PRINTER'S NO. 2970
No. 2254 Session of 2000
INTRODUCED BY MELIO, PESCI, SOLOBAY, BARRAR, CALTAGIRONE,
OLIVER, PETRARCA, JOSEPHS, MANN, HORSEY, HALUSKA, MYERS,
SHANER, BISHOP, HARHAI, DeWEESE, READSHAW, CLARK, BELARDI,
STEELMAN, GEORGE, BROWNE, M. COHEN, TANGRETTI, DeLUCA,
YUDICHAK, HENNESSEY, LAUGHLIN, YOUNGBLOOD, WILLIAMS, PLATTS,
PISTELLA, THOMAS, TRELLO, TRICH, VEON, BELFANTI, CASORIO,
CURRY, GIGLIOTTI, FRANKEL, COSTA, CORRIGAN, WOJNAROSKI,
BATTISTO, SANTONI, McGEEHAN, LEDERER, CARN, WATERS, VITALI,
BLAUM, LESCOVITZ, GRUCELA, SURRA, MANDERINO, EACHUS,
COLAFELLA AND McCALL, FEBRUARY 10, 2000
REFERRED TO COMMITTEE ON AGING AND YOUTH, FEBRUARY 10, 2000
AN ACT
1 Amending the act of August 26, 1971 (P.L.351, No.91), entitled
2 "An act providing for a State Lottery and administration
3 thereof; authorizing the creation of a State Lottery
4 Commission; prescribing its powers and duties; disposition of
5 funds; violations and penalties therefor; exemption of prizes
6 from State and local taxation and making an appropriation,"
7 further providing for the prudent purchase of
8 pharmaceuticals.
9 The General Assembly of the Commonwealth of Pennsylvania
10 hereby enacts as follows:
11 Section 1. Sections 701, 702, 703, 704, 705 and 709 of the
12 act of August 26, 1971 (P.L.351, No.91), known as the State
13 Lottery Law, added November 21, 1996 (P.L.741, No.134), are
14 amended to read:
15 Section 701. Declaration of policy.
16 The General Assembly finds and declares as follows:
17 (1) The Commonwealth, through assistance programs
1 enacted for the benefit of its citizens, and as one of the
2 largest employers in this Commonwealth, is the largest single
3 payor of prescription medications in Pennsylvania.
4 (2) In order to ensure that the Commonwealth, in
5 expending money on behalf of its citizens, is not unduly
6 harmed by being required to pay a price for pharmaceutical
7 products purchased from manufacturers in excess of that
8 established for other purchasers and reimbursers of these
9 products and to ensure that the Commonwealth can efficiently
10 and prudently expend its money and maximize its ability to
11 provide for the health and welfare of as many of its needy
12 citizens as possible, it is reasonable, necessary and in the
13 public interest to require that pharmaceutical manufacturers
14 offer a discount to the Commonwealth for pharmaceutical
15 products purchased or reimbursed through State agencies.
16 (3) It is in the public interest for pharmaceutical
17 manufacturers to provide the Commonwealth with data relating
18 to the price of pharmaceutical products sold by the
19 manufacturer to public bodies, hospitals, for-profit or
20 nonprofit organizations, other manufacturers or wholesalers
21 doing business in this Commonwealth in order to ensure that
22 the Commonwealth can determine that it is being provided with
23 the best prices offered by the manufacturer.
24 (4) On a national level, there has been a recognition
25 that the need for discounts to State Medicaid agencies, which
26 reimburse for a high volume of pharmaceutical products,
27 exists.
28 (5) On a State level, the General Assembly recognizes
29 that it is in the best interest of its citizens to provide
30 pharmaceutical assistance in a reasonable and cost-efficient
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1 manner.
2 (6) Drug price inflation has caused an increase in the
3 amount of public funds expended by PACE [and General
4 Assistance.], State employee benefits and retirement
5 programs, State-run facilities and the Medical Assistance
6 Program.
7 Section 702. Definitions.
8 The following words and phrases when used in this chapter
9 shall have the meanings given to them in this section unless the
10 context clearly indicates otherwise:
11 "Average manufacturer price (AMP)." With respect to a
12 covered prescription drug of the manufacturer for a calendar
13 quarter, the average unit price paid to the manufacturer for the
14 drug by wholesalers for drugs distributed to the retail pharmacy
15 class of trade, except for direct sales to hospitals, health
16 maintenance organizations and wholesalers where the drug is
17 relabeled under that distributor's national drug code number.
18 Federal Supply Schedule prices shall not be included in the
19 calculation of AMP. The term includes cash discounts and all
20 other price reductions, other than rebates under this act and
21 section 1927 of Title XIX of the Social Security Act (49 Stat.
22 620, 42 U.S.C. § 301 et seq.), added November 5, 1990 (Public
23 Law 101-508, Title IV, section 4401(a)(3), 104 Stat. 1388-143),
24 which reduce the actual price paid. For bundled or capitated
25 sales, the allocation of the discount shall be made
26 proportionately to the dollar value of the units of each covered
27 prescription drug sold under the bundled or capitated
28 arrangement. The AMP for a quarter shall be adjusted by the
29 manufacturer if cumulative discounts or other arrangements
30 subsequently adjust the prices actually realized.
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1 "Bundled or capitated sales." The packaging of drugs of
2 different types where:
3 (1) the condition of rebate or discount is that more
4 than one drug type is purchased; or
5 (2) the resulting discount or rebate is greater than
6 that which would have been received had the drug products
7 been purchased separately.
8 "Consumer Price Index-Urban" or "CPI-U." A price index
9 compiled by the Bureau of Labor Statistics of the United States
10 Department of Labor for measuring the average change in the
11 prices paid by urban consumers for a fixed market basket of
12 services.
13 "Covered prescription drug." A legend drug, insulin, an
14 insulin syringe or an insulin needle eligible for payment by the
15 Commonwealth under PACE, PACENET or designated pharmaceutical
16 programs.
17 "Depot price." The price available to any depot of the
18 Federal Government for purchase of drugs from the manufacturer
19 through the depot system of procurement.
20 "Designated pharmaceutical programs." The General Assistance
21 Program, the Medical Assistance Program and the Special
22 Pharmaceutical Benefit Program in the Department of Public
23 Welfare and the End Stage Renal Dialysis Program in the
24 Department of Health.
25 "Direct seller." Any person, partnership, corporation,
26 institution or entity engaged in the selling of pharmaceutical
27 products directly to consumers in this Commonwealth.
28 "Dispensing fee." A fee of up to three dollars fifty cents
29 ($3.50) which may be added by the dispensing pharmacist to the
30 cost of a prescription medication to cover the cost of filling a
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1 prescription.
2 "Distributor." A private entity under contract with the
3 original labeler or holder of the national drug code number to
4 manufacture, package or market the covered prescription drug.
5 "Doing business in this Commonwealth." The direct or
6 indirect selling or the making of covered prescription drugs
7 available for sale in a continuous and systematic manner with
8 the reasonable expectation that these products will be sold to
9 consumers in this Commonwealth.
10 "Fair and reasonable price." The price of a medication or
11 drug as listed on the most recent Federal Supply Schedule plus
12 the addition of a dispensing fee. The fair and reasonable price
13 shall include the cost of any co-payment required from the
14 consumer of that prescription medication.
15 "Federal Supply Schedule." The price catalog, containing
16 goods available for purchase by Federal agencies. Drug prices on
17 the Federal Supply Schedule are negotiated by the United States
18 Department of Veterans Affairs and are the best publicly
19 available indicator of the prices drug companies charge favored
20 customers.
21 "FDA." The Food and Drug Administration of the Public Health
22 Service of the Department of Health and Human Services.
23 "General Assistance." The General Assistance program of the
24 Department of Public Welfare of the Commonwealth.
25 "Innovator multiple-source drugs." A multiple-source drug
26 that was originally marketed under a new drug application
27 approved by the FDA. The term includes:
28 (1) covered prescription drugs approved under Product
29 License Approval (PLA), Establishment License Approval (ELA)
30 or Antibiotic Drug Approval (ADA); and
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1 (2) a covered prescription drug marketed by a cross-
2 licensed producer or distributor under the approved
3 Abbreviated New Drug Application (ANDA) when the drug product
4 meets this definition.
5 "Manufacturer."
6 (1) An entity which is engaged in any of the following:
7 (i) The production, preparation, propagation,
8 compounding, conversion or processing of prescription
9 drug products:
10 (A) directly or indirectly by extraction from
11 substances of natural origin;
12 (B) independently by means of chemical
13 synthesis; or
14 (C) by a combination of extraction and chemical
15 synthesis.
16 (ii) The packaging, repackaging, labeling or
17 relabeling, or distribution of prescription drug
18 products.
19 (2) The entity holding legal title to or possession of
20 the national drug code number for the covered prescription
21 drug.
22 (3) The term does not include a wholesale distributor of
23 drugs, drugstore chain organization or retail pharmacy
24 licensed by the Commonwealth.
25 "Manufacturer's rebate." A rebate or refund provided by the
26 manufacturer for a portion of the cost of a prescription
27 medication. Such a rebate or refund may be paid to the
28 prescribing physician, the dispensing pharmacist, or both.
29 "Medical Assistance Program." The program established
30 pursuant to Article IV, subarticle (f) of the act of act of June
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1 13, 1967 (P.L.31, No.21), known as the "Public Welfare Code."
2 "National drug code number." The identifying drug number
3 maintained by the FDA. The complete eleven-digit number must
4 include the labeler code, product code and package size code.
5 "New drug." A covered prescription drug approved as a new
6 drug under section 201(p) of the Federal Food, Drug, and
7 Cosmetic Act (52 Stat. 1040, 21 U.S.C. § 321(p)).
8 "Noninnovator multiple-source drug." Any of the following:
9 (1) A covered prescription drug which is not an
10 innovator multiple-source drug approved under an Abbreviated
11 New Drug Application (ANDA) or an Amended Antibiotic Drug
12 Approval (AADA).
13 (2) A drug that has been approved for substitution under
14 the act of November 24, 1976 (P.L.1163, No.259), referred to
15 as the Generic Equivalent Drug Law.
16 "PACE." The program under Chapter 5.
17 "PACENET." The program established under section 519.
18 "Private entity." Includes a for-profit entity and a
19 nonprofit entity.
20 "Producer Price Index for Pharmaceuticals." The prescription
21 drug producer price index compiled by the Bureau of Labor
22 Statistics of the United States Department of Labor for
23 measuring average changes in selling prices received by domestic
24 drug manufacturers.
25 "Provider." A licensed pharmacy or dispensing physician
26 enrolled as a provider in PACE, PACENET or designated
27 pharmaceutical programs.
28 "Public program." The PACE and PACENET program, the Medical
29 Assistance Program, the State Employees' Benefit Trust Fund, the
30 State Employees' Retirement System, the Public School Employees'
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1 Retirement System and any other State agency or designated
2 pharmaceutical program that purchases or arranges for the
3 purchase of prescription medications.
4 "Public School Employees' Retirement System." The retirement
5 system established by 24 Pa.C.S. Part IV (relating to retirement
6 for school employees).
7 "Rebate period." A calendar quarter or other period
8 specified by the Secretary of Aging with respect to the payment
9 of rebates under an agreement as provided in section 703.
10 "Secretary." The Secretary of Aging of the Commonwealth.
11 "Single-source drugs." Legend drug products for which the
12 FDA has not approved an Abbreviated New Drug Application (ANDA).
13 "State agency." Any agency under the jurisdiction of the
14 Governor, the General Assembly or the Unified Court System that
15 purchases or provides coverage for prescription medications.
16 "State Employees' Benefit Trust Fund." The trust fund
17 established to purchase health insurance coverage, including
18 coverage for prescription medications, for State employees.
19 "State Employees' Retirement System." The retirement system
20 established under 71 Pa.C.S. Part XXV (relating to retirement
21 for school employees and officers).
22 "Unit." A drug unit in the lowest identifiable amount, such
23 as tablet or capsule for solid dosage forms, milliliter for
24 liquid forms and gram for ointments or creams. The manufacturer
25 shall specify the unit for each dosage form and strength of each
26 covered prescription drug in accordance with the instructions
27 developed by the Health Care Financing Administration for
28 purposes of the Federal Medicaid Rebate Program under section
29 1927 of Title XIX of the Social Security Act (49 Stat. 620, 42
30 U.S.C. § 301 et seq.).
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1 "Wholesaler." Any person, partnership, corporation,
2 institution or entity to which the manufacturer sells the
3 covered prescription drug, including a pharmacy or chain of
4 pharmacies, but that does not relabel or repackage the covered
5 prescription drug.
6 Section 703. Rebate agreement.
7 (a) Requirement.--[PACE, PACENET and designated
8 pharmaceutical programs]Public programs shall not reimburse for
9 any covered prescription drug without a rebate agreement between
10 the department and the manufacturer of the covered prescription
11 drug.
12 (b) Exception.--Subsection (a) shall not apply if the
13 availability of the drug is essential to the health of eligible
14 claimants as determined by the department.
15 (c) Agreements.--Manufacturers of prescription drugs
16 reimbursed [under PACE, PACENET and designated pharmaceutical
17 programs] by public programs must enter into a rebate agreement
18 with the department under this chapter to obtain such
19 reimbursement. Nothing in this chapter shall be deemed to affect
20 or impair any agreement made under the former provisions of
21 Chapter 6 of the act of August 14, 1991 (P.L.342, No.36), known
22 as the Lottery Fund Preservation Act.
23 (d) Notice.--The department shall notify enrolled providers
24 of PACE, PACENET [and], designated pharmaceutical programs and
25 other State agencies on an annual basis and, as appropriate, of
26 all manufacturers who have entered into a rebate agreement.
27 (e) Drug formulary.--Except as provided in section 512,
28 there shall be no drug formulary, prior or retroactive approval
29 system or any similar restriction imposed on the coverage of
30 outpatient drugs made by manufacturers who have agreements in
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1 effect with the Commonwealth to pay rebates for drugs utilized
2 in PACE and PACENET, provided that such outpatient drugs were
3 approved for marketing by the Food and Drug Administration. This
4 subsection shall not apply to any act taken by the department
5 pursuant to its therapeutic drug utilization review program
6 under section 505.
7 Section 704. Terms of rebate agreement.
8 (a) Quarterly basis.--A rebate agreement shall require any
9 manufacturer of covered prescription drugs to provide to the
10 department a rebate each calendar quarter in an amount specified
11 in section 705 for covered prescription drugs of the
12 manufacturer reimbursed during the quarter. The rebate shall be
13 paid by the manufacturer not later than 30 days after the date
14 of receipt of the information described in subsection (b) for
15 the period involved.
16 (b) Information.--
17 (1) The department shall report to each manufacturer,
18 not later than 60 days after the end of each calendar
19 quarter, information by zip code of provider on the total
20 number of dosage units of each covered prescription drug
21 reimbursed under PACE, PACENET and designated pharmaceutical
22 programs during the quarter. Other State agencies shall
23 report the same information in the same format and according
24 to the same schedule to each manufacturer.
25 (2) A manufacturer may review the information provided
26 under paragraph (1) and verify information. Adjustments to
27 rebates shall be made to the extent that information
28 indicates that utilization was greater or less than the
29 amount previously specified.
30 (3) In the event that in any quarter a material
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1 discrepancy in the department's or State agency's information
2 is certified by the manufacturer prior to the due date of the
3 rebate, the department or State agency and the manufacturer
4 shall, in good faith, attempt to resolve the discrepancy. If
5 resolution is not reached within 30 days of receipt of the
6 manufacturer's certification by the department or State
7 agency, the manufacturer may appeal the department's or State
8 agency's decision under the department's or State agency's
9 formal fair hearings and appeals process. The manufacturer
10 shall pay the department or State agency that portion of the
11 rebate amount which is not disputed within the required time
12 frame under this chapter. Any balance due, plus statutory
13 interest, shall be paid or credited by the manufacturer or
14 the department or State agency by the due date of the next
15 quarterly payment after resolution of the dispute.
16 (c) Manufacturer provision of price information.--
17 (1) Each manufacturer with an agreement in effect under
18 this chapter shall report the average manufacturer price for
19 all covered prescription drugs produced by that manufacturer
20 to the department not later than 30 days after the last day
21 of each quarter.
22 (2) The department shall retain the services of an
23 independent contractor to survey wholesalers, direct sellers
24 and manufacturers that directly distribute their covered
25 prescription drugs, when necessary, to verify manufacturer
26 prices reported under paragraph (1). Any survey conducted
27 shall not reveal to the department nor to any other person or
28 entity other than the independent contractor the name,
29 identity, location, actual acquisition invoice, other
30 proprietary information or any information from which the
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1 department might be enabled to ascertain the name, identity
2 or location of any wholesaler, direct seller or provider so
3 surveyed unless the contractor shall have gathered sufficient
4 evidence to enable the department to bring charges against
5 any wholesaler, direct seller or provider in violation of
6 subsection (d)(3). The department shall share the results of
7 said survey with each State agency.
8 (d) Penalties.--The department shall administer penalties as
9 follows:
10 (1) A manufacturer who fails to supply information
11 required under subsection (c)(1) shall be liable for a civil
12 penalty in the amount of 2% of the rebate next required to be
13 paid, plus $1,000 for each day that the information is late.
14 If the information is not reported within 30 days of the due
15 date, the agreement shall be suspended for services furnished
16 after the end of the 30-day period until the date the
17 information is reported or the expiration of 45 days,
18 whichever is later.
19 (2) A manufacturer who knowingly supplies false
20 information that is required under subsection (c)(1) shall be
21 liable for a civil penalty in the amount of $50,000 for each
22 item of false information.
23 (3) A direct seller, manufacturer or wholesaler who
24 refuses a request for information or knowingly provides false
25 information that is required under subsection (c)(2) shall be
26 liable for a civil penalty in the amount of $50,000.
27 (4) Penalties collected under this subsection shall be
28 deposited into the fund.
29 (5) All civil monetary penalties imposed under this
30 chapter are in addition to other civil or criminal penalties.
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1 (e) Confidentiality of information.--Information disclosed
2 by manufacturers, wholesalers or direct sellers under this
3 chapter is confidential and shall not be disclosed by the
4 department in a form which discloses the identity of a specific
5 manufacturer, wholesaler or direct seller or the prices charged
6 for drugs by the manufacturer or wholesaler, except as the
7 department determines to be necessary to carry out this chapter
8 and to permit the Department of the Auditor General and the
9 Office of State Inspector General to review the information
10 provided.
11 (f) Length of agreement.--A rebate agreement shall remain in
12 effect for an initial period of not less than one year and shall
13 be automatically renewed for a period of not less than one year
14 unless terminated under subsection (g).
15 (g) Termination.--
16 (1) The department may provide for termination of a
17 rebate agreement for any reason. Termination shall not be
18 effective earlier than 60 days after the date of receipt of
19 notice of termination by the manufacturers.
20 (2) A manufacturer may terminate a rebate agreement for
21 any reason. Termination shall not be effective earlier than
22 60 days after the date of receipt of notice of termination by
23 the department.
24 (3) Termination of the rebate agreement shall not affect
25 rebates due under the agreement before the effective date of
26 termination.
27 (4) Commonwealth Court shall have original jurisdiction
28 over cases of termination of agreements under this
29 subsection. Commencement of an action under this paragraph
30 shall not delay the effective date of termination.
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1 (5) If a rebate agreement is terminated for cause,
2 another agreement with the same manufacturer or a successor
3 manufacturer may not be entered into until a period of one
4 year has elapsed from the date of the termination unless the
5 department finds good cause for an earlier agreement.
6 Section 705. Amount of rebate.
7 (a) Single-source drugs and innovator multiple-source
8 drugs.--With respect to single-source drugs and innovator
9 multiple-source drugs, each manufacturer shall remit a rebate to
10 the Commonwealth. Except as otherwise provided in this section,
11 the amount of the rebate to the Commonwealth per calendar
12 quarter with respect to each dosage form and strength of single-
13 source drugs and innovator multiple-source drugs shall be as
14 follows:
15 (1) For quarters beginning after September 30, 1992, and
16 ending before January 1, 1997, the product of the total
17 number of units of each dosage form and strength reimbursed
18 by PACE and General Assistance in the quarter and the
19 difference between the average manufacturer price and 85% of
20 that price, after deducting customary prompt payment
21 discounts, for the quarter.
22 (2) For quarters beginning after December 31, 1996, and
23 ending before July 1, 2000, the product of the total number
24 of units of each dosage form and strength reimbursed by PACE,
25 PACENET and designated pharmaceutical programs in the quarter
26 and the difference between the average manufacturer price and
27 83% of that price, after deducting customary prompt payment
28 discounts.
29 (3) For quarters beginning after July 1, 2000, the
30 product of the total number of units of each dosage form and
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1 strength reimbursed by each public program in the quarter and
2 the difference between the average manufacturer price and 80%
3 of that price, after deducting customary prompt payment
4 discounts.
5 (b) Rebate for other drugs.--
6 (1) The amount of the rebate to the Commonwealth for a
7 calendar quarter with respect to covered prescription drugs
8 which are noninnovator multiple-source drugs shall be equal
9 to the product of:
10 (i) the applicable percentage of the average
11 manufacturer price, after deducting customary prompt
12 payment discounts, for each dosage form and strength of
13 such drugs for the quarter; and
14 (ii) the number of units of such form and dosage
15 reimbursed by PACE and General Assistance in the quarter.
16 (2) For the purposes of paragraph (1), the applicable
17 percentage for calendar quarters beginning after September
18 30, 1992, and ending before January 1, 1997, is 11%.
19 (c) Revised rebate for other drugs.--Beginning after
20 December 31, 1996:
21 (1) The amount of the rebate to the Commonwealth for a
22 calendar quarter with respect to covered prescription drugs
23 which are noninnovator multiple-source drugs shall be the
24 greater of the product of:
25 (i) the applicable percentage of the average
26 manufacturer price, after deducting customary prompt
27 payment discounts, for each dosage form and strength of
28 such drugs for the quarter; and
29 (ii) the number of units of such form and dosage
30 reimbursed by PACE, PACENET and designated pharmaceutical
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1 programs in the quarter.
2 (2) For purposes of paragraph (1), the applicable
3 percentage is 17%.
4 (c.1) Revised rebate for other drugs.--Beginning after July
5 1, 2000:
6 (1) The amount of the rebate to the Commonwealth for a
7 calendar quarter with respect to covered prescription drugs
8 which are noninnovator multiple-source drugs shall be the
9 greater of the product of:
10 (i) the applicable percentage of the average
11 manufacturer price, after deducting customary prompt
12 payment discounts, for each dosage form and strength of
13 such drugs for the quarter; and
14 (ii) the number of units of such form and dosage
15 reimbursed by each public program in the quarter.
16 (2) For purposes of paragraph (1), the applicable
17 percentage is 20%.
18 (d) Drugs approved after act takes effect.--In the case of a
19 covered outpatient drug approved for marketing after the
20 effective date of the act of August 14, 1991 (P.L.342, No.36),
21 known as the Lottery Fund Preservation Act, any reference to
22 January 1, 1991, shall be a reference to the first day of the
23 first month during which the drug was marketed.
24 Section 709. Disposition of funds.
25 (a) PACE and PACENET.--Money received under this chapter in
26 connection with PACE and PACENET shall be deposited in the
27 Pharmaceutical Assistance Contract for the Elderly Fund.
28 (b) Designated pharmaceutical programs.--Money received
29 under this chapter in connection with designated pharmaceutical
30 programs shall be treated as a refund of expenditures to the
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1 appropriation which originally provided the funding for the
2 pharmaceutical purchase.
3 (c) Other State agencies.--Money received under this chapter
4 in connection with State agencies other than PACE, PACENET or
5 designated pharmaceutical programs shall be treated as a refund
6 of expenditures to those agencies which provided the funding for
7 the pharmaceutical purchase.
8 Section 2. The act is amended by adding a section to read:
9 Section 710. Fair and reasonable price.
10 Notwithstanding any other provision of this section to the
11 contrary, each State agency shall pay a fair and reasonable
12 price for each prescription medication covered by or paid for by
13 that agency.
14 Section 3. This act shall take effect July 1, 2000, or
15 immediately, whichever is later.
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