To amend part D of title XVIII of the Social Security Act to improve the Medicare part D prescription drug program.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Part D Improvement Act of 
2007''.

SEC. 2. REFORM OF ``DONUT HOLE''.

    (a) Counting Certain Expenditures Towards Out-of-Pocket Limits.--
            (1) In general.--Section 1860D-2(b)(4)(C) of the Social 
        Security Act (42 U.S.C. 1395w-102(b)(4)(C)) is amended--
                    (A) in clause (i), by striking ``and'' at the end;
                    (B) in clause (ii)--
                            (i) by striking ``such costs shall be 
                        treated as incurred only if'' and inserting 
                        ``subject to clause (iii), such costs shall be 
                        treated as incurred if'';
                            (ii) by striking ``, under section 1860D-
                        14, or under a State Pharmaceutical Assistance 
                        Program'';
                            (iii) by striking ``(other than under such 
                        section or such a Program)''; and
                            (iv) by striking the period at the end and 
                        inserting ``; and''; and
                    (C) by inserting after clause (ii) the following 
                new clause:
                            ``(iii) such costs shall be treated as 
                        incurred and shall not be considered to be 
                        reimbursed under clause (ii) if such costs are 
                        borne or paid--
                                    ``(I) under section 1860D-14;
                                    ``(II) under a State Pharmaceutical 
                                Assistance Program;
                                    ``(III) by the Indian Health 
                                Service, an Indian tribe or tribal 
                                organization, or an urban Indian 
                                organization (as defined in section 4 
                                of the Indian Health Care Improvement 
                                Act);
                                    ``(IV) by a rural health clinic or 
                                Federally qualified health center (as 
                                defined in section 1861(aa));
                                    ``(V) under an AIDS Drug Assistance 
                                Program under part B of title XXVI of 
                                the Public Health Service Act;
                                    ``(VI) by a pharmaceutical 
                                manufacturer patient assistance 
                                program, either directly or through the 
                                distribution or donation of covered 
                                part D drugs, which shall be valued at 
                                the negotiated price of such covered 
                                part D drug under the enrollee's 
                                prescription drug plan or MA-PD plan as 
                                of the date that the drug was 
                                distributed or donated; or
                                    ``(VII) by a subsection (d) 
                                hospital (as defined in section 
                                1886(d)(1)(B) that meets the 
                                requirements of clauses (i) and (ii) of 
                                the section 340B(a)(4)(L) of the Public 
                                Health Service Act.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to costs incurred on or after January 1, 2008, for 
        plan years beginning on or after such date.
    (b) Report on Closing the Gap.--The Secretary of Health and Human 
Services shall conduct a study on how to eliminate the gap in Medicare 
part D prescription drug coverage created through the application of an 
initial coverage limit and how to finance such elimination. Not later 
than 180 days after the date of the enactment of this Act, the 
Secretary shall submit to Congress a report on such study.

SEC. 3. CONFORMING LATE ENROLLMENT PENALTY TO MEDICARE PART B PENALTY 
              STRUCTURE.

    (a) In General.--Section 1860D-13(b)(3) of the Social Security Act 
(42 U.S.C. 1395w-113(b)(3)) is amended by striking ``is the greater 
of'' and all that follows and inserting the following: ``is 10 percent 
of the base beneficiary premium (as computed under subsection (a)(2)) 
for each continuous period of 12 consecutive uncovered months in such 
period''.
    (b) Not Counting Periods of Non-Enrollment During First Year of 
Program.--Subparagraph (B) of such section is amended by inserting 
``(after December 2007)'' after ``any month''.
    (c) Presumption of Errors in Enrollment or Nonenrollment Due to 
Official Error.--Section 1837(h) of such Act (42 U.S.C. 1395p(h)) is 
amended by adding at the end the following: ``In applying the previous 
sentence, an individual's unintentional, inadvertent, or erroneous 
enrollment or nonenrollment shall be presumed to be the result of an 
error, misrepresentation, or inaction of an officer, employee, or agent 
of the Federal Government, or its instrumentalities, unless the 
Secretary demonstrates otherwise.''.
    (d) Effective Dates.--The amendments made by subsections (a) and 
(b) shall apply to late enrollment penalties for months beginning with 
January 2008. The amendment made by subsection (c) shall take effect on 
January 1, 2008, and shall apply as of such date to enrollments (and 
non-enrollments) occurring before, on, or after such date.

SEC. 4. MORE FREQUENT CHANGES IN PLANS PERMITTED.

    (a) In General.--Section 1860D-1(b)(3) of the Social Security Act 
(42 U.S.C. 1395w-101(b)(3)) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Same frequency as changes in formularies.--In 
                the case of an individual enrolled in a prescription 
                drug plan (or MA-PD plan), as often as the Secretary 
                permits such plan to make changes in its formulary.''.
    (b) Permitting Change in Enrollment During First 3 Months of Each 
Year as Permitted Under the Medicare Advantage Program.--Section 1860D-
1(b)(1)(B)(iii) of such Act (42 U.S.C. 1395w-101(b)(1)(B)(iii)) is 
amended by striking ``, (C),''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2008.

SEC. 5. LOW INCOME SUBSIDY IMPROVEMENTS.

    (a) Removal of Asset Test.--
            (1) In general.--Section 1860D-14(a) of the Social Security 
        Act (42 U.S.C. 1395w-114(a)) is amended--
                    (A) in paragraph (1), in the matter before 
                subparagraph (A), by striking ``and who meets the 
                resources requirement described in paragraph (3)(D)''; 
                and
                    (B) in paragraph (3)--
                            (i) in paragraph (3)(A), by adding ``and'' 
                        at the end of clause (i), by striking ``; and'' 
                        at the end of clause (ii) and inserting a 
                        period, and by striking clause (iii); and
                            (ii) by striking subparagraphs (D) and (E).
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to benefits for months beginning with January 2008.
    (b) Elimination of Late Enrollment Penalties for Subsidy Eligible 
Individuals.--
            (1) In general.--Section 1860D-13(b)(2) of the Social 
        Security Act (42 U.S.C. 1395w-113(b)(2)) is amended by 
        inserting ``who is not a subsidy eligible individual and'' 
        after ``an individual''.
            (2) Conforming amendments.--Section 1860D-14 of such Act 
        (42 U.S.C. 1395w-114) is amended--
                    (A) in subsection (a)(1)(A), by striking ``equal 
                to'' and all that follows and inserting the following: 
                ``100 percent of the amount described in subsection 
                (b)(1), but not to exceed the premium amount specified 
                in subsection (b)(2)(B).''; and
                    (B) in subsection (b)(2)(B), by striking the last 
                sentence.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to late enrollment penalties for months beginning 
        with January 2008.

Summary: Medicare Part D Improvement Act of 2007 - Amends part D of the Social Security Act to revise requirements for the Medicare prescription drug program with respect to: (1) counting certain expenditures towards out-of-pocket limits. (2) conforming the late enrollment penalty to the Medicare part B penalty structure, (3) allowing more frequent changes in plans. And (4) removing the asset test and eliminating late enrollment penalties for low-income subsidy eligible individuals. Directs the Secretary of Health and Human Services to study and report to Congress on how to: (1) eliminate the gap in Medicare part D prescription drug coverage created through the application of an initial coverage limit, and (2) finance such elimination.