
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 23, 2000]
[Document not affected by Public Laws enacted between
  January 23, 2000 and December 4, 2001]
[CITE: 42USC256b]

 
                 TITLE 42--THE PUBLIC HEALTH AND WELFARE
 
                    CHAPTER 6A--PUBLIC HEALTH SERVICE
 
                SUBCHAPTER II--GENERAL POWERS AND DUTIES
 
                       Part D--Primary Health Care
 
                  subpart vii--drug pricing agreements
 
Sec. 256b. Limitation on prices of drugs purchased by covered 
        entities
        

(a) Requirements for agreement with Secretary

                           (1) In general

        The Secretary shall enter into an agreement with each 
    manufacturer of covered drugs under which the amount required to be 
    paid (taking into account any rebate or discount, as provided by the 
    Secretary) to the manufacturer for covered drugs (other than drugs 
    described in paragraph (3)) purchased by a covered entity on or 
    after the first day of the first month that begins after November 4, 
    1992, does not exceed an amount equal to the average manufacturer 
    price for the drug under title XIX of the Social Security Act [42 
    U.S.C. 1396 et seq.] in the preceding calendar quarter, reduced by 
    the rebate percentage described in paragraph (2).

                  (2) ``Rebate percentage'' defined

        (A) In general

            For a covered outpatient drug purchased in a calendar 
        quarter, the ``rebate percentage'' is the amount (expressed as a 
        percentage) equal to--
                (i) the average total rebate required under section 
            1927(c) of the Social Security Act [42 U.S.C. 1396r-8(c)] 
            with respect to the drug (for a unit of the dosage form and 
            strength involved) during the preceding calendar quarter; 
            divided by
                (ii) the average manufacturer price for such a unit of 
            the drug during such quarter.

        (B) Over the counter drugs

            (i) In general

                For purposes of subparagraph (A), in the case of over 
            the counter drugs, the ``rebate percentage'' shall be 
            determined as if the rebate required under section 1927(c) 
            of the Social Security Act [42 U.S.C. 1396r-8(c)] is based 
            on the applicable percentage provided under section 
            1927(c)(4) of such Act.
            (ii) ``Over the counter drug'' defined

                The term ``over the counter drug'' means a drug that may 
            be sold without a prescription and which is prescribed by a 
            physician (or other persons authorized to prescribe such 
            drug under State law).

            (3) Drugs provided under State medicaid plans

        Drugs described in this paragraph are drugs purchased by the 
    entity for which payment is made by the State under the State plan 
    for medical assistance under title XIX of the Social Security Act 
    [42 U.S.C. 1396 et seq.].

                   (4) ``Covered entity'' defined

        In this section, the term ``covered entity'' means an entity 
    that meets the requirements described in paragraph (5) and is one of 
    the following:
            (A) A Federally-qualified health center (as defined in 
        section 1905(l)(2)(B) of the Social Security Act [42 U.S.C. 
        1396d(l)(2)(B)]).
            (B) An entity receiving a grant under section 256a \1\ of 
        this title.
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    \1\ See References in Text note below.
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            (C) A family planning project receiving a grant or contract 
        under section 300 of this title.
            (D) An entity receiving a grant under subpart II of part C 
        of subchapter XXIV of this chapter (relating to categorical 
        grants for outpatient early intervention services for HIV 
        disease).
            (E) A State-operated AIDS drug purchasing assistance program 
        receiving financial assistance under subchapter XXIV of this 
        chapter.
            (F) A black lung clinic receiving funds under section 937(a) 
        of title 30.
            (G) A comprehensive hemophilia diagnostic treatment center 
        receiving a grant under section 501(a)(2) of the Social Security 
        Act [42 U.S.C. 701(a)(2)].
            (H) A Native Hawaiian Health Center receiving funds under 
        the Native Hawaiian Health Care Act of 1988.
            (I) An urban Indian organization receiving funds under title 
        V of the Indian Health Care Improvement Act [25 U.S.C. 1651 et 
        seq.].
            (J) Any entity receiving assistance under subchapter XXIV of 
        this chapter (other than a State or unit of local government or 
        an entity described in subparagraph (D)), but only if the entity 
        is certified by the Secretary pursuant to paragraph (7).
            (K) An entity receiving funds under section 247c of this 
        title (relating to treatment of sexually transmitted diseases) 
        or section 247b(j)(2) \1\ of this title (relating to treatment 
        of tuberculosis) through a State or unit of local government, 
        but only if the entity is certified by the Secretary pursuant to 
        paragraph (7).
            (L) A subsection (d) hospital (as defined in section 
        1886(d)(1)(B) of the Social Security Act [42 U.S.C. 
        1395ww(d)(1)(B)]) that--
                (i) is owned or operated by a unit of State or local 
            government, is a public or private non-profit corporation 
            which is formally granted governmental powers by a unit of 
            State or local government, or is a private non-profit 
            hospital which has a contract with a State or local 
            government to provide health care services to low income 
            individuals who are not entitled to benefits under title 
            XVIII of the Social Security Act [42 U.S.C. 1395 et seq.] or 
            eligible for assistance under the State plan under this 
            subchapter;
                (ii) for the most recent cost reporting period that 
            ended before the calendar quarter involved, had a 
            disproportionate share adjustment percentage (as determined 
            under section 1886(d)(5)(F) of the Social Security Act [42 
            U.S.C. 1395ww(d)(5)(F)]) greater than 11.75 percent or was 
            described in section 1886(d)(5)(F)(i)(II) of such Act [42 
            U.S.C. 1395ww(d)(5)(F)(i)(II)]; and
                (iii) does not obtain covered outpatient drugs through a 
            group purchasing organization or other group purchasing 
            arrangement.

                (5) Requirements for covered entities

        (A) Prohibiting duplicate discounts or rebates

            (i) In general

                A covered entity shall not request payment under title 
            XIX of the Social Security Act [42 U.S.C. 1396 et seq.] for 
            medical assistance described in section 1905(a)(12) of such 
            Act [42 U.S.C. 1396d(a)(12)] with respect to a drug that is 
            subject to an agreement under this section if the drug is 
            subject to the payment of a rebate to the State under 
            section 1927 of such Act [42 U.S.C. 1396r-8].
            (ii) Establishment of mechanism

                The Secretary shall establish a mechanism to ensure that 
            covered entities comply with clause (i). If the Secretary 
            does not establish a mechanism within 12 months under the 
            previous sentence, the requirements of section 1927(a)(5)(C) 
            of the Social Security Act [42 U.S.C. 1396r-8(a)(5)(C)] 
            shall apply.

        (B) Prohibiting resale of drugs

            With respect to any covered outpatient drug that is subject 
        to an agreement under this subsection, a covered entity shall 
        not resell or otherwise transfer the drug to a person who is not 
        a patient of the entity.

        (C) Auditing

            A covered entity shall permit the Secretary and the 
        manufacturer of a covered outpatient drug that is subject to an 
        agreement under this subsection with the entity (acting in 
        accordance with procedures established by the Secretary relating 
        to the number, duration, and scope of audits) to audit at the 
        Secretary's or the manufacturer's expense the records of the 
        entity that directly pertain to the entity's compliance with the 
        requirements described in subparagraphs \2\ (A) or (B) with 
        respect to drugs of the manufacturer.
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    \2\ So in original. Probably should be ``subparagraph''.
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        (D) Additional sanction for noncompliance

            If the Secretary finds, after notice and hearing, that a 
        covered entity is in violation of a requirement described in 
        subparagraphs \2\ (A) or (B), the covered entity shall be liable 
        to the manufacturer of the covered outpatient drug that is the 
        subject of the violation in an amount equal to the reduction in 
        the price of the drug (as described in subparagraph (A)) 
        provided under the agreement between the entity and the 
        manufacturer under this paragraph.

            (6) Treatment of distinct units of hospitals

        In the case of a covered entity that is a distinct part of a 
    hospital, the hospital shall not be considered a covered entity 
    under this paragraph unless the hospital is otherwise a covered 
    entity under this subsection.

            (7) Certification of certain covered entities

        (A) Development of process

            Not later than 60 days after November 4, 1992, the Secretary 
        shall develop and implement a process for the certification of 
        entities described in subparagraphs (J) and (K) of paragraph 
        (4).

        (B) Inclusion of purchase information

            The process developed under subparagraph (A) shall include a 
        requirement that an entity applying for certification under this 
        paragraph submit information to the Secretary concerning the 
        amount such entity expended for covered outpatient drugs in the 
        preceding year so as to assist the Secretary in evaluating the 
        validity of the entity's subsequent purchases of covered 
        outpatient drugs at discounted prices.

        (C) Criteria

            The Secretary shall make available to all manufacturers of 
        covered outpatient drugs a description of the criteria for 
        certification under this paragraph.

        (D) List of purchasers and dispensers

            The certification process developed by the Secretary under 
        subparagraph (A) shall include procedures under which each State 
        shall, not later than 30 days after the submission of the 
        descriptions under subparagraph (C), prepare and submit a report 
        to the Secretary that contains a list of entities described in 
        subparagraphs (J) and (K) of paragraph (4) that are located in 
        the State.

        (E) Recertification

            The Secretary shall require the recertification of entities 
        certified pursuant to this paragraph on a not more frequent than 
        annual basis, and shall require that such entities submit 
        information to the Secretary to permit the Secretary to evaluate 
        the validity of subsequent purchases by such entities in the 
        same manner as that required under subparagraph (B).

               (8) Development of prime vendor program

        The Secretary shall establish a prime vendor program under which 
    covered entities may enter into contracts with prime vendors for the 
    distribution of covered outpatient drugs. If a covered entity 
    obtains drugs directly from a manufacturer, the manufacturer shall 
    be responsible for the costs of distribution.

                     (9) Notice to manufacturers

        The Secretary shall notify manufacturers of covered outpatient 
    drugs and single State agencies under section 1902(a)(5) of the 
    Social Security Act [42 U.S.C. 1396a(a)(5)] of the identities of 
    covered entities under this paragraph, and of entities that no 
    longer meet the requirements of paragraph (5) or that are no longer 
    certified pursuant to paragraph (7).

               (10) No prohibition on larger discount

        Nothing in this subsection shall prohibit a manufacturer from 
    charging a price for a drug that is lower than the maximum price 
    that may be charged under paragraph (1).

(b) Other definitions

    In this section, the terms ``average manufacturer price'', ``covered 
outpatient drug'', and ``manufacturer'' have the meaning given such 
terms in section 1927(k) of the Social Security Act [42 U.S.C. 1396r-
8(k)].

(c) References to Social Security Act

    Any reference in this section to a provision of the Social Security 
Act [42 U.S.C. 301 et seq.] shall be deemed to be a reference to the 
provision as in effect on November 4, 1992.

(d) Compliance with requirements

    A manufacturer is deemed to meet the requirements of subsection (a) 
of this section if the manufacturer establishes to the satisfaction of 
the Secretary that the manufacturer would comply (and has offered to 
comply) with the provisions of this section (as in effect immediately 
after November 4, 1992), as applied by the Secretary, and would have 
entered into an agreement under this section (as such section was in 
effect at such time), but for a legislative change in this section (or 
the application of this section) after November 4, 1992.

(July 1, 1944, ch. 373, title III, Sec. 340B, as added Pub. L. 102-585, 
title VI, Sec. 602(a), Nov. 4, 1992, 106 Stat. 4967; amended Pub. L. 
103-43, title XX, Sec. 2008(i)(1)(A), June 10, 1993, 107 Stat. 212.)

                       References in Text

    The Social Security Act, referred to in subsecs. (a)(1), (3), 
(4)(L)(i), (5)(A)(i), and (c), is act Aug. 14, 1935, ch. 531, 49 Stat. 
620, as amended, which is classified generally to chapter 7 (Sec. 301 et 
seq.) of this title. Titles XVIII and XIX of the Act are classified 
generally to subchapters XVIII (Sec. 1395 et seq.) and XIX (Sec. 1396 et 
seq.) of chapter 7 of this title, respectively. For complete 
classification of this Act to the Code, see section 1305 of this title 
and Tables.
    Section 256a of this title, referred to in subsec. (a)(4)(B), was 
repealed by Pub. L. 104-299, Sec. 4(a)(3), Oct. 11, 1996, 110 Stat. 
3645.
    The Native Hawaiian Health Care Act of 1988, referred to in subsec. 
(a)(4)(H), was Pub. L. 100-579, Oct. 31, 1988, 102 Stat. 2916, and 
subtitle D of title II of Pub. L. 100-690, Nov. 18, 1988, 102 Stat. 
4222, which were classified generally to chapter 122 (Sec. 11701 et 
seq.) of this title prior to being amended generally and renamed the 
Native Hawaiian Health Care Improvement Act by Pub. L. 102-396. For 
complete classification of this Act to the Code, see Tables.
    The Indian Health Care Improvement Act, referred to in subsec. 
(a)(4)(I), is Pub. L. 94-437, Sept. 30, 1976, 90 Stat. 1400, as amended. 
Title V of the Act is classified generally to subchapter IV (Sec. 1651 
et seq.) of chapter 18 of Title 25, Indians. For complete classification 
of this Act to the Code, see Short Title note set out under section 1601 
of Title 25 and Tables.
    Section 247b(j)(2) of this title, referred to in subsec. (a)(4)(K), 
was repealed and section 247b(j)(1)(B) was redesignated section 
247b(j)(2) by Pub. L. 103-183, title III, Sec. 301(b)(1)(A), (C), Dec. 
14, 1993, 107 Stat. 2235.

                          Codification

    Another section 340B of act July 1, 1944, was renumbered section 
340C and is classified to section 256c of this title.


                               Amendments

    1993--Pub. L. 103-43 made technical amendment to directory language 
of Pub. L. 102-585, Sec. 602(a), which enacted this section.


 Study of Treatment of Certain Clinics as Covered Entities Eligible for 
                       Prescription Drug Discounts

    Section 602(b) of Pub. L. 102-585 directed Secretary of Health and 
Human Services to conduct a study of feasibility and desirability of 
including specified entities receiving funds from a State as covered 
entities eligible for limitations on prices of covered outpatient drugs 
under 42 U.S.C. 256b(a) and, not later than 1 year after Nov. 4, 1992, 
to submit a report to Congress on the study, including in the report a 
description of the entities that were the subject of the study, an 
analysis of the extent to which such entities procured prescription 
drugs, and an analysis of the impact of the inclusion of such entities 
as covered entities on the quality of care provided to and the health 
status of the patients of such entities.

                  Section Referred to in Other Sections

    This section is referred to in section 1396r-8 of this title.
