PRINTER'S NO. 459
No. 495 Session of 1991
INTRODUCED BY ITKIN, CESSAR, DeWEESE, KUKOVICH, EVANS, STUBAN,
HALUSKA, KASUNIC, BISHOP, TIGUE, SCRIMENTI, DALEY, STISH,
MARKOSEK, RITTER, PETRONE, STETLER, J. TAYLOR, TELEK,
WAMBACH, CLYMER, BROUJOS, MAYERNIK, FOX, VAN HORNE,
COLAFELLA, LAUGHLIN, OLIVER, RICHARDSON, BATTISTO, SURRA,
HERMAN, KAISER, SALOOM, ROEBUCK, GIGLIOTTI, BUTKOVITZ,
E. Z. TAYLOR, TRICH, STEELMAN, MERRY, TRELLO, HARPER, BOYES,
MELIO, BILLOW, DERMODY, MICHLOVIC, DONATUCCI, CORRIGAN,
PESCI, MRKONIC, WOZNIAK, TANGRETTI, CAPPABIANCA, LINTON,
OLASZ, McNALLY, STABACK, THOMAS, KRUSZEWSKI, MIHALICH,
PETRARCA, PRESTON, JOSEPHS, COY, McCALL, PISTELLA, McGEEHAN,
LESCOVITZ, KREBS, HAYDEN, JAMES, FREEMAN, HANNA, COWELL, VEON
AND DeLUCA, FEBRUARY 12, 1991
REFERRED TO COMMITTEE ON AGING AND YOUTH, FEBRUARY 12, 1991
AN ACT
1 Providing for discounts to the Commonwealth for pharmaceuticals;
2 requiring agreements for such discounts; providing for
3 penalties; and conferring powers and duties upon the
4 Department of Aging.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 Section 1. Short title.
8 This act shall be known and may be cited as the Prudent
9 Pharmaceutical Purchasing Act.
10 Section 2. Declaration of policy.
11 The General Assembly finds and declares as follows:
12 (1) The Commonwealth, through assistance programs
13 enacted for the benefit of its citizens, is the largest
1 single payor of prescription medications in Pennsylvania.
2 (2) The Commonwealth is not provided with volume
3 discounts for the purchase of pharmaceutical products which
4 (discounts) are being provided to other large volume
5 purchasers of these products; and, as a result of this
6 harmful practice, the Commonwealth is paying a price in
7 excess of the price established for prescription medications
8 sold to other high volume purchasers.
9 (3) Because of this harmful practice, the Commonwealth
10 is expending public funds appropriated for health and welfare
11 programs in an inefficient manner, thereby jeopardizing
12 essential programs designed to benefit the health and welfare
13 of as many of the Commonwealth's citizens as possible with
14 available public funds.
15 (4) In order to ensure that the Commonwealth, in
16 expending money on behalf of its citizens, is not unduly
17 harmed by being required to pay a price for pharmaceutical
18 products purchased from manufacturers in excess of that
19 established for other purchasers of these products and to
20 ensure that the Commonwealth can efficiently and prudently
21 expend its money and maximize its ability to provide for the
22 health and welfare of as many of its needy citizens as
23 possible, it is reasonable, necessary and in the public
24 interest to require that pharmaceutical manufacturers which
25 offer any discount to any public body, hospital or not-for-
26 profit organization must offer a similar discount to the
27 Commonwealth for pharmaceutical products purchased or
28 reimbursed through State agencies.
29 (5) It is in the public interest, and not
30 overburdensome, for pharmaceutical manufacturers to provide
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1 the Commonwealth with data relating to the price of
2 pharmaceutical products sold by the manufacturer to public
3 bodies, hospitals, not-for-profit organizations, other
4 manufacturers or wholesalers doing business in this
5 Commonwealth in order to ensure that the Commonwealth can
6 determine that it is being provided with the best prices
7 offered by the manufacturer.
8 (6) On a national level, there has been a recognition
9 that the need for discounts to State Medicaid agencies, which
10 reimburse for a high volume of pharmaceutical products,
11 exists.
12 Section 3. Definitions.
13 The following words and phrases when used in this act shall
14 have the meanings given to them in this section unless the
15 context clearly indicates otherwise:
16 "Average manufacturers price (AMP)." The average price paid
17 to the manufacturer for a drug in this Commonwealth by
18 wholesalers for drugs distributed to the retail pharmacy class
19 of trade, excluding sales to hospitals and HMO's through the
20 Federal supply schedule, and to wholesalers where the drug is
21 relabeled under a distributor's national drug code number.
22 "Best price." The lowest price available for the drug during
23 the calendar quarter from the manufacturer to any wholesaler,
24 retailer, provider, nonprofit entity or governmental entity in
25 this Commonwealth.
26 "Covered prescription drug." A legend drug, insulin, an
27 insulin syringe or an insulin needle eligible for payment by the
28 Commonwealth under the Pharmaceutical Assistance Contract for
29 the Elderly Program or under the General Assistance Program.
30 "Department." The Department of Aging of the Commonwealth.
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1 "Direct seller." A distributor of covered prescription
2 drugs.
3 "FDA." The Food and Drug Administration of the Public Health
4 Service of the Department of Health and Human Services.
5 "General Assistance Program." The General Assistance Program
6 of the Department of Public Welfare.
7 "Innovator multiple-source drugs." A multiple-source drug
8 that was originally marketed under a new drug application
9 approved by the Food and Drug Administration.
10 "Lowest price." Includes cash discounts, free goods, volume
11 discounts and rebates other than rebates under this act,
12 educational grants or subsidies, and other financial incentives
13 that a manufacturer offers to institutions or other entities
14 within this Commonwealth to buy its products and is determined
15 regardless of special packaging labeling or identifiers on the
16 dosage form or product or package. The term does not include
17 depot prices of agencies of the Federal Government.
18 "Manufacturer." An entity which is engaged in the
19 production, preparation, propagation, compounding, conversion or
20 processing of prescription drug products, either directly or
21 indirectly by extraction from substances of natural origin or
22 independently by means of chemical synthesis, or by a
23 combination of extraction and chemical synthesis or which is
24 engaged in the packaging, labeling or relabeling, or
25 distribution of prescription drug products. The term does not
26 include a wholesale distributor of drugs, drugstore chain
27 organization or retail pharmacy licensed by the Commonwealth.
28 "PACE Program." The program under the act of November 4,
29 1983 (P.L.217, No.63), known as the Pharmaceutical Assistance
30 Contract for the Elderly Act.
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1 "Provider." A pharmacy or dispensing physician enrolled as a
2 provider in the PACE Program or the General Assistance Program.
3 "Secretary." The Secretary of Aging of the Commonwealth.
4 "Single-source drugs." Legend drug products for which the
5 Food and Drug Administration has not approved an amended new
6 drug application (ANDA).
7 "Unit." A discreet unit of a product, such as a tablet or
8 capsule, milliliters for liquid formulations and grams for
9 ointments and creams.
10 "Weighted average manufacturer price." Within a calendar
11 quarter, the ratio of:
12 (1) the sum of the products, for all covered drugs of
13 the manufacturer purchased under the PACE Program or under
14 the General Assistance Program, of:
15 (i) the average manufacturer price for each covered
16 drug; and
17 (ii) the number of units of the covered drug
18 purchased under the PACE Program or under the General
19 Assistance Program; to
20 (2) the total number of units of all covered drugs
21 purchased under the PACE Program or under the General
22 Assistance Program.
23 "Wholesaler." Any person, partnership, corporation or other
24 institution or entity engaged in the selling of pharmaceutical
25 products to retailers for resale to consumers or engaged in the
26 packaging, repackaging, labeling or relabeling or distribution
27 of pharmaceutical drugs. The term does not include a drugstore
28 chain organization or enrolled provider of the PACE Program.
29 Section 4. Rebate agreement.
30 (a) Requirement.--The PACE Program and the General
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1 Assistance Program shall not reimburse for any covered
2 prescription drug without a rebate agreement between the
3 department and the manufacturer of the covered prescription
4 drug.
5 (b) Exception.--Subsection (a) shall not apply if the
6 covered prescription drug is rated 1-A by the FDA and the
7 availability of the drug is essential to the health of eligible
8 claimants as determined by the department.
9 (c) Agreements.--Manufacturers of prescription drugs
10 reimbursed under the PACE Program and the General Assistance
11 Program must enter into a rebate agreement with the department
12 within 60 days of the effective date of this act. If a
13 manufacturer has not entered into an agreement within the 60-day
14 period, an agreement subsequently entered into shall not be
15 effective until the first day of the calendar quarter that
16 begins 60 days after the date the agreement is entered into.
17 (d) Notice.--The department shall notify enrolled providers
18 of the PACE Program on an annual basis and as appropriate of all
19 manufacturers who have entered into a rebate agreement.
20 Section 5. Terms of rebate agreement.
21 (a) Quarterly basis.--A rebate agreement shall require the
22 manufacturer to provide to the department a rebate each calendar
23 quarter in an amount specified in section 6 for covered
24 prescription drugs of the manufacturer reimbursed during the
25 quarter. The rebate shall be paid by the manufacturer not later
26 than 30 days after the date of receipt of the information
27 described in subsection (b) for the period involved.
28 (b) Information.--
29 (1) The department shall report to each manufacturer,
30 not later than 60 days after the end of each calendar
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1 quarter, information on the total number of dosage units of
2 each covered prescription drug reimbursed under the PACE
3 Program or under the General Assistance Program during the
4 quarter.
5 (2) A manufacturer may review the information provided
6 under paragraph (1) and verify information. Adjustments to
7 rebates shall be made to the extent that information
8 indicates that utilization was greater or less than the
9 amount previously specified.
10 (c) Manufacturer provisions of price information.--
11 (1) Each manufacturer with an agreement in effect under
12 this act shall report to the department, not later than 30
13 days after the last day of each quarter, the average
14 manufacturer price and, for single-source drugs and innovator
15 multiple-source drugs, the manufacturer's best price for
16 covered prescription drugs for the quarter.
17 (2) The department may survey wholesalers, direct
18 sellers and manufacturers that directly distribute their
19 covered prescription drugs, when necessary, to verify
20 manufacturer prices reported under paragraph (1).
21 (d) Penalties.--
22 (1) A manufacturer who fails to supply information
23 required under subsection (c)(1) shall be liable for a civil
24 penalty in the amount of 2% of the rebate next required to be
25 paid plus $1,000 for each day that the information is late.
26 If the information is not reported within 90 days of the due
27 date, the agreement shall be suspended for services furnished
28 after the end of the 90-day period until the date the
29 information is reported or the expiration of 30 days,
30 whichever is later.
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1 (2) A manufacturer who knowingly supplies false
2 information that is required under subsection (c)(1) shall be
3 liable for a civil penalty in the amount of $50,000 for each
4 item of false information.
5 (3) A direct seller, manufacturer or wholesaler who
6 refuses a request for information, or knowingly provides
7 false information, that is required under subsection (c)(2)
8 shall be liable for a civil penalty in the amount of $25,000.
9 (4) Penalties collected under this subsection shall be
10 deposited into the Pharmaceutical Assistance Contract for the
11 Elderly Fund.
12 (e) Confidentiality of information.--Information disclosed
13 by manufacturers, wholesalers or direct sellers under this act
14 is confidential and shall not be disclosed by the department in
15 a form which discloses the identity of a specific manufacturer
16 or wholesaler or the prices charged for drugs by the
17 manufacturer or wholesaler, except as the department determines
18 to be necessary to carry out this act and to permit the
19 Department of the Auditor General and the Office of State
20 Inspector General to review the information provided.
21 (f) Length of agreement.--A rebate agreement shall remain in
22 effect for an initial period of not less than one year and shall
23 be automatically renewed for a period of not less than one year
24 unless terminated under subsection (g).
25 (g) Termination.--
26 (1) The department may provide for termination of a
27 rebate agreement for any reason. Termination shall not be
28 effective earlier than 60 days after the date of receipt of
29 notice by the manufacturers of termination.
30 (2) A manufacturer may terminate a rebate agreement for
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1 any reason. Termination shall not be effective earlier than
2 60 days after the date of receipt of notice by the department
3 of termination.
4 (3) Termination of the rebate agreement shall not affect
5 rebates due under the agreement before the effective date of
6 termination.
7 (4) Commonwealth court shall have original jurisdiction
8 over cases of termination of agreements under this
9 subsection. Commencement of an action under this paragraph
10 shall not delay the effective date of termination.
11 (5) If a rebate agreement is terminated for cause,
12 another agreement with the same manufacturer or a successor
13 manufacturer may not be entered into until a period of one
14 year has elapsed from the date of the termination unless the
15 department finds good cause for an earlier agreement.
16 Section 6. Amount of rebate.
17 (a) Single-source drugs and innovator multiple-source
18 drugs.--
19 (1) With respect to single-source drugs and innovator
20 multiple-source drugs, each manufacturer shall remit a basic
21 rebate to the Commonwealth. Except as otherwise provided in
22 this section, the amount of the rebate to the Commonwealth
23 per calendar quarter with respect to each dosage form and
24 strength of single-source drugs and innovator multiple-source
25 drugs shall be equal to the product of the total number of
26 units of each dosage form and strength reimbursed by the PACE
27 Program and the General Assistance Program in the quarter and
28 one of the following:
29 (i) For quarters beginning after April 1, 1991, and
30 before January 1, 1993, the greater of the following:
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1 (A) The difference between the average
2 manufacturer price and 87.5% of the price for the
3 quarter.
4 (B) The difference between the average
5 manufacturer price for a drug and the best price. For
6 calendar quarters beginning after April 1, 1991, and
7 ending before January 1, 1993, the rebate under this
8 clause shall not exceed 25% of the average
9 manufacturer price. For calendar quarters beginning
10 after December 31, 1991, and ending before January 1,
11 1993, the rebate under this clause shall not exceed
12 50% of the average manufacturer price.
13 (ii) For quarters beginning after December 31, 1992,
14 the greater of the following:
15 (A) The difference between the average
16 manufacturer price for a drug and 85% of that price.
17 (B) The difference between the average
18 manufacturer price for a drug and the best price for
19 the quarter for that drug.
20 (2) Each manufacturer shall remit an additional rebate
21 to the Commonwealth in an amount equal to one of the
22 following:
23 (i) For calendar quarters beginning after December
24 31, 1990, and ending before January 1, 1994, the product
25 of:
26 (A) the total number of each dosage form and
27 strength of a single-source or innovator multiple-
28 source drug reimbursed by the PACE Program and the
29 General Assistance Program during the quarter; and
30 (B) the average manufacturer price for each
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1 dosage form and strength, minus the average
2 manufacturer price for each dosage form and strength
3 in effect on January 1, 1991, increased by the
4 percentage increase in the Consumer Price Index For
5 All Urban Consumers from January 1, 1991, to the
6 month before the beginning of the calendar quarter
7 involved.
8 (ii) For calendar quarters beginning after December
9 31, 1993, the product of:
10 (A) the total number of each dosage form and
11 strength of a single-source or innovator multiple-
12 source drug reimbursed by the PACE Program and the
13 General Assistance Program during the quarter; and
14 (B) the amount, if any, by which the weighted
15 average manufacturer price for single-source and
16 innovator multiple-source drugs of a manufacturer
17 exceeds the weighted average manufacturer price for
18 the manufacturer as of January 1, 1991, increased by
19 the percentage increase in the Consumer Price Index
20 For All Urban Consumers from January 1, 1991, to the
21 month before the beginning of the calendar quarter
22 involved.
23 (b) Rebate for other drugs.--
24 (1) The amount of the rebate to the Commonwealth for a
25 calendar quarter with respect to covered prescription drugs
26 other than single-source drugs and innovator multiple-source
27 drugs shall be equal to the product of:
28 (i) the applicable percentage of the average
29 manufacturer price for each dosage form and strength of
30 such drugs for the quarter; and
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1 (ii) the number of units of such form and dosage
2 reimbursed by the PACE Program and the General Assistance
3 Program in the quarter.
4 (2) For the purposes of paragraph (1), the applicable
5 percentage is:
6 (i) with respect to calendar quarters beginning
7 after April 1, 1991, and ending before January 1, 1994,
8 10%; and
9 (ii) with respect to calendar quarters beginning on
10 or after December 31, 1993, 11%.
11 Section 7. Exemption.
12 Section 7(a) of the act of November 4, 1983 (P.L.217, No.63),
13 known as the Pharmaceutical Assistance Contract for the Elderly
14 Act, shall not apply to rebates under this act.
15 Section 8. Disposition of funds.
16 (a) PACE Program.--Money received under this act in
17 connection with the PACE Program shall be deposited in the
18 Pharmaceutical Assistance Contract for the Elderly Fund.
19 (b) General Assistance Program.--Money received under this
20 act in connection with the General Assistance Program shall be
21 appropriated to the Department of Public Welfare as part of its
22 outpatient appropriation.
23 Section 9. Effective date.
24 This act shall take effect April 1, 1991, or immediately,
25 whichever is later.
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