Title II, SEC. 2003. MEDICARE REBATES FOR COVERED OUTPATIENT DRUGS. (a) In General. Part B of title XVIII of the Social Security Act is amended by adding at the end the following new section: ``REBATES FOR COVERED OUTPATIENT DRUGS ``Sec. 1850. (a) Requirement for Rebate Agreement. In order for payment to be available under this part for covered outpatient drugs of a manufacturer dispensed on or after January 1, 1996, the manufacturer must have entered into and have in effect a rebate agreement with the Secretary meeting the requirements of subsection (b), and an agreement to give equal access to discounts in accordance with subsection (e). ``(b) Terms, Implementation, and Enforcement of Rebate Agreement. ``(1) Periodic rebates. ``(A) In general. A rebate agreement under this section shall require the manufacturer to pay to the Secretary for each calendar quarter, not later than 30 days after the date of receipt of the information described in paragraph (2) for such quarter, a rebate in an amount determined under subsection (c) for all covered outpatient drugs of the manufacturer described in subparagraph (B). ``(B) Drugs included in quarterly rebate calculation. Drugs subject to rebate with respect to a calendar quarter are drugs which are either ``(i) dispensed by participating pharmacies during such quarter to individuals (other than individuals enrolled with an eligible organization with a contract under section 1876) eligible for benefits under this part, as reported by such pharmacies to the Secretary, or ``(ii) dispensed by nonparticipating pharmacies to such individuals and included in claims for payment of benefits received by the Secretary during such quarter. ``(2) Information furnished to manufacturers. ``(A) In general. The Secretary shall report to each manufacturer, not later than 60 days after the end of each calendar quarter, information on the total number, for each covered outpatient drug, of units of each dosage form, strength, and package size dispensed under the plan during the quarter, on the basis of the data reported to the Secretary described in paragraph (1)(B). ``(B) Audit. The Comptroller General may audit the records of the Secretary to the extent necessary to determine the accuracy of reports by the Secretary pursuant to subparagraph (A). Adjustments to rebates shall be made to the extent determined necessary by the audit to reflect actual units of drugs dispensed. ``(3) Provision of price information by manufacturer. ``(A) Quarterly pricing information. Each manufacturer with an agreement in effect under this section shall report to the Secretary, not later than 30 days after the last day of each calendar quarter, on the average manufacturer retail price and the average manufacturer non-retail price for each dosage form and strength of each covered outpatient drug for the quarter. ``(B) Base quarter prices. Each manufacturer of a covered outpatient drug with an agreement under this section shall report to the Secretary, by not later than 30 days after the effective date of such agreement (or, if later, 30 days after the end of the base quarter), the average manufacturer retail price, for such base quarter, for each dosage form and strength of each such covered drug. ``(C) Verification of average manufacturer price. The Secretary may inspect the records of manufacturers, and survey wholesalers, pharmacies, and institutional purchasers of drugs, as necessary to verify prices reported under subparagraph (A). ``(D) Penalties. ``(i) Civil money penalties. The Secretary may impose a civil money penalty on a manufacturer with an agreement under this section ``(I) for failure to provide information required under subparagraph (A) on a timely basis, in an amount up to $10,000 per day of delay; ``(II) for refusal to provide information about charges or prices requested by the Secretary for purposes of verification pursuant to subparagraph (C), in an amount up to $100,000; and ``(III) for provision, pursuant to subparagraph (A) or (B), of information that the manufacturer knows or should know is false, in an amount up to $100,000 per item of information. Such civil money penalties are in addition to any other penalties prescribed by law. 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). ``(ii) Termination of agreement. If a manufacturer with an agreement under this section has not provided information required under subparagraph (A) or (B) within 90 days of the deadline imposed, the Secretary may suspend the agreement with respect to covered outpatient drugs dispensed after the end of such 90-day period and until the date such information is reported (but in no case shall a suspension be for less than 30 days). ``(4) Length of agreement. ``(A) In general. A rebate agreement shall be effective for an initial period of not less than one 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 afford a manufacturer an opportunity for a hearing concerning such 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) Effective date 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 pharmacies. In the case of a termination under this subparagraph, the Secretary shall notify pharmacies that are participating suppliers under this part and physician organizations not less than 30 days before the effective date of such termination. ``(c) Amount of Rebate. ``(1) Basic rebate. Each manufacturer shall remit a basic rebate to the Secretary for each calendar quarter in an amount, with respect to each dosage form and strength of a covered drug (except as provided under paragraph (4)), equal to the product of ``(A) the total number of units subject to rebate for such quarter, as described in subsection (b)(1)(B); and ``(B) the greater of ``(i) the difference between the average manufacturer retail price and the average manufacturer non-retail price, ``(ii) 17 percent of the average manufacturer retail price, or ``(iii) the amount determined pursuant to paragraph (4). ``(2) Additional rebate. Each manufacturer shall remit to the Secretary, for each calendar quarter, an additional rebate for each dosage form and strength of a covered drug (except as provided under paragraph (4)), in an amount equal to ``(A) the total number of units subject to rebate for such quarter, as described in subsection (b)(1)(B), multiplied by ``(B) the amount, if any, by which the average manufacturer retail price for covered drugs of the manufacturer exceeds the average manufacturer retail price for the base quarter, increased by the percentage increase in the Consumer Price Index for all urban consumers (U.S. average) from the end of such base quarter to the month before the beginning of such calendar quarter. ``(3) Negotiated rebate amount for new drugs. ``(A) In general. The Secretary may negotiate with the manufacturer a per-unit rebate amount, in accordance with this paragraph, for any covered outpatient drug (except as provided under paragraph (4)) first marketed after June 30, 1993 ``(i) which is not marketed in any country specified in section 802(b)(4)(A) of the Federal Food, Drug, and Cosmetic Act and for which the Secretary believes the average manufacturer's retail price may be excessive, or ``(ii) which is marketed in one or more of such countries, at prices significantly lower than the average manufacturer retail price. ``(B) Maximum rebate amount for drugs marketed in certain countries. The rebate negotiated pursuant to this paragraph for a drug described in subparagraph (A)(ii) may be an amount up to the difference between the average manufacturer retail price and any price at which the drug is available to wholesalers in a country specified in such section 802(b)(4)(A). ``(C) Factors to be considered. In making determinations with respect to the prices of a covered drug described in subparagraph (A) and in negotiating a rebate amount pursuant to this paragraph, the Secretary shall take into consideration, as applicable and appropriate, the prices of other drugs in the same therapeutic class, cost information requested by the Secretary and supplied by the manufacturer or estimated by the Secretary, prescription volumes, economies of scale, product stability, special manufacturing requirements, prices of the drug in countries specified in subparagraph (A)(i) (in the case of a drug described in such subparagraph), and other relevant factors. ``(D) Option to exclude coverage. If the Secretary is unable to negotiate with the manufacturer an acceptable rebate amount with respect to a covered outpatient drug pursuant to this paragraph, the Secretary may exclude such drug from coverage under this part. ``(E) Effective date of exclusion from coverage. An exclusion of a drug from coverage pursuant to subparagraph (D) shall be effective on and after ``(i) the date 6 months after the effective date of marketing approval of such drug by the Food and Drug Administration, or ``(ii) (if earlier) the date the manufacturer terminates negotiations with the Secretary concerning the rebate amount. ``(4) No rebate required for generic drugs. Paragraphs (1) through (3) shall not apply with respect to a covered outpatient drug that is not a single source drug or an innovator multiple source drug (as such terms are defined in section 1927(k)). ``(5) Deposit of rebates. The Secretary shall deposit rebates under this section in the Federal Supplementary Medical Insurance Trust Fund established under section 1841. ``(d) Confidentiality of Information. Notwithstanding any other provision of law, information disclosed by a manufacturer under this section is confidential and shall not be disclosed by the Secretary, except ``(A) as the Secretary determines to be necessary to carry out this section, ``(B) to permit the Comptroller General to review the information provided, and ``(C) to permit the Director of the Congressional Budget Office to review the information provided. ``(e) Agreement to Give Equal Access to Discounts. An agreement under this subsection by a manufacturer of covered outpatient drugs shall guarantee that the manufacturer will offer, to each wholesaler or retailer (or other purchaser representing a group of such wholesalers or retailers) that purchases such drugs on substantially the same terms (including such terms as prompt payment, cash payment, volume purchase, single-site delivery, the use of formularies by purchasers, and any other terms effectively reducing the manufacturer's costs) as any other purchaser (including any institutional purchaser) the same price for such drugs as is offered to such other purchaser. In determining a manufacturer's compliance with the previous sentence, there shall not be taken into account terms offered to the Department of Veterans Affairs, the Department of Defense, or any public program. ``(f) Definitions. For purposes of this section ``(1) Average manufacturer retail price. The term `average manufacturer retail price' means, with respect to a covered outpatient drug of a manufacturer for a calendar quarter, the average price (inclusive of discounts for cash payment, prompt payment, volume purchases, and rebates (other than rebates under this section), but exclusive of nominal prices) paid to the manufacturer for the drug in the United States for drugs distributed to the retail pharmacy class of trade. ``(2) Average manufacturer non-retail price. The term `average manufacturer non-retail price' means, with respect to a covered outpatient drug of a manufacturer for a calendar quarter, the weighted average price (inclusive of discounts for cash payment, prompt payment, volume purchases, and rebates (other than rebates under this section), but exclusive of nominal prices) paid to the manufacturer for the drug in the United States by hospitals and other institutional purchasers that purchase drugs for institutional use and not for resale. ``(3) Base quarter. The term `base quarter' means, with respect to a covered outpatient drug of a manufacturer, the calendar quarter beginning April 1, 1993, or (if later) the first full calendar quarter during which the drug was marketed in the United States. ``(4) Covered drug. The term `covered drug' includes each innovator multiple source drug and single source drug, as those terms are defined in section 1927(k)(7). ``(5) Manufacturer. The term `manufacturer' means, with respect to a covered outpatient drug ``(A) the entity whose National Drug Code number (as issued pursuant to section 510(e) of the Federal Food, Drug, and Cosmetic Act) appears on the labeling of the drug; or ``(B) if the number described in subparagraph (A) does not appear on the labeling of the drug, the person named as the applicant in a human drug application (in the case of a new drug) or the product license application (in the case of a biological product) for such drug approved by the Food and Drug Administration.''. (b) Conforming Amendment Relating to Exclusions From Coverage. Section 1862(a)(18) of such Act (42 U.S.C. 1395y(a)), as added by section 2001(c), is amended (A) by striking ``or'' at the end of subparagraph (A), (B) by striking the period at the end of subparagraph (B) and inserting ``, or'', and (C) by adding at the end the following new subparagraphs: ``(C) furnished during a year for which the drug's manufacturer does not have in effect a rebate agreement with the Secretary that meets the requirements of section 1850 for the year, or ``(D) excluded from coverage during the year by the Secretary pursuant to section 1850(c)(3)(D) (relating to negotiated rebate amounts for certain new drugs).''.