Probably should be “distributor”. operating under the new drug application. “(B) Exception.—Subparagraph (A)(i)(D) shall not apply if the Food and Drug Administration changes by regulation the requirement that, for purposes of the publication described in subparagraph (A)(i)(D, in order for drug products to be rated as therapeutically equivalent, they must be pharmaceutically equivalent and bioequivalent, as defined in subparagraph (O. “(C) Definitions.— For purposes of this paragraph— “(i) drug products are pharmaceuutically4141So in original. Probably should be “pharmaceutically”. equivalent if the products contain identical amounts of the same active drug ingredient in the same dosage form and meet compendial or other applicable standards of strength, quality, purity, and identity; “(ii) drugs are bioequivalent if they do not present a known or potential bioequivalence problem, or, if they do present such a problem, they are shown to meet an appropriate standard of bioequivalence; and 104 STAT. 1388–159 “(iii) a drug product is considered to be sold or marketed in a State if it appears in a published national listing of average wholesale prices selected by the Secretary, provided that the listed product is generally available to the public through retail pharmacies in that State. “(8) State agency.—The term ‘State agency’ means the agency designated under section 1902(a)(5) to administer or supervise the administration of the State plan for medical assistance.”. (b) Funding.— (1) Drug use review programs.— Section 1903(a)(3) (42 U.S.C. 1936b(a)(3)) is amended— (A) by striking “plus” at the end of subparagraph (C) and inserting “and”, and (B) by adding at the end the following new subparagraph: “(D) 75 percent of so much of the sums expended by the State plan during a quarter in 1991, 1992, or 1993, as the Secretary determines is attributable to the statewide adoption of a drug use review program which conforms to the requirements of section 1927(g); plus”. (2) Temporary increase in federal match for administrative costs.—The per centum to be applied under section 1903(a)(7) of the Social Security Act for amounts expended during calendar quarters in fiscal year 1991 which are attributable to administrative activities necessary to carry out section 1927 (other than subsection (g)) of such Act shall be 75 percent, rather than 50 percent; after fiscal year 1991, the match shall revert back to 50 percent. (c) Demonstration Projects.— (1) Prospective drug utilization review.— (A) The Secretary of Health and Human Services shall provide, through competitive procurement by not later than January 1, 1992, for the establishment of at least 10 state-wide demonstration projects to evaluate the efficiency and cost-effectiveness of prospective drug utilization review (as a component of on-line, real-time electronic point-of-sales claims management) in fulfilling patient counseling and in reducing costs for prescription drugs. (B) Each of such projects shall establish a central electronic repository for capturing, storing, and updating prospective drug utilization review data and for providing access to such data by participating pharmacists (and other authorized participants). (C) Under each project, the pharmacist or other authorized participant shall assess the active drug regimens of recipients in terms of duplicate drug therapy, therapeutic overlap, allergy and cross-sensitivity reactions, drug inter-actions, age precautions, drug regiment compliance, prescribing limits, and other appropriate elements. (D) Not later than January 1, 1994, the Secretary shall submit to Congress a report on the demonstration projects conducted under this paragraph. (2) Demonstration project on cost-effectiveness of reimbursement for pharmacists’ cognitive services.— (A) The Secretary of Health and Human Services shall conduct a demonstration project to evaluate the impact on 104 STAT. 1388–160quality of care and cost-effectiveness of paying pharmacists under title XIX of the Social Security Act, whether or not a drug is dispensed, for drug use review services. For this purpose, the Secretary shall provide for no fewer than 5 demonstration sites in different States and the participation of a significant number of pharmacists. (B) Not later than January 1, 1995, the Secretary shall submit a report to the Congress on the results of the demonstration project conducted under subparagraph (A). (d) Studies.— (1) Study of drug purchasing and bilung activities of various health care systems.— (A) The Comptroller General shall conduct a study of the drug purchasing and billing practices of hospitals, other institutional facilities, and managed care plans which provide covered outpatient drugs in the medicaid program. The study shall compare the ingredient costs of drugs for medic-aid prescriptions to these facilities and plans and the charges billed to medical assistance programs by these facilities and plans compared to retail pharmacies. (B) The study conducted under this subsection shall include an assessment of— (i) the prices paid by these institutions for covered outpatient drugs compared to prices that would be paid under this section, (ii) the quality of outpatient drug use review provided by these institutions as compared to drug use review required under this section, and (iii) the efficiency of mechanisms used by these institutions for billing and receiving payment for covered outpatient drugs dispensed under this title. (C) By not later than May 1, 1991, the Comptroller General shall report to the Secretary of Health and Human Services (hereafter in this section referred to as the “Secretary”), the Committee on Finance of the Senate, the Committee on Energy and Commerce of the House of Representatives, and the Committees on Aging of the Senate and the House of Representatives on the study conducted under subparagraph (A). (2) Report on drug pricing.—By not later than May 1 of each year, the Comptroller General shall submit to the Secretary, the Committee on Finance of the Senate, the Committee on Energy and Commerce of the House of Representatives, and the Committees on Aging of the Senate and House of Representatives an annual report on changes in prices charged by manufacturers for prescription drugs to the Department of Veterans Affairs, other Federal programs, retail and hospital pharmacies, and other purchasing groups and managed care plans. (3) Study on prior approval procedures.— (A) The Secretary, acting in consultation with the Comptroller General, shall study prior approval procedures utilized by State medical assistance programs conducted under title XIX of the Social Security Act, including— (i) the appeals provisions under such programs; and (ii) the effects of such procedures on beneficiary and provider access to medications covered under such programs. 104 STAT. 1388–161 (B) By not later than December 31, 1991, the Secretary and the Comptroller General shall report to the Committee on Finance of the Senate, the Committee on Energy and Commerce of the House of Representatives, and the Committees on Aging of the Senate and the House of Representatives on the results of the study conducted under subparagraph (A) and shall make recommendations with respect to which procedures are appropriate or inappropriate to be utilized by State plans for medical assistance. (4) Study on reimbursement rates to pharmacists.— (A) The Secretary shall conduct a study on (i) the adequacy of current reimbursement rates to pharmacists under each State medical assistance programs conducted under title XIX of the Social Security Act; and (ii) the extent to which reimbursement rates under such programs have an effect on beneficiary access to medications covered and pharmacy services under such programs. (B) By not later than December 31, 1991, the Secretary shall report to the Committee on Finance of the Senate, the Committee on Energy and Commerce of the House of Representatives, and the Committees on Aging of the Senate and the House of Representatives on the results of the study conducted under subparagraph (A). (5) Study of payments for vaccines.—The Secretary of Health and Human Services shall undertake a study of the relationship between State medical assistance plans and Federal and State acquisition and reimbursement policies for vaccines and the accessibility of vaccinations and immunization to children provided under this title. The Secretary shall report to the Congress on the Study not later than one year after the date of the enactment of this Act. (6) Study on application of discounting of drugs under medicare.—The Comptroller General shall conduct a study examining methods to encourage providers of items and services under title XVIII of the Social Security Act to negotiate dis-counts with suppliers of prescription drugs to such providers. The Comptroller General shall submit to Congress a report on such study no later than 1 year after the date of enactment of this subsection.