---
kind: "section"
citation: "42 U.S.C. § 256b"
title: "42"
title_heading: "The Public Health and Welfare"
number: "256b"
heading: "Limitation on prices of drugs purchased by covered entities"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/42/256b"
units:
  - "Chapter 6A — Public Health Service"
  - "Subchapter II — General Powers and Duties"
  - "Part D — Primary Health Care"
  - "Subpart vii — drug pricing agreements"
---

# §256b. Limitation on prices of drugs purchased by covered entities

- (a) **Requirements for agreement with Secretary—**
  - (1) **In general—** The [Secretary](/usc/42/201.md?p=c) shall enter into an agreement with each [manufacturer](/usc/42/300aa–33.md?p=3) of covered outpatient [drugs](/usc/42/11851.md?p=4) under which the amount required to be paid (taking into account any rebate or discount, as provided by the [Secretary](/usc/42/201.md?p=c)) to the [manufacturer](/usc/42/300aa–33.md?p=3) for covered outpatient [drugs](/usc/42/11851.md?p=4) (other than [drugs](/usc/42/11851.md?p=4) described in [paragraph (3)](#a-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](/usc/42/300aa–33.md?p=3) price for the [drug](/usc/42/11851.md?p=4) under title XIX of the Social Security Act [[42 U.S.C. 1396](/usc/42/1396.md) et seq.] in the preceding calendar quarter, reduced by the rebate percentage described in [paragraph (2)](#a-2). Each such agreement shall require that the [manufacturer](/usc/42/300aa–33.md?p=3) furnish the [Secretary](/usc/42/201.md?p=c) with reports, on a quarterly basis, of the price for each covered outpatient [drug](/usc/42/11851.md?p=4) subject to the agreement that, according to the [manufacturer](/usc/42/300aa–33.md?p=3), represents the maximum price that covered entities may permissibly be required to pay for the [drug](/usc/42/11851.md?p=4) (referred to in this section as the “ceiling price”), and shall require that the [manufacturer](/usc/42/300aa–33.md?p=3) offer each covered entity covered outpatient [drugs](/usc/42/11851.md?p=4) for purchase at or below the applicable ceiling price if such [drug](/usc/42/11851.md?p=4) is made available to any other purchaser at any price.
  - (2) **“Rebate percentage” defined—**
    - (A) **In general—** For a covered outpatient [drug](/usc/42/11851.md?p=4) 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)](/usc/42/1396r–8.md?p=c)] with respect to the [drug](/usc/42/11851.md?p=4) (for a unit of the dosage form and strength involved) during the preceding calendar quarter; divided by
      - (ii) the average [manufacturer](/usc/42/300aa–33.md?p=3) price for such a unit of the [drug](/usc/42/11851.md?p=4) during such quarter.
    - (B) **Over the counter drugs—**
      - (i) **In general—** For purposes of [subparagraph (A)](#a-2-A), in the case of over the counter [drugs](/usc/42/11851.md?p=4), 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)](/usc/42/1396r–8.md?p=c)] is based on the applicable percentage provided under section 1927(c)(3) of such Act.
      - (ii) **“Over the counter drug” defined—** The term “over the counter [drug](/usc/42/11851.md?p=4)” means a [drug](/usc/42/11851.md?p=4) that may be sold without a prescription and which is prescribed by a physician (or other persons authorized to prescribe such [drug](/usc/42/11851.md?p=4) under [State](/usc/42/201.md?p=f) law).
  - (3) **Drugs provided under State medicaid plans—** [Drugs](/usc/42/11851.md?p=4) described in this paragraph are [drugs](/usc/42/11851.md?p=4) purchased by the entity for which payment is made by the [State](/usc/42/201.md?p=f) under the [State plan](/usc/42/300d–31.md?p=2) for medical assistance under title XIX of the Social Security Act [[42 U.S.C. 1396](/usc/42/1396.md) et seq.].
  - (4) **“Covered entity” defined—** In this section, the term “covered entity” means an entity that meets the requirements described in [paragraph (5)](#a-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)](/usc/42/1396d.md?p=l-2-B)]).
    - (B) An entity receiving a grant under [section 256a](/usc/42/256a.md)[^1] of this title.
    - (C) A family planning [project](/usc/42/13641.md?p=2) receiving a grant or contract under [section 300 of this title](/usc/42/300.md).
    - (D) An entity receiving a grant under subpart II[^1] of part C of subchapter XXIV (relating to categorical grants for outpatient early intervention [services](/usc/42/201.md?p=a) for HIV disease).
    - (E) A [State](/usc/42/201.md?p=f)-operated AIDS [drug](/usc/42/11851.md?p=4) purchasing assistance [program](/usc/42/274l–1.md?p=4) receiving financial assistance under subchapter XXIV.
    - (F) A black lung clinic receiving funds under [section 937(a) of title 30](/usc/30/937.md?p=a).
    - (G) A comprehensive hemophilia diagnostic [treatment](/usc/42/11851.md?p=11) center receiving a grant under section 501(a)(2) of the Social Security Act [[42 U.S.C. 701(a)(2)](/usc/42/701.md?p=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](/usc/25/1651.md) et seq.].
    - (J) Any entity receiving assistance under subchapter XXIV (other than a [State](/usc/42/201.md?p=f) or unit of local government or an entity described in [subparagraph (D)](#a-4-D)), but only if the entity is certified by the [Secretary](/usc/42/201.md?p=c) pursuant to [paragraph (7)](#a-7).
    - (K) An entity receiving funds under [section 247c of this title](/usc/42/247c.md) (relating to [treatment](/usc/42/11851.md?p=11) of sexually transmitted diseases) or [section 247b(j)(2)](/usc/42/247b.md?p=j-2)[^1] of this title (relating to [treatment](/usc/42/11851.md?p=11) of tuberculosis) through a [State](/usc/42/201.md?p=f) or unit of local government, but only if the entity is certified by the [Secretary](/usc/42/201.md?p=c) pursuant to [paragraph (7)](#a-7).
    - (L) A [subsection (d)](#d) [hospital](/usc/42/300s–3.md?p=1) (as defined in section 1886(d)(1)(B) of the Social Security Act [[42 U.S.C. 1395ww(d)(1)(B)](/usc/42/1395ww.md?p=d-1-B)]) that—
      - (i) is owned or operated by a unit of [State](/usc/42/201.md?p=f) or local government, is a public or private non-profit [corporation](/usc/42/2297h.md?p=2) which is formally granted governmental powers by a unit of [State](/usc/42/201.md?p=f) or local government, or is a private non-profit [hospital](/usc/42/300s–3.md?p=1) which has a contract with a [State](/usc/42/201.md?p=f) or local government to provide health [care services](/usc/42/300z–1.md?p=a-7) to low income individuals who are not entitled to benefits under title XVIII of the Social Security Act [[42 U.S.C. 1395](/usc/42/1395.md) et seq.] or eligible for assistance under the [State plan](/usc/42/300d–31.md?p=2) 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)](/usc/42/1395ww.md?p=d-5-F)]) greater than 11.75 percent or was described in [section 1886(d)(5)(F)(i)(II)](/usc/42/1886.md) of such Act [[42 U.S.C. 1395ww(d)(5)(F)(i)(II)](/usc/42/1395ww.md?p=d-5-F-i-II)]; and
      - (iii) does not obtain covered outpatient [drugs](/usc/42/11851.md?p=4) through a group purchasing organization or other group purchasing arrangement.
    - (M) A children’s [hospital](/usc/42/300s–3.md?p=1) excluded from the Medicare prospective payment system pursuant to section 1886(d)(1)(B)(iii) of the Social Security Act [[42 U.S.C. 1395ww(d)(1)(B)(iii)](/usc/42/1395ww.md?p=d-1-B-iii)], or a free-standing cancer [hospital](/usc/42/300s–3.md?p=1) excluded from the Medicare prospective payment system pursuant to section 1886(d)(1)(B)(v) of the Social Security Act, that would meet the requirements of [subparagraph (L)](#a-4-L), including the disproportionate share adjustment percentage requirement under [clause (ii)](#a-4-L-ii) of such subparagraph, if the [hospital](/usc/42/300s–3.md?p=1) were a [subsection (d)](#d) [hospital](/usc/42/300s–3.md?p=1) as defined by [section 1886(d)(1)(B)](/usc/42/1886.md) of the Social Security Act.
    - (N) An entity that is a critical access [hospital](/usc/42/300s–3.md?p=1) (as determined under section 1820(c)(2) of the Social Security Act [[42 U.S.C. 1395i–4(c)(2)](/usc/42/1395i–4.md?p=c-2)]), and that meets the requirements of [subparagraph (L)(i)](#a-4-L-i).
    - (O) An entity that is a rural referral center, as defined by section 1886(d)(5)(C)(i) of the Social Security Act [[42 U.S.C. 1395ww(d)(5)(C)(i)](/usc/42/1395ww.md?p=d-5-C-i)], or a sole community [hospital](/usc/42/300s–3.md?p=1), as defined by [section 1886(d)(5)(C)(iii)](/usc/42/1886.md) of such Act, and that both meets the requirements of [subparagraph (L)(i)](#a-4-L-i) and has a disproportionate share adjustment percentage equal to or greater than 8 percent.
  - (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](/usc/42/1396.md) et seq.] for medical assistance described in section 1905(a)(12) of such Act [[42 U.S.C. 1396d(a)(12)](/usc/42/1396d.md?p=a-12)] with respect to a [drug](/usc/42/11851.md?p=4) that is subject to an agreement under this section if the [drug](/usc/42/11851.md?p=4) is subject to the payment of a rebate to the [State](/usc/42/201.md?p=f) under section 1927 of such Act [[42 U.S.C. 1396r–8](/usc/42/1396r–8.md)].
      - (ii) **Establishment of mechanism—** The [Secretary](/usc/42/201.md?p=c) shall establish a mechanism to ensure that covered entities comply with [clause (i)](#a-5-A-i). If the [Secretary](/usc/42/201.md?p=c) 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)](/usc/42/1396r–8.md?p=a-5-C)] shall apply.
    - (B) **Prohibiting resale of drugs—** With respect to any covered outpatient [drug](/usc/42/11851.md?p=4) that is subject to an agreement under this subsection, a covered entity shall not resell or otherwise transfer the [drug](/usc/42/11851.md?p=4) to a person who is not a patient of the entity.
    - (C) **Auditing—** A covered entity shall permit the [Secretary](/usc/42/201.md?p=c) and the [manufacturer](/usc/42/300aa–33.md?p=3) of a covered outpatient [drug](/usc/42/11851.md?p=4) that is subject to an agreement under this subsection with the entity (acting in accordance with procedures established by the [Secretary](/usc/42/201.md?p=c) relating to the number, duration, and scope of audits) to audit at the [Secretary](/usc/42/201.md?p=c)’s or the [manufacturer](/usc/42/300aa–33.md?p=3)’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](/usc/42/11851.md?p=4) of the [manufacturer](/usc/42/300aa–33.md?p=3).
    - (D) **Additional sanction for noncompliance—** If the [Secretary](/usc/42/201.md?p=c) finds, after audit as described in [subparagraph (C)](#a-5-C) and after notice and hearing, that a covered entity is in [violation](/usc/42/2000e–16a.md?p=c) of a requirement described in subparagraphs[^2] (A) or (B), the covered entity shall be liable to the [manufacturer](/usc/42/300aa–33.md?p=3) of the covered outpatient [drug](/usc/42/11851.md?p=4) that is the subject of the [violation](/usc/42/2000e–16a.md?p=c) in an amount equal to the reduction in the price of the [drug](/usc/42/11851.md?p=4) (as described in [subparagraph (A)](#a-5-A)) provided under the agreement between the entity and the [manufacturer](/usc/42/300aa–33.md?p=3) 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](/usc/42/300s–3.md?p=1), the [hospital](/usc/42/300s–3.md?p=1) shall not be considered a covered entity under this paragraph unless the [hospital](/usc/42/300s–3.md?p=1) 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](/usc/42/201.md?p=c) shall develop and implement a process for the certification of entities described in subparagraphs [(J)](#a-4-J) and [(K)](#a-4-K) of paragraph (4).
    - (B) **Inclusion of purchase information—** The process developed under [subparagraph (A)](#a-7-A) shall include a requirement that an entity applying for certification under this paragraph submit information to the [Secretary](/usc/42/201.md?p=c) concerning the amount such entity expended for covered outpatient [drugs](/usc/42/11851.md?p=4) in the preceding year so as to assist the [Secretary](/usc/42/201.md?p=c) in evaluating the validity of the entity’s subsequent purchases of covered outpatient [drugs](/usc/42/11851.md?p=4) at discounted prices.
    - (C) **Criteria—** The [Secretary](/usc/42/201.md?p=c) shall make available to all [manufacturers](/usc/42/300aa–33.md?p=3) of covered outpatient [drugs](/usc/42/11851.md?p=4) a description of the criteria for certification under this paragraph.
    - (D) **List of purchasers and dispensers—** The certification process developed by the [Secretary](/usc/42/201.md?p=c) under [subparagraph (A)](#a-7-A) shall include procedures under which each [State](/usc/42/201.md?p=f) shall, not later than 30 days after the submission of the descriptions under [subparagraph (C)](#a-7-C), prepare and submit a report to the [Secretary](/usc/42/201.md?p=c) that contains a list of entities described in subparagraphs [(J)](#a-4-J) and [(K)](#a-4-K) of paragraph (4) that are located in the [State](/usc/42/201.md?p=f).
    - (E) **Recertification—** The [Secretary](/usc/42/201.md?p=c) 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](/usc/42/201.md?p=c) to permit the [Secretary](/usc/42/201.md?p=c) to evaluate the validity of subsequent purchases by such entities in the same manner as that required under [subparagraph (B)](#a-7-B).
  - (8) **Development of prime vendor program—** The [Secretary](/usc/42/201.md?p=c) shall establish a prime vendor [program](/usc/42/274l–1.md?p=4) under which covered entities may enter into contracts with prime vendors for the distribution of covered outpatient [drugs](/usc/42/11851.md?p=4). If a covered entity obtains [drugs](/usc/42/11851.md?p=4) directly from a [manufacturer](/usc/42/300aa–33.md?p=3), the [manufacturer](/usc/42/300aa–33.md?p=3) shall be responsible for the costs of distribution.
  - (9) **Notice to manufacturers—** The [Secretary](/usc/42/201.md?p=c) shall notify [manufacturers](/usc/42/300aa–33.md?p=3) of covered outpatient [drugs](/usc/42/11851.md?p=4) and single [State agencies](/usc/42/300s–3.md?p=12) under section 1902(a)(5) of the Social Security Act [[42 U.S.C. 1396a(a)(5)](/usc/42/1396a.md?p=a-5)] of the identities of covered entities under this paragraph, and of entities that no longer meet the requirements of [paragraph (5)](#a-5) or that are no longer certified pursuant to [paragraph (7)](#a-7).
  - (10) **No prohibition on larger discount—** Nothing in this subsection shall prohibit a [manufacturer](/usc/42/300aa–33.md?p=3) from charging a price for a [drug](/usc/42/11851.md?p=4) that is lower than the maximum price that may be charged under [paragraph (1)](#a-1).
- (b) **Other definitions—**
  - (1) **In general—** In this section, the terms “average [manufacturer](/usc/42/300aa–33.md?p=3) price”, “covered outpatient [drug](/usc/42/11851.md?p=4)”, and “[manufacturer](/usc/42/300aa–33.md?p=3)” have the meaning given such terms in section 1927(k) of the Social Security Act [[42 U.S.C. 1396r–8(k)](/usc/42/1396r–8.md?p=k)].
  - (2) **Covered drug—** In this section, the term “covered [drug](/usc/42/11851.md?p=4)”—
    - (A) means a covered outpatient [drug](/usc/42/11851.md?p=4) (as defined in section 1927(k)(2) of the Social Security Act [[42 U.S.C. 1396r–8(k)(2)](/usc/42/1396r–8.md?p=k-2)]); and
    - (B) includes, notwithstanding paragraph (3)(A) of section 1927(k) of such Act [[42 U.S.C. 1396r–8(k)(3)(A)](/usc/42/1396r–8.md?p=k-3-A)], a [drug](/usc/42/11851.md?p=4) used in connection with an inpatient or outpatient [service](/usc/42/201.md?p=a) provided by a [hospital](/usc/42/300s–3.md?p=1) described in subparagraph [(L)](#a-4-L), [(M)](#a-4-M), [(N)](#a-4-N), or [(O)](#a-4-O) of subsection (a)(4) that is enrolled to participate in the [drug](/usc/42/11851.md?p=4) discount [program](/usc/42/274l–1.md?p=4) under this section.
- (c) **Repealed. Pub. L. 111–152, title II, § 2302(2), Mar. 30, 2010, 124 Stat. 1083—**
- (d) **Improvements in program integrity—**
  - (1) **Manufacturer compliance—**
    - (A) **In general—** From amounts appropriated under [paragraph (4)](#d-4), the [Secretary](/usc/42/201.md?p=c) shall provide for improvements in compliance by [manufacturers](/usc/42/300aa–33.md?p=3) with the requirements of this section in order to prevent overcharges and other [violations](/usc/42/2000e–16a.md?p=c) of the discounted pricing requirements specified in this section.
    - (B) **Improvements—** The improvements described in [subparagraph (A)](#d-1-A) shall include the following:
      - (i) The development of a system to enable the [Secretary](/usc/42/201.md?p=c) to verify the accuracy of ceiling prices calculated by [manufacturers](/usc/42/300aa–33.md?p=3) under [subsection (a)(1)](#a-1) and charged to covered entities, which shall include the following:
        - (I) Developing and publishing through an appropriate policy or regulatory issuance, precisely defined standards and methodology for the calculation of ceiling prices under such subsection.
        - (II) Comparing regularly the ceiling prices calculated by the [Secretary](/usc/42/201.md?p=c) with the quarterly pricing data that is reported by [manufacturers](/usc/42/300aa–33.md?p=3) to the [Secretary](/usc/42/201.md?p=c).
        - (III) Performing spot checks of sales transactions by covered entities.
        - (IV) Inquiring into the cause of any pricing discrepancies that may be identified and either taking, or requiring [manufacturers](/usc/42/300aa–33.md?p=3) to take, such corrective action as is appropriate in response to such price discrepancies.
      - (ii) The establishment of procedures for [manufacturers](/usc/42/300aa–33.md?p=3) to issue refunds to covered entities in the event that there is an overcharge by the [manufacturers](/usc/42/300aa–33.md?p=3), including the following:
        - (I) Providing the [Secretary](/usc/42/201.md?p=c) with an explanation of why and how the overcharge occurred, how the refunds will be calculated, and to whom the refunds will be issued.
        - (II) Oversight by the [Secretary](/usc/42/201.md?p=c) to ensure that the refunds are issued accurately and within a reasonable period of time, both in routine instances of retroactive adjustment to relevant pricing data and exceptional circumstances such as erroneous or intentional overcharging for covered outpatient [drugs](/usc/42/11851.md?p=4).
      - (iii) The provision of access through the Internet website of the Department of Health and Human [Services](/usc/42/201.md?p=a) to the applicable ceiling prices for covered outpatient [drugs](/usc/42/11851.md?p=4) as calculated and verified by the [Secretary](/usc/42/201.md?p=c) in accordance with this section, in a manner (such as through the use of password protection) that limits such access to covered entities and adequately assures security and protection of privileged pricing data from unauthorized re-disclosure.
      - (iv) The development of a mechanism by which—
        - (I) rebates and other discounts provided by [manufacturers](/usc/42/300aa–33.md?p=3) to other purchasers subsequent to the sale of covered outpatient [drugs](/usc/42/11851.md?p=4) to covered entities are reported to the [Secretary](/usc/42/201.md?p=c); and
        - (II) appropriate credits and refunds are issued to covered entities if such discounts or rebates have the effect of lowering the applicable ceiling price for the relevant quarter for the [drugs](/usc/42/11851.md?p=4) involved.
      - (v) Selective auditing of [manufacturers](/usc/42/300aa–33.md?p=3) and wholesalers to ensure the integrity of the [drug](/usc/42/11851.md?p=4) discount [program](/usc/42/274l–1.md?p=4) under this section.
      - (vi) The imposition of sanctions in the form of civil monetary penalties, which—
        - (I) shall be assessed according to standards established in [regulations](/usc/42/201.md?p=d) to be promulgated by the [Secretary](/usc/42/201.md?p=c) not later than 180 days after March 23, 2010;
        - (II) shall not exceed $5,000 for each instance of overcharging a covered entity that may have occurred; and
        - (III) shall apply to any [manufacturer](/usc/42/300aa–33.md?p=3) with an agreement under this section that knowingly and intentionally charges a covered entity a price for purchase of a [drug](/usc/42/11851.md?p=4) that exceeds the maximum applicable price under [subsection (a)(1)](#a-1).
  - (2) **Covered entity compliance—**
    - (A) **In general—** From amounts appropriated under [paragraph (4)](#d-4), the [Secretary](/usc/42/201.md?p=c) shall provide for improvements in compliance by covered entities with the requirements of this section in order to prevent diversion and [violations](/usc/42/2000e–16a.md?p=c) of the duplicate discount provision and other requirements specified under [subsection (a)(5)](#a-5).
    - (B) **Improvements—** The improvements described in [subparagraph (A)](#d-2-A) shall include the following:
      - (i) The development of procedures to enable and require covered entities to regularly update (at least annually) the information on the Internet website of the Department of Health and Human [Services](/usc/42/201.md?p=a) relating to this section.
      - (ii) The development of a system for the [Secretary](/usc/42/201.md?p=c) to verify the accuracy of information regarding covered entities that is listed on the website described in [clause (i)](#d-2-B-i).
      - (iii) The development of more detailed guidance describing methodologies and options available to covered entities for billing covered outpatient [drugs](/usc/42/11851.md?p=4) to [State](/usc/42/201.md?p=f) Medicaid [agencies](/usc/42/8262.md?p=1) in a manner that avoids duplicate discounts pursuant to [subsection (a)(5)(A)](#a-5-A).
      - (iv) The establishment of a single, universal, and standardized identification system by which each covered entity site can be identified by [manufacturers](/usc/42/300aa–33.md?p=3), distributors, covered entities, and the [Secretary](/usc/42/201.md?p=c) for purposes of facilitating the ordering, purchasing, and delivery of covered outpatient [drugs](/usc/42/11851.md?p=4) under this section, including the processing of chargebacks for such [drugs](/usc/42/11851.md?p=4).
      - (v) The imposition of sanctions, in appropriate cases as determined by the [Secretary](/usc/42/201.md?p=c), additional to those to which covered entities are subject under [subsection (a)(5)(D)](#a-5-D), through one or more of the following actions:
        - (I) Where a covered entity knowingly and intentionally violates [subsection (a)(5)(B)](#a-5-B), the covered entity shall be required to pay a monetary penalty to a [manufacturer](/usc/42/300aa–33.md?p=3) or [manufacturers](/usc/42/300aa–33.md?p=3) in the form of interest on sums for which the covered entity is found liable under [subsection (a)(5)(D)](#a-5-D), such interest to be compounded monthly and equal to the current short term interest rate as determined by the Federal Reserve for the time period for which the covered entity is liable.
        - (II) Where the [Secretary](/usc/42/201.md?p=c) determines a [violation](/usc/42/2000e–16a.md?p=c) of [subsection (a)(5)(B)](#a-5-B) was systematic and egregious as well as knowing and intentional, removing the covered entity from the [drug](/usc/42/11851.md?p=4) discount [program](/usc/42/274l–1.md?p=4) under this section and disqualifying the entity from re-entry into such [program](/usc/42/274l–1.md?p=4) for a reasonable period of time to be determined by the [Secretary](/usc/42/201.md?p=c).
        - (III) Referring matters to appropriate Federal authorities within the Food and [Drug](/usc/42/11851.md?p=4) Administration, the Office of Inspector General of Department of Health and Human [Services](/usc/42/201.md?p=a), or other Federal [agencies](/usc/42/8262.md?p=1) for consideration of appropriate action under other Federal statutes, such as the Prescription [Drug](/usc/42/11851.md?p=4) Marketing Act ([21 U.S.C. 353](/usc/21/353.md)).[^1]
  - (3) **Administrative dispute resolution process—**
    - (A) **In general—** Not later than 180 days after March 23, 2010, the [Secretary](/usc/42/201.md?p=c) shall promulgate [regulations](/usc/42/201.md?p=d) to establish and implement an administrative process for the resolution of claims by covered entities that they have been overcharged for [drugs](/usc/42/11851.md?p=4) purchased under this section, and claims by [manufacturers](/usc/42/300aa–33.md?p=3), after the conduct of audits as authorized by [subsection (a)(5)(C)](#a-5-C), of [violations](/usc/42/2000e–16a.md?p=c) of subsections[^3] (a)(5)(A) or (a)(5)(B), including appropriate procedures for the provision of remedies and enforcement of determinations made pursuant to such process through mechanisms and sanctions described in paragraphs [(1)(B)](#d-1-B) and [(2)(B)](#d-2-B).
    - (B) **Deadlines and procedures—** [Regulations](/usc/42/201.md?p=d) promulgated by the [Secretary](/usc/42/201.md?p=c) under [subparagraph (A)](#d-3-A) shall—
      - (i) designate or establish a decision-making official or decision-making body within the Department of Health and Human [Services](/usc/42/201.md?p=a) to be responsible for reviewing and finally resolving claims by covered entities that they have been charged prices for covered outpatient [drugs](/usc/42/11851.md?p=4) in excess of the ceiling price described in [subsection (a)(1)](#a-1), and claims by [manufacturers](/usc/42/300aa–33.md?p=3) that [violations](/usc/42/2000e–16a.md?p=c) of subsection [(a)(5)(A)](#a-5-A) or [(a)(5)(B)](#a-5-B) have occurred;
      - (ii) establish such deadlines and procedures as may be necessary to ensure that claims shall be resolved fairly, efficiently, and expeditiously;
      - (iii) establish procedures by which a covered entity may discover and obtain such information and documents from [manufacturers](/usc/42/300aa–33.md?p=3) and third parties as may be relevant to demonstrate the merits of a claim that charges for a [manufacturer](/usc/42/300aa–33.md?p=3)’s product have exceeded the applicable ceiling price under this section, and may submit such documents and information to the administrative official or body responsible for adjudicating such claim;
      - (iv) require that a [manufacturer](/usc/42/300aa–33.md?p=3) conduct an audit of a covered entity pursuant to [subsection (a)(5)(C)](#a-5-C) as a prerequisite to initiating administrative dispute resolution proceedings against a covered entity;
      - (v) permit the official or body designated under [clause (i)](#d-3-B-i), at the request of a [manufacturer](/usc/42/300aa–33.md?p=3) or [manufacturers](/usc/42/300aa–33.md?p=3), to consolidate claims brought by more than one [manufacturer](/usc/42/300aa–33.md?p=3) against the same covered entity where, in the judgment of such official or body, consolidation is appropriate and consistent with the goals of fairness and economy of resources; and
      - (vi) include provisions and procedures to permit multiple covered entities to jointly assert claims of overcharges by the same [manufacturer](/usc/42/300aa–33.md?p=3) for the same [drug](/usc/42/11851.md?p=4) or [drugs](/usc/42/11851.md?p=4) in one administrative proceeding, and permit such claims to be asserted on behalf of covered entities by associations or organizations representing the interests of such covered entities and of which the covered entities are members.
    - (C) **Finality of administrative resolution—** The administrative resolution of a claim or claims under the [regulations](/usc/42/201.md?p=d) promulgated under [subparagraph (A)](#d-3-A) shall be a final [agency](/usc/42/8262.md?p=1) decision and shall be binding upon the parties involved, unless invalidated by an order of a court of competent jurisdiction.
  - (4) **Authorization of appropriations—** There are authorized to be appropriated to carry out this subsection, such sums as may be necessary for fiscal year 2010 and each succeeding fiscal year.
- (e) **Exclusion of orphan drugs for certain covered entities—** For covered entities described in subparagraph (M) (other than a children’s [hospital](/usc/42/300s–3.md?p=1) described in subparagraph (M)), (N), or (O) of [subsection (a)(4)](#a-4), the term “covered outpatient [drug](/usc/42/11851.md?p=4)” shall not include a [drug](/usc/42/11851.md?p=4) designated by the [Secretary](/usc/42/201.md?p=c) under [section 360bb of title 21](/usc/21/360bb.md) for a rare disease or condition.

## Footnotes

[^1]: See References in Text note below.
[^2]: So in original. Probably should be “subparagraph”.
[^3]: So in original. Probably should be “subsection”.

## Source credit

(July 1, 1944, ch. 373, title III, § 340B, as added Pub. L. 102–585, title VI, § 602(a), Nov. 4, 1992, 106 Stat. 4967; amended Pub. L. 103–43, title XX, § 2008(i)(1)(A), June 10, 1993, 107 Stat. 212; Pub. L. 111–148, title II, § 2501(f)(1), title VII, §§ 7101(a)–(d), 7102, Mar. 23, 2010, 124 Stat. 309, 821–823; Pub. L. 111–152, title II, § 2302, Mar. 30, 2010, 124 Stat. 1082; Pub. L. 111–309, title II, § 204(a)(1), Dec. 15, 2010, 124 Stat. 3289.)

## Notes

### Editorial Notes

### References in Text

The Social Security Act, referred to in subsec. (a)(1), (3), (4)(L)(i), (5)(A)(i), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, which is classified generally to chapter 7 (§ 301 et seq.) of this title. Titles XVIII and XIX of the Act are classified generally to subchapters XVIII (§ 1395 et seq.) and XIX (§ 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 in the original a reference to section 340A of act July 1, 1944, which was repealed by Pub. L. 104–299, § 4(a)(3), Oct. 11, 1996, 110 Stat. 3645. Subsequently, a new section 340A was added to the act of July 1, 1944, by Pub. L. 109–18, § 2, June 29, 2005, 119 Stat. 340, which is also classified to section 256a of this title.

Subpart II of part C of subchapter XXIV, referred to in subsec. (a)(4)(D), was redesignated subpart I of part C of subchapter XXIV of this chapter by Pub. L. 106–345, title III, § 301(b)(1), Oct. 20, 2000, 114 Stat. 1345, and is classified to section 300ff–51 et seq. of this title.

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 (§ 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. Title V of the Act is classified generally to subchapter IV (§ 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, § 301(b)(1)(A), (C), Dec. 14, 1993, 107 Stat. 2235.

The Prescription Drug Marketing Act, referred to in subsec. (d)(2)(B)(v)(III), probably means the Prescription Drug Marketing Act of 1987, Pub. L. 100–293, Apr. 22, 1988, 102 Stat. 95, which amended sections 331, 333, 353, and 381 of Title 21, Food and Drugs, and enacted provisions set out as notes under sections 301 and 353 of Title 21. For complete classification of this Act to the Code, see Short Title of 1988 Amendments note set out under section 301 of Title 21 and Tables.

### Codification

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

### Amendments

2010—Subsec. (a)(1). Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drug” for “covered drug” and “covered outpatient drugs” for “covered drugs” wherever appearing.

Pub. L. 111–148, § 7102(b)(1), inserted at end “Each such agreement shall require that the manufacturer furnish the Secretary with reports, on a quarterly basis, of the price for each covered drug subject to the agreement that, according to the manufacturer, represents the maximum price that covered entities may permissibly be required to pay for the drug (referred to in this section as the ‘ceiling price’), and shall require that the manufacturer offer each covered entity covered drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price.”

Subsec. (a)(2)(A). Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drug” for “covered drug” in introductory provisions.

Pub. L. 111–148, § 7101(b)(1), substituted “covered drug” for “covered outpatient drug” in introductory provisions.

Subsec. (a)(2)(B)(i). Pub. L. 111–148, § 2501(f)(1)(A), substituted “1927(c)(3)” for “1927(c)(4)”.

Subsec. (a)(4)(L). Pub. L. 111–152, § 2302(1)(B), struck out “and” at end of cl. (i), substituted “; and” for period at end of cl. (ii), and added cl. (iii).

Pub. L. 111–148, § 7101(c)(1), in cl. (i), inserted “and” at end, in cl. (ii), substituted period for “; and” at end, and struck out cl. (iii) which read as follows: “does not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.”

Subsec. (a)(4)(M) to (O). Pub. L. 111–148, § 7101(a), added subpars. (M) to (O).

Subsec. (a)(5)(B). Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drug” for “covered drug”.

Pub. L. 111–148, § 7101(b)(1), substituted “covered drug” for “covered outpatient drug”.

Subsec. (a)(5)(C). Pub. L. 111–152, § 2302(1)(C)(i), (ii), redesignated subpar. (D) as (C) and struck out former subpar. (C). Prior to amendment, text of subpar. (C) read as follows:

“(i) In general.—A hospital described in subparagraph (L), (M), (N), or (O) of paragraph (4) shall not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement, except as permitted or provided for pursuant to clauses (ii) or (iii).

“(ii) Inpatient drugs.—Clause (i) shall not apply to drugs purchased for inpatient use.

“(iii) Exceptions.—The Secretary shall establish reasonable exceptions to clause (i)—

“(I) with respect to a covered outpatient drug that is unavailable to be purchased through the program under this section due to a drug shortage problem, manufacturer noncompliance, or any other circumstance beyond the hospital’s control;

“(II) to facilitate generic substitution when a generic covered outpatient drug is available at a lower price; or

“(III) to reduce in other ways the administrative burdens of managing both inventories of drugs subject to this section and inventories of drugs that are not subject to this section, so long as the exceptions do not create a duplicate discount problem in violation of subparagraph (A) or a diversion problem in violation of subparagraph (B).

“(iv) Purchasing arrangements for inpatient drugs.—The Secretary shall ensure that a hospital described in subparagraph (L), (M), (N), or (O) of subsection (a)(4) that is enrolled to participate in the drug discount program under this section shall have multiple options for purchasing covered outpatient drugs for inpatients, including by utilizing a group purchasing organization or other group purchasing arrangement, establishing and utilizing its own group purchasing program, purchasing directly from a manufacturer, and any other purchasing arrangements that the Secretary determines is appropriate to ensure access to drug discount pricing under this section for inpatient drugs taking into account the particular needs of small and rural hospitals.”

Pub. L. 111–148, § 7101(c)(2)(B), added subpar. (C). Former subpar. (C) redesignated (D).

Pub. L. 111–148, § 7101(b)(1), substituted “covered drug” for “covered outpatient drug”.

Subsec. (a)(5)(C)(iv). Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drugs” for “covered drugs”.

Subsec. (a)(5)(D). Pub. L. 111–152, § 2302(1)(C)(ii), (iii), redesignated subpar. (E) as (D) and substituted “subparagraph (C)” for “subparagraph (D)”. Former subpar. (D) redesignated (C).

Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drug” for “covered drug”.

Pub. L. 111–148, § 7101(c)(2)(A), redesignated subpar. (C) as (D). Former subpar. (D) redesignated (E).

Pub. L. 111–148, § 7101(b)(1), substituted “covered drug” for “covered outpatient drug”.

Subsec. (a)(5)(E). Pub. L. 111–152, § 2302(1)(C)(ii), redesignated subpar. (E) as (D).

Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drug” for “covered drug”.

Pub. L. 111–148, §§ 7101(c)(2)(A), 7102(b)(2), redesignated subpar. (D) as (E) and inserted “after audit as described in subparagraph (D) and” after “finds,”.

Subsec. (a)(7). Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drugs” for “covered drugs” wherever appearing.

Pub. L. 111–148, § 7101(b)(1), substituted “covered drugs” for “covered outpatient drugs” wherever appearing.

Subsec. (a)(9). Pub. L. 111–152, § 2302(1)(A), substituted “covered outpatient drugs” for “covered drugs”.

Pub. L. 111–148, § 7101(b)(1), substituted “covered drugs” for “covered outpatient drugs”.

Subsec. (b). Pub. L. 111–148, § 7101(b)(2)(A), which directed substitution of “Other definitions” for “Other definition” in subsec. heading, designation of existing provisions as par. (1), and insertion of par. (1) heading, was executed by reenacting subsec. heading without change, designating existing provisions as par. (1), and inserting par. (1) heading, to reflect the probable intent of Congress.

Subsec. (b)(2). Pub. L. 111–148, § 7101(b)(2)(B), added par. (2).

Subsec. (c). Pub. L. 111–152, § 2302(2), struck out subsec. (c). Text read as follows: “Not later than 90 days after the date of filing of the hospital’s most recently filed Medicare cost report, the hospital shall issue a credit as determined by the Secretary to the State Medicaid program for inpatient covered drugs provided to Medicaid recipients.”

Pub. L. 111–148, § 7101(d), added subsec. (c) and struck out former subsec. (c). Prior to amendment, text read as follows: “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.”

Pub. L. 111–148, § 2501(f)(1)(B), (C), redesignated subsec. (d) as (c) and struck out former subsec. (c). Text of former subsec. (c) read as follows: “Any reference in this section to a provision of the Social Security Act shall be deemed to be a reference to the provision as in effect on November 4, 1992.”

Subsec. (d). Pub. L. 111–152, § 2302(3), substituted “covered outpatient drugs” for “covered drugs” wherever appearing and substituted “(a)(5)(C)” for “(a)(5)(D)” and “(a)(5)(D)” for “(a)(5)(E)” in two places.

Pub. L. 111–148, § 7102(a), which directed general amendment of subsec. (d), was executed by adding subsec. (d) after subsec. (c) to reflect the probable intent of Congress, because no subsec. (d) appeared subsequent to amendment by Pub. L. 111–148, § 2501(f)(1)(C). See below.

Pub. L. 111–148, § 2501(f)(1)(C), redesignated subsec. (d) as (c).

Subsec. (e). Pub. L. 111–309 substituted “covered entities described in subparagraph (M) (other than a children’s hospital described in subparagraph (M))” for “covered entities described in subparagraph (M)”.

Pub. L. 111–152, § 2302(4), added subsec. (e).

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

### Statutory Notes and Related Subsidiaries

### Effective Date of 2010 Amendment

Pub. L. 111–309, title II, § 204(a)(2), Dec. 15, 2010, 124 Stat. 3289, provided that: “The amendment made by paragraph (1) [amending this section] shall take effect as if included in the enactment of section 2302 of the Health Care and Education Reconciliation Act of 2010 (Public Law 111–152).”

Pub. L. 111–148, title II, § 2501(f)(2), Mar. 23, 2010, 124 Stat. 310, provided that: “The amendments made by this subsection [amending this section] take effect on January 1, 2010.”

Pub. L. 111–148, title VII, § 7101(e), Mar. 23, 2010, 124 Stat. 823, provided that: In general.—The amendments made by this section [amending this section] and section 7102 [amending this section] shall take effect on January 1, 2010, and shall apply to drugs purchased on or after January 1, 2010. Effectiveness.—The amendments made by this section and section 7102 shall be effective and shall be taken into account in determining whether a manufacturer is deemed to meet the requirements of section 340B(a) of the Public Health Service Act (42 U.S.C. 256b(a)), notwithstanding any other provision of law.”

### Eligibility Exception for the Drug Discount Program Due to the COVID–19 Public Health Emergency

Pub. L. 117–103, div. P, title I, § 121, Mar. 15, 2022, 136 Stat. 792, provided that: In General.—Notwithstanding any other provision of law, in the case of a hospital described in subsection (b) that, with respect to cost reporting periods that begin during fiscal year 2020 or a subsequent fiscal year, but do not end after December 31, 2022, does not meet the applicable requirement for the disproportionate share adjustment percentage described in subsection (c) by reason of the COVID–19 public health emergency, but otherwise meets the requirements for being a covered entity under subparagraph (L), (M), or (O) of subsection (a)(4) of section 340B of the Public Health Service Act (42 U.S.C. 256b) and is in compliance with all other requirements of the program under such section, shall be deemed a covered entity for purposes of such section for the period— beginning on the date of the enactment of this Act [Mar. 15, 2022] (or, if later, with the first of such cost reporting periods for which the hospital does not so meet such applicable requirement for the disproportionate share adjustment percentage, but otherwise meets all other such requirements for being such a covered entity and of such program); and ending with the last of such cost reporting periods (ending not later than December 31, 2022) for which the hospital does not so meet such applicable requirement for the disproportionate share adjustment percentage, but otherwise meets all other such requirements for being such a covered entity and of such program. Hospitals.—A hospital described in this subsection is an entity that, on the day before the first day of the COVID–19 public health emergency, was a covered entity described in subparagraph (L), (M), or (O) of subsection (a)(4) of section 340B of the Public Health Service Act participating in the drug discount program under such section. Applicable Requirement for Disproportionate Share Adjustment Percentage.—The applicable requirement for the disproportionate share adjustment percentage described in this subsection is— in the case of a hospital described in subsection (a) that otherwise meets the requirements under subparagraph (L) or (M) of section 340B(a)(4) of the Public Health Service Act, the requirement under subparagraph (L)(ii) of such section; and in the case of a hospital described in subsection (a) that otherwise meets the requirements under subparagraph (O) of such section 340B(a)(4), the requirement with respect to the disproportionate share adjustment percentage described in such subparagraph (O).Self-attestation.— In general.—A hospital described in subsection (a) that fails to meet the applicable requirement for the disproportionate share adjustment percentage described in subsection (c) shall, within 30 days of such failure, or in the case of a hospital where such failure occurred prior to the date of enactment of this Act but after the start of the COVID-19 public health emergency, within 30 days of the date of enactment, provide to the Secretary of Health and Human Services an attestation that contains information on any actions taken by or other impact on such hospital in response to or as a result of the COVID-19 public health emergency that may have impacted the ability to meet the applicable requirement for the disproportionate share adjustment percentage described in subsection (c). Paperwork reduction act.—Chapter 35 of title 44, United States Code, shall not apply to the collection of information provided pursuant to this subsection. Definitions.—In this section: Covered entity.—The term ‘covered entity’ has the meaning given such term in section 340B(a)(4) of the Public Health Service Act (42 U.S.C. 256b(a)(4)). Covid–19 public health emergency.—The term ‘COVID–19 public health emergency’ means the public health emergency declared by the Secretary of Health and Human Services under section 319 of the Public Health Service Act (42 U.S.C. 247d) on January 31, 2020, with respect to COVID–19 (or any renewal of such declaration).”

### Pricing of Diagnostic Testing

Pub. L. 116–136, div. A, title III, § 3202, Mar. 27, 2020, 134 Stat. 367, provided that: Reimbursement Rates.—A group health plan or a health insurance issuer providing coverage of items and services described in section 6001(a) of division F of the Families First Coronavirus Response Act (Public Law 116–127) [42 U.S.C. 1320b–5 note] with respect to an enrollee shall reimburse the provider of the diagnostic testing as follows: If the health plan or issuer has a negotiated rate with such provider in effect before the public health emergency declared under section 319 of the Public Health Service Act (42 U.S.C. 247d), such negotiated rate shall apply throughout the period of such declaration. If the health plan or issuer does not have a negotiated rate with such provider, such plan or issuer shall reimburse the provider in an amount that equals the cash price for such service as listed by the provider on a public internet website, or such plan or issuer may negotiate a rate with such provider for less than such cash price. Requirement to Publicize Cash Price for Diagnostic Testing for COVID–19.— In general.—During the emergency period declared under section 319 of the Public Health Service Act (42 U.S.C. 247d), each provider of a diagnostic test for COVID–19 shall make public the cash price for such test on a public internet website of such provider. Civil monetary penalties.—The Secretary of Health and Human Services may impose a civil monetary penalty on any provider of a diagnostic test for COVID–19 that is not in compliance with paragraph (1) and has not completed a corrective action plan to comply with the requirements of such paragraph, in an amount not to exceed $300 per day that the violation is ongoing.”

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

Pub. L. 102–585, title VI, § 602(b), Nov. 4, 1992, 106 Stat. 4970, 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.