ADDITIONAL FEDERAL SAVINGS THROUGH MODIFICATIONS TO DRUG REBATE PROGRAM.

SEC. 13602. ADDITIONAL FEDERAL SAVINGS THROUGH MODIFICATIONS TO DRUG REBATE PROGRAM. (a) Changes in Rebate Program.— (1) In general.— Section 1927 (42 U.S.C. 1396r–8) is amended by striking subsection (c) and all that follows through “(2)” in subsection (f)(2) and inserting the following: “(c) Determination of Amount of rebate.— “(1) Basic rebate for single source drugs and innovator multiple source drugs.— “(A) In general.— Except as provided in paragraph (2), the amount of the rebate specified in this subsection for a rebate period (as defined in subsection (k)(8)) with respect to each dosage form and strength of a single source drug or an innovator multiple source drug shall be equal to the product of— “(i) the total number of units of each dosage form and strength paid for under the State plan in the rebate period (as reported by the State); and “(ii) subject to subparagraph (B)(ii), the greater of— “(I) the difference between the average manufacturer price and the best price (as defined in subparagraph (C)) for the dosage form and strength of the drug, or “(II) the minimum rebate percentage (specified in subparagraph (B)(i)) of such average manufacturer price, for the rebate period. “(B) Range of rebates required.— “(i) Minimum rebate percentage.— For purposes of subparagraph (A)(ii)(II), the ‘minimum rebate percentage’ For rebate periods beginning— “(I) after December 31, 1990, and before October 1, 1992, is 12.5 percent; “(II) after September 30, 1992, and before January 1, 1994, is 15.7 percent; 107 STAT. 614 “(III) after December 31, 1993, and before January 1, 1995, is 15.4 percent; “(IV) after December 31, 1994, and before January 1, 1996, is 15.2 percent; and “(V) after December 31, 1995, is 15.1 percent. “(ii) Temporary limitation on maximum rebate amount.— In no case shall the amount applied under subparagraph (A)(ii) for a rebate period beginning— “(I) before January 1, 1992, exceed 25 percent of the average manufacturer price; or “(II) after December 31, 1991, and before January 1, 1993, exceed 50 percent of the average manufacturer price. “(C) Best price defined.— For purposes of this section— “(i) In general.— 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 during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States, excluding— “(I) any prices charged on or after October 1, 1992, to the Indian Health Service, the Department of Veterans Affairs, a State home receiving funds under section 1741 of title 38, United States Code, the Department of Defense, the Public Health Service, or a covered entity described in subsection (a)(5)(B); “(II) any prices charged under the Federal Supply Schedule of the General Services Administration; “(III) any prices used under a State pharmaceutical assistance program; and “(IV) any depot prices and single award contract prices, as defined by the Secretary, of any agency of the Federal Government. “(ii) Special rules.— The term ‘best price’— “(I) shall be inclusive of cash discounts, free goods that are contingent on any purchase requirement, volume discounts, and rebates (other than rebates under this section); “(II) shall be determined without regard to special packaging, labeling, or identifiers on the dosage form or product or package; and “(III) shall not take into account prices that are merely nominal in amount. “(2) Additional rebate for single source and innovator multiple source drugs.— “(A) In general.— The amount of the rebate specified in this subsection for a rebate period, with respect to each dosage form and strength of a single source drug or an innovator multiple source drug, shall be increased by an amount equal to the product of— “(i) the total number of units of such dosage form and strength dispensed after December 31, 1990, for 107 STAT. 615which payment was made under the State plan for the rebate period; and “(ii) the amount (if any) by which— “(I) the average manufacturer price for the dosage form and strength of the drug for the period, exceeds “(II) the average manufacturer price for such dosage form and strength for the calendar quarter beginning July 1, 1990 (without regard to whether or not the drug has been sold or transferred to an entity, including a division or subsidiary of the manufacturer, after the first day of such quarter), increased by the percentage by which the consumer price index for all urban consumers (United States city average) for the month before the month in which the rebate period begins exceeds such index for September 1990. “(B) Treatment of subsequently approved drugs.— In the case of a covered outpatient drug approved by the Food and Drug Administration after October 1, 1990, clause (ii)(II) of subparagraph (A) shall be applied by substituting ‘the first full calendar quarter after the day on which the drug was first marketed’ for ‘the calendar quarter beginning July 1, 1990’ and the month prior to the first month of the first full calendar quarter after the day on which the drug was first marketed’ for ‘September 1990’. “(3) Rebate for other drugs.— “(A) In general.— The amount of the rebate paid to a State for a rebate period with respect to each dosage form and strength of covered outpatient drugs (other than single source drugs and innovator multiple source drugs) shall be equal to the product of— “(i) the applicable percentage (as described in subparagraph (B)) of the average manufacturer price for the dosage form and strength for the rebate period, and “(ii) the total number of units of such dosage form and strength dispensed after December 31, 1990, for which payment was made under the State plan for the rebate period. “(B) Applicable percentage defined.— For purposes of subparagraph (A)(i), the 'applicable percentage’ for rebate periods beginning— “(i) before January 1, 1994, is 10 percent, and “(ii) after December 31, 1993, is 11 percent. “(d) Limitations on Coverage of Drugs.— “(1) Permissible restrictions.— (A) 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 subsection (k)(6)); “(ii) the drug is contained in the list referred to in paragraph (2); 107 STAT. 616 “(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)(I) or in effect pursuant to subsection (a)(4); or “(iv) the State has excluded coverage of the drug from its formulary established in accordance with paragraph (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, weight loss, or weight gain. “(B) Agents when used to promote fertility. “(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) Barbiturates. “(J) Benzodiazepines. “(3) Update of drug listings.— The Secretary shall, by regulation, periodically update the list of drugs or classes of drugs described in paragraph (2) 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) Requirements for formularies.— A State may establish a formulary if the formulary meets the following requirements: “(A) The formulary is developed by a committee consisting of physicians, pharmacists, and other appropriate individuals appointed by the Governor of the State (or, at the option of the State, the State’s drug use review board established under subsection (g)(3)). “(B) Except as provided in subparagraph (C), the formulary includes the covered outpatient drugs of any manufacturer which has entered into and complies with an agreement under subsection (a) (other than any drug excluded from coverage or otherwise restricted under paragraph (2)). “(C) A covered outpatient drug may be excluded with respect to the treatment of a specific disease or condition for an identified population (if any) only if, based on the drug’s labeling (or, in the case of a drug the prescribed use of which is not approved under the Federal Food, Drug, and Cosmetic Act but is a medically accepted indication, based on information from the appropriate compendia described in subsection (k)(6)), the excluded drug does not have a significant, clinically meaningful therapeutic advan-107 STAT. 617tage in terms of safety, effectiveness, or clinical outcome of such treatment for such population over other drugs included in the formulary and there is a written explanation (available to the public) of the basis for the exclusion. “(D) The State plan permits coverage of a drug excluded from the formulary (other than any drug excluded from coverage or otherwise restricted under paragraph (2)) pursuant to a prior authorization program that is consistent with paragraph (5). “(E) The formulary meets such other requirements as the Secretary may impose in order to achieve program savings consistent with protecting the health of program beneficiaries. A prior authorization program established by a State under paragraph (5) is not a formulary subject to the requirements of this paragraph. “(5) Requirements of prior authorization programs.— A State plan under this title may 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, with respect to drugs dispensed on or after July 1, 1991, the approval 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— “(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 72-hour supply of a covered outpatient prescription drug in an emergency situation (as defined by the Secretary). “(6) 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, if such limitations are necessary to discourage waste, and may address instances of fraud or abuse by individuals in any manner authorized under this Act. “(e) Treatment of Pharmacy Reimbursement Limits.— “(1) In general.— During the period beginning on January 1, 1991, and ending on December 31, 1994— “(A) a State may not reduce the payment limits established by regulation under this title or any limitation described in paragraph (3) with respect to the ingredient cost of a covered outpatient drug or the dispensing fee for such a drug below the limits in effect as of January 1, 1991, and “(B) except as provided in paragraph (2), the Secretary may not modify by regulation the formula established under sections 447.331 through 447.334 of title 42, Code of Federal Regulations, in effect on November 5, 1990, to reduce the limits described in subparagraph (A). “(2) Special rule.— If a State is not in compliance with the regulations described in paragraph (1)(B), paragraph (1)(A) shall not apply to such State until such State is in compliance with such regulations. 107 STAT. 618 “(3) Effect on state maximum allowable cost limitations.— This section shall not supersede or affect provisions in effect prior to January 1, 1991, or after December 31, 1994, relating to any maximum allowable cost limitation established by a State for payment by the State for covered outpatient drugs, and rebates shall be made under this section without regard to whether or not payment by the State for such drugs is subject to such a limitation or the amount of such a limitation.”. (2) Conforming amendments.— Section 1927 (42 U.S.C. 1396r–8) is amended as follows: (A) In subsection (b)— (i) in paragraph (1)(A)— (I) by striking “each calendar quarter (or periodically in accordance with a schedule specified by the Secretary)” and inserting “for a rebate period”, and (II) by striking “dispensed under the plan during the quarter (or other period as the Secretary may specify)” and inserting “dispensed after December 31, 1990, for which payment was made under the State plan for such period”; (ii) in paragraph (2)(A)— (I) by striking “calendar quarter” and “the quarter” and inserting “rebate period” and “the period”, respectively, (II) by striking “dosage units” and inserting “units of each dosage form and strength and package size”, and (III) by inserting “after December 31, 1990, for which payment was made” after “dispensed”; and (iii) in paragraph (3)(A)(i), by striking “quarter” each place it appears and inserting “rebate period under the agreement”. (B) In subsection (k)— (i) in paragraph (1)— (I) by striking “calendar quarter” and inserting “rebate period”, and (II) by inserting before the period at the end the following: “, after deducting customary prompt pay discounts”; (ii) in paragraph (3)— (I) in subparagraph (E), by striking “* * * * emergency room visits”, (II) in subparagraph (F), by striking “services” and inserting “services and services provided by an intermediate care facility for the mentally retarded”, and (III) in the matter following subparagraph (H)— (aa) by striking “which is used” and inserting “for which a National Drug Code number is not required by the Food and Drug Administration or a drug or biological used”; and 107 STAT. 619 (bb) by adding at the end the following: “Any drug, biological product, or insulin excluded from the definition of such term as a result of this paragraph shall be treated as a covered outpatient drug for purposes of determining the best price (as defined in subsection (c)(1)(C)) for such drug, biological product, or insulin.”; (iii) in paragraph (6), by striking “, which appears” and all that follows and inserting “or the use of which is supported by one or more citations included or approved for inclusion in any of the compendia described in subsection (g)(1)(B)(i).”; (iv) in paragraph (v)(A)(i), by striking “calendar quarter” and inserting “rebate period”; and (v) by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph: “(8) Rebate period.— The term ‘rebate period’ means, with respect to an agreement under subsection (a), a calendar quarter or other period specified by the Secretary with respect to the payment of rebates under such agreement.”. (b) Limiting Federal Payments for Certain Drugs.— Paragraph (10) of section 1903(i) (42 U.S.C. 1396b(i)) (as inserted by section 4401(a)(1)(B) of OBRA–1990) is amended to read as follows: “(10) (A) with respect to covered outpatient drugs unless there is a rebate agreement in effect under section 1927 with respect to such drugs or unless section 1927(a)(3) applies, and “(B) with respect to any amount expended for an innovator multiple source drug (as defined in section 1927(k)) dispensed on or after July 1, 1991, if, under applicable State law, a less expensive multiple source drug could have been dispensed, but only to the extent that such amount exceeds the upper payment limit for such multiple source drug;”. (c) Elimination of Prohibition Against State Use of Formularies to Achieve Federal Savings.— Paragraph (54) of section 1902(a) (42 U.S.C. 1396a(a)) is amended to read as follows: “(54) in the case of a State plan that provides medical assistance for covered outpatient drugs (as defined in section 1927(k)), comply with the applicable requirements of section 1927;”. (d) Effective Dates.— (1) Except as provided in paragraph (2), the amendments made by this section shall take effect as if included in the enactment of OBRA–1990. (2) The amendment made by subsection (a)(1) (insofar as such subsection amends section 1927(d) of the Social Security Act) and the amendment made by subsection (c) shall apply to calendar quarters beginning on or after October 1, 1993, without regard to whether or not regulations to carry out such amendments have been promulgated by such date.