SEC. 2502. EXTENSION OF DISCOUNTS TO INPATIENT DRUGS.

[a] In General- Section- 340B [42 U.S.C. 256b] is amended--

[1] in subsection [b]--

[A] by striking 'In this section, the terms' and inserting the following: 'In this section:

'[1] IN GENERAL- The terms'; and

[B] by adding at the end the following new paragraph:

'[2] COVERED DRUG- The term 'covered drug'--

'[A] means a covered outpatient drug [as defined in section 1927[k][2] of the Social Security Act]; and

'[B] includes, notwithstanding the section 1927[k][3][A] of such Act, a drug used in connection with an inpatient or outpatient service provided by a hospital described in subparagraph [L], [M], [N], [R], [S], or [T] of subsection [a][4] that is enrolled to participate in the drug discount program under this section.'; and

[2] in paragraphs [5], [7], and [9] of subsection [a], by striking 'outpatient' each place it appears.

[b] Medicaid Credits on Inpatient Drugs- Subsection [c] of section 340B [42 U.S.C. 256b[c]] is amended to read as follows:

'[c] Medicaid Credits on Inpatient Drugs-

'[1] IN GENERAL- For the cost reporting period covered by the most recently filed Medicare cost report under title XVIII of the Social Security Act, a hospital described in subparagraph [L], [M], [N], [R], [S], or [T] of subsection [a][4] and enrolled to participate in the drug discount program under this section shall provide to each State under its plan under title XIX of such Act--

'[A] a credit on the estimated annual costs to such hospital of single source and innovator multiple source drugs provided to Medicaid beneficiaries for inpatient use; and

'[B] a credit on the estimated annual costs to such hospital of noninnovator multiple source drugs provided to Medicaid beneficiaries for inpatient use.

'[2] AMOUNT OF CREDITS-

'[A] SINGLE SOURCE AND INNOVATOR MULTIPLE SOURCE DRUGS- For purposes of paragraph [1][A]--

'[i] the credit under such paragraph shall be equal to the product of--

'[I] the annual value of single source and innovator multiple source drugs purchased under this section by the hospital based on the drugs' average manufacturer price;

'[II] the estimated percentage of the hospital's drug purchases attributable to Medicaid beneficiaries for inpatient use; and

'[III] the minimum rebate percentage described in section 1927[c][1][B] of the Social Security Act;

'[ii] the reference in clause [i][I] to the annual value of single source and innovator multiple source drugs purchased under this section by the hospital based on the drugs' average manufacturer price shall be equal to the sum of--

'[I] the annual quantity of each single source and innovator multiple source drug purchased during the cost reporting period, multiplied by

'[II] the average manufacturer price for that drug;

'[iii] the reference in clause [i][II] to the estimated percentage of the hospital's drug purchases attributable to Medicaid beneficiaries for inpatient use; shall be equal to--

'[I] the Medicaid inpatient drug charges as reported on the hospital's most recently filed Medicare cost report, divided by

'[II] total drug charges reported on the cost report; and

'[iv] the terms 'single source drug' and 'innovator multiple source drug' have the meanings given such terms in section 1927[k][7] of the Social Security Act.

'[B] NONINNOVATOR MULTIPLE SOURCE DRUGS- For purposes of paragraph [1][B]--

'[i] the credit under such paragraph shall be equal to the product of--

'[I] the annual value of noninnovator multiple source drugs purchased under this section by the hospital based on the drugs' average manufacturer price;

'[II] the estimated percentage of the hospital's drug purchases attributable to Medicaid beneficiaries for inpatient use; and

'[III] the applicable percentage as defined in section 1927[c][3][B] of the Social Security Act;

'[ii] the reference in clause [i][I] to the annual value of noninnovator multiple source drugs purchased under this section by the hospital based on the drugs' average manufacturer price shall be equal to the sum of--

'[I] the annual quantity of each noninnovator multiple source drug purchased during the cost reporting period, multiplied by

'[II] the average manufacturer price for that drug;

'[iii] the reference in clause [i][II] to the estimated percentage of the hospital's drug purchases attributable to Medicaid beneficiaries for inpatient use shall be equal to--

'[I] the Medicaid inpatient drug charges as reported on the hospital's most recently filed Medicare cost report, divided by

'[II] total drug charges reported on the cost report; and

'[iv] the term 'noninnovator multiple source drug' has the meaning given such term in section 1927[k][7] of the Social Security Act.

'[3] CALCULATION OF CREDITS-

'[A] IN GENERAL- Each State calculates credits under paragraph [1] and informs hospitals of amount under section 1927[a][5][D] of the Social Security Act.

'[B] HOSPITAL PROVISION OF INFORMATION- Not later than 30 days after the date of the filing of the hospital's most recently filed Medicare cost report, the hospital shall provide the State with the information described in paragraphs [2][A][ii] and [2][B][ii]. With respect to each drug purchased during the cost reporting period, the hospital shall provide the dosage form, strength, package size, date of purchase and the number of units purchased.

'[4] PAYMENT DEADLINE- The credits provided by a hospital under paragraph [1] shall be paid within 60 days after receiving the information specified in paragraph [3][A].

'[5] OPT OUT- A hospital shall not be required to provide the Medicaid credit required under paragraph [1] if it can demonstrate to the State that it will lose reimbursement under the State plan resulting from the extension of discounts to inpatient drugs under subsection [b][2] and that the loss of reimbursement will exceed the amount of the credit otherwise owed by the hospital.

'[6] OFFSET AGAINST MEDICAL ASSISTANCE- Amounts received by a State under this subsection 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 1903[a][1] of the Social Security Act.'.

[c] Conforming Amendments- Section- 1927 of the Social Security Act [42 U.S.C. 1396r-8] is amended--

[1] in subsection [a][5][A], by striking 'covered outpatient drugs' and inserting 'covered drugs [as defined in section 340B[b][2] of the Public Health Service Act]';

[2] in subsection [a][5], by striking subparagraph [D] and inserting the following:

'[D] STATE RESPONSIBILITY FOR CALCULATING HOSPITAL CREDITS- The State shall calculate the credits owed by the hospital under paragraph [1] of section 340B[c] of the Public Health Service Act and provide the hospital with both the amounts and an explanation of how it calculated the credits. In performing the calculations specified in paragraphs [2][A][ii] and [2][B][ii] of such section, the State shall use the average manufacturer price applicable to the calendar quarter in which the drug was purchased by the hospital.'; and

[3] in subsection [k][1]--

[A] in subparagraph [A], by striking 'subparagraph [B]' and inserting 'subparagraphs [B] and [D]'; and

[B] by adding at the end the following:

'[D] CALCULATION FOR COVERED DRUGS- With respect to a covered drug [as defined in section 340B[b][2] of the Public Health Service Act], the average manufacturer price shall be determined in accordance with subparagraph [A] except that, in the event a covered drug is not distributed to the retail pharmacy class of trade, it shall mean the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the acute care class of trade, after deducting customary prompt pay discounts.'.