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U.S. Code as of:
01/19/04
Section 1396r-8. Payment for covered outpatient drugs
(a) Requirement for rebate agreement
(1) In general
In order for payment to be available under section 1396b(a) of
this title or under part B of subchapter XVIII of this chapter
for covered outpatient drugs of a manufacturer, the manufacturer
must have entered into and have in effect a rebate agreement
described in subsection (b) of this section with the Secretary,
on behalf of States (except that, the Secretary may authorize a
State to enter directly into agreements with a manufacturer), and
must meet the requirements of paragraph (5) (with respect to
drugs purchased by a covered entity on or after the first day of
the first month that begins after November 4, 1992) and paragraph
(6). 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
before March 1, 1991, such an agreement, subsequently entered
into, shall become effective as of the date on which the
agreement is entered into or, at State option, on any date
thereafter on or before 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
subchapter on or after January 1, 1991.
(3) Authorizing payment for drugs not covered under rebate
agreements
Paragraph (1), and section 1396b(i)(10)(A) of this title, 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) of
this section, 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 November 5, 1990, 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 subchapter. If,
after the initial agreement period, the State establishes to the
satisfaction of the Secretary that an agreement in effect on
November 5, 1990, 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.
(5) Limitation on prices of drugs purchased by covered entities
(A) Agreement with Secretary
A manufacturer meets the requirements of this paragraph if
the manufacturer has entered into an agreement with the
Secretary that meets the requirements of section 256b of this
title with respect to covered outpatient drugs purchased by a
covered entity on or after the first day of the first month
that begins after November 4, 1992.
(B) "Covered entity" defined
In this subsection, the term "covered entity" means an entity
described in section 256b(a)(4) of this title.
(C) Establishment of alternative mechanism to ensure against
duplicate discounts or rebates
If the Secretary does not establish a mechanism under section
256b(a)(5)(A) of this title within 12 months of November 4,
1992, the following requirements shall apply:
(i) Entities
Each covered entity shall inform the single State agency
under section 1396a(a)(5) of this title when it is seeking
reimbursement from the State plan for medical assistance
described in section 1396d(a)(12) of this title with respect
to a unit of any covered outpatient drug which is subject to
an agreement under section 256b(a) of this title.
(ii) State agency
Each such single State agency shall provide a means by
which a covered entity shall indicate on any drug
reimbursement claims form (or format, where electronic claims
management is used) that a unit of the drug that is the
subject of the form is subject to an agreement under section
256b of this title, and not submit to any manufacturer a
claim for a rebate payment under subsection (b) of this
section with respect to such a drug.
(D) Effect of subsequent amendments
In determining whether an agreement under subparagraph (A)
meets the requirements of section 256b of this title, the
Secretary shall not take into account any amendments to such
section that are enacted after November 4, 1992.
(E) Determination of compliance
A manufacturer is deemed to meet the requirements of this
paragraph if the manufacturer establishes to the satisfaction
of the Secretary that the manufacturer would comply (and has
offered to comply) with the provisions of section 256b of this
title (as in effect immediately after November 4, 1992) and
would have entered into an agreement under such section (as
such section was in effect at such time), but for a legislative
change in such section after November 4, 1992.
(6) Requirements relating to master agreements for drugs procured
by Department of Veterans Affairs and certain other Federal
agencies
(A) In general
A manufacturer meets the requirements of this paragraph if
the manufacturer complies with the provisions of section 8126
of title 38, including the requirement of entering into a
master agreement with the Secretary of Veterans Affairs under
such section.
(B) Effect of subsequent amendments
In determining whether a master agreement described in
subparagraph (A) meets the requirements of section 8126 of
title 38, the Secretary shall not take into account any
amendments to such section that are enacted after November 4,
1992.
(C) Determination of compliance
A manufacturer is deemed to meet the requirements of this
paragraph if the manufacturer establishes to the satisfaction
of the Secretary that the manufacturer would comply (and has
offered to comply) with the provisions of section 8126 of title
38, (as in effect immediately after November 4, 1992) and would
have entered into an agreement under such section (as such
section was in effect at such time), but for a legislative
change in such section after November 4, 1992.
(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
subchapter, a rebate for a rebate period in an amount specified
in subsection (c) of this section for covered outpatient drugs
of the manufacturer dispensed after December 31, 1990, for
which payment was made under the State plan for such period.
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)
of this section or an agreement described in subsection (a)(4)
of this section) in any quarter shall be considered to be a
reduction in the amount expended under the State plan in the
quarter for medical assistance for purposes of section
1396b(a)(1) of this title.
(2) State provision of information
(A) State responsibility
Each State agency under this subchapter shall report to each
manufacturer not later than 60 days after the end of each
rebate period and in a form consistent with a standard
reporting format established by the Secretary, information on
the total number of units of each dosage form and strength and
package size of each covered outpatient drug dispensed after
December 31, 1990, for which payment was made under the plan
during the period, 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
rebate period under the agreement (beginning on or after
January 1, 1991), on the average manufacturer price (as
defined in subsection (k)(1) of this section) and, (for
single source drugs and innovator multiple source drugs), the
manufacturer's best price (as defined in subsection (c)(2)(B)
of this section) for covered outpatient drugs for the rebate
period under the agreement,; )1(!
(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)(1) of this section) as of
October 1, 1990 )2(! for each of the manufacturer's covered
outpatient drugs; and
(iii) for calendar quarters beginning on or after January
1, 2004, in conjunction with reporting required under clause
(i) and by National Drug Code (including package size) -
(I) the manufacturer's average sales price (as defined in
section 1395w-3a(c) of this title) and the total number of
units specified under section 1395w-3a(b)(2)(A) of this
title;
(II) if required to make payment under section 1395w-3a
of this title, the manufacturer's wholesale acquisition
cost, as defined in subsection (c)(6) of such section; and
(III) information on those sales that were made at a
nominal price or otherwise described in section
1395w-3a(c)(2)(B) of this title;
for a drug or biological described in subparagraph (C), (D),
(E), or (G) of section 1395u(o)(1) of this title or section
1395rr(b)(13)(A)(ii) of this title.
Information reported under this subparagraph is subject to
audit by the Inspector General of the Department of Health and
Human Services.
(B) Verification surveys of average manufacturer price and
manufacturer's average sales price
The Secretary may survey wholesalers and manufacturers that
directly distribute their covered outpatient drugs, when
necessary, to verify manufacturer prices and manufacturer's
average sales prices (including wholesale acquisition cost) if
required to make payment 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 1320a-7a of this title
(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 1320a-7a(a) of this title.
(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 information is not
reported within 90 days of the deadline 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 1320a-7a of this title (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 1320a-7a(a) of
this title.
(D) Confidentiality of information
Notwithstanding any other provision of law, information
disclosed by manufacturers or wholesalers under this paragraph
or under an agreement with the Secretary of Veterans Affairs
described in subsection (a)(6)(A)(ii) of this section (other
than the wholesale acquisition cost for purposes of carrying
out section 1395w-3a of this title) is confidential and shall
not be disclosed by the Secretary or the Secretary of Veterans
Affairs 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 -
(i) as the Secretary determines to be necessary to carry
out this section, to carry out section 1395w-3a of this title
(including the determination and implementation of the
payment amount), or to carry out section 1395w-3b of this
title,
(ii) to permit the Comptroller General to review the
information provided, and
(iii) to permit the Director of the Congressional Budget
Office to review the information provided.
The previous sentence shall also apply to information disclosed
under section 1395w-102(d)(2) or 1395w-104(c)(2)(E) of this
title and drug pricing data reported under the first sentence
of section 1395w-141(i)(1) of this title.
(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 the calendar quarter beginning at least 60
days after the date the manufacturer provides notice to the
Secretary.
(iii) Effectiveness of termination
Any termination under this subparagraph shall not affect
rebates due under the agreement before the effective date of
its termination.
(iv) Notice to States
In the case of a termination under this subparagraph, the
Secretary shall provide notice of such termination to the
States within not less than 30 days before the effective date
of such termination.
(v) Application to terminations of other agreements
The provisions of this subparagraph shall apply to the
terminations of agreements described in section 256b(a)(1) of
this title and master agreements described in section 8126(a)
of title 38.
(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 1 calendar quarter has elapsed
since the date of the termination, unless the Secretary finds
good cause for an earlier reinstatement of such an agreement.
(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) of this section) 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;
(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, the Department of Defense, the Public Health
Service, or a covered entity described in subsection
(a)(5)(B) of this section (including inpatient prices
charged to hospitals described in section 256b(a)(4)(L) of
this title);
(II) any prices charged under the Federal Supply Schedule
of the General Services Administration;
(III) any prices used under a State pharmaceutical
assistance program;
(IV) any depot prices and single award contract prices,
as defined by the Secretary, of any agency of the Federal
Government;
(V) the prices negotiated from drug manufacturers for
covered discount card drugs under an endorsed discount card
program under section 1395w-141 of this title; and
(VI) any prices charged which are negotiated by a
prescription drug plan under part D of subchapter XVIII of
this chapter, by an MA-PD plan under part C of such
subchapter with respect to covered part D drugs or by a
qualified retiree prescription drug plan (as defined in
section 1395w-132(a)(2) of this title) with respect to such
drugs on behalf of individuals entitled to benefits under
part A or enrolled under part B of such subchapter.
(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.
(iii) Application of auditing and recordkeeping requirements
With respect to a covered entity described in section
256b(a)(4)(L) of this title, any drug purchased for inpatient
use shall be subject to the auditing and recordkeeping
requirements described in section 256b(a)(5)(C) of this
title.
(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 which 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) of this section);
(ii) the drug is contained in the list referred to in
paragraph (2);
(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)(1) of this section or in effect
pursuant to subsection (a)(4) of this section; 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) of this section).
(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) of this section (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
[21 U.S.C. 301 et seq.] but is a medically accepted indication,
based on information from the appropriate compendia described
in subsection (k)(6) of this section), the excluded drug does
not have a significant, clinically meaningful therapeutic
advantage 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 subchapter 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) of
this section) 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
chapter.
(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 subchapter 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.
(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.
[(4)] )3(! Establishment of upper payment limits
The Secretary 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.
(f) Repealed and redesignated
(1) Repealed. Pub. L. 103-66, title XIII, Sec. 13602(a)(1), Aug.
10, 1993, 107 Stat. 613
(2) Redesignated (e)[(4)]
(g) Drug use review
(1) In general
(A) In order to meet the requirement of section 1396b(i)(10)(B)
of this title, 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
underutilization, 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:
(I) American Hospital Formulary Service Drug Information;
(II) United States Pharmacopeia-Drug Information; and
(III) the DRUGDEX Information System; and
(ii) the peer-reviewed medical literature.
(C) The Secretary, under the procedures established in section
1396b of this title, 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 1396r of this title, 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 outpatient 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 subchapter, 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 subchapter by pharmacists which includes at
least the following:
(I) The pharmacist must offer to discuss with each
individual receiving benefits under this subchapter 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.
(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 subchapter:
(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 individual's
drug therapy.
Nothing in this clause shall be construed as requiring a
pharmacist to provide consultation when an individual receiving
benefits under this subchapter 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 1396b(r) of this title) or otherwise,
for the ongoing 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 subchapter, 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 )4(! (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 provided 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)(iii) 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
)1/3(! but no more than 51 percent licensed and actively
practicing physicians and at least )1/3(! * * * )5(! 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 )6(! (2)(B).
(ii) Application of standards as defined in section )6(!
(2)(C).
(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 improved 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 (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
subchapter, 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 1396b(a)(3)(A)(i) of this
title (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) Omitted
(j) Exemption of organized health care settings
(1) Covered outpatient drugs dispensed by health maintenance
organizations, including medicaid managed care organizations that
contract under section 1396b(m) of this title, 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) of this section.
(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 rebate period,
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, after deducting customary prompt pay
discounts.
(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 1396d(a)(12) of this title, 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 [21 U.S.C. 355] or 507
)7(! of the Federal Food, Drug, and Cosmetic Act or which is
approved under section 505(j) of such Act [21 U.S.C. 355(j)];
(ii)(I) which was commercially used or sold in the United
States before October 10, 1962, or which is identical,
similar, or related (within the meaning of section
310.6(b)(1) 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 [21 U.S.C. 321(p)]) or an action
brought by the Secretary under section 301, 302(a), or 304(a)
of such Act [21 U.S.C. 331, 332(a), 334(a)] to enforce
section 502(f) or 505(a) of such Act [21 U.S.C. 352(f),
355(a)]; 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)(1) 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 Federal Food, Drug, and
Cosmetic Act [21 U.S.C. 355(e)] 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 262 of this title, and
(iii) is produced at an establishment licensed under such
section to produce such product; and
(C) insulin certified under section 506 )6(! 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 subchapter 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.
(F) Nursing facility services and services provided by an
intermediate care facility for the mentally retarded.
(G) Other laboratory and x-ray services.
(H) Renal dialysis.
Such term also does not include any such drug or product for
which a National Drug Code number is not required by the Food and
Drug Administration or a drug or biological )8(! used for a
medical indication which is not a medically accepted indication.
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) of this
section) for such drug, biological product, or insulin.
(4) Nonprescription drugs
If a State plan for medical assistance under this subchapter
includes coverage of prescribed drugs as described in section
1396d(a)(12) of this title 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 [21 U.S.C. 301 et seq.] 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) of this section.
(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
rebate period, 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 distributors operating under the
new drug application.
(B) Exception
Subparagraph (A)(i)(II) 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)(I), in order for drug products to be rated as
therapeutically equivalent, they must be pharmaceutically
equivalent and bioequivalent, as defined in subparagraph (C).
(C) Definitions
For purposes of this paragraph -
(i) drug products are 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
(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) Rebate period
The term "rebate period" means, with respect to an agreement
under subsection (a) of this section, a calendar quarter or other
period specified by the Secretary with respect to the payment of
rebates under such agreement.
(9) State agency
The term "State agency" means the agency designated under
section 1396a(a)(5) of this title to administer or supervise the
administration of the State plan for medical assistance.
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