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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1 Enrolled Bill (ENR)]

        H.R.1

                       One Hundred Eighth Congress

                                 of the

                        United States of America

                          AT THE FIRST SESSION

          Begun and held at the City of Washington on Tuesday,
           the seventh day of January, two thousand and three

                                 An Act

 
    To amend title XVIII of the Social Security Act to provide for a 
  voluntary program for prescription drug coverage under the Medicare 
   Program, to modernize the Medicare Program, to amend the Internal 
  Revenue Code of 1986 to allow a deduction to individuals for amounts 
   contributed to health savings security accounts and health savings 
 accounts, to provide for the disposition of unused health benefits in 
   cafeteria plans and flexible spending arrangements, and for other 
                                purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
              TO BIPA AND SECRETARY; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in division A of this Act an amendment 
is expressed in terms of an amendment to or repeal of a section or 
other provision, the reference shall be considered to be made to that 
section or other provision of the Social Security Act.
    (c) BIPA; Secretary.--In this Act:
        (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, and 
    SCHIP Benefits Improvement and Protection Act of 2000, as enacted 
    into law by section 1(a)(6) of Public Law 106-554.
        (2) Secretary.--The term ``Secretary'' means the Secretary of 
    Health and Human Services.
    (d) Table of Contents.--The table of contents for this Act is as 
follows:
Sec. 1. Short title; amendments to Social Security Act; references to 
          BIPA and Secretary; table of contents.

               TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Medicare prescription drug benefit.
Sec. 102. Medicare Advantage conforming amendments.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap amendments.
Sec. 105. Additional provisions relating to medicare prescription drug 
          discount card and transitional assistance program.
Sec. 106. State Pharmaceutical Assistance Transition Commission.
Sec. 107. Studies and reports.
Sec. 108. Grants to physicians to implement electronic prescription drug 
          programs.
Sec. 109. Expanding the work of medicare Quality Improvement 
          Organizations to include parts C and D.
Sec. 110. Conflict of interest study.
Sec. 111. Study on employment-based retiree health coverage.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

Sec. 201. Implementation of Medicare Advantage program.

                   Subtitle B--Immediate Improvements

Sec. 211. Immediate improvements.

Subtitle C--Offering of Medicare Advantage (MA) Regional Plans; Medicare 
                          Advantage Competition

Sec. 221. Establishment of MA regional plans.
Sec. 222. Competition program beginning in 2006.
Sec. 223. Effective date.

                     Subtitle D--Additional Reforms

Sec. 231. Specialized MA plans for special needs individuals.
Sec. 232. Avoiding duplicative State regulation.
Sec. 233. Medicare MSAs.
Sec. 234. Extension of reasonable cost contracts.
Sec. 235. Two-year extension of municipal health service demonstration 
          projects.
Sec. 236. Payment by PACE providers for medicare and medicaid services 
          furnished by noncontract providers.
Sec. 237. Reimbursement for federally qualified health centers providing 
          services under MA plans.
Sec. 238. Institute of Medicine evaluation and report on health care 
          performance measures.

          Subtitle E--Comparative Cost Adjustment (CCA) Program

Sec. 241. Comparative Cost Adjustment (CCA) program.

              TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

Sec. 301. Medicare secondary payor (MSP) provisions.
Sec. 302. Payment for durable medical equipment; competitive acquisition 
          of certain items and services.
Sec. 303. Payment reform for covered outpatient drugs and biologicals.
Sec. 304. Extension of application of payment reform for covered 
          outpatient drugs and biologicals to other physician 
          specialties.
Sec. 305. Payment for inhalation drugs.
Sec. 306. Demonstration project for use of recovery audit contractors.
Sec. 307. Pilot program for national and State background checks on 
          direct patient access employees of long-term care facilities 
          or providers.

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

Sec. 401. Equalizing urban and rural standardized payment amounts under 
          the medicare inpatient hospital prospective payment system.
Sec. 402. Enhanced disproportionate share hospital (DSH) treatment for 
          rural hospitals and urban hospitals with fewer than 100 beds.
Sec. 403. Adjustment to the medicare inpatient hospital prospective 
          payment system wage index to revise the labor-related share of 
          such index.
Sec. 404. More frequent update in weights used in hospital market 
          basket.
Sec. 405. Improvements to critical access hospital program.
Sec. 406. Medicare inpatient hospital payment adjustment for low-volume 
          hospitals.
Sec. 407. Treatment of missing cost reporting periods for sole community 
          hospitals.
Sec. 408. Recognition of attending nurse practitioners as attending 
          physicians to serve hospice patients.
Sec. 409. Rural hospice demonstration project.
Sec. 410. Exclusion of certain rural health clinic and federally 
          qualified health center services from the prospective payment 
          system for skilled nursing facilities.
Sec. 410A. Rural community hospital demonstration program.

             Subtitle B--Provisions Relating to Part B Only

Sec. 411. Two-year extension of hold harmless provisions for small rural 
          hospitals and sole community hospitals under the prospective 
          payment system for hospital outpatient department services.
Sec. 412. Establishment of floor on work geographic adjustment.
Sec. 413. Medicare incentive payment program improvements for physician 
          scarcity.
Sec. 414. Payment for rural and urban ambulance services.
Sec. 415. Providing appropriate coverage of rural air ambulance 
          services.
Sec. 416. Treatment of certain clinical diagnostic laboratory tests 
          furnished to hospital outpatients in certain rural areas.
Sec. 417. Extension of telemedicine demonstration project.
Sec. 418. Report on demonstration project permitting skilled nursing 
          facilities to be originating telehealth sites; authority to 
          implement.

            Subtitle C--Provisions Relating to Parts A and B

Sec. 421. One-year increase for home health services furnished in a 
          rural area.
Sec. 422. Redistribution of unused resident positions.

                      Subtitle D--Other Provisions

Sec. 431. Providing safe harbor for certain collaborative efforts that 
          benefit medically underserved populations.
Sec. 432. Office of Rural Health Policy improvements.
Sec. 433. MedPAC study on rural hospital payment adjustments.
Sec. 434. Frontier extended stay clinic demonstration project.

                 TITLE V--PROVISIONS RELATING TO PART A

                 Subtitle A--Inpatient Hospital Services

Sec. 501. Revision of acute care hospital payment updates.
Sec. 502. Revision of the indirect medical education (IME) adjustment 
          percentage.
Sec. 503. Recognition of new medical technologies under inpatient 
          hospital prospective payment system.
Sec. 504. Increase in Federal rate for hospitals in Puerto Rico.
Sec. 505. Wage index adjustment reclassification reform.
Sec. 506. Limitation on charges for inpatient hospital contract health 
          services provided to Indians by medicare participating 
          hospitals.
Sec. 507. Clarifications to certain exceptions to medicare limits on 
          physician referrals.
Sec. 508. One-time appeals process for hospital wage index 
          classification.

                      Subtitle B--Other Provisions

Sec. 511. Payment for covered skilled nursing facility services.
Sec. 512. Coverage of hospice consultation services.
Sec. 513. Study on portable diagnostic ultrasound services for 
          beneficiaries in skilled nursing facilities.

                 TITLE VI--PROVISIONS RELATING TO PART B

         Subtitle A--Provisions Relating to Physicians' Services

Sec. 601. Revision of updates for physicians' services.
Sec. 602. Treatment of physicians' services furnished in Alaska.
Sec. 603. Inclusion of podiatrists, dentists, and optometrists under 
          private contracting authority.
Sec. 604. GAO study on access to physicians' services.
Sec. 605. Collaborative demonstration-based review of physician practice 
          expense geographic adjustment data.
Sec. 606. MedPAC report on payment for physicians' services.

                     Subtitle B--Preventive Services

Sec. 611. Coverage of an initial preventive physical examination.
Sec. 612. Coverage of cardiovascular screening blood tests.
Sec. 613. Coverage of diabetes screening tests.
Sec. 614. Improved payment for certain mammography services.

                      Subtitle C--Other Provisions

Sec. 621. Hospital outpatient department (HOPD) payment reform.
Sec. 622. Limitation of application of functional equivalence standard.
Sec. 623. Payment for renal dialysis services.
Sec. 624. Two-year moratorium on therapy caps; provisions relating to 
          reports.
Sec. 625. Waiver of part B late enrollment penalty for certain military 
          retirees; special enrollment period.
Sec. 626. Payment for services furnished in ambulatory surgical centers.
Sec. 627. Payment for certain shoes and inserts under the fee schedule 
          for orthotics and prosthetics.
Sec. 628. Payment for clinical diagnostic laboratory tests.
Sec. 629. Indexing part B deductible to inflation.
Sec. 630. Five-year authorization of reimbursement for all medicare part 
          B services furnished by certain Indian hospitals and clinics.

  Subtitle D--Additional Demonstrations, Studies, and Other Provisions

Sec. 641. Demonstration project for coverage of certain prescription 
          drugs and biologicals.
Sec. 642. Extension of coverage of Intravenous Immune Globulin (IVIG) 
          for the treatment of primary immune deficiency diseases in the 
          home.
Sec. 643. MedPAC study of coverage of surgical first assisting services 
          of certified registered nurse first assistants.
Sec. 644. MedPAC study of payment for cardio-thoracic surgeons.
Sec. 645. Studies relating to vision impairments.
Sec. 646. Medicare health care quality demonstration programs.
Sec. 647. MedPAC study on direct access to physical therapy services.
Sec. 648. Demonstration project for consumer-directed chronic outpatient 
          services.
Sec. 649. Medicare care management performance demonstration.
Sec. 650. GAO study and report on the propagation of concierge care.
Sec. 651. Demonstration of coverage of chiropractic services under 
          medicare.

             TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 701. Update in home health services.
Sec. 702. Demonstration project to clarify the definition of homebound.
Sec. 703. Demonstration project for medical adult day care services.
Sec. 704. Temporary suspension of OASIS requirement for collection of 
          data on non-medicare and non-medicaid patients.
Sec. 705. MedPAC study on medicare margins of home health agencies.
Sec. 706. Coverage of religious nonmedical health care institution 
          services furnished in the home.

                 Subtitle B--Graduate Medical Education

Sec. 711. Extension of update limitation on high cost programs.
Sec. 712. Exception to initial residency period for geriatric residency 
          or fellowship programs.
Sec. 713. Treatment of volunteer supervision.

                  Subtitle C--Chronic Care Improvement

Sec. 721. Voluntary chronic care improvement under traditional fee-for-
          service.
Sec. 722. Medicare Advantage quality improvement programs.
Sec. 723. Chronically ill medicare beneficiary research, data, 
          demonstration strategy.

                      Subtitle D--Other Provisions

Sec. 731. Improvements in national and local coverage determination 
          process to respond to changes in technology.
Sec. 732. Extension of treatment of certain physician pathology services 
          under medicare.
Sec. 733. Payment for pancreatic islet cell investigational transplants 
          for medicare beneficiaries in clinical trials.
Sec. 734. Restoration of medicare trust funds.
Sec. 735. Modifications to Medicare Payment Advisory Commission 
          (MedPAC).
Sec. 736. Technical amendments.

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A--Cost Containment

Sec. 801. Inclusion in annual report of medicare trustees of information 
          on status of medicare trust funds.
Sec. 802. Presidential submission of legislation.
Sec. 803. Procedures in the House of Representatives.
Sec. 804. Procedures in the Senate.

     Subtitle B--Income-Related Reduction in Part B Premium Subsidy

Sec. 811. Income-related reduction in part B premium subsidy.

    TITLE IX--ADMINISTRATIVE IMPROVEMENTS, REGULATORY REDUCTION, AND 
                           CONTRACTING REFORM

Sec. 900. Administrative improvements within the Centers for Medicare & 
          Medicaid Services (CMS).

                      Subtitle A--Regulatory Reform

Sec. 901. Construction; definition of supplier.
Sec. 902. Issuance of regulations.
Sec. 903. Compliance with changes in regulations and policies.
Sec. 904. Reports and studies relating to regulatory reform.

                     Subtitle B--Contracting Reform

Sec. 911. Increased flexibility in medicare administration.
Sec. 912. Requirements for information security for medicare 
          administrative contractors.

                   Subtitle C--Education and Outreach

Sec. 921. Provider education and technical assistance.
Sec. 922. Small provider technical assistance demonstration program.
Sec. 923. Medicare Beneficiary Ombudsman.
Sec. 924. Beneficiary outreach demonstration program.
Sec. 925. Inclusion of additional information in notices to 
          beneficiaries about skilled nursing facility benefits.
Sec. 926. Information on medicare-certified skilled nursing facilities 
          in hospital discharge plans.

                    Subtitle D--Appeals and Recovery

Sec. 931. Transfer of responsibility for medicare appeals.
Sec. 932. Process for expedited access to review.
Sec. 933. Revisions to medicare appeals process.
Sec. 934. Prepayment review.
Sec. 935. Recovery of overpayments.
Sec. 936. Provider enrollment process; right of appeal.
Sec. 937. Process for correction of minor errors and omissions without 
          pursuing appeals process.
Sec. 938. Prior determination process for certain items and services; 
          advance beneficiary notices.
Sec. 939. Appeals by providers when there is no other party available.
Sec. 940. Revisions to appeals timeframes and amounts.
Sec. 940A. Mediation process for local coverage determinations.

                  Subtitle E--Miscellaneous Provisions

Sec. 941. Policy development regarding evaluation and management (E & M) 
          documentation guidelines.
Sec. 942. Improvement in oversight of technology and coverage.
Sec. 943. Treatment of hospitals for certain services under medicare 
          secondary payor (MSP) provisions.
Sec. 944. EMTALA improvements.
Sec. 945. Emergency Medical Treatment and Labor Act (EMTALA) Technical 
          Advisory Group.
Sec. 946. Authorizing use of arrangements to provide core hospice 
          services in certain circumstances.
Sec. 947. Application of OSHA bloodborne pathogens standard to certain 
          hospitals.
Sec. 948. BIPA-related technical amendments and corrections.
Sec. 949. Conforming authority to waive a program exclusion.
Sec. 950. Treatment of certain dental claims.
Sec. 951. Furnishing hospitals with information to compute DSH formula.
Sec. 952. Revisions to reassignment provisions.
Sec. 953. Other provisions.

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                     Subtitle A--Medicaid Provisions

Sec. 1001. Medicaid disproportionate share hospital (DSH) payments.
Sec. 1002. Clarification of inclusion of inpatient drug prices charged 
          to certain public hospitals in the best price exemptions for 
          the medicaid drug rebate program.
Sec. 1003. Extension of moratorium.

                  Subtitle B--Miscellaneous Provisions

Sec. 1011. Federal reimbursement of emergency health services furnished 
          to undocumented aliens.
Sec. 1012. Commission on Systemic Interoperability.
Sec. 1013. Research on outcomes of health care items and services.
Sec. 1014. Health care that works for all Americans: Citizens Health 
          Care Working Group.
Sec. 1015. Funding start-up administrative costs for medicare reform.
Sec. 1016. Health care infrastructure improvement program.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

Sec. 1101. Thirty-month stay-of-effectiveness period.
Sec. 1102. Forfeiture of 180-day exclusivity period.
Sec. 1103. Bioavailability and bioequivalence.
Sec. 1104. Conforming amendments.

               Subtitle B--Federal Trade Commission Review

Sec. 1111. Definitions.
Sec. 1112. Notification of agreements.
Sec. 1113. Filing deadlines.
Sec. 1114. Disclosure exemption.
Sec. 1115. Enforcement.
Sec. 1116. Rulemaking.
Sec. 1117. Savings clause.
Sec. 1118. Effective date.

              Subtitle C--Importation of Prescription Drugs

Sec. 1121. Importation of prescription drugs.
Sec. 1122. Study and report on importation of drugs.
Sec. 1123. Study and report on trade in pharmaceuticals.

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

Sec. 1201. Health savings accounts.
Sec. 1202. Exclusion from gross income of certain Federal subsidies for 
          prescription drug plans.
Sec. 1203. Exception to information reporting requirements related to 
          certain health arrangements.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.

    (a) In General.--Title XVIII is amended--
        (1) by redesignating part D as part E; and
        (2) by inserting after part C the following new part:

         ``Part D--Voluntary Prescription Drug Benefit Program

``Subpart 1--Part D Eligible Individuals and Prescription Drug Benefits

                ``eligibility, enrollment, and information

    ``Sec. 1860D-1. (a) Provision of Qualified Prescription Drug 
Coverage Through Enrollment in Plans.--
        ``(1) In general.--Subject to the succeeding provisions of this 
    part, each part D eligible individual (as defined in paragraph 
    (3)(A)) is entitled to obtain qualified prescription drug coverage 
    (described in section 1860D-2(a)) as follows:
            ``(A) Fee-for-service enrollees may receive coverage 
        through a prescription drug plan.--A part D eligible individual 
        who is not enrolled in an MA plan may obtain qualified 
        prescription drug coverage through enrollment in a prescription 
        drug plan (as defined in section 1860D-41(a)(14)).
            ``(B) Medicare advantage enrollees.--
                ``(i) Enrollees in a plan providing qualified 
            prescription drug coverage receive coverage through the 
            plan.--A part D eligible individual who is enrolled in an 
            MA-PD plan obtains such coverage through such plan.
                ``(ii) Limitation on enrollment of ma plan enrollees in 
            prescription drug plans.--Except as provided in clauses 
            (iii) and (iv), a part D eligible individual who is 
            enrolled in an MA plan may not enroll in a prescription 
            drug plan under this part.
                ``(iii) Private fee-for-service enrollees in ma plans 
            not providing qualified prescription drug coverage 
            permitted to enroll in a prescription drug plan.--A part D 
            eligible individual who is enrolled in an MA private fee-
            for-service plan (as defined in section 1859(b)(2)) that 
            does not provide qualified prescription drug coverage may 
            obtain qualified prescription drug coverage through 
            enrollment in a prescription drug plan.
                ``(iv) Enrollees in msa plans permitted to enroll in a 
            prescription drug plan.--A part D eligible individual who 
            is enrolled in an MSA plan (as defined in section 
            1859(b)(3)) may obtain qualified prescription drug coverage 
            through enrollment in a prescription drug plan.
        ``(2) Coverage first effective january 1, 2006.--Coverage under 
    prescription drug plans and MA-PD plans shall first be effective on 
    January 1, 2006.
        ``(3) Definitions.--For purposes of this part:
            ``(A) Part d eligible individual.--The term `part D 
        eligible individual' means an individual who is entitled to 
        benefits under part A or enrolled under part B.
            ``(B) MA plan.--The term `MA plan' has the meaning given 
        such term in section 1859(b)(1).
            ``(C) MA-PD plan.--The term `MA-PD plan' means an MA plan 
        that provides qualified prescription drug coverage.
    ``(b) Enrollment Process for Prescription Drug Plans.--
        ``(1) Establishment of process.--
            ``(A) In general.--The Secretary shall establish a process 
        for the enrollment, disenrollment, termination, and change of 
        enrollment of part D eligible individuals in prescription drug 
        plans consistent with this subsection.
            ``(B) Application of ma rules.--In establishing such 
        process, the Secretary shall use rules similar to (and 
        coordinated with) the rules for enrollment, disenrollment, 
        termination, and change of enrollment with an MA-PD plan under 
        the following provisions of section 1851:
                ``(i) Residence requirements.--Section 1851(b)(1)(A), 
            relating to residence requirements.
                ``(ii) Exercise of choice.--Section 1851(c) (other than 
            paragraph (3)(A) of such section), relating to exercise of 
            choice.
                ``(iii) Coverage election periods.--Subject to 
            paragraphs (2) and (3) of this subsection, section 1851(e) 
            (other than subparagraphs (B) and (C) of paragraph (2) and 
            the second sentence of paragraph (4) of such section), 
            relating to coverage election periods, including initial 
            periods, annual coordinated election periods, special 
            election periods, and election periods for exceptional 
            circumstances.
                ``(iv) Coverage periods.--Section 1851(f), relating to 
            effectiveness of elections and changes of elections.
                ``(v) Guaranteed issue and renewal.--Section 1851(g) 
            (other than paragraph (2) of such section and clause (i) 
            and the second sentence of clause (ii) of paragraph (3)(C) 
            of such section), relating to guaranteed issue and renewal.
                ``(vi) Marketing material and application forms.--
            Section 1851(h), relating to approval of marketing material 
            and application forms.
        In applying clauses (ii), (iv), and (v) of this subparagraph, 
        any reference to section 1851(e) shall be treated as a 
        reference to such section as applied pursuant to clause (iii) 
        of this subparagraph.
            ``(C) Special rule.--The process established under 
        subparagraph (A) shall include, in the case of a part D 
        eligible individual who is a full-benefit dual eligible 
        individual (as defined in section 1935(c)(6)) who has failed to 
        enroll in a prescription drug plan or an MA-PD plan, for the 
        enrollment in a prescription drug plan that has a monthly 
        beneficiary premium that does not exceed the premium assistance 
        available under section 1860D-14(a)(1)(A)). If there is more 
        than one such plan available, the Secretary shall enroll such 
        an individual on a random basis among all such plans in the PDP 
        region. Nothing in the previous sentence shall prevent such an 
        individual from declining or changing such enrollment.
        ``(2) Initial enrollment period.--
            ``(A) Program initiation.--In the case of an individual who 
        is a part D eligible individual as of November 15, 2005, there 
        shall be an initial enrollment period that shall be the same as 
        the annual, coordinated open election period described in 
        section 1851(e)(3)(B)(iii), as applied under paragraph 
        (1)(B)(iii).
            ``(B) Continuing periods.--In the case of an individual who 
        becomes a part D eligible individual after November 15, 2005, 
        there shall be an initial enrollment period which is the period 
        under section 1851(e)(1), as applied under paragraph 
        (1)(B)(iii) of this section, as if `entitled to benefits under 
        part A or enrolled under part B' were substituted for `entitled 
        to benefits under part A and enrolled under part B', but in no 
        case shall such period end before the period described in 
        subparagraph (A).
        ``(3) Additional special enrollment periods.--The Secretary 
    shall establish special enrollment periods, including the 
    following:
            ``(A) Involuntary loss of creditable prescription drug 
        coverage.--
                ``(i) In general.--In the case of a part D eligible 
            individual who involuntarily loses creditable prescription 
            drug coverage (as defined in section 1860D-13(b)(4)).
                ``(ii) Notice.--In establishing special enrollment 
            periods under clause (i), the Secretary shall take into 
            account when the part D eligible individuals are provided 
            notice of the loss of creditable prescription drug 
            coverage.
                ``(iii) Failure to pay premium.--For purposes of clause 
            (i), a loss of coverage shall be treated as voluntary if 
            the coverage is terminated because of failure to pay a 
            required beneficiary premium.
                ``(iv) Reduction in coverage.--For purposes of clause 
            (i), a reduction in coverage so that the coverage no longer 
            meets the requirements under section 1860D-13(b)(5) 
            (relating to actuarial equivalence) shall be treated as an 
            involuntary loss of coverage.
            ``(B) Errors in enrollment.--In the case described in 
        section 1837(h) (relating to errors in enrollment), in the same 
        manner as such section applies to part B.
            ``(C) Exceptional circumstances.--In the case of part D 
        eligible individuals who meet such exceptional conditions (in 
        addition to those conditions applied under paragraph 
        (1)(B)(iii)) as the Secretary may provide.
            ``(D) Medicaid coverage.--In the case of an individual (as 
        determined by the Secretary) who is a full-benefit dual 
        eligible individual (as defined in section 1935(c)(6)).
            ``(E) Discontinuance of ma-pd election during first year of 
        eligibility.--In the case of a part D eligible individual who 
        discontinues enrollment in an MA-PD plan under the second 
        sentence of section 1851(e)(4) at the time of the election of 
        coverage under such sentence under the original medicare fee-
        for-service program.
        ``(4) Information to facilitate enrollment.--
            ``(A) In general.--Notwithstanding any other provision of 
        law but subject to subparagraph (B), the Secretary may provide 
        to each PDP sponsor and MA organization such identifying 
        information about part D eligible individuals as the Secretary 
        determines to be necessary to facilitate efficient marketing of 
        prescription drug plans and MA-PD plans to such individuals and 
        enrollment of such individuals in such plans.
            ``(B) Limitation.--
                ``(i) Provision of information.--The Secretary may 
            provide the information under subparagraph (A) only to the 
            extent necessary to carry out such subparagraph.
                ``(ii) Use of information.--Such information provided 
            by the Secretary to a PDP sponsor or an MA organization may 
            be used by such sponsor or organization only to facilitate 
            marketing of, and enrollment of part D eligible individuals 
            in, prescription drug plans and MA-PD plans.
        ``(5) Reference to enrollment procedures for ma-pd plans.--For 
    rules applicable to enrollment, disenrollment, termination, and 
    change of enrollment of part D eligible individuals in MA-PD plans, 
    see section 1851.
        ``(6) Reference to penalties for late enrollment.--Section 
    1860D-13(b) imposes a late enrollment penalty for part D eligible 
    individuals who--
            ``(A) enroll in a prescription drug plan or an MA-PD plan 
        after the initial enrollment period described in paragraph (2); 
        and
            ``(B) fail to maintain continuous creditable prescription 
        drug coverage during the period of non-enrollment.
    ``(c) Providing Information to Beneficiaries.--
        ``(1) Activities.--The Secretary shall conduct activities that 
    are designed to broadly disseminate information to part D eligible 
    individuals (and prospective part D eligible individuals) regarding 
    the coverage provided under this part. Such activities shall ensure 
    that such information is first made available at least 30 days 
    prior to the initial enrollment period described in subsection 
    (b)(2)(A).
        ``(2) Requirements.--The activities described in paragraph (1) 
    shall--
            ``(A) be similar to the activities performed by the 
        Secretary under section 1851(d), including dissemination 
        (including through the toll-free telephone number 1-800-
        MEDICARE) of comparative information for prescription drug 
        plans and MA-PD plans; and
            ``(B) be coordinated with the activities performed by the 
        Secretary under such section and under section 1804.
        ``(3) Comparative information.--
            ``(A) In general.--Subject to subparagraph (B), the 
        comparative information referred to in paragraph (2)(A) shall 
        include a comparison of the following with respect to qualified 
        prescription drug coverage:
                ``(i) Benefits.--The benefits provided under the plan.
                ``(ii) Monthly beneficiary premium.--The monthly 
            beneficiary premium under the plan.
                ``(iii) Quality and performance.--The quality and 
            performance under the plan.
                ``(iv) Beneficiary cost-sharing.--The cost-sharing 
            required of part D eligible individuals under the plan.
                ``(v) Consumer satisfaction surveys.--The results of 
            consumer satisfaction surveys regarding the plan conducted 
            pursuant to section 1860D-4(d).
            ``(B) Exception for unavailability of information.--The 
        Secretary is not required to provide comparative information 
        under clauses (iii) and (v) of subparagraph (A) with respect to 
        a plan--
                ``(i) for the first plan year in which it is offered; 
            and
                ``(ii) for the next plan year if it is impracticable or 
            the information is otherwise unavailable.
        ``(4) Information on late enrollment penalty.--The information 
    disseminated under paragraph (1) shall include information 
    concerning the methodology for determining the late enrollment 
    penalty under section 1860D-13(b).

                       ``prescription drug benefits

    ``Sec. 1860D-2. (a) Requirements.--
        ``(1) In general.--For purposes of this part and part C, the 
    term `qualified prescription drug coverage' means either of the 
    following:
            ``(A) Standard prescription drug coverage with access to 
        negotiated prices.--Standard prescription drug coverage (as 
        defined in subsection (b)) and access to negotiated prices 
        under subsection (d).
            ``(B) Alternative prescription drug coverage with at least 
        actuarially equivalent benefits and access to negotiated 
        prices.--Coverage of covered part D drugs which meets the 
        alternative prescription drug coverage requirements of 
        subsection (c) and access to negotiated prices under subsection 
        (d), but only if the benefit design of such coverage is 
        approved by the Secretary, as provided under subsection (c).
        ``(2) Permitting supplemental prescription drug coverage.--
            ``(A) In general.--Subject to subparagraph (B), qualified 
        prescription drug coverage may include supplemental 
        prescription drug coverage consisting of either or both of the 
        following:
                ``(i) Certain reductions in cost-sharing.--

                    ``(I) In general.--A reduction in the annual 
                deductible, a reduction in the coinsurance percentage, 
                or an increase in the initial coverage limit with 
                respect to covered part D drugs, or any combination 
                thereof, insofar as such a reduction or increase 
                increases the actuarial value of benefits above the 
                actuarial value of basic prescription drug coverage.
                    ``(II) Construction.--Nothing in this paragraph 
                shall be construed as affecting the application of 
                subsection (c)(3).

                ``(ii) Optional drugs.--Coverage of any product that 
            would be a covered part D drug but for the application of 
            subsection (e)(2)(A).
            ``(B) Requirement.--A PDP sponsor may not offer a 
        prescription drug plan that provides supplemental prescription 
        drug coverage pursuant to subparagraph (A) in an area unless 
        the sponsor also offers a prescription drug plan in the area 
        that only provides basic prescription drug coverage.
        ``(3) Basic prescription drug coverage.--For purposes of this 
    part and part C, the term `basic prescription drug coverage' means 
    either of the following:
            ``(A) Coverage that meets the requirements of paragraph 
        (1)(A).
            ``(B) Coverage that meets the requirements of paragraph 
        (1)(B) but does not have any supplemental prescription drug 
        coverage described in paragraph (2)(A).
        ``(4) Application of secondary payor provisions.--The 
    provisions of section 1852(a)(4) shall apply under this part in the 
    same manner as they apply under part C.
        ``(5) Construction.--Nothing in this subsection shall be 
    construed as changing the computation of incurred costs under 
    subsection (b)(4).
    ``(b) Standard Prescription Drug Coverage.--For purposes of this 
part and part C, the term `standard prescription drug coverage' means 
coverage of covered part D drugs that meets the following requirements:
        ``(1) Deductible.--
            ``(A) In general.--The coverage has an annual deductible--
                ``(i) for 2006, that is equal to $250; or
                ``(ii) for a subsequent year, that is equal to the 
            amount specified under this paragraph for the previous year 
            increased by the percentage specified in paragraph (6) for 
            the year involved.
            ``(B) Rounding.--Any amount determined under subparagraph 
        (A)(ii) that is not a multiple of $5 shall be rounded to the 
        nearest multiple of $5.
        ``(2) Benefit structure.--
            ``(A) 25 percent coinsurance.--The coverage has coinsurance 
        (for costs above the annual deductible specified in paragraph 
        (1) and up to the initial coverage limit under paragraph (3)) 
        that is--
                ``(i) equal to 25 percent; or
                ``(ii) actuarially equivalent (using processes and 
            methods established under section 1860D-11(c)) to an 
            average expected payment of 25 percent of such costs.
            ``(B) Use of tiers.--Nothing in this part shall be 
        construed as preventing a PDP sponsor or an MA organization 
        from applying tiered copayments under a plan, so long as such 
        tiered copayments are consistent with subparagraph (A)(ii).
        ``(3) Initial coverage limit.--
            ``(A) In general.--Except as provided in paragraph (4), the 
        coverage has an initial coverage limit on the maximum costs 
        that may be recognized for payment purposes (including the 
        annual deductible)--
                ``(i) for 2006, that is equal to $2,250; or
                ``(ii) for a subsequent year, that is equal to the 
            amount specified in this paragraph for the previous year, 
            increased by the annual percentage increase described in 
            paragraph (6) for the year involved.
            ``(B) Rounding.--Any amount determined under subparagraph 
        (A)(ii) that is not a multiple of $10 shall be rounded to the 
        nearest multiple of $10.
        ``(4) Protection against high out-of-pocket expenditures.--
            ``(A) In general.--
                ``(i) In general.--The coverage provides benefits, 
            after the part D eligible individual has incurred costs (as 
            described in subparagraph (C)) for covered part D drugs in 
            a year equal to the annual out-of-pocket threshold 
            specified in subparagraph (B), with cost-sharing that is 
            equal to the greater of--

                    ``(I) a copayment of $2 for a generic drug or a 
                preferred drug that is a multiple source drug (as 
                defined in section 1927(k)(7)(A)(i)) and $5 for any 
                other drug; or
                    ``(II) coinsurance that is equal to 5 percent.

                ``(ii) Adjustment of amount.--For a year after 2006, 
            the dollar amounts specified in clause (i)(I) shall be 
            equal to the dollar amounts specified in this subparagraph 
            for the previous year, increased by the annual percentage 
            increase described in paragraph (6) for the year involved. 
            Any amount established under this clause that is not a 
            multiple of a 5 cents shall be rounded to the nearest 
            multiple of 5 cents.
            ``(B) Annual out-of-pocket threshold.--
                ``(i) In general.--For purposes of this part, the 
            `annual out-of-pocket threshold' specified in this 
            subparagraph--

                    ``(I) for 2006, is equal to $3,600; or
                    ``(II) for a subsequent year, is equal to the 
                amount specified in this subparagraph for the previous 
                year, increased by the annual percentage increase 
                described in paragraph (6) for the year involved.

                ``(ii) Rounding.--Any amount determined under clause 
            (i)(II) that is not a multiple of $50 shall be rounded to 
            the nearest multiple of $50.
            ``(C) Application.--In applying subparagraph (A)--
                ``(i) incurred costs shall only include costs incurred 
            with respect to covered part D drugs for the annual 
            deductible described in paragraph (1), for cost-sharing 
            described in paragraph (2), and for amounts for which 
            benefits are not provided because of the application of the 
            initial coverage limit described in paragraph (3), but does 
            not include any costs incurred for covered part D drugs 
            which are not included (or treated as being included) in 
            the plan's formulary; and
                ``(ii) such costs shall be treated as incurred only if 
            they are paid by the part D eligible individual (or by 
            another person, such as a family member, on behalf of the 
            individual), under section 1860D-14, or under a State 
            Pharmaceutical Assistance Program and the part D eligible 
            individual (or other person) is not reimbursed through 
            insurance or otherwise, a group health plan, or other 
            third-party payment arrangement (other than under such 
            section or such a Program) for such costs.
            ``(D) Information regarding third-party reimbursement.--
                ``(i) Procedures for exchanging information.--In order 
            to accurately apply the requirements of subparagraph 
            (C)(ii), the Secretary is authorized to establish 
            procedures, in coordination with the Secretary of the 
            Treasury and the Secretary of Labor--

                    ``(I) for determining whether costs for part D 
                eligible individuals are being reimbursed through 
                insurance or otherwise, a group health plan, or other 
                third-party payment arrangement; and
                    ``(II) for alerting the PDP sponsors and MA 
                organizations that offer the prescription drug plans 
                and MA-PD plans in which such individuals are enrolled 
                about such reimbursement arrangements.

                ``(ii) Authority to request information from 
            enrollees.--A PDP sponsor or an MA organization may 
            periodically ask part D eligible individuals enrolled in a 
            prescription drug plan or an MA-PD plan offered by the 
            sponsor or organization whether such individuals have or 
            expect to receive such third-party reimbursement. A 
            material misrepresentation of the information described in 
            the preceding sentence by an individual (as defined in 
            standards set by the Secretary and determined through a 
            process established by the Secretary) shall constitute 
            grounds for termination of enrollment in any plan under 
            section 1851(g)(3)(B) (and as applied under this part under 
            section 1860D-1(b)(1)(B)(v)) for a period specified by the 
            Secretary.
        ``(5) Construction.--Nothing in this part shall be construed as 
    preventing a PDP sponsor or an MA organization offering an MA-PD 
    plan from reducing to zero the cost-sharing otherwise applicable to 
    preferred or generic drugs.
        ``(6) Annual percentage increase.--The annual percentage 
    increase specified in this paragraph for a year is equal to the 
    annual percentage increase in average per capita aggregate 
    expenditures for covered part D drugs in the United States for part 
    D eligible individuals, as determined by the Secretary for the 12-
    month period ending in July of the previous year using such methods 
    as the Secretary shall specify.
    ``(c) Alternative Prescription Drug Coverage Requirements.--A 
prescription drug plan or an MA-PD plan may provide a different 
prescription drug benefit design from standard prescription drug 
coverage so long as the Secretary determines (consistent with section 
1860D-11(c)) that the following requirements are met and the plan 
applies for, and receives, the approval of the Secretary for such 
benefit design:
        ``(1) Assuring at least actuarially equivalent coverage.--
            ``(A) Assuring equivalent value of total coverage.--The 
        actuarial value of the total coverage is at least equal to the 
        actuarial value of standard prescription drug coverage.
            ``(B) Assuring equivalent unsubsidized value of coverage.--
        The unsubsidized value of the coverage is at least equal to the 
        unsubsidized value of standard prescription drug coverage. For 
        purposes of this subparagraph, the unsubsidized value of 
        coverage is the amount by which the actuarial value of the 
        coverage exceeds the actuarial value of the subsidy payments 
        under section 1860D-15 with respect to such coverage.
            ``(C) Assuring standard payment for costs at initial 
        coverage limit.--The coverage is designed, based upon an 
        actuarially representative pattern of utilization, to provide 
        for the payment, with respect to costs incurred that are equal 
        to the initial coverage limit under subsection (b)(3) for the 
        year, of an amount equal to at least the product of--
                ``(i) the amount by which the initial coverage limit 
            described in subsection (b)(3) for the year exceeds the 
            deductible described in subsection (b)(1) for the year; and
                ``(ii) 100 percent minus the coinsurance percentage 
            specified in subsection (b)(2)(A)(i).
        ``(2) Maximum required deductible.--The deductible under the 
    coverage shall not exceed the deductible amount specified under 
    subsection (b)(1) for the year.
        ``(3) Same protection against high out-of-pocket 
    expenditures.--The coverage provides the coverage required under 
    subsection (b)(4).
    ``(d) Access to Negotiated Prices.--
        ``(1) Access.--
            ``(A) In general.--Under qualified prescription drug 
        coverage offered by a PDP sponsor offering a prescription drug 
        plan or an MA organization offering an MA-PD plan, the sponsor 
        or organization shall provide enrollees with access to 
        negotiated prices used for payment for covered part D drugs, 
        regardless of the fact that no benefits may be payable under 
        the coverage with respect to such drugs because of the 
        application of a deductible or other cost-sharing or an initial 
        coverage limit (described in subsection (b)(3)).
            ``(B) Negotiated prices.--For purposes of this part, 
        negotiated prices shall take into account negotiated price 
        concessions, such as discounts, direct or indirect subsidies, 
        rebates, and direct or indirect remunerations, for covered part 
        D drugs, and include any dispensing fees for such drugs.
            ``(C) Medicaid-related provisions.--The prices negotiated 
        by a prescription drug plan, by an MA-PD plan with respect to 
        covered part D drugs, or by a qualified retiree prescription 
        drug plan (as defined in section 1860D-22(a)(2)) with respect 
        to such drugs on behalf of part D eligible individuals, shall 
        (notwithstanding any other provision of law) not be taken into 
        account for the purposes of establishing the best price under 
        section 1927(c)(1)(C).
        ``(2) Disclosure.--A PDP sponsor offering a prescription drug 
    plan or an MA organization offering an MA-PD plan shall disclose to 
    the Secretary (in a manner specified by the Secretary) the 
    aggregate negotiated price concessions described in paragraph 
    (1)(B) made available to the sponsor or organization by a 
    manufacturer which are passed through in the form of lower 
    subsidies, lower monthly beneficiary prescription drug premiums, 
    and lower prices through pharmacies and other dispensers. The 
    provisions of section 1927(b)(3)(D) apply to information disclosed 
    to the Secretary under this paragraph.
        ``(3) Audits.--To protect against fraud and abuse and to ensure 
    proper disclosures and accounting under this part and in accordance 
    with section 1857(d)(2)(B) (as applied under section 1860D-
    12(b)(3)(C)), the Secretary may conduct periodic audits, directly 
    or through contracts, of the financial statements and records of 
    PDP sponsors with respect to prescription drug plans and MA 
    organizations with respect to MA-PD plans.
    ``(e) Covered Part D Drug Defined.--
        ``(1) In general.--Except as provided in this subsection, for 
    purposes of this part, the term `covered part D drug' means--
            ``(A) a drug that may be dispensed only upon a prescription 
        and that is described in subparagraph (A)(i), (A)(ii), or 
        (A)(iii) of section 1927(k)(2); or
            ``(B) a biological product described in clauses (i) through 
        (iii) of subparagraph (B) of such section or insulin described 
        in subparagraph (C) of such section and medical supplies 
        associated with the injection of insulin (as defined in 
        regulations of the Secretary),
    and such term includes a vaccine licensed under section 351 of the 
    Public Health Service Act and any use of a covered part D drug for 
    a medically accepted indication (as defined in section 1927(k)(6)).
        ``(2) Exclusions.--
            ``(A) In general.--Such term does not include drugs or 
        classes of drugs, or their medical uses, which may be excluded 
        from coverage or otherwise restricted under section 1927(d)(2), 
        other than subparagraph (E) of such section (relating to 
        smoking cessation agents), or under section 1927(d)(3).
            ``(B) Medicare covered drugs.--A drug prescribed for a part 
        D eligible individual that would otherwise be a covered part D 
        drug under this part shall not be so considered if payment for 
        such drug as so prescribed and dispensed or administered with 
        respect to that individual is available (or would be available 
        but for the application of a deductible) under part A or B for 
        that individual.
        ``(3) Application of general exclusion provisions.--A 
    prescription drug plan or an MA-PD plan may exclude from qualified 
    prescription drug coverage any covered part D drug--
            ``(A) for which payment would not be made if section 
        1862(a) applied to this part; or
            ``(B) which is not prescribed in accordance with the plan 
        or this part.
    Such exclusions are determinations subject to reconsideration and 
    appeal pursuant to subsections (g) and (h), respectively, of 
    section 1860D-4.

       ``access to a choice of qualified prescription drug coverage

    ``Sec. 1860D-3. (a) Assuring Access to a Choice of Coverage.--
        ``(1) Choice of at least two plans in each area.--The Secretary 
    shall ensure that each part D eligible individual has available, 
    consistent with paragraph (2), a choice of enrollment in at least 2 
    qualifying plans (as defined in paragraph (3)) in the area in which 
    the individual resides, at least one of which is a prescription 
    drug plan. In any such case in which such plans are not available, 
    the part D eligible individual shall be given the opportunity to 
    enroll in a fallback prescription drug plan.
        ``(2) Requirement for different plan sponsors.--The requirement 
    in paragraph (1) is not satisfied with respect to an area if only 
    one entity offers all the qualifying plans in the area.
        ``(3) Qualifying plan defined.--For purposes of this section, 
    the term `qualifying plan' means--
            ``(A) a prescription drug plan; or
            ``(B) an MA-PD plan described in section 1851(a)(2)(A)(i) 
        that provides--
                ``(i) basic prescription drug coverage; or
                ``(ii) qualified prescription drug coverage that 
            provides supplemental prescription drug coverage so long as 
            there is no MA monthly supplemental beneficiary premium 
            applied under the plan, due to the application of a credit 
            against such premium of a rebate under section 
            1854(b)(1)(C).
    ``(b) Flexibility in Risk Assumed and Application of Fallback 
Plan.--In order to ensure access pursuant to subsection (a) in an 
area--
        ``(1) the Secretary may approve limited risk plans under 
    section 1860D-11(f) for the area; and
        ``(2) only if such access is still not provided in the area 
    after applying paragraph (1), the Secretary shall provide for the 
    offering of a fallback prescription drug plan for that area under 
    section 1860D-11(g).

    ``beneficiary protections for qualified prescription drug coverage

    ``Sec. 1860D-4. (a) Dissemination of Information.--
        ``(1) General information.--
            ``(A) Application of ma information.--A PDP sponsor shall 
        disclose, in a clear, accurate, and standardized form to each 
        enrollee with a prescription drug plan offered by the sponsor 
        under this part at the time of enrollment and at least annually 
        thereafter, the information described in section 1852(c)(1) 
        relating to such plan, insofar as the Secretary determines 
        appropriate with respect to benefits provided under this part, 
        and including the information described in subparagraph (B).
            ``(B) Drug specific information.--The information described 
        in this subparagraph is information concerning the following:
                ``(i) Access to specific covered part D drugs, 
            including access through pharmacy networks.
                ``(ii) How any formulary (including any tiered 
            formulary structure) used by the sponsor functions, 
            including a description of how a part D eligible individual 
            may obtain information on the formulary consistent with 
            paragraph (3).
                ``(iii) Beneficiary cost-sharing requirements and how a 
            part D eligible individual may obtain information on such 
            requirements, including tiered or other copayment level 
            applicable to each drug (or class of drugs), consistent 
            with paragraph (3).
                ``(iv) The medication therapy management program 
            required under subsection (c).
        ``(2) Disclosure upon request of general coverage, utilization, 
    and grievance information.--Upon request of a part D eligible 
    individual who is eligible to enroll in a prescription drug plan, 
    the PDP sponsor offering such plan shall provide information 
    similar (as determined by the Secretary) to the information 
    described in subparagraphs (A), (B), and (C) of section 1852(c)(2) 
    to such individual.
        ``(3) Provision of specific information.--
            ``(A) Response to beneficiary questions.--Each PDP sponsor 
        offering a prescription drug plan shall have a mechanism for 
        providing specific information on a timely basis to enrollees 
        upon request. Such mechanism shall include access to 
        information through the use of a toll-free telephone number 
        and, upon request, the provision of such information in 
        writing.
            ``(B) Availability of information on changes in formulary 
        through the internet.--A PDP sponsor offering a prescription 
        drug plan shall make available on a timely basis through an 
        Internet website information on specific changes in the 
        formulary under the plan (including changes to tiered or 
        preferred status of covered part D drugs).
        ``(4) Claims information.--A PDP sponsor offering a 
    prescription drug plan must furnish to each enrollee in a form 
    easily understandable to such enrollees--
            ``(A) an explanation of benefits (in accordance with 
        section 1806(a) or in a comparable manner); and
            ``(B) when prescription drug benefits are provided under 
        this part, a notice of the benefits in relation to--
                ``(i) the initial coverage limit for the current year; 
            and
                ``(ii) the annual out-of-pocket threshold for the 
            current year.
        Notices under subparagraph (B) need not be provided more often 
        than as specified by the Secretary and notices under 
        subparagraph (B)(ii) shall take into account the application of 
        section 1860D-2(b)(4)(C) to the extent practicable, as 
        specified by the Secretary.
    ``(b) Access to Covered Part D Drugs.--
        ``(1) Assuring pharmacy access.--
            ``(A) Participation of any willing pharmacy.--A 
        prescription drug plan shall permit the participation of any 
        pharmacy that meets the terms and conditions under the plan.
            ``(B) Discounts allowed for network pharmacies.--For 
        covered part D drugs dispensed through in-network pharmacies, a 
        prescription drug plan may, notwithstanding subparagraph (A), 
        reduce coinsurance or copayments for part D eligible 
        individuals enrolled in the plan below the level otherwise 
        required. In no case shall such a reduction result in an 
        increase in payments made by the Secretary under section 1860D-
        15 to a plan.
            ``(C) Convenient access for network pharmacies.--
                ``(i) In general.--The PDP sponsor of the prescription 
            drug plan shall secure the participation in its network of 
            a sufficient number of pharmacies that dispense (other than 
            by mail order) drugs directly to patients to ensure 
            convenient access (consistent with rules established by the 
            Secretary).
                ``(ii) Application of tricare standards.--The Secretary 
            shall establish rules for convenient access to in-network 
            pharmacies under this subparagraph that are no less 
            favorable to enrollees than the rules for convenient access 
            to pharmacies included in the statement of work of 
            solicitation (#MDA906-03-R-0002) of the Department of 
            Defense under the TRICARE Retail Pharmacy (TRRx) as of 
            March 13, 2003.
                ``(iii) Adequate emergency access.--Such rules shall 
            include adequate emergency access for enrollees.
                ``(iv) Convenient access in long-term care 
            facilities.--Such rules may include standards with respect 
            to access for enrollees who are residing in long-term care 
            facilities and for pharmacies operated by the Indian Health 
            Service, Indian tribes and tribal organizations, and urban 
            Indian organizations (as defined in section 4 of the Indian 
            Health Care Improvement Act).
            ``(D) Level playing field.--Such a sponsor shall permit 
        enrollees to receive benefits (which may include a 90-day 
        supply of drugs or biologicals) through a pharmacy (other than 
        a mail order pharmacy), with any differential in charge paid by 
        such enrollees.
            ``(E)  Not required to accept insurance risk.--The terms 
        and conditions under subparagraph (A) may not require 
        participating pharmacies to accept insurance risk as a 
        condition of participation.
        ``(2) Use of standardized technology.--
            ``(A) In general.--The PDP sponsor of a prescription drug 
        plan shall issue (and reissue, as appropriate) such a card (or 
        other technology) that may be used by an enrollee to assure 
        access to negotiated prices under section 1860D-2(d).
            ``(B) Standards.--
                ``(i) In general.--The Secretary shall provide for the 
            development, adoption, or recognition of standards relating 
            to a standardized format for the card or other technology 
            required under subparagraph (A). Such standards shall be 
            compatible with part C of title XI and may be based on 
            standards developed by an appropriate standard setting 
            organization.
                ``(ii) Consultation.--In developing the standards under 
            clause (i), the Secretary shall consult with the National 
            Council for Prescription Drug Programs and other standard 
            setting organizations determined appropriate by the 
            Secretary.
                ``(iii) Implementation.--The Secretary shall develop, 
            adopt, or recognize the standards under clause (i) by such 
            date as the Secretary determines shall be sufficient to 
            ensure that PDP sponsors utilize such standards beginning 
            January 1, 2006.
        ``(3) Requirements on development and application of 
    formularies.--If a PDP sponsor of a prescription drug plan uses a 
    formulary (including the use of tiered cost-sharing), the following 
    requirements must be met:
            ``(A) Development and revision by a pharmacy and 
        therapeutic (p&t) committee.--
                ``(i) In general.--The formulary must be developed and 
            reviewed by a pharmacy and therapeutic committee. A 
            majority of the members of such committee shall consist of 
            individuals who are practicing physicians or practicing 
            pharmacists (or both).
                ``(ii) Inclusion of independent experts.--Such 
            committee shall include at least one practicing physician 
            and at least one practicing pharmacist, each of whom--

                    ``(I) is independent and free of conflict with 
                respect to the sponsor and plan; and
                    ``(II) has expertise in the care of elderly or 
                disabled persons.

            ``(B) Formulary development.--In developing and reviewing 
        the formulary, the committee shall--
                ``(i) base clinical decisions on the strength of 
            scientific evidence and standards of practice, including 
            assessing peer-reviewed medical literature, such as 
            randomized clinical trials, pharmacoeconomic studies, 
            outcomes research data, and on such other information as 
            the committee determines to be appropriate; and
                ``(ii) take into account whether including in the 
            formulary (or in a tier in such formulary) particular 
            covered part D drugs has therapeutic advantages in terms of 
            safety and efficacy.
            ``(C) Inclusion of drugs in all therapeutic categories and 
        classes.--
                ``(i) In general.--The formulary must include drugs 
            within each therapeutic category and class of covered part 
            D drugs, although not necessarily all drugs within such 
            categories and classes.
                ``(ii) Model guidelines.--The Secretary shall request 
            the United States Pharmacopeia to develop, in consultation 
            with pharmaceutical benefit managers and other interested 
            parties, a list of categories and classes that may be used 
            by prescription drug plans under this paragraph and to 
            revise such classification from time to time to reflect 
            changes in therapeutic uses of covered part D drugs and the 
            additions of new covered part D drugs.
                ``(iii) Limitation on changes in therapeutic 
            classification.--The PDP sponsor of a prescription drug 
            plan may not change the therapeutic categories and classes 
            in a formulary other than at the beginning of each plan 
            year except as the Secretary may permit to take into 
            account new therapeutic uses and newly approved covered 
            part D drugs.
            ``(D) Provider and patient education.--The PDP sponsor 
        shall establish policies and procedures to educate and inform 
        health care providers and enrollees concerning the formulary.
            ``(E) Notice before removing drug from formulary or 
        changing preferred or tier status of drug.--Any removal of a 
        covered part D drug from a formulary and any change in the 
        preferred or tiered cost-sharing status of such a drug shall 
        take effect only after appropriate notice is made available 
        (such as under subsection (a)(3)) to the Secretary, affected 
        enrollees, physicians, pharmacies, and pharmacists.
            ``(F) Periodic evaluation of protocols.--In connection with 
        the formulary, the sponsor of a prescription drug plan shall 
        provide for the periodic evaluation and analysis of treatment 
        protocols and procedures.
    The requirements of this paragraph may be met by a PDP sponsor 
    directly or through arrangements with another entity.
    ``(c) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
        ``(1) In general.--The PDP sponsor shall have in place, 
    directly or through appropriate arrangements, with respect to 
    covered part D drugs, the following:
            ``(A) A cost-effective drug utilization management program, 
        including incentives to reduce costs when medically 
        appropriate, such as through the use of multiple source drugs 
        (as defined in section 1927(k)(7)(A)(i)).
            ``(B) Quality assurance measures and systems to reduce 
        medication errors and adverse drug interactions and improve 
        medication use.
            ``(C) A medication therapy management program described in 
        paragraph (2).
            ``(D) A program to control fraud, abuse, and waste.
    Nothing in this section shall be construed as impairing a PDP 
    sponsor from utilizing cost management tools (including 
    differential payments) under all methods of operation.
        ``(2) Medication therapy management program.--
            ``(A) Description.--
                ``(i) In general.--A medication therapy management 
            program described in this paragraph is a program of drug 
            therapy management that may be furnished by a pharmacist 
            and that is designed to assure, with respect to targeted 
            beneficiaries described in clause (ii), that covered part D 
            drugs under the prescription drug plan are appropriately 
            used to optimize therapeutic outcomes through improved 
            medication use, and to reduce the risk of adverse events, 
            including adverse drug interactions. Such a program may 
            distinguish between services in ambulatory and 
            institutional settings.
                ``(ii) Targeted beneficiaries described.--Targeted 
            beneficiaries described in this clause are part D eligible 
            individuals who--

                    ``(I) have multiple chronic diseases (such as 
                diabetes, asthma, hypertension, hyperlipidemia, and 
                congestive heart failure);
                    ``(II) are taking multiple covered part D drugs; 
                and
                    ``(III) are identified as likely to incur annual 
                costs for covered part D drugs that exceed a level 
                specified by the Secretary.

            ``(B) Elements.--Such program may include elements that 
        promote--
                ``(i) enhanced enrollee understanding to promote the 
            appropriate use of medications by enrollees and to reduce 
            the risk of potential adverse events associated with 
            medications, through beneficiary education, counseling, and 
            other appropriate means;
                ``(ii) increased enrollee adherence with prescription 
            medication regimens through medication refill reminders, 
            special packaging, and other compliance programs and other 
            appropriate means; and
                ``(iii) detection of adverse drug events and patterns 
            of overuse and underuse of prescription drugs.
            ``(C) Development of program in cooperation with licensed 
        pharmacists.--Such program shall be developed in cooperation 
        with licensed and practicing pharmacists and physicians.
            ``(D) Coordination with care management plans.--The 
        Secretary shall establish guidelines for the coordination of 
        any medication therapy management program under this paragraph 
        with respect to a targeted beneficiary with any care management 
        plan established with respect to such beneficiary under a 
        chronic care improvement program under section 1807.
            ``(E) Considerations in pharmacy fees.--The PDP sponsor of 
        a prescription drug plan shall take into account, in 
        establishing fees for pharmacists and others providing services 
        under such plan, the resources used, and time required to, 
        implement the medication therapy management program under this 
        paragraph. Each such sponsor shall disclose to the Secretary 
        upon request the amount of any such management or dispensing 
        fees. The provisions of section 1927(b)(3)(D) apply to 
        information disclosed under this subparagraph.
    ``(d) Consumer Satisfaction Surveys.--In order to provide for 
comparative information under section 1860D-1(c)(3)(A)(v), the 
Secretary shall conduct consumer satisfaction surveys with respect to 
PDP sponsors and prescription drug plans in a manner similar to the 
manner such surveys are conducted for MA organizations and MA plans 
under part C.
    ``(e) Electronic Prescription Program.--
        ``(1) Application of standards.--As of such date as the 
    Secretary may specify, but not later than 1 year after the date of 
    promulgation of final standards under paragraph (4)(D), 
    prescriptions and other information described in paragraph (2)(A) 
    for covered part D drugs prescribed for part D eligible individuals 
    that are transmitted electronically shall be transmitted only in 
    accordance with such standards under an electronic prescription 
    drug program that meets the requirements of paragraph (2).
        ``(2) Program requirements.--Consistent with uniform standards 
    established under paragraph (3)--
            ``(A) Provision of information to prescribing health care 
        professional and dispensing pharmacies and pharmacists.--An 
        electronic prescription drug program shall provide for the 
        electronic transmittal to the prescribing health care 
        professional and to the dispensing pharmacy and pharmacist of 
        the prescription and information on eligibility and benefits 
        (including the drugs included in the applicable formulary, any 
        tiered formulary structure, and any requirements for prior 
        authorization) and of the following information with respect to 
        the prescribing and dispensing of a covered part D drug:
                ``(i) Information on the drug being prescribed or 
            dispensed and other drugs listed on the medication history, 
            including information on drug-drug interactions, warnings 
            or cautions, and, when indicated, dosage adjustments.
                ``(ii) Information on the availability of lower cost, 
            therapeutically appropriate alternatives (if any) for the 
            drug prescribed.
            ``(B) Application to medical history information.--
        Effective on and after such date as the Secretary specifies and 
        after the establishment of appropriate standards to carry out 
        this subparagraph, the program shall provide for the electronic 
        transmittal in a manner similar to the manner under 
        subparagraph (A) of information that relates to the medical 
        history concerning the individual and related to a covered part 
        D drug being prescribed or dispensed, upon request of the 
        professional or pharmacist involved.
            ``(C) Limitations.--Information shall only be disclosed 
        under subparagraph (A) or (B) if the disclosure of such 
        information is permitted under the Federal regulations 
        (concerning the privacy of individually identifiable health 
        information) promulgated under section 264(c) of the Health 
        Insurance Portability and Accountability Act of 1996.
            ``(D) Timing.--To the extent feasible, the information 
        exchanged under this paragraph shall be on an interactive, 
        real-time basis.
        ``(3) Standards.--
            ``(A) In general.--The Secretary shall provide consistent 
        with this subsection for the promulgation of uniform standards 
        relating to the requirements for electronic prescription drug 
        programs under paragraph (2).
            ``(B) Objectives.--Such standards shall be consistent with 
        the objectives of improving--
                ``(i) patient safety;
                ``(ii) the quality of care provided to patients; and
                ``(iii) efficiencies, including cost savings, in the 
            delivery of care.
            ``(C) Design criteria.--Such standards shall--
                ``(i) be designed so that, to the extent practicable, 
            the standards do not impose an undue administrative burden 
            on prescribing health care professionals and dispensing 
            pharmacies and pharmacists;
                ``(ii) be compatible with standards established under 
            part C of title XI, standards established under subsection 
            (b)(2)(B)(i), and with general health information 
            technology standards; and
                ``(iii) be designed so that they permit electronic 
            exchange of drug labeling and drug listing information 
            maintained by the Food and Drug Administration and the 
            National Library of Medicine.
            ``(D) Permitting use of appropriate messaging.--Such 
        standards shall allow for the messaging of information only if 
        it relates to the appropriate prescribing of drugs, including 
        quality assurance measures and systems referred to in 
        subsection (c)(1)(B).
            ``(E) Permitting patient designation of dispensing 
        pharmacy.--
                ``(i) In general.--Consistent with clause (ii), such 
            standards shall permit a part D eligible individual to 
            designate a particular pharmacy to dispense a prescribed 
            drug.
                ``(ii) No change in benefits.--Clause (i) shall not be 
            construed as affecting--

                    ``(I) the access required to be provided to 
                pharmacies by a prescription drug plan; or
                    ``(II) the application of any differences in 
                benefits or payments under such a plan based on the 
                pharmacy dispensing a covered part D drug.

        ``(4) Development, promulgation, and modification of 
    standards.--
            ``(A) Initial standards.--Not later than September 1, 2005, 
        the Secretary shall develop, adopt, recognize, or modify 
        initial uniform standards relating to the requirements for 
        electronic prescription drug programs described in paragraph 
        (2) taking into consideration the recommendations (if any) from 
        the National Committee on Vital and Health Statistics (as 
        established under section 306(k) of the Public Health Service 
        Act (42 U.S.C. 242k(k))) under subparagraph (B).
            ``(B) Role of ncvhs.--The National Committee on Vital and 
        Health Statistics shall develop recommendations for uniform 
        standards relating to such requirements in consultation with 
        the following:
                ``(i) Standard setting organizations (as defined in 
            section 1171(8))
                ``(ii) Practicing physicians.
                ``(iii) Hospitals.
                ``(iv) Pharmacies.
                ``(v) Practicing pharmacists.
                ``(vi) Pharmacy benefit managers.
                ``(vii) State boards of pharmacy.
                ``(viii) State boards of medicine.
                ``(ix) Experts on electronic prescribing.
                ``(x) Other appropriate Federal agencies.
            ``(C) Pilot project to test initial standards.--
                ``(i) In general.--During the 1-year period that begins 
            on January 1, 2006, the Secretary shall conduct a pilot 
            project to test the initial standards developed under 
            subparagraph (A) prior to the promulgation of the final 
            uniform standards under subparagraph (D) in order to 
            provide for the efficient implementation of the 
            requirements described in paragraph (2).
                ``(ii) Exception.--Pilot testing of standards is not 
            required under clause (i) where there already is adequate 
            industry experience with such standards, as determined by 
            the Secretary after consultation with effected standard 
            setting organizations and industry users.
                ``(iii) Voluntary participation of physicians and 
            pharmacies.--In order to conduct the pilot project under 
            clause (i), the Secretary shall enter into agreements with 
            physicians, physician groups, pharmacies, hospitals, PDP 
            sponsors, MA organizations, and other appropriate entities 
            under which health care professionals electronically 
            transmit prescriptions to dispensing pharmacies and 
            pharmacists in accordance with such standards.
                ``(iv) Evaluation and report.--

                    ``(I) Evaluation.--The Secretary shall conduct an 
                evaluation of the pilot project conducted under clause 
                (i).
                    ``(II) Report to congress.--Not later than April 1, 
                2007, the Secretary shall submit to Congress a report 
                on the evaluation conducted under subclause (I).

            ``(D) Final standards.--Based upon the evaluation of the 
        pilot project under subparagraph (C)(iv)(I) and not later than 
        April 1, 2008, the Secretary shall promulgate uniform standards 
        relating to the requirements described in paragraph (2).
        ``(5) Relation to state laws.--The standards promulgated under 
    this subsection shall supersede any State law or regulation that--
            ``(A) is contrary to the standards or restricts the ability 
        to carry out this part; and
            ``(B) pertains to the electronic transmission of medication 
        history and of information on eligibility, benefits, and 
        prescriptions with respect to covered part D drugs under this 
        part.
        ``(6) Establishment of safe harbor.--The Secretary, in 
    consultation with the Attorney General, shall promulgate 
    regulations that provide for a safe harbor from sanctions under 
    paragraphs (1) and (2) of section 1128B(b) and an exception to the 
    prohibition under subsection (a)(1) of section 1877 with respect to 
    the provision of nonmonetary remuneration (in the form of hardware, 
    software, or information technology and training services) 
    necessary and used solely to receive and transmit electronic 
    prescription information in accordance with the standards 
    promulgated under this subsection--
            ``(A) in the case of a hospital, by the hospital to members 
        of its medical staff;
            ``(B) in the case of a group practice (as defined in 
        section 1877(h)(4)), by the practice to prescribing health care 
        professionals who are members of such practice; and
            ``(C) in the case of a PDP sponsor or MA organization, by 
        the sponsor or organization to pharmacists and pharmacies 
        participating in the network of such sponsor or organization, 
        and to prescribing health care professionals.
    ``(f) Grievance Mechanism.--Each PDP sponsor shall provide 
meaningful procedures for hearing and resolving grievances between the 
sponsor (including any entity or individual through which the sponsor 
provides covered benefits) and enrollees with prescription drug plans 
of the sponsor under this part in accordance with section 1852(f).
    ``(g) Coverage Determinations and Reconsiderations.--
        ``(1) Application of coverage determination and reconsideration 
    provisions.--A PDP sponsor shall meet the requirements of 
    paragraphs (1) through (3) of section 1852(g) with respect to 
    covered benefits under the prescription drug plan it offers under 
    this part in the same manner as such requirements apply to an MA 
    organization with respect to benefits it offers under an MA plan 
    under part C.
        ``(2) Request for a determination for the treatment of tiered 
    formulary drug.--In the case of a prescription drug plan offered by 
    a PDP sponsor that provides for tiered cost-sharing for drugs 
    included within a formulary and provides lower cost-sharing for 
    preferred drugs included within the formulary, a part D eligible 
    individual who is enrolled in the plan may request an exception to 
    the tiered cost-sharing structure. Under such an exception, a 
    nonpreferred drug could be covered under the terms applicable for 
    preferred drugs if the prescribing physician determines that the 
    preferred drug for treatment of the same condition either would not 
    be as effective for the individual or would have adverse effects 
    for the individual or both. A PDP sponsor shall have an exceptions 
    process under this paragraph consistent with guidelines established 
    by the Secretary for making a determination with respect to such a 
    request. Denial of such an exception shall be treated as a coverage 
    denial for purposes of applying subsection (h).
    ``(h) Appeals.--
        ``(1) In general.--Subject to paragraph (2), a PDP sponsor 
    shall meet the requirements of paragraphs (4) and (5) of section 
    1852(g) with respect to benefits (including a determination related 
    to the application of tiered cost-sharing described in subsection 
    (g)(2)) in a manner similar (as determined by the Secretary) to the 
    manner such requirements apply to an MA organization with respect 
    to benefits under the original medicare fee-for-service program 
    option it offers under an MA plan under part C. In applying this 
    paragraph only the part D eligible individual shall be entitled to 
    bring such an appeal.
        ``(2) Limitation in cases on nonformulary determinations.--A 
    part D eligible individual who is enrolled in a prescription drug 
    plan offered by a PDP sponsor may appeal under paragraph (1) a 
    determination not to provide for coverage of a covered part D drug 
    that is not on the formulary under the plan only if the prescribing 
    physician determines that all covered part D drugs on any tier of 
    the formulary for treatment of the same condition would not be as 
    effective for the individual as the nonformulary drug, would have 
    adverse effects for the individual, or both.
        ``(3) Treatment of nonformulary determinations.--If a PDP 
    sponsor determines that a plan provides coverage for a covered part 
    D drug that is not on the formulary of the plan, the drug shall be 
    treated as being included on the formulary for purposes of section 
    1860D-2(b)(4)(C)(i).
    ``(i) Privacy, Confidentiality, and Accuracy of Enrollee Records.--
The provisions of section 1852(h) shall apply to a PDP sponsor and 
prescription drug plan in the same manner as it applies to an MA 
organization and an MA plan.
    ``(j) Treatment of Accreditation.--Subparagraph (A) of section 
1852(e)(4) (relating to treatment of accreditation) shall apply to a 
PDP sponsor under this part with respect to the following requirements, 
in the same manner as it applies to an MA organization with respect to 
the requirements in subparagraph (B) (other than clause (vii) thereof) 
of such section:
        ``(1) Subsection (b) of this section (relating to access to 
    covered part D drugs).
        ``(2) Subsection (c) of this section (including quality 
    assurance and medication therapy management).
        ``(3) Subsection (i) of this section (relating to 
    confidentiality and accuracy of enrollee records).
    ``(k) Public Disclosure of Pharmaceutical Prices for Equivalent 
Drugs.--
        ``(1) In general.--A PDP sponsor offering a prescription drug 
    plan shall provide that each pharmacy that dispenses a covered part 
    D drug shall inform an enrollee of any differential between the 
    price of the drug to the enrollee and the price of the lowest 
    priced generic covered part D drug under the plan that is 
    therapeutically equivalent and bioequivalent and available at such 
    pharmacy.
        ``(2) Timing of notice.--
            ``(A) In general.--Subject to subparagraph (B), the 
        information under paragraph (1) shall be provided at the time 
        of purchase of the drug involved, or, in the case of dispensing 
        by mail order, at the time of delivery of such drug.
            ``(B) Waiver.--The Secretary may waive subparagraph (A) in 
        such circumstances as the Secretary may specify.

     ``Subpart 2--Prescription Drug Plans; PDP Sponsors; Financing

             ``pdp regions; submission of bids; plan approval

    ``Sec. 1860D-11. (a) Establishment of PDP Regions; Service Areas.--
        ``(1) Coverage of entire pdp region.--The service area for a 
    prescription drug plan shall consist of an entire PDP region 
    established under paragraph (2).
        ``(2) Establishment of pdp regions.--
            ``(A) In general.--The Secretary shall establish, and may 
        revise, PDP regions in a manner that is consistent with the 
        requirements for the establishment and revision of MA regions 
        under subparagraphs (B) and (C) of section 1858(a)(2).
            ``(B) Relation to ma regions.--To the extent practicable, 
        PDP regions shall be the same as MA regions under section 
        1858(a)(2). The Secretary may establish PDP regions which are 
        not the same as MA regions if the Secretary determines that the 
        establishment of different regions under this part would 
        improve access to benefits under this part.
            ``(C) Authority for territories.--The Secretary shall 
        establish, and may revise, PDP regions for areas in States that 
        are not within the 50 States or the District of Columbia.
        ``(3) National plan.--Nothing in this subsection shall be 
    construed as preventing a prescription drug plan from being offered 
    in more than one PDP region (including all PDP regions).
    ``(b) Submission of Bids, Premiums, and Related Information.--
        ``(1) In general.--A PDP sponsor shall submit to the Secretary 
    information described in paragraph (2) with respect to each 
    prescription drug plan it offers. Such information shall be 
    submitted at the same time and in a similar manner to the manner in 
    which information described in paragraph (6) of section 1854(a) is 
    submitted by an MA organization under paragraph (1) of such 
    section.
        ``(2) Information described.--The information described in this 
    paragraph is information on the following:
            ``(A) Coverage provided.--The prescription drug coverage 
        provided under the plan, including the deductible and other 
        cost-sharing.
            ``(B) Actuarial value.--The actuarial value of the 
        qualified prescription drug coverage in the region for a part D 
        eligible individual with a national average risk profile for 
        the factors described in section 1860D-15(c)(1)(A) (as 
        specified by the Secretary).
            ``(C) Bid.--Information on the bid, including an actuarial 
        certification of--
                ``(i) the basis for the actuarial value described in 
            subparagraph (B) assumed in such bid;
                ``(ii) the portion of such bid attributable to basic 
            prescription drug coverage and, if applicable, the portion 
            of such bid attributable to supplemental benefits;
                ``(iii) assumptions regarding the reinsurance subsidy 
            payments provided under section 1860D-15(b) subtracted from 
            the actuarial value to produce such bid; and
                ``(iv) administrative expenses assumed in the bid.
            ``(D) Service area.--The service area for the plan.
            ``(E) Level of risk assumed.--
                ``(i) In general.--Whether the PDP sponsor requires a 
            modification of risk level under clause (ii) and, if so, 
            the extent of such modification. Any such modification 
            shall apply with respect to all prescription drug plans 
            offered by a PDP sponsor in a PDP region. This subparagraph 
            shall not apply to an MA-PD plan.
                ``(ii) Risk levels described.--A modification of risk 
            level under this clause may consist of one or more of the 
            following:

                    ``(I) Increase in federal percentage assumed in 
                initial risk corridor.--An equal percentage point 
                increase in the percents applied under subparagraphs 
                (B)(i), (B)(ii)(I), (C)(i), and (C)(ii)(I) of section 
                1860D-15(e)(2). In no case shall the application of 
                previous sentence prevent the application of a higher 
                percentage under section 1869D-15(e)(2)(B)(iii).
                    ``(II) Increase in federal percentage assumed in 
                second risk corridor.--An equal percentage point 
                increase in the percents applied under subparagraphs 
                (B)(ii)(II) and (C)(ii)(II) of section 1860D-15(e)(2).
                    ``(III) Decrease in size of risk corridors.--A 
                decrease in the threshold risk percentages specified in 
                section 1860D-15(e)(3)(C).

            ``(F) Additional information.--Such other information as 
        the Secretary may require to carry out this part.
        ``(3) Paperwork reduction for offering of prescription drug 
    plans nationally or in multi-region areas.--The Secretary shall 
    establish requirements for information submission under this 
    subsection in a manner that promotes the offering of such plans in 
    more than one PDP region (including all regions) through the filing 
    of consolidated information.
    ``(c) Actuarial Valuation.--
        ``(1) Processes.--For purposes of this part, the Secretary 
    shall establish processes and methods for determining the actuarial 
    valuation of prescription drug coverage, including--
            ``(A) an actuarial valuation of standard prescription drug 
        coverage under section 1860D-2(b);
            ``(B) actuarial valuations relating to alternative 
        prescription drug coverage under section 1860D-2(c)(1);
            ``(C) an actuarial valuation of the reinsurance subsidy 
        payments under section 1860D-15(b);
            ``(D) the use of generally accepted actuarial principles 
        and methodologies; and
            ``(E) applying the same methodology for determinations of 
        actuarial valuations under subparagraphs (A) and (B).
        ``(2) Accounting for drug utilization.--Such processes and 
    methods for determining actuarial valuation shall take into account 
    the effect that providing alternative prescription drug coverage 
    (rather than standard prescription drug coverage) has on drug 
    utilization.
        ``(3) Responsibilities.--
            ``(A) Plan responsibilities.--PDP sponsors and MA 
        organizations are responsible for the preparation and 
        submission of actuarial valuations required under this part for 
        prescription drug plans and MA-PD plans they offer.
            ``(B) Use of outside actuaries.--Under the processes and 
        methods established under paragraph (1), PDP sponsors offering 
        prescription drug plans and MA organizations offering MA-PD 
        plans may use actuarial opinions certified by independent, 
        qualified actuaries to establish actuarial values.
    ``(d) Review of Information and Negotiation.--
        ``(1) Review of information.--The Secretary shall review the 
    information filed under subsection (b) for the purpose of 
    conducting negotiations under paragraph (2).
        ``(2) Negotiation regarding terms and conditions.--Subject to 
    subsection (i), in exercising the authority under paragraph (1), 
    the Secretary--
            ``(A) has the authority to negotiate the terms and 
        conditions of the proposed bid submitted and other terms and 
        conditions of a proposed plan; and
            ``(B) has authority similar to the authority of the 
        Director of the Office of Personnel Management with respect to 
        health benefits plans under chapter 89 of title 5, United 
        States Code.
    ``(e) Approval of Proposed Plans.--
        ``(1) In general.--After review and negotiation under 
    subsection (d), the Secretary shall approve or disapprove the 
    prescription drug plan.
        ``(2) Requirements for approval.--The Secretary may approve a 
    prescription drug plan only if the following requirements are met:
            ``(A) Compliance with requirements.--The plan and the PDP 
        sponsor offering the plan comply with the requirements under 
        this part, including the provision of qualified prescription 
        drug coverage.
            ``(B) Actuarial determinations.--The Secretary determines 
        that the plan and PDP sponsor meet the requirements under this 
        part relating to actuarial determinations, including such 
        requirements under section 1860D-2(c).
            ``(C) Application of fehbp standard.--
                ``(i) In general.--The Secretary determines that the 
            portion of the bid submitted under subsection (b) that is 
            attributable to basic prescription drug coverage is 
            supported by the actuarial bases provided under such 
            subsection and reasonably and equitably reflects the 
            revenue requirements (as used for purposes of section 
            1302(8)(C) of the Public Health Service Act) for benefits 
            provided under that plan, less the sum (determined on a 
            monthly per capita basis) of the actuarial value of the 
            reinsurance payments under section 1860D-15(b).
                ``(ii) Supplemental coverage.--The Secretary determines 
            that the portion of the bid submitted under subsection (b) 
            that is attributable to supplemental prescription drug 
            coverage pursuant to section 1860D-2(a)(2) is supported by 
            the actuarial bases provided under such subsection and 
            reasonably and equitably reflects the revenue requirements 
            (as used for purposes of section 1302(8)(C) of the Public 
            Health Service Act) for such coverage under the plan.
            ``(D) Plan design.--
                ``(i) In general.--The Secretary does not find that the 
            design of the plan and its benefits (including any 
            formulary and tiered formulary structure) are likely to 
            substantially discourage enrollment by certain part D 
            eligible individuals under the plan.
                ``(ii) Use of categories and classes in formularies.--
            The Secretary may not find that the design of categories 
            and classes within a formulary violates clause (i) if such 
            categories and classes are consistent with guidelines (if 
            any) for such categories and classes established by the 
            United States Pharmacopeia.
    ``(f) Application of Limited Risk Plans.--
        ``(1) Conditions for approval of limited risk plans.--The 
    Secretary may only approve a limited risk plan (as defined in 
    paragraph (4)(A)) for a PDP region if the access requirements under 
    section 1860D-3(a) would not be met for the region but for the 
    approval of such a plan (or a fallback prescription drug plan under 
    subsection (g)).
        ``(2) Rules.--The following rules shall apply with respect to 
    the approval of a limited risk plan in a PDP region:
            ``(A) Limited exercise of authority.--Only the minimum 
        number of such plans may be approved in order to meet the 
        access requirements under section 1860D-3(a).
            ``(B) Maximizing assumption of risk.--The Secretary shall 
        provide priority in approval for those plans bearing the 
        highest level of risk (as computed by the Secretary), but the 
        Secretary may take into account the level of the bids submitted 
        by such plans.
            ``(C) No full underwriting for limited risk plans.--In no 
        case may the Secretary approve a limited risk plan under which 
        the modification of risk level provides for no (or a de 
        minimis) level of financial risk.
        ``(3) Acceptance of all full risk contracts.--There shall be no 
    limit on the number of full risk plans that are approved under 
    subsection (e).
        ``(4) Risk-plans defined.--For purposes of this subsection:
            ``(A) Limited risk plan.--The term `limited risk plan' 
        means a prescription drug plan that provides basic prescription 
        drug coverage and for which the PDP sponsor includes a 
        modification of risk level described in subparagraph (E) of 
        subsection (b)(2) in its bid submitted for the plan under such 
        subsection. Such term does not include a fallback prescription 
        drug plan.
            ``(B) Full risk plan.--The term `full risk plan' means a 
        prescription drug plan that is not a limited risk plan or a 
        fallback prescription drug plan.
    ``(g) Guaranteeing Access to Coverage.--
        ``(1) Solicitation of bids.--
            ``(A) In general.--Separate from the bidding process under 
        subsection (b), the Secretary shall provide for a process for 
        the solicitation of bids from eligible fallback entities (as 
        defined in paragraph (2)) for the offering in all fallback 
        service areas (as defined in paragraph (3)) in one or more PDP 
        regions of a fallback prescription drug plan (as defined in 
        paragraph (4)) during the contract period specified in 
        paragraph (5).
            ``(B) Acceptance of bids.--
                ``(i) In general.--Except as provided in this 
            subparagraph, the provisions of subsection (e) shall apply 
            with respect to the approval or disapproval of fallback 
            prescription drug plans. The Secretary shall enter into 
            contracts under this subsection with eligible fallback 
            entities for the offering of fallback prescription drug 
            plans so approved in fallback service areas.
                ``(ii) Limitation of 1 plan for all fallback service 
            areas in a pdp region.--With respect to all fallback 
            service areas in any PDP region for a contract period, the 
            Secretary shall approve the offering of only 1 fallback 
            prescription drug plan.
                ``(iii) Competitive procedures.--Competitive procedures 
            (as defined in section 4(5) of the Office of Federal 
            Procurement Policy Act (41 U.S.C. 403(5))) shall be used to 
            enter into a contract under this subsection. The provisions 
            of subsection (d) of section 1874A shall apply to a 
            contract under this section in the same manner as they 
            apply to a contract under such section.
                ``(iv) Timing.--The Secretary shall approve a fallback 
            prescription drug plan for a PDP region in a manner so 
            that, if there are any fallback service areas in the region 
            for a year, the fallback prescription drug plan is offered 
            at the same time as prescription drug plans would otherwise 
            be offered.
                ``(V) No national fallback plan.--The Secretary shall 
            not enter into a contract with a single fallback entity for 
            the offering of fallback plans throughout the United 
            States.
        ``(2) Eligible fallback entity.--For purposes of this section, 
    the term `eligible fallback entity' means, with respect to all 
    fallback service areas in a PDP region for a contract period, an 
    entity that--
            ``(A) meets the requirements to be a PDP sponsor (or would 
        meet such requirements but for the fact that the entity is not 
        a risk-bearing entity); and
            ``(B) does not submit a bid under section 1860D-11(b) for 
        any prescription drug plan for any PDP region for the first 
        year of such contract period.
    For purposes of subparagraph (B), an entity shall be treated as 
    submitting a bid with respect to a prescription drug plan if the 
    entity is acting as a subcontractor of a PDP sponsor that is 
    offering such a plan. The previous sentence shall not apply to 
    entities that are subcontractors of an MA organization except 
    insofar as such organization is acting as a PDP sponsor with 
    respect to a prescription drug plan.
        ``(3) Fallback service area.--For purposes of this subsection, 
    the term `fallback service area' means, for a PDP region with 
    respect to a year, any area within such region for which the 
    Secretary determines before the beginning of the year that the 
    access requirements of the first sentence of section 1860D-3(a) 
    will not be met for part D eligible individuals residing in the 
    area for the year.
        ``(4) Fallback prescription drug plan.--For purposes of this 
    part, the term `fallback prescription drug plan' means a 
    prescription drug plan that--
            ``(A) only offers the standard prescription drug coverage 
        and access to negotiated prices described in section 1860D-
        2(a)(1)(A) and does not include any supplemental prescription 
        drug coverage; and
            ``(B) meets such other requirements as the Secretary may 
        specify.
        ``(5) Payments under the contract.--
            ``(A) In general.--A contract entered into under this 
        subsection shall provide for--
                ``(i) payment for the actual costs (taking into account 
            negotiated price concessions described in section 1860D-
            2(d)(1)(B)) of covered part D drugs provided to part D 
            eligible individuals enrolled in a fallback prescription 
            drug plan offered by the entity; and
                ``(ii) payment of management fees that are tied to 
            performance measures established by the Secretary for the 
            management, administration, and delivery of the benefits 
            under the contract.
            ``(B) Performance measures.--The performance measures 
        established by the Secretary pursuant to subparagraph (A)(ii) 
        shall include at least measures for each of the following:
                ``(i) Costs.--The entity contains costs to the Medicare 
            Prescription Drug Account and to part D eligible 
            individuals enrolled in a fallback prescription drug plan 
            offered by the entity through mechanisms such as generic 
            substitution and price discounts.
                ``(ii) Quality programs.--The entity provides such 
            enrollees with quality programs that avoid adverse drug 
            reactions and overutilization and reduce medical errors.
                ``(iii) Customer service.--The entity provides timely 
            and accurate delivery of services and pharmacy and 
            beneficiary support services.
                ``(iv) Benefit administration and claims 
            adjudication.--The entity provides efficient and effective 
            benefit administration and claims adjudication.
        ``(6) Monthly beneficiary premium.--Except as provided in 
    section 1860D-13(b) (relating to late enrollment penalty) and 
    subject to section 1860D-14 (relating to low-income assistance), 
    the monthly beneficiary premium to be charged under a fallback 
    prescription drug plan offered in all fallback service areas in a 
    PDP region shall be uniform and shall be equal to 25.5 percent of 
    an amount equal to the Secretary's estimate of the average monthly 
    per capita actuarial cost, including administrative expenses, under 
    the fallback prescription drug plan of providing coverage in the 
    region, as calculated by the Chief Actuary of the Centers for 
    Medicare & Medicaid Services. In calculating such administrative 
    expenses, the Chief Actuary shall use a factor that is based on 
    similar expenses of prescription drug plans that are not fallback 
    prescription drug plans.
        ``(7) General contract terms and conditions.--
            ``(A) In general.--Except as may be appropriate to carry 
        out this section, the terms and conditions of contracts with 
        eligible fallback entities offering fallback prescription drug 
        plans under this subsection shall be the same as the terms and 
        conditions of contracts under this part for prescription drug 
        plans.
            ``(B) Period of contract.--
                ``(i) In general.--Subject to clause (ii), a contract 
            approved for a fallback prescription drug plan for fallback 
            service areas for a PDP region under this section shall be 
            for a period of 3 years (except as may be renewed after a 
            subsequent bidding process).
                ``(ii) Limitation.--A fallback prescription drug plan 
            may be offered under a contract in an area for a year only 
            if that area is a fallback service area for that year.
            ``(C) Entity not permitted to market or brand fallback 
        prescription drug plans.--An eligible fallback entity with a 
        contract under this subsection may not engage in any marketing 
        or branding of a fallback prescription drug plan.
    ``(h) Annual Report on Use of Limited Risk Plans and Fallback 
Plans.--The Secretary shall submit to Congress an annual report that 
describes instances in which limited risk plans and fallback 
prescription drug plans were offered under subsections (f) and (g). The 
Secretary shall include in such report such recommendations as may be 
appropriate to limit the need for the provision of such plans and to 
maximize the assumption of financial risk under section subsection (f).
    ``(i) Noninterference.--In order to promote competition under this 
part and in carrying out this part, the Secretary--
        ``(1) may not interfere with the negotiations between drug 
    manufacturers and pharmacies and PDP sponsors; and
        ``(2) may not require a particular formulary or institute a 
    price structure for the reimbursement of covered part D drugs.
    ``(j) Coordination of Benefits.--A PDP sponsor offering a 
prescription drug plan shall permit State Pharmaceutical Assistance 
Programs and Rx plans under sections 1860D-23 and 1860D-24 to 
coordinate benefits with the plan and, in connection with such 
coordination with such a Program, not to impose fees that are unrelated 
to the cost of coordination.

   ``requirements for and contracts with prescription drug plan (pdp) 
                                sponsors

    ``Sec. 1860D-12. (a) General Requirements.--Each PDP sponsor of a 
prescription drug plan shall meet the following requirements:
        ``(1) Licensure.--Subject to subsection (c), the sponsor is 
    organized and licensed under State law as a risk-bearing entity 
    eligible to offer health insurance or health benefits coverage in 
    each State in which it offers a prescription drug plan.
        ``(2) Assumption of financial risk for unsubsidized coverage.--
            ``(A) In general.--Subject to subparagraph (B), to the 
        extent that the entity is at risk the entity assumes financial 
        risk on a prospective basis for benefits that it offers under a 
        prescription drug plan and that is not covered under section 
        1860D-15(b).
            ``(B) Reinsurance permitted.--The plan sponsor may obtain 
        insurance or make other arrangements for the cost of coverage 
        provided to any enrollee to the extent that the sponsor is at 
        risk for providing such coverage.
        ``(3) Solvency for unlicensed sponsors.--In the case of a PDP 
    sponsor that is not described in paragraph (1) and for which a 
    waiver has been approved under subsection (c), such sponsor shall 
    meet solvency standards established by the Secretary under 
    subsection (d).
    ``(b) Contract Requirements.--
        ``(1) In general.--The Secretary shall not permit the 
    enrollment under section 1860D-1 in a prescription drug plan 
    offered by a PDP sponsor under this part, and the sponsor shall not 
    be eligible for payments under section 1860D-14 or 1860D-15, unless 
    the Secretary has entered into a contract under this subsection 
    with the sponsor with respect to the offering of such plan. Such a 
    contract with a sponsor may cover more than one prescription drug 
    plan. Such contract shall provide that the sponsor agrees to comply 
    with the applicable requirements and standards of this part and the 
    terms and conditions of payment as provided for in this part.
        ``(2) Limitation on entities offering fallback prescription 
    drug plans.--The Secretary shall not enter into a contract with a 
    PDP sponsor for the offering of a prescription drug plan (other 
    than a fallback prescription drug plan) in a PDP region for a year 
    if the sponsor--
            ``(A) submitted a bid under section 1860D-11(g) for such 
        year (as the first year of a contract period under such 
        section) to offer a fallback prescription drug plan in any PDP 
        region;
            ``(B) offers a fallback prescription drug plan in any PDP 
        region during the year; or
            ``(C) offered a fallback prescription drug plan in that PDP 
        region during the previous year.
    For purposes of this paragraph, an entity shall be treated as 
    submitting a bid with respect to a prescription drug plan or 
    offering a fallback prescription drug plan if the entity is acting 
    as a subcontractor of a PDP sponsor that is offering such a plan. 
    The previous sentence shall not apply to entities that are 
    subcontractors of an MA organization except insofar as such 
    organization is acting as a PDP sponsor with respect to a 
    prescription drug plan.
        ``(3) Incorporation of certain medicare advantage contract 
    requirements.--Except as otherwise provided, the following 
    provisions of section 1857 shall apply to contracts under this 
    section in the same manner as they apply to contracts under section 
    1857(a):
            ``(A) Minimum enrollment.--Paragraphs (1) and (3) of 
        section 1857(b), except that--
                ``(i) the Secretary may increase the minimum number of 
            enrollees required under such paragraph (1) as the 
            Secretary determines appropriate; and
                ``(ii) the requirement of such paragraph (1) shall be 
            waived during the first contract year with respect to an 
            organization in a region.
            ``(B) Contract period and effectiveness.--Section 1857(c), 
        except that in applying paragraph (4)(B) of such section any 
        reference to payment amounts under section 1853 shall be deemed 
        payment amounts under section 1860D-15.
            ``(C) Protections against fraud and beneficiary 
        protections.--Section 1857(d).
            ``(D) Additional contract terms.--Section 1857(e); except 
        that section 1857(e)(2) shall apply as specified to PDP 
        sponsors and payments under this part to an MA-PD plan shall be 
        treated as expenditures made under part D.
            ``(E) Intermediate sanctions.--Section 1857(g) (other than 
        paragraph (1)(F) of such section), except that in applying such 
        section the reference in section 1857(g)(1)(B) to section 1854 
        is deemed a reference to this part.
            ``(F) Procedures for termination.--Section 1857(h).
    ``(c) Waiver of Certain Requirements To Expand Choice.--
        ``(1) Authorizing waiver.--
            ``(A) In general.--In the case of an entity that seeks to 
        offer a prescription drug plan in a State, the Secretary shall 
        waive the requirement of subsection (a)(1) that the entity be 
        licensed in that State if the Secretary determines, based on 
        the application and other evidence presented to the Secretary, 
        that any of the grounds for approval of the application 
        described in paragraph (2) have been met.
            ``(B) Application of regional plan waiver rule.--In 
        addition to the waiver available under subparagraph (A), the 
        provisions of section 1858(d) shall apply to PDP sponsors under 
        this part in a manner similar to the manner in which such 
        provisions apply to MA organizations under part C, except that 
        no application shall be required under paragraph (1)(B) of such 
        section in the case of a State that does not provide a 
        licensing process for such a sponsor.
        ``(2) Grounds for approval.--
            ``(A) In general.--The grounds for approval under this 
        paragraph are--
                ``(i) subject to subparagraph (B), the grounds for 
            approval described in subparagraphs (B), (C), and (D) of 
            section 1855(a)(2); and
                ``(ii) the application by a State of any grounds other 
            than those required under Federal law.
            ``(B) Special rules.--In applying subparagraph (A)(i)--
                ``(i) the ground of approval described in section 
            1855(a)(2)(B) is deemed to have been met if the State does 
            not have a licensing process in effect with respect to the 
            PDP sponsor; and
                ``(ii) for plan years beginning before January 1, 2008, 
            if the State does have such a licensing process in effect, 
            such ground for approval described in such section is 
            deemed to have been met upon submission of an application 
            described in such section.
        ``(3) Application of waiver procedures.--With respect to an 
    application for a waiver (or a waiver granted) under paragraph 
    (1)(A) of this subsection, the provisions of subparagraphs (E), 
    (F), and (G) of section 1855(a)(2) shall apply, except that clauses 
    (i) and (ii) of such subparagraph (E) shall not apply in the case 
    of a State that does not have a licensing process described in 
    paragraph (2)(B)(i) in effect.
        ``(4) References to certain provisions.--In applying provisions 
    of section 1855(a)(2) under paragraphs (2) and (3) of this 
    subsection to prescription drug plans and PDP sponsors--
            ``(A) any reference to a waiver application under section 
        1855 shall be treated as a reference to a waiver application 
        under paragraph (1)(A) of this subsection; and
            ``(B) any reference to solvency standards shall be treated 
        as a reference to solvency standards established under 
        subsection (d) of this section.
    ``(d) Solvency Standards for Non-Licensed Entities.--
        ``(1) Establishment and publication.--The Secretary, in 
    consultation with the National Association of Insurance 
    Commissioners, shall establish and publish, by not later than 
    January 1, 2005, financial solvency and capital adequacy standards 
    for entities described in paragraph (2).
        ``(2) Compliance with standards.--A PDP sponsor that is not 
    licensed by a State under subsection (a)(1) and for which a waiver 
    application has been approved under subsection (c) shall meet 
    solvency and capital adequacy standards established under paragraph 
    (1). The Secretary shall establish certification procedures for 
    such sponsors with respect to such solvency standards in the manner 
    described in section 1855(c)(2).
    ``(e) Licensure Does Not Substitute for or Constitute 
Certification.--The fact that a PDP sponsor is licensed in accordance 
with subsection (a)(1) or has a waiver application approved under 
subsection (c) does not deem the sponsor to meet other requirements 
imposed under this part for a sponsor.
    ``(f) Periodic Review and Revision of Standards.--
        ``(1) In general.--Subject to paragraph (2), the Secretary may 
    periodically review the standards established under this section 
    and, based on such review, may revise such standards if the 
    Secretary determines such revision to be appropriate.
        ``(2) Prohibition of midyear implementation of significant new 
    regulatory requirements.--The Secretary may not implement, other 
    than at the beginning of a calendar year, regulations under this 
    section that impose new, significant regulatory requirements on a 
    PDP sponsor or a prescription drug plan.
    ``(g) Prohibition of State Imposition of Premium Taxes; Relation to 
State Laws.--The provisions of sections 1854(g) and 1856(b)(3) shall 
apply with respect to PDP sponsors and prescription drug plans under 
this part in the same manner as such sections apply to MA organizations 
and MA plans under part C.

                   ``premiums; late enrollment penalty

    ``Sec. 1860D-13. (a) Monthly Beneficiary Premium.--
        ``(1) Computation.--
            ``(A) In general.--The monthly beneficiary premium for a 
        prescription drug plan is the base beneficiary premium computed 
        under paragraph (2) as adjusted under this paragraph.
            ``(B) Adjustment to reflect difference between bid and 
        national average bid.--
                ``(i) Above average bid.--If for a month the amount of 
            the standardized bid amount (as defined in paragraph (5)) 
            exceeds the amount of the adjusted national average monthly 
            bid amount (as defined in clause (iii)), the base 
            beneficiary premium for the month shall be increased by the 
            amount of such excess.
                ``(ii) Below average bid.--If for a month the amount of 
            the adjusted national average monthly bid amount for the 
            month exceeds the standardized bid amount, the base 
            beneficiary premium for the month shall be decreased by the 
            amount of such excess.
                ``(iii) Adjusted national average monthly bid amount 
            defined.--For purposes of this subparagraph, the term 
            `adjusted national average monthly bid amount' means the 
            national average monthly bid amount computed under 
            paragraph (4), as adjusted under section 1860D-15(c)(2).
            ``(C) Increase for supplemental prescription drug 
        benefits.--The base beneficiary premium shall be increased by 
        the portion of the PDP approved bid that is attributable to 
        supplemental prescription drug benefits.
            ``(D) Increase for late enrollment penalty.--The base 
        beneficiary premium shall be increased by the amount of any 
        late enrollment penalty under subsection (b).
            ``(E) Decrease for low-income assistance.--The monthly 
        beneficiary premium is subject to decrease in the case of a 
        subsidy eligible individual under section 1860D-14.
            ``(F) Uniform premium.--Except as provided in subparagraphs 
        (D) and (E), the monthly beneficiary premium for a prescription 
        drug plan in a PDP region is the same for all part D eligible 
        individuals enrolled in the plan.
        ``(2) Base beneficiary premium.--The base beneficiary premium 
    under this paragraph for a prescription drug plan for a month is 
    equal to the product--
            ``(A) the beneficiary premium percentage (as specified in 
        paragraph (3)); and
            ``(B) the national average monthly bid amount (computed 
        under paragraph (4)) for the month.
        ``(3) Beneficiary premium percentage.--For purposes of this 
    subsection, the beneficiary premium percentage for any year is the 
    percentage equal to a fraction--
            ``(A) the numerator of which is 25.5 percent; and
            ``(B) the denominator of which is 100 percent minus a 
        percentage equal to--
                ``(i) the total reinsurance payments which the 
            Secretary estimates are payable under section 1860D-15(b) 
            with respect to the coverage year; divided by
                ``(ii) the sum of--

                    ``(I) the amount estimated under clause (i) for the 
                year; and
                    ``(II) the total payments which the Secretary 
                estimates will be paid to prescription drug plans and 
                MA-PD plans that are attributable to the standardized 
                bid amount during the year, taking into account amounts 
                paid by the Secretary and enrollees.

        ``(4) Computation of national average monthly bid amount.--
            ``(A) In general.--For each year (beginning with 2006) the 
        Secretary shall compute a national average monthly bid amount 
        equal to the average of the standardized bid amounts (as 
        defined in paragraph (5)) for each prescription drug plan and 
        for each MA-PD plan described in section 1851(a)(2)(A)(i). Such 
        average does not take into account the bids submitted for MSA 
        plans, MA private fee-for-service plan, and specialized MA 
        plans for special needs individuals, PACE programs under 
        section 1894 (pursuant to section 1860D-21(f)), and under 
        reasonable cost reimbursement contracts under section 1876(h) 
        (pursuant to section 1860D-21(e)).
            ``(B) Weighted average.--
                ``(i) In general.--The monthly national average monthly 
            bid amount computed under subparagraph (A) for a year shall 
            be a weighted average, with the weight for each plan being 
            equal to the average number of part D eligible individuals 
            enrolled in such plan in the reference month (as defined in 
            section 1858(f)(4)).
                ``(ii) Special rule for 2006.--For purposes of applying 
            this paragraph for 2006, the Secretary shall establish 
            procedures for determining the weighted average under 
            clause (i) for 2005.
        ``(5) Standardized bid amount defined.--For purposes of this 
    subsection, the term `standardized bid amount' means the following:
            ``(A) Prescription drug plans.--
                ``(i) Basic coverage.--In the case of a prescription 
            drug plan that provides basic prescription drug coverage, 
            the PDP approved bid (as defined in paragraph (6)).
                ``(ii) Supplemental coverage.--In the case of a 
            prescription drug plan that provides supplemental 
            prescription drug coverage, the portion of the PDP approved 
            bid that is attributable to basic prescription drug 
            coverage.
            ``(B) MA-PD plans.--In the case of an MA-PD plan, the 
        portion of the accepted bid amount that is attributable to 
        basic prescription drug coverage.
        ``(6) PDP approved bid defined.--For purposes of this part, the 
    term `PDP approved bid' means, with respect to a prescription drug 
    plan, the bid amount approved for the plan under this part.
    ``(b) Late Enrollment Penalty.--
        ``(1) In general.--Subject to the succeeding provisions of this 
    subsection, in the case of a part D eligible individual described 
    in paragraph (2) with respect to a continuous period of 
    eligibility, there shall be an increase in the monthly beneficiary 
    premium established under subsection (a) in an amount determined 
    under paragraph (3).
        ``(2) Individuals subject to penalty.--A part D eligible 
    individual described in this paragraph is, with respect to a 
    continuous period of eligibility, an individual for whom there is a 
    continuous period of 63 days or longer (all of which in such 
    continuous period of eligibility) beginning on the day after the 
    last date of the individual's initial enrollment period under 
    section 1860D-1(b)(2) and ending on the date of enrollment under a 
    prescription drug plan or MA-PD plan during all of which the 
    individual was not covered under any creditable prescription drug 
    coverage.
        ``(3) Amount of penalty.--
            ``(A) In general.--The amount determined under this 
        paragraph for a part D eligible individual for a continuous 
        period of eligibility is the greater of--
                ``(i) an amount that the Secretary determines is 
            actuarially sound for each uncovered month (as defined in 
            subparagraph (B)) in the same continuous period of 
            eligibility; or
                ``(ii) 1 percent of the base beneficiary premium 
            (computed under subsection (a)(2)) for each such uncovered 
            month in such period.
            ``(B) Uncovered month defined.--For purposes of this 
        subsection, the term `uncovered month' means, with respect to a 
        part D eligible individual, any month beginning after the end 
        of the initial enrollment period under section 1860D-1(b)(2) 
        unless the individual can demonstrate that the individual had 
        creditable prescription drug coverage (as defined in paragraph 
        (4)) for any portion of such month.
        ``(4) Creditable prescription drug coverage defined.--For 
    purposes of this part, the term `creditable prescription drug 
    coverage' means any of the following coverage, but only if the 
    coverage meets the requirement of paragraph (5):
            ``(A) Coverage under prescription drug plan or ma-pd 
        plan.--Coverage under a prescription drug plan or under an MA-
        PD plan.
            ``(B) Medicaid.--Coverage under a medicaid plan under title 
        XIX or under a waiver under section 1115.
            ``(C) Group health plan.--Coverage under a group health 
        plan, including a health benefits plan under chapter 89 of 
        title 5, United States Code (commonly known as the Federal 
        employees health benefits program), and a qualified retiree 
        prescription drug plan (as defined in section 1860D-22(a)(2)).
            ``(D) State pharmaceutical assistance program.--Coverage 
        under a State pharmaceutical assistance program described in 
        section 1860D-23(b)(1).
            ``(E) Veterans' coverage of prescription drugs.--Coverage 
        for veterans, and survivors and dependents of veterans, under 
        chapter 17 of title 38, United States Code.
            ``(F) Prescription drug coverage under medigap policies.--
        Coverage under a medicare supplemental policy under section 
        1882 that provides benefits for prescription drugs (whether or 
        not such coverage conforms to the standards for packages of 
        benefits under section 1882(p)(1)).
            ``(G) Military coverage (including tricare).--Coverage 
        under chapter 55 of title 10, United States Code.
            ``(H) Other coverage.--Such other coverage as the Secretary 
        determines appropriate.
        ``(5) Actuarial equivalence requirement.--Coverage meets the 
    requirement of this paragraph only if the coverage is determined 
    (in a manner specified by the Secretary) to provide coverage of the 
    cost of prescription drugs the actuarial value of which (as defined 
    by the Secretary) to the individual equals or exceeds the actuarial 
    value of standard prescription drug coverage (as determined under 
    section 1860D-11(c)).
        ``(6) Procedures to document creditable prescription drug 
    coverage.--
            ``(A) In general.--The Secretary shall establish procedures 
        (including the form, manner, and time) for the documentation of 
        creditable prescription drug coverage, including procedures to 
        assist in determining whether coverage meets the requirement of 
        paragraph (5).
            ``(B) Disclosure by entities offering creditable 
        prescription drug coverage.--
                ``(i) In general.--Each entity that offers prescription 
            drug coverage of the type described in subparagraphs (B) 
            through (H) of paragraph (4) shall provide for disclosure, 
            in a form, manner, and time consistent with standards 
            established by the Secretary, to the Secretary and part D 
            eligible individuals of whether the coverage meets the 
            requirement of paragraph (5) or whether such coverage is 
            changed so it no longer meets such requirement.
                ``(ii) Disclosure of non-creditable coverage.--In the 
            case of such coverage that does not meet such requirement, 
            the disclosure to part D eligible individuals under this 
            subparagraph shall include information regarding the fact 
            that because such coverage does not meet such requirement 
            there are limitations on the periods in a year in which the 
            individuals may enroll under a prescription drug plan or an 
            MA-PD plan and that any such enrollment is subject to a 
            late enrollment penalty under this subsection.
            ``(C) Waiver of requirement.--In the case of a part D 
        eligible individual who was enrolled in prescription drug 
        coverage of the type described in subparagraphs (B) through (H) 
        of paragraph (4) which is not creditable prescription drug 
        coverage because it does not meet the requirement of paragraph 
        (5), the individual may apply to the Secretary to have such 
        coverage treated as creditable prescription drug coverage if 
        the individual establishes that the individual was not 
        adequately informed that such coverage did not meet such 
        requirement.
        ``(7) Continuous period of eligibility.--
            ``(A) In general.--Subject to subparagraph (B), for 
        purposes of this subsection, the term `continuous period of 
        eligibility' means, with respect to a part D eligible 
        individual, the period that begins with the first day on which 
        the individual is eligible to enroll in a prescription drug 
        plan under this part and ends with the individual's death.
            ``(B) Separate period.--Any period during all of which a 
        part D eligible individual is entitled to hospital insurance 
        benefits under part A and--
                ``(i) which terminated in or before the month preceding 
            the month in which the individual attained age 65; or
                ``(ii) for which the basis for eligibility for such 
            entitlement changed between section 226(b) and section 
            226(a), between 226(b) and section 226A, or between section 
            226A and section 226(a),
        shall be a separate continuous period of eligibility with 
        respect to the individual (and each such period which 
        terminates shall be deemed not to have existed for purposes of 
        subsequently applying this paragraph).
    ``(c) Collection of Monthly Beneficiary Premiums.--
        ``(1) In general.--Subject to paragraphs (2) and (3), the 
    provisions of section 1854(d) shall apply to PDP sponsors and 
    premiums (and any late enrollment penalty) under this part in the 
    same manner as they apply to MA organizations and beneficiary 
    premiums under part C, except that any reference to a Trust Fund is 
    deemed for this purpose a reference to the Medicare Prescription 
    Drug Account.
        ``(2) Crediting of late enrollment penalty.--
            ``(A) Portion attributable to increased actuarial costs.--
        With respect to late enrollment penalties imposed under 
        subsection (b), the Secretary shall specify the portion of such 
        a penalty that the Secretary estimates is attributable to 
        increased actuarial costs assumed by the PDP sponsor or MA 
        organization (and not taken into account through risk 
        adjustment provided under section 1860D-15(c)(1) or through 
        reinsurance payments under section 1860D-15(b)) as a result of 
        such late enrollment.
            ``(B) Collection through withholding.--In the case of a 
        late enrollment penalty that is collected from a part D 
        eligible individual in the manner described in section 
        1854(d)(2)(A), the Secretary shall provide that only the 
        portion of such penalty estimated under subparagraph (A) shall 
        be paid to the PDP sponsor or MA organization offering the part 
        D plan in which the individual is enrolled.
            ``(C) Collection by plan.--In the case of a late enrollment 
        penalty that is collected from a part D eligible individual in 
        a manner other than the manner described in section 
        1854(d)(2)(A), the Secretary shall establish procedures for 
        reducing payments otherwise made to the PDP sponsor or MA 
        organization by an amount equal to the amount of such penalty 
        less the portion of such penalty estimated under subparagraph 
        (A).
        ``(3) Fallback plans.--In applying this subsection in the case 
    of a fallback prescription drug plan, paragraph (2) shall not apply 
    and the monthly beneficiary premium shall be collected in the 
    manner specified in section 1854(d)(2)(A) (or such other manner as 
    may be provided under section 1840 in the case of monthly premiums 
    under section 1839).

     ``premium and cost-sharing subsidies for low-income individuals

    ``Sec. 1860D-14. (a) Income-Related Subsidies for Individuals With 
Income Up to 150 Percent of Poverty Line.--
        ``(1) Individuals with income below 135 percent of poverty 
    line.--In the case of a subsidy eligible individual (as defined in 
    paragraph (3)) who is determined to have income that is below 135 
    percent of the poverty line applicable to a family of the size 
    involved and who meets the resources requirement described in 
    paragraph (3)(D) or who is covered under this paragraph under 
    paragraph (3)(B)(i), the individual is entitled under this section 
    to the following:
            ``(A) Full premium subsidy.--An income-related premium 
        subsidy equal to--
                ``(i) 100 percent of the amount described in subsection 
            (b)(1), but not to exceed the premium amount specified in 
            subsection (b)(2)(B); plus
                ``(ii) 80 percent of any late enrollment penalties 
            imposed under section 1860D-13(b) for the first 60 months 
            in which such penalties are imposed for that individual, 
            and 100 percent of any such penalties for any subsequent 
            month.
            ``(B) Elimination of deductible.--A reduction in the annual 
        deductible applicable under section 1860D-2(b)(1) to $0.
            ``(C) Continuation of coverage above the initial coverage 
        limit.--The continuation of coverage from the initial coverage 
        limit (under paragraph (3) of section 1860D-2(b)) for 
        expenditures incurred through the total amount of expenditures 
        at which benefits are available under paragraph (4) of such 
        section, subject to the reduced cost-sharing described in 
        subparagraph (D).
            ``(D) Reduction in cost-sharing below out-of-pocket 
        threshold.--
                ``(i) Institutionalized individuals.--In the case of an 
            individual who is a full-benefit dual eligible individual 
            and who is an institutionalized individual or couple (as 
            defined in section 1902(q)(1)(B)), the elimination of any 
            beneficiary coinsurance described in section 1860D-2(b)(2) 
            (for all amounts through the total amount of expenditures 
            at which benefits are available under section 1860D-
            2(b)(4)).
                ``(ii) Lowest income dual eligible individuals.--In the 
            case of an individual not described in clause (i) who is a 
            full-benefit dual eligible individual and whose income does 
            not exceed 100 percent of the poverty line applicable to a 
            family of the size involved, the substitution for the 
            beneficiary coinsurance described in section 1860D-2(b)(2) 
            (for all amounts through the total amount of expenditures 
            at which benefits are available under section 1860D-
            2(b)(4)) of a copayment amount that does not exceed $1 for 
            a generic drug or a preferred drug that is a multiple 
            source drug (as defined in section 1927(k)(7)(A)(i)) and $3 
            for any other drug, or, if less, the copayment amount 
            applicable to an individual under clause (iii).
                ``(iii) Other individuals.--In the case of an 
            individual not described in clause (i) or (ii), the 
            substitution for the beneficiary coinsurance described in 
            section 1860D-2(b)(2) (for all amounts through the total 
            amount of expenditures at which benefits are available 
            under section 1860D-2(b)(4)) of a copayment amount that 
            does not exceed the copayment amount specified under 
            section 1860D-2(b)(4)(A)(i)(I) for the drug and year 
            involved.
            ``(E) Elimination of cost-sharing above annual out-of-
        pocket threshold.--The elimination of any cost-sharing imposed 
        under section 1860D-2(b)(4)(A).
        ``(2) Other individuals with income below 150 percent of 
    poverty line.--In the case of a subsidy eligible individual who is 
    not described in paragraph (1), the individual is entitled under 
    this section to the following:
            ``(A) Sliding scale premium subsidy.--An income-related 
        premium subsidy determined on a linear sliding scale ranging 
        from 100 percent of the amount described in paragraph (1)(A) 
        for individuals with incomes at or below 135 percent of such 
        level to 0 percent of such amount for individuals with incomes 
        at 150 percent of such level.
            ``(B) Reduction of deductible.--A reduction in the annual 
        deductible applicable under section 1860D-2(b)(1) to $50.
            ``(C) Continuation of coverage above the initial coverage 
        limit.--The continuation of coverage from the initial coverage 
        limit (under paragraph (3) of section 1860D-2(b)) for 
        expenditures incurred through the total amount of expenditures 
        at which benefits are available under paragraph (4) of such 
        section, subject to the reduced coinsurance described in 
        subparagraph (D).
            ``(D) Reduction in cost-sharing below out-of-pocket 
        threshold.--The substitution for the beneficiary coinsurance 
        described in section 1860D-2(b)(2) (for all amounts above the 
        deductible under subparagraph (B) through the total amount of 
        expenditures at which benefits are available under section 
        1860D-2(b)(4)) of coinsurance of `15 percent' instead of 
        coinsurance of `25 percent' in section 1860D-2(b)(2).
            ``(E) Reduction of cost-sharing above annual out-of-pocket 
        threshold.--Subject to subsection (c), the substitution for the 
        cost-sharing imposed under section 1860D-2(b)(4)(A) of a 
        copayment or coinsurance not to exceed the copayment or 
        coinsurance amount specified under section 1860D-
        2(b)(4)(A)(i)(I) for the drug and year involved.
        ``(3) Determination of eligibility.--
            ``(A) Subsidy eligible individual defined.--For purposes of 
        this part, subject to subparagraph (F), the term `subsidy 
        eligible individual' means a part D eligible individual who--
                ``(i) is enrolled in a prescription drug plan or MA-PD 
            plan;
                ``(ii) has income below 150 percent of the poverty line 
            applicable to a family of the size involved; and
                ``(iii) meets the resources requirement described in 
            subparagraph (D) or (E).
            ``(B) Determinations.--
                ``(i) In general.--The determination of whether a part 
            D eligible individual residing in a State is a subsidy 
            eligible individual and whether the individual is described 
            in paragraph (1) shall be determined under the State plan 
            under title XIX for the State under section 1935(a) or by 
            the Commissioner of Social Security. There are authorized 
            to be appropriated to the Social Security Administration 
            such sums as may be necessary for the determination of 
            eligibility under this subparagraph.
                ``(ii) Effective period.--Determinations under this 
            subparagraph shall be effective beginning with the month in 
            which the individual applies for a determination that the 
            individual is a subsidy eligible individual and shall 
            remain in effect for a period specified by the Secretary, 
            but not to exceed 1 year.
                ``(iii) Redeterminations and appeals through 
            medicaid.--Redeterminations and appeals, with respect to 
            eligibility determinations under clause (i) made under a 
            State plan under title XIX, shall be made in accordance 
            with the frequency of, and manner in which, 
            redeterminations and appeals of eligibility are made under 
            such plan for purposes of medical assistance under such 
            title.
                ``(iv) Redeterminations and appeals through 
            commissioner.--With respect to eligibility determinations 
            under clause (i) made by the Commissioner of Social 
            Security--

                    ``(I) redeterminations shall be made at such time 
                or times as may be provided by the Commissioner; and
                    ``(II) the Commissioner shall establish procedures 
                for appeals of such determinations that are similar to 
                the procedures described in the third sentence of 
                section 1631(c)(1)(A).

                ``(v) Treatment of medicaid beneficiaries.--Subject to 
            subparagraph (F), the Secretary--

                    ``(I) shall provide that part D eligible 
                individuals who are full-benefit dual eligible 
                individuals (as defined in section 1935(c)(6)) or who 
                are recipients of supplemental security income benefits 
                under title XVI shall be treated as subsidy eligible 
                individuals described in paragraph (1); and
                    ``(II) may provide that part D eligible individuals 
                not described in subclause (I) who are determined for 
                purposes of the State plan under title XIX to be 
                eligible for medical assistance under clause (i), 
                (iii), or (iv) of section 1902(a)(10)(E) are treated as 
                being determined to be subsidy eligible individuals 
                described in paragraph (1).

            Insofar as the Secretary determines that the eligibility 
            requirements under the State plan for medical assistance 
            referred to in subclause (II) are substantially the same as 
            the requirements for being treated as a subsidy eligible 
            individual described in paragraph (1), the Secretary shall 
            provide for the treatment described in such subclause.
            ``(C) Income determinations.--For purposes of applying this 
        section--
                ``(i) in the case of a part D eligible individual who 
            is not treated as a subsidy eligible individual under 
            subparagraph (B)(v), income shall be determined in the 
            manner described in section 1905(p)(1)(B), without regard 
            to the application of section 1902(r)(2); and
                ``(ii) the term `poverty line' has the meaning given 
            such term in section 673(2) of the Community Services Block 
            Grant Act (42 U.S.C. 9902(2)), including any revision 
            required by such section.
        Nothing in clause (i) shall be construed to affect the 
        application of section 1902(r)(2) for the determination of 
        eligibility for medical assistance under title XIX.
            ``(D) Resource standard applied to full low-income subsidy 
        to be based on three times ssi resource standard.--The 
        resources requirement of this subparagraph is that an 
        individual's resources (as determined under section 1613 for 
        purposes of the supplemental security income program) do not 
        exceed--
                ``(i) for 2006 three times the maximum amount of 
            resources that an individual may have and obtain benefits 
            under that program; and
                ``(ii) for a subsequent year the resource limitation 
            established under this clause for the previous year 
            increased by the annual percentage increase in the consumer 
            price index (all items; U.S. city average) as of September 
            of such previous year.
        Any resource limitation established under clause (ii) that is 
        not a multiple of $10 shall be rounded to the nearest multiple 
        of $10.
            ``(E) Alternative resource standard.--
                ``(i) In general.--The resources requirement of this 
            subparagraph is that an individual's resources (as 
            determined under section 1613 for purposes of the 
            supplemental security income program) do not exceed--

                    ``(I) for 2006, $10,000 (or $20,000 in the case of 
                the combined value of the individual's assets or 
                resources and the assets or resources of the 
                individual's spouse); and
                    ``(II) for a subsequent year the dollar amounts 
                specified in this subclause (or subclause (I)) for the 
                previous year increased by the annual percentage 
                increase in the consumer price index (all items; U.S. 
                city average) as of September of such previous year.

            Any dollar amount established under subclause (II) that is 
            not a multiple of $10 shall be rounded to the nearest 
            multiple of $10.
                ``(ii) Use of simplified application form and 
            process.--The Secretary, jointly with the Commissioner of 
            Social Security, shall--

                    ``(I) develop a model, simplified application form 
                and process consistent with clause (iii) for the 
                determination and verification of a part D eligible 
                individual's assets or resources under this 
                subparagraph; and
                    ``(II) provide such form to States.

                ``(iii) Documentation and safeguards.--Under such 
            process--

                    ``(I) the application form shall consist of an 
                attestation under penalty of perjury regarding the 
                level of assets or resources (or combined assets and 
                resources in the case of a married part D eligible 
                individual) and valuations of general classes of assets 
                or resources;
                    ``(II) such form shall be accompanied by copies of 
                recent statements (if any) from financial institutions 
                in support of the application; and
                    ``(III) matters attested to in the application 
                shall be subject to appropriate methods of 
                verification.

                ``(iv) Methodology flexibility.--The Secretary may 
            permit a State in making eligibility determinations for 
            premium and cost-sharing subsidies under this section to 
            use the same asset or resource methodologies that are used 
            with respect to eligibility for medical assistance for 
            medicare cost-sharing described in section 1905(p) so long 
            as the Secretary determines that the use of such 
            methodologies will not result in any significant 
            differences in the number of individuals determined to be 
            subsidy eligible individuals.
            ``(F) Treatment of territorial residents.--In the case of a 
        part D eligible individual who is not a resident of the 50 
        States or the District of Columbia, the individual is not 
        eligible to be a subsidy eligible individual under this section 
        but may be eligible for financial assistance with prescription 
        drug expenses under section 1935(e).
        ``(4) Indexing dollar amounts.--
            ``(A) Copayment for lowest income dual eligible 
        individuals.--The dollar amounts applied under paragraph 
        (1)(D)(ii)--
                ``(i) for 2007 shall be the dollar amounts specified in 
            such paragraph increased by the annual percentage increase 
            in the consumer price index (all items; U.S. city average) 
            as of September of such previous year; or
                ``(ii) for a subsequent year shall be the dollar 
            amounts specified in this clause (or clause (i)) for the 
            previous year increased by the annual percentage increase 
            in the consumer price index (all items; U.S. city average) 
            as of September of such previous year.
        Any amount established under clause (i) or (ii), that is based 
        on an increase of $1 or $3, that is not a multiple of 5 cents 
        or 10 cents, respectively, shall be rounded to the nearest 
        multiple of 5 cents or 10 cents, respectively.
            ``(B) Reduced deductible.--The dollar amount applied under 
        paragraph (2)(B)--
                ``(i) for 2007 shall be the dollar amount specified in 
            such paragraph increased by the annual percentage increase 
            described in section 1860D-2(b)(6) for 2007; or
                ``(ii) for a subsequent year shall be the dollar amount 
            specified in this clause (or clause (i)) for the previous 
            year increased by the annual percentage increase described 
            in section 1860D-2(b)(6) for the year involved.
        Any amount established under clause (i) or (ii) that is not a 
        multiple of $1 shall be rounded to the nearest multiple of $1.
    ``(b) Premium Subsidy Amount.--
        ``(1) In general.--The premium subsidy amount described in this 
    subsection for a subsidy eligible individual residing in a PDP 
    region and enrolled in a prescription drug plan or MA-PD plan is 
    the low-income benchmark premium amount (as defined in paragraph 
    (2)) for the PDP region in which the individual resides or, if 
    greater, the amount specified in paragraph (3).
        ``(2) Low-income benchmark premium amount defined.--
            ``(A) In general.--For purposes of this subsection, the 
        term `low-income benchmark premium amount' means, with respect 
        to a PDP region in which--
                ``(i) all prescription drug plans are offered by the 
            same PDP sponsor, the weighted average of the amounts 
            described in subparagraph (B)(i) for such plans; or
                ``(ii) there are prescription drug plans offered by 
            more than one PDP sponsor, the weighted average of amounts 
            described in subparagraph (B) for prescription drug plans 
            and MA-PD plans described in section 1851(a)(2)(A)(i) 
            offered in such region.
            ``(B) Premium amounts described.--The premium amounts 
        described in this subparagraph are, in the case of--
                ``(i) a prescription drug plan that is a basic 
            prescription drug plan, the monthly beneficiary premium for 
            such plan;
                ``(ii) a prescription drug plan that provides 
            alternative prescription drug coverage the actuarial value 
            of which is greater than that of standard prescription drug 
            coverage, the portion of the monthly beneficiary premium 
            that is attributable to basic prescription drug coverage; 
            and
                ``(iii) an MA-PD plan, the portion of the MA monthly 
            prescription drug beneficiary premium that is attributable 
            to basic prescription drug benefits (described in section 
            1852(a)(6)(B)(ii)).
        The premium amounts described in this subparagraph do not 
        include any amounts attributable to late enrollment penalties 
        under section 1860D-13(b).
        ``(3) Access to 0 premium plan.--In no case shall the premium 
    subsidy amount under this subsection for a PDP region be less than 
    the lowest monthly beneficiary premium for a prescription drug plan 
    that offers basic prescription drug coverage in the region.
    ``(c) Administration of Subsidy Program.--
        ``(1) In general.--The Secretary shall provide a process 
    whereby, in the case of a part D eligible individual who is 
    determined to be a subsidy eligible individual and who is enrolled 
    in a prescription drug plan or is enrolled in an MA-PD plan--
            ``(A) the Secretary provides for a notification of the PDP 
        sponsor or the MA organization offering the plan involved that 
        the individual is eligible for a subsidy and the amount of the 
        subsidy under subsection (a);
            ``(B) the sponsor or organization involved reduces the 
        premiums or cost-sharing otherwise imposed by the amount of the 
        applicable subsidy and submits to the Secretary information on 
        the amount of such reduction;
            ``(C) the Secretary periodically and on a timely basis 
        reimburses the sponsor or organization for the amount of such 
        reductions; and
            ``(D) the Secretary ensures the confidentiality of 
        individually identifiable information.
    In applying subparagraph (C), the Secretary shall compute 
    reductions based upon imposition under subsections (a)(1)(D) and 
    (a)(2)(E) of unreduced copayment amounts applied under such 
    subsections.
        ``(2) Use of capitated form of payment.--The reimbursement 
    under this section with respect to cost-sharing subsidies may be 
    computed on a capitated basis, taking into account the actuarial 
    value of the subsidies and with appropriate adjustments to reflect 
    differences in the risks actually involved.
    ``(d) Relation to Medicaid Program.--For special provisions under 
the medicaid program relating to medicare prescription drug benefits, 
see section 1935.

        ``subsidies for part d eligible individuals for qualified 
                       prescription drug coverage

    ``Sec. 1860D-15. (a) Subsidy Payment.--In order to reduce premium 
levels applicable to qualified prescription drug coverage for part D 
eligible individuals consistent with an overall subsidy level of 74.5 
percent for basic prescription drug coverage, to reduce adverse 
selection among prescription drug plans and MA-PD plans, and to promote 
the participation of PDP sponsors under this part and MA organizations 
under part C, the Secretary shall provide for payment to a PDP sponsor 
that offers a prescription drug plan and an MA organization that offers 
an MA-PD plan of the following subsidies in accordance with this 
section:
        ``(1) Direct subsidy.--A direct subsidy for each part D 
    eligible individual enrolled in a prescription drug plan or MA-PD 
    plan for a month equal to--
            ``(A) the amount of the plan's standardized bid amount (as 
        defined in section 1860D-13(a)(5)), adjusted under subsection 
        (c)(1), reduced by
            ``(B) the base beneficiary premium (as computed under 
        paragraph (2) of section 1860D-13(a) and as adjusted under 
        paragraph (1)(B) of such section).
        ``(2) Subsidy through reinsurance.--The reinsurance payment 
    amount (as defined in subsection (b)).
This section constitutes budget authority in advance of appropriations 
Acts and represents the obligation of the Secretary to provide for the 
payment of amounts provided under this section.
    ``(b) Reinsurance Payment Amount.--
        ``(1) In general.--The reinsurance payment amount under this 
    subsection for a part D eligible individual enrolled in a 
    prescription drug plan or MA-PD plan for a coverage year is an 
    amount equal to 80 percent of the allowable reinsurance costs (as 
    specified in paragraph (2)) attributable to that portion of gross 
    covered prescription drug costs as specified in paragraph (3) 
    incurred in the coverage year after such individual has incurred 
    costs that exceed the annual out-of-pocket threshold specified in 
    section 1860D-2(b)(4)(B).
        ``(2) Allowable reinsurance costs.--For purposes of this 
    section, the term `allowable reinsurance costs' means, with respect 
    to gross covered prescription drug costs under a prescription drug 
    plan offered by a PDP sponsor or an MA-PD plan offered by an MA 
    organization, the part of such costs that are actually paid (net of 
    discounts, chargebacks, and average percentage rebates) by the 
    sponsor or organization or by (or on behalf of) an enrollee under 
    the plan, but in no case more than the part of such costs that 
    would have been paid under the plan if the prescription drug 
    coverage under the plan were basic prescription drug coverage, or, 
    in the case of a plan providing supplemental prescription drug 
    coverage, if such coverage were standard prescription drug 
    coverage.
        ``(3) Gross covered prescription drug costs.--For purposes of 
    this section, the term `gross covered prescription drug costs' 
    means, with respect to a part D eligible individual enrolled in a 
    prescription drug plan or MA-PD plan during a coverage year, the 
    costs incurred under the plan, not including administrative costs, 
    but including costs directly related to the dispensing of covered 
    part D drugs during the year and costs relating to the deductible. 
    Such costs shall be determined whether they are paid by the 
    individual or under the plan, regardless of whether the coverage 
    under the plan exceeds basic prescription drug coverage.
        ``(4) Coverage year defined.--For purposes of this section, the 
    term `coverage year' means a calendar year in which covered part D 
    drugs are dispensed if the claim for such drugs (and payment on 
    such claim) is made not later than such period after the end of 
    such year as the Secretary specifies.
    ``(c) Adjustments Relating to Bids.--
        ``(1) Health status risk adjustment.--
            ``(A) Establishment of risk adjustors.--The Secretary shall 
        establish an appropriate methodology for adjusting the 
        standardized bid amount under subsection (a)(1)(A) to take into 
        account variation in costs for basic prescription drug coverage 
        among prescription drug plans and MA-PD plans based on the 
        differences in actuarial risk of different enrollees being 
        served. Any such risk adjustment shall be designed in a manner 
        so as not to result in a change in the aggregate amounts 
        payable to such plans under subsection (a)(1) and through that 
        portion of the monthly beneficiary prescription drug premiums 
        described in subsection (a)(1)(B) and MA monthly prescription 
        drug beneficiary premiums.
            ``(B) Considerations.--In establishing the methodology 
        under subparagraph (A), the Secretary may take into account the 
        similar methodologies used under section 1853(a)(3) to adjust 
        payments to MA organizations for benefits under the original 
        medicare fee-for-service program option.
            ``(C) Data collection.--In order to carry out this 
        paragraph, the Secretary shall require--
                ``(i) PDP sponsors to submit data regarding drug claims 
            that can be linked at the individual level to part A and 
            part B data and such other information as the Secretary 
            determines necessary; and
                ``(ii) MA organizations that offer MA-PD plans to 
            submit data regarding drug claims that can be linked at the 
            individual level to other data that such organizations are 
            required to submit to the Secretary and such other 
            information as the Secretary determines necessary.
            ``(D) Publication.--At the time of publication of risk 
        adjustment factors under section 1853(b)(1)(B)(i)(II), the 
        Secretary shall publish the risk adjusters established under 
        this paragraph for the succeeding year.
        ``(2) Geographic adjustment.--
            ``(A) In general.--Subject to subparagraph (B), for 
        purposes of section 1860D-13(a)(1)(B)(iii), the Secretary shall 
        establish an appropriate methodology for adjusting the national 
        average monthly bid amount (computed under section 1860D-
        13(a)(4)) to take into account differences in prices for 
        covered part D drugs among PDP regions.
            ``(B) De minimis rule.--If the Secretary determines that 
        the price variations described in subparagraph (A) among PDP 
        regions are de minimis, the Secretary shall not provide for 
        adjustment under this paragraph.
            ``(C) Budget neutral adjustment.--Any adjustment under this 
        paragraph shall be applied in a manner so as to not result in a 
        change in the aggregate payments made under this part that 
        would have been made if the Secretary had not applied such 
        adjustment.
    ``(d) Payment Methods.--
        ``(1) In general.--Payments under this section shall be based 
    on such a method as the Secretary determines. The Secretary may 
    establish a payment method by which interim payments of amounts 
    under this section are made during a year based on the Secretary's 
    best estimate of amounts that will be payable after obtaining all 
    of the information.
        ``(2) Requirement for provision of information.--
            ``(A) Requirement.--Payments under this section to a PDP 
        sponsor or MA organization are conditioned upon the furnishing 
        to the Secretary, in a form and manner specified by the 
        Secretary, of such information as may be required to carry out 
        this section.
            ``(B) Restriction on use of information.--Information 
        disclosed or obtained pursuant to subparagraph (A) may be used 
        by officers, employees, and contractors of the Department of 
        Health and Human Services only for the purposes of, and to the 
        extent necessary in, carrying out this section.
        ``(3) Source of payments.--Payments under this section shall be 
    made from the Medicare Prescription Drug Account.
        ``(4) Application of enrollee adjustment.--The provisions of 
    section 1853(a)(2) shall apply to payments to PDP sponsors under 
    this section in the same manner as they apply to payments to MA 
    organizations under section 1853(a).
    ``(e) Portion of Total Payments to a Sponsor or Organization 
Subject to Risk (Application of Risk Corridors).--
        ``(1) Computation of adjusted allowable risk corridor costs.--
            ``(A) In general.--For purposes of this subsection, the 
        term `adjusted allowable risk corridor costs' means, for a plan 
        for a coverage year (as defined in subsection (b)(4))--
                ``(i) the allowable risk corridor costs (as defined in 
            subparagraph (B)) for the plan for the year, reduced by
                ``(ii) the sum of (I) the total reinsurance payments 
            made under subsection (b) to the sponsor of the plan for 
            the year, and (II) the total subsidy payments made under 
            section 1860D-14 to the sponsor of the plan for the year.
            ``(B) Allowable risk corridor costs.--For purposes of this 
        subsection, the term `allowable risk corridor costs' means, 
        with respect to a prescription drug plan offered by a PDP 
        sponsor or an MA-PD plan offered by an MA organization, the 
        part of costs (not including administrative costs, but 
        including costs directly related to the dispensing of covered 
        part D drugs during the year) incurred by the sponsor or 
        organization under the plan that are actually paid (net of 
        discounts, chargebacks, and average percentage rebates) by the 
        sponsor or organization under the plan, but in no case more 
        than the part of such costs that would have been paid under the 
        plan if the prescription drug coverage under the plan were 
        basic prescription drug coverage, or, in the case of a plan 
        providing supplemental prescription drug coverage, if such 
        coverage were basic prescription drug coverage taking into 
        account the adjustment under section 1860D-11(c)(2). In 
        computing allowable costs under this paragraph, the Secretary 
        shall compute such costs based upon imposition under paragraphs 
        (1)(D) and (2)(E) of section 1860D-14(a) of the maximum amount 
        of copayments permitted under such paragraphs.
        ``(2) Adjustment of payment.--
            ``(A) No adjustment if adjusted allowable risk corridor 
        costs within risk corridor.--If the adjusted allowable risk 
        corridor costs (as defined in paragraph (1)) for the plan for 
        the year are at least equal to the first threshold lower limit 
        of the risk corridor (specified in paragraph (3)(A)(i)), but 
        not greater than the first threshold upper limit of the risk 
        corridor (specified in paragraph (3)(A)(iii)) for the plan for 
        the year, then no payment adjustment shall be made under this 
        subsection.
            ``(B) Increase in payment if adjusted allowable risk 
        corridor costs above upper limit of risk corridor.--
                ``(i) Costs between first and second threshold upper 
            limits.--If the adjusted allowable risk corridor costs for 
            the plan for the year are greater than the first threshold 
            upper limit, but not greater than the second threshold 
            upper limit, of the risk corridor for the plan for the 
            year, the Secretary shall increase the total of the 
            payments made to the sponsor or organization offering the 
            plan for the year under this section by an amount equal to 
            50 percent (or, for 2006 and 2007, 75 percent or 90 percent 
            if the conditions described in clause (iii) are met for the 
            year) of the difference between such adjusted allowable 
            risk corridor costs and the first threshold upper limit of 
            the risk corridor.
                ``(ii) Costs above second threshold upper limits.--If 
            the adjusted allowable risk corridor costs for the plan for 
            the year are greater than the second threshold upper limit 
            of the risk corridor for the plan for the year, the 
            Secretary shall increase the total of the payments made to 
            the sponsor or organization offering the plan for the year 
            under this section by an amount equal to the sum of--

                    ``(I) 50 percent (or, for 2006 and 2007, 75 percent 
                or 90 percent if the conditions described in clause 
                (iii) are met for the year) of the difference between 
                the second threshold upper limit and the first 
                threshold upper limit; and
                    ``(II) 80 percent of the difference between such 
                adjusted allowable risk corridor costs and the second 
                threshold upper limit of the risk corridor.

                ``(iii) Conditions for application of higher percentage 
            for 2006 and 2007.--The conditions described in this clause 
            are met for 2006 or 2007 if the Secretary determines with 
            respect to such year that--

                    ``(I) at least 60 percent of prescription drug 
                plans and MA-PD plans to which this subsection applies 
                have adjusted allowable risk corridor costs for the 
                plan for the year that are more than the first 
                threshold upper limit of the risk corridor for the plan 
                for the year; and
                    ``(II) such plans represent at least 60 percent of 
                part D eligible individuals enrolled in any 
                prescription drug plan or MA-PD plan.

            ``(C) Reduction in payment if adjusted allowable risk 
        corridor costs below lower limit of risk corridor.--
                ``(i) Costs between first and second threshold lower 
            limits.--If the adjusted allowable risk corridor costs for 
            the plan for the year are less than the first threshold 
            lower limit, but not less than the second threshold lower 
            limit, of the risk corridor for the plan for the year, the 
            Secretary shall reduce the total of the payments made to 
            the sponsor or organization offering the plan for the year 
            under this section by an amount (or otherwise recover from 
            the sponsor or organization an amount) equal to 50 percent 
            (or, for 2006 and 2007, 75 percent) of the difference 
            between the first threshold lower limit of the risk 
            corridor and such adjusted allowable risk corridor costs.
                ``(ii) Costs below second threshold lower limit.--If 
            the adjusted allowable risk corridor costs for the plan for 
            the year are less the second threshold lower limit of the 
            risk corridor for the plan for the year, the Secretary 
            shall reduce the total of the payments made to the sponsor 
            or organization offering the plan for the year under this 
            section by an amount (or otherwise recover from the sponsor 
            or organization an amount) equal to the sum of--

                    ``(I) 50 percent (or, for 2006 and 2007, 75 
                percent) of the difference between the first threshold 
                lower limit and the second threshold lower limit; and
                    ``(II) 80 percent of the difference between the 
                second threshold upper limit of the risk corridor and 
                such adjusted allowable risk corridor costs.

        ``(3) Establishment of risk corridors.--
            ``(A) In general.--For each plan year the Secretary shall 
        establish a risk corridor for each prescription drug plan and 
        each MA-PD plan. The risk corridor for a plan for a year shall 
        be equal to a range as follows:
                ``(i) First threshold lower limit.--The first threshold 
            lower limit of such corridor shall be equal to--

                    ``(I) the target amount described in subparagraph 
                (B) for the plan; minus
                    ``(II) an amount equal to the first threshold risk 
                percentage for the plan (as determined under 
                subparagraph (C)(i)) of such target amount.

                ``(ii) Second threshold lower limit.--The second 
            threshold lower limit of such corridor shall be equal to--

                    ``(I) the target amount described in subparagraph 
                (B) for the plan; minus
                    ``(II) an amount equal to the second threshold risk 
                percentage for the plan (as determined under 
                subparagraph (C)(ii)) of such target amount.

                ``(iii) First threshold upper limit.--The first 
            threshold upper limit of such corridor shall be equal to 
            the sum of--

                    ``(I) such target amount; and
                    ``(II) the amount described in clause (i)(II).

                ``(iv) Second threshold upper limit.--The second 
            threshold upper limit of such corridor shall be equal to 
            the sum of--

                    ``(I) such target amount; and
                    ``(II) the amount described in clause (ii)(II).

            ``(B) Target amount described.--The target amount described 
        in this paragraph is, with respect to a prescription drug plan 
        or an MA-PD plan in a year, the total amount of payments paid 
        to the PDP sponsor or MA-PD organization for the plan for the 
        year, taking into account amounts paid by the Secretary and 
        enrollees, based upon the standardized bid amount (as defined 
        in section 1860D-13(a)(5) and as risk adjusted under subsection 
        (c)(1)), reduced by the total amount of administrative expenses 
        for the year assumed in such standardized bid.
            ``(C) First and second threshold risk percentage defined.--
                ``(i) First threshold risk percentage.--Subject to 
            clause (iii), for purposes of this section, the first 
            threshold risk percentage is--

                    ``(I) for 2006 and 2007, and 2.5 percent;
                    ``(II) for 2008 through 2011, 5 percent; and
                    ``(III) for 2012 and subsequent years, a percentage 
                established by the Secretary, but in no case less than 
                5 percent.

                ``(ii) Second threshold risk percentage.--Subject to 
            clause (iii), for purposes of this section, the second 
            threshold risk percentage is--

                    ``(I) for 2006 and 2007, 5 percent;
                    ``(II) for 2008 through 2011, 10 percent; and
                    ``(III) for 2012 and subsequent years, a percentage 
                established by the Secretary that is greater than the 
                percent established for the year under clause (i)(III), 
                but in no case less than 10 percent.

                ``(iii) Reduction of risk percentage to ensure 2 plans 
            in an area.--Pursuant to section 1860D-11(b)(2)(E)(ii), a 
            PDP sponsor may submit a bid that requests a decrease in 
            the applicable first or second threshold risk percentages 
            or an increase in the percents applied under paragraph (2).
        ``(4) Plans at risk for entire amount of supplemental 
    prescription drug coverage.--A PDP sponsor and MA organization that 
    offers a plan that provides supplemental prescription drug benefits 
    shall be at full financial risk for the provision of such 
    supplemental benefits.
        ``(5) No effect on monthly premium.--No adjustment in payments 
    made by reason of this subsection shall affect the monthly 
    beneficiary premium or the MA monthly prescription drug beneficiary 
    premium.
    ``(f) Disclosure of Information.--
        ``(1) In general.--Each contract under this part and under part 
    C shall provide that--
            ``(A) the PDP sponsor offering a prescription drug plan or 
        an MA organization offering an MA-PD plan shall provide the 
        Secretary with such information as the Secretary determines is 
        necessary to carry out this section; and
            ``(B) the Secretary shall have the right in accordance with 
        section 1857(d)(2)(B) (as applied under section 1860D-
        12(b)(3)(C)) to inspect and audit any books and records of a 
        PDP sponsor or MA organization that pertain to the information 
        regarding costs provided to the Secretary under subparagraph 
        (A).
        ``(2) Restriction on use of information.--Information disclosed 
    or obtained pursuant to the provisions of this section may be used 
    by officers, employees, and contractors of the Department of Health 
    and Human Services only for the purposes of, and to the extent 
    necessary in, carrying out this section.
    ``(g) Payment for Fallback Prescription Drug Plans.--In lieu of the 
amounts otherwise payable under this section to a PDP sponsor offering 
a fallback prescription drug plan (as defined in section 1860D-
3(c)(4)), the amount payable shall be the amounts determined under the 
contract for such plan pursuant to section 1860D-11(g)(5).

    ``medicare prescription drug account in the federal supplementary 
                      medical insurance trust fund

    ``Sec. 1860D-16. (a) Establishment and Operation of Account.--
        ``(1) Establishment.--There is created within the Federal 
    Supplementary Medical Insurance Trust Fund established by section 
    1841 an account to be known as the `Medicare Prescription Drug 
    Account' (in this section referred to as the `Account').
        ``(2) Funding.--The Account shall consist of such gifts and 
    bequests as may be made as provided in section 201(i)(1), accrued 
    interest on balances in the Account, and such amounts as may be 
    deposited in, or appropriated to, such Account as provided in this 
    part.
        ``(3) Separate from rest of trust fund.--Funds provided under 
    this part to the Account shall be kept separate from all other 
    funds within the Federal Supplementary Medical Insurance Trust 
    Fund, but shall be invested, and such investments redeemed, in the 
    same manner as all other funds and investments within such Trust 
    Fund.
    ``(b) Payments From Account.--
        ``(1) In general.--The Managing Trustee shall pay from time to 
    time from the Account such amounts as the Secretary certifies are 
    necessary to make payments to operate the program under this part, 
    including--
            ``(A) payments under section 1860D-14 (relating to low-
        income subsidy payments);
            ``(B) payments under section 1860D-15 (relating to subsidy 
        payments and payments for fallback plans);
            ``(C) payments to sponsors of qualified retiree 
        prescription drug plans under section 1860D-22(a); and
            ``(D) payments with respect to administrative expenses 
        under this part in accordance with section 201(g).
        ``(2) Transfers to medicaid account for increased 
    administrative costs.--The Managing Trustee shall transfer from 
    time to time from the Account to the Grants to States for Medicaid 
    account amounts the Secretary certifies are attributable to 
    increases in payment resulting from the application of section 
    1935(b).
        ``(3) Payments of premiums withheld.--The Managing Trustee 
    shall make payment to the PDP sponsor or MA organization involved 
    of the premiums (and the portion of late enrollment penalties) that 
    are collected in the manner described in section 1854(d)(2)(A) and 
    that are payable under a prescription drug plan or MA-PD plan 
    offered by such sponsor or organization.
        ``(4) Treatment in relation to part b premium.--Amounts payable 
    from the Account shall not be taken into account in computing 
    actuarial rates or premium amounts under section 1839.
    ``(c) Deposits Into Account.--
        ``(1) Low-income transfer.--Amounts paid under section 1935(c) 
    (and any amounts collected or offset under paragraph (1)(C) of such 
    section) are deposited into the Account.
        ``(2) Amounts withheld.--Pursuant to sections 1860D-13(c) and 
    1854(d) (as applied under this part), amounts that are withheld 
    (and allocated) to the Account are deposited into the Account.
        ``(3) Appropriations to cover government contributions.--There 
    are authorized to be appropriated from time to time, out of any 
    moneys in the Treasury not otherwise appropriated, to the Account, 
    an amount equivalent to the amount of payments made from the 
    Account under subsection (b) plus such amounts as the Managing 
    Trustee certifies is necessary to maintain an appropriate 
    contingency margin, reduced by the amounts deposited under 
    paragraph (1) or subsection (a)(2).
        ``(4) Initial funding and reserve.--In order to assure prompt 
    payment of benefits provided under this part and the administrative 
    expenses thereunder during the early months of the program 
    established by this part and to provide an initial contingency 
    reserve, there are authorized to be appropriated to the Account, 
    out of any moneys in the Treasury not otherwise appropriated, such 
    amount as the Secretary certifies are required, but not to exceed 
    10 percent of the estimated total expenditures from such Account in 
    2006.
        ``(5) Transfer of any remaining balance from transitional 
    assistance account.--Any balance in the Transitional Assistance 
    Account that is transferred under section 1860D-31(k)(5) shall be 
    deposited into the Account.

``Subpart 3--Application to Medicare Advantage Program and Treatment of 
     Employer-Sponsored Programs and Other Prescription Drug Plans

  ``application to medicare advantage program and related managed care 
                                programs

    ``Sec. 1860D-21. (a) Special Rules Relating to Offering of 
Qualified Prescription Drug Coverage.--
        ``(1) In general.--An MA organization on and after January 1, 
    2006--
            ``(A) may not offer an MA plan described in section 
        1851(a)(2)(A) in an area unless either that plan (or another MA 
        plan offered by the organization in that same service area) 
        includes required prescription drug coverage (as defined in 
        paragraph (2)); and
            ``(B) may not offer prescription drug coverage (other than 
        that required under parts A and B) to an enrollee--
                ``(i) under an MSA plan; or
                ``(ii) under another MA plan unless such drug coverage 
            under such other plan provides qualified prescription drug 
            coverage and unless the requirements of this section with 
            respect to such coverage are met.
        ``(2) Qualifying coverage.--For purposes of paragraph (1)(A), 
    the term `required coverage' means with respect to an MA-PD plan--
            ``(A) basic prescription drug coverage; or
            ``(B) qualified prescription drug coverage that provides 
        supplemental prescription drug coverage, so long as there is no 
        MA monthly supplemental beneficiary premium applied under the 
        plan (due to the application of a credit against such premium 
        of a rebate under section 1854(b)(1)(C)).
    ``(b) Application of Default Enrollment Rules.--
        ``(1) Seamless continuation.--In applying section 
    1851(c)(3)(A)(ii), an individual who is enrolled in a health 
    benefits plan shall not be considered to have been deemed to make 
    an election into an MA-PD plan unless such health benefits plan 
    provides any prescription drug coverage.
        ``(2) MA continuation.--In applying section 1851(c)(3)(B), an 
    individual who is enrolled in an MA plan shall not be considered to 
    have been deemed to make an election into an MA-PD plan unless--
            ``(A) for purposes of the election as of January 1, 2006, 
        the MA plan provided as of December 31, 2005, any prescription 
        drug coverage; or
            ``(B) for periods after January 1, 2006, such MA plan is an 
        MA-PD plan.
        ``(3) Discontinuance of ma-pd election during first year of 
    eligibility.--In applying the second sentence of section 1851(e)(4) 
    in the case of an individual who is electing to discontinue 
    enrollment in an MA-PD plan, the individual shall be permitted to 
    enroll in a prescription drug plan under part D at the time of the 
    election of coverage under the original medicare fee-for-service 
    program.
        ``(4) Rules regarding enrollees in ma plans not providing 
    qualified prescription drug coverage.--In the case of an individual 
    who is enrolled in an MA plan (other than an MSA plan) that does 
    not provide qualified prescription drug coverage, if the 
    organization offering such coverage discontinues the offering with 
    respect to the individual of all MA plans that do not provide such 
    coverage--
                ``(i) the individual is deemed to have elected the 
            original medicare fee-for-service program option, unless 
            the individual affirmatively elects to enroll in an MA-PD 
            plan; and
                ``(ii) in the case of such a deemed election, the 
            disenrollment shall be treated as an involuntary 
            termination of the MA plan described in subparagraph 
            (B)(ii) of section 1882(s)(3) for purposes of applying such 
            section.
    The information disclosed under section 1852(c)(1) for individuals 
    who are enrolled in such an MA plan shall include information 
    regarding such rules.
    ``(c) Application of Part D Rules for Prescription Drug Coverage.--
With respect to the offering of qualified prescription drug coverage by 
an MA organization under this part on and after January 1, 2006--
        ``(1) In general.--Except as otherwise provided, the provisions 
    of this part shall apply under part C with respect to prescription 
    drug coverage provided under MA-PD plans in lieu of the other 
    provisions of part C that would apply to such coverage under such 
    plans.
        ``(2) Waiver.--The Secretary shall waive the provisions 
    referred to in paragraph (1) to the extent the Secretary determines 
    that such provisions duplicate, or are in conflict with, provisions 
    otherwise applicable to the organization or plan under part C or as 
    may be necessary in order to improve coordination of this part with 
    the benefits under this part.
        ``(3) Treatment of ma owned and operated pharmacies.--The 
    Secretary may waive the requirement of section 1860D-4(b)(1)(C) in 
    the case of an MA-PD plan that provides access (other than mail 
    order) to qualified prescription drug coverage through pharmacies 
    owned and operated by the MA organization, if the Secretary 
    determines that the organization's pharmacy network is sufficient 
    to provide comparable access for enrollees under the plan.
    ``(d) Special Rules for Private Fee-for-Service Plans That Offer 
Prescription Drug Coverage.--With respect to an MA plan described in 
section 1851(a)(2)(C) that offers qualified prescription drug coverage, 
on and after January 1, 2006, the following rules apply:
        ``(1) Requirements regarding negotiated prices.--Subsections 
    (a)(1) and (d)(1) of section 1860D-2 and section 1860D-4(b)(2)(A) 
    shall not be construed to require the plan to provide negotiated 
    prices (described in subsection (d)(1)(B) of such section), but 
    shall apply to the extent the plan does so.
        ``(2) Modification of pharmacy access standard and disclosure 
    requirement.--If the plan provides coverage for drugs purchased 
    from all pharmacies, without charging additional cost-sharing, and 
    without regard to whether they are participating pharmacies in a 
    network or have entered into contracts or agreements with 
    pharmacies to provide drugs to enrollees covered by the plan, 
    subsections (b)(1)(C) and (k) of section 1860D-4 shall not apply to 
    the plan.
        ``(3) Drug utilization management program and medication 
    therapy management program not required.--The requirements of 
    subparagraphs (A) and (C) of section 1860D-4(c)(1) shall not apply 
    to the plan.
        ``(4) Application of reinsurance.--The Secretary shall 
    determine the amount of reinsurance payments under section 1860D-
    15(b) using a methodology that--
            ``(A) bases such amount on the Secretary's estimate of the 
        amount of such payments that would be payable if the plan were 
        an MA-PD plan described in section 1851(a)(2)(A)(i) and the 
        previous provisions of this subsection did not apply; and
            ``(B) takes into account the average reinsurance payments 
        made under section 1860D-15(b) for populations of similar risk 
        under MA-PD plans described in such section.
        ``(5) Exemption from risk corridor provisions.--The provisions 
    of section 1860D-15(e) shall not apply.
        ``(6) Exemption from negotiations.--Subsections (d) and 
    (e)(2)(C) of section 1860D-11 shall not apply and the provisions of 
    section 1854(a)(5)(B) prohibiting the review, approval, or 
    disapproval of amounts described in such section shall apply to the 
    proposed bid and terms and conditions described in section 1860D-
    11(d).
        ``(7) Treatment of incurred costs without regard to 
    formulary.--The exclusion of costs incurred for covered part D 
    drugs which are not included (or treated as being included) in a 
    plan's formulary under section 1860D-2(b)(4)(B)(i) shall not apply 
    insofar as the plan does not utilize a formulary.
    ``(e) Application to Reasonable Cost Reimbursement Contractors.--
        ``(1) In general.--Subject to paragraphs (2) and (3) and rules 
    established by the Secretary, in the case of an organization that 
    is providing benefits under a reasonable cost reimbursement 
    contract under section 1876(h) and that elects to provide qualified 
    prescription drug coverage to a part D eligible individual who is 
    enrolled under such a contract, the provisions of this part (and 
    related provisions of part C) shall apply to the provision of such 
    coverage to such enrollee in the same manner as such provisions 
    apply to the provision of such coverage under an MA-PD local plan 
    described in section 1851(a)(2)(A)(i) and coverage under such a 
    contract that so provides qualified prescription drug coverage 
    shall be deemed to be an MA-PD local plan.
        ``(2) Limitation on enrollment.--In applying paragraph (1), the 
    organization may not enroll part D eligible individuals who are not 
    enrolled under the reasonable cost reimbursement contract involved.
        ``(3) Bids not included in determining national average monthly 
    bid amount.--The bid of an organization offering prescription drug 
    coverage under this subsection shall not be taken into account in 
    computing the national average monthly bid amount and low-income 
    benchmark premium amount under this part.
    ``(f) Application to PACE.--
        ``(1) In general.--Subject to paragraphs (2) and (3) and rules 
    established by the Secretary, in the case of a PACE program under 
    section 1894 that elects to provide qualified prescription drug 
    coverage to a part D eligible individual who is enrolled under such 
    program, the provisions of this part (and related provisions of 
    part C) shall apply to the provision of such coverage to such 
    enrollee in a manner that is similar to the manner in which such 
    provisions apply to the provision of such coverage under an MA-PD 
    local plan described in section 1851(a)(2)(A)(ii) and a PACE 
    program that so provides such coverage may be deemed to be an MA-PD 
    local plan.
        ``(2) Limitation on enrollment.--In applying paragraph (1), the 
    organization may not enroll part D eligible individuals who are not 
    enrolled under the PACE program involved.
        ``(3) Bids not included in determining standardized bid 
    amount.--The bid of an organization offering prescription drug 
    coverage under this subsection is not be taken into account in 
    computing any average benchmark bid amount and low-income benchmark 
    premium amount under this part.

             ``special rules for employer-sponsored programs

    ``Sec. 1860D-22. (a) Subsidy Payment.--
        ``(1) In general.--The Secretary shall provide in accordance 
    with this subsection for payment to the sponsor of a qualified 
    retiree prescription drug plan (as defined in paragraph (2)) of a 
    special subsidy payment equal to the amount specified in paragraph 
    (3) for each qualified covered retiree under the plan (as defined 
    in paragraph (4)). This subsection constitutes budget authority in 
    advance of appropriations Acts and represents the obligation of the 
    Secretary to provide for the payment of amounts provided under this 
    section.
        ``(2) Qualified retiree prescription drug plan defined.--For 
    purposes of this subsection, the term `qualified retiree 
    prescription drug plan' means employment-based retiree health 
    coverage (as defined in subsection (c)(1)) if, with respect to a 
    part D eligible individual who is a participant or beneficiary 
    under such coverage, the following requirements are met:
            ``(A) Attestation of actuarial equivalence to standard 
        coverage.--The sponsor of the plan provides the Secretary, 
        annually or at such other time as the Secretary may require, 
        with an attestation that the actuarial value of prescription 
        drug coverage under the plan (as determined using the processes 
        and methods described in section 1860D-11(c)) is at least equal 
        to the actuarial value of standard prescription drug coverage.
            ``(B) Audits.--The sponsor of the plan, or an administrator 
        of the plan designated by the sponsor, shall maintain (and 
        afford the Secretary access to) such records as the Secretary 
        may require for purposes of audits and other oversight 
        activities necessary to ensure the adequacy of prescription 
        drug coverage and the accuracy of payments made under this 
        section. The provisions of section 1860D-2(d)(3) shall apply to 
        such information under this section (including such actuarial 
        value and attestation) in a manner similar to the manner in 
        which they apply to financial records of PDP sponsors and MA 
        organizations.
            ``(C) Provision of disclosure regarding prescription drug 
        coverage.--The sponsor of the plan shall provide for disclosure 
        of information regarding prescription drug coverage in 
        accordance with section 1860D-13(b)(6)(B).
        ``(3) Employer and union special subsidy amounts.--
            ``(A) In general.--For purposes of this subsection, the 
        special subsidy payment amount under this paragraph for a 
        qualifying covered retiree for a coverage year enrolled with 
        the sponsor of a qualified retiree prescription drug plan is, 
        for the portion of the retiree's gross covered retiree plan-
        related prescription drug costs (as defined in subparagraph 
        (C)(ii)) for such year that exceeds the cost threshold amount 
        specified in subparagraph (B) and does not exceed the cost 
        limit under such subparagraph, an amount equal to 28 percent of 
        the allowable retiree costs (as defined in subparagraph (C)(i)) 
        attributable to such gross covered prescription drug costs.
            ``(B) Cost threshold and cost limit applicable.--
                ``(i) In general.--Subject to clause (ii)--

                    ``(I) the cost threshold under this subparagraph is 
                equal to $250 for plan years that end in 2006; and
                    ``(II) the cost limit under this subparagraph is 
                equal to $5,000 for plan years that end in 2006.

                ``(ii) Indexing.--The cost threshold and cost limit 
            amounts specified in subclauses (I) and (II) of clause (i) 
            for a plan year that ends after 2006 shall be adjusted in 
            the same manner as the annual deductible and the annual 
            out-of-pocket threshold, respectively, are annually 
            adjusted under paragraphs (1) and (4)(B) of section 1860D-
            2(b).
            ``(C) Definitions.--For purposes of this paragraph:
                ``(i) Allowable retiree costs.--The term `allowable 
            retiree costs' means, with respect to gross covered 
            prescription drug costs under a qualified retiree 
            prescription drug plan by a plan sponsor, the part of such 
            costs that are actually paid (net of discounts, 
            chargebacks, and average percentage rebates) by the sponsor 
            or by or on behalf of a qualifying covered retiree under 
            the plan.
                ``(ii) Gross covered retiree plan-related prescription 
            drug costs.--For purposes of this section, the term `gross 
            covered retiree plan-related prescription drug costs' 
            means, with respect to a qualifying covered retiree 
            enrolled in a qualified retiree prescription drug plan 
            during a coverage year, the costs incurred under the plan, 
            not including administrative costs, but including costs 
            directly related to the dispensing of covered part D drugs 
            during the year. Such costs shall be determined whether 
            they are paid by the retiree or under the plan.
            ``(iii) Coverage year.--The term `coverage year' has the 
        meaning given such term in section 1860D-15(b)(4).
        ``(4) Qualifying covered retiree defined.--For purposes of this 
    subsection, the term `qualifying covered retiree' means a part D 
    eligible individual who is not enrolled in a prescription drug plan 
    or an MA-PD plan but is covered under a qualified retiree 
    prescription drug plan.
        ``(5) Payment methods, including provision of necessary 
    information.--The provisions of section 1860D-15(d) (including 
    paragraph (2), relating to requirement for provision of 
    information) shall apply to payments under this subsection in a 
    manner similar to the manner in which they apply to payment under 
    section 1860D-15(b).
        ``(6) Construction.--Nothing in this subsection shall be 
    construed as--
            ``(A) precluding a part D eligible individual who is 
        covered under employment-based retiree health coverage from 
        enrolling in a prescription drug plan or in an MA-PD plan;
            ``(B) precluding such employment-based retiree health 
        coverage or an employer or other person from paying all or any 
        portion of any premium required for coverage under a 
        prescription drug plan or MA-PD plan on behalf of such an 
        individual;
            ``(C) preventing such employment-based retiree health 
        coverage from providing coverage--
                ``(i) that is better than standard prescription drug 
            coverage to retirees who are covered under a qualified 
            retiree prescription drug plan; or
                ``(ii) that is supplemental to the benefits provided 
            under a prescription drug plan or an MA-PD plan, including 
            benefits to retirees who are not covered under a qualified 
            retiree prescription drug plan but who are enrolled in such 
            a prescription drug plan or MA-PD plan; or
            ``(D) preventing employers to provide for flexibility in 
        benefit design and pharmacy access provisions, without regard 
        to the requirements for basic prescription drug coverage, so 
        long as the actuarial equivalence requirement of paragraph 
        (2)(A) is met.
    ``(b) Application of MA Waiver Authority.--The provisions of 
section 1857(i) shall apply with respect to prescription drug plans in 
relation to employment-based retiree health coverage in a manner 
similar to the manner in which they apply to an MA plan in relation to 
employers, including authorizing the establishment of separate premium 
amounts for enrollees in a prescription drug plan by reason of such 
coverage and limitations on enrollment to part D eligible individuals 
enrolled under such coverage.
    ``(c) Definitions.--For purposes of this section:
        ``(1) Employment-based retiree health coverage.--The term 
    `employment-based retiree health coverage' means health insurance 
    or other coverage of health care costs (whether provided by 
    voluntary insurance coverage or pursuant to statutory or 
    contractual obligation) for part D eligible individuals (or for 
    such individuals and their spouses and dependents) under a group 
    health plan based on their status as retired participants in such 
    plan.
        ``(2) Sponsor.--The term `sponsor' means a plan sponsor, as 
    defined in section 3(16)(B) of the Employee Retirement Income 
    Security Act of 1974, in relation to a group health plan, except 
    that, in the case of a plan maintained jointly by one employer and 
    an employee organization and with respect to which the employer is 
    the primary source of financing, such term means such employer.
        ``(3) Group health plan.--The term `group health plan' includes 
    such a plan as defined in section 607(1) of the Employee Retirement 
    Income Security Act of 1974 and also includes the following:
            ``(A) Federal and state governmental plans.--Such a plan 
        established or maintained for its employees by the Government 
        of the United States, by the government of any State or 
        political subdivision thereof, or by any agency or 
        instrumentality of any of the foregoing, including a health 
        benefits plan offered under chapter 89 of title 5, United 
        States Code.
            ``(B) Collectively bargained plans.--Such a plan 
        established or maintained under or pursuant to one or more 
        collective bargaining agreements.
            ``(C) Church plans.--Such a plan established and maintained 
        for its employees (or their beneficiaries) by a church or by a 
        convention or association of churches which is exempt from tax 
        under section 501 of the Internal Revenue Code of 1986.

                ``state pharmaceutical assistance programs

    ``Sec. 1860D-23. (a) Requirements for Benefit Coordination.--
        ``(1) In general.--Before July 1, 2005, the Secretary shall 
    establish consistent with this section requirements for 
    prescription drug plans to ensure the effective coordination 
    between a part D plan (as defined in paragraph (5)) and a State 
    Pharmaceutical Assistance Program (as defined in subsection (b)) 
    with respect to--
            ``(A) payment of premiums and coverage; and
            ``(B) payment for supplemental prescription drug benefits,
    for part D eligible individuals enrolled under both types of plans.
        ``(2) Coordination elements.--The requirements under paragraph 
    (1) shall include requirements relating to coordination of each of 
    the following:
            ``(A) Enrollment file sharing.
            ``(B) The processing of claims, including electronic 
        processing.
            ``(C) Claims payment.
            ``(D) Claims reconciliation reports.
            ``(E) Application of the protection against high out-of-
        pocket expenditures under section 1860D-2(b)(4).
            ``(F) Other administrative processes specified by the 
        Secretary.
    Such requirements shall be consistent with applicable law to 
    safeguard the privacy of any individually identifiable beneficiary 
    information.
        ``(3) Use of lump sum per capita method.--Such requirements 
    shall include a method for the application by a part D plan of 
    specified funding amounts from a State Pharmaceutical Assistance 
    Program for enrolled individuals for supplemental prescription drug 
    benefits.
        ``(4) Consultation.--In establishing requirements under this 
    subsection, the Secretary shall consult with State Pharmaceutical 
    Assistance Programs, MA organizations, States, pharmaceutical 
    benefit managers, employers, representatives of part D eligible 
    individuals, the data processing experts, pharmacists, 
    pharmaceutical manufacturers, and other experts.
        ``(5) Part d plan defined.--For purposes of this section and 
    section 1860D-24, the term `part D plan' means a prescription drug 
    plan and an MA-PD plan.
    ``(b) State Pharmaceutical Assistance Program.--For purposes of 
this part, the term `State Pharmaceutical Assistance Program' means a 
State program--
        ``(1) which provides financial assistance for the purchase or 
    provision of supplemental prescription drug coverage or benefits on 
    behalf of part D eligible individuals;
        ``(2) which, in determining eligibility and the amount of 
    assistance to part D eligible individuals under the Program, 
    provides assistance to such individuals in all part D plans and 
    does not discriminate based upon the part D plan in which the 
    individual is enrolled; and
        ``(3) which satisfies the requirements of subsections (a) and 
    (c).
    ``(c) Relation to Other Provisions.--
        ``(1) Medicare as primary payor.--The requirements of this 
    section shall not change or affect the primary payor status of a 
    part D plan.
        ``(2) Use of a single card.--A card that is issued under 
    section 1860D-4(b)(2)(A) for use under a part D plan may also be 
    used in connection with coverage of benefits provided under a State 
    Pharmaceutical Assistance Program and, in such case, may contain an 
    emblem or symbol indicating such connection.
        ``(3) Other provisions.--The provisions of section 1860D-24(c) 
    shall apply to the requirements under this section.
        ``(4) Special treatment under out-of-pocket rule.--In applying 
    section 1860D-2(b)(4)(C)(ii), expenses incurred under a State 
    Pharmaceutical Assistance Program may be counted toward the annual 
    out-of-pocket threshold.
        ``(5) Construction.--Nothing in this section shall be construed 
    as requiring a State Pharmaceutical Assistance Program to 
    coordinate or provide financial assistance with respect to any part 
    D plan.
    ``(d) Facilitation of Transition and Coordination With State 
Pharmaceutical Assistance Programs.--
        ``(1) Transitional grant program.--The Secretary shall provide 
    payments to State Pharmaceutical Assistance Programs with an 
    application approved under this subsection.
        ``(2) Use of funds.--Payments under this section may be used by 
    a Program for any of the following:
            ``(A) Educating part D eligible individuals enrolled in the 
        Program about the prescription drug coverage available through 
        part D plans under this part.
            ``(B) Providing technical assistance, phone support, and 
        counseling for such enrollees to facilitate selection and 
        enrollment in such plans.
            ``(C) Other activities designed to promote the effective 
        coordination of enrollment, coverage, and payment between such 
        Program and such plans.
        ``(3) Allocation of funds.--Of the amount appropriated to carry 
    out this subsection for a fiscal year, the Secretary shall allocate 
    payments among Programs that have applications approved under 
    paragraph (4) for such fiscal year in proportion to the number of 
    enrollees enrolled in each such Program as of October 1, 2003.
        ``(4) Application.--No payments may be made under this 
    subsection except pursuant to an application that is submitted and 
    approved in a time, manner, and form specified by the Secretary.
        ``(5) Funding.--Out of any funds in the Treasury not otherwise 
    appropriated, there are appropriated for each of fiscal years 2005 
    and 2006, $62,500,000 to carry out this subsection.

    ``coordination requirements for plans providing prescription drug 
                                coverage

    ``Sec. 1860D-24. (a) Application of Benefit Coordination 
Requirements to Additional Plans.--
        ``(1) In general.--The Secretary shall apply the coordination 
    requirements established under section 1860D-23(a) to Rx plans 
    described in subsection (b) in the same manner as such requirements 
    apply to a State Pharmaceutical Assistance Program.
        ``(2) Application to treatment of certain out-of-pocket 
    expenditures.--To the extent specified by the Secretary, the 
    requirements referred to in paragraph (1) shall apply to procedures 
    established under section 1860D-2(b)(4)(D).
        ``(3) User fees.--
            ``(A) In general.--The Secretary may impose user fees for 
        the transmittal of information necessary for benefit 
        coordination under section 1860D-2(b)(4)(D) in a manner similar 
        to the manner in which user fees are imposed under section 
        1842(h)(3)(B), except that the Secretary may retain a portion 
        of such fees to defray the Secretary's costs in carrying out 
        procedures under section 1860D-2(b)(4)(D).
            ``(B) Application.--A user fee may not be imposed under 
        subparagraph (A) with respect to a State Pharmaceutical 
        Assistance Program.
    ``(b) Rx Plan.--An Rx plan described in this subsection is any of 
the following:
        ``(1) Medicaid programs.--A State plan under title XIX, 
    including such a plan operating under a waiver under section 1115, 
    if it meets the requirements of section 1860D-23(b)(2).
        ``(2) Group health plans.--An employer group health plan.
        ``(3) FEHBP.--The Federal employees health benefits plan under 
    chapter 89 of title 5, United States Code.
        ``(4) Military coverage (including tricare).--Coverage under 
    chapter 55 of title 10, United States Code.
        ``(5) Other prescription drug coverage.--Such other health 
    benefit plans or programs that provide coverage or financial 
    assistance for the purchase or provision of prescription drug 
    coverage on behalf of part D eligible individuals as the Secretary 
    may specify.
    ``(c) Relation to Other Provisions.--
        ``(1) Use of cost management tools.--The requirements of this 
    section shall not impair or prevent a PDP sponsor or MA 
    organization from applying cost management tools (including 
    differential payments) under all methods of operation.
        ``(2) No affect on treatment of certain out-of-pocket 
    expenditures.--The requirements of this section shall not affect 
    the application of the procedures established under section 1860D-
    2(b)(4)(D).

``Subpart 4--Medicare Prescription Drug Discount Card and Transitional 
                           Assistance Program

       ``medicare prescription drug discount card and transitional 
                           assistance program

    ``Sec. 1860D-31. (a) Establishment of Program.--
        ``(1) In general.--The Secretary shall establish a program 
    under this section--
            ``(A) to endorse prescription drug discount card programs 
        that meet the requirements of this section in order to provide 
        access to prescription drug discounts through prescription drug 
        card sponsors for discount card eligible individuals throughout 
        the United States; and
            ``(B) to provide for transitional assistance for 
        transitional assistance eligible individuals enrolled in such 
        endorsed programs.
        ``(2) Period of operation.--
            ``(A) Implementation deadline.--The Secretary shall 
        implement the program under this section so that discount cards 
        and transitional assistance are first available by not later 
        than 6 months after the date of the enactment of this section.
            ``(B) Expediting implementation.--The Secretary shall 
        promulgate regulations to carry out the program under this 
        section which may be effective and final immediately on an 
        interim basis as of the date of publication of the interim 
        final regulation. If the Secretary provides for an interim 
        final regulation, the Secretary shall provide for a period of 
        public comments on such regulation after the date of 
        publication. The Secretary may change or revise such regulation 
        after completion of the period of public comment.
            ``(C) Termination and transition.--
                ``(i) In general.--Subject to clause (ii)--

                    ``(I) the program under this section shall not 
                apply to covered discount card drugs dispensed after 
                December 31, 2005; and
                    ``(II) transitional assistance shall be available 
                after such date to the extent the assistance relates to 
                drugs dispensed on or before such date.

                ``(ii) Transition.--In the case of an individual who is 
            enrolled in an endorsed discount card program as of 
            December 31, 2005, during the individual's transition 
            period (if any) under clause (iii), in accordance with 
            transition rules specified by the Secretary--

                    ``(I) such endorsed program may continue to apply 
                to covered discount card drugs dispensed to the 
                individual under the program during such transition 
                period;
                    ``(II) no annual enrollment fee shall be applicable 
                during the transition period;
                    ``(III) during such period the individual may not 
                change the endorsed program plan in which the 
                individual is enrolled; and

                    ``(IV) the balance of any transitional assistance 
                remaining on January 1, 2006, shall remain available 
                for drugs dispensed during the individual's transition 
                period.

                ``(iii) Transition period.--The transition period under 
            this clause for an individual is the period beginning on 
            January 1, 2006, and ending in the case of an individual 
            who--

                    ``(I) is enrolled in a prescription drug plan or an 
                MA-PD plan before the last date of the initial 
                enrollment period under section 1860D-1(b)(2)(A), on 
                the effective date of the individual's coverage under 
                such part; or
                    ``(II) is not so enrolled, on the last day of such 
                initial period.

        ``(3) Voluntary nature of program.--Nothing in this section 
    shall be construed as requiring a discount card eligible individual 
    to enroll in an endorsed discount card program under this section.
        ``(4) Glossary and definitions of terms.--For purposes of this 
    section:
            ``(A) Covered discount card drug.--The term `covered 
        discount card drug' has the meaning given the term `covered 
        part D drug' in section 1860D-2(e).
            ``(B) Discount card eligible individual.--The term 
        `discount card eligible individual' is defined in subsection 
        (b)(1)(A).
            ``(C) Endorsed discount card program; endorsed program.--
        The terms `endorsed discount card program' and `endorsed 
        program' mean a prescription drug discount card program that is 
        endorsed (and for which the sponsor has a contract with the 
        Secretary) under this section.
            ``(D) Negotiated price.--Negotiated prices are described in 
        subsection (e)(1)(A)(ii).
            ``(E) Prescription drug card sponsor; sponsor.--The terms 
        `prescription drug card sponsor' and `sponsor' are defined in 
        subsection (h)(1)(A).
            ``(F) State.--The term `State' has the meaning given such 
        term for purposes of title XIX.
            ``(G) Transitional assistance eligible individual.--The 
        term `transitional assistance eligible individual' is defined 
        in subsection (b)(2).
    ``(b) Eligibility for Discount Card and for Transitional 
Assistance.--For purposes of this section:
        ``(1) Discount card eligible individual.--
            ``(A) In general.--The term `discount card eligible 
        individual' means an individual who--
                ``(i) is entitled to benefits, or enrolled, under part 
            A or enrolled under part B; and
                ``(ii) subject to paragraph (4), is not an individual 
            described in subparagraph (B).
            ``(B) Individual described.--An individual described in 
        this subparagraph is an individual described in subparagraph 
        (A)(i) who is enrolled under title XIX (or under a waiver under 
        section 1115 of the requirements of such title) and is entitled 
        to any medical assistance for outpatient prescribed drugs 
        described in section 1905(a)(12).
        ``(2) Transitional assistance eligible individual.--
            ``(A) In general.--Subject to subparagraph (B), the term 
        `transitional assistance eligible individual' means a discount 
        card eligible individual who resides in one of the 50 States or 
        the District of Columbia and whose income (as determined under 
        subsection (f)(1)(B)) is not more than 135 percent of the 
        poverty line (as defined in section 673(2) of the Community 
        Services Block Grant Act, 42 U.S.C. 9902(2), including any 
        revision required by such section) applicable to the family 
        size involved (as determined under subsection (f)(1)(B)).
            ``(B) Exclusion of individuals with certain prescription 
        drug coverage.--Such term does not include an individual who 
        has coverage of, or assistance for, covered discount card drugs 
        under any of the following:
                ``(i) A group health plan or health insurance coverage 
            (as such terms are defined in section 2791 of the Public 
            Health Service Act), other than coverage under a plan under 
            part C and other than coverage consisting only of excepted 
            benefits (as defined in such section).
                ``(ii) Chapter 55 of title 10, United States Code 
            (relating to medical and dental care for members of the 
            uniformed services).
                ``(iii) A plan under chapter 89 of title 5, United 
            States Code (relating to the Federal employees' health 
            benefits program).
        ``(3) Special transitional assistance eligible individual.--The 
    term `special transitional assistance eligible individual' means a 
    transitional assistance eligible individual whose income (as 
    determined under subsection (f)(1)(B)) is not more than 100 percent 
    of the poverty line (as defined in section 673(2) of the Community 
    Services Block Grant Act, 42 U.S.C. 9902(2), including any revision 
    required by such section) applicable to the family size involved 
    (as determined under subsection (f)(1)(B)).
        ``(4) Treatment of medicaid medically needy.--For purposes of 
    this section, the Secretary shall provide for appropriate rules for 
    the treatment of medically needy individuals described in section 
    1902(a)(10)(C) as discount card eligible individuals and as 
    transitional assistance eligible individuals.
    ``(c) Enrollment and Enrollment Fees.--
        ``(1) Enrollment process.--The Secretary shall establish a 
    process through which a discount card eligible individual is 
    enrolled and disenrolled in an endorsed discount card program under 
    this section consistent with the following:
            ``(A) Continuous open enrollment.--Subject to the 
        succeeding provisions of this paragraph and subsection (h)(9), 
        a discount card eligible individual who is not enrolled in an 
        endorsed discount card program and is residing in a State may 
        enroll in any such endorsed program--
                ``(i) that serves residents of the State; and
                ``(ii) at any time beginning on the initial enrollment 
            date, specified by the Secretary, and before January 1, 
            2006.
            ``(B) Use of standard enrollment form.--An enrollment in an 
        endorsed program shall only be effected through completion of a 
        standard enrollment form specified by the Secretary. Each 
        sponsor of an endorsed program shall transmit to the Secretary 
        (in a form and manner specified by the Secretary) information 
        on individuals who complete such enrollment forms and, to the 
        extent provided under subsection (f), information regarding 
        certification as a transitional assistance eligible individual.
            ``(C) Enrollment only in one program.--
                ``(i) In general.--Subject to clauses (ii) and (iii), a 
            discount card eligible individual may be enrolled in only 
            one endorsed discount card program under this section.
                ``(ii) Change in endorsed program permitted for 2005.--
            The Secretary shall establish a process, similar to (and 
            coordinated with) the process for annual, coordinated 
            elections under section 1851(e)(3) during 2004, under which 
            an individual enrolled in an endorsed discount card program 
            may change the endorsed program in which the individual is 
            enrolled for 2005.
                ``(iii) Additional exceptions.--The Secretary shall 
            permit an individual to change the endorsed discount card 
            program in which the individual is enrolled in the case of 
            an individual who changes residence to be outside the 
            service area of such program and in such other exceptional 
            cases as the Secretary may provide (taking into account the 
            circumstances for special election periods under section 
            1851(e)(4)). Under the previous sentence, the Secretary may 
            consider a change in residential setting (such as placement 
            in a nursing facility) or enrollment in or disenrollment 
            from a plan under part C through which the individual was 
            enrolled in an endorsed program to be an exceptional 
            circumstance.
            ``(D) Disenrollment.--
                ``(i) Voluntary.--An individual may voluntarily 
            disenroll from an endorsed discount card program at any 
            time. In the case of such a voluntary disenrollment, the 
            individual may not enroll in another endorsed program, 
            except under such exceptional circumstances as the 
            Secretary may recognize under subparagraph (C)(iii) or 
            during the annual coordinated enrollment period provided 
            under subparagraph (C)(ii).
                ``(ii) Involuntary.--An individual who is enrolled in 
            an endorsed discount card program and not a transitional 
            assistance eligible individual may be disenrolled by the 
            sponsor of the program if the individual fails to pay any 
            annual enrollment fee required under the program.
            ``(E) Application to certain enrollees.--In the case of a 
        discount card eligible individual who is enrolled in a plan 
        described in section 1851(a)(2)(A) or under a reasonable cost 
        reimbursement contract under section 1876(h) that is offered by 
        an organization that also is a prescription discount card 
        sponsor that offers an endorsed discount card program under 
        which the individual may be enrolled and that has made an 
        election to apply the special rules under subsection (h)(9)(B) 
        for such an endorsed program, the individual may only enroll in 
        such an endorsed discount card program offered by that sponsor.
        ``(2) Enrollment fees.--
            ``(A) In general.--Subject to the succeeding provisions of 
        this paragraph, a prescription drug card sponsor may charge an 
        annual enrollment fee for each discount card eligible 
        individual enrolled in an endorsed discount card program 
        offered by such sponsor. The annual enrollment fee for either 
        2004 or 2005 shall not be prorated for portions of a year. 
        There shall be no annual enrollment fee for a year after 2005.
            ``(B) Amount.--No annual enrollment fee charged under 
        subparagraph (A) may exceed $30.
            ``(C) Uniform enrollment fee.--A prescription drug card 
        sponsor shall ensure that the annual enrollment fee (if any) 
        for an endorsed discount card program is the same for all 
        discount card eligible individuals enrolled in the program and 
        residing in the State.
            ``(D) Collection.--The annual enrollment fee (if any) 
        charged for enrollment in an endorsed program shall be 
        collected by the sponsor of the program.
            ``(E) Payment of fee for transitional assistance eligible 
        individuals.--Under subsection (g)(1)(A), the annual enrollment 
        fee (if any) otherwise charged under this paragraph with 
        respect to a transitional assistance eligible individual shall 
        be paid by the Secretary on behalf of such individual.
            ``(F) Optional payment of fee by state.--
                ``(i) In general.--The Secretary shall establish an 
            arrangement under which a State may provide for payment of 
            some or all of the enrollment fee for some or all enrollees 
            who are not transitional assistance eligible individuals in 
            the State, as specified by the State under the arrangement. 
            Insofar as such a payment arrangement is made with respect 
            to an enrollee, the amount of the enrollment fee shall be 
            paid directly by the State to the sponsor.
                ``(ii) No federal matching available under medicaid or 
            schip.--Expenditures made by a State for enrollment fees 
            described in clause (i) shall not be treated as State 
            expenditures for purposes of Federal matching payments 
            under title XIX or XXI.
            ``(G) Rules in case of changes in program enrollment during 
        a year.--The Secretary shall provide special rules in the case 
        of payment of an annual enrollment fee for a discount card 
        eligible individual who changes the endorsed program in which 
        the individual is enrolled during a year.
        ``(3) Issuance of discount card.--Each prescription drug card 
    sponsor of an endorsed discount card program shall issue, in a 
    standard format specified by the Secretary, to each discount card 
    eligible individual enrolled in such program a card that 
    establishes proof of enrollment and that can be used in a 
    coordinated manner to identify the sponsor, program, and individual 
    for purposes of the program under this section.
        ``(4) Period of access.--In the case of a discount card 
    eligible individual who enrolls in an endorsed program, access to 
    negotiated prices and transitional assistance, if any, under such 
    endorsed program shall take effect on such date as the Secretary 
    shall specify.
    ``(d) Provision of Information on Enrollment and Program 
Features.--
        ``(1) Secretarial responsibilities.--
            ``(A) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to discount card eligible individuals (and 
        prospective eligible individuals) regarding--
                ``(i) enrollment in endorsed discount card programs; 
            and
                ``(ii) the features of the program under this section, 
            including the availability of transitional assistance.
            ``(B) Promotion of informed choice.--In order to promote 
        informed choice among endorsed prescription drug discount card 
        programs, the Secretary shall provide for the dissemination of 
        information which--
                ``(i) compares the annual enrollment fee and other 
            features of such programs, which may include comparative 
            prices for covered discount card drugs; and
                ``(ii) includes educational materials on the 
            variability of discounts on prices of covered discount card 
            drugs under an endorsed program.
        The dissemination of information under clause (i) shall, to the 
        extent practicable, be coordinated with the dissemination of 
        educational information on other medicare options.
            ``(C) Special rule for initial enrollment date under the 
        program.--To the extent practicable, the Secretary shall 
        ensure, through the activities described in subparagraphs (A) 
        and (B), that discount card eligible individuals are provided 
        with such information at least 30 days prior to the initial 
        enrollment date specified under subsection (c)(1)(A)(ii).
            ``(D) Use of medicare toll-free number.--The Secretary 
        shall provide through the toll-free telephone number 1-800-
        MEDICARE for the receipt and response to inquiries and 
        complaints concerning the program under this section and 
        endorsed programs.
        ``(2) Prescription drug card sponsor responsibilities.--
            ``(A) In general.--Each prescription drug card sponsor that 
        offers an endorsed discount card program shall make available 
        to discount card eligible individuals (through the Internet and 
        otherwise) information that the Secretary identifies as being 
        necessary to promote informed choice among endorsed discount 
        card programs by such individuals, including information on 
        enrollment fees and negotiated prices for covered discount card 
        drugs charged to such individuals.
            ``(B) Response to enrollee questions.--Each sponsor 
        offering an endorsed discount card program shall have a 
        mechanism (including a toll-free telephone number) for 
        providing upon request specific information (such as negotiated 
        prices and the amount of transitional assistance remaining 
        available through the program) to discount card eligible 
        individuals enrolled in the program. The sponsor shall inform 
        transitional assistance eligible individuals enrolled in the 
        program of the availability of such toll-free telephone number 
        to provide information on the amount of available transitional 
        assistance.
            ``(C) Information on balance of transitional assistance 
        available at point-of-sale.--Each sponsor offering an endorsed 
        discount card program shall have a mechanism so that 
        information on the amount of transitional assistance remaining 
        under subsection (g)(1)(B) is available (electronically or by 
        telephone) at the point-of-sale of covered discount card drugs.
        ``(3) Public disclosure of pharmaceutical prices for equivalent 
    drugs.--
            ``(A) In general.--A prescription drug card sponsor 
        offering an endorsed discount card program shall provide that 
        each pharmacy that dispenses a covered discount card drug shall 
        inform a discount card eligible individual enrolled in the 
        program of any differential between the price of the drug to 
        the enrollee and the price of the lowest priced generic covered 
        discount card drug under the program that is therapeutically 
        equivalent and bioequivalent and available at such pharmacy.
            ``(B) Timing of notice.--
                ``(i) In general.--Subject to clause (ii), the 
            information under subparagraph (A) shall be provided at the 
            time of purchase of the drug involved, or, in the case of 
            dispensing by mail order, at the time of delivery of such 
            drug.
                ``(ii) Waiver.--The Secretary may waive clause (i) in 
            such circumstances as the Secretary may specify.
    ``(e) Discount Card Features.--
        ``(1) Savings to enrollees through negotiated prices.--
            ``(A) Access to negotiated prices.--
                ``(i) In general.--Each prescription drug card sponsor 
            that offers an endorsed discount card program shall provide 
            each discount card eligible individual enrolled in the 
            program with access to negotiated prices.
                ``(ii) Negotiated prices.--For purposes of this 
            section, negotiated prices shall take into account 
            negotiated price concessions, such as discounts, direct or 
            indirect subsidies, rebates, and direct or indirect 
            remunerations, for covered discount card drugs, and include 
            any dispensing fees for such drugs.
            ``(B) Ensuring pharmacy access.--Each prescription drug 
        card sponsor offering an endorsed discount card program shall 
        secure the participation in its network of a sufficient number 
        of pharmacies that dispense (other than solely by mail order) 
        drugs directly to enrollees to ensure convenient access to 
        covered discount card drugs at negotiated prices (consistent 
        with rules established by the Secretary). The Secretary shall 
        establish convenient access rules under this clause that are no 
        less favorable to enrollees than the standards for convenient 
        access to pharmacies included in the statement of work of 
        solicitation (#MDA906-03-R-0002) of the Department of Defense 
        under the TRICARE Retail Pharmacy (TRRx) as of March 13, 2003.
            ``(C) Prohibition on charges for required services.--
                ``(i) In general.--Subject to clause (ii), a 
            prescription drug card sponsor (and any pharmacy 
            contracting with such sponsor for the provision of covered 
            discount card drugs to individuals enrolled in such 
            sponsor's endorsed discount card program) may not charge an 
            enrollee any amount for any items and services required to 
            be provided by the sponsor under this section.
                ``(ii) Construction.--Nothing in clause (i) shall be 
            construed to prevent--

                    ``(I) the sponsor from charging the annual 
                enrollment fee (except in the case of a transitional 
                assistance eligible individual); and
                    ``(II) the pharmacy dispensing the covered discount 
                card drug, from imposing a charge (consistent with the 
                negotiated price) for the covered discount card drug 
                dispensed, reduced by the amount of any transitional 
                assistance made available.

            ``(D) Inapplicability of medicaid best price rules.--The 
        prices negotiated from drug manufacturers for covered discount 
        card drugs under an endorsed discount card program under this 
        section shall (notwithstanding any other provision of law) not 
        be taken into account for the purposes of establishing the best 
        price under section 1927(c)(1)(C).
        ``(2) Reduction of medication errors and adverse drug 
    interactions.--Each endorsed discount card program shall implement 
    a system to reduce the likelihood of medication errors and adverse 
    drug interactions and to improve medication use.
    ``(f) Eligibility Procedures for Endorsed Programs and Transitional 
Assistance.--
        ``(1) Determinations.--
            ``(A) Procedures.--The determination of whether an 
        individual is a discount card eligible individual or a 
        transitional assistance eligible individual or a special 
        transitional assistance eligible individual (as defined in 
        subsection (b)) shall be determined under procedures specified 
        by the Secretary consistent with this subsection.
            ``(B) Income and family size determinations.--For purposes 
        of this section, the Secretary shall define the terms `income' 
        and `family size' and shall specify the methods and period for 
        which they are determined. If under such methods income or 
        family size is determined based on the income or family size 
        for prior periods of time, the Secretary shall permit (whether 
        through a process of reconsideration or otherwise) an 
        individual whose income or family size has changed to elect to 
        have eligibility for transitional assistance determined based 
        on income or family size for a more recent period.
        ``(2) Use of self-certification for transitional assistance.--
            ``(A) In general.--Under the procedures specified under 
        paragraph (1)(A) an individual who wishes to be treated as a 
        transitional assistance eligible individual or a special 
        transitional assistance eligible individual under this section 
        (or another qualified person on such individual's behalf) shall 
        certify on the enrollment form under subsection (c)(1)(B) (or 
        similar form specified by the Secretary), through a simplified 
        means specified by the Secretary and under penalty of perjury 
        or similar sanction for false statements, as to the amount of 
        the individual's income, family size, and individual's 
        prescription drug coverage (if any) insofar as they relate to 
        eligibility to be a transitional assistance eligible individual 
        or a special transitional assistance eligible individual. Such 
        certification shall be deemed as consent to verification of 
        respective eligibility under paragraph (3). A certification 
        under this paragraph may be provided before, on, or after the 
        time of enrollment under an endorsed program.
            ``(B) Treatment of self-certification.--The Secretary shall 
        treat a certification under subparagraph (A) that is verified 
        under paragraph (3) as a determination that the individual 
        involved is a transitional assistance eligible individual or 
        special transitional assistance eligible individual (as the 
        case may be) for the entire period of the enrollment of the 
        individual in any endorsed program.
        ``(3) Verification.--
            ``(A) In general.--The Secretary shall establish methods 
        (which may include the use of sampling and the use of 
        information described in subparagraph (B)) to verify 
        eligibility for individuals who seek to enroll in an endorsed 
        program and for individuals who provide a certification under 
        paragraph (2).
            ``(B) Information described.--The information described in 
        this subparagraph is as follows:
                ``(i) Medicaid-related information.--Information on 
            eligibility under title XIX and provided to the Secretary 
            under arrangements between the Secretary and States in 
            order to verify the eligibility of individuals who seek to 
            enroll in an endorsed program and of individuals who 
            provide certification under paragraph (2).
                ``(ii) Social security information.--Financial 
            information made available to the Secretary under 
            arrangements between the Secretary and the Commissioner of 
            Social Security in order to verify the eligibility of 
            individuals who provide such certification.
                ``(iii) Information from secretary of the treasury.--
            Financial information made available to the Secretary under 
            section 6103(l)(19) of the Internal Revenue Code of 1986 in 
            order to verify the eligibility of individuals who provide 
            such certification.
            ``(C) Verification in cases of medicaid enrollees.--
                ``(i) In general.--Nothing in this section shall be 
            construed as preventing the Secretary from finding that a 
            discount card eligible individual meets the income 
            requirements under subsection (b)(2)(A) if the individual 
            is within a category of discount card eligible individuals 
            who are enrolled under title XIX (such as qualified 
            medicare beneficiaries (QMBs), specified low-income 
            medicare beneficiaries (SLMBs), and certain qualified 
            individuals (QI-1s)).
                ``(ii) Availability of information for verification 
            purposes.--As a condition of provision of Federal financial 
            participation to a State that is one of the 50 States or 
            the District of Columbia under title XIX, for purposes of 
            carrying out this section, the State shall provide the 
            information it submits to the Secretary relating to such 
            title in a manner specified by the Secretary that permits 
            the Secretary to identify individuals who are described in 
            subsection (b)(1)(B) or are transitional assistance 
            eligible individuals or special transitional assistance 
            eligible individuals.
        ``(4) Reconsideration.--
            ``(A) In general.--The Secretary shall establish a process 
        under which a discount card eligible individual, who is 
        determined through the certification and verification methods 
        under paragraphs (2) and (3) not to be a transitional 
        assistance eligible individual or a special transitional 
        assistance eligible individual, may request a reconsideration 
        of the determination.
            ``(B) Contract authority.--The Secretary may enter into a 
        contract to perform the reconsiderations requested under 
        subparagraph (A).
            ``(C) Communication of results.--Under the process under 
        subparagraph (A) the results of such reconsideration shall be 
        communicated to the individual and the prescription drug card 
        sponsor involved.
    ``(g) Transitional Assistance.--
        ``(1) Provision of transitional assistance.--An individual who 
    is a transitional assistance eligible individual (as determined 
    under this section) and who is enrolled with an endorsed program is 
    entitled--
            ``(A) to have payment made of any annual enrollment fee 
        charged under subsection (c)(2) for enrollment under the 
        program; and
            ``(B) to have payment made, up to the amount specified in 
        paragraph (2), under such endorsed program of 90 percent (or 95 
        percent in the case of a special transitional assistance 
        eligible individual) of the costs incurred for covered discount 
        card drugs obtained through the program taking into account the 
        negotiated price (if any) for the drug under the program.
        ``(2) Limitation on dollar amount.--
            ``(A) In general.--Subject to subparagraph (B), the amount 
        specified in this paragraph for a transitional assistance 
        eligible individual--
                ``(i) for costs incurred during 2004, is $600; or
                ``(ii) for costs incurred during 2005, is--

                    ``(I) $600, plus
                    ``(II) except as provided in subparagraph (E), the 
                amount by which the amount available under this 
                paragraph for 2004 for that individual exceeds the 
                amount of payment made under paragraph (1)(B) for that 
                individual for costs incurred during 2004.

            ``(B) Proration.--
                ``(i) In general.--In the case of an individual not 
            described in clause (ii) with respect to a year, the 
            Secretary may prorate the amount specified in subparagraph 
            (A) for the balance of the year involved in a manner 
            specified by the Secretary.
                ``(ii) Individual described.--An individual described 
            in this clause is a transitional assistance eligible 
            individual who--

                    ``(I) with respect to 2004, enrolls in an endorsed 
                program, and provides a certification under subsection 
                (f)(2), before the initial implementation date of the 
                program under this section; and
                    ``(II) with respect to 2005, is enrolled in an 
                endorsed program, and has provided such a 
                certification, before February 1, 2005.

            ``(C) Accounting for available balances in cases of changes 
        in program enrollment.--In the case of a transitional 
        assistance eligible individual who changes the endorsed 
        discount card program in which the individual is enrolled under 
        this section, the Secretary shall provide a process under which 
        the Secretary provides to the sponsor of the endorsed program 
        in which the individual enrolls information concerning the 
        balance of amounts available on behalf of the individual under 
        this paragraph.
            ``(D) Limitation on use of funds.--Pursuant to subsection 
        (a)(2)(C), no assistance shall be provided under paragraph 
        (1)(B) with respect to covered discount card drugs dispensed 
        after December 31, 2005.
            ``(E) No rollover permitted in case of voluntary 
        disenrollment.--Except in such exceptional cases as the 
        Secretary may provide, in the case of a transitional assistance 
        eligible individual who voluntarily disenrolls from an endorsed 
        plan, the provisions of subclause (II) of subparagraph (A)(ii) 
        shall not apply.
        ``(3) Payment.--The Secretary shall provide a method for the 
    reimbursement of prescription drug card sponsors for assistance 
    provided under this subsection.
        ``(4) Coverage of coinsurance.--
            ``(A) Waiver permitted by pharmacy.--Nothing in this 
        section shall be construed as precluding a pharmacy from 
        reducing or waiving the application of coinsurance imposed 
        under paragraph (1)(B) in accordance with section 
        1128B(b)(3)(G).
            ``(B) Optional payment of coinsurance by state.--
                ``(i) In general.--The Secretary shall establish an 
            arrangement under which a State may provide for payment of 
            some or all of the coinsurance under paragraph (1)(B) for 
            some or all enrollees in the State, as specified by the 
            State under the arrangement. Insofar as such a payment 
            arrangement is made with respect to an enrollee, the amount 
            of the coinsurance shall be paid directly by the State to 
            the pharmacy involved.
                ``(ii) No federal matching available under medicaid or 
            schip.--Expenditures made by a State for coinsurance 
            described in clause (i) shall not be treated as State 
            expenditures for purposes of Federal matching payments 
            under title XIX or XXI.
                ``(iii) Not treated as medicare cost-sharing.--
            Coinsurance described in paragraph (1)(B) shall not be 
            treated as coinsurance under this title for purposes of 
            section 1905(p)(3)(B).
            ``(C) Treatment of coinsurance.--The amount of any 
        coinsurance imposed under paragraph (1)(B), whether paid or 
        waived under this paragraph, shall not be taken into account in 
        applying the limitation in dollar amount under paragraph (2).
        ``(5) Ensuring access to transitional assistance for qualified 
    residents of long-term care facilities and american indians.--
            ``(A) Residents of long-term care facilities.--The 
        Secretary shall establish procedures and may waive requirements 
        of this section as necessary to negotiate arrangements with 
        sponsors to provide arrangements with pharmacies that support 
        long-term care facilities in order to ensure access to 
        transitional assistance for transitional assistance eligible 
        individuals who reside in long-term care facilities.
            ``(B) American indians.--The Secretary shall establish 
        procedures and may waive requirements of this section to ensure 
        that, for purposes of providing transitional assistance, 
        pharmacies operated by the Indian Health Service, Indian tribes 
        and tribal organizations, and urban Indian organizations (as 
        defined in section 4 of the Indian Health Care Improvement Act) 
        have the opportunity to participate in the pharmacy networks of 
        at least two endorsed programs in each of the 50 States and the 
        District of Columbia where such a pharmacy operates.
        ``(6) No impact on benefits under other programs.--The 
    availability of negotiated prices or transitional assistance under 
    this section shall not be treated as benefits or otherwise taken 
    into account in determining an individual's eligibility for, or the 
    amount of benefits under, any other Federal program.
        ``(7) Disregard for purposes of part c.--Nonuniformity of 
    benefits resulting from the implementation of this section 
    (including the provision or nonprovision of transitional assistance 
    and the payment or waiver of any enrollment fee under this section) 
    shall not be taken into account in applying section 1854(f).
    ``(h) Qualification of Prescription Drug Card Sponsors and 
Endorsement of Discount Card Programs; Beneficiary Protections.--
        ``(1) Prescription drug card sponsor and qualifications.--
            ``(A) Prescription drug card sponsor and sponsor defined.--
        For purposes of this section, the terms `prescription drug card 
        sponsor' and `sponsor' mean any nongovernmental entity that the 
        Secretary determines to be appropriate to offer an endorsed 
        discount card program under this section, which may include--
                ``(i) a pharmaceutical benefit management company;
                ``(ii) a wholesale or retail pharmacy delivery system;
                ``(iii) an insurer (including an insurer that offers 
            medicare supplemental policies under section 1882);
                ``(iv) an organization offering a plan under part C; or
                ``(v) any combination of the entities described in 
            clauses (i) through (iv).
            ``(B) Administrative qualifications.--Each endorsed 
        discount card program shall be operated directly, or through 
        arrangements with an affiliated organization (or 
        organizations), by one or more entities that have demonstrated 
        experience and expertise in operating such a program or a 
        similar program and that meets such business stability and 
        integrity requirements as the Secretary may specify.
            ``(C) Accounting for transitional assistance.--The sponsor 
        of an endorsed discount card program shall have arrangements 
        satisfactory to the Secretary to account for the assistance 
        provided under subsection (g) on behalf of transitional 
        assistance eligible individuals.
        ``(2) Applications for program endorsement.--
            ``(A) Submission.--Each prescription drug card sponsor that 
        seeks endorsement of a prescription drug discount card program 
        under this section shall submit to the Secretary, at such time 
        and in such manner as the Secretary may specify, an application 
        containing such information as the Secretary may require.
            ``(B) Approval; compliance with applicable requirements.--
        The Secretary shall review the application submitted under 
        subparagraph (A) and shall determine whether to endorse the 
        prescription drug discount card program. The Secretary may not 
        endorse such a program unless--
                ``(i) the program and prescription drug card sponsor 
            offering the program comply with the applicable 
            requirements under this section; and
                ``(ii) the sponsor has entered into a contract with the 
            Secretary to carry out such requirements.
            ``(C) Termination of endorsement and contracts.--An 
        endorsement of an endorsed program and a contract under 
        subparagraph (B) shall be for the duration of the program under 
        this section (including any transition applicable under 
        subsection (a)(2)(C)(ii)), except that the Secretary may, with 
        notice and for cause (as defined by the Secretary), terminate 
        such endorsement and contract.
            ``(D) Ensuring choice of programs.--
                ``(i) In general.--The Secretary shall ensure that 
            there is available to each discount card eligible 
            individual a choice of at least 2 endorsed programs (each 
            offered by a different sponsor).
                ``(ii) Limitation on number.--The Secretary may limit 
            (but not below 2) the number of sponsors in a State that 
            are awarded contracts under this paragraph.
        ``(3) Service area encompassing entire states.--Except as 
    provided in paragraph (9), if a prescription drug card sponsor that 
    offers an endorsed program enrolls in the program individuals 
    residing in any part of a State, the sponsor must permit any 
    discount card eligible individual residing in any portion of the 
    State to enroll in the program.
        ``(4) Savings to medicare beneficiaries.--Each prescription 
    drug card sponsor that offers an endorsed discount card program 
    shall pass on to discount card eligible individuals enrolled in the 
    program negotiated prices on covered discount card drugs, including 
    discounts negotiated with pharmacies and manufacturers, to the 
    extent disclosed under subsection (i)(1).
        ``(5) Grievance mechanism.--Each prescription drug card sponsor 
    shall provide meaningful procedures for hearing and resolving 
    grievances between the sponsor (including any entity or individual 
    through which the sponsor carries out the endorsed discount card 
    program) and enrollees in endorsed discount card programs of the 
    sponsor under this section in a manner similar to that required 
    under section 1852(f).
        ``(6) Confidentiality of enrollee records.--
            ``(A) In general.--For purposes of the program under this 
        section, the operations of an endorsed program are covered 
        functions and a prescription drug card sponsor is a covered 
        entity for purposes of applying part C of title XI and all 
        regulatory provisions promulgated thereunder, including 
        regulations (relating to privacy) adopted pursuant to the 
        authority of the Secretary under section 264(c) of the Health 
        Insurance Portability and Accountability Act of 1996 (42 U.S.C. 
        1320d-2 note).
            ``(B) Waiver authority.--In order to promote participation 
        of sponsors in the program under this section, the Secretary 
        may waive such relevant portions of regulations relating to 
        privacy referred to in subparagraph (A), for such appropriate, 
        limited period of time, as the Secretary specifies.
        ``(7) Limitation on provision and marketing of products and 
    services.--The sponsor of an endorsed discount card program--
            ``(A) may provide under the program--
                ``(i) a product or service only if the product or 
            service is directly related to a covered discount card 
            drug; or
                ``(ii) a discount price for nonprescription drugs; and
            ``(B) may, to the extent otherwise permitted under 
        paragraph (6) (relating to application of HIPAA requirements), 
        market a product or service under the program only if the 
        product or service is directly related to--
                ``(i) a covered discount card drug; or
                ``(ii) a drug described in subparagraph (A)(ii) and the 
            marketing consists of information on the discounted price 
            made available for the drug involved.
        ``(8) Additional protections.--Each endorsed discount card 
    program shall meet such additional requirements as the Secretary 
    identifies to protect and promote the interest of discount card 
    eligible individuals, including requirements that ensure that 
    discount card eligible individuals enrolled in endorsed discount 
    card programs are not charged more than the lower of the price 
    based on negotiated prices or the usual and customary price.
        ``(9) Special rules for certain organizations.--
            ``(A) In general.--In the case of an organization that is 
        offering a plan under part C or enrollment under a reasonable 
        cost reimbursement contract under section 1876(h) that is 
        seeking to be a prescription drug card sponsor under this 
        section, the organization may elect to apply the special rules 
        under subparagraph (B) with respect to enrollees in any plan 
        described in section 1851(a)(2)(A) that it offers or under such 
        contract and an endorsed discount card program it offers, but 
        only if it limits enrollment under such program to individuals 
        enrolled in such plan or under such contract.
            ``(B) Special rules.--The special rules under this 
        subparagraph are as follows:
                ``(i) Limitation on enrollment.--The sponsor limits 
            enrollment under this section under the endorsed discount 
            card program to discount card eligible individuals who are 
            enrolled in the part C plan involved or under the 
            reasonable cost reimbursement contract involved and is not 
            required nor permitted to enroll other individuals under 
            such program.
                ``(ii) Pharmacy access.--Pharmacy access requirements 
            under subsection (e)(1)(B) are deemed to be met if the 
            access is made available through a pharmacy network (and 
            not only through mail order) and the network used by the 
            sponsor is approved by the Secretary.
                ``(iii) Sponsor requirements.--The Secretary may waive 
            the application of such requirements for a sponsor as the 
            Secretary determines to be duplicative or to conflict with 
            a requirement of the organization under part C or section 
            1876 (as the case may be) or to be necessary in order to 
            improve coordination of this section with the benefits 
            under such part or section.
    ``(i) Disclosure and Oversight.--
        ``(1) Disclosure.--Each prescription drug card sponsor offering 
    an endorsed discount card program shall disclose to the Secretary 
    (in a manner specified by the Secretary) information relating to 
    program performance, use of prescription drugs by discount card 
    eligible individuals enrolled in the program, the extent to which 
    negotiated price concessions described in subsection (e)(1)(A)(ii) 
    made available to the entity by a manufacturer are passed through 
    to enrollees through pharmacies or otherwise, and such other 
    information as the Secretary may specify. The provisions of section 
    1927(b)(3)(D) shall apply to drug pricing data reported under the 
    previous sentence (other than data in aggregate form).
        ``(2) Oversight; audit and inspection authority.--The Secretary 
    shall provide appropriate oversight to ensure compliance of 
    endorsed discount card programs and their sponsors with the 
    requirements of this section. The Secretary shall have the right to 
    audit and inspect any books and records of a prescription discount 
    card sponsor (and of any affiliated organization referred to in 
    subsection (h)(1)(B)) that pertain to the endorsed discount card 
    program under this section, including amounts payable to the 
    sponsor under this section.
        ``(3) Sanctions for abusive practices.--The Secretary may 
    implement intermediate sanctions or may revoke the endorsement of a 
    program offered by a sponsor under this section if the Secretary 
    determines that the sponsor or the program no longer meets the 
    applicable requirements of this section or that the sponsor has 
    engaged in false or misleading marketing practices. The Secretary 
    may impose a civil money penalty in an amount not to exceed $10,000 
    for conduct that a party knows or should know is a violation of 
    this section. The provisions of section 1128A (other than 
    subsections (a) and (b) and the second sentence of subsection (f)) 
    shall apply to a civil money penalty under the previous sentence in 
    the same manner as such provisions apply to a penalty or proceeding 
    under section 1128A(a).
    ``(j) Treatment of Territories.--
        ``(1) In general.--The Secretary may waive any provision of 
    this section (including subsection (h)(2)(D)) in the case of a 
    resident of a State (other than the 50 States and the District of 
    Columbia) insofar as the Secretary determines it is necessary to 
    secure access to negotiated prices for discount card eligible 
    individuals (or, at the option of the Secretary, individuals 
    described in subsection (b)(1)(A)(i)).
        ``(2) Transitional assistance.--
            ``(A) In general.--In the case of a State, other than the 
        50 States and the District of Columbia, if the State 
        establishes a plan described in subparagraph (B) (for providing 
        transitional assistance with respect to the provision of 
        prescription drugs to some or all individuals residing in the 
        State who are described in subparagraph (B)(i)), the Secretary 
        shall pay to the State for the entire period of the operation 
        of this section an amount equal to the amount allotted to the 
        State under subparagraph (C).
            ``(B) Plan.--The plan described in this subparagraph is a 
        plan that--
                ``(i) provides transitional assistance with respect to 
            the provision of covered discount card drugs to some or all 
            individuals who are entitled to benefits under part A or 
            enrolled under part B, who reside in the State, and who 
            have income below 135 percent of the poverty line; and
                ``(ii) assures that amounts received by the State under 
            this paragraph are used only for such assistance.
            ``(C) Allotment limit.--The amount described in this 
        subparagraph for a State is equal to $35,000,000 multiplied by 
        the ratio (as estimated by the Secretary) of--
                ``(i) the number of individuals who are entitled to 
            benefits under part A or enrolled under part B and who 
            reside in the State (as determined by the Secretary as of 
            July 1, 2003), to
                ``(ii) the sum of such numbers for all States to which 
            this paragraph applies.
            ``(D) Continued availability of funds.--Amounts made 
        available to a State under this paragraph which are not used 
        under this paragraph shall be added to the amount available to 
        that State for purposes of carrying out section 1935(e).
    ``(k) Funding.--
        ``(1) Establishment of transitional assistance account.--
            ``(A) In general.--There is created within the Federal 
        Supplementary Medical Insurance Trust Fund established by 
        section 1841 an account to be known as the `Transitional 
        Assistance Account' (in this subsection referred to as the 
        `Account').
            ``(B) Funds.--The Account shall consist of such gifts and 
        bequests as may be made as provided in section 201(i)(1), 
        accrued interest on balances in the Account, and such amounts 
        as may be deposited in, or appropriated to, the Account as 
        provided in this subsection.
            ``(C) Separate from rest of trust fund.--Funds provided 
        under this subsection to the Account shall be kept separate 
        from all other funds within the Federal Supplementary Medical 
        Insurance Trust Fund, but shall be invested, and such 
        investments redeemed, in the same manner as all other funds and 
        investments within such Trust Fund.
        ``(2) Payments from account.--
            ``(A) In general.--The Managing Trustee shall pay from time 
        to time from the Account such amounts as the Secretary 
        certifies are necessary to make payments for transitional 
        assistance provided under subsections (g) and (j)(2).
            ``(B) Treatment in relation to part b premium.--Amounts 
        payable from the Account shall not be taken into account in 
        computing actuarial rates or premium amounts under section 
        1839.
        ``(3) Appropriations to cover benefits.--There are appropriated 
    to the Account in a fiscal year, out of any moneys in the Treasury 
    not otherwise appropriated, an amount equal to the payments made 
    from the Account in the year.
        ``(4) For administrative expenses.--There are authorized to be 
    appropriated to the Secretary such sums as may be necessary to 
    carry out the Secretary's responsibilities under this section.
        ``(5) Transfer of any remaining balance to medicare 
    prescription drug account.--Any balance remaining in the Account 
    after the Secretary determines that funds in the Account are no 
    longer necessary to carry out the program under this section shall 
    be transferred and deposited into the Medicare Prescription Drug 
    Account under section 1860D-16.
        ``(6) Construction.--Nothing in this section shall be construed 
    as authorizing the Secretary to provide for payment (other than 
    payment of an enrollment fee on behalf of a transitional assistance 
    eligible individual under subsection (g)(1)(A)) to a sponsor for 
    administrative expenses incurred by the sponsor in carrying out 
    this section (including in administering the transitional 
    assistance provisions of subsections (f) and (g)).

         ``Subpart 5--Definitions and Miscellaneous Provisions

      ``definitions; treatment of references to provisions in part c

    ``Sec. 1860D-41. (a) Definitions.--For purposes of this part:
        ``(1) Basic prescription drug coverage.--The term `basic 
    prescription drug coverage' is defined in section 1860D-2(a)(3).
        ``(2) Covered part d drug.--The term `covered part D drug' is 
    defined in section 1860D-2(e).
        ``(3) Creditable prescription drug coverage.--The term 
    `creditable prescription drug coverage' has the meaning given such 
    term in section 1860D-13(b)(4).
        ``(4) Part d eligible individual.--The term `part D eligible 
    individual' has the meaning given such term in section 1860D-
    1(a)(4)(A).
        ``(5) Fallback prescription drug plan.--The term `fallback 
    prescription drug plan' has the meaning given such term in section 
    1860D-11(g)(4).
        ``(6) Initial coverage limit.--The term `initial coverage 
    limit' means such limit as established under section 1860D-2(b)(3), 
    or, in the case of coverage that is not standard prescription drug 
    coverage, the comparable limit (if any) established under the 
    coverage.
        ``(7) Insurance risk.--The term `insurance risk' means, with 
    respect to a participating pharmacy, risk of the type commonly 
    assumed only by insurers licensed by a State and does not include 
    payment variations designed to reflect performance-based measures 
    of activities within the control of the pharmacy, such as formulary 
    compliance and generic drug substitution.
        ``(8) MA plan.--The term `MA plan' has the meaning given such 
    term in section 1860D-1(a)(4)(B).
        ``(9) MA-PD plan.--The term `MA-PD plan' has the meaning given 
    such term in section 1860D-1(a)(4)(C).
        ``(10) Medicare prescription drug account.--The term `Medicare 
    Prescription Drug Account' means the Account created under section 
    1860D-16(a).
        ``(11) PDP approved bid.--The term `PDP approved bid' has the 
    meaning given such term in section 1860D-13(a)(6).
        ``(12) PDP region.--The term `PDP region' means such a region 
    as provided under section 1860D-11(a)(2).
        ``(13) PDP sponsor.--The term `PDP sponsor' means a 
    nongovernmental entity that is certified under this part as meeting 
    the requirements and standards of this part for such a sponsor.
        ``(14) Prescription drug plan.--The term `prescription drug 
    plan' means prescription drug coverage that is offered--
            ``(A) under a policy, contract, or plan that has been 
        approved under section 1860D-11(e); and
            ``(B) by a PDP sponsor pursuant to, and in accordance with, 
        a contract between the Secretary and the sponsor under section 
        1860D-12(b).
        ``(15) Qualified prescription drug coverage.--The term 
    `qualified prescription drug coverage' is defined in section 1860D-
    2(a)(1).
        ``(16) Standard prescription drug coverage.--The term `standard 
    prescription drug coverage' is defined in section 1860D-2(b).
        ``(17) State pharmaceutical assistance program.--The term 
    `State Pharmaceutical Assistance Program' has the meaning given 
    such term in section 1860D-23(b).
        ``(18) Subsidy eligible individual.--The term `subsidy eligible 
    individual' has the meaning given such term in section 1860D-
    14(a)(3)(A).
    ``(b) Application of Part C Provisions Under This Part.--For 
purposes of applying provisions of part C under this part with respect 
to a prescription drug plan and a PDP sponsor, unless otherwise 
provided in this part such provisions shall be applied as if--
        ``(1) any reference to an MA plan included a reference to a 
    prescription drug plan;
        ``(2) any reference to an MA organization or a provider-
    sponsored organization included a reference to a PDP sponsor;
        ``(3) any reference to a contract under section 1857 included a 
    reference to a contract under section 1860D-12(b);
        ``(4) any reference to part C included a reference to this 
    part; and
        ``(5) any reference to an election period under section 1851 
    were a reference to an enrollment period under section 1860D-1.

                        ``miscellaneous provisions

    ``Sec. 1860D-42. (a) Access to Coverage in Territories.--The 
Secretary may waive such requirements of this part, including section 
1860D-3(a)(1), insofar as the Secretary determines it is necessary to 
secure access to qualified prescription drug coverage for part D 
eligible individuals residing in a State (other than the 50 States and 
the District of Columbia).
    ``(b) Application of Demonstration Authority.--The provisions of 
section 402 of the Social Security Amendments of 1967 (Public Law 90-
248) shall apply with respect to this part and part C in the same 
manner it applies with respect to parts A and B, except that any 
reference with respect to a Trust Fund in relation to an experiment or 
demonstration project relating to prescription drug coverage under this 
part shall be deemed a reference to the Medicare Prescription Drug 
Account within the Federal Supplementary Medical Insurance Trust 
Fund.''.
    (b) Submission of Legislative Proposal.--Not later than 6 months 
after the date of the enactment of this Act, the Secretary shall submit 
to the appropriate committees of Congress a legislative proposal 
providing for such technical and conforming amendments in the law as 
are required by the provisions of this title and title II.
    (c) Study on Transitioning Part B Prescription Drug Coverage.--Not 
later than January 1, 2005, the Secretary shall submit a report to 
Congress that makes recommendations regarding methods for providing 
benefits under subpart 1 of part D of title XVIII of the Social 
Security Act for outpatient prescription drugs for which benefits are 
provided under part B of such title.
    (d) Report on Progress in Implementation of Prescription Drug 
Benefit.--Not later than March 1, 2005, the Secretary shall submit a 
report to Congress on the progress that has been made in implementing 
the prescription drug benefit under this title. The Secretary shall 
include in the report specific steps that have been taken, and that 
need to be taken, to ensure a timely start of the program on January 1, 
2006. The report shall include recommendations regarding an appropriate 
transition from the program under section 1860D-31 of the Social 
Security Act to prescription drug benefits under subpart 1 of part D of 
title XVIII of such Act.
    (e) Additional Conforming Changes.--
        (1) Conforming references to previous part d.--Any reference in 
    law (in effect before the date of the enactment of this Act) to 
    part D of title XVIII of the Social Security Act is deemed a 
    reference to part E of such title (as in effect after such date).
        (2) Conforming amendment permitting waiver of cost-sharing.--
    Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is amended--
            (A) by striking ``and'' at the end of subparagraph (E);
            (B) by striking the period at the end of subparagraph (F) 
        and inserting ``; and''; and
            (C) by adding at the end the following new subparagraph:
        ``(G) the waiver or reduction by pharmacies (including 
    pharmacies of the Indian Health Service, Indian tribes, tribal 
    organizations, and urban Indian organizations) of any cost-sharing 
    imposed under part D of title XVIII, if the conditions described in 
    clauses (i) through (iii) of section 1128A(i)(6)(A) are met with 
    respect to the waiver or reduction (except that, in the case of 
    such a waiver or reduction on behalf of a subsidy eligible 
    individual (as defined in section 1860D-14(a)(3)), section 
    1128A(i)(6)(A) shall be applied without regard to clauses (ii) and 
    (iii) of that section).''.
        (3) Medicare prescription drug account.--
            (A) Section 201(g) (42 U.S.C. 401(g)) is amended--
                (i) in paragraph (1)(B)(i)(V), by inserting ``(and, of 
            such portion, the portion of such costs which should have 
            been borne by the Medicare Prescription Drug Account in 
            such Trust Fund)'' after ``Trust Fund''; and
                (ii) in paragraph (1)(B)(ii)(III), by inserting ``(and, 
            of such portion, the portion of such costs which should 
            have been borne by the Medicare Prescription Drug Account 
            in such Trust Fund)'' after ``Trust Fund''.
            (B) Section 201(i)(1) (42 U.S.C. 401(i)(1)) is amended by 
        inserting ``(and for the Medicare Prescription Drug Account and 
        the Transitional Assistance Account in such Trust Fund)'' after 
        ``Federal Supplementary Medical Insurance Trust Fund''.
            (C) Section 1841 (42 U.S.C. 1395t) is amended--
                (i) in the last sentence of subsection (a)--

                    (I) by striking ``and'' before ``such amounts''; 
                and
                    (II) by inserting before the period the following: 
                ``, and such amounts as may be deposited in, or 
                appropriated to, the Medicare Prescription Drug Account 
                established by section 1860D-16'';

                (ii) in subsection (g), by adding at the end the 
            following: ``The payments provided for under part D, other 
            than under section 1860D-31(k)(2), shall be made from the 
            Medicare Prescription Drug Account in the Trust Fund.'';
                (iii) in subsection (h), by inserting ``or pursuant to 
            section 1860D-13(c)(1) or 1854(d)(2)(A) (in which case 
            payments shall be made in appropriate part from the 
            Medicare Prescription Drug Account in the Trust Fund)'' 
            after ``1840(d)''; and
                (iv) in subsection (i), by inserting after ``and 
            section 1842(g)'' the following: ``and pursuant to sections 
            1860D-13(c)(1) and 1854(d)(2)(A) (in which case payments 
            shall be made in appropriate part from the Medicare 
            Prescription Drug Account in the Trust Fund)''.
            (D) Section 1853(f) (42 U.S.C. 1395w-23(f)) is amended--
                (i) in the heading by striking ``Trust Fund'' and 
            inserting ``Trust Funds''; and
                (ii) by inserting after the first sentence the 
            following: ``Payments to MA organizations for statutory 
            drug benefits provided under this title are made from the 
            Medicare Prescription Drug Account in the Federal 
            Supplementary Medical Insurance Trust Fund.''.
        (4) Application of confidentiality for drug pricing data.--
    Section 1927(b)(3)(D) (42 U.S.C. 1396r-8(b)(3)(D)) is amended by 
    adding after and below clause (iii) the following:
        ``The previous sentence shall also apply to information 
        disclosed under section 1860D-2(d)(2) or 1860D-4(c)(2)(E).''.
        (5) Clarification of treatment of part a enrollees.--Section 
    1818(a) (42 U.S.C. 1395i-2(a)) is amended by adding at the end the 
    following: ``Except as otherwise provided, any reference to an 
    individual entitled to benefits under this part includes an 
    individual entitled to benefits under this part pursuant to an 
    enrollment under this section or section 1818A.''.
        (6) Disclosure.--Section 6103(l)(7)(D)(ii) of the Internal 
    Revenue Code of 1986 is amended by inserting ``or subsidies 
    provided under section 1860D-14 of such Act'' after ``Social 
    Security Act''.
        (7) Extension of study authority.--Section 1875(b) (42 U.S.C. 
    1395ll(b)) is amended by striking ``the insurance programs under 
    parts A and B'' and inserting ``this title''.
        (8) Conforming amendments relating to facilitation of 
    electronic prescribing.--
            (A) Section 1128B(b)(3)(C) (42 U.S.C. 1320a-7b(b)(3)(C)) is 
        amended by inserting ``or in regulations under section 1860D-
        3(e)(6)'' after ``1987''.
            (B) Section 1877(b) (42 U.S.C. 1395nn(b)) is amended by 
        adding at the end the following new paragraph:
        ``(5) Electronic prescribing.--An exception established by 
    regulation under section 1860D-3(e)(6).''.
        (9) Other changes.--Section 1927(g)(1)(B)(i) (42 U.S.C. 1396r-
    8(g)(1)(B)(i)) is amended--
            (A) by adding ``and'' at the end of subclause (II); and
            (B) by striking subclause (IV).

SEC. 102. MEDICARE ADVANTAGE CONFORMING AMENDMENTS.

    (a) Conforming Amendments to Enrollment Process.--
        (1) Extending open enrollment periods.--Section 1851(e) (42 
    U.S.C. 1395w-21(e)) is amended--
            (A) in paragraph (2), by striking ``2004'' and ``2005'' and 
        inserting ``2005'' and ``2006'' each place it appears; and
            (B) in paragraph (4), by striking ``2005'' and inserting 
        ``2006'' each place it appears.
        (2) Establishment of special annual, coordinated election 
    period for 6 months beginning november 15, 2005.--Section 
    1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)) is amended to read as 
    follows:
            ``(B) Annual, coordinated election period.--For purposes of 
        this section, the term `annual, coordinated election period' 
        means--
                ``(i) with respect to a year before 2002, the month of 
            November before such year;
                ``(ii) with respect to 2002, 2003, 2004, and 2005, the 
            period beginning on November 15 and ending on December 31 
            of the year before such year;
                ``(iii) with respect to 2006, the period beginning on 
            November 15, 2005, and ending on May 15, 2006; and
                ``(iv) with respect to 2007 and succeeding years, the 
            period beginning on November 15 and ending on December 31 
            of the year before such year.''.
        (3) Special information campaign.--Section 1851(e)(3) (42 
    U.S.C. 1395w-21(e)(3)) is amended--
            (A) in subparagraph (C), by inserting ``and during the 
        period described in subparagraph (B)(iii)'' after ``(beginning 
        with 1999)''; and
            (B) in subparagraph (D)--
                (i) in the heading by striking ``campaign in 1998'' and 
            inserting ``campaigns''; and
                (ii) by adding at the end the following: ``During the 
            period described in subparagraph (B)(iii), the Secretary 
            shall provide for an educational and publicity campaign to 
            inform MA eligible individuals about the availability of MA 
            plans (including MA-PD plans) offered in different areas 
            and the election process provided under this section.''.
        (4) Coordinating initial enrollment periods.--Section 
    1851(e)(1) (42 U.S.C. 1395w-21(e)(1)) is amended by adding at the 
    end the following new sentence: ``If any portion of an individual's 
    initial enrollment period under part B occurs after the end of the 
    annual, coordinated election period described in paragraph 
    (3)(B)(iii), the initial enrollment period under this part shall 
    further extend through the end of the individual's initial 
    enrollment period under part B.''.
        (5) Coordination of effectiveness of elections during annual 
    coordinated election period for 2006.--Section 1851(f)(3) (42 
    U.S.C. 1395w-21(f)(3)) is amended by inserting ``, other than the 
    period described in clause (iii) of such subsection'' after 
    ``subsection (e)(3)(B)''.
        (6) Limitation on one-change rule to same type of plan.--
    Section 1851(e)(2) (42 U.S.C. 1395w-21(e)(2)) is amended--
            (A) in subparagraph (B)(i), by inserting ``, subparagraph 
        (C)(iii),'' after ``clause (ii)'';
            (B) in subparagraph (C)(i), by striking ``clause (ii)'' and 
        inserting ``clauses (ii) and (iii)''; and
            (C) by adding at the end of subparagraph (C) the following 
        new clause:
                ``(iii) Limitation on exercise of right with respect to 
            prescription drug coverage.--Effective for plan years 
            beginning on or after January 1, 2006, in applying clause 
            (i) (and clause (i) of subparagraph (B)) in the case of an 
            individual who--

                    ``(I) is enrolled in an MA plan that does provide 
                qualified prescription drug coverage, the individual 
                may exercise the right under such clause only with 
                respect to coverage under the original fee-for-service 
                plan or coverage under another MA plan that does not 
                provide such coverage and may not exercise such right 
                to obtain coverage under an MA-PD plan or under a 
                prescription drug plan under part D; or
                    ``(II) is enrolled in an MA-PD plan, the individual 
                may exercise the right under such clause only with 
                respect to coverage under another MA-PD plan (and not 
                an MA plan that does not provide qualified prescription 
                drug coverage) or under the original fee-for-service 
                plan and coverage under a prescription drug plan under 
                part D.''.

    (b) Promotion of E-Prescribing by MA Plans.--Section 1852(j) (42 
U.S.C. 1395w-22(j)) is amended by adding at the end the following new 
paragraph:
        ``(7) Promotion of E-Prescribing by MA Plans.--
            ``(A) In general.--An MA-PD plan may provide for a separate 
        payment or otherwise provide for a differential payment for a 
        participating physician that prescribes covered part D drugs in 
        accordance with an electronic prescription drug program that 
        meets standards established under section 1860D-4(e).
            ``(B) Considerations.--Such payment may take into 
        consideration the costs of the physician in implementing such a 
        program and may also be increased for those participating 
        physicians who significantly increase--
                ``(i) formulary compliance;
                ``(ii) lower cost, therapeutically equivalent 
            alternatives;
                ``(iii) reductions in adverse drug interactions; and
                ``(iv) efficiencies in filing prescriptions through 
            reduced administrative costs.
            ``(C) Structure.--Additional or increased payments under 
        this subsection may be structured in the same manner as 
        medication therapy management fees are structured under section 
        1860D-4(c)(2)(E).''.
    (c) Other Conforming Amendments.--
        (1) Section 1851(a)(1) (42 U.S.C. 1395w-21(a)(1)) is amended--
            (A) by inserting ``(other than qualified prescription drug 
        benefits)'' after ``benefits'';
            (B) by striking the period at the end of subparagraph (B) 
        and inserting a comma; and
            (C) by adding after and below subparagraph (B) the 
        following:
    ``and may elect qualified prescription drug coverage in accordance 
    with section 1860D-1.''.
        (2) Effective date.--The amendments made by this subsection 
    shall apply on and after January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

    (a) Determinations of Eligibility for Low-Income Subsidies.--
        (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
    amended--
            (A) by striking ``and'' at the end of paragraph (64);
            (B) by striking the period at the end of paragraph (65) and 
        inserting ``; and''; and
            (C) by inserting after paragraph (65) the following new 
        paragraph:
        ``(66) provide for making eligibility determinations under 
    section 1935(a).''.
        (2) New section.--Title XIX is further amended--
            (A) by redesignating section 1935 as section 1936; and
            (B) by inserting after section 1934 the following new 
        section:

   ``special provisions relating to medicare prescription drug benefit

    ``Sec. 1935. (a) Requirements Relating to Medicare Prescription 
Drug Low-Income Subsidies and Medicare Transitional Prescription Drug 
Assistance.--As a condition of its State plan under this title under 
section 1902(a)(66) and receipt of any Federal financial assistance 
under section 1903(a), a State shall do the following:
        ``(1) Information for transitional prescription drug assistance 
    verification.--The State shall provide the Secretary with 
    information to carry out section 1860D-31(f)(3)(B)(i).
        ``(2) Eligibility determinations for low-income subsidies.--The 
    State shall--
            ``(A) make determinations of eligibility for premium and 
        cost-sharing subsidies under and in accordance with section 
        1860D-14;
            ``(B) inform the Secretary of such determinations in cases 
        in which such eligibility is established; and
            ``(C) otherwise provide the Secretary with such information 
        as may be required to carry out part D, other than subpart 4, 
        of title XVIII (including section 1860D-14).
        ``(3) Screening for eligibility, and enrollment of, 
    beneficiaries for medicare cost-sharing.--As part of making an 
    eligibility determination required under paragraph (2) for an 
    individual, the State shall make a determination of the 
    individual's eligibility for medical assistance for any medicare 
    cost-sharing described in section 1905(p)(3) and, if the individual 
    is eligible for any such medicare cost-sharing, offer enrollment to 
    the individual under the State plan (or under a waiver of such 
    plan).
    ``(b) Regular Federal Subsidy of Administrative Costs.--The amounts 
expended by a State in carrying out subsection (a) are expenditures 
reimbursable under the appropriate paragraph of section 1903(a).''.
    (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
Section 1935, as inserted by subsection (a)(2), is amended by adding at 
the end the following new subsection:
    ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually Eligible Individuals.--
        ``(1) Phased-down state contribution.--
            ``(A) In general.--Each of the 50 States and the District 
        of Columbia for each month beginning with January 2006 shall 
        provide for payment under this subsection to the Secretary of 
        the product of--
                ``(i) the amount computed under paragraph (2)(A) for 
            the State and month;
                ``(ii) the total number of full-benefit dual eligible 
            individuals (as defined in paragraph (6)) for such State 
            and month; and
                ``(iii) the factor for the month specified in paragraph 
            (5).
            ``(B) Form and manner of payment.--Payment under 
        subparagraph (A) shall be made in a manner specified by the 
        Secretary that is similar to the manner in which State payments 
        are made under an agreement entered into under section 1843, 
        except that all such payments shall be deposited into the 
        Medicare Prescription Drug Account in the Federal Supplementary 
        Medical Insurance Trust Fund.
            ``(C) Compliance.--If a State fails to pay to the Secretary 
        an amount required under subparagraph (A), interest shall 
        accrue on such amount at the rate provided under section 
        1903(d)(5). The amount so owed and applicable interest shall be 
        immediately offset against amounts otherwise payable to the 
        State under section 1903(a), in accordance with the Federal 
        Claims Collection Act of 1996 and applicable regulations.
            ``(D) Data match.--The Secretary shall perform such 
        periodic data matches as may be necessary to identify and 
        compute the number of full-benefit dual eligible individuals 
        for purposes of computing the amount under subparagraph (A).
        ``(2) Amount.--
            ``(A) In general.--The amount computed under this paragraph 
        for a State described in paragraph (1) and for a month in a 
        year is equal to--
                ``(i) \1/12\ of the product of--

                    ``(I) the base year State medicaid per capita 
                expenditures for covered part D drugs for full-benefit 
                dual eligible individuals (as computed under paragraph 
                (3)); and
                    ``(II) a proportion equal to 100 percent minus the 
                Federal medical assistance percentage (as defined in 
                section 1905(b)) applicable to the State for the fiscal 
                year in which the month occurs; and

                ``(ii) increased for each year (beginning with 2004 up 
            to and including the year involved) by the applicable 
            growth factor specified in paragraph (4) for that year.
            ``(B) Notice.--The Secretary shall notify each State 
        described in paragraph (1) not later than October 15 before the 
        beginning of each year (beginning with 2006) of the amount 
        computed under subparagraph (A) for the State for that year.
        ``(3) Base year state medicaid per capita expenditures for 
    covered part D drugs for full-benefit dual eligible individuals.--
            ``(A) In general.--For purposes of paragraph (2)(A), the 
        `base year State medicaid per capita expenditures for covered 
        part D drugs for full-benefit dual eligible individuals' for a 
        State is equal to the weighted average (as weighted under 
        subparagraph (C)) of--
                ``(i) the gross per capita medicaid expenditures for 
            prescription drugs for 2003, determined under subparagraph 
            (B); and
                ``(ii) the estimated actuarial value of prescription 
            drug benefits provided under a capitated managed care plan 
            per full-benefit dual eligible individual for 2003, as 
            determined using such data as the Secretary determines 
            appropriate.
            ``(B) Gross per capita medicaid expenditures for 
        prescription drugs.--
                ``(i) In general.--The gross per capita medicaid 
            expenditures for prescription drugs for 2003 under this 
            subparagraph is equal to the expenditures, including 
            dispensing fees, for the State under this title during 2003 
            for covered outpatient drugs, determined per full-benefit-
            dual-eligible-individual for such individuals not receiving 
            medical assistance for such drugs through a medicaid 
            managed care plan.
                ``(ii) Determination.--In determining the amount under 
            clause (i), the Secretary shall--

                    ``(I) use data from the Medicaid Statistical 
                Information System (MSIS) and other available data;
                    ``(II) exclude expenditures attributable to covered 
                outpatient prescription drugs that are not covered part 
                D drugs (as defined in section 1860D-2(e)); and
                    ``(III) reduce such expenditures by the product of 
                such portion and the adjustment factor (described in 
                clause (iii)).

                ``(iii) Adjustment factor.--The adjustment factor 
            described in this clause for a State is equal to the ratio 
            for the State for 2003 of--

                    ``(I) aggregate payments under agreements under 
                section 1927; to
                    ``(II) the gross expenditures under this title for 
                covered outpatient drugs referred to in clause (i).

            Such factor shall be determined based on information 
            reported by the State in the medicaid financial management 
            reports (form CMS-64) for the 4 quarters of calendar year 
            2003 and such other data as the Secretary may require.
            ``(C) Weighted average.--The weighted average under 
        subparagraph (A) shall be determined taking into account--
                ``(i) with respect to subparagraph (A)(i), the average 
            number of full-benefit dual eligible individuals in 2003 
            who are not described in clause (ii); and
                ``(ii) with respect to subparagraph (A)(ii), the 
            average number of full-benefit dual eligible individuals in 
            such year who received in 2003 medical assistance for 
            covered outpatient drugs through a medicaid managed care 
            plan.
        ``(4) Applicable growth factor.--The applicable growth factor 
    under this paragraph for--
            ``(A) each of 2004, 2005, and 2006, is the average annual 
        percent change (to that year from the previous year) of the per 
        capita amount of prescription drug expenditures (as determined 
        based on the most recent National Health Expenditure 
        projections for the years involved); and
            ``(B) a succeeding year, is the annual percentage increase 
        specified in section 1860D-2(b)(6) for the year.
        ``(5) Factor.--The factor under this paragraph for a month--
            ``(A) in 2006 is 90 percent;
            ``(B) in 2007 is 88\1/3\ percent;
            ``(C) in 2008 is 86\2/3\ percent;
            ``(D) in 2009 is 85 percent;
            ``(E) in 2010 is 83\1/3\ percent;
            ``(F) in 2011 is 81\2/3\ percent;
            ``(G) in 2012 is 80 percent;
            ``(H) in 2013 is 78\1/3\ percent;
            ``(I) in 2014 is 76\2/3\ percent; or
            ``(J) after December 2014, is 75 percent.
        ``(6) Full-benefit dual eligible individual defined.--
            ``(A) In general.--For purposes of this section, the term 
        `full-benefit dual eligible individual' means for a State for a 
        month an individual who--
                ``(i) has coverage for the month for covered part D 
            drugs under a prescription drug plan under part D of title 
            XVIII, or under an MA-PD plan under part C of such title; 
            and
                ``(ii) is determined eligible by the State for medical 
            assistance for full benefits under this title for such 
            month under section 1902(a)(10)(A) or 1902(a)(10)(C), by 
            reason of section 1902(f), or under any other category of 
            eligibility for medical assistance for full benefits under 
            this title, as determined by the Secretary.
            ``(B) Treatment of medically needy and other individuals 
        required to spend down.--In applying subparagraph (A) in the 
        case of an individual determined to be eligible by the State 
        for medical assistance under section 1902(a)(10)(C) or by 
        reason of section 1902(f), the individual shall be treated as 
        meeting the requirement of subparagraph (A)(ii) for any month 
        if such medical assistance is provided for in any part of the 
        month.''.
    (c) Medicaid Coordination With Medicare Prescription Drug 
Benefits.--Section 1935, as so inserted and amended, is further amended 
by adding at the end the following new subsection:
    ``(d) Coordination of Prescription Drug Benefits.--
        ``(1) Medicare as primary payor.--In the case of a part D 
    eligible individual (as defined in section 1860D-1(a)(3)(A)) who is 
    described in subsection (c)(6)(A)(ii), notwithstanding any other 
    provision of this title, medical assistance is not available under 
    this title for such drugs (or for any cost-sharing respecting such 
    drugs), and the rules under this title relating to the provision of 
    medical assistance for such drugs shall not apply. The provision of 
    benefits with respect to such drugs shall not be considered as the 
    provision of care or services under the plan under this title. No 
    payment may be made under section 1903(a) for prescribed drugs for 
    which medical assistance is not available pursuant to this 
    paragraph.
        ``(2) Coverage of certain excludable drugs.--In the case of 
    medical assistance under this title with respect to a covered 
    outpatient drug (other than a covered part D drug) furnished to an 
    individual who is enrolled in a prescription drug plan under part D 
    of title XVIII or an MA-PD plan under part C of such title, the 
    State may elect to provide such medical assistance in the manner 
    otherwise provided in the case of individuals who are not full-
    benefit dual eligible individuals or through an arrangement with 
    such plan.''.
    (d) Treatment of Territories.--
        (1) In general.--Section 1935, as so inserted and amended, is 
    further amended--
            (A) in subsection (a) in the matter preceding paragraph 
        (1), by inserting ``subject to subsection (e)'' after ``section 
        1903(a)'';
            (B) in subsection (c)(1), by inserting ``subject to 
        subsection (e)'' after ``1903(a)(1)''; and
            (C) by adding at the end the following new subsection:
    ``(e) Treatment of Territories.--
        ``(1) In general.--In the case of a State, other than the 50 
    States and the District of Columbia--
            ``(A) the previous provisions of this section shall not 
        apply to residents of such State; and
            ``(B) if the State establishes and submits to the Secretary 
        a plan described in paragraph (2) (for providing medical 
        assistance with respect to the provision of prescription drugs 
        to part D eligible individuals), the amount otherwise 
        determined under section 1108(f) (as increased under section 
        1108(g)) for the State shall be increased by the amount for the 
        fiscal period specified in paragraph (3).
        ``(2) Plan.--The Secretary shall determine that a plan is 
    described in this paragraph if the plan--
            ``(A) provides medical assistance with respect to the 
        provision of covered part D drugs (as defined in section 1860D-
        2(e)) to low-income part D eligible individuals;
            ``(B) provides assurances that additional amounts received 
        by the State that are attributable to the operation of this 
        subsection shall be used only for such assistance and related 
        administrative expenses and that no more than 10 percent of the 
        amount specified in paragraph (3)(A) for the State for any 
        fiscal period shall be used for such administrative expenses; 
        and
            ``(C) meets such other criteria as the Secretary may 
        establish.
        ``(3) Increased amount.--
            ``(A) In general.--The amount specified in this paragraph 
        for a State for a year is equal to the product of--
                ``(i) the aggregate amount specified in subparagraph 
            (B); and
                ``(ii) the ratio (as estimated by the Secretary) of--

                    ``(I) the number of individuals who are entitled to 
                benefits under part A or enrolled under part B and who 
                reside in the State (as determined by the Secretary 
                based on the most recent available data before the 
                beginning of the year); to
                    ``(II) the sum of such numbers for all States that 
                submit a plan described in paragraph (2).

            ``(B) Aggregate amount.--The aggregate amount specified in 
        this subparagraph for--
                ``(i) the last 3 quarters of fiscal year 2006, is equal 
            to $28,125,000;
                ``(ii) fiscal year 2007, is equal to $37,500,000; or
                ``(iii) a subsequent year, is equal to the aggregate 
            amount specified in this subparagraph for the previous year 
            increased by annual percentage increase specified in 
            section 1860D-2(b)(6) for the year involved.
        ``(4) Report.--The Secretary shall submit to Congress a report 
    on the application of this subsection and may include in the report 
    such recommendations as the Secretary deems appropriate.''.
        (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 1308(f)) 
    is amended by inserting ``and section 1935(e)(1)(B)'' after 
    ``Subject to subsection (g)''.
    (e) Amendment to Best Price.--
        (1) In general.--Section 1927(c)(1)(C)(i) (42 U.S.C. 1396r-
    8(c)(1)(C)(i)) is amended--
            (A) by striking ``and'' at the end of subclause (III);
            (B) by striking the period at the end of subclause (IV) and 
        inserting a semicolon; and
            (C) by adding at the end the following new subclauses:

                    ``(V) the prices negotiated from drug manufacturers 
                for covered discount card drugs under an endorsed 
                discount card program under section 1860D-31; and
                    ``(VI) any prices charged which are negotiated by a 
                prescription drug plan under part D of title XVIII, by 
                an MA-PD plan under part C of such title with respect 
                to covered part D drugs or by a qualified retiree 
                prescription drug plan (as defined in section 1860D-
                22(a)(2)) with respect to such drugs on behalf of 
                individuals entitled to benefits under part A or 
                enrolled under part B of such title.''.

        (2) In general.--Section 1927(c)(1)(C)(i)(VI) of the Social 
    Security Act, as added by paragraph (1), shall apply to prices 
    charged for drugs dispensed on or after January 1, 2006.
    (f) Extension of Medicare Cost-Sharing for Part B Premium for 
Qualifying Individuals Through September 2004.--
        (1) In general.--Section 1902(a)(10)(E)(iv) (42 U.S.C. 
    1396a(a)(10)(E)(iv)), as amended by section 401(a) of Public Law 
    108-89, is amended by striking ``ending with March 2004'' and 
    inserting ``ending with September 2004''.
        (2) Total amount available for allocation.--Section 1933(g) (42 
    U.S.C. 1396u-3(g)), as added by section 401(c) of Public Law 108-
    89, is amended--
            (A) in the matter preceding paragraph (1), by striking 
        ``March 31, 2004'' and inserting ``September 30, 2004''; and
            (B) in paragraph (2), by striking ``$100,000,000'' and 
        inserting ``$300,000,000''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to calendar quarters beginning on or after April 1, 
    2004.
    (g) Outreach by the Commissioner of Social Security.--Section 1144 
(42 U.S.C. 1320b-14) is amended--
        (1) in the section heading, by inserting ``and subsidies for 
    low-income individuals under title xviii'' after ``cost-sharing'';
        (2) in subsection (a)--
            (A) in paragraph (1)--
                (i) in subparagraph (A), by inserting ``for the 
            transitional assistance under section 1860D-31(f), or for 
            premium and cost-sharing subsidies under section 1860D-14'' 
            before the semicolon; and
                (ii) in subparagraph (B), by inserting ``, program, and 
            subsidies'' after ``medical assistance''; and
            (B) in paragraph (2)--
                (i) in the matter preceding subparagraph (A), by 
            inserting ``, the transitional assistance under section 
            1860D-31(f), or premium and cost-sharing subsidies under 
            section 1860D-14'' after ``assistance''; and
                (ii) in subparagraph (A), by striking ``such 
            eligibility'' and inserting ``eligibility for medicare 
            cost-sharing under the medicaid program''; and
        (3) in subsection (b)--
            (A) in paragraph (1)(A), by inserting ``, for transitional 
        assistance under section 1860D-31(f), or for premium and cost-
        sharing subsidies for low-income individuals under section 
        1860D-14'' after ``1933''; and
            (B) in paragraph (2), by inserting ``, program, and 
        subsidies'' after ``medical assistance''.

SEC. 104. MEDIGAP AMENDMENTS.

    (a) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--
        (1) In general.--Section 1882 (42 U.S.C. 1395ss) is amended by 
    adding at the end the following new subsection:
    ``(v) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--
        ``(1) Prohibition on sale, issuance, and renewal of new 
    policies that provide prescription drug coverage.--
            ``(A) In general.--Notwithstanding any other provision of 
        law, on or after January 1, 2006, a medigap Rx policy (as 
        defined in paragraph (6)(A)) may not be sold, issued, or 
        renewed under this section--
                ``(i) to an individual who is a part D enrollee (as 
            defined in paragraph (6)(B)); or
                ``(ii) except as provided in subparagraph (B), to an 
            individual who is not a part D enrollee.
            ``(B) Continuation permitted for non-part d enrollees.--
        Subparagraph (A)(ii) shall not apply to the renewal of a 
        medigap Rx policy that was issued before January 1, 2006.
            ``(C) Construction.--Nothing in this subsection shall be 
        construed as preventing the offering on and after January 1, 
        2006, of `H', `I', and `J' policies described in paragraph 
        (2)(D)(i) if the benefit packages are modified in accordance 
        with paragraph (2)(C).
        ``(2) Elimination of duplicative coverage upon part d 
    enrollment.--
            ``(A) In general.--In the case of an individual who is 
        covered under a medigap Rx policy and enrolls under a part D 
        plan--
                ``(i) before the end of the initial part D enrollment 
            period, the individual may--

                    ``(I) enroll in a medicare supplemental policy 
                without prescription drug coverage under paragraph (3); 
                or
                    ``(II) continue the policy in effect subject to the 
                modification described in subparagraph (C)(i); or

                ``(ii) after the end of such period, the individual may 
            continue the policy in effect subject to such modification.
            ``(B) Notice required to be provided to current 
        policyholders with medigap rx policy.--No medicare supplemental 
        policy of an issuer shall be deemed to meet the standards in 
        subsection (c) unless the issuer provides written notice (in 
        accordance with standards of the Secretary established in 
        consultation with the National Association of Insurance 
        Commissioners) during the 60-day period immediately preceding 
        the initial part D enrollment period, to each individual who is 
        a policyholder or certificate holder of a medigap Rx policy (at 
        the most recent available address of that individual) of the 
        following:
                ``(i) If the individual enrolls in a plan under part D 
            during the initial enrollment period under section 1860D-
            1(b)(2)(A), the individual has the option of--

                    ``(I) continuing enrollment in the individual's 
                current plan, but the plan's coverage of prescription 
                drugs will be modified under subparagraph (C)(i); or
                    ``(II) enrolling in another medicare supplemental 
                policy pursuant to paragraph (3).

                ``(ii) If the individual does not enroll in a plan 
            under part D during such period, the individual may 
            continue enrollment in the individual's current plan 
            without change, but--

                    ``(I) the individual will not be guaranteed the 
                option of enrollment in another medicare supplemental 
                policy pursuant to paragraph (3); and
                    ``(II) if the current plan does not provide 
                creditable prescription drug coverage (as defined in 
                section 1860D-13(b)(4)), notice of such fact and that 
                there are limitations on the periods in a year in which 
                the individual may enroll under a part D plan and any 
                such enrollment is subject to a late enrollment 
                penalty.

                ``(iii) Such other information as the Secretary may 
            specify (in consultation with the National Association of 
            Insurance Commissioners), including the potential impact of 
            such election on premiums for medicare supplemental 
            policies.
            ``(C) Modification.--
                ``(i) In general.--The policy modification described in 
            this subparagraph is the elimination of prescription 
            coverage for expenses of prescription drugs incurred after 
            the effective date of the individual's coverage under a 
            part D plan and the appropriate adjustment of premiums to 
            reflect such elimination of coverage.
                ``(ii) Continuation of renewability and application of 
            modification.--No medicare supplemental policy of an issuer 
            shall be deemed to meet the standards in subsection (c) 
            unless the issuer--

                    ``(I) continues renewability of medigap Rx policies 
                that it has issued, subject to subclause (II); and
                    ``(II) applies the policy modification described in 
                clause (i) in the cases described in clauses (i)(II) 
                and (ii) of subparagraph (A).

            ``(D) References to rx policies.--
                ``(i) H, i, and j policies.--Any reference to a benefit 
            package classified as `H', `I', or `J' (including the 
            benefit package classified as `J' with a high deductible 
            feature, as described in subsection (p)(11)) under the 
            standards established under subsection (p)(2) shall be 
            construed as including a reference to such a package as 
            modified under subparagraph (C) and such packages as 
            modified shall not be counted as a separate benefit package 
            under such subsection.
                ``(ii) Application in waivered states.--Except for the 
            modification provided under subparagraph (C), the waivers 
            previously in effect under subsection (p)(2) shall continue 
            in effect.
        ``(3) Availability of substitute policies with guaranteed 
    issue.--
            ``(A) In general.--The issuer of a medicare supplemental 
        policy--
                ``(i) may not deny or condition the issuance or 
            effectiveness of a medicare supplemental policy that has a 
            benefit package classified as `A', `B', `C', or `F' 
            (including the benefit package classified as `F' with a 
            high deductible feature, as described in subsection 
            (p)(11)), under the standards established under subsection 
            (p)(2), or a benefit package described in subparagraph (A) 
            or (B) of subsection (w)(2) and that is offered and is 
            available for issuance to new enrollees by such issuer;
                ``(ii) may not discriminate in the pricing of such 
            policy, because of health status, claims experience, 
            receipt of health care, or medical condition; and
                ``(iii) may not impose an exclusion of benefits based 
            on a pre-existing condition under such policy,
        in the case of an individual described in subparagraph (B) who 
        seeks to enroll under the policy not later than 63 days after 
        the effective date of the individual's coverage under a part D 
        plan.
            ``(B) Individual covered.--An individual described in this 
        subparagraph with respect to the issuer of a medicare 
        supplemental policy is an individual who--
                ``(i) enrolls in a part D plan during the initial part 
            D enrollment period;
                ``(ii) at the time of such enrollment was enrolled in a 
            medigap Rx policy issued by such issuer; and
                ``(iii) terminates enrollment in such policy and 
            submits evidence of such termination along with the 
            application for the policy under subparagraph (A).
            ``(C) Special rule for waivered states.--For purposes of 
        applying this paragraph in the case of a State that provides 
        for offering of benefit packages other than under the 
        classification referred to in subparagraph (A)(i), the 
        references to benefit packages in such subparagraph are deemed 
        references to comparable benefit packages offered in such 
        State.
        ``(4) Enforcement.--
            ``(A) Penalties for duplication.--The penalties described 
        in subsection (d)(3)(A)(ii) shall apply with respect to a 
        violation of paragraph (1)(A).
            ``(B) Guaranteed issue.--The provisions of paragraph (4) of 
        subsection (s) shall apply with respect to the requirements of 
        paragraph (3) in the same manner as they apply to the 
        requirements of such subsection.
        ``(5) Construction.--Any provision in this section or in a 
    medicare supplemental policy relating to guaranteed renewability of 
    coverage shall be deemed to have been met with respect to a part D 
    enrollee through the continuation of the policy subject to 
    modification under paragraph (2)(C) or the offering of a substitute 
    policy under paragraph (3). The previous sentence shall not be 
    construed to affect the guaranteed renewability of such a modified 
    or substitute policy.
        ``(6) Definitions.--For purposes of this subsection:
            ``(A) Medigap rx policy.--The term `medigap Rx policy' 
        means a medicare supplemental policy--
                ``(i) which has a benefit package classified as `H', 
            `I', or `J' (including the benefit package classified as 
            `J' with a high deductible feature, as described in 
            subsection (p)(11)) under the standards established under 
            subsection (p)(2), without regard to this subsection; and
                ``(ii) to which such standards do not apply (or to 
            which such standards have been waived under subsection 
            (p)(6)) but which provides benefits for prescription drugs.
        Such term does not include a policy with a benefit package as 
        classified under clause (i) which has been modified under 
        paragraph (2)(C)(i).
            ``(B) Part d enrollee.--The term `part D enrollee' means an 
        individual who is enrolled in a part D plan.
            ``(C) Part d plan.--The term `part D plan' means a 
        prescription drug plan or an MA-PD plan (as defined for 
        purposes of part D).
            ``(D) Initial part d enrollment period.--The term `initial 
        part D enrollment period' means the initial enrollment period 
        described in section 1860D-1(b)(2)(A).''.
    (2) Conforming current guaranteed issue provisions.--
            (A) Extending guaranteed issue policy for individuals 
        enrolled in medigap rx policies who try medicare advantage.--
        Subsection (s)(3)(C)(ii) of such section is amended--
                (i) by striking ``(ii) Only'' and inserting ``(ii)(I) 
            Subject to subclause (II), only''; and
                (ii) by adding at the end the following new subclause:
    ``(II) If the medicare supplemental policy referred to in 
subparagraph (B)(v) was a medigap Rx policy (as defined in subsection 
(v)(6)(A)), a medicare supplemental policy described in this 
subparagraph is such policy in which the individual was most recently 
enrolled as modified under subsection (v)(2)(C)(i) or, at the election 
of the individual, a policy referred to in subsection (v)(3)(A)(i).''.
            (B) Conforming amendment.--Section 1882(s)(3)(C)(iii) is 
        amended by inserting ``and subject to subsection (v)(1)'' after 
        ``subparagraph (B)(vi)''.
    (b) Development of New Standards for Medigap Policies.--
        (1) In general.--Section 1882 (42 U.S.C. 1395ss) is further 
    amended by adding at the end the following new subsection:
    ``(w) Development of New Standards for Medicare Supplemental 
Policies.--
        ``(1) In general.--The Secretary shall request the National 
    Association of Insurance Commissioners to review and revise the 
    standards for benefit packages under subsection (p)(1), taking into 
    account the changes in benefits resulting from enactment of the 
    Medicare Prescription Drug, Improvement, and Modernization Act of 
    2003 and to otherwise update standards to reflect other changes in 
    law included in such Act. Such revision shall incorporate the 
    inclusion of the 2 benefit packages described in paragraph (2). 
    Such revisions shall be made consistent with the rules applicable 
    under subsection (p)(1)(E) with the reference to the `1991 NAIC 
    Model Regulation' deemed a reference to the NAIC Model Regulation 
    as published in the Federal Register on December 4, 1998, and as 
    subsequently updated by the National Association of Insurance 
    Commissioners to reflect previous changes in law (and subsection 
    (v)) and the reference to `date of enactment of this subsection' 
    deemed a reference to the date of enactment of the Medicare 
    Prescription Drug, Improvement, and Modernization Act of 2003. To 
    the extent practicable, such revision shall provide for the 
    implementation of revised standards for benefit packages as of 
    January 1, 2006.
        ``(2) New benefit packages.--The benefit packages described in 
    this paragraph are the following (notwithstanding any other 
    provision of this section relating to a core benefit package):
            ``(A) First new benefit package.--A benefit package 
        consisting of the following:
                ``(i) Subject to clause (ii), coverage of 50 percent of 
            the cost-sharing otherwise applicable under parts A and B, 
            except there shall be no coverage of the part B deductible 
            and coverage of 100 percent of any cost-sharing otherwise 
            applicable for preventive benefits.
                ``(ii) Coverage for all hospital inpatient coinsurance 
            and 365 extra lifetime days of coverage of inpatient 
            hospital services (as in the current core benefit package).
                ``(iii) A limitation on annual out-of-pocket 
            expenditures under parts A and B to $4,000 in 2006 (or, in 
            a subsequent year, to such limitation for the previous year 
            increased by an appropriate inflation adjustment specified 
            by the Secretary).
            ``(B) Second new benefit package.--A benefit package 
        consisting of the benefit package described in subparagraph 
        (A), except as follows:
                ``(i) Substitute `75 percent' for `50 percent' in 
            clause (i) of such subparagraph.
                ``(ii) Substitute `$2,000' for `$4,000' in clause (iii) 
            of such subparagraph.''.
        (2) Conforming amendments.--Section 1882 (42 U.S.C. 1395ss) is 
    amended--
            (A) in subsection (g)(1), by inserting ``a prescription 
        drug plan under part D or'' after ``but does not include''; and
            (B) in subsection (o)(1), by striking ``subsection (p)'' 
        and inserting ``subsections (p), (v), and (w)''.
    (c) Rule of Construction.--
        (1) In general.--Nothing in this Act shall be construed to 
    require an issuer of a medicare supplemental policy under section 
    1882 of the Social Security Act (42 U.S.C. 1395rr) to participate 
    as a PDP sponsor under part D of title XVIII of such Act, as added 
    by section 101, as a condition for issuing such policy.
        (2) Prohibition on state requirement.--A State may not require 
    an issuer of a medicare supplemental policy under section 1882 of 
    the Social Security Act (42 U.S.C. 1395rr) to participate as a PDP 
    sponsor under such part D as a condition for issuing such policy.

SEC. 105. ADDITIONAL PROVISIONS RELATING TO MEDICARE PRESCRIPTION DRUG 
              DISCOUNT CARD AND TRANSITIONAL ASSISTANCE PROGRAM.

    (a) Exclusion of Costs From Determination of Part B Monthly 
Premium.--Section 1839(g) (42 U.S.C. 1395r(g)) is amended--
        (1) by striking ``attributable to the application of section'' 
    and inserting ``attributable to--
        ``(1) the application of section'';
        (2) by striking the period and inserting ``; and''; and
        (3) by adding at the end the following new paragraph:
        ``(2) the medicare prescription drug discount card and 
    transitional assistance program under section 1860D-31.''.
    (b) Application of Confidentiality for Drug Pricing Data.--The last 
sentence of section 1927(b)(3)(D) (42 U.S.C. 1396r-8(b)(3)(D)), as 
added by section 101(e)(4), is amended by inserting ``and drug pricing 
data reported under the first sentence of section 1860D-31(i)(1)'' 
after ``section 1860D-4(c)(2)(E)''.
    (c) Rules for Implementation.--The following rules shall apply to 
the medicare prescription drug discount card and transitional 
assistance program under section 1860D-31 of the Social Security Act, 
as added by section 101(a):
        (1) In promulgating regulations pursuant to subsection 
    (a)(2)(B) of such section 1860D-31--
            (A) section 1871(a)(3) of the Social Security Act (42 
        U.S.C. 1395hh(a)(3)), as added by section 902(a)(1), shall not 
        apply;
            (B) chapter 35 of title 44, United States Code, shall not 
        apply; and
            (C) sections 553(d) and 801(a)(3)(A) of title 5, United 
        States Code, shall not apply.
        (2) Section 1857(c)(5) of the Social Security Act (42 U.S.C. 
    1395w-27(c)(5)) shall apply with respect to section 1860D-31 of 
    such Act, as added by section 101(a), in the same manner as it 
    applies to part C of title XVIII of such Act.
        (3) The administration of such program shall be made without 
    regard to chapter 35 of title 44, United States Code.
        (4)(A) There shall be no judicial review of a determination not 
    to endorse, or enter into a contract, with a prescription drug card 
    sponsor under section 1860D-31 of the Social Security Act.
        (B) In the case of any order issued to enjoin any provision of 
    section 1860D-31 of the Social Security Act (or of any provision of 
    this section), such order shall not affect any other provision of 
    such section (or of this section) and all such provisions shall be 
    treated as severable.
    (d) Conforming Amendments to Federal SMI Trust Fund for 
Transitional Assistance Account.--Section 1841 (42 U.S.C. 1395t), as 
amended by section 101(e)(3)(C), is amended--
        (1) in the last sentence of subsection (a), by inserting after 
    ``section 1860D-16'' the following: ``or the Transitional 
    Assistance Account established by section 1860D-31(k)(1)''; and
        (2) in subsection (g), by adding at the end the following: 
    ``The payments provided for under section 1860D-31(k)(2) shall be 
    made from the Transitional Assistance Account in the Trust Fund.''.
    (e) Disclosure of Return Information for Purposes of Providing 
Transitional Assistance Under Medicare Discount Card Program.--
        (1) In general.--Subsection (l) of section 6103 of the Internal 
    Revenue Code of 1986 (relating to disclosure of returns and return 
    information for purposes other than tax administration) is amended 
    by adding at the end the following new paragraph:
        ``(19) Disclosure of return information for purposes of 
    providing transitional assistance under medicare discount card 
    program.--
            ``(A) In general.--The Secretary, upon written request from 
        the Secretary of Health and Human Services pursuant to carrying 
        out section 1860D-31 of the Social Security Act, shall disclose 
        to officers, employees, and contractors of the Department of 
        Health and Human Services with respect to a taxpayer for the 
        applicable year--
                ``(i)(I) whether the adjusted gross income, as modified 
            in accordance with specifications of the Secretary of 
            Health and Human Services for purposes of carrying out such 
            section, of such taxpayer and, if applicable, such 
            taxpayer's spouse, for the applicable year, exceeds the 
            amounts specified by the Secretary of Health and Human 
            Services in order to apply the 100 and 135 percent of the 
            poverty lines under such section, (II) whether the return 
            was a joint return, and (III) the applicable year, or
                ``(ii) if applicable, the fact that there is no return 
            filed for such taxpayer for the applicable year.
            ``(B) Definition of applicable year.--For the purposes of 
        this subsection, the term `applicable year' means the most 
        recent taxable year for which information is available in the 
        Internal Revenue Service's taxpayer data information systems, 
        or, if there is no return filed for such taxpayer for such 
        year, the prior taxable year.
            ``(C) Restriction on use of disclosed information.--Return 
        information disclosed under this paragraph may be used only for 
        the purposes of determining eligibility for and administering 
        transitional assistance under section 1860D-31 of the Social 
        Security Act.''.
        (2) Confidentiality.--Paragraph (3) of section 6103(a) of such 
    Code is amended by striking ``or (16)'' and inserting ``(16), or 
    (19)''.
        (3) Procedures and recordkeeping related to disclosures.--
    Subsection (p)(4) of section 6103 of such Code is amended by 
    striking ``(l)(16) or (17)'' each place it appears and inserting 
    ``(l)(16), (17), or (19)''.
        (4) Unauthorized disclosure or inspection.--Paragraph (2) of 
    section 7213(a) of such Code is amended by striking ``or (16)'' and 
    inserting ``(16), or (19)''.

SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

    (a) Establishment.--
        (1) In general.--There is established, as of the first day of 
    the third month beginning after the date of the enactment of this 
    Act, a State Pharmaceutical Assistance Transition Commission (in 
    this section referred to as the ``Commission'') to develop a 
    proposal for addressing the unique transitional issues facing State 
    pharmaceutical assistance programs, and program participants, due 
    to the implementation of the voluntary prescription drug benefit 
    program under part D of title XVIII of the Social Security Act, as 
    added by section 101.
        (2) Definitions.--For purposes of this section:
            (A) State pharmaceutical assistance program defined.--The 
        term ``State pharmaceutical assistance program'' means a 
        program (other than the medicaid program) operated by a State 
        (or under contract with a State) that provides as of the date 
        of the enactment of this Act financial assistance to medicare 
        beneficiaries for the purchase of prescription drugs.
            (B) Program participant.--The term ``program participant'' 
        means a low-income medicare beneficiary who is a participant in 
        a State pharmaceutical assistance program.
    (b) Composition.--The Commission shall include the following:
        (1) A representative of each Governor of each State that the 
    Secretary identifies as operating on a statewide basis a State 
    pharmaceutical assistance program that provides for eligibility and 
    benefits that are comparable or more generous than the low-income 
    assistance eligibility and benefits offered under section 1860D-14 
    of the Social Security Act.
        (2) Representatives from other States that the Secretary 
    identifies have in operation other State pharmaceutical assistance 
    programs, as appointed by the Secretary.
        (3) Representatives of organizations that have an inherent 
    interest in program participants or the program itself, as 
    appointed by the Secretary but not to exceed the number of 
    representatives under paragraphs (1) and (2).
        (4) Representatives of Medicare Advantage organizations, 
    pharmaceutical benefit managers, and other private health insurance 
    plans, as appointed by the Secretary.
        (5) The Secretary (or the Secretary's designee) and such other 
    members as the Secretary may specify.
The Secretary shall designate a member to serve as Chair of the 
Commission and the Commission shall meet at the call of the Chair.
    (c) Development of Proposal.--The Commission shall develop the 
proposal described in subsection (a) in a manner consistent with the 
following principles:
        (1) Protection of the interests of program participants in a 
    manner that is the least disruptive to such participants and that 
    includes a single point of contact for enrollment and processing of 
    benefits.
        (2) Protection of the financial and flexibility interests of 
    States so that States are not financially worse off as a result of 
    the enactment of this title.
        (3) Principles of medicare modernization under this Act.
    (d) Report.--By not later than January 1, 2005, the Commission 
shall submit to the President and Congress a report that contains a 
detailed proposal (including specific legislative or administrative 
recommendations, if any) and such other recommendations as the 
Commission deems appropriate.
    (e) Support.--The Secretary shall provide the Commission with the 
administrative support services necessary for the Commission to carry 
out its responsibilities under this section.
    (f) Termination.--The Commission shall terminate 30 days after the 
date of submission of the report under subsection (d).

SEC. 107. STUDIES AND REPORTS.

    (a) Study Regarding Regional Variations in Prescription Drug 
Spending.--
        (1) In general.--The Secretary shall conduct a study that 
    examines variations in per capita spending for covered part D drugs 
    under part D of title XVIII of the Social Security Act among PDP 
    regions and, with respect to such spending, the amount of such 
    variation that is attributable to--
            (A) price variations (described in section 1860D-15(c)(2) 
        of such Act); and
            (B) differences in per capita utilization that is not taken 
        into account in the health status risk adjustment provided 
        under section 1860D-15(c)(1) of such Act.
        (2) Report and recommendations.--Not later than January 1, 
    2009, the Secretary shall submit to Congress a report on the study 
    conducted under paragraph (1). Such report shall include--
            (A) information regarding the extent of geographic 
        variation described in paragraph (1)(B);
            (B) an analysis of the impact on direct subsidies under 
        section 1860D-15(a)(1) of the Social Security Act in different 
        PDP regions if such subsidies were adjusted to take into 
        account the variation described in subparagraph (A); and
            (C) recommendations regarding the appropriateness of 
        applying an additional geographic adjustment factor under 
        section 1860D-15(c)(2) that reflects some or all of the 
        variation described in subparagraph (A).
    (b) Review and Report on Current Standards of Practice for Pharmacy 
Services Provided to Patients in Nursing Facilities.--
        (1) Review.--
            (A) In general.--Not later than 12 months after the date of 
        the enactment of this Act, the Secretary shall conduct a 
        thorough review of the current standards of practice for 
        pharmacy services provided to patients in nursing facilities.
            (B) Specific matters reviewed.--In conducting the review 
        under subparagraph (A), the Secretary shall--
                (i) assess the current standards of practice, clinical 
            services, and other service requirements generally used for 
            pharmacy services in long-term care settings; and
                (ii) evaluate the impact of those standards with 
            respect to patient safety, reduction of medication errors 
            and quality of care.
        (2) Report.--
            (A) In general.--Not later than the date that is 18 months 
        after the date of the enactment of this Act, the Secretary 
        shall submit a report to Congress on the study conducted under 
        paragraph (1)(A).
            (B) Contents.--The report submitted under subparagraph (A) 
        shall contain--
                (i) a description of the plans of the Secretary to 
            implement the provisions of this Act in a manner consistent 
            with applicable State and Federal laws designed to protect 
            the safety and quality of care of nursing facility 
            patients; and
                (ii) recommendations regarding necessary actions and 
            appropriate reimbursement to ensure the provision of 
            prescription drugs to medicare beneficiaries residing in 
            nursing facilities in a manner consistent with existing 
            patient safety and quality of care standards under 
            applicable State and Federal laws.
    (c) IOM Study on Drug Safety and Quality.--
        (1) In general.--The Secretary shall enter into a contract with 
    the Institutes of Medicine of the National Academies of Science 
    (such Institutes referred to in this subsection as the ``IOM'') to 
    carry out a comprehensive study (in this subsection referred to as 
    the ``study'') of drug safety and quality issues in order to 
    provide a blueprint for system-wide change.
        (2) Objectives.--
            (A) The study shall develop a full understanding of drug 
        safety and quality issues through an evidence-based review of 
        literature, case studies, and analysis. This review will 
        consider the nature and causes of medication errors, their 
        impact on patients, the differences in causation, impact, and 
        prevention across multiple dimensions of health care delivery-
        including patient populations, care settings, clinicians, and 
        institutional cultures.
            (B) The study shall attempt to develop credible estimates 
        of the incidence, severity, costs of medication errors that can 
        be useful in prioritizing resources for national quality 
        improvement efforts and influencing national health care 
        policy.
            (C) The study shall evaluate alternative approaches to 
        reducing medication errors in terms of their efficacy, cost-
        effectiveness, appropriateness in different settings and 
        circumstances, feasibility, institutional barriers to 
        implementation, associated risks, and the quality of evidence 
        supporting the approach.
            (D) The study shall provide guidance to consumers, 
        providers, payers, and other key stakeholders on high-priority 
        strategies to achieve both short-term and long-term drug safety 
        goals, to elucidate the goals and expected results of such 
        initiatives and support the business case for them, and to 
        identify critical success factors and key levers for achieving 
        success.
            (E) The study shall assess the opportunities and key 
        impediments to broad nationwide implementation of medication 
        error reductions, and to provide guidance to policy-makers and 
        government agencies (including the Food and Drug 
        Administration, the Centers for Medicare & Medicaid Services, 
        and the National Institutes of Health) in promoting a national 
        agenda for medication error reduction.
            (F) The study shall develop an applied research agenda to 
        evaluate the health and cost impacts of alternative 
        interventions, and to assess collaborative public and private 
        strategies for implementing the research agenda through AHRQ 
        and other government agencies.
        (3) Conduct of study.--
            (A) Expert committee.--In conducting the study, the IOM 
        shall convene a committee of leading experts and key 
        stakeholders in pharmaceutical management and drug safety, 
        including clinicians, health services researchers, pharmacists, 
        system administrators, payer representatives, and others.
            (B) Completion.--The study shall be completed within an 18-
        month period.
        (4) Report.--A report on the study shall be submitted to 
    Congress upon the completion of the study.
        (5) Authorization of appropriations.--There are authorized to 
    be appropriated to carry out this section such sums as may be 
    necessary.
    (d) Study of Multi-year Contracts.--
        (1) In general.--The Secretary shall provide for a study on the 
    feasibility and advisability of providing for contracting with PDP 
    sponsors and MA organizations under parts C and D of title XVIII on 
    a multi-year basis.
        (2) Report.--Not later than January 1, 2007, the Secretary 
    shall submit to Congress a report on the study under paragraph (1). 
    The report shall include such recommendations as the Secretary 
    deems appropriate.
    (e) GAO Study Regarding Impact of Assets Test for Subsidy Eligible 
Individuals.--
        (1) Study.--The Comptroller General of the United States shall 
    conduct a study to determine the extent to which drug utilization 
    and access to covered part D drugs under part D of title XVIII of 
    the Social Security Act by subsidy eligible individuals differs 
    from such utilization and access for individuals who would qualify 
    as such subsidy eligible individuals but for the application of 
    section 1860D-14(a)(3)(A)(iii) of such Act.
        (2) Report.--Not later than September 30, 2007, the Comptroller 
    General shall submit a report to Congress on the study conducted 
    under paragraph (1) that includes such recommendations for 
    legislation as the Comptroller General determines are appropriate.
    (f) Study on Making Prescription Pharmaceutical Information 
Accessible for Blind and Visually-Impaired Individuals.--
        (1) Study.--
            (A) In general.--The Secretary shall undertake a study of 
        how to make prescription pharmaceutical information, including 
        drug labels and usage instructions, accessible to blind and 
        visually-impaired individuals.
            (B) Study to include existing and emerging technologies.--
        The study under subparagraph (A) shall include a review of 
        existing and emerging technologies, including assistive 
        technology, that makes essential information on the content and 
        prescribed use of pharmaceutical medicines available in a 
        usable format for blind and visually-impaired individuals.
        (2) Report.--
            (A) In general.--Not later than 18 months after the date of 
        the enactment of this Act, the Secretary shall submit a report 
        to Congress on the study required under paragraph (1).
            (B) Contents of report.--The report required under 
        paragraph (1) shall include recommendations for the 
        implementation of usable formats for making prescription 
        pharmaceutical information available to blind and visually-
        impaired individuals and an estimate of the costs associated 
        with the implementation of each format.

SEC. 108. GRANTS TO PHYSICIANS TO IMPLEMENT ELECTRONIC PRESCRIPTION 
              DRUG PROGRAMS.

    (a) In General.--The Secretary is authorized to make grants to 
physicians for the purpose of assisting such physicians to implement 
electronic prescription drug programs that comply with the standards 
promulgated or modified under section 1860D-4(e) of the Social Security 
Act, as inserted by section 101(a).
    (b) Awarding of Grants.--
        (1) Application.--No grant may be made under this section 
    except pursuant to a grant application that is submitted and 
    approved in a time, manner, and form specified by the Secretary.
        (2) Considerations and preferences.--In awarding grants under 
    this section, the Secretary shall--
            (A) give special consideration to physicians who serve a 
        disproportionate number of medicare patients; and
            (B) give preference to physicians who serve a rural or 
        underserved area.
        (3) Limitation on grants.--Only 1 grant may be awarded under 
    this section with respect to any physician or group practice of 
    physicians.
    (c) Terms and Conditions.--
        (1) In general.--Grants under this section shall be made under 
    such terms and conditions as the Secretary specifies consistent 
    with this section.
        (2) Use of grant funds.--Funds provided under grants under this 
    section may be used for any of the following:
            (A) For purchasing, leasing, and installing computer 
        software and hardware, including handheld computer 
        technologies.
            (B) Making upgrades and other improvements to existing 
        computer software and hardware to enable e-prescribing.
            (C) Providing education and training to eligible physician 
        staff on the use of technology to implement the electronic 
        transmission of prescription and patient information.
        (3) Provision of information.--As a condition for the awarding 
    of a grant under this section, an applicant shall provide to the 
    Secretary such information as the Secretary may require in order 
    to--
            (A) evaluate the project for which the grant is made; and
            (B) ensure that funding provided under the grant is 
        expended only for the purposes for which it is made.
        (4) Audit.--The Secretary shall conduct appropriate audits of 
    grants under this section.
        (5) Matching requirement.--The applicant for a grant under this 
    section shall agree, with respect to the costs to be incurred by 
    the applicant in implementing an electronic prescription drug 
    program, to make available (directly or through donations from 
    public or private entities) non-Federal contributions toward such 
    costs in an amount that is not less than 50 percent of such costs. 
    Non-Federal contributions under the previous sentence may be in 
    cash or in kind, fairly evaluated, including plant, equipment, or 
    services. Amounts provided by the Federal Government, or services 
    assisted or subsidized to any significant extent by the Federal 
    Government, may not be included in determining the amount of such 
    contributions.
    (d) Authorization of Appropriations.--There are authorized to be 
appropriated to carry out this section $50,000,000 for fiscal year 2007 
and such sums as may be necessary for each of fiscal years 2008 and 
2009.

SEC. 109. EXPANDING THE WORK OF MEDICARE QUALITY IMPROVEMENT 
              ORGANIZATIONS TO INCLUDE PARTS C AND D.

    (a) Application to Medicare Managed Care and Prescription Drug 
Coverage.--Section 1154(a)(1) (42 U.S.C. 1320c-3(a)(1)) is amended by 
inserting ``, to Medicare Advantage organizations pursuant to contracts 
under part C, and to prescription drug sponsors pursuant to contracts 
under part D'' after ``under section 1876''.
    (b) Prescription Drug Therapy Quality Improvement.--Section 1154(a) 
(42 U.S.C. 1320c-3(a)) is amended by adding at the end the following 
new paragraph:
        ``(17) The organization shall execute its responsibilities 
    under subparagraphs (A) and (B) of paragraph (1) by offering to 
    providers, practitioners, Medicare Advantage organizations offering 
    Medicare Advantage plans under part C, and prescription drug 
    sponsors offering prescription drug plans under part D quality 
    improvement assistance pertaining to prescription drug therapy. For 
    purposes of this part and title XVIII, the functions described in 
    this paragraph shall be treated as a review function.''.
    (c) Effective Date.--The amendments made by this section shall 
apply on and after January 1, 2004.
    (d) IOM Study of QIOs.--
        (1) In general.--The Secretary shall request the Institute of 
    Medicine of the National Academy of Sciences to conduct an 
    evaluation of the program under part B of title XI of the Social 
    Security Act. The study shall include a review of the following:
            (A) An overview of the program under such part.
            (B) The duties of organizations with contracts with the 
        Secretary under such part.
            (C) The extent to which quality improvement organizations 
        improve the quality of care for medicare beneficiaries.
            (D) The extent to which other entities could perform such 
        quality improvement functions as well as, or better than, 
        quality improvement organizations.
            (E) The effectiveness of reviews and other actions 
        conducted by such organizations in carrying out those duties.
            (F) The source and amount of funding for such 
        organizations.
            (G) The conduct of oversight of such organizations.
        (2) Report to congress.--Not later than June 1, 2006, the 
    Secretary shall submit to Congress a report on the results of the 
    study described in paragraph (1), including any recommendations for 
    legislation.
        (3) Increased competition.--If the Secretary finds based on the 
    study conducted under paragraph (1) that other entities could 
    improve quality in the medicare program as well as, or better than, 
    the current quality improvement organizations, then the Secretary 
    shall provide for such increased competition through the addition 
    of new types of entities which may perform quality improvement 
    functions.

SEC. 110. CONFLICT OF INTEREST STUDY.

    (a) Study.--The Federal Trade Commission shall conduct a study of 
differences in payment amounts for pharmacy services provided to 
enrollees in group health plans that utilize pharmacy benefit managers. 
Such study shall include the following:
        (1) An assessment of the differences in costs incurred by such 
    enrollees and plans for prescription drugs dispensed by mail-order 
    pharmacies owned by pharmaceutical benefit managers compared to 
    mail-order pharmacies not owned by pharmaceutical benefit managers, 
    and community pharmacies.
        (2) Whether such plans are acting in a manner that maximizes 
    competition and results in lower prescription drug prices for 
    enrollees.
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Commission shall submit to Congress a report 
on the study conducted under subsection (a). Such report shall include 
recommendations regarding any need for legislation to ensure the fiscal 
integrity of the voluntary prescription drug benefit program under part 
D of title XVIII, as added by section 101, that may be appropriated as 
the result of such study.
    (c) Exemption From Paperwork Reduction Act.--Chapter 35 of title 
44, United States Code, shall not apply to the collection of 
information under subsection (a).

SEC. 111. STUDY ON EMPLOYMENT-BASED RETIREE HEALTH COVERAGE.

    (a) Study.--The Comptroller General of the United States shall 
conduct an initial and final study under this subsection to examine 
trends in employment-based retiree health coverage (as defined in 
1860D-22(c)(1) of the Social Security Act, as added by section 101), 
including coverage under the Federal Employees Health Benefits Program 
(FEHBP), and the options and incentives available under this Act which 
may have an effect on the voluntary provision of such coverage.
    (b) Content of Initial Study.--The initial study under this section 
shall consider the following:
        (1) Trends in employment-based retiree health coverage prior to 
    the date of the enactment of this Act.
        (2) The opinions of sponsors of employment-based retiree health 
    coverage concerning which of the options available under this Act 
    they are most likely to utilize for the provision of health 
    coverage to their medicare-eligible retirees, including an 
    assessment of the administrative burdens associated with the 
    available options.
        (3) The likelihood of sponsors of employment-based retiree 
    health coverage to maintain or adjust their levels of retiree 
    health benefits beyond coordination with medicare, including for 
    prescription drug coverage, provided to medicare-eligible retirees 
    after the date of the enactment of this Act.
        (4) The factors that sponsors of employment-based retiree 
    health coverage expect to consider in making decisions about any 
    changes they may make in the health coverage provided to medicare-
    eligible retirees.
        (5) Whether the prescription drug plan options available, or 
    the health plan options available under the Medicare Advantage 
    program, are likely to cause employers and other entities that did 
    not provide health coverage to retirees prior to the date of the 
    enactment of this Act to provide supplemental coverage or 
    contributions toward premium expenses for medicare-eligible 
    retirees who may enroll in such options in the future.
    (c) Contents of Final Study.--The final study under this section 
shall consider the following:
        (1) Changes in the trends in employment-based retiree health 
    coverage since the completion of the initial study by the 
    Comptroller General.
        (2) Factors contributing to any changes in coverage levels.
        (3) The number and characteristics of sponsors of employment-
    based retiree health coverage who receive the special subsidy 
    payments under section 1860D-22 of the Social Security Act, as 
    added by section 101, for the provision of prescription drug 
    coverage to their medicare-eligible retirees that is the same or 
    greater actuarial value as the prescription drug coverage available 
    to other medicare beneficiaries without employment-based retiree 
    health coverage.
        (4) The extent to which sponsors of employment-based retiree 
    health coverage provide supplemental health coverage or contribute 
    to the premiums for medicare-eligible retirees who enroll in a 
    prescription drug plan or an MA-PD plan.
        (5) Other coverage options, including tax-preferred retirement 
    or health savings accounts, consumer-directed health plans, or 
    other vehicles that sponsors of employment-based retiree health 
    coverage believe would assist retirees with their future health 
    care needs and their willingness to sponsor such alternative plan 
    designs.
        (6) The extent to which employers or other entities that did 
    not provide employment-based retiree health coverage prior to the 
    date of the enactment of this Act provided some form of coverage or 
    financial assistance for retiree health care needs after the date 
    of the enactment of this Act.
        (7) Recommendations by employers, benefits experts, academics, 
    and others on ways that the voluntary provision of employment-based 
    retiree health coverage may be improved and expanded.
    (d) Reports.--The Comptroller General shall submit a report to 
Congress on--
        (1) the initial study under subsection (b) not later than 1 
    year after the date of the enactment of this Act; and
        (2) the final study under subsection (c) not later than January 
    1, 2007.
    (e) Consultation.--The Comptroller General shall consult with 
sponsors of employment-based retiree health coverage, benefits experts, 
human resources professionals, employee benefits consultants, and 
academics with experience in health benefits and survey research in the 
development and design of the initial and final studies under this 
section.

                      TITLE II--MEDICARE ADVANTAGE
        Subtitle A--Implementation of Medicare Advantage Program

SEC. 201. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

    (a) In General.--There is hereby established the Medicare Advantage 
program. The Medicare Advantage program shall consist of the program 
under part C of title XVIII of the Social Security Act (as amended by 
this Act).
    (b) References.--Subject to subsection (c), any reference to the 
program under part C of title XVIII of the Social Security Act shall be 
deemed a reference to the Medicare Advantage program and, with respect 
to such part, any reference to ``Medicare+Choice'' is deemed a 
reference to ``Medicare Advantage'' and ``MA''.
    (c) Transition.--In order to provide for an orderly transition and 
avoid beneficiary and provider confusion, the Secretary shall provide 
for an appropriate transition in the use of the terms 
``Medicare+Choice'' and ``Medicare Advantage'' (or ``MA'') in reference 
to the program under part C of title XVIII of the Social Security Act. 
Such transition shall be fully completed for all materials for plan 
years beginning not later than January 1, 2006. Before the completion 
of such transition, any reference to ``Medicare Advantage'' or ``MA'' 
shall be deemed to include a reference to ``Medicare+Choice''.

                   Subtitle B--Immediate Improvements

SEC. 211. IMMEDIATE IMPROVEMENTS.

    (a) Equalizing Payments With Fee-for-Service.--
        (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) 
    is amended by adding at the end the following:
            ``(D) 100 percent of fee-for-service costs.--
                ``(i) In general.--For each year specified in clause 
            (ii), the adjusted average per capita cost for the year 
            involved, determined under section 1876(a)(4) and adjusted 
            as appropriate for the purpose of risk adjustment, for the 
            MA payment area for individuals who are not enrolled in an 
            MA plan under this part for the year, but adjusted to 
            exclude costs attributable to payments under section 
            1886(h).
                ``(ii) Periodic rebasing.--The provisions of clause (i) 
            shall apply for 2004 and for subsequent years as the 
            Secretary shall specify (but not less than once every 3 
            years).
                ``(iii) Inclusion of costs of va and dod military 
            facility services to medicare-eligible beneficiaries.--In 
            determining the adjusted average per capita cost under 
            clause (i) for a year, such cost shall be adjusted to 
            include the Secretary's estimate, on a per capita basis, of 
            the amount of additional payments that would have been made 
            in the area involved under this title if individuals 
            entitled to benefits under this title had not received 
            services from facilities of the Department of Defense or 
            the Department of Veterans Affairs.''.
        (2) Conforming amendment.--Such section is further amended, in 
    the matter before subparagraph (A), by striking ``or (C)'' and 
    inserting ``(C), or (D)''.
    (b) Change in Budget Neutrality for Blend.--Section 1853(c) (42 
U.S.C. 1395w-23(c)) is amended--
        (1) in paragraph (1)(A), by inserting ``(for a year other than 
    2004)'' after ``multiplied''; and
        (2) in paragraph (5), by inserting ``(other than 2004)'' after 
    ``for each year''.
    (c) Increasing Minimum Percentage Increase to National Growth 
Rate.--
        (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) 
    is amended--
            (A) in subparagraph (A), by striking ``The sum'' and 
        inserting ``For a year before 2005, the sum'';
            (B) in subparagraph (B)(iv), by striking ``and each 
        succeeding year'' and inserting ``, 2003, and 2004'';
            (C) in subparagraph (C)(iv), by striking ``and each 
        succeeding year'' and inserting ``and 2003''; and
            (D) by adding at the end of subparagraph (C) the following 
        new clause:
                ``(v) For 2004 and each succeeding year, the greater 
            of--

                    ``(I) 102 percent of the annual MA capitation rate 
                under this paragraph for the area for the previous 
                year; or
                    ``(II) the annual MA capitation rate under this 
                paragraph for the area for the previous year increased 
                by the national per capita MA growth percentage, 
                described in paragraph (6) for that succeeding year, 
                but not taking into account any adjustment under 
                paragraph (6)(C) for a year before 2004.''.

        (2) Conforming amendment.--Section 1853(c)(6)(C) (42 U.S.C. 
    1395w-23(c)(6)(C)) is amended by inserting before the period at the 
    end the following: ``, except that for purposes of paragraph 
    (1)(C)(v)(II), no such adjustment shall be made for a year before 
    2004''.
    (d) Inclusion of Costs of DOD and VA Military Facility Services to 
Medicare-Eligible Beneficiaries in Calculation of Payment Rates.--
Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) is amended--
        (1) in subparagraph (A), by striking ``subparagraph (B)'' and 
    inserting ``subparagraphs (B) and (E)''; and
        (2) by adding at the end the following new subparagraph:
            ``(E) Inclusion of costs of dod and va military facility 
        services to medicare-eligible beneficiaries.--In determining 
        the area-specific MA capitation rate under subparagraph (A) for 
        a year (beginning with 2004), the annual per capita rate of 
        payment for 1997 determined under section 1876(a)(1)(C) shall 
        be adjusted to include in the rate the Secretary's estimate, on 
        a per capita basis, of the amount of additional payments that 
        would have been made in the area involved under this title if 
        individuals entitled to benefits under this title had not 
        received services from facilities of the Department of Defense 
        or the Department of Veterans Affairs.''.
    (e) Extending Special Rule for Certain Inpatient Hospital Stays to 
Rehabilitation Hospitals and Long-Term Care Hospitals.--
        (1) In general.--Section 1853(g) (42 U.S.C. 1395w-23(g)) is 
    amended--
            (A) in the matter preceding paragraph (1), by inserting ``, 
        a rehabilitation hospital described in section 
        1886(d)(1)(B)(ii) or a distinct part rehabilitation unit 
        described in the matter following clause (v) of section 
        1886(d)(1)(B), or a long-term care hospital (described in 
        section 1886(d)(1)(B)(iv))'' after ``1886(d)(1)(B))''; and
            (B) in paragraph (2)(B), by inserting ``or other payment 
        provision under this title for inpatient services for the type 
        of facility, hospital, or unit involved, described in the 
        matter preceding paragraph (1), as the case may be,'' after 
        ``1886(d)''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to contract years beginning on or after January 1, 2004.
    (f) MedPAC Study of AAPCC.--
        (1) Study.--The Medicare Payment Advisory Commission shall 
    conduct a study that assesses the method used for determining the 
    adjusted average per capita cost (AAPCC) under section 1876(a)(4) 
    of the Social Security Act (42 U.S.C. 1395mm(a)(4)) as applied 
    under section 1853(c)(1)(A) of such Act (as amended by subsection 
    (a)). Such study shall include an examination of--
            (A) the bases for variation in such costs between different 
        areas, including differences in input prices, utilization, and 
        practice patterns;
            (B) the appropriate geographic area for payment of MA local 
        plans under the Medicare Advantage program under part C of 
        title XVIII of such Act; and
            (C) the accuracy of risk adjustment methods in reflecting 
        differences in costs of providing care to different groups of 
        beneficiaries served under such program.
        (2) Report.--Not later than 18 months after the date of the 
    enactment of this Act, the Commission shall submit to Congress a 
    report on the study conducted under paragraph (1).
    (g) Report on Impact of Increased Financial Assistance to Medicare 
Advantage Plans.--Not later than July 1, 2006, the Secretary shall 
submit to Congress a report that describes the impact of additional 
financing provided under this Act and other Acts (including the 
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 
and BIPA) on the availability of Medicare Advantage plans in different 
areas and its impact on lowering premiums and increasing benefits under 
such plans.
    (h) MedPAC Study and Report on Clarification of Authority Regarding 
Disapproval of Unreasonable Beneficiary Cost-Sharing.--
        (1) Study.--The Medicare Payment Advisory Commission, in 
    consultation with beneficiaries, consumer groups, employers, and 
    organizations offering plans under part C of title XVIII of the 
    Social Security Act, shall conduct a study to determine the extent 
    to which the cost-sharing structures under such plans affect access 
    to covered services or select enrollees based on the health status 
    of eligible individuals described in section 1851(a)(3) of the 
    Social Security Act (42 U.S.C. 1395w-21(a)(3)).
        (2) Report.--Not later than December 31, 2004, the Commission 
    shall submit a report to Congress on the study conducted under 
    paragraph (1) together with recommendations for such legislation 
    and administrative actions as the Commission considers appropriate.
    (i) Implementation of Provisions.--
        (1) Announcement of revised medicare advantage payment rates.--
    Within 6 weeks after the date of the enactment of this Act, the 
    Secretary shall determine, and shall announce (in a manner intended 
    to provide notice to interested parties) MA capitation rates under 
    section 1853 of the Social Security Act (42 U.S.C. 1395w-23) for 
    2004, revised in accordance with the provisions of this section.
        (2) Transition to revised payment rates.--The provisions of 
    section 604 of BIPA (114 Stat. 2763A-555) (other than subsection 
    (a)) shall apply to the provisions of subsections (a) through (d) 
    of this section for 2004 in the same manner as the provisions of 
    such section 604 applied to the provisions of BIPA for 2001.
        (3) Special rule for payment rates in 2004.--
            (A) January and february.--Notwithstanding the amendments 
        made by subsections (a) through (d), for purposes of making 
        payments under section 1853 of the Social Security Act (42 
        U.S.C. 1395w-23) for January and February 2004, the annual 
        capitation rate for a payment area shall be calculated and the 
        excess amount under section 1854(f)(1)(B) of such Act (42 
        U.S.C. 1395w-24(f)(1)(B)) shall be determined as if such 
        amendments had not been enacted.
            (B) March through december.--Notwithstanding the amendments 
        made by subsections (a) through (d), for purposes of making 
        payments under section 1853 of the Social Security Act (42 
        U.S.C. 1395w-23) for March through December 2004, the annual 
        capitation rate for a payment area shall be calculated and the 
        excess amount under section 1854(f)(1)(B) of such Act (42 
        U.S.C. 1395w-24(f)(1)(B)) shall be determined, in such manner 
        as the Secretary estimates will ensure that the total of such 
        payments with respect to 2004 is the same as the amounts that 
        would have been if subparagraph (A) had not been enacted.
            (C) Construction.--Subparagraphs (A) and (B) shall not be 
        taken into account in computing such capitation rate for 2005 
        and subsequent years.
        (4) Plans required to provide notice of changes in plan 
    benefits.--In the case of an organization offering a plan under 
    part C of title XVIII of the Social Security Act that revises its 
    submission of the information described in section 1854(a)(1) of 
    such Act (42 U.S.C. 1395w-23(a)(1)) for a plan pursuant to the 
    application of paragraph (2), if such revision results in changes 
    in beneficiary premiums, beneficiary cost-sharing, or benefits 
    under the plan, then by not later than 3 weeks after the date the 
    Secretary approves such submission, the organization offering the 
    plan shall provide each beneficiary enrolled in the plan with 
    written notice of such changes.
        (5) Limitation on review.--There shall be no administrative or 
    judicial review under section 1869 or section 1878 of the Social 
    Security Act (42 U.S.C. 1395ff and 1395oo), or otherwise of any 
    determination made by the Secretary under this subsection or the 
    application of the payment rates determined pursuant to this 
    subsection.
    (j) Additional Amendments.--Section 1852(d)(4) (42 U.S.C. 1395w-
22(d)(4)) is amended--
        (1) in subparagraph (B), by inserting ``(other than deemed 
    contracts or agreements under subsection (j)(6))'' after ``the plan 
    has contracts or agreements''; and
        (2) in the last sentence, by inserting before the period at the 
    end the following: ``, except that, if a plan entirely meets such 
    requirement with respect to a category of health care professional 
    or provider on the basis of subparagraph (B), it may provide for a 
    higher beneficiary copayment in the case of health care 
    professionals and providers of that category who do not have 
    contracts or agreements (other than deemed contracts or agreements 
    under subsection (j)(6)) to provide covered services under the 
    terms of the plan''.

    Subtitle C--Offering of Medicare Advantage (MA) Regional Plans; 
                     Medicare Advantage Competition

SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

    (a) Offering of MA Regional Plans.--
        (1) In general.--Section 1851(a)(2)(A) is amended--
            (A) by striking ``Coordinated care plans.--Coordinated'' 
        and inserting the following: ``Coordinated care plans 
        (including regional plans).--
                ``(i) In general.--Coordinated'';
            (B) by inserting ``regional or local'' before ``preferred 
        provider organization plans''; and
            (C) by inserting `` (including MA regional plans)'' after 
        ``preferred provider organization plans''.
        (2) Moratorium on new local preferred provider organization 
    plans.--The Secretary shall not permit the offering of a local 
    preferred provider organization plan under part C of title XVIII of 
    the Social Security Act during 2006 or 2007 in a service area 
    unless such plan was offered under such part (including under a 
    demonstration project under such part) in such area as of December 
    31, 2005.
    (b) Definition of MA Regional Plan; MA Local Plan.--
        (1) In general.--Section 1859(b) (42 U.S.C. 1395w-29(b)) is 
    amended by adding at the end the following new paragraphs:
        ``(4) MA regional plan.--The term `MA regional plan' means an 
    MA plan described in section 1851(a)(2)(A)(i)--
            ``(A) that has a network of providers that have agreed to a 
        contractually specified reimbursement for covered benefits with 
        the organization offering the plan;
            ``(B) that provides for reimbursement for all covered 
        benefits regardless of whether such benefits are provided 
        within such network of providers; and
            ``(C) the service area of which is one or more entire MA 
        regions.
        ``(5) MA local plan.--The term `MA local plan' means an MA plan 
    that is not an MA regional plan.''.
        (2) Construction.--Nothing in part C of title XVIII of the 
    Social Security Act shall be construed as preventing an MSA plan or 
    MA private fee-for-service plan from having a service area that 
    covers one or more MA regions or the entire nation.
    (c) Rules for MA Regional Plans.--Part C of title XVIII (42 U.S.C. 
1395w-21 et seq.) is amended by inserting after section 1857 the 
following new section:

                  ``special rules for ma regional plans

    ``Sec. 1858. (a) Regional Service Area; Establishment of MA 
Regions.--
        ``(1) Coverage of entire ma region.--The service area for an MA 
    regional plan shall consist of an entire MA region established 
    under paragraph (2) and the provisions of section 1854(h) shall not 
    apply to such a plan.
        ``(2) Establishment of ma regions.--
            ``(A) MA region.--For purposes of this title, the term `MA 
        region' means such a region within the 50 States and the 
        District of Columbia as established by the Secretary under this 
        paragraph.
            ``(B) Establishment.--
                ``(i) Initial establishment.--Not later than January 1, 
            2005, the Secretary shall first establish and publish MA 
            regions.
                ``(ii) Periodic review and revision of service areas.--
            The Secretary may periodically review MA regions under this 
            paragraph and, based on such review, may revise such 
            regions if the Secretary determines such revision to be 
            appropriate.
            ``(C) Requirements for ma regions.--The Secretary shall 
        establish, and may revise, MA regions under this paragraph in a 
        manner consistent with the following:
                ``(i) Number of regions.--There shall be no fewer than 
            10 regions, and no more than 50 regions.
                ``(ii) Maximizing availability of plans.--The regions 
            shall maximize the availability of MA regional plans to all 
            MA eligible individuals without regard to health status, 
            especially those residing in rural areas.
            ``(D) Market survey and analysis.--Before establishing MA 
        regions, the Secretary shall conduct a market survey and 
        analysis, including an examination of current insurance 
        markets, to determine how the regions should be established.
        ``(3) National plan.--Nothing in this subsection shall be 
    construed as preventing an MA regional plan from being offered in 
    more than one MA region (including all regions).
    ``(b) Application of Single Deductible and Catastrophic Limit on 
Out-of-Pocket Expenses.--An MA regional plan shall include the 
following:
        ``(1) Single deductible.--Any deductible for benefits under the 
    original medicare fee-for-service program option shall be a single 
    deductible (instead of a separate inpatient hospital deductible and 
    a part B deductible) and may be applied differentially for in-
    network services and may be waived for preventive or other items 
    and services.
        ``(2) Catastrophic limit.--
            ``(A) In-network.--A catastrophic limit on out-of-pocket 
        expenditures for in-network benefits under the original 
        medicare fee-for-service program option.
            ``(B) Total.--A catastrophic limit on out-of-pocket 
        expenditures for all benefits under the original medicare fee-
        for-service program option.
    ``(c) Portion of Total Payments to an Organization Subject to Risk 
for 2006 and 2007.--
        ``(1) Application of risk corridors.--
            ``(A) In general.--This subsection shall only apply to MA 
        regional plans offered during 2006 or 2007.
            ``(B) Notification of allowable costs under the plan.--In 
        the case of an MA organization that offers an MA regional plan 
        in an MA region in 2006 or 2007, the organization shall notify 
        the Secretary, before such date in the succeeding year as the 
        Secretary specifies, of--
                ``(i) its total amount of costs that the organization 
            incurred in providing benefits covered under the original 
            medicare fee-for-service program option for all enrollees 
            under the plan in the region in the year and the portion of 
            such costs that is attributable to administrative expenses 
            described in subparagraph (C); and
                ``(ii) its total amount of costs that the organization 
            incurred in providing rebatable integrated benefits (as 
            defined in subparagraph (D)) and with respect to such 
            benefits the portion of such costs that is attributable to 
            administrative expenses described in subparagraph (C) and 
            not described in clause (i) of this subparagraph.
            ``(C) Allowable costs defined.--For purposes of this 
        subsection, the term `allowable costs' means, with respect to 
        an MA regional plan for a year, the total amount of costs 
        described in subparagraph (B) for the plan and year, reduced by 
        the portion of such costs attributable to administrative 
        expenses incurred in providing the benefits described in such 
        subparagraph.
            ``(D) Rebatable integrated benefits.--For purposes of this 
        subsection, the term `rebatable integrated benefits' means such 
        non-drug supplemental benefits under subclause (I) of section 
        1854(b)(1)(C)(ii) pursuant to a rebate under such section that 
        the Secretary determines are integrated with the benefits 
        described in subparagraph (B)(i).
        ``(2) Adjustment of payment.--
            ``(A) No adjustment if allowable costs within 3 percent of 
        target amount.--If the allowable costs for the plan for the 
        year are at least 97 percent, but do not exceed 103 percent, of 
        the target amount for the plan and year, there shall be no 
        payment adjustment under this subsection for the plan and year.
            ``(B) Increase in payment if allowable costs above 103 
        percent of target amount.--
                ``(i) Costs between 103 and 108 percent of target 
            amount.--If the allowable costs for the plan for the year 
            are greater than 103 percent, but not greater than 108 
            percent, of the target amount for the plan and year, the 
            Secretary shall increase the total of the monthly payments 
            made to the organization offering the plan for the year 
            under section 1853(a) by an amount equal to 50 percent of 
            the difference between such allowable costs and 103 percent 
            of such target amount.
                ``(ii) Costs above 108 percent of target amount.--If 
            the allowable costs for the plan for the year are greater 
            than 108 percent of the target amount for the plan and 
            year, the Secretary shall increase the total of the monthly 
            payments made to the organization offering the plan for the 
            year under section 1853(a) by an amount equal to the sum 
            of--

                    ``(I) 2.5 percent of such target amount; and
                    ``(II) 80 percent of the difference between such 
                allowable costs and 108 percent of such target amount.

            ``(C) Reduction in payment if allowable costs below 97 
        percent of target amount.--
                ``(i) Costs between 92 and 97 percent of target 
            amount.--If the allowable costs for the plan for the year 
            are less than 97 percent, but greater than or equal to 92 
            percent, of the target amount for the plan and year, the 
            Secretary shall reduce the total of the monthly payments 
            made to the organization offering the plan for the year 
            under section 1853(a) by an amount (or otherwise recover 
            from the plan an amount) equal to 50 percent of the 
            difference between 97 percent of the target amount and such 
            allowable costs.
                ``(ii) Costs below 92 percent of target amount.--If the 
            allowable costs for the plan for the year are less than 92 
            percent of the target amount for the plan and year, the 
            Secretary shall reduce the total of the monthly payments 
            made to the organization offering the plan for the year 
            under section 1853(a) by an amount (or otherwise recover 
            from the plan an amount) equal to the sum of--

                    ``(I) 2.5 percent of such target amount; and
                    ``(II) 80 percent of the difference between 92 
                percent of such target amount and such allowable costs.

            ``(D) Target amount described.--For purposes of this 
        paragraph, the term `target amount' means, with respect to an 
        MA regional plan offered by an organization in a year, an 
        amount equal to--
                ``(i) the sum of--

                    ``(I) the total monthly payments made to the 
                organization for enrollees in the plan for the year 
                that are attributable to benefits under the original 
                medicare fee-for-service program option (as defined in 
                section 1852(a)(1)(B));
                    ``(II) the total of the MA monthly basic 
                beneficiary premium collectable for such enrollees for 
                the year; and
                    ``(III) the total amount of the rebates under 
                section 1854(b)(1)(C)(ii) that are attributable to 
                rebatable integrated benefits; reduced by

                ``(ii) the amount of administrative expenses assumed in 
            the bid insofar as the bid is attributable to benefits 
            described in clause (i)(I) or (i)(III).
        ``(3) Disclosure of information.--
            ``(A) In general.--Each contract under this part shall 
        provide--
                ``(i) that an MA organization offering an MA regional 
            plan shall provide the Secretary with such information as 
            the Secretary determines is necessary to carry out this 
            subsection; and
                ``(ii) that, pursuant to section 1857(d)(2)(B), the 
            Secretary has the right to inspect and audit any books and 
            records of the organization that pertain to the information 
            regarding costs provided to the Secretary under paragraph 
            (1)(B).
            ``(B) Restriction on use of information.--Information 
        disclosed or obtained pursuant to the provisions of this 
        subsection may be used by officers, employees, and contractors 
        of the Department of Health and Human Services only for the 
        purposes of, and to the extent necessary in, carrying out this 
        subsection.
    ``(d) Organizational and Financial Requirements.--
        ``(1) In general.--In the case of an MA organization that is 
    offering an MA regional plan in an MA region and--
            ``(A) meets the requirements of section 1855(a)(1) with 
        respect to at least one such State in such region; and
            ``(B) with respect to each other State in such region in 
        which it does not meet requirements, it demonstrates to the 
        satisfaction of the Secretary that it has filed the necessary 
        application to meet such requirements,
    the Secretary may waive such requirement with respect to each State 
    described in subparagraph (B) for such period of time as the 
    Secretary determines appropriate for the timely processing of such 
    an application by the State (and, if such application is denied, 
    through the end of such plan year as the Secretary determines 
    appropriate to provide for a transition).
        ``(2) Selection of appropriate state.--In applying paragraph 
    (1) in the case of an MA organization that meets the requirements 
    of section 1855(a)(1) with respect to more than one State in a 
    region, the organization shall select, in a manner specified by the 
    Secretary among such States, one State the rules of which shall 
    apply in the case of the States described in paragraph (1)(B).
    ``(e) Stabilization Fund.--
        ``(1) Establishment.--The Secretary shall establish under this 
    subsection an MA Regional Plan Stabilization Fund (in this 
    subsection referred to as the `Fund') which shall be available for 
    two purposes:
            ``(A) Plan entry.--To provide incentives to have MA 
        regional plans offered in each MA region under paragraph (3).
            ``(B) Plan retention.--To provide incentives to retain MA 
        regional plans in certain MA regions with below-national-
        average MA market penetration under paragraph (4).
        ``(2) Funding.--
            ``(A) Initial funding.--
                ``(i) In general.--There shall be available to the 
            Fund, for expenditures from the Fund during the period 
            beginning on January 1, 2007, and ending on December 31, 
            2013, a total of $10,000,000,000.
                ``(ii) Payment from trust funds.--Such amount shall be 
            available to the Fund, as expenditures are made from the 
            Fund, from the Federal Hospital Insurance Trust Fund and 
            the Federal Supplementary Medical Insurance Trust Fund in 
            the proportion specified in section 1853(f).
            ``(B) Additional funding from savings.--
                ``(i) In general.--There shall also be made available 
            to the Fund, 50 percent of savings described in clause 
            (ii).
                ``(ii) Savings.--The savings described in this clause 
            are 25 percent of the average per capita savings described 
            in section 1854(b)(4)(C) for which monthly rebates are 
            provided under section 1854(b)(1)(C) in the fiscal year 
            involved that are attributable to MA regional plans.
                ``(iii) Availability.--Funds made available under this 
            subparagraph shall be transferred into a special account in 
            the Treasury from the Federal Hospital Insurance Trust Fund 
            and the Federal Supplementary Medical Insurance Trust Fund 
            in the proportion specified in section 1853(f) on a monthly 
            basis.
            ``(C) Obligations.--Amounts in the Fund shall be available 
        in advance of appropriations to MA regional plans in qualifying 
        MA regions only in accordance with paragraph (5).
            ``(D) Ordering.--Expenditures from the Fund shall first be 
        made from amounts made available under subparagraph (A).
        ``(3) Plan entry funding.--
            ``(A) In general.--Funding is available under this 
        paragraph for a year only as follows:
                ``(i) National plan.--For a national bonus payment 
            described in subparagraph (B) for the offering by a single 
            MA organization of an MA regional plan in each MA region in 
            the year, but only if there was not such a plan offered in 
            each such region in the previous year. Funding under this 
            clause is only available with respect to any individual MA 
            organization for a single year, but may be made available 
            to more than one such organization in the same year.
                ``(ii) Regional plans.--Subject to clause (iii), for an 
            increased amount under subparagraph (C) for an MA regional 
            plan offered in an MA region which did not have any MA 
            regional plan offered in the prior year.
                ``(iii) Limitation on regional plan funding in case of 
            national plan.--In no case shall there be any payment 
            adjustment under subparagraph (C) for a year for which a 
            national payment adjustment is made under subparagraph (B).
            ``(B) National bonus payment.--The national bonus payment 
        under this subparagraph shall--
                ``(i) be available to an MA organization only if the 
            organization offers MA regional plans in every MA region;
                ``(ii) be available with respect to all MA regional 
            plans of the organization regardless of whether any other 
            MA regional plan is offered in any region; and
                ``(iii) subject to amounts available under paragraph 
            (5) for a year, be equal to 3 percent of the benchmark 
            amount otherwise applicable for each MA regional plan 
            offered by the organization.
            ``(C) Regional payment adjustment.--
                ``(i) In general.--The increased amount under this 
            subparagraph for an MA regional plan in an MA region for a 
            year shall be an amount, determined by the Secretary, based 
            on the bid submitted for such plan (or plans) and shall be 
            available to all MA regional plans offered in such region 
            and year. Such amount may be based on the mean, mode, or 
            median, or other measure of such bids and may vary from 
            region to region. The Secretary may not limit the number of 
            plans or bids in a region.
                ``(ii) Multi-year funding.--

                    ``(I) In general.--Subject to amounts available 
                under paragraph (5), funding under this subparagraph 
                shall be available for a period determined by the 
                Secretary.
                    ``(II) Report.--If the Secretary determines that 
                funding will be provided for a second consecutive year 
                with respect to an MA region, the Secretary shall 
                submit to the Congress a report that describes the 
                underlying market dynamics in the region and that 
                includes recommendations concerning changes in the 
                payment methodology otherwise provided for MA regional 
                plans under this part.

                ``(iii) Application to all plans in a region.--Funding 
            under this subparagraph with respect to an MA region shall 
            be made available with respect to all MA regional plans 
            offered in the region.
                ``(iv) Limitation on availability of plan retention 
            funding in next year.--If an increased amount is made 
            available under this subparagraph with respect to an MA 
            region for a period determined by the Secretary under 
            clause (ii)(I), in no case shall funding be available under 
            paragraph (4) with respect to MA regional plans offered in 
            the region in the year following such period.
            ``(D) Application.--Any additional payment under this 
        paragraph provided for an MA regional plan for a year shall be 
        treated as if it were an addition to the benchmark amount 
        otherwise applicable to such plan and year, but shall not be 
        taken into account in the computation of any benchmark amount 
        for any subsequent year.
        ``(4) Plan retention funding.--
            ``(A) In general.--Funding is available under this 
        paragraph for a year with respect to MA regional plans offered 
        in an MA region for the increased amount specified in 
        subparagraph (B) but only if the region meets the requirements 
        of subparagraphs (C) and (E).
            ``(B) Payment increase.--The increased amount under this 
        subparagraph for an MA regional plan in an MA region for a year 
        shall be an amount, determined by the Secretary, that does not 
        exceed the greater of--
                ``(i) 3 percent of the benchmark amount applicable in 
            the region; or
                ``(ii) such amount as (when added to the benchmark 
            amount applicable to the region) will result in the ratio 
            of--

                    ``(I) such additional amount plus the benchmark 
                amount computed under section 1854(b)(4)(B)(i) for the 
                region and year, to the adjusted average per capita 
                cost for the region and year, as estimated by the 
                Secretary under section 1876(a)(4) and adjusted as 
                appropriate for the purpose of risk adjustment; being 
                equal to
                    ``(II) the weighted average of such benchmark 
                amounts for all the regions and such year, to the 
                average per capita cost for the United States and such 
                year, as estimated by the Secretary under section 
                1876(a)(4) and adjusted as appropriate for the purpose 
                of risk adjustment.

            ``(C) Regional requirements.--The requirements of this 
        subparagraph for an MA region for a year are as follows:
                ``(i) Notification of plan exit.--The Secretary has 
            received notice (in such form and manner as the Secretary 
            specifies) before a year that one or more MA regional plans 
            that were offered in the region in the previous year will 
            not be offered in the succeeding year.
                ``(ii) Regional plans available from fewer than 2 ma 
            organizations in the region.--The Secretary determines that 
            if the plans referred to in clause (i) are not offered in 
            the year, fewer than 2 MA organizations will be offering MA 
            regional plans in the region in the year involved.
                ``(iii) Percentage enrollment in ma regional plans 
            below national average.--For the previous year, the 
            Secretary determines that the average percentage of MA 
            eligible individuals residing in the region who are 
            enrolled in MA regional plans is less than the average 
            percentage of such individuals in the United States 
            enrolled in such plans.
            ``(D) Application.--Any additional payment under this 
        paragraph provided for an MA regional plan for a year shall be 
        treated as if it were an addition to the benchmark amount 
        otherwise applicable to such plan and year, but shall not be 
        taken into account in the computation of any benchmark amount 
        for any subsequent year.
            ``(E) 2-consecutive-year limitation.--
                ``(i) In general.--In no case shall any funding be 
            available under this paragraph in an MA region in a period 
            of consecutive years that exceeds 2 years.
                ``(ii) Report.--If the Secretary determines that 
            funding will be provided under this paragraph for a second 
            consecutive year with respect to an MA region, the 
            Secretary shall submit to the Congress a report that 
            describes the underlying market dynamics in the region and 
            that includes recommendations concerning changes in the 
            payment methodology otherwise provided for MA regional 
            plans under this part.
        ``(5) Funding limitation.--
            ``(A) In general.--The total amount expended from the Fund 
        as a result of the application of this subsection through the 
        end of a calendar year may not exceed the amount available to 
        the Fund as of the first day of such year. For purposes of this 
        subsection, amounts that are expended under this title insofar 
        as such amounts would not have been expended but for the 
        application of this subsection shall be counted as amounts 
        expended as a result of such application.
            ``(B) Application of limitation.--The Secretary may 
        obligate funds from the Fund for a year only if the Secretary 
        determines (and the Chief Actuary of the Centers for Medicare & 
        Medicaid Services and the appropriate budget officer certify) 
        that there are available in the Fund at the beginning of the 
        year sufficient amounts to cover all such obligations incurred 
        during the year consistent with subparagraph (A). The Secretary 
        shall take such steps, in connection with computing additional 
        payment amounts under paragraphs (3) and (4) and including 
        limitations on enrollment in MA regional plans receiving such 
        payments, as will ensure that sufficient funds are available to 
        make such payments for the entire year. Funds shall only be 
        made available from the Fund pursuant to an apportionment made 
        in accordance with applicable procedures.
        ``(6) Secretary reports.--Not later than April 1 of each year 
    (beginning in 2008), the Secretary shall submit a report to 
    Congress and the Comptroller General of the United States that 
    includes--
            ``(A) a detailed description of--
                ``(i) the total amount expended as a result of the 
            application of this subsection in the previous year 
            compared to the total amount that would have been expended 
            under this title in the year if this subsection had not 
            been enacted;
                ``(ii) the projections of the total amount that will be 
            expended as a result of the application of this subsection 
            in the year in which the report is submitted compared to 
            the total amount that would have been expended under this 
            title in the year if this subsection had not been enacted;
                ``(iii) amounts remaining within the funding limitation 
            specified in paragraph (5); and
                ``(iv) the steps that the Secretary will take under 
            paragraph (5)(B) to ensure that the application of this 
            subsection will not cause expenditures to exceed the amount 
            available in the Fund; and
            ``(B) a certification from the Chief Actuary of the Centers 
        for Medicare & Medicaid Services that the description provided 
        under subparagraph (A) is reasonable, accurate, and based on 
        generally accepted actuarial principles and methodologies.
        ``(7) Biennial gao reports.--Not later than January 1 of 2009, 
    2011, 2013, and 2015, the Comptroller General of the United States 
    shall submit to the Secretary and Congress a report on the 
    application of additional payments under this subsection. Each 
    report shall include--
            ``(A) an evaluation of--
                ``(i) the quality of care provided to individuals 
            enrolled in MA regional plans for which additional payments 
            were made under this subsection;
                ``(ii) the satisfaction of such individuals with 
            benefits under such a plan;
                ``(iii) the costs to the medicare program for payments 
            made to such plans; and
                ``(iv) any improvements in the delivery of health care 
            services under such a plan;
            ``(B) a comparative analysis of the performance of MA 
        regional plans receiving payments under this subsection with MA 
        regional plans not receiving such payments; and
            ``(C) recommendations for such legislation or 
        administrative action as the Comptroller General determines to 
        be appropriate.
    ``(f) Computation of Applicable MA Region-Specific Non-Drug Monthly 
Benchmark Amounts.--
        ``(1) Computation for regions.--For purposes of section 
    1853(j)(2) and this section, subject to subsection (e), the term 
    `MA region-specific non-drug monthly benchmark amount' means, with 
    respect to an MA region for a month in a year, the sum of the 2 
    components described in paragraph (2) for the region and year. The 
    Secretary shall compute such benchmark amount for each MA region 
    before the beginning of each annual, coordinated election period 
    under section 1851(e)(3)(B) for each year (beginning with 2006).
        ``(2) 2 components.--For purposes of paragraph (1), the 2 
    components described in this paragraph for an MA region and a year 
    are the following:
            ``(A) Statutory component.--The product of the following:
                ``(i) Statutory region-specific non-drug amount.--The 
            statutory region-specific non-drug amount (as defined in 
            paragraph (3)) for the region and year.
                ``(ii) Statutory national market share.--The statutory 
            national market share percentage, determined under 
            paragraph (4) for the year.
            ``(B) Plan-bid component.--The product of the following:
                ``(i) Weighted average of ma plan bids in region.--The 
            weighted average of the plan bids for the region and year 
            (as determined under paragraph (5)(A)).
                ``(ii) Non-statutory market share.--1 minus the 
            statutory national market share percentage, determined 
            under paragraph (4) for the year.
        ``(3) Statutory region-specific non-drug amount.--For purposes 
    of paragraph (2)(A)(i), the term `statutory region-specific non-
    drug amount' means, for an MA region and year, an amount equal the 
    sum (for each MA local area within the region) of the product of--
            ``(A) MA area-specific non-drug monthly benchmark amount 
        under section 1853(j)(1)(A) for that area and year; and
            ``(B) the number of MA eligible individuals residing in the 
        local area, divided by the total number of MA eligible 
        individuals residing in the region.
        ``(4) Computation of statutory market share percentage.--
            ``(A) In general.--The Secretary shall determine for each 
        year a statutory national market share percentage that is equal 
        to the proportion of MA eligible individuals nationally who 
        were not enrolled in an MA plan during the reference month.
            ``(B) Reference month defined.--For purposes of this part, 
        the term `reference month' means, with respect to a year, the 
        most recent month during the previous year for which the 
        Secretary determines that data are available to compute the 
        percentage specified in subparagraph (A) and other relevant 
        percentages under this part.
        ``(5) Determination of weighted average ma bids for a region.--
            ``(A) In general.--For purposes of paragraph (2)(B)(i), the 
        weighted average of plan bids for an MA region and a year is 
        the sum, for MA regional plans described in subparagraph (D) in 
        the region and year, of the products (for each such plan) of 
        the following:
                ``(i) Monthly ma statutory non-drug bid amount.--The 
            unadjusted MA statutory non-drug monthly bid amount for the 
            plan.
                ``(ii) Plan's share of ma enrollment in region.--The 
            factor described in subparagraph (B) for the plan.
            ``(B) Plan's share of ma enrollment in region.--
                ``(i) In general.--Subject to the succeeding provisions 
            of this subparagraph, the factor described in this 
            subparagraph for a plan is equal to the number of 
            individuals described in subparagraph (C) for such plan, 
            divided by the total number of such individuals for all MA 
            regional plans described in subparagraph (D) for that 
            region and year.
                ``(ii) Single plan rule.--In the case of an MA region 
            in which only a single MA regional plan is being offered, 
            the factor described in this subparagraph shall be equal to 
            1.
                ``(iii) Equal division among multiple plans in year in 
            which plans are first available.--In the case of an MA 
            region in the first year in which any MA regional plan is 
            offered, if more than one MA regional plan is offered in 
            such year, the factor described in this subparagraph for a 
            plan shall (as specified by the Secretary) be equal to--

                    ``(I) 1 divided by the number of such plans offered 
                in such year; or
                    ``(II) a factor for such plan that is based upon 
                the organization's estimate of projected enrollment, as 
                reviewed and adjusted by the Secretary to ensure 
                reasonableness and as is certified by the Chief Actuary 
                of the Centers for Medicare & Medicaid Services.

            ``(C) Counting of individuals.--For purposes of 
        subparagraph (B)(i), the Secretary shall count for each MA 
        regional plan described in subparagraph (D) for an MA region 
        and year, the number of individuals who reside in the region 
        and who were enrolled under such plan under this part during 
        the reference month.
            ``(D) Plans covered.--For an MA region and year, an MA 
        regional plan described in this subparagraph is an MA regional 
        plan that is offered in the region and year and was offered in 
        the region in the reference month.
    ``(g) Election of Uniform Coverage Determination.--Instead of 
applying section 1852(a)(2)(C) with respect to an MA regional plan, the 
organization offering the plan may elect to have a local coverage 
determination for the entire MA region be the local coverage 
determination applied for any part of such region (as selected by the 
organization).
    ``(h) Assuring Network Adequacy.--
        ``(1) In general.--For purposes of enabling MA organizations 
    that offer MA regional plans to meet applicable provider access 
    requirements under section 1852 with respect to such plans, the 
    Secretary may provide for payment under this section to an 
    essential hospital that provides inpatient hospital services to 
    enrollees in such a plan where the MA organization offering the 
    plan certifies to the Secretary that the organization was unable to 
    reach an agreement between the hospital and the organization 
    regarding provision of such services under the plan. Such payment 
    shall be available only if--
            ``(A) the organization provides assurances satisfactory to 
        the Secretary that the organization will make payment to the 
        hospital for inpatient hospital services of an amount that is 
        not less than the amount that would be payable to the hospital 
        under section 1886 with respect to such services; and
            ``(B) with respect to specific inpatient hospital services 
        provided to an enrollee, the hospital demonstrates to the 
        satisfaction of the Secretary that the hospital's costs of such 
        services exceed the payment amount described in subparagraph 
        (A).
        ``(2) Payment amounts.--The payment amount under this 
    subsection for inpatient hospital services provided by a subsection 
    (d) hospital to an enrollee in an MA regional plan shall be, 
    subject to the limitation of funds under paragraph (3), the amount 
    (if any) by which--
            ``(A) the amount of payment that would have been paid for 
        such services under this title if the enrollees were covered 
        under the original medicare fee-for-service program option and 
        the hospital were a critical access hospital; exceeds
            ``(B) the amount of payment made for such services under 
        paragraph (1)(A).
        ``(3) Available amounts.--There shall be available for payments 
    under this subsection--
            ``(A) in 2006, $25,000,000; and
            ``(B) in each succeeding year the amount specified in this 
        paragraph for the preceding year increased by the market basket 
        percentage increase (as defined in section 1886(b)(3)(B)(iii)) 
        for the fiscal year ending in such succeeding year.
    Payments under this subsection shall be made from the Federal 
    Hospital Insurance Trust Fund.
        ``(4) Essential hospital.--In this subsection, the term 
    `essential hospital' means, with respect to an MA regional plan 
    offered by an MA organization, a subsection (d) hospital (as 
    defined in section 1886(d)) that the Secretary determines, based 
    upon an application filed by the organization with the Secretary, 
    is necessary to meet the requirements referred to in paragraph (1) 
    for such plan.''.
    (d) Conforming Amendments.--
        (1) Relating to ma regions.--Section 1853(d) (42 U.S.C. 1395w-
    23(d)) is amended--
            (A) by amending the heading to read as follows: ``MA 
        Payment Area; MA Local Area; MA Region Defined'';
            (B) by redesignating paragraphs (2) and (3) as paragraphs 
        (3) and (4), respectively;
            (C) by amending paragraph (1) to read as follows:
        ``(1) MA payment area.--In this part, except as provided in 
    this subsection, the term `MA payment area' means--
            ``(A) with respect to an MA local plan, an MA local area 
        (as defined in paragraph (2)); and
            ``(B) with respect to an MA regional plan, an MA region (as 
        established under section 1858(a)(2)).'';
            (D) by inserting after paragraph (1) the following new 
        paragraph:
        ``(2) MA local area.--The term `MA local area' means a county 
    or equivalent area specified by the Secretary.''; and
            (E) in paragraph (4), as so redesignated--
                (i) in subparagraph (A), by inserting ``for MA local 
            plans'' after ``paragraph (1)'';
                (ii) in subparagraph (A)(iii), by striking ``paragraph 
            (1)'' and inserting ``paragraph (1)(A)''; and
                (iii) in subparagraph (B)--

                    (I) by inserting ``with respect to MA local plans'' 
                after ``established under this section'';
                    (II) by inserting ``for such plans'' after 
                ``payments under this section''; and
                    (III) by inserting ``for such plans'' after ``made 
                under this section''.

        (2) MA local area defined.--Section 1859(c) (42 U.S.C. 1395w-
    29(c)) is amended by adding at the end the following:
        ``(5) MA local area.--The term `MA local area' is defined in 
    section 1853(d)(2).''.
        (3) Application of special benefit rules to ppos and regional 
    plans.--Section 1852(a) (42 U.S.C. 1395w-22(a)) is amended--
            (A) in paragraph (1), by inserting ``and except as provided 
        in paragraph (6) for MA regional plans'' after ``MSA plans''; 
        and
            (B) by adding at the end the following new paragraph:
        ``(6) Special benefit rules for regional plans.--In the case of 
    an MA plan that is an MA regional plan, benefits under the plan 
    shall include the benefits described in paragraphs (1) and (2) of 
    section 1858(b).''.
        (4) Application of capitation rates to local areas.--Section 
    1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) is amended by inserting 
    ``that is an MA local area'' after ``for a Medicare+Choice payment 
    area''.
        (5) Network adequacy hospital payments.--Section 1851(i)(2) (42 
    U.S.C. 1395w-21(i)(2)) is amended by inserting ``1858(h),'' after 
    ``1857(f)(2),''.

SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.

    (a) Submission of Bidding and Rebate Information Beginning in 
2006.--
        (1) In general.--Section 1854 (42 U.S.C. 1395w-24) is amended--
            (A) by amending paragraph (1) of subsection (a) to read as 
        follows:
        ``(1) In general.--
            ``(A) Initial submission.--Not later than the second Monday 
        in September of 2002, 2003, and 2004 (or the first Monday in 
        June of each subsequent year), each MA organization shall 
        submit to the Secretary, in a form and manner specified by the 
        Secretary and for each MA plan for the service area (or segment 
        of such an area if permitted under subsection (h)) in which it 
        intends to be offered in the following year the following:
                ``(i) The information described in paragraph (2), (3), 
            (4), or (6)(A) for the type of plan and year involved.
                ``(ii) The plan type for each plan.
                ``(iii) The enrollment capacity (if any) in relation to 
            the plan and area.
            ``(B) Beneficiary rebate information.--In the case of a 
        plan required to provide a monthly rebate under subsection 
        (b)(1)(C) for a year, the MA organization offering the plan 
        shall submit to the Secretary, in such form and manner and at 
        such time as the Secretary specifies, information on--
                ``(i) the manner in which such rebate will be provided 
            under clause (ii) of such subsection; and
                ``(ii) the MA monthly prescription drug beneficiary 
            premium (if any) and the MA monthly supplemental 
            beneficiary premium (if any).
            ``(C) Paperwork reduction for offering of ma regional plans 
        nationally or in multi-region areas.--The Secretary shall 
        establish requirements for information submission under this 
        subsection in a manner that promotes the offering of MA 
        regional plans in more than one region (including all regions) 
        through the filing of consolidated information.''; and
            (B) by adding at the end of subsection (a) the following:
        ``(6) Submission of bid amounts by ma organizations beginning 
    in 2006.--
            ``(A) Information to be submitted.--For an MA plan (other 
        than an MSA plan) for a plan year beginning on or after January 
        1, 2006, the information described in this subparagraph is as 
        follows:
                ``(i) The monthly aggregate bid amount for the 
            provision of all items and services under the plan, which 
            amount shall be based on average revenue requirements (as 
            used for purposes of section 1302(8) of the Public Health 
            Service Act) in the payment area for an enrollee with a 
            national average risk profile for the factors described in 
            section 1853(a)(1)(C) (as specified by the Secretary).
                ``(ii) The proportions of such bid amount that are 
            attributable to--

                    ``(I) the provision of benefits under the original 
                medicare fee-for-service program option (as defined in 
                section 1852(a)(1)(B));
                    ``(II) the provision of basic prescription drug 
                coverage; and
                    ``(III) the provision of supplemental health care 
                benefits.

                ``(iii) The actuarial basis for determining the amount 
            under clause (i) and the proportions described in clause 
            (ii) and such additional information as the Secretary may 
            require to verify such actuarial bases and the projected 
            number of enrollees in each MA local area.
                ``(iv) A description of deductibles, coinsurance, and 
            copayments applicable under the plan and the actuarial 
            value of such deductibles, coinsurance, and copayments, 
            described in subsection (e)(4)(A).
                ``(v) With respect to qualified prescription drug 
            coverage, the information required under section 1860D-4, 
            as incorporated under section 1860D-11(b)(2), with respect 
            to such coverage.
        In the case of a specialized MA plan for special needs 
        individuals, the information described in this subparagraph is 
        such information as the Secretary shall specify.
            ``(B) Acceptance and negotiation of bid amounts.--
                ``(i) Authority.--Subject to clauses (iii) and (iv), 
            the Secretary has the authority to negotiate regarding 
            monthly bid amounts submitted under subparagraph (A) (and 
            the proportions described in subparagraph (A)(ii)), 
            including supplemental benefits provided under subsection 
            (b)(1)(C)(ii)(I) and in exercising such authority the 
            Secretary shall have authority similar to the authority of 
            the Director of the Office of Personnel Management with 
            respect to health benefits plans under chapter 89 of title 
            5, United States Code.
                ``(ii) Application of fehbp standard.--Subject to 
            clause (iv), the Secretary may only accept such a bid 
            amount or proportion if the Secretary determines that such 
            amount and proportions are supported by the actuarial bases 
            provided under subparagraph (A) and reasonably and 
            equitably reflects the revenue requirements (as used for 
            purposes of section 1302(8) of the Public Health Service 
            Act) of benefits provided under that plan.
                ``(iii) Noninterference.--In order to promote 
            competition under this part and part D and in carrying out 
            such parts, the Secretary may not require any MA 
            organization to contract with a particular hospital, 
            physician, or other entity or individual to furnish items 
            and services under this title or require a particular price 
            structure for payment under such a contract to the extent 
            consistent with the Secretary's authority under this part.
                ``(iv) Exception.--In the case of a plan described in 
            section 1851(a)(2)(C), the provisions of clauses (i) and 
            (ii) shall not apply and the provisions of paragraph 
            (5)(B), prohibiting the review, approval, or disapproval of 
            amounts described in such paragraph, shall apply to the 
            negotiation and rejection of the monthly bid amounts and 
            the proportions referred to in subparagraph (A).''.
        (2) Definition of benefits under the original medicare fee-for-
    service program option.--Section 1852(a)(1) (42 U.S.C. 1395w-
    22(a)(1)) is amended--
            (A) by striking ``In general.--Except'' and inserting 
        ``Requirement.--
            ``(A) In general.--Except''; and
            (B) by striking ``title XI'' and all that follows and 
        inserting the following: ``title XI, benefits under the 
        original medicare fee-for-service program option (and, for plan 
        years before 2006, additional benefits required under section 
        1854(f)(1)(A)).
            ``(B) Benefits under the original medicare fee-for-service 
        program option defined.--
                ``(i) In general.--For purposes of this part, the term 
            `benefits under the original medicare fee-for-service 
            program option' means those items and services (other than 
            hospice care) for which benefits are available under parts 
            A and B to individuals entitled to benefits under part A 
            and enrolled under part B, with cost-sharing for those 
            services as required under parts A and B or an actuarially 
            equivalent level of cost-sharing as determined in this 
            part.
                ``(ii) Special rule for regional plans.--In the case of 
            an MA regional plan in determining an actuarially 
            equivalent level of cost-sharing with respect to benefits 
            under the original medicare fee-for-service program option, 
            there shall only be taken into account, with respect to the 
            application of section 1858(b)(2), such expenses only with 
            respect to subparagraph (A) of such section.''.
        (3) Conforming amendment relating to supplemental health 
    benefits.--Section 1852(a)(3) (42 U.S.C. 1395w-22(a)(3)) is amended 
    by adding at the end the following: ``Such benefits may include 
    reductions in cost-sharing below the actuarial value specified in 
    section 1854(e)(4)(B).''.
    (b) Providing for Beneficiary Savings for Certain Plans.--
        (1) Beneficiary rebates.--Section 1854(b)(1) (42 U.S.C. 1395w-
    24(b)(1)) is amended--
            (A) in subparagraph (A), by striking ``The monthly amount'' 
        and inserting ``Subject to the rebate under subparagraph (C), 
        the monthly amount (if any)''; and
            (B) by adding at the end the following new subparagraph:
            ``(C) Beneficiary rebate rule.--
                ``(i) Requirement.--The MA plan shall provide to the 
            enrollee a monthly rebate equal to 75 percent of the 
            average per capita savings (if any) described in paragraph 
            (3)(C) or (4)(C), as applicable to the plan and year 
            involved.
                ``(ii) Form of rebate.--A rebate required under this 
            subparagraph shall be provided through the application of 
            the amount of the rebate toward one or more of the 
            following:

                    ``(I) Provision of supplemental health care 
                benefits and payment for premium for supplemental 
                benefits.--The provision of supplemental health care 
                benefits described in section 1852(a)(3) in a manner 
                specified under the plan, which may include the 
                reduction of cost-sharing otherwise applicable as well 
                as additional health care benefits which are not 
                benefits under the original medicare fee-for-service 
                program option, or crediting toward an MA monthly 
                supplemental beneficiary premium (if any).
                    ``(II) Payment for premium for prescription drug 
                coverage.--Crediting toward the MA monthly prescription 
                drug beneficiary premium.
                    ``(III) Payment toward part b premium.--Crediting 
                toward the premium imposed under part B (determined 
                without regard to the application of subsections (b), 
                (h), and (i) of section 1839).

                ``(iii) Disclosure relating to rebates.--The plan shall 
            disclose to the Secretary information on the form and 
            amount of the rebate provided under this subparagraph or 
            the actuarial value in the case of supplemental health care 
            benefits.
                ``(iv) Application of part b premium reduction.--
            Insofar as an MA organization elects to provide a rebate 
            under this subparagraph under a plan as a credit toward the 
            part B premium under clause (ii)(III), the Secretary shall 
            apply such credit to reduce the premium under section 1839 
            of each enrollee in such plan as provided in section 
            1840(i).''.
        (2) Revision of premium terminology.--Section 1854(b)(2) (42 
    U.S.C. 1395w-24(b)(2)) is amended--
            (A) in the heading, by inserting ``and bid'' after 
        ``Premium'';
            (B) by redesignating subparagraph (C) as subparagraph (D);
            (C) by striking subparagraphs (A) and (B) and inserting the 
        following:
            ``(A) MA monthly basic beneficiary premium.--The term `MA 
        monthly basic beneficiary premium' means, with respect to an MA 
        plan--
                ``(i) described in section 1853(a)(1)(B)(i) (relating 
            to plans providing rebates), zero; or
                ``(ii) described in section 1853(a)(1)(B)(ii), the 
            amount (if any) by which the unadjusted MA statutory non-
            drug monthly bid amount (as defined in subparagraph (E)) 
            exceeds the applicable unadjusted MA area-specific non-drug 
            monthly benchmark amount (as defined in section 1853(j)).
            ``(B) MA monthly prescription drug beneficiary premium.--
        The term `MA monthly prescription drug beneficiary premium' 
        means, with respect to an MA plan, the base beneficiary premium 
        (as determined under section 1860D-13(a)(2) and as adjusted 
        under section 1860D-13(a)(1)(B)), less the amount of rebate 
        credited toward such amount under section 
        1854(b)(1)(C)(ii)(II).
            ``(C) MA monthly supplemental beneficiary premium.--The 
        term `MA monthly supplemental beneficiary premium' means, with 
        respect to an MA plan, the portion of the aggregate monthly bid 
        amount submitted under clause (i) of subsection (a)(6)(A) for 
        the year that is attributable under clause (ii)(III) of such 
        subsection to the provision of supplemental health care 
        benefits, less the amount of rebate credited toward such 
        portion under section 1854(b)(1)(C)(ii)(I).''; and
            (D) by adding at the end the following:
            ``(E) Unadjusted ma statutory non-drug monthly bid 
        amount.--The term `unadjusted MA statutory non-drug monthly bid 
        amount' means the portion of the bid amount submitted under 
        clause (i) of subsection (a)(6)(A) for the year that is 
        attributable under clause (ii)(I) of such subsection to the 
        provision of benefits under the original medicare fee-for-
        service program option (as defined in section 
        1852(a)(1)(B)).''.
        (3) Computation of savings.--Section 1854(b) (42 U.S.C. 1395w-
    24(b)) is further amended by adding at the end the following new 
    paragraphs:
        ``(3) Computation of average per capita monthly savings for 
    local plans.--For purposes of paragraph (1)(C)(i), the average per 
    capita monthly savings referred to in such paragraph for an MA 
    local plan and year is computed as follows:
            ``(A) Determination of statewide average risk adjustment 
        for local plans.--
                ``(i) In general.--Subject to clause (iii), the 
            Secretary shall determine, at the same time rates are 
            promulgated under section 1853(b)(1) (beginning with 2006) 
            for each State, the average of the risk adjustment factors 
            to be applied under section 1853(a)(1)(C) to payment for 
            enrollees in that State for MA local plans.
                ``(ii) Treatment of states for first year in which 
            local plan offered.--In the case of a State in which no MA 
            local plan was offered in the previous year, the Secretary 
            shall estimate such average. In making such estimate, the 
            Secretary may use average risk adjustment factors applied 
            to comparable States or applied on a national basis.
                ``(iii) Authority to determine risk adjustment for 
            areas other than states.--The Secretary may provide for the 
            determination and application of risk adjustment factors 
            under this subparagraph on the basis of areas other than 
            States or on a plan-specific basis.
            ``(B) Determination of risk adjusted benchmark and risk-
        adjusted bid for local plans.--For each MA plan offered in a 
        local area in a State, the Secretary shall--
                ``(i) adjust the applicable MA area-specific non-drug 
            monthly benchmark amount (as defined in section 1853(j)(1)) 
            for the area by the average risk adjustment factor computed 
            under subparagraph (A); and
                ``(ii) adjust the unadjusted MA statutory non-drug 
            monthly bid amount by such applicable average risk 
            adjustment factor.
            ``(C) Determination of average per capita monthly 
        savings.--The average per capita monthly savings described in 
        this subparagraph for an MA local plan is equal to the amount 
        (if any) by which--
                ``(i) the risk-adjusted benchmark amount computed under 
            subparagraph (B)(i); exceeds
                ``(ii) the risk-adjusted bid computed under 
            subparagraph (B)(ii).
        ``(4) Computation of average per capita monthly savings for 
    regional plans.--For purposes of paragraph (1)(C)(i), the average 
    per capita monthly savings referred to in such paragraph for an MA 
    regional plan and year is computed as follows:
            ``(A) Determination of regionwide average risk adjustment 
        for regional plans.--
                ``(i) In general.--The Secretary shall determine, at 
            the same time rates are promulgated under section 
            1853(b)(1) (beginning with 2006) for each MA region the 
            average of the risk adjustment factors to be applied under 
            section 1853(a)(1)(C) to payment for enrollees in that 
            region for MA regional plans.
                ``(ii) Treatment of regions for first year in which 
            regional plan offered.--In the case of an MA region in 
            which no MA regional plan was offered in the previous year, 
            the Secretary shall estimate such average. In making such 
            estimate, the Secretary may use average risk adjustment 
            factors applied to comparable regions or applied on a 
            national basis.
                ``(iii) Authority to determine risk adjustment for 
            areas other than regions.--The Secretary may provide for 
            the determination and application of risk adjustment 
            factors under this subparagraph on the basis of areas other 
            than MA regions or on a plan-specific basis.
            ``(B) Determination of risk-adjusted benchmark and risk-
        adjusted bid for regional plans.--For each MA regional plan 
        offered in a region, the Secretary shall--
                ``(i) adjust the applicable MA area-specific non-drug 
            monthly benchmark amount (as defined in section 1853(j)(2)) 
            for the region by the average risk adjustment factor 
            computed under subparagraph (A); and
                ``(ii) adjust the unadjusted MA statutory non-drug 
            monthly bid amount by such applicable average risk 
            adjustment factor.
            ``(C) Determination of average per capita monthly 
        savings.--The average per capita monthly savings described in 
        this subparagraph for an MA regional plan is equal to the 
        amount (if any) by which--
                ``(i) the risk-adjusted benchmark amount computed under 
            subparagraph (B)(i); exceeds
                ``(ii) the risk-adjusted bid computed under 
            subparagraph (B)(ii).''.
    (c) Collection of Premiums.--Section 1854(d) (42 U.S.C. 1395w-
24(d)) is amended--
        (1) by striking ``Premiums.--Each'' and inserting ``Premiums.--
        ``(1) In general.--Each''; and
        (2) by adding at the end the following new paragraphs:
        ``(2) Beneficiary's option of payment through withholding from 
    social security payment or use of electronic funds transfer 
    mechanism.--In accordance with regulations, an MA organization 
    shall permit each enrollee, at the enrollee's option, to make 
    payment of premiums (if any) under this part to the organization 
    through--
            ``(A) withholding from benefit payments in the manner 
        provided under section 1840 with respect to monthly premiums 
        under section 1839;
            ``(B) an electronic funds transfer mechanism (such as 
        automatic charges of an account at a financial institution or a 
        credit or debit card account); or
            ``(C) such other means as the Secretary may specify, 
        including payment by an employer or under employment-based 
        retiree health coverage (as defined in section 1860D-22(c)(1)) 
        on behalf of an employee or former employee (or dependent).
    All premium payments that are withheld under subparagraph (A) shall 
    be credited to the appropriate Trust Fund (or Account thereof), as 
    specified by the Secretary, under this title and shall be paid to 
    the MA organization involved. No charge may be imposed under an MA 
    plan with respect to the election of the payment option described 
    in subparagraph (A). The Secretary shall consult with the 
    Commissioner of Social Security and the Secretary of the Treasury 
    regarding methods for allocating premiums withheld under 
    subparagraph (A) among the appropriate Trust Funds and Account.
        ``(3) Information necessary for collection.--In order to carry 
    out paragraph (2)(A) with respect to an enrollee who has elected 
    such paragraph to apply, the Secretary shall transmit to the 
    Commissioner of Social Security--
            ``(A) by the beginning of each year, the name, social 
        security account number, consolidated monthly beneficiary 
        premium described in paragraph (4) owed by such enrollee for 
        each month during the year, and other information determined 
        appropriate by the Secretary, in consultation with the 
        Commissioner of Social Security; and
            ``(B) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.
        ``(4) Consolidated monthly beneficiary premium.--In the case of 
    an enrollee in an MA plan, the Secretary shall provide a mechanism 
    for the consolidation of--
            ``(A) the MA monthly basic beneficiary premium (if any);
            ``(B) the MA monthly supplemental beneficiary premium (if 
        any); and
            ``(C) the MA monthly prescription drug beneficiary premium 
        (if any).''.
    (d) Computation of MA Area-Specific Non-Drug Benchmark.--Section 
1853 (42 U.S.C. 1395w-23) is amended by adding at the end the following 
new subsection:
    ``(j) Computation of Benchmark Amounts.--For purposes of this part, 
the term `MA area-specific non-drug monthly benchmark amount' means for 
a month in a year--
        ``(1) with respect to--
            ``(A) a service area that is entirely within an MA local 
        area, an amount equal to \1/12\ of the annual MA capitation 
        rate under section 1853(c)(1) for the area for the year, 
        adjusted as appropriate for the purpose of risk adjustment; or
            ``(B) a service area that includes more than one MA local 
        area, an amount equal to the average of the amounts described 
        in subparagraph (A) for each such local MA area, weighted by 
        the projected number of enrollees in the plan residing in the 
        respective local MA areas (as used by the plan for purposes of 
        the bid and disclosed to the Secretary under section 
        1854(a)(6)(A)(iii)), adjusted as appropriate for the purpose of 
        risk adjustment; or
        ``(2) with respect to an MA region for a month in a year, the 
    MA region-specific non-drug monthly benchmark amount, as defined in 
    section 1858(f) for the region for the year.''.
    (e) Payment of Plans Based on Bid Amounts.--
        (1) In general.--Section 1853(a)(1) (42 U.S.C. 1395w-23(a)(1)) 
    (42 U.S.C. 1395w-23) is amended--
            (A) by redesignating subparagraph (B) as subparagraph (H); 
        and
            (B) in subparagraph (A), by striking ``in an amount'' and 
        all that follows and inserting the following: ``in an amount 
        determined as follows:
                ``(i) Payment before 2006.--For years before 2006, the 
            payment amount shall be equal to \1/12\ of the annual MA 
            capitation rate (as calculated under subsection (c)(1)) 
            with respect to that individual for that area, adjusted 
            under subparagraph (C) and reduced by the amount of any 
            reduction elected under section 1854(f)(1)(E).
                ``(ii) Payment for original fee-for-service benefits 
            beginning with 2006.--For years beginning with 2006, the 
            amount specified in subparagraph (B).
            ``(B) Payment amount for original fee-for-service benefits 
        beginning with 2006.--
                ``(i) Payment of bid for plans with bids below 
            benchmark.--In the case of a plan for which there are 
            average per capita monthly savings described in section 
            1854(b)(3)(C) or 1854(b)(4)(C), as the case may be, the 
            amount specified in this subparagraph is equal to the 
            unadjusted MA statutory non-drug monthly bid amount, 
            adjusted under subparagraph (C) and (if applicable) under 
            subparagraphs (F) and (G), plus the amount (if any) of any 
            rebate under subparagraph (E).
                ``(ii) Payment of benchmark for plans with bids at or 
            above benchmark.--In the case of a plan for which there are 
            no average per capita monthly savings described in section 
            1854(b)(3)(C) or 1854(b)(4)(C), as the case may be, the 
            amount specified in this subparagraph is equal to the MA 
            area-specific non-drug monthly benchmark amount, adjusted 
            under subparagraph (C) and (if applicable) under 
            subparagraphs (F) and (G).
                ``(iii) Payment of benchmark for msa plans.--
            Notwithstanding clauses (i) and (ii), in the case of an MSA 
            plan, the amount specified in this subparagraph is equal to 
            the MA area-specific non-drug monthly benchmark amount, 
            adjusted under subparagraph (C).
            ``(C) Demographic adjustment, including adjustment for 
        health status.--The Secretary shall adjust the payment amount 
        under subparagraph (A)(i) and the amount specified under 
        subparagraph (B)(i), (B)(ii), and (B)(iii) for such risk 
        factors as age, disability status, gender, institutional 
        status, and such other factors as the Secretary determines to 
        be appropriate, including adjustment for health status under 
        paragraph (3), so as to ensure actuarial equivalence. The 
        Secretary may add to, modify, or substitute for such adjustment 
        factors if such changes will improve the determination of 
        actuarial equivalence.
            ``(D) Separate payment for federal drug subsidies.--In the 
        case of an enrollee in an MA-PD plan, the MA organization 
        offering such plan also receives--
                ``(i) subsidies under section 1860D-15 (other than 
            under subsection (g)); and
                ``(ii) reimbursement for premium and cost-sharing 
            reductions for low-income individuals under section 1860D-
            14(c)(1)(C).
            ``(E) Payment of rebate for plans with bids below 
        benchmark.--In the case of a plan for which there are average 
        per capita monthly savings described in section 1854(b)(3)(C) 
        or 1854(b)(4)(C), as the case may be, the amount specified in 
        this subparagraph is the amount of the monthly rebate computed 
        under section 1854(b)(1)(C)(i) for that plan and year (as 
        reduced by the amount of any credit provided under section 
        1854(b)(1)(C)(iv)).
            ``(F) Adjustment for intra-area variations.--
                ``(i) Intra-regional variations.--In the case of 
            payment with respect to an MA regional plan for an MA 
            region, the Secretary shall also adjust the amounts 
            specified under subparagraphs (B)(i) and (B)(ii) in a 
            manner to take into account variations in MA local payment 
            rates under this part among the different MA local areas 
            included in such region.
                ``(ii) Intra-service area variations.--In the case of 
            payment with respect to an MA local plan for a service area 
            that covers more than one MA local area, the Secretary 
            shall also adjust the amounts specified under subparagraphs 
            (B)(i) and (B)(ii) in a manner to take into account 
            variations in MA local payment rates under this part among 
            the different MA local areas included in such service area.
            ``(G) Adjustment relating to risk adjustment.--The 
        Secretary shall adjust payments with respect to MA plans as 
        necessary to ensure that--
                ``(i) the sum of--

                    ``(I) the monthly payment made under subparagraph 
                (A)(ii); and
                    ``(II) the MA monthly basic beneficiary premium 
                under section 1854(b)(2)(A); equals

                ``(ii) the unadjusted MA statutory non-drug monthly bid 
            amount, adjusted in the manner described in subparagraph 
            (C) and, for an MA regional plan, subparagraph (F).''.
    (f) Conforming Changes to Annual Announcement Process.--Section 
1853(b) (42 U.S.C. 1395w-23(b)(1)) is amended--
        (1) by amending paragraph (1) to read as follows:
        ``(1) Annual announcements.--
            ``(A) For 2005.--The Secretary shall determine, and shall 
        announce (in a manner intended to provide notice to interested 
        parties), not later than the second Monday in May of 2004, with 
        respect to each MA payment area, the following:
                ``(i) MA capitation rates.--The annual MA capitation 
            rate for each MA payment area for 2005.
                ``(ii) Adjustment factors.--The risk and other factors 
            to be used in adjusting such rates under subsection 
            (a)(1)(C) for payments for months in 2005.
            ``(B) For 2006 and subsequent years.--For a year after 
        2005--
                ``(i) Initial announcement.--The Secretary shall 
            determine, and shall announce (in a manner intended to 
            provide notice to interested parties), not later than the 
            first Monday in April before the calendar year concerned, 
            with respect to each MA payment area, the following:

                    ``(I) MA capitation rates; ma local area 
                benchmark.--The annual MA capitation rate for each MA 
                payment area for the year.
                    ``(II) Adjustment factors.--The risk and other 
                factors to be used in adjusting such rates under 
                subsection (a)(1)(C) for payments for months in such 
                year.

                ``(ii) Regional benchmark announcement.--The Secretary 
            shall determine, and shall announce (in a manner intended 
            to provide notice to interested parties), on a timely basis 
            before the calendar year concerned, with respect to each MA 
            region and each MA regional plan for which a bid was 
            submitted under section 1854, the MA region-specific non-
            drug monthly benchmark amount for that region for the year 
            involved.''; and
        (2) in paragraph (3), by striking ``in the announcement'' and 
    all that follows and inserting ``in such announcement.''.
    (g) Other Amendments Relating to Premiums and Bid Amounts.--
        (1) In general.--Section 1854 (42 U.S.C. 1395w-24) is amended--
            (A) by amending the section heading to read as follows:

                      ``premiums and bid amounts'';

            (B) in the heading of subsection (a), by inserting ``, Bid 
        Amounts,'' after ``Premiums'';
            (C) in subsection (a)(2)--
                (i) by inserting ``before 2006'' after ``for 
            coordinated care plans''; and
                (ii) by inserting ``for a year before 2006'' after 
            ``section 1851(a)(2)(A)'';
            (D) in subsection (a)(3), by striking ``described'' and 
        inserting ``for any year'';
            (E) in subsection (a)(4)--
                (i) by inserting ``before 2006'' after ``for private 
            fee-for-service plans''; and
                (ii) by inserting ``for a year before 2006'' after 
            ``section 1852(a)(1)(A)'';
            (F) in subsection (a)(5)(A), by inserting ``paragraphs (2) 
        and (4) of'' after ``filed under'';
            (G) in subsection (a)(5)(B), by inserting after ``paragraph 
        (3) or'' the following: ``, in the case of an MA private fee-
        for-service plan,''; and
            (H) in subsection (b)(1)(A) by striking ``and'' and 
        inserting a comma and by inserting before the period at the end 
        the following: ``, and, if the plan provides qualified 
        prescription drug coverage, the MA monthly prescription drug 
        beneficiary premium''.
        (2) Uniformity.--Section 1854(c) (42 U.S.C. 1395w-24(c)) is 
    amended to read as follows:
    ``(c) Uniform Premium and Bid Amounts.--Except as permitted under 
section 1857(i), the MA monthly bid amount submitted under subsection 
(a)(6), the amounts of the MA monthly basic, prescription drug, and 
supplemental beneficiary premiums, and the MA monthly MSA premium 
charged under subsection (b) of an MA organization under this part may 
not vary among individuals enrolled in the plan.''.
        (3) Premiums.--Section 1854(d)(1) (42 U.S.C. 1395w-24(d)(1)), 
    as amended by subsection (c)(1), is amended by inserting ``, 
    prescription drug,'' after ``basic''.
        (4) Limitation on enrollee liability.--Section 1854(e) (42 
    U.S.C. 1395w-24(e)) is amended--
            (A) in paragraph (1), by striking ``.--In'' and inserting 
        ``before 2006.--For periods before 2006, in'';
            (B) in paragraph (2), by striking ``.--If'' and insert 
        ``before 2006.--For periods before 2006, if'';
            (C) in paragraph (3), by striking ``or (2)'' and inserting 
        ``, (2), or (4)''; and
            (D) in paragraph (4)--
                (i) by inserting ``and for basic benefits beginning in 
            2006'' after ``plans'';
                (ii) in the matter before subparagraph (A), by 
            inserting ``and for periods beginning with 2006, with 
            respect to an MA plan described in section 1851(a)(2)(A)'' 
            after ``MSA plan)'';
                (iii) in subparagraph (A), by striking ``required 
            benefits described in section 1852(a)(1)'' and inserting 
            ``benefits under the original medicare fee-for-service 
            program option''; and
                (iv) in subparagraph (B), by inserting ``with respect 
            to such benefits'' after ``would be applicable''.
        (5) Modification of acr process.--Section 1854(f) (42 U.S.C. 
    1395w-24(f)) is amended--
            (A) in the heading, by inserting ``Before 2006'' after 
        ``Additional Benefits''; and
            (B) in paragraph (1)(A), by striking ``Each'' and inserting 
        ``For years before 2006, each''.
    (h) Plan Incentives.--Section 1852(j)(4) (42 U.S.C. 1395w-22(j)(4)) 
is amended--
        (1) by inserting ``the organization provides assurances 
    satisfactory to the Secretary that'' after ``unless'';
        (2) in clause (ii)--
            (A) by striking ``the organization--'' and all that follows 
        through ``(I) provides'' and inserting ``the organization 
        provides'';
            (B) by striking ``, and'' and inserting a period; and
            (C) by striking subclause (II); and
        (3) by striking clause (iii).
    (i) Continuation of Treatment of Enrollees With End-Stage Renal 
Disease.--Section 1853(a)(1)(H), as redesignated under subsection 
(d)(1)(A), is amended--
        (1) by amending the second sentence to read as follows: ``Such 
    rates of payment shall be actuarially equivalent to rates that 
    would have been paid with respect to other enrollees in the MA 
    payment area (or such other area as specified by the Secretary) 
    under the provisions of this section as in effect before the date 
    of the enactment of the Medicare Prescription Drug, Improvement, 
    and Modernization Act of 2003.''; and
        (2) by adding at the end the following new sentence: ``The 
    Secretary may apply the competitive bidding methodology provided 
    for in this section, with appropriate adjustments to account for 
    the risk adjustment methodology applied to end stage renal disease 
    payments.''.
    (j) Facilitation of Employer Sponsorship of MA Plans.--Section 
1857(i) (42 U.S.C. 1395w-27(i)) is amended--
        (1) by designating the matter following the heading as a 
    paragraph (1) with the heading ``Contracts with ma organizations.--
    '' and appropriate indentation; and
        (2) by adding at the end the following new paragraph:
        ``(2) Employer sponsored ma plans.--To facilitate the offering 
    of MA plans by employers, labor organizations, or the trustees of a 
    fund established by one or more employers or labor organizations 
    (or combination thereof) to furnish benefits to the entity's 
    employees, former employees (or combination thereof) or members or 
    former members (or combination thereof) of the labor organizations, 
    the Secretary may waive or modify requirements that hinder the 
    design of, the offering of, or the enrollment in such MA plans. 
    Notwithstanding section 1851(g), an MA plan described in the 
    previous sentence may restrict the enrollment of individuals under 
    this part to individuals who are beneficiaries and participants in 
    such plan.''.
    (k) Expansion of Medicare Beneficiary Education and Information 
Campaign.--Section 1857(e)(2) (42 U.S.C. 1395w-27(e)(2)) is amended--
        (1) in subparagraph (A) by inserting ``and a PDP sponsor under 
    part D'' after ``organization'';
        (2) in subparagraph (B)--
            (A) by inserting ``and each PDP sponsor with a contract 
        under part D'' after ``contract under this part'';
            (B) by inserting ``or sponsor's'' after ``organization's''; 
        and
            (C) by inserting ``, section 1860D-1(c),'' after 
        ``information)'';
        (3) in subparagraph (C)--
            (A) by inserting ``and ending with fiscal year 2005'' after 
        ``beginning with fiscal year 2001'';
            (B) by inserting ``and for each fiscal year beginning with 
        fiscal year 2006 an amount equal to $200,000,000,'' after 
        ``$100,000,000,''; and
            (C) by inserting ``and section 1860D-12(b)(3)(D)'' after 
        ``under this paragraph'';
        (4) in subparagraph (D)--
            (A) in clause (i) by inserting ``and section 1860D-1(c)'' 
        after ``section 1851'';
            (B) in clause (ii)(III), by striking ``and'' at the end of 
        subclause (III);
            (C) in clause (ii)(IV), by striking ``each succeeding 
        fiscal year.'' and inserting ``each succeeding fiscal year 
        before fiscal year 2006; and''; and
            (D) in clause (ii), by adding at the end the following new 
        subclause:
                ``(V) the applicable portion (as defined in 
            subparagraph (F)) of $200,000,000 in fiscal year 2006 and 
            each succeeding fiscal year.''; and
        (5) by adding at the end the following new subparagraph:
            ``(F) Applicable portion defined.--In this paragraph, the 
        term `applicable portion' means, for a fiscal year--
                ``(i) with respect to MA organizations, the Secretary's 
            estimate of the total proportion of expenditures under this 
            title that are attributable to expenditures made under this 
            part (including payments under part D that are made to such 
            organizations); or
                ``(ii) with respect to PDP sponsors, the Secretary's 
            estimate of the total proportion of expenditures under this 
            title that are attributable to expenditures made to such 
            sponsors under part D.''.
    (l) Conforming Amendments.--
        (1) Protection against beneficiary selection.--Section 
    1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is amended by adding at 
    the end the following: ``The Secretary shall not approve a plan of 
    an organization if the Secretary determines that the design of the 
    plan and its benefits are likely to substantially discourage 
    enrollment by certain MA eligible individuals with the 
    organization.''.
        (2) Relating to rebates.--
            (A) Section 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is amended 
        by striking ``80 percent of any reduction elected under section 
        1854(f)(1)(E)'' and inserting ``any credit provided under 
        section 1854(b)(1)(C)(ii)(III)''.
            (B) The first sentence of section 1840(i) (42 U.S.C. 
        1395s(i)) is amended by inserting ``and to reflect any credit 
        provided under section 1854(b)(1)(C)(iv)'' after ``section 
        1854(f)(1)(E)''.
            (C) Section 1844(c) (42 U.S.C. 1395w(c)) is amended by 
        inserting ``or any credits provided under section 
        1854(b)(1)(C)(iv)'' after ``section 1854(f)(1)(E)''.
        (3) Other conforming and technical amendments.--
            (A) Section 1851(b)(1) (42 U.S.C. 1395w-21(b)(1)) is 
        amended--
                (i) in subparagraph (B), by striking ``a plan'' and 
            inserting ``an MA local plan'';
                (ii) in subparagraph (B), by striking ``basic benefits 
            described in section 1852(a)(1)(A)'' and inserting 
            ``benefits under the original medicare fee-for-service 
            program option''; and
                (iii) in subparagraph (C), by striking ``in a 
            Medicare+Choice plan'' and inserting ``in an MA local 
            plan''.
            (B) Section 1851(d) (42 U.S.C. 1395w-21(d)) is amended--
                (i) in paragraph (3), by adding at the end the 
            following new subparagraph:
            ``(F) Catastrophic coverage and single deductible.--In the 
        case of an MA regional plan, a description of the catastrophic 
        coverage and single deductible applicable under the plan.'';
                (ii) in paragraph (4)(A)(ii), by inserting ``, 
            including information on the single deductible (if 
            applicable) under section 1858(b)(1)'' after ``cost 
            sharing'';
                (iii) in paragraph (4)(B)(i), by striking 
            ``Medicare+Choice monthly basic'' and all that follows and 
            inserting ``monthly amount of the premium charged to an 
            individual.''; and
                (iv) by amending subparagraph (E) of subsection (d)(4) 
            to read as follows:
            ``(E) Supplemental benefits.--Supplemental health care 
        benefits, including any reductions in cost-sharing under 
        section 1852(a)(3) and the terms and conditions (including 
        premiums) for such benefits.''.
            (C) Section 1857(d)(1) (42 U.S.C. 1395w-27(d)(1)) is 
        amended by striking ``, costs, and computation of the adjusted 
        community rate'' and inserting ``and costs, including allowable 
        costs under section 1858(c)''.
            (D) Section 1851(a)(3)(B)(ii) (42 U.S.C. 1395w-
        21(a)(3)(B)(ii)) is amended by striking ``section 
        1851(e)(4)(A)'' and inserting ``subsection (e)(4)(A)''.
            (E) Section 1851(f)(1) (42 U.S.C. 1395w-21(f)(1)) is 
        amended by striking ``subsection (e)(1)(A)'' and inserting 
        ``subsection (e)(1)''.

SEC. 223. EFFECTIVE DATE.

    (a) Effective Date.--The amendments made by this subtitle shall 
apply with respect to plan years beginning on or after January 1, 2006.
    (b) Issuance of Regulations.--The Secretary shall revise the 
regulations previously promulgated to carry out part C of title XVIII 
of the Social Security Act to carry out the provisions of this Act.

                     Subtitle D--Additional Reforms

SEC. 231. SPECIALIZED MA PLANS FOR SPECIAL NEEDS INDIVIDUALS.

    (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42 
U.S.C. 1395w-21(a)(2)(A)), as amended by section 221(a), is amended by 
adding at the end the following new clause:
                ``(ii) Specialized ma plans for special needs 
            individuals.--Specialized MA plans for special needs 
            individuals (as defined in section 1859(b)(6)) may be any 
            type of coordinated care plan.''.
    (b) Specialized MA Plan for Special Needs Individuals Defined.--
Section 1859(b) (42 U.S.C. 1395w-29(b)), as amended by section 221(b), 
is amended by adding at the end the following new paragraph:
        ``(6) Specialized ma plans for special needs individuals.--
            ``(A) In general.--The term `specialized MA plan for 
        special needs individuals' means an MA plan that exclusively 
        serves special needs individuals (as defined in subparagraph 
        (B)).
            ``(B) Special needs individual.--The term `special needs 
        individual' means an MA eligible individual who--
                ``(i) is institutionalized (as defined by the 
            Secretary);
                ``(ii) is entitled to medical assistance under a State 
            plan under title XIX; or
                ``(iii) meets such requirements as the Secretary may 
            determine would benefit from enrollment in such a 
            specialized MA plan described in subparagraph (A) for 
            individuals with severe or disabling chronic conditions.
        The Secretary may waive application of section 1851(a)(3)(B) in 
        the case of an individual described in clause (i), (ii), or 
        (iii) of this subparagraph and may apply rules similar to the 
        rules of section 1894(c)(4) for continued eligibility of 
        special needs individuals.''.
    (c) Restriction on Enrollment Permitted.--Section 1859 (42 U.S.C. 
1395w-29) is amended by adding at the end the following new subsection:
    ``(f) Restriction on Enrollment for Specialized MA Plans for 
Special Needs Individuals.--In the case of a specialized MA plan for 
special needs individuals (as defined in subsection (b)(6)), 
notwithstanding any other provision of this part and in accordance with 
regulations of the Secretary and for periods before January 1, 2009, 
the plan may restrict the enrollment of individuals under the plan to 
individuals who are within one or more classes of special needs 
individuals.''.
    (d) Authority To Designate Other Plans as Specialized MA Plans.--In 
promulgating regulations to carry out section 1851(a)(2)(A)(ii) of the 
Social Security Act (as added by subsection (a)) and section 1859(b)(6) 
of such Act (as added by subsection (b)), the Secretary may provide 
(notwithstanding section 1859(b)(6)(A) of such Act) for the offering of 
specialized MA plans for special needs individuals by MA plans that 
disproportionately serve special needs individuals.
    (e) Report to Congress.--Not later than December 31, 2007, the 
Secretary shall submit to Congress a report that assesses the impact of 
specialized MA plans for special needs individuals on the cost and 
quality of services provided to enrollees. Such report shall include an 
assessment of the costs and savings to the medicare program as a result 
of amendments made by subsections (a), (b), and (c).
    (f) Effective Dates.--
        (1) In general.--The amendments made by subsections (a), (b), 
    and (c) shall take effect upon the date of the enactment of this 
    Act.
        (2) Deadline for issuance of requirements for special needs 
    individuals; transition.--No later than 1 year after the date of 
    the enactment of this Act, the Secretary shall issue final 
    regulations to establish requirements for special needs individuals 
    under section 1859(b)(6)(B)(iii) of the Social Security Act, as 
    added by subsection (b).

SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION.

    (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-26(b)(3)) is 
amended to read as follows:
        ``(3) Relation to state laws.--The standards established under 
    this part shall supersede any State law or regulation (other than 
    State licensing laws or State laws relating to plan solvency) with 
    respect to MA plans which are offered by MA organizations under 
    this part.''.
    (b) Conforming Amendment.--Section 1854(g) (42 U.S.C. 1395w-24(g)) 
is amended by inserting ``or premiums paid to such organizations under 
this part'' after ``section 1853''.
    (c) Effective Date.--The amendments made by this subsection shall 
take effect on the date of the enactment of this Act.

SEC. 233. MEDICARE MSAS.

    (a) Exemption From Reporting Requirement.--
        (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-22(e)(1)) 
    is amended by inserting ``(other than MSA plans)'' after ``plans''.
        (2) Conforming amendments.--Section 1852 (42 U.S.C. 1395w-22) 
    is amended--
            (A) in subsection (c)(1)(I), by inserting before the period 
        at the end the following: ``, if required under such section'';
            (B) in subsection (e)(2)(A), by striking ``, a non-network 
        MSA plan,''; and
            (C) in subsection (e)(2)(B), by striking ``, non-network 
        msa plans,'' and ``, a non-network MSA plan,''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply on and after the date of the enactment of this Act but 
    shall not apply to contract years beginning on or after January 1, 
    2006.
    (b) Making Program Permanent and Eliminating Cap.--Section 
1851(b)(4) (42 U.S.C. 1395w-21(b)(4)) is amended--
        (1) in the heading, by striking ``on a demonstration basis'';
        (2) by striking the first sentence of subparagraph (A); and
        (3) by striking the second sentence of subparagraph (C).
    (c) Applying Limitations on Balance Billing.--Section 1852(k)(1) 
(42 U.S.C. 1395w-22(k)(1)) is amended by inserting ``or with an 
organization offering an MSA plan'' after ``section 1851(a)(2)(A)''.
    (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 1395w-
21(e)(5)(A)) is amended--
        (1) by adding ``or'' at the end of clause (i);
        (2) by striking ``, or'' at the end of clause (ii) and 
    inserting a semicolon; and
        (3) by striking clause (iii).

SEC. 234. EXTENSION OF REASONABLE COST CONTRACTS.

    Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 1395mm(h)(5)) is 
amended to read as follows:
    ``(C)(i) Subject to clause (ii), a reasonable cost reimbursement 
contract under this subsection may be extended or renewed indefinitely.
    ``(ii) For any period beginning on or after January 1, 2008, a 
reasonable cost reimbursement contract under this subsection may not be 
extended or renewed for a service area insofar as such area during the 
entire previous year was within the service area of--
        ``(I) 2 or more MA regional plans described in clause (iii); or
        ``(II) 2 or more MA local plans described in clause (iii).
    ``(iii) A plan described in this clause for a year for a service 
area is a plan described in section 1851(a)(2)(A)(i) if the service 
area for the year meets the following minimum enrollment requirements:
        ``(I) With respect to any portion of the area involved that is 
    within a Metropolitan Statistical Area with a population of more 
    than 250,000 and counties contiguous to such Metropolitan 
    Statistical Area, 5,000 individuals.
        ``(II) With respect to any other portion of such area, 1,500 
    individuals.''.

SEC. 235. TWO-YEAR EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION 
              PROJECTS.

    The last sentence of section 9215(a) of the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (42 U.S.C. 1395b-1 note), as amended 
by section 6135 of the Omnibus Budget Reconciliation Act of 1989, 
section 13557 of the Omnibus Budget Reconciliation Act of 1993, section 
4017 of BBA, section 534 of BBRA (113 Stat. 1501A-390), and section 633 
of BIPA, is amended by striking ``December 31, 2004'' and inserting 
``December 31, 2006''.

SEC. 236. PAYMENT BY PACE PROVIDERS FOR MEDICARE AND MEDICAID SERVICES 
              FURNISHED BY NONCONTRACT PROVIDERS.

    (a) Medicare Services.--
        (1) Medicare services furnished by providers of services.--
    Section 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is amended--
            (A) by striking ``part C or'' and inserting ``part C, with 
        a PACE provider under section 1894 or 1934, or'';
            (B) by striking ``(i)'';
            (C) by striking ``and (ii)'';
            (D) by inserting ``(or, in the case of a PACE provider, 
        contract or other agreement)'' after ``have a contract''; and
            (E) by striking ``members of the organization'' and 
        inserting ``members of the organization or PACE program 
        eligible individuals enrolled with the PACE provider,''.
        (2) Medicare services furnished by physicians and other 
    entities.--Section 1894(b) (42 U.S.C. 1395eee(b)) is amended by 
    adding at the end the following new paragraphs:
        ``(3) Treatment of medicare services furnished by noncontract 
    physicians and other entities.--
            ``(A) Application of medicare advantage requirement with 
        respect to medicare services furnished by noncontract 
        physicians and other entities.--Section 1852(k)(1) (relating to 
        limitations on balance billing against MA organizations for 
        noncontract physicians and other entities with respect to 
        services covered under this title) shall apply to PACE 
        providers, PACE program eligible individuals enrolled with such 
        PACE providers, and physicians and other entities that do not 
        have a contract or other agreement establishing payment amounts 
        for services furnished to such an individual in the same manner 
        as such section applies to MA organizations, individuals 
        enrolled with such organizations, and physicians and other 
        entities referred to in such section.
            ``(B) Reference to related provision for noncontract 
        providers of services.--For the provision relating to 
        limitations on balance billing against PACE providers for 
        services covered under this title furnished by noncontract 
        providers of services, see section 1866(a)(1)(O).
        ``(4) Reference to related provision for services covered under 
    title xix but not under this title.--For provisions relating to 
    limitations on payments to providers participating under the State 
    plan under title XIX that do not have a contract or other agreement 
    with a PACE provider establishing payment amounts for services 
    covered under such plan (but not under this title) when such 
    services are furnished to enrollees of that PACE provider, see 
    section 1902(a)(66).''.
    (b) Medicaid Services.--
        (1) Requirement under state plan.--Section 1902(a) (42 U.S.C. 
    1396a(a)), as amended by section 103(a), is amended--
            (A) in paragraph (65), by striking ``and'' at the end;
            (B) in paragraph (66), by striking the period at the end 
        and inserting ``; and''; and
            (C) by inserting after paragraph (66) the following new 
        paragraph:
        ``(67) provide, with respect to services covered under the 
    State plan (but not under title XVIII) that are furnished to a PACE 
    program eligible individual enrolled with a PACE provider by a 
    provider participating under the State plan that does not have a 
    contract or other agreement with the PACE provider that establishes 
    payment amounts for such services, that such participating provider 
    may not require the PACE provider to pay the participating provider 
    an amount greater than the amount that would otherwise be payable 
    for the service to the participating provider under the State plan 
    for the State where the PACE provider is located (in accordance 
    with regulations issued by the Secretary).''.
        (2) Application under medicaid.--Section 1934(b) (42 U.S.C. 
    1396u-4(b)) is amended by adding at the end the following new 
    paragraphs:
        ``(3) Treatment of medicare services furnished by noncontract 
    physicians and other entities.--
            ``(A) Application of medicare advantage requirement with 
        respect to medicare services furnished by noncontract 
        physicians and other entities.--Section 1852(k)(1) (relating to 
        limitations on balance billing against MA organizations for 
        noncontract physicians and other entities with respect to 
        services covered under title XVIII) shall apply to PACE 
        providers, PACE program eligible individuals enrolled with such 
        PACE providers, and physicians and other entities that do not 
        have a contract or other agreement establishing payment amounts 
        for services furnished to such an individual in the same manner 
        as such section applies to MA organizations, individuals 
        enrolled with such organizations, and physicians and other 
        entities referred to in such section.
            ``(B) Reference to related provision for noncontract 
        providers of services.--For the provision relating to 
        limitations on balance billing against PACE providers for 
        services covered under title XVIII furnished by noncontract 
        providers of services, see section 1866(a)(1)(O).
        ``(4) Reference to related provision for services covered under 
    this title but not under title xviii.--For provisions relating to 
    limitations on payments to providers participating under the State 
    plan under this title that do not have a contract or other 
    agreement with a PACE provider establishing payment amounts for 
    services covered under such plan (but not under title XVIII) when 
    such services are furnished to enrollees of that PACE provider, see 
    section 1902(a)(67).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 2004.

SEC. 237. REIMBURSEMENT FOR FEDERALLY QUALIFIED HEALTH CENTERS 
              PROVIDING SERVICES UNDER MA PLANS.

    (a) Reimbursement.--Section 1833(a)(3) (42 U.S.C. 1395l(a)(3)) is 
amended to read as follows:
        ``(3) in the case of services described in section 
    1832(a)(2)(D)--
            ``(A) except as provided in subparagraph (B), the costs 
        which are reasonable and related to the cost of furnishing such 
        services or which are based on such other tests of 
        reasonableness as the Secretary may prescribe in regulations, 
        including those authorized under section 1861(v)(1)(A), less 
        the amount a provider may charge as described in clause (ii) of 
        section 1866(a)(2)(A), but in no case may the payment for such 
        services (other than for items and services described in 
        section 1861(s)(10)(A)) exceed 80 percent of such costs; or
            ``(B) with respect to the services described in clause (ii) 
        of section 1832(a)(2)(D) that are furnished to an individual 
        enrolled with a MA plan under part C pursuant to a written 
        agreement described in section 1853(a)(4), the amount (if any) 
        by which--
                ``(i) the amount of payment that would have otherwise 
            been provided under subparagraph (A) (calculated as if `100 
            percent' were substituted for `80 percent' in such 
            subparagraph) for such services if the individual had not 
            been so enrolled; exceeds
                ``(ii) the amount of the payments received under such 
            written agreement for such services (not including any 
            financial incentives provided for in such agreement such as 
            risk pool payments, bonuses, or withholds),
        less the amount the federally qualified health center may 
        charge as described in section 1857(e)(3)(B);''.
    (b) Continuation of Monthly Payments.--
        (1) In general.--Section 1853(a) (42 U.S.C. 1395w-23(a)) is 
    amended by adding at the end the following new paragraph:
        ``(4) Payment rule for federally qualified health center 
    services.--If an individual who is enrolled with an MA plan under 
    this part receives a service from a federally qualified health 
    center that has a written agreement with the MA organization that 
    offers such plan for providing such a service (including any 
    agreement required under section 1857(e)(3))--
            ``(A) the Secretary shall pay the amount determined under 
        section 1833(a)(3)(B) directly to the federally qualified 
        health center not less frequently than quarterly; and
            ``(B) the Secretary shall not reduce the amount of the 
        monthly payments under this subsection as a result of the 
        application of subparagraph (A).''.
        (2) Conforming amendments.--
            (A) Section 1851(i) (42 U.S.C. 1395w-21(i)) is amended--
                (i) in paragraph (1), by inserting ``1853(a)(4),'' 
            after ``Subject to sections 1852(a)(5),''; and
                (ii) in paragraph (2), by inserting ``1853(a)(4),'' 
            after ``Subject to sections''.
            (B) Section 1853(c)(5) is amended by striking ``subsections 
        (a)(3)(C)(iii) and (i)'' and inserting ``subsections 
        (a)(3)(C)(iii), (a)(4), and (i)''.
    (c) Additional Contract Requirements.--Section 1857(e) (42 U.S.C. 
1395w-27(e)) is amended by adding at the end the following new 
paragraph:
        ``(3) Agreements with federally qualified health centers.--
            ``(A) Payment levels and amounts.--A contract under this 
        section with an MA organization shall require the organization 
        to provide, in any written agreement described in section 
        1853(a)(4) between the organization and a federally qualified 
        health center, for a level and amount of payment to the 
        federally qualified health center for services provided by such 
        health center that is not less than the level and amount of 
        payment that the plan would make for such services if the 
        services had been furnished by a entity providing similar 
        services that was not a federally qualified health center.
            ``(B) Cost-sharing.--Under the written agreement referred 
        to in subparagraph (A), a federally qualified health center 
        must accept the payment amount referred to in such subparagraph 
        plus the Federal payment provided for in section 1833(a)(3)(B) 
        as payment in full for services covered by the agreement, 
        except that such a health center may collect any amount of 
        cost-sharing permitted under the contract under this section, 
        so long as the amounts of any deductible, coinsurance, or 
        copayment comply with the requirements under section 
        1854(e).''.
    (d) Safe Harbor.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)), 
as amended by section 101(f)(2), is amended--
        (1) in subparagraph (F), by striking ``and'' after the 
    semicolon at the end;
        (2) in subparagraph (G), by striking the period at the end and 
    inserting ``; and''; and
        (3) by adding at the end the following new subparagraph:
            ``(H) any remuneration between a federally qualified health 
        center (or an entity controlled by such a health center) and an 
        MA organization pursuant to a written agreement described in 
        section 1853(a)(4).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to services provided on or after January 1, 2006, and contract 
years beginning on or after such date.

SEC. 238. INSTITUTE OF MEDICINE EVALUATION AND REPORT ON HEALTH CARE 
              PERFORMANCE MEASURES.

    (a) Evaluation.--
        (1) In general.--Not later than the date that is 2 months after 
    the date of the enactment of this Act, the Secretary shall enter 
    into an arrangement under which the Institute of Medicine of the 
    National Academy of Sciences (in this section referred to as the 
    ``Institute'') shall conduct an evaluation of leading health care 
    performance measures in the public and private sectors and options 
    to implement policies that align performance with payment under the 
    medicare program under title XVIII of the Social Security Act (42 
    U.S.C. 1395 et seq.).
        (2) Specific matters evaluated.--In conducting the evaluation 
    under paragraph (1), the Institute shall--
            (A) catalogue, review, and evaluate the validity of leading 
        health care performance measures;
            (B) catalogue and evaluate the success and utility of 
        alternative performance incentive programs in public or private 
        sector settings; and
            (C) identify and prioritize options to implement policies 
        that align performance with payment under the medicare program 
        that indicate--
                (i) the performance measurement set to be used and how 
            that measurement set will be updated;
                (ii) the payment policy that will reward performance; 
            and
                (iii) the key implementation issues (such as data and 
            information technology requirements) that must be 
            addressed.
        (3) Scope of health care performance measures.--The health care 
    performance measures described in paragraph (2)(A) shall encompass 
    a variety of perspectives, including physicians, hospitals, other 
    health care providers, health plans, purchasers, and patients.
        (4) Consultation with medpac.--In evaluating the matters 
    described in paragraph (2)(C), the Institute shall consult with the 
    Medicare Payment Advisory Commission established under section 1805 
    of the Social Security Act (42 U.S.C. 1395b-6).
    (b) Report.--Not later than the date that is 18 months after the 
date of enactment of this Act, the Institute shall submit to the 
Secretary and appropriate committees of jurisdiction of the Senate and 
House of Representatives a report on the evaluation conducted under 
subsection (a)(1) describing the findings of such evaluation and 
recommendations for an overall strategy and approach for aligning 
payment with performance, including options for updating performance 
measures, in the original medicare fee-for-service program under parts 
A and B of title XVIII of the Social Security Act, the Medicare 
Advantage program under part C of such title, and any other programs 
under such title XVIII.
    (c) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary for purposes of conducting 
the evaluation and preparing the report required by this section.

         Subtitle E--Comparative Cost Adjustment (CCA) Program

SEC. 241. COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM.

    (a) In General.--Part C of title XVIII is amended by adding at the 
end the following new section:

               ``comparative cost adjustment (cca) program

    ``Sec. 1860C-1. (a) Establishment of Program.--
        ``(1) In general.--The Secretary shall establish a program 
    under this section (in this section referred to as the `CCA 
    program') for the application of comparative cost adjustment in CCA 
    areas selected under this section.
        ``(2) Duration.--The CCA program shall begin January 1, 2010, 
    and shall extend over a period of 6 years, and end on December 31, 
    2015.
        ``(3) Report.--Upon the completion of the CCA program, the 
    Secretary shall submit a report to Congress. Such report shall 
    include the following, with respect to both this part and the 
    original medicare fee-for-service program:
            ``(A) An evaluation of the financial impact of the CCA 
        program.
            ``(B) An evaluation of changes in access to physicians and 
        other health care providers.
            ``(C) Beneficiary satisfaction.
            ``(D) Recommendations regarding any extension or expansion 
        of the CCA program.
    ``(b) Requirements for Selection of CCA Areas.--
        ``(1) CCA area defined.--
            ``(A) In general.--For purposes of this section, the term 
        `CCA area' means an MSA that meets the requirements of 
        paragraph (2) and is selected by the Secretary under subsection 
        (c).
            ``(B) MSA defined.--For purposes of this section, the term 
        `MSA' means a Metropolitan Statistical Area (or such similar 
        area as the Secretary recognizes).
        ``(2) Requirements for cca areas.--The requirements of this 
    paragraph for an MSA to be a CCA area are as follows:
            ``(A) MA enrollment requirement.--For the reference month 
        (as defined under section 1858(f)(4)(B)) with respect to 2010, 
        at least 25 percent of the total number of MA eligible 
        individuals who reside in the MSA were enrolled in an MA local 
        plan described in section 1851(a)(2)(A)(i).
            ``(B) 2 plan requirement.--There will be offered in the MSA 
        during the annual, coordinated election period under section 
        1851(e)(3)(B) before the beginning of 2010 at least 2 MA local 
        plans described in section 1851(a)(2)(A)(i) (in addition to the 
        fee-for-service program under parts A and B), each offered by a 
        different MA organization and each of which met the minimum 
        enrollment requirements of paragraph (1) of section 1857(b) (as 
        applied without regard to paragraph (3) thereof) as of the 
        reference month.
    ``(c) Selection of CCA Areas.--
        ``(1) General selection criteria.--The Secretary shall select 
    CCA areas from among those MSAs qualifying under subsection (b) in 
    a manner that--
            ``(A) seeks to maximize the opportunity to test the 
        application of comparative cost adjustment under this title;
            ``(B) does not seek to maximize the number of MA eligible 
        individuals who reside in such areas; and
            ``(C) provides for geographic diversity consistent with the 
        criteria specified in paragraph (2).
        ``(2) Selection criteria.--With respect to the selection of 
    MSAs that qualify to be CCA areas under subsection (b), the 
    following rules apply, to the maximum extent feasible:
            ``(A) Maximum number.--The number of such MSAs selected may 
        not exceed the lesser of (i) 6, or (ii) 25 percent of the 
        number of MSAs that meet the requirement of subsection 
        (b)(2)(A).
            ``(B) One of 4 largest areas by population.--At least one 
        such qualifying MSA shall be selected from among the 4 such 
        qualifying MSAs with the largest total population of MA 
        eligible individuals.
            ``(C) One of 4 areas with lowest population density.--At 
        least one such qualifying MSA shall be selected from among the 
        4 such qualifying MSAs with the lowest population density (as 
        measured by residents per square mile or similar measure of 
        density).
            ``(D) Multistate area.--At least one such qualifying MSA 
        shall be selected that includes a multi-State area. Such an MSA 
        may be an MSA described in subparagraph (B) or (C).
            ``(E) Limitation within same geographic region.--No more 
        than 2 such MSAs shall be selected that are, in whole or in 
        part, within the same geographic region (as specified by the 
        Secretary) of the United States.
            ``(F) Priority to areas not within certain demonstration 
        projects.--Priority shall be provided for those qualifying MSAs 
        that do not have a demonstration project in effect as of the 
        date of the enactment of this section for medicare preferred 
        provider organization plans under this part.
    ``(d) Application of Comparative Cost Adjustment.--
        ``(1) In general.--In the case of a CCA area for a year--
            ``(A) for purposes of applying this part with respect to 
        payment for MA local plans, any reference to an MA area-
        specific non-drug monthly benchmark amount shall be treated as 
        a reference to such benchmark computed as if the CCA area-
        specific non-drug monthly benchmark amount (as defined in 
        subsection (e)(1)) were substituted for the amount described in 
        section 1853(j)(1)(A) for the CCA area and year involved, as 
        phased in under paragraph (3); and
            ``(B) with respect to months in the year for individuals 
        residing in the CCA area who are not enrolled in an MA plan, 
        the amount of the monthly premium under section 1839 is subject 
        to adjustment under subsection (f).
        ``(2) Exclusion of ma local areas with fewer than 2 
    organizations offering ma plans.--
            ``(A) In general.--In no case shall an MA local area that 
        is within an MSA be included as part of a CCA area unless for 
        2010 (and, except as provided in subparagraph (B), for a 
        subsequent year) there is offered in each part of such MA local 
        area at least 2 MA local plans described in section 
        1851(a)(2)(A)(i) each of which is offered by a different MA 
        organization.
            ``(B) Continuation.--If an MA local area meets the 
        requirement of subparagraph (A) and is included in a CCA area 
        for 2010, such local area shall continue to be included in such 
        CCA area for a subsequent year notwithstanding that it no 
        longer meets such requirement so long as there is at least one 
        MA local plan described in section 1851(a)(2)(A)(i) that is 
        offered in such local area.
        ``(3) Phase-in of cca benchmark.--
            ``(A) In general.--In applying this section for a year 
        before 2013, paragraph (1)(A) shall be applied as if the phase-
        in fraction under subparagraph (B) of the CCA non-drug monthly 
        benchmark amount for the year were substituted for such 
        fraction of the MA area-specific non-drug monthly benchmark 
        amount.
            ``(B) Phase-in fraction.--The phase-in fraction under this 
        subparagraph is--
                ``(i) for 2010 \1/4\; and
                ``(ii) for a subsequent year is the phase-in fraction 
            under this subparagraph for the previous year increased by 
            \1/4\, but in no case more than 1.
    ``(e) Computation of CCA Benchmark Amount.--
        ``(1) CCA non-drug monthly benchmark amount.--For purposes of 
    this section, the term `CCA non-drug monthly benchmark amount' 
    means, with respect to a CCA area for a month in a year, the sum of 
    the 2 components described in paragraph (2) for the area and year. 
    The Secretary shall compute such benchmark amount for each such CCA 
    area before the beginning of each annual, coordinated election 
    period under section 1851(e)(3)(B) for each year (beginning with 
    2010) in which the CCA area is so selected.
        ``(2) 2 components.--For purposes of paragraph (1), the 2 
    components described in this paragraph for a CCA area and a year 
    are the following:
            ``(A) MA local component.--The product of the following:
                ``(i) Weighted average of medicare advantage plan bids 
            in area.--The weighted average of the plan bids for the 
            area and year (as determined under paragraph (3)(A)).
                ``(ii) Non-ffs market share.--One minus the fee-for-
            service market share percentage, determined under paragraph 
            (4) for the area and year.
            ``(B) Fee-for-service component.--The product of the 
        following:
                ``(i) Fee-for-service area-specific non-drug amount.--
            The fee-for-service area-specific non-drug amount (as 
            defined in paragraph (5)) for the area and year.
                ``(ii) Fee-for-service market share.--The fee-for-
            service market share percentage, determined under paragraph 
            (4) for the area and year.
        ``(3) Determination of weighted average ma bids for a cca 
    area.--
            ``(A) In general.--For purposes of paragraph (2)(A)(i), the 
        weighted average of plan bids for a CCA area and a year is, 
        subject to subparagraph (D), the sum of the following products 
        for MA local plans described in subparagraph (C) in the area 
        and year:
                ``(i) Monthly medicare advantage statutory non-drug bid 
            amount.--The accepted unadjusted MA statutory non-drug 
            monthly bid amount.
                ``(ii) Plan's share of medicare advantage enrollment in 
            area.--The number of individuals described in subparagraph 
            (B), divided by the total number of such individuals for 
            all MA plans described in subparagraph (C) for that area 
            and year.
            ``(B) Counting of individuals.--The Secretary shall count, 
        for each MA local plan described in subparagraph (C) for an 
        area and year, the number of individuals who reside in the area 
        and who were enrolled under such plan under this part during 
        the reference month for that year.
            ``(C) Exclusion of plans not offered in previous year.--For 
        an area and year, the MA local plans described in this 
        subparagraph are MA local plans described in section 
        1851(a)(2)(A)(i) that are offered in the area and year and were 
        offered in the CCA area in the reference month.
            ``(D) Computation of weighted average of plan bids.--In 
        calculating the weighted average of plan bids for a CCA area 
        under subparagraph (A)--
                ``(i) in the case of an MA local plan that has a 
            service area only part of which is within such CCA area, 
            the MA organization offering such plan shall submit a 
            separate bid for such plan for the portion within such CCA 
            area; and
                ``(ii) the Secretary shall adjust such separate bid 
            (or, in the case of an MA local plan that has a service 
            area entirely within such CCA area, the plan bid) as may be 
            necessary to take into account differences between the 
            service area of such plan within the CCA area and the 
            entire CCA area and the distribution of plan enrollees of 
            all MA local plans offered within the CCA area.
        ``(4) Computation of fee-for-service market share percentage.--
    The Secretary shall determine, for a year and a CCA area, the 
    proportion (in this subsection referred to as the `fee-for-service 
    market share percentage') equal to--
            ``(A) the total number of MA eligible individuals residing 
        in such area who during the reference month for the year were 
        not enrolled in any MA plan; divided by
            ``(B) the sum of such number and the total number of MA 
        eligible individuals residing in such area who during such 
        reference month were enrolled in an MA local plan described in 
        section 1851(a)(2)(A)(i),
    or, if greater, such proportion determined for individuals 
    nationally.
        ``(5) Fee-for-service area-specific non-drug amount.--
            ``(A) In general.--For purposes of paragraph (2)(B)(i) and 
        subsection (f)(2)(A), subject to subparagraph (C), the term 
        `fee-for-service area-specific non-drug amount' means, for a 
        CCA area and a year, the adjusted average per capita cost for 
        such area and year involved, determined under section 
        1876(a)(4) and adjusted as appropriate for the purpose of risk 
        adjustment for benefits under the original medicare fee-for-
        service program option for individuals entitled to benefits 
        under part A and enrolled under part B who are not enrolled in 
        an MA plan for the year, but adjusted to exclude costs 
        attributable to payments under section 1886(h).
            ``(B) Use of full risk adjustment to standardize fee-for-
        service costs to typical beneficiary.--In determining the 
        adjusted average per capita cost for an area and year under 
        subparagraph (A), such costs shall be adjusted to fully take 
        into account the demographic and health status risk factors 
        established under section 1853(a)(1)(A)(iv) so that such per 
        capita costs reflect the average costs for a typical 
        beneficiary residing in the CCA area.
            ``(C) Inclusion of costs of va and dod military facility 
        services to medicare-eligible beneficiaries.--In determining 
        the adjusted average per capita cost under subparagraph (A) for 
        a year, such cost shall be adjusted to include the Secretary's 
        estimate, on a per capita basis, of the amount of additional 
        payments that would have been made in the area involved under 
        this title if individuals entitled to benefits under this title 
        had not received services from facilities of the Department of 
        Veterans Affairs or the Department of Defense.
    ``(f) Premium Adjustment.--
        ``(1) Application.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        in the case of an individual who is enrolled under part B, who 
        resides in a CCA area, and who is not enrolled in an MA plan 
        under this part, the monthly premium otherwise applied under 
        part B (determined without regard to subsections (b), (f), and 
        (i) of section 1839 or any adjustment under this subsection) 
        shall be adjusted in accordance with paragraph (2), but only in 
        the case of premiums for months during the period in which the 
        CCA program under this section for such area is in effect.
            ``(B) No premium adjustment for subsidy eligible 
        beneficiaries.--No premium adjustment shall be made under this 
        subsection for a premium for a month if the individual is 
        determined to be a subsidy eligible individual (as defined in 
        section 1860D-14(a)(3)(A)) for the month.
        ``(2) Amount of adjustment.--
            ``(A) In general.--Under this paragraph, subject to the 
        exemption under paragraph (1)(B) and the limitation under 
        subparagraph (B), if the fee-for-service area-specific non-drug 
        amount (as defined in section (e)(5)) for a CCA area in which 
        an individual resides for a month--
                ``(i) does not exceed the CCA non-drug monthly 
            benchmark amount (as determined under subsection (e)(1)) 
            for such area and month, the amount of the premium for the 
            individual for the month shall be reduced, by an amount 
            equal to 75 percent of the amount by which such CCA 
            benchmark exceeds such fee-for-service area-specific non-
            drug amount; or
                ``(ii) exceeds such CCA non-drug benchmark, the amount 
            of the premium for the individual for the month shall be 
            adjusted to ensure, that--

                    ``(I) the sum of the amount of the adjusted premium 
                and the CCA non-drug benchmark for the area; is equal 
                to
                    ``(II) the sum of the unadjusted premium plus the 
                amount of such fee-for-service area-specific non-drug 
                amount for the area.

            ``(B) Limitation.--In no case shall the actual amount of an 
        adjustment under subparagraph (A) for an area and month in a 
        year result in an adjustment that exceeds the maximum 
        adjustment permitted under subparagraph (C) for the area and 
        year, or, if less, the maximum annual adjustment permitted 
        under subparagraph (D) for the area and year.
            ``(C) Phase-in of adjustment.--The amount of an adjustment 
        under subparagraph (A) for a CCA area and year may not exceed 
        the product of the phase-in fraction for the year under 
        subsection (d)(3)(B) multiplied by the amount of the adjustment 
        otherwise computed under subparagraph (A) for the area and 
        year, determined without regard to this subparagraph and 
        subparagraph (D).
            ``(D) 5-percent limitation on adjustment.--The amount of 
        the adjustment under this subsection for months in a year shall 
        not exceed 5 percent of the amount of the monthly premium 
        amount determined for months in the year under section 1839 
        without regard to subsections (b), (f), and (i) of such section 
        and this subsection.''.
    (b) Conforming Amendments.--
        (1) MA local plans.--
            (A) Section 1853(j)(1)(A) (42 U.S.C. 1395w-23(j)(1)(A)), as 
        added by section 222(d), is amended by inserting ``subject to 
        section 1860C-1(d)(2)(A),'' after ``within an MA local area,''.
            (B) Section 1853(b)(1)(B), as amended by section 222(f)(1), 
        is amended by adding at the end the following new clause:
                ``(iii) Benchmark announcement for cca local areas.--
            The Secretary shall determine, and shall announce (in a 
            manner intended to provide notice to interested parties), 
            on a timely basis before the calendar year concerned, with 
            respect to each CCA area (as defined in section 1860C-
            1(b)(1)(A)), the CCA non-drug monthly benchmark amount 
            under section 1860C-1(e)(1) for that area for the year 
            involved.''.
        (2) Premium adjustment.--
            (A) Section 1839 (42 U.S.C. 1395r) is amended by adding at 
        the end the following new subsection:
    ``(h) Potential Application of Comparative Cost Adjustment in CCA 
Areas.--
        ``(1) In general.--Certain individuals who are residing in a 
    CCA area under section 1860C-1 who are not enrolled in an MA plan 
    under part C may be subject to a premium adjustment under 
    subsection (f) of such section for months in which the CCA program 
    under such section is in effect in such area.
        ``(2) No effect on late enrollment penalty or income-related 
    adjustment in subsidies.--Nothing in this subsection or section 
    1860C-1(f) shall be construed as affecting the amount of any 
    premium adjustment under subsection (b) or (i). Subsection (f) 
    shall be applied without regard to any premium adjustment referred 
    to in paragraph (1).
        ``(3) Implementation.--In order to carry out a premium 
    adjustment under this subsection and section 1860C-1(f) (insofar as 
    it is effected through the manner of collection of premiums under 
    section 1840(a)), the Secretary shall transmit to the Commissioner 
    of Social Security--
            ``(A) at the beginning of each year, the name, social 
        security account number, and the amount of the premium 
        adjustment (if any) for each individual enrolled under this 
        part for each month during the year; and
            ``(B) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.''.
            (B) Section 1844(c) (42 U.S.C. 1395w(c)) is amended by 
        inserting ``and without regard to any premium adjustment 
        effected under sections 1839(h) and 1860C-1(f)'' before the 
        period at the end.
    (c) No Change in Medicare's Defined Benefit Package.--Nothing in 
this part (or the amendments made by this part) shall be construed as 
changing the entitlement to defined benefits under parts A and B of 
title XVIII of the Social Security Act.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

    (a) Technical Amendment Concerning Secretary's Authority To Make 
Conditional Payment When Certain Primary Plans Do Not Pay Promptly.--
Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is amended--
        (1) in subparagraph (A)(ii), by striking ``promptly (as 
    determined in accordance with regulations)''; and
        (2) in subparagraph (B)--
            (A) by redesignating clauses (i) through (v) as clauses 
        (ii) through (vi), respectively; and
            (B) by inserting before clause (ii), as so redesignated, 
        the following new clause:
                ``(i) Authority to make conditional payment.--The 
            Secretary may make payment under this title with respect to 
            an item or service if a primary plan described in 
            subparagraph (A)(ii) has not made or cannot reasonably be 
            expected to make payment with respect to such item or 
            service promptly (as determined in accordance with 
            regulations). Any such payment by the Secretary shall be 
            conditioned on reimbursement to the appropriate Trust Fund 
            in accordance with the succeeding provisions of this 
            subsection.''.
    (b) Clarifying Amendments to Conditional Payment Provisions.--
Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as amended by subsection 
(a), is amended--
        (1) in subparagraph (A), in the matter following clause (ii), 
    by inserting the following sentence at the end: ``An entity that 
    engages in a business, trade, or profession shall be deemed to have 
    a self-insured plan if it carries its own risk (whether by a 
    failure to obtain insurance, or otherwise) in whole or in part.'';
        (2) in subparagraph (B)(ii), as redesignated by subsection 
    (a)(2)(A)--
            (A) by striking the first sentence and inserting the 
        following: ``A primary plan, and an entity that receives 
        payment from a primary plan, shall reimburse the appropriate 
        Trust Fund for any payment made by the Secretary under this 
        title with respect to an item or service if it is demonstrated 
        that such primary plan has or had a responsibility to make 
        payment with respect to such item or service. A primary plan's 
        responsibility for such payment may be demonstrated by a 
        judgment, a payment conditioned upon the recipient's 
        compromise, waiver, or release (whether or not there is a 
        determination or admission of liability) of payment for items 
        or services included in a claim against the primary plan or the 
        primary plan's insured, or by other means.''; and
            (B) in the final sentence, by striking ``on the date such 
        notice or other information is received'' and inserting ``on 
        the date notice of, or information related to, a primary plan's 
        responsibility for such payment or other information is 
        received''; and
        (3) in subparagraph (B)(iii), as redesignated by subsection 
    (a)(2)(A), by striking the first sentence and inserting the 
    following: ``In order to recover payment made under this title for 
    an item or service, the United States may bring an action against 
    any or all entities that are or were required or responsible 
    (directly, as an insurer or self-insurer, as a third-party 
    administrator, as an employer that sponsors or contributes to a 
    group health plan, or large group health plan, or otherwise) to 
    make payment with respect to the same item or service (or any 
    portion thereof) under a primary plan. The United States may, in 
    accordance with paragraph (3)(A) collect double damages against any 
    such entity. In addition, the United States may recover under this 
    clause from any entity that has received payment from a primary 
    plan or from the proceeds of a primary plan's payment to any 
    entity.''.
    (c) Clerical Amendments.--Section 1862(b) (42 U.S.C. 1395y(b)) is 
amended--
        (1) in paragraph (1)(A), by moving the indentation of clauses 
    (ii) through (v) 2 ems to the left; and
        (2) in paragraph (3)(A), by striking ``such'' before 
    ``paragraphs''.
    (d) Effective Dates.--The amendments made by this section shall be 
effective--
        (1) in the case of subsection (a), as if included in the 
    enactment of title III of the Medicare and Medicaid Budget 
    Reconciliation Amendments of 1984 (Public Law 98-369); and
        (2) in the case of subsections (b) and (c), as if included in 
    the enactment of section 953 of the Omnibus Reconciliation Act of 
    1980 (Public Law 96-499; 94 Stat. 2647).

SEC. 302. PAYMENT FOR DURABLE MEDICAL EQUIPMENT; COMPETITIVE 
              ACQUISITION OF CERTAIN ITEMS AND SERVICES.

    (a) Quality Enhancement and Fraud Reduction.--
        (1) Establishment of quality standards and accreditation 
    requirements for durable medical equipment suppliers.--Section 
    1834(a) (42 U.S.C. 1395m(a)) is amended--
            (A) by transferring paragraph (17), as added by section 
        4551(c)(1) of the Balanced Budget Act of 1997 (111 Stat. 458), 
        to the end of such section and redesignating such paragraph as 
        paragraph (19); and
            (B) by adding at the end the following new paragraph:
        ``(20) Identification of quality standards.--
            ``(A) In general.--Subject to subparagraph (C), the 
        Secretary shall establish and implement quality standards for 
        suppliers of items and services described in subparagraph (D) 
        to be applied by recognized independent accreditation 
        organizations (as designated under subparagraph (B)) and with 
        which such suppliers shall be required to comply in order to--
                ``(i) furnish any such item or service for which 
            payment is made under this part; and
                ``(ii) receive or retain a provider or supplier number 
            used to submit claims for reimbursement for any such item 
            or service for which payment may be made under this title.
            ``(B) Designation of independent accreditation 
        organizations.--Not later than the date that is 1 year after 
        the date on which the Secretary implements the quality 
        standards under subparagraph (A), notwithstanding section 
        1865(b), the Secretary shall designate and approve one or more 
        independent accreditation organizations for purposes of such 
        subparagraph.
            ``(C) Quality standards.--The quality standards described 
        in subparagraph (A) may not be less stringent than the quality 
        standards that would otherwise apply if this paragraph did not 
        apply and shall include consumer services standards.
            ``(D) Items and services described.--The items and services 
        described in this subparagraph are the following items and 
        services, as the Secretary determines appropriate:
                ``(i) Covered items (as defined in paragraph (13)) for 
            which payment may otherwise be made under this subsection.
                ``(ii) Prosthetic devices and orthotics and prosthetics 
            described in section 1834(h)(4).
                ``(iii) Items and services described in section 
            1842(s)(2).
            ``(E) Implementation.--The Secretary may establish by 
        program instruction or otherwise the quality standards under 
        this paragraph, after consultation with representatives of 
        relevant parties. Such standards shall be applied prospectively 
        and shall be published on the Internet website of the Centers 
        for Medicare & Medicaid Services.''.
        (2) Establishment of clinical conditions of coverage standards 
    for items of durable medical equipment.--Section 1834(a)(1) (42 
    U.S.C. 1395m(a)(1)) is amended by adding at the end the following 
    new subparagraph:
            ``(E) Clinical conditions for coverage.--
                ``(i) In general.--The Secretary shall establish 
            standards for clinical conditions for payment for covered 
            items under this subsection.
                ``(ii) Requirements.--The standards established under 
            clause (i) shall include the specification of types or 
            classes of covered items that require, as a condition of 
            payment under this subsection, a face-to-face examination 
            of the individual by a physician (as defined in section 
            1861(r)(1)), a physician assistant, nurse practitioner, or 
            a clinical nurse specialist (as those terms are defined in 
            section 1861(aa)(5)) and a prescription for the item.
                ``(iii) Priority of establishment of standards.--In 
            establishing the standards under this subparagraph, the 
            Secretary shall first establish standards for those covered 
            items for which the Secretary determines there has been a 
            proliferation of use, consistent findings of charges for 
            covered items that are not delivered, or consistent 
            findings of falsification of documentation to provide for 
            payment of such covered items under this part.
                ``(iv) Standards for power wheelchairs.--Effective on 
            the date of the enactment of this subparagraph, in the case 
            of a covered item consisting of a motorized or power 
            wheelchair for an individual, payment may not be made for 
            such covered item unless a physician (as defined in section 
            1861(r)(1)), a physician assistant, nurse practitioner, or 
            a clinical nurse specialist (as those terms are defined in 
            section 1861(aa)(5)) has conducted a face-to-face 
            examination of the individual and written a prescription 
            for the item.
                ``(v) Limitation on payment for covered items.--Payment 
            may not be made for a covered item under this subsection 
            unless the item meets any standards established under this 
            subparagraph for clinical condition of coverage.''.
    (b) Competitive Acquisition.--
        (1) In general.--Section 1847 (42 U.S.C. 1395w-3) is amended to 
    read as follows:

         ``competitive acquisition of certain items and services

    ``Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
        ``(1) Implementation of programs.--
            ``(A) In general.--The Secretary shall establish and 
        implement programs under which competitive acquisition areas 
        are established throughout the United States for contract award 
        purposes for the furnishing under this part of competitively 
        priced items and services (described in paragraph (2)) for 
        which payment is made under this part. Such areas may differ 
        for different items and services.
            ``(B) Phased-in implementation.--The programs--
                ``(i) shall be phased in among competitive acquisition 
            areas in a manner so that the competition under the 
            programs occurs in--

                    ``(I) 10 of the largest metropolitan statistical 
                areas in 2007;
                    ``(II) 80 of the largest metropolitan statistical 
                areas in 2009; and
                    ``(III) additional areas after 2009; and

                ``(ii) may be phased in first among the highest cost 
            and highest volume items and services or those items and 
            services that the Secretary determines have the largest 
            savings potential.
            ``(C) Waiver of certain provisions.--In carrying out the 
        programs, the Secretary may waive such provisions of the 
        Federal Acquisition Regulation as are necessary for the 
        efficient implementation of this section, other than provisions 
        relating to confidentiality of information and such other 
        provisions as the Secretary determines appropriate.
        ``(2) Items and services described.--The items and services 
    referred to in paragraph (1) are the following:
            ``(A) Durable medical equipment and medical supplies.--
        Covered items (as defined in section 1834(a)(13)) for which 
        payment would otherwise be made under section 1834(a), 
        including items used in infusion and drugs (other than 
        inhalation drugs) and supplies used in conjunction with durable 
        medical equipment, but excluding class III devices under the 
        Federal Food, Drug, and Cosmetic Act.
            ``(B) Other equipment and supplies.--Items and services 
        described in section 1842(s)(2)(D), other than parenteral 
        nutrients, equipment, and supplies.
            ``(C) Off-the-shelf orthotics.--Orthotics described in 
        section 1861(s)(9) for which payment would otherwise be made 
        under section 1834(h) which require minimal self-adjustment for 
        appropriate use and do not require expertise in trimming, 
        bending, molding, assembling, or customizing to fit to the 
        individual.
        ``(3) Exception authority.--In carrying out the programs under 
    this section, the Secretary may exempt--
            ``(A) rural areas and areas with low population density 
        within urban areas that are not competitive, unless there is a 
        significant national market through mail order for a particular 
        item or service; and
            ``(B) items and services for which the application of 
        competitive acquisition is not likely to result in significant 
        savings.
        ``(4) Special rule for certain rented items of durable medical 
    equipment and oxygen.--In the case of a covered item for which 
    payment is made on a rental basis under section 1834(a) and in the 
    case of payment for oxygen under section 1834(a)(5), the Secretary 
    shall establish a process by which rental agreements for the 
    covered items and supply arrangements with oxygen suppliers entered 
    into before the application of the competitive acquisition program 
    under this section for the item may be continued notwithstanding 
    this section. In the case of any such continuation, the supplier 
    involved shall provide for appropriate servicing and replacement, 
    as required under section 1834(a).
        ``(5) Physician authorization.--
            ``(A) In general.--With respect to items or services 
        included within a particular HCPCS code, the Secretary may 
        establish a process for certain items and services under which 
        a physician may prescribe a particular brand or mode of 
        delivery of an item or service within such code if the 
        physician determines that use of the particular item or service 
        would avoid an adverse medical outcome on the individual, as 
        determined by the Secretary.
            ``(B) No effect on payment amount.--A prescription under 
        subparagraph (A) shall not affect the amount of payment 
        otherwise applicable for the item or service under the code 
        involved.
        ``(6) Application.--For each competitive acquisition area in 
    which the program is implemented under this subsection with respect 
    to items and services, the payment basis determined under the 
    competition conducted under subsection (b) shall be substituted for 
    the payment basis otherwise applied under section 1834(a), section 
    1834(h), or section 1842(s), as appropriate.
    ``(b) Program Requirements.--
        ``(1) In general.--The Secretary shall conduct a competition 
    among entities supplying items and services described in subsection 
    (a)(2) for each competitive acquisition area in which the program 
    is implemented under subsection (a) with respect to such items and 
    services.
        ``(2) Conditions for awarding contract.--
            ``(A) In general.--The Secretary may not award a contract 
        to any entity under the competition conducted in an competitive 
        acquisition area pursuant to paragraph (1) to furnish such 
        items or services unless the Secretary finds all of the 
        following:
                ``(i) The entity meets applicable quality standards 
            specified by the Secretary under section 1834(a)(20).
                ``(ii) The entity meets applicable financial standards 
            specified by the Secretary, taking into account the needs 
            of small providers.
                ``(iii) The total amounts to be paid to contractors in 
            a competitive acquisition area are expected to be less than 
            the total amounts that would otherwise be paid.
                ``(iv) Access of individuals to a choice of multiple 
            suppliers in the area is maintained.
            ``(B) Timely implementation of program.--Any delay in the 
        implementation of quality standards under section 1834(a)(20) 
        or delay in the receipt of advice from the program oversight 
        committee established under subsection (c) shall not delay the 
        implementation of the competitive acquisition program under 
        this section.
        ``(3) Contents of contract.--
            ``(A) In general.--A contract entered into with an entity 
        under the competition conducted pursuant to paragraph (1) is 
        subject to terms and conditions that the Secretary may specify.
            ``(B) Term of contracts.--The Secretary shall recompete 
        contracts under this section not less often than once every 3 
        years.
        ``(4) Limit on number of contractors.--
            ``(A) In general.--The Secretary may limit the number of 
        contractors in a competitive acquisition area to the number 
        needed to meet projected demand for items and services covered 
        under the contracts. In awarding contracts, the Secretary shall 
        take into account the ability of bidding entities to furnish 
        items or services in sufficient quantities to meet the 
        anticipated needs of individuals for such items or services in 
        the geographic area covered under the contract on a timely 
        basis.
            ``(B) Multiple winners.--The Secretary shall award 
        contracts to multiple entities submitting bids in each area for 
        an item or service.
        ``(5) Payment.--
            ``(A) In general.--Payment under this part for 
        competitively priced items and services described in subsection 
        (a)(2) shall be based on bids submitted and accepted under this 
        section for such items and services. Based on such bids the 
        Secretary shall determine a single payment amount for each item 
        or service in each competitive acquisition area.
            ``(B) Reduced beneficiary cost-sharing.--
                ``(i) Application of coinsurance.--Payment under this 
            section for items and services shall be in an amount equal 
            to 80 percent of the payment basis described in 
            subparagraph (A).
                ``(ii) Application of deductible.--Before applying 
            clause (i), the individual shall be required to meet the 
            deductible described in section 1833(b).
            ``(C) Payment on assignment-related basis.--Payment for any 
        item or service furnished by the entity may only be made under 
        this section on an assignment-related basis.
            ``(D) Construction.--Nothing in this section shall be 
        construed as precluding the use of an advanced beneficiary 
        notice with respect to a competitively priced item and service.
        ``(6) Participating contractors.--
            ``(A) In general.--Except as provided in subsection (a)(4), 
        payment shall not be made for items and services described in 
        subsection (a)(2) furnished by a contractor and for which 
        competition is conducted under this section unless--
                ``(i) the contractor has submitted a bid for such items 
            and services under this section; and
                ``(ii) the Secretary has awarded a contract to the 
            contractor for such items and services under this section.
            ``(B) Bid defined.--In this section, the term `bid' means 
        an offer to furnish an item or service for a particular price 
        and time period that includes, where appropriate, any services 
        that are attendant to the furnishing of the item or service.
            ``(C) Rules for mergers and acquisitions.--In applying 
        subparagraph (A) to a contractor, the contractor shall include 
        a successor entity in the case of a merger or acquisition, if 
        the successor entity assumes such contract along with any 
        liabilities that may have occurred thereunder.
            ``(D) Protection of small suppliers.--In developing 
        procedures relating to bids and the awarding of contracts under 
        this section, the Secretary shall take appropriate steps to 
        ensure that small suppliers of items and services have an 
        opportunity to be considered for participation in the program 
        under this section.
        ``(7) Consideration in determining categories for bids.--The 
    Secretary may consider the clinical efficiency and value of 
    specific items within codes, including whether some items have a 
    greater therapeutic advantage to individuals.
        ``(8) Authority to contract for education, monitoring, 
    outreach, and complaint services.--The Secretary may enter into 
    contracts with appropriate entities to address complaints from 
    individuals who receive items and services from an entity with a 
    contract under this section and to conduct appropriate education of 
    and outreach to such individuals and monitoring quality of services 
    with respect to the program.
        ``(9) Authority to contract for implementation.--The Secretary 
    may contract with appropriate entities to implement the competitive 
    bidding program under this section.
        ``(10) No administrative or judicial review.--There shall be no 
    administrative or judicial review under section 1869, section 1878, 
    or otherwise, of--
            ``(A) the establishment of payment amounts under paragraph 
        (5);
            ``(B) the awarding of contracts under this section;
            ``(C) the designation of competitive acquisition areas 
        under subsection (a)(1)(A);
            ``(D) the phased-in implementation under subsection 
        (a)(1)(B);
            ``(E) the selection of items and services for competitive 
        acquisition under subsection (a)(2); or
            ``(F) the bidding structure and number of contractors 
        selected under this section.
    ``(c) Program Advisory and Oversight Committee.--
        ``(1) Establishment.--The Secretary shall establish a Program 
    Advisory and Oversight Committee (hereinafter in this section 
    referred to as the `Committee').
        ``(2) Membership; terms.--The Committee shall consist of such 
    members as the Secretary may appoint who shall serve for such term 
    as the Secretary may specify.
        ``(3) Duties.--
            ``(A) Advice.--The Committee shall provide advice to the 
        Secretary with respect to the following functions:
                ``(i) The implementation of the program under this 
            section.
                ``(ii) The establishment of financial standards for 
            purposes of subsection (b)(2)(A)(ii).
                ``(iii) The establishment of requirements for 
            collection of data for the efficient management of the 
            program.
                ``(iv) The development of proposals for efficient 
            interaction among manufacturers, providers of services, 
            suppliers (as defined in section 1861(d)), and individuals.
                ``(v) The establishment of quality standards under 
            section 1834(a)(20).
            ``(B) Additional duties.--The Committee shall perform such 
        additional functions to assist the Secretary in carrying out 
        this section as the Secretary may specify.
        ``(4) Inapplicability of faca.--The provisions of the Federal 
    Advisory Committee Act (5 U.S.C. App.) shall not apply.
        ``(5) Termination.--The Committee shall terminate on December 
    31, 2009.
    ``(d) Report.--Not later than July 1, 2009, the Secretary shall 
submit to Congress a report on the programs under this section. The 
report shall include information on savings, reductions in cost-
sharing, access to and quality of items and services, and satisfaction 
of individuals.
    ``(e) Demonstration Project for Clinical Laboratory Services.--
        ``(1) In general.--The Secretary shall conduct a demonstration 
    project on the application of competitive acquisition under this 
    section to clinical diagnostic laboratory tests--
            ``(A) for which payment would otherwise be made under 
        section 1833(h) (other than for pap smear laboratory tests 
        under paragraph (7) of such section) or section 1834(d)(1) 
        (relating to colorectal cancer screening tests); and
            ``(B) which are furnished by entities that did not have a 
        face-to-face encounter with the individual.
        ``(2) Terms and conditions.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        such project shall be under the same conditions as are 
        applicable to items and services described in subsection 
        (a)(2), excluding subsection (b)(5)(B) and other conditions as 
        the Secretary determines to be appropriate.
            ``(B) Application of clia quality standards.--The quality 
        standards established by the Secretary under section 353 of the 
        Public Health Service Act for clinical diagnostic laboratory 
        tests shall apply to such tests under the demonstration project 
        under this section in lieu of quality standards described in 
        subsection (b)(2)(A)(i).
        ``(3) Report.--The Secretary shall submit to Congress--
            ``(A) an initial report on the project not later than 
        December 31, 2005; and
            ``(B) such progress and final reports on the project after 
        such date as the Secretary determines appropriate.''.
        (2) Conforming amendments.--Section 1833(a)(1) (42 U.S.C. 
    1395l(a)(1)) is amended--
            (A) by striking ``and (U)'' and inserting ``(U)'';
            (B) by inserting before the semicolon at the end the 
        following: ``, and (V) notwithstanding subparagraphs (I) 
        (relating to durable medical equipment), (M) (relating to 
        prosthetic devices and orthotics and prosthetics), and (Q) 
        (relating to 1842(s) items), with respect to competitively 
        priced items and services (described in section 1847(a)(2)) 
        that are furnished in a competitive area, the amounts paid 
        shall be the amounts described in section 1847(b)(5)''; and
            (C) in clause (D)--
                (i) by striking ``or (ii)'' and inserting ``(ii)''; and
                (ii) by adding at the end the following: ``or (iii) on 
            the basis of a rate established under a demonstration 
            project under section 1847(e), the amount paid shall be 
            equal to 100 percent of such rate,''.
        (3) GAO report on impact of competitive acquisition on 
    suppliers.--
            (A) Study.--The Comptroller General of the United States 
        shall conduct a study on the impact of competitive acquisition 
        of durable medical equipment under section 1847 of the Social 
        Security Act, as amended by paragraph (1), on suppliers and 
        manufacturers of such equipment and on patients. Such study 
        shall specifically examine the impact of such competitive 
        acquisition on access to, and quality of, such equipment and 
        service related to such equipment.
            (B) Report.--Not later than January 1, 2009, the 
        Comptroller General shall submit to Congress a report on the 
        study conducted under subparagraph (A) and shall include in the 
        report such recommendations as the Comptroller General 
        determines appropriate.
    (c) Transitional Freeze.--
        (1) DME.--
            (A) In general.--Section 1834(a)(14) (42 U.S.C. 
        1395m(a)(14)) is amended--
                (i) in subparagraph (E), by striking ``and'' at the 
            end;
                (ii) in subparagraph (F)--

                    (I) by striking ``a subsequent year'' and inserting 
                ``2003''; and
                    (II) by striking ``the previous year.'' and 
                inserting ``2002;''; and

                (iii) by adding at the end the following new 
            subparagraphs:
            ``(G) for 2004 through 2006--
                ``(i) subject to clause (ii), in the case of class III 
            medical devices described in section 513(a)(1)(C) of the 
            Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
            360(c)(1)(C)), the percentage increase described in 
            subparagraph (B) for the year involved; and
                ``(ii) in the case of covered items not described in 
            clause (i), 0 percentage points;
            ``(H) for 2007--
                ``(i) subject to clause (ii), in the case of class III 
            medical devices described in section 513(a)(1)(C) of the 
            Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
            360(c)(1)(C)), the percentage change determined by the 
            Secretary to be appropriate taking into account 
            recommendations contained in the report of the Comptroller 
            General of the United States under section 302(c)(1)(B) of 
            the Medicare Prescription Drug, Improvement, and 
            Modernization Act of 2003; and
                ``(ii) in the case of covered items not described in 
            clause (i), 0 percentage points; and
            ``(I) for 2008--
                ``(i) subject to clause (ii), in the case of class III 
            medical devices described in section 513(a)(1)(C) of the 
            Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
            360(c)(1)(C)), the percentage increase described in 
            subparagraph (B) (as applied to the payment amount for 2007 
            determined after the application of the percentage change 
            under subparagraph (H)(i)); and
                ``(ii) in the case of covered items not described in 
            clause (i), 0 percentage points; and
            ``(J) for a subsequent year, the percentage increase in the 
        consumer price index for all urban consumers (U.S. urban 
        average) for the 12-month period ending with June of the 
        previous year.''.
            (B) GAO report on class iii medical devices.--Not later 
        than March 1, 2006, the Comptroller General of the United 
        States shall submit to Congress, and transmit to the Secretary, 
        a report containing recommendations on the appropriate update 
        percentage under section 1834(a)(14) of the Social Security Act 
        (42 U.S.C. 1395m(a)(14)) for class III medical devices 
        described in section 513(a)(1)(C) of the Federal Food, Drug, 
        and Cosmetic Act (21 U.S.C. 360(a)(1)(C)) furnished to medicare 
        beneficiaries during 2007 and 2008.
        (2) Payment rule for specified items.--Section 1834(a) (42 
    U.S.C. 1395m(a)), as amended by subsection (a), is further amended 
    by adding at the end the following new paragraph:
        ``(21) Special payment rule for specified items and supplies.--
            ``(A) In general.--Notwithstanding the preceding provisions 
        of this subsection, for specified items and supplies (described 
        in subparagraph (B)) furnished during 2005, the payment amount 
        otherwise determined under this subsection for such specified 
        items and supplies shall be reduced by the percentage 
        difference between--
                ``(i) the amount of payment otherwise determined for 
            the specified item or supply under this subsection for 
            2002, and
                ``(ii) the amount of payment for the specified item or 
            supply under chapter 89 of title 5, United States Code, as 
            identified in the column entitled `Median FEHP Price' in 
            the table entitled `SUMMARY OF MEDICARE PRICES COMPARED TO 
            VA, MEDICAID, RETAIL, AND FEHP PRICES FOR 16 ITEMS' 
            included in the Testimony of the Inspector General before 
            the Senate Committee on Appropriations, June 12, 2002, or 
            any subsequent report by the Inspector General.
            ``(B) Specified item or supply described.--For purposes of 
        subparagraph (A), a specified item or supply means oxygen and 
        oxygen equipment, standard wheelchairs (including standard 
        power wheelchairs), nebulizers, diabetic supplies consisting of 
        lancets and testing strips, hospital beds, and air mattresses, 
        but only if the HCPCS code for the item or supply is identified 
        in a table referred to in subparagraph (A)(ii).
            ``(C) Application of update to special payment amount.--The 
        covered item update under paragraph (14) for specified items 
        and supplies for 2006 and each subsequent year shall be applied 
        to the payment amount under subparagraph (A) unless payment is 
        made for such items and supplies under section 1847.''.
        (3) Prosthetic devices and orthotics and prosthetics.--Section 
    1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
            (A) in clause (vii), by striking ``and'' at the end;
            (B) in clause (viii), by striking ``a subsequent year'' and 
        inserting ``2003''; and
            (C) by adding at the end the following new clauses:
                ``(ix) for 2004, 2005, and 2006, 0 percent; and
                ``(x) for a subsequent year, the percentage increase in 
            the consumer price index for all urban consumers (United 
            States city average) for the 12-month period ending with 
            June of the previous year;''.
    (d) Conforming Amendments.--
        (1) Durable medical equipment; limitation of inherent 
    reasonableness authority.--Section 1834(a) (42 U.S.C. 1395m(a)) is 
    amended--
            (A) in paragraph (1)(B), by striking ``The payment basis'' 
        and inserting ``Subject to subparagraph (F)(i), the payment 
        basis'';
            (B) in paragraph (1)(C), by striking ``This subsection'' 
        and inserting ``Subject to subparagraph (F)(ii), this 
        subsection'';
            (C) by adding at the end of paragraph (1) the following new 
        subparagraph:
            ``(F) Application of competitive acquisition; limitation of 
        inherent reasonableness authority.--In the case of covered 
        items furnished on or after January 1, 2009, that are included 
        in a competitive acquisition program in a competitive 
        acquisition area under section 1847(a)--
                ``(i) the payment basis under this subsection for such 
            items and services furnished in such area shall be the 
            payment basis determined under such competitive acquisition 
            program; and
                ``(ii) the Secretary may use information on the payment 
            determined under such competitive acquisition programs to 
            adjust the payment amount otherwise recognized under 
            subparagraph (B)(ii) for an area that is not a competitive 
            acquisition area under section 1847 and in the case of such 
            adjustment, paragraph (10)(B) shall not be applied.''; and
            (D) in paragraph (10)(B), by inserting ``in an area and 
        with respect to covered items and services for which the 
        Secretary does not make a payment amount adjustment under 
        paragraph (1)(F)'' after ``under this subsection''.
        (2) Off-the-shelf orthotics; limitation of inherent 
    reasonableness authority.--Section 1834(h) (42 U.S.C. 1395m(h)) is 
    amended--
            (A) in paragraph (1)(B), by striking ``and (E)'' and 
        inserting ``, (E), and (H)(i)'';
            (B) in paragraph (1)(D), by striking ``This subsection'' 
        and inserting ``Subject to subparagraph (H)(ii), this 
        subsection''; and
            (C) by adding at the end of paragraph (1) the following new 
        subparagraph:
            ``(H) Application of competitive acquisition to orthotics; 
        limitation of inherent reasonableness authority.--In the case 
        of orthotics described in paragraph (2)(C) of section 1847(a) 
        furnished on or after January 1, 2009, that are included in a 
        competitive acquisition program in a competitive acquisition 
        area under such section--
                ``(i) the payment basis under this subsection for such 
            orthotics furnished in such area shall be the payment basis 
            determined under such competitive acquisition program; and
                ``(ii) the Secretary may use information on the payment 
            determined under such competitive acquisition programs to 
            adjust the payment amount otherwise recognized under 
            subparagraph (B)(ii) for an area that is not a competitive 
            acquisition area under section 1847, and in the case of 
            such adjustment, paragraphs (8) and (9) of section 1842(b) 
            shall not be applied.''.
        (3) Other items and services; limitation of inherent 
    reasonableness authority.--Section 1842(s) (42 U.S.C. 1395u(s)) is 
    amended--
            (A) in the first sentence of paragraph (1), by striking 
        ``The Secretary'' and inserting ``Subject to paragraph (3), the 
        Secretary''; and
            (B) by adding at the end the following new paragraph:
    ``(3) In the case of items and services described in paragraph 
(2)(D) that are included in a competitive acquisition program in a 
competitive acquisition area under section 1847(a)--
        ``(A) the payment basis under this subsection for such items 
    and services furnished in such area shall be the payment basis 
    determined under such competitive acquisition program; and
        ``(B) the Secretary may use information on the payment 
    determined under such competitive acquisition programs to adjust 
    the payment amount otherwise applicable under paragraph (1) for an 
    area that is not a competitive acquisition area under section 1847, 
    and in the case of such adjustment, paragraphs (8) and (9) of 
    section 1842(b) shall not be applied.''.
    (e) Report on Activities of Suppliers.--The Inspector General of 
the Department of Health and Human Services shall conduct a study to 
determine the extent to which (if any) suppliers of covered items of 
durable medical equipment that are subject to the competitive 
acquisition program under section 1847 of the Social Security Act, as 
amended by subsection (a), are soliciting physicians to prescribe 
certain brands or modes of delivery of covered items based on 
profitability. Not later than July 1, 2009, the Inspector General shall 
submit to Congress a report on such study.

SEC. 303. PAYMENT REFORM FOR COVERED OUTPATIENT DRUGS AND BIOLOGICALS.

    (a) Adjustment to Physician Fee Schedule.--
        (1) Adjustment in practice expense relative value units.--
    Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is amended--
            (A) in subparagraph (B)--
                (i) in clause (ii)(II), by striking ``The adjustments'' 
            and inserting ``Subject to clause (iv), the adjustments''; 
            and
                (ii) by adding at the end of subparagraph (B), the 
            following new clause:
                ``(iv) Exemption from budget neutrality.--The 
            additional expenditures attributable to--

                    ``(I) subparagraph (H) shall not be taken into 
                account in applying clause (ii)(II) for 2004;
                    ``(II) subparagraph (I) insofar as it relates to a 
                physician fee schedule for 2005 or 2006 shall not be 
                taken into account in applying clause (ii)(II) for drug 
                administration services under the fee schedule for such 
                year for a specialty described in subparagraph 
                (I)(ii)(II); and
                    ``(III) subparagraph (J) insofar as it relates to a 
                physician fee schedule for 2005 or 2006 shall not be 
                taken into account in applying clause (ii)(II) for drug 
                administration services under the fee schedule for such 
                year.''; and

            (B) by adding at the end the following new subparagraphs:
            ``(H) Adjustments in practice expense relative value units 
        for certain drug administration services beginning in 2004.--
                ``(i) Use of survey data.--In establishing the 
            physician fee schedule under subsection (b) with respect to 
            payments for services furnished on or after January 1, 
            2004, the Secretary shall, in determining practice expense 
            relative value units under this subsection, utilize a 
            survey submitted to the Secretary as of January 1, 2003, by 
            a physician specialty organization pursuant to section 212 
            of the Medicare, Medicaid, and SCHIP Balanced Budget 
            Refinement Act of 1999 if the survey--

                    ``(I) covers practice expenses for oncology drug 
                administration services; and
                    ``(II) meets criteria established by the Secretary 
                for acceptance of such surveys.

                ``(ii) Pricing of clinical oncology nurses in practice 
            expense methodology.--If the survey described in clause (i) 
            includes data on wages, salaries, and compensation of 
            clinical oncology nurses, the Secretary shall utilize such 
            data in the methodology for determining practice expense 
            relative value units under subsection (c).
                ``(iii) Work relative value units for certain drug 
            administration services.--In establishing the relative 
            value units under this paragraph for drug administration 
            services described in clause (iv) furnished on or after 
            January 1, 2004, the Secretary shall establish work 
            relative value units equal to the work relative value units 
            for a level 1 office medical visit for an established 
            patient.
                ``(iv) Drug administration services described.--The 
            drug administration services described in this clause are 
            physicians' services--

                    ``(I) which are classified as of October 1, 2003, 
                within any of the following groups of procedures: 
                therapeutic or diagnostic infusions (excluding 
                chemotherapy); chemotherapy administration services; 
                and therapeutic, prophylactic, or diagnostic 
                injections;
                    ``(II) for which there are no work relative value 
                units assigned under this subsection as of such date; 
                and
                    ``(III) for which national relative value units 
                have been assigned under this subsection as of such 
                date.

            ``(I) Adjustments in practice expense relative value units 
        for certain drug administration services beginning with 2005.--
                ``(i) In general.--In establishing the physician fee 
            schedule under subsection (b) with respect to payments for 
            services furnished on or after January 1, 2005 or 2006, the 
            Secretary shall adjust the practice expense relative value 
            units for such year consistent with clause (ii).
                ``(ii) Use of supplemental survey data.--

                    ``(I) In general.--Subject to subclause (II), if a 
                specialty submits to the Secretary by not later than 
                March 1, 2004, for 2005, or March 1, 2005, for 2006, 
                data that includes expenses for the administration of 
                drugs and biologicals for which the payment amount is 
                determined pursuant to section 1842(o), the Secretary 
                shall use such supplemental survey data in carrying out 
                this subparagraph for the years involved insofar as 
                they are collected and provided by entities and 
                organizations consistent with the criteria established 
                by the Secretary pursuant to section 212(a) of the 
                Medicare, Medicaid, and SCHIP Balanced Budget 
                Refinement Act of 1999.
                    ``(II) Limitation on specialty.--Subclause (I) 
                shall apply to a specialty only insofar as not less 
                than 40 percent of payments for the specialty under 
                this title in 2002 are attributable to the 
                administration of drugs and biologicals, as determined 
                by the Secretary.
                    ``(III) Application.--This clause shall not apply 
                with respect to a survey to which subparagraph (H)(i) 
                applies.

            ``(J) Provisions for appropriate reporting and billing for 
        physicians' services associated with the administration of 
        covered outpatient drugs and biologicals.--
                ``(i) Evaluation of codes.--The Secretary shall 
            promptly evaluate existing drug administration codes for 
            physicians' services to ensure accurate reporting and 
            billing for such services, taking into account levels of 
            complexity of the administration and resource consumption.
                ``(ii) Use of existing processes.--In carrying out 
            clause (i), the Secretary shall use existing processes for 
            the consideration of coding changes and, to the extent 
            coding changes are made, shall use such processes in 
            establishing relative values for such services.
                ``(iii) Implementation.--In carrying out clause (i), 
            the Secretary shall consult with representatives of 
            physician specialties affected by the implementation of 
            section 1847A or section 1847B, and shall take such steps 
            within the Secretary's authority to expedite such 
            considerations under clause (ii).
                ``(iv) Subsequent, budget neutral adjustments 
            permitted.--Nothing in subparagraph (H) or (I) or this 
            subparagraph shall be construed as preventing the Secretary 
            from providing for adjustments in practice expense relative 
            value units under (and consistent with) subparagraph (B) 
            for years after 2004, 2005, or 2006, respectively.''.
        (2) Treatment of other services currently in the nonphysician 
    work pool.--The Secretary shall make adjustments to the 
    nonphysician work pool methodology (as such term is used in the 
    final rule promulgated by the Secretary in the Federal Register on 
    December 31, 2002 (67 Fed. Reg. 251)), for the determination of 
    practice expense relative value units under the physician fee 
    schedule under section 1848(c)(2)(C)(ii) of the Social Security Act 
    (42 U.S.C. 1395w-4(c)(2)(C)(ii)), so that the practice expense 
    relative value units for services determined under such methodology 
    are not affected relative to the practice expense relative value 
    units of services not determined under such methodology, as a 
    result of the amendments made by paragraph (1).
        (3) Payment for multiple chemotherapy agents furnished on a 
    single day through the push technique.--
            (A) Review of policy.--The Secretary shall review the 
        policy, as in effect on October 1, 2003, with respect to 
        payment under section 1848 of the Social Security Act (42 
        U.S.C. 1395w-4) for the administration of more than 1 drug or 
        biological to an individual on a single day through the push 
        technique.
            (B) Modification of policy.--After conducting the review 
        under subparagraph (A), the Secretary shall modify such payment 
        policy as the Secretary determines to be appropriate.
            (C) Exemption from budget neutrality under physician fee 
        schedule.--If the Secretary modifies such payment policy 
        pursuant to subparagraph (B), any increased expenditures under 
        title XVIII of the Social Security Act resulting from such 
        modification shall be treated as additional expenditures 
        attributable to subparagraph (H) of section 1848(c)(2) of the 
        Social Security Act (42 U.S.C. 1395w-4(c)(2)), as added by 
        paragraph (1)(B), for purposes of applying the exemption to 
        budget neutrality under subparagraph (B)(iv) of such section, 
        as added by paragraph (1)(A).
        (4) Transitional adjustment.--
            (A) In general.--In order to provide for a transition 
        during 2004 and 2005 to the payment system established under 
        the amendments made by this section, in the case of physicians' 
        services consisting of drug administration services described 
        in subparagraph (H)(iv) of section 1848(c)(2) of the Social 
        Security Act (42 U.S.C. 1395w-4(c)(2)), as added by paragraph 
        (1)(B), furnished on or after January 1, 2004, and before 
        January 1, 2006, in addition to the amount determined under the 
        fee schedule under section 1848(b) of such Act (42 U.S.C. 
        1395w-4(b)) there also shall be paid to the physician from the 
        Federal Supplementary Medical Insurance Trust Fund an amount 
        equal to the applicable percentage specified in subparagraph 
        (B) of such fee schedule amount for the services so determined.
            (B) Applicable percentage.--The applicable percentage 
        specified in this subparagraph for services furnished--
                (i) during 2004, is 32 percent; and
                (ii) during 2005, is 3 percent.
        (5) Medpac review and reports; secretarial response.--
            (A) Review.--The Medicare Payment Advisory Commission shall 
        review the payment changes made under this section insofar as 
        they affect payment under part B of title XVIII of the Social 
        Security Act--
                (i) for items and services furnished by oncologists; 
            and
                (ii) for drug administration services furnished by 
            other specialists.
            (B) Other matters studied.--In conducting the review under 
        subparagraph (A), the Commission shall also review such changes 
        as they affect--
                (i) the quality of care furnished to individuals 
            enrolled under part B and the satisfaction of such 
            individuals with that care;
                (ii) the adequacy of reimbursement as applied in, and 
            the availability in, different geographic areas and to 
            different physician practice sizes; and
                (iii) the impact on physician practices.
            (C) Reports.--The Commission shall submit to the Secretary 
        and Congress--
                (i) not later than January 1, 2006, a report on the 
            review conducted under subparagraph (A)(i); and
                (ii) not later than January 1, 2007, a report on the 
            review conducted under subparagraph (A)(ii).
        Each such report may include such recommendations regarding 
        further adjustments in such payments as the Commission deems 
        appropriate.
            (D) Secretarial response.--As part of the rulemaking with 
        respect to payment for physicians services under section 1848 
        of the Social Security Act (42 U.S.C. 1395w-4) for 2007, the 
        Secretary may make appropriate adjustments to payment for items 
        and services described in subparagraph (A)(i), taking into 
        account the report submitted under such subparagraph (C)(i).
    (b) Application of Market-Based Payment Systems.--Section 1842(o) 
(42 U.S.C. 1395u(o)) is amended--
        (1) in paragraph (1), by striking ``equal to 95 percent of the 
    average wholesale price.'' and inserting ``equal to the following:
        ``(A) In the case of any of the following drugs or biologicals, 
    95 percent of the average wholesale price:
            ``(i) A drug or biological furnished before January 1, 
        2004.
            ``(ii) Blood clotting factors furnished during 2004.
            ``(iii) A drug or biological furnished during 2004 that was 
        not available for payment under this part as of April 1, 2003.
            ``(iv) A vaccine described in subparagraph (A) or (B) of 
        section 1861(s)(10) furnished on or after January 1, 2004.
            ``(v) A drug or biological furnished during 2004 in 
        connection with the furnishing of renal dialysis services if 
        separately billed by renal dialysis facilities.
        ``(B) In the case of a drug or biological furnished during 2004 
    that is not described in--
            ``(i) clause (ii), (iii), (iv), or (v) of subparagraph (A),
            ``(ii) subparagraph (D)(i), or
            ``(iii) subparagraph (F),
    the amount determined under paragraph (4).
        ``(C) In the case of a drug or biological that is not described 
    in subparagraph (A)(iv), (D)(i), or (F) furnished on or after 
    January 1, 2005, the amount provided under section 1847, section 
    1847A, section 1847B, or section 1881(b)(13), as the case may be 
    for the drug or biological.
        ``(D)(i) Except as provided in clause (ii), in the case of 
    infusion drugs furnished through an item of durable medical 
    equipment covered under section 1861(n) on or after January 1, 
    2004, 95 percent of the average wholesale price for such drug in 
    effect on October 1, 2003.
        ``(ii) In the case of such infusion drugs furnished in a 
    competitive acquisition area under section 1847 on or after January 
    1, 2007, the amount provided under section 1847.
        ``(E) In the case of a drug or biological, consisting of 
    intravenous immune globulin, furnished--
            ``(i) in 2004, the amount of payment provided under 
        paragraph (4); and
            ``(ii) in 2005 and subsequent years, the amount of payment 
        provided under section 1847A.
        ``(F) In the case of blood and blood products (other than blood 
    clotting factors), the amount of payment shall be determined in the 
    same manner as such amount of payment was determined on October 1, 
    2003.
        ``(G) The provisions of subparagraphs (A) through (F) of this 
    paragraph shall not apply to an inhalation drug or biological 
    furnished through durable medical equipment covered under section 
    1861(n).''; and
        (2) by adding at the end the following new paragraph:
    ``(4)(A) Subject to the succeeding provisions of this paragraph, 
the amount of payment for a drug or biological under this paragraph 
furnished in 2004 is equal to 85 percent of the average wholesale price 
(determined as of April 1, 2003) for the drug or biological.
    ``(B) The Secretary shall substitute for the percentage under 
subparagraph (A) for a drug or biological the percentage that would 
apply to the drug or biological under the column entitled `Average of 
GAO and OIG data (percent)' in the table entitled `Table 3.--Medicare 
Part B Drugs in the Most Recent GAO and OIG Studies' published on 
August 20, 2003, in the Federal Register (68 Fed. Reg. 50445).
    ``(C)(i) The Secretary may substitute for the percentage under 
subparagraph (A) a percentage that is based on data and information 
submitted by the manufacturer of the drug or biological by October 15, 
2003.
    ``(ii) The Secretary may substitute for the percentage under 
subparagraph (A) with respect to drugs and biologicals furnished during 
2004 on or after April 1, 2004, a percentage that is based on data and 
information submitted by the manufacturer of the drug or biological 
after October 15, 2003, and before January 1, 2004.
    ``(D) In no case may the percentage substituted under subparagraph 
(B) or (C) be less than 80 percent.''.
    (c) Application of Average Sales Price Methods Beginning in 2005.--
        (1) In general.--Title XVIII is amended by inserting after 
    section 1847 (42 U.S.C. 1395w-3), as amended by section 302(b), the 
    following new section:

             ``use of average sales price payment methodology

    ``Sec. 1847A. (a) Application.--
        ``(1) In general.--Except as provided in paragraph (2), this 
    section shall apply to payment for drugs and biologicals that are 
    described in section 1842(o)(1)(C) and that are furnished on or 
    after January 1, 2005.
        ``(2) Election.--This section shall not apply in the case of a 
    physician who elects under subsection (a)(1)(A)(ii) of section 
    1847B for that section to apply instead of this section for the 
    payment for drugs and biologicals.
    ``(b) Payment Amount.--
        ``(1) In general.--Subject to subsections (d)(3)(C) and (e), 
    the amount of payment determined under this section for the billing 
    and payment code for a drug or biological (based on a minimum 
    dosage unit) is, subject to applicable deductible and coinsurance--
            ``(A) in the case of a multiple source drug (as defined in 
        subsection (c)(6)(C)), 106 percent of the amount determined 
        under paragraph (3); or
            ``(B) in the case of a single source drug or biological (as 
        defined in subsection (c)(6)(D)), 106 percent of the amount 
        determined under paragraph (4).
        ``(2) Specification of unit.--
            ``(A) Specification by manufacturer.--The manufacturer of a 
        drug or biological shall specify the unit associated with each 
        National Drug Code (including package size) as part of the 
        submission of data under section 1927(b)(3)(A)(iii).
            ``(B) Unit defined.--In this section, the term `unit' 
        means, with respect to each National Drug Code (including 
        package size) associated with a drug or biological, the lowest 
        identifiable quantity (such as a capsule or tablet, milligram 
        of molecules, or grams) of the drug or biological that is 
        dispensed, exclusive of any diluent without reference to volume 
        measures pertaining to liquids. For years after 2004, the 
        Secretary may establish the unit for a manufacturer to report 
        and methods for counting units as the Secretary determines 
        appropriate to implement this section.
        ``(3) Multiple source drug.--For all drug products included 
    within the same multiple source drug billing and payment code, the 
    amount specified in this paragraph is the volume-weighted average 
    of the average sales prices reported under section 
    1927(b)(3)(A)(iii) determined by--
            ``(A) computing the sum of the products (for each National 
        Drug Code assigned to such drug products) of--
                ``(i) the manufacturer's average sales price (as 
            defined in subsection (c)); and
                ``(ii) the total number of units specified under 
            paragraph (2) sold; and
            ``(B) dividing the sum determined under subparagraph (A) by 
        the sum of the total number of units under subparagraph (A)(ii) 
        for all National Drug Codes assigned to such drug products.
        ``(4) Single source drug or biological.--The amount specified 
    in this paragraph for a single source drug or biological is the 
    lesser of the following:
            ``(A) Average sales price.--The average sales price as 
        determined using the methodology applied under paragraph (3) 
        for all National Drug Codes assigned to such drug or biological 
        product.
            ``(B) Wholesale acquisition cost (wac).--The wholesale 
        acquisition cost (as defined in subsection (c)(6)(B)) using the 
        methodology applied under paragraph (3) for all National Drug 
        Codes assigned to such drug or biological product.
        ``(5) Basis for payment amount.--The payment amount shall be 
    determined under this subsection based on information reported 
    under subsection (f) and without regard to any special packaging, 
    labeling, or identifiers on the dosage form or product or package.
    ``(c) Manufacturer's Average Sales Price.--
        ``(1) In general.--For purposes of this section, subject to 
    paragraphs (2) and (3), the manufacturer's `average sales price' 
    means, of a drug or biological for a National Drug Code for a 
    calendar quarter for a manufacturer for a unit--
            ``(A) the manufacturer's sales to all purchasers (excluding 
        sales exempted in paragraph (2)) in the United States for such 
        drug or biological in the calendar quarter; divided by
            ``(B) the total number of such units of such drug or 
        biological sold by the manufacturer in such quarter.
        ``(2) Certain sales exempted from computation.--In calculating 
    the manufacturer's average sales price under this subsection, the 
    following sales shall be excluded:
            ``(A) Sales exempt from best price.--Sales exempt from the 
        inclusion in the determination of `best price' under section 
        1927(c)(1)(C)(i).
            ``(B) Sales at nominal charge.--Such other sales as the 
        Secretary identifies as sales to an entity that are merely 
        nominal in amount (as applied for purposes of section 
        1927(c)(1)(C)(ii)(III), except as the Secretary may otherwise 
        provide).
        ``(3) Sale price net of discounts.--In calculating the 
    manufacturer's average sales price under this subsection, such 
    price shall include volume discounts, prompt pay discounts, cash 
    discounts, free goods that are contingent on any purchase 
    requirement, chargebacks, and rebates (other than rebates under 
    section 1927). For years after 2004, the Secretary may include in 
    such price other price concessions, which may be based on 
    recommendations of the Inspector General, that would result in a 
    reduction of the cost to the purchaser.
        ``(4) Payment methodology in cases where average sales price 
    during first quarter of sales is unavailable.--In the case of a 
    drug or biological during an initial period (not to exceed a full 
    calendar quarter) in which data on the prices for sales for the 
    drug or biological is not sufficiently available from the 
    manufacturer to compute an average sales price for the drug or 
    biological, the Secretary may determine the amount payable under 
    this section for the drug or biological based on--
            ``(A) the wholesale acquisition cost; or
            ``(B) the methodologies in effect under this part on 
        November 1, 2003, to determine payment amounts for drugs or 
        biologicals.
        ``(5) Frequency of determinations.--
            ``(A) In general on a quarterly basis.--The manufacturer's 
        average sales price, for a drug or biological of a 
        manufacturer, shall be calculated by such manufacturer under 
        this subsection on a quarterly basis. In making such 
        calculation insofar as there is a lag in the reporting of the 
        information on rebates and chargebacks under paragraph (3) so 
        that adequate data are not available on a timely basis, the 
        manufacturer shall apply a methodology based on a 12-month 
        rolling average for the manufacturer to estimate costs 
        attributable to rebates and chargebacks. For years after 2004, 
        the Secretary may establish a uniform methodology under this 
        subparagraph to estimate and apply such costs.
            ``(B) Updates in payment amounts.--The payment amounts 
        under subsection (b) shall be updated by the Secretary on a 
        quarterly basis and shall be applied based upon the 
        manufacturer's average sales price calculated for the most 
        recent calendar quarter for which data is available.
            ``(C) Use of contractors; implementation.--The Secretary 
        may contract with appropriate entities to calculate the payment 
        amount under subsection (b). Notwithstanding any other 
        provision of law, the Secretary may implement, by program 
        instruction or otherwise, any of the provisions of this 
        section.
        ``(6) Definitions and other rules.--In this section:
            ``(A) Manufacturer.--The term `manufacturer' means, with 
        respect to a drug or biological, the manufacturer (as defined 
        in section 1927(k)(5)).
            ``(B) Wholesale acquisition cost.--The term `wholesale 
        acquisition cost' means, with respect to a drug or biological, 
        the manufacturer's list price for the drug or biological to 
        wholesalers or direct purchasers in the United States, not 
        including prompt pay or other discounts, rebates or reductions 
        in price, for the most recent month for which the information 
        is available, as reported in wholesale price guides or other 
        publications of drug or biological pricing data.
            ``(C) Multiple source drug.--
                ``(i) In general.--The term `multiple source drug' 
            means, for a calendar quarter, a drug for which there are 2 
            or more drug products which--

                    ``(I) are rated as therapeutically equivalent 
                (under the Food and Drug Administration's most recent 
                publication of `Approved Drug Products with Therapeutic 
                Equivalence Evaluations'),
                    ``(II) except as provided in subparagraph (E), are 
                pharmaceutically equivalent and bioequivalent, as 
                determined under subparagraph (F) and as determined by 
                the Food and Drug Administration, and
                    ``(III) are sold or marketed in the United States 
                during the quarter.

                ``(ii) Exception.--With respect to single source drugs 
            or biologicals that are within the same billing and payment 
            code as of October 1, 2003, the Secretary shall treat such 
            single source drugs or biologicals as if the single source 
            drugs or biologicals were multiple source drugs.
            ``(D) Single source drug or biological.--The term `single 
        source drug or biological' means--
                ``(i) a biological; or
                ``(ii) a drug which is not a multiple source drug and 
            which is produced or distributed under a new drug 
            application approved by the Food and Drug Administration, 
            including a drug product marketed by any cross-licensed 
            producers or distributors operating under the new drug 
            application.
            ``(E) Exception from pharmaceutical equivalence and 
        bioequivalence requirement.--Subparagraph (C)(ii) shall not 
        apply if the Food and Drug Administration changes by regulation 
        the requirement that, for purposes of the publication described 
        in subparagraph (C)(i), in order for drug products to be rated 
        as therapeutically equivalent, they must be pharmaceutically 
        equivalent and bioequivalent, as defined in subparagraph (F).
            ``(F) Determination of pharmaceutical equivalence and 
        bioequivalence.--For purposes of this paragraph--
                ``(i) drug products are pharmaceutically equivalent if 
            the products contain identical amounts of the same active 
            drug ingredient in the same dosage form and meet compendial 
            or other applicable standards of strength, quality, purity, 
            and identity; and
                ``(ii) drugs are bioequivalent if they do not present a 
            known or potential bioequivalence problem, or, if they do 
            present such a problem, they are shown to meet an 
            appropriate standard of bioequivalence.
            ``(G) Inclusion of vaccines.--In applying provisions of 
        section 1927 under this section, `other than a vaccine' is 
        deemed deleted from section 1927(k)(2)(B).
    ``(d) Monitoring of Market Prices.--
        ``(1) In general.--The Inspector General of the Department of 
    Health and Human Services shall conduct studies, which may include 
    surveys, to determine the widely available market prices of drugs 
    and biologicals to which this section applies, as the Inspector 
    General, in consultation with the Secretary, determines to be 
    appropriate.
        ``(2) Comparison of prices.--Based upon such studies and other 
    data for drugs and biologicals, the Inspector General shall compare 
    the average sales price under this section for drugs and 
    biologicals with--
            ``(A) the widely available market price for such drugs and 
        biologicals (if any); and
            ``(B) the average manufacturer price (as determined under 
        section 1927(k)(1)) for such drugs and biologicals.
        ``(3) Limitation on average sales price.--
            ``(A) In general.--The Secretary may disregard the average 
        sales price for a drug or biological that exceeds the widely 
        available market price or the average manufacturer price for 
        such drug or biological by the applicable threshold percentage 
        (as defined in subparagraph (B)).
            ``(B) Applicable threshold percentage defined.--In this 
        paragraph, the term `applicable threshold percentage' means--
                ``(i) in 2005, in the case of an average sales price 
            for a drug or biological that exceeds widely available 
            market price or the average manufacturer price, 5 percent; 
            and
                ``(ii) in 2006 and subsequent years, the percentage 
            applied under this subparagraph subject to such adjustment 
            as the Secretary may specify for the widely available 
            market price or the average manufacturer price, or both.
            ``(C) Authority to adjust average sales price.--If the 
        Inspector General finds that the average sales price for a drug 
        or biological exceeds such widely available market price or 
        average manufacturer price for such drug or biological by the 
        applicable threshold percentage, the Inspector General shall 
        inform the Secretary (at such times as the Secretary may 
        specify to carry out this subparagraph) and the Secretary 
        shall, effective as of the next quarter, substitute for the 
        amount of payment otherwise determined under this section for 
        such drug or biological the lesser of--
                ``(i) the widely available market price for the drug or 
            biological (if any); or
                ``(ii) 103 percent of the average manufacturer price 
            (as determined under section 1927(k)(1)) for the drug or 
            biological.
        ``(4) Civil money penalty.--
            ``(A) In general.--If the Secretary determines that a 
        manufacturer has made a misrepresentation in the reporting of 
        the manufacturer's average sales price for a drug or 
        biological, the Secretary may apply a civil money penalty in an 
        amount of up to $10,000 for each such price misrepresentation 
        and for each day in which such price misrepresentation was 
        applied.
            ``(B) Procedures.--The provisions of section 1128A (other 
        than subsections (a) and (b)) shall apply to civil money 
        penalties under subparagraph (B) in the same manner as they 
        apply to a penalty or proceeding under section 1128A(a).
        ``(5) Widely available market price.--
            ``(A) In general.--In this subsection, the term `widely 
        available market price' means the price that a prudent 
        physician or supplier would pay for the drug or biological. In 
        determining such price, the Inspector General shall take into 
        account the discounts, rebates, and other price concessions 
        routinely made available to such prudent physicians or 
        suppliers for such drugs or biologicals.
            ``(B) Considerations.--In determining the price under 
        subparagraph (A), the Inspector General shall consider 
        information from one or more of the following sources:
                ``(i) Manufacturers.
                ``(ii) Wholesalers.
                ``(iii) Distributors.
                ``(iv) Physician supply houses.
                ``(v) Specialty pharmacies.
                ``(vi) Group purchasing arrangements.
                ``(vii) Surveys of physicians.
                ``(viii) Surveys of suppliers.
                ``(ix) Information on such market prices from insurers.
                ``(x) Information on such market prices from private 
            health plans.
    ``(e) Authority To Use Alternative Payment in Response to Public 
Health Emergency.--In the case of a public health emergency under 
section 319 of the Public Health Service Act in which there is a 
documented inability to access drugs and biologicals, and a concomitant 
increase in the price, of a drug or biological which is not reflected 
in the manufacturer's average sales price for one or more quarters, the 
Secretary may use the wholesale acquisition cost (or other reasonable 
measure of drug or biological price) instead of the manufacturer's 
average sales price for such quarters and for subsequent quarters until 
the price and availability of the drug or biological has stabilized and 
is substantially reflected in the applicable manufacturer's average 
sales price.
    ``(f) Quarterly Report on Average Sales Price.--For requirements 
for reporting the manufacturer's average sales price (and, if required 
to make payment, the manufacturer's wholesale acquisition cost) for the 
drug or biological under this section, see section 1927(b)(3).
    ``(g) Judicial Review.--There shall be no administrative or 
judicial review under section 1869, section 1878, or otherwise, of--
        ``(1) determinations of payment amounts under this section, 
    including the assignment of National Drug Codes to billing and 
    payment codes;
        ``(2) the identification of units (and package size) under 
    subsection (b)(2);
        ``(3) the method to allocate rebates, chargebacks, and other 
    price concessions to a quarter if specified by the Secretary;
        ``(4) the manufacturer's average sales price when it is used 
    for the determination of a payment amount under this section; and
        ``(5) the disclosure of the average manufacturer price by 
    reason of an adjustment under subsection (d)(3)(C) or (e).''.
        (2) Report on sales to pharmacy benefit managers.--
            (A) Study.--The Secretary shall conduct a study on sales of 
        drugs and biologicals to large volume purchasers, such as 
        pharmacy benefit managers and health maintenance organizations, 
        for purposes of determining whether the price at which such 
        drugs and biologicals are sold to such purchasers does not 
        represent the price such drugs and biologicals are made 
        available for purchase to prudent physicians.
            (B) Report.--Not later than January 1, 2006, the Secretary 
        shall submit to Congress a report on the study conducted under 
        paragraph (1), and shall include recommendations on whether 
        such sales to large volume purchasers should be excluded from 
        the computation of a manufacturer's average sales price under 
        section 1847A of the Social Security Act, as added by paragraph 
        (1).
        (3) Inspector general report on adequacy of reimbursement rate 
    under average sales price methodology.--
            (A) Study.--The Inspector General of the Department of 
        Health and Human Services shall conduct a study on the ability 
        of physician practices in the specialties of hematology, 
        hematology/oncology, and medical oncology of different sizes, 
        especially particularly large practices, to obtain drugs and 
        biologicals for the treatment of cancer patients at 106 percent 
        of the average sales price for the drugs and biologicals. In 
        conducting the study, the Inspector General shall conduct an 
        audit of a representative sample of such practices to determine 
        the adequacy of reimbursement under section 1847A of the Social 
        Security Act, as added by paragraph (1).
            (B) Report.--Not later October 1, 2005, the Inspector 
        General shall submit to Congress a report on the study 
        conducted under subparagraph (A), and shall include 
        recommendations on the adequacy of reimbursement for such drugs 
        and biologicals under such section 1847A.
    (d) Payment Based on Competition.--
        (1) In general.--Title XVIII is amended by inserting after 
    section 1847A, as added by subsection (c), the following new 
    section:

      ``competitive acquisition of outpatient drugs and biologicals

    ``Sec. 1847B. (a) Implementation of Competitive Acquisition.--
        ``(1) Implementation of program.--
            ``(A) In general.--The Secretary shall establish and 
        implement a competitive acquisition program under which--
                ``(i) competitive acquisition areas are established for 
            contract award purposes for acquisition of and payment for 
            categories of competitively biddable drugs and biologicals 
            (as defined in paragraph (2)) under this part;
                ``(ii) each physician is given the opportunity annually 
            to elect to obtain drugs and biologicals under the program, 
            rather than under section 1847A; and
                ``(iii) each physician who elects to obtain drugs and 
            biologicals under the program makes an annual selection 
            under paragraph (5) of the contractor through which drugs 
            and biologicals within a category of drugs and biologicals 
            will be acquired and delivered to the physician under this 
            part.
        This section shall not apply in the case of a physician who 
        elects section 1847A to apply.
            ``(B) Implementation.--For purposes of implementing the 
        program, the Secretary shall establish categories of 
        competitively biddable drugs and biologicals. The Secretary 
        shall phase in the program with respect to those categories 
        beginning in 2006 in such manner as the Secretary determines to 
        be appropriate.
            ``(C) Waiver of certain provisions.--In order to promote 
        competition, in carrying out the program the Secretary may 
        waive such provisions of the Federal Acquisition Regulation as 
        are necessary for the efficient implementation of this section, 
        other than provisions relating to confidentiality of 
        information and such other provisions as the Secretary 
        determines appropriate.
            ``(D) Exclusion authority.--The Secretary may exclude 
        competitively biddable drugs and biologicals (including a class 
        of such drugs and biologicals) from the competitive bidding 
        system under this section if the application of competitive 
        bidding to such drugs or biologicals--
                ``(i) is not likely to result in significant savings; 
            or
                ``(ii) is likely to have an adverse impact on access to 
            such drugs or biologicals.
        ``(2) Competitively biddable drugs and biologicals and program 
    defined.--For purposes of this section--
            ``(A) Competitively biddable drugs and biologicals 
        defined.--The term `competitively biddable drugs and 
        biologicals' means a drug or biological described in section 
        1842(o)(1)(C) and furnished on or after January 1, 2006.
            ``(B) Program.--The term `program' means the competitive 
        acquisition program under this section.
            ``(C) Competitive acquisition area; area.--The terms 
        `competitive acquisition area' and `area' mean an appropriate 
        geographic region established by the Secretary under the 
        program.
            ``(D) Contractor.--The term `contractor' means an entity 
        that has entered into a contract with the Secretary under this 
        section.
        ``(3) Application of program payment methodology.--
            ``(A) In general.--With respect to competitively biddable 
        drugs and biologicals which are supplied under the program in 
        an area and which are prescribed by a physician who has elected 
        this section to apply--
                ``(i) the claim for such drugs and biologicals shall be 
            submitted by the contractor that supplied the drugs and 
            biologicals;
                ``(ii) collection of amounts of any deductible and 
            coinsurance applicable with respect to such drugs and 
            biologicals shall be the responsibility of such contractor 
            and shall not be collected unless the drug or biological is 
            administered to the individual involved; and
                ``(iii) the payment under this section (and related 
            amounts of any applicable deductible and coinsurance) for 
            such drugs and biologicals--

                    ``(I) shall be made only to such contractor; and
                    ``(II) shall be conditioned upon the administration 
                of such drugs and biologicals.

            ``(B) Process for adjustments.--The Secretary shall provide 
        a process for adjustments to payments in the case in which 
        payment is made for drugs and biologicals which were billed at 
        the time of dispensing but which were not actually 
        administered.
            ``(C) Information for purposes of cost-sharing.--The 
        Secretary shall provide a process by which physicians submit 
        information to contractors for purposes of the collection of 
        any applicable deductible or coinsurance amounts under 
        subparagraph (A)(ii).
        ``(4) Contract required.--Payment may not be made under this 
    part for competitively biddable drugs and biologicals prescribed by 
    a physician who has elected this section to apply within a category 
    and a competitive acquisition area with respect to which the 
    program applies unless--
            ``(A) the drugs or biologicals are supplied by a contractor 
        with a contract under this section for such category of drugs 
        and biologicals and area; and
            ``(B) the physician has elected such contractor under 
        paragraph (5) for such category and area.
        ``(5) Contractor selection process.--
            ``(A) Annual selection.--
                ``(i) In general.--The Secretary shall provide a 
            process for the selection of a contractor, on an annual 
            basis and in such exigent circumstances as the Secretary 
            may provide and with respect to each category of 
            competitively biddable drugs and biologicals for an area by 
            selecting physicians.
                ``(ii) Timing of selection.--The selection of a 
            contractor under clause (i) shall be made at the time of 
            the election described in section 1847A(a) for this section 
            to apply and shall be coordinated with agreements entered 
            into under section 1842(h).
            ``(B) Information on contractors.--The Secretary shall make 
        available to physicians on an ongoing basis, through a 
        directory posted on the Internet website of the Centers for 
        Medicare & Medicaid Services or otherwise and upon request, a 
        list of the contractors under this section in the different 
        competitive acquisition areas.
            ``(C) Selecting physician defined.--For purposes of this 
        section, the term `selecting physician' means, with respect to 
        a contractor and category and competitive acquisition area, a 
        physician who has elected this section to apply and has 
        selected to apply under this section such contractor for such 
        category and area.
    ``(b) Program Requirements.--
        ``(1) Contract for competitively biddable drugs and 
    biologicals.--The Secretary shall conduct a competition among 
    entities for the acquisition of competitively biddable drugs and 
    biologicals. Notwithstanding any other provision of this title, in 
    the case of a multiple source drug, the Secretary shall conduct 
    such competition among entities for the acquisition of at least one 
    competitively biddable drug and biological within each billing and 
    payment code within each category for each competitive acquisition 
    area.
        ``(2) Conditions for awarding contract.--
            ``(A) In general.--The Secretary may not award a contract 
        to any entity under the competition conducted in a competitive 
        acquisition area pursuant to paragraph (1) with respect to the 
        acquisition of competitively biddable drugs and biologicals 
        within a category unless the Secretary finds that the entity 
        meets all of the following with respect to the contract period 
        involved:
                ``(i) Capacity to supply competitively biddable drug or 
            biological within category.--

                    ``(I) In general.--The entity has sufficient 
                arrangements to acquire and to deliver competitively 
                biddable drugs and biologicals within such category in 
                the area specified in the contract.
                    ``(II) Shipment methodology.--The entity has 
                arrangements in effect for the shipment at least 5 days 
                each week of competitively biddable drugs and 
                biologicals under the contract and for the timely 
                delivery (including for emergency situations) of such 
                drugs and biologicals in the area under the contract.

                ``(ii) Quality, service, financial performance and 
            solvency standards.--The entity meets quality, service, 
            financial performance, and solvency standards specified by 
            the Secretary, including--

                    ``(I) the establishment of procedures for the 
                prompt response and resolution of complaints of 
                physicians and individuals and of inquiries regarding 
                the shipment of competitively biddable drugs and 
                biologicals; and
                    ``(II) a grievance and appeals process for the 
                resolution of disputes.

            ``(B) Additional considerations.--The Secretary may refuse 
        to award a contract under this section, and may terminate such 
        a contract, with an entity based upon--
                ``(i) the suspension or revocation, by the Federal 
            Government or a State government, of the entity's license 
            for the distribution of drugs or biologicals (including 
            controlled substances); or
                ``(ii) the exclusion of the entity under section 1128 
            from participation under this title.
            ``(C) Application of medicare provider ombudsman.--For 
        provision providing for a program-wide Medicare Provider 
        Ombudsman to review complaints, see section 1868(b), as added 
        by section 923 of the Medicare Prescription Drug, Improvement, 
        and Modernization Act of 2003.
        ``(3) Awarding multiple contracts for a category and area.--The 
    Secretary may limit (but not below 2) the number of qualified 
    entities that are awarded such contracts for any category and area. 
    The Secretary shall select among qualified entities based on the 
    following:
            ``(A) The bid prices for competitively biddable drugs and 
        biologicals within the category and area.
            ``(B) Bid price for distribution of such drugs and 
        biologicals.
            ``(C) Ability to ensure product integrity.
            ``(D) Customer service.
            ``(E) Past experience in the distribution of drugs and 
        biologicals, including controlled substances.
            ``(F) Such other factors as the Secretary may specify.
        ``(4) Terms of contracts.--
            ``(A) In general.--A contract entered into with an entity 
        under the competition conducted pursuant to paragraph (1) is 
        subject to terms and conditions that the Secretary may specify 
        consistent with this section.
            ``(B) Period of contracts.--A contract under this section 
        shall be for a term of 3 years, but may be terminated by the 
        Secretary or the entity with appropriate, advance notice.
            ``(C) Integrity of drug and biological distribution 
        system.--A contractor (as defined in subsection (a)(2)(D)) 
        shall--
                ``(i) acquire all drug and biological products it 
            distributes directly from the manufacturer or from a 
            distributor that has acquired the products directly from 
            the manufacturer; and
                ``(ii) comply with any product integrity safeguards as 
            may be determined to be appropriate by the Secretary.
        Nothing in this subparagraph shall be construed to relieve or 
        exempt any contractor from the provisions of the Federal Food, 
        Drug, and Cosmetic Act that relate to the wholesale 
        distribution of prescription drugs or biologicals.
            ``(D) Compliance with code of conduct and fraud and abuse 
        rules.--Under the contract--
                ``(i) the contractor shall comply with a code of 
            conduct, specified or recognized by the Secretary, that 
            includes standards relating to conflicts of interest; and
                ``(ii) the contractor shall comply with all applicable 
            provisions relating to prevention of fraud and abuse, 
            including compliance with applicable guidelines of the 
            Department of Justice and the Inspector General of the 
            Department of Health and Human Services.
            ``(E) Direct delivery of drugs and biologicals to 
        physicians.--Under the contract the contractor shall only 
        supply competitively biddable drugs and biologicals directly to 
        the selecting physicians and not directly to individuals, 
        except under circumstances and settings where an individual 
        currently receives a drug or biological in the individual's 
        home or other non-physician office setting as the Secretary may 
        provide. The contractor shall not deliver drugs and biologicals 
        to a selecting physician except upon receipt of a prescription 
        for such drugs and biologicals, and such necessary data as may 
        be required by the Secretary to carry out this section. This 
        section does not--
                ``(i) require a physician to submit a prescription for 
            each individual treatment; or
                ``(ii) change a physician's flexibility in terms of 
            writing a prescription for drugs or biologicals for a 
            single treatment or a course of treatment.
        ``(5) Permitting access to drugs and biologicals.--The 
    Secretary shall establish rules under this section under which 
    drugs and biologicals which are acquired through a contractor under 
    this section may be used to resupply inventories of such drugs and 
    biologicals which are administered consistent with safe drug 
    practices and with adequate safeguards against fraud and abuse. The 
    previous sentence shall apply if the physicians can demonstrate to 
    the Secretary all of the following:
            ``(A) The drugs or biologicals are required immediately.
            ``(B) The physician could not have reasonably anticipated 
        the immediate requirement for the drugs or biologicals.
            ``(C) The contractor could not deliver to the physician the 
        drugs or biologicals in a timely manner.
            ``(D) The drugs or biologicals were administered in an 
        emergency situation.
        ``(6) Construction.--Nothing in this section shall be construed 
    as waiving applicable State requirements relating to licensing of 
    pharmacies.
    ``(c) Bidding Process.--
        ``(1) In general.--In awarding a contract for a category of 
    drugs and biologicals in an area under the program, the Secretary 
    shall consider with respect to each entity seeking to be awarded a 
    contract the bid price and the other factors referred to in 
    subsection (b)(3).
        ``(2) Bid defined.--In this section, the term `bid' means an 
    offer to furnish a competitively biddable drug or biological for a 
    particular price and time period.
        ``(3) Bidding on a national or regional basis.--Nothing in this 
    section shall be construed as precluding a bidder from bidding for 
    contracts in all areas of the United States or as requiring a 
    bidder to submit a bid for all areas of the United States.
        ``(4) Uniformity of bids within area.--The amount of the bid 
    submitted under a contract offer for any competitively biddable 
    drug or biological for an area shall be the same for that drug or 
    biological for all portions of that area.
        ``(5) Confidentiality of bids.--The provisions of subparagraph 
    (D) of section 1927(b)(3) shall apply to periods during which a bid 
    is submitted with respect to a competitively biddable drug or 
    biological under this section in the same manner as it applies to 
    information disclosed under such section, except that any 
    reference--
            ``(A) in that subparagraph to a `manufacturer or 
        wholesaler' is deemed a reference to a `bidder' under this 
        section;
            ``(B) in that section to `prices charged for drugs' is 
        deemed a reference to a `bid' submitted under this section; and
            ``(C) in clause (i) of that section to `this section', is 
        deemed a reference to `part B of title XVIII'.
        ``(6) Inclusion of costs.--The bid price submitted in a 
    contract offer for a competitively biddable drug or biological 
    shall--
            ``(A) include all costs related to the delivery of the drug 
        or biological to the selecting physician (or other point of 
        delivery); and
            ``(B) include the costs of dispensing (including shipping) 
        of such drug or biological and management fees, but shall not 
        include any costs related to the administration of the drug or 
        biological, or wastage, spillage, or spoilage.
        ``(7) Price adjustments during contract period; disclosure of 
    costs.--Each contract awarded shall provide for--
            ``(A) disclosure to the Secretary the contractor's 
        reasonable, net acquisition costs for periods specified by the 
        Secretary, not more often than quarterly, of the contract; and
            ``(B) appropriate price adjustments over the period of the 
        contract to reflect significant increases or decreases in a 
        contractor's reasonable, net acquisition costs, as so 
        disclosed.
    ``(d) Computation of Payment Amounts.--
        ``(1) In general.--Payment under this section for competitively 
    biddable drugs or biologicals shall be based on bids submitted and 
    accepted under this section for such drugs or biologicals in an 
    area. Based on such bids the Secretary shall determine a single 
    payment amount for each competitively biddable drug or biological 
    in the area.
        ``(2) Special rules.--The Secretary shall establish rules 
    regarding the use under this section of the alternative payment 
    amount provided under section 1847A to the use of a price for 
    specific competitively biddable drugs and biologicals in the 
    following cases:
            ``(A) New drugs and biologicals.--A competitively biddable 
        drug or biological for which a payment and billing code has not 
        been established.
            ``(B) Other cases.--Such other exceptional cases as the 
        Secretary may specify in regulations.
    ``(e) Cost-sharing.--
        ``(1) Application of coinsurance.--Payment under this section 
    for competitively biddable drugs and biologicals shall be in an 
    amount equal to 80 percent of the payment basis described in 
    subsection (d)(1).
        ``(2) Deductible.--Before applying paragraph (1), the 
    individual shall be required to meet the deductible described in 
    section 1833(b).
        ``(3) Collection.--Such coinsurance and deductible shall be 
    collected by the contractor that supplies the drug or biological 
    involved. Subject to subsection (a)(3)(B), such coinsurance and 
    deductible may be collected in a manner similar to the manner in 
    which the coinsurance and deductible are collected for durable 
    medical equipment under this part.
    ``(f) Special Payment Rules.--
        ``(1) Use in exclusion cases.--If the Secretary excludes a drug 
    or biological (or class of drugs or biologicals) under subsection 
    (a)(1)(D), the Secretary may provide for payment to be made under 
    this part for such drugs and biologicals (or class) using the 
    payment methodology under section 1847A.
        ``(2) Application of requirement for assignment.--For provision 
    requiring assignment of claims for competitively biddable drugs and 
    biologicals, see section 1842(o)(3).
        ``(3) Protection for beneficiary in case of medical necessity 
    denial.--For protection of individuals against liability in the 
    case of medical necessity determinations, see section 
    1842(b)(3)(B)(ii)(III).
    ``(g) Judicial Review.--There shall be no administrative or 
judicial review under section 1869, section 1878, or otherwise, of--
        ``(1) the establishment of payment amounts under subsection 
    (d)(1);
        ``(2) the awarding of contracts under this section;
        ``(3) the establishment of competitive acquisition areas under 
    subsection (a)(2)(C);
        ``(4) the phased-in implementation under subsection (a)(1)(B);
        ``(5) the selection of categories of competitively biddable 
    drugs and biologicals for competitive acquisition under such 
    subsection or the selection of a drug in the case of multiple 
    source drugs; or
        ``(6) the bidding structure and number of contractors selected 
    under this section.''.
        (2) Report.--Not later than July 1, 2008, the Secretary shall 
    submit to Congress a report on the program conducted under section 
    1847B of the Social Security Act, as added by paragraph (1). Such 
    report shall include information on savings, reductions in cost-
    sharing, access to competitively biddable drugs and biologicals, 
    the range of choices of contractors available to physicians, the 
    satisfaction of physicians and of individuals enrolled under this 
    part, and information comparing prices for drugs and biologicals 
    under such section and section 1847A of such Act, as added by 
    subsection (c).
    (e) Adjustments to Payment Amounts for Administration of Drugs and 
Biologicals.--
        (1) Items and services relating to furnishing of blood clotting 
    factors.--Section 1842(o) (42 U.S.C. 1395u(o)), as amended by 
    subsection (b)(2), is amended by adding at the end the following 
    new paragraph:
    ``(5)(A) Subject to subparagraph (B), in the case of clotting 
factors furnished on or after January 1, 2005, the Secretary shall, 
after reviewing the January 2003 report to Congress by the Comptroller 
General of the United States entitled `Payment for Blood Clotting 
Factor Exceeds Providers Acquisition Cost', provide for a separate 
payment, to the entity which furnishes to the patient blood clotting 
factors, for items and services related to the furnishing of such 
factors in an amount that the Secretary determines to be appropriate. 
Such payment amount may take into account any or all of the following:
        ``(i) The mixing (if appropriate) and delivery of factors to an 
    individual, including special inventory management and storage 
    requirements.
        ``(ii) Ancillary supplies and patient training necessary for 
    the self-administration of such factors.
    ``(B) In determining the separate payment amount under subparagraph 
(A) for blood clotting factors furnished in 2005, the Secretary shall 
ensure that the total amount of payments under this part (as estimated 
by the Secretary) for such factors under paragraph (1)(C) and such 
separate payments for such factors does not exceed the total amount of 
payments that would have been made for such factors under this part (as 
estimated by the Secretary) if the amendments made by section 303 of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 had not been enacted.
    ``(C) The separate payment amount under this subparagraph for blood 
clotting factors furnished in 2006 or a subsequent year shall be equal 
to the separate payment amount determined under this paragraph for the 
previous year increased by the percentage increase in the consumer 
price index for medical care for the 12-month period ending with June 
of the previous year.''.
        (2) Pharmacy supplying fee for certain drugs and biologicals.--
    Section 1842(o) (42 U.S.C. 1395u(o)), as previously amended, is 
    amended by adding at the end the following new paragraph:
    ``(6) In the case of an immunosuppressive drug described in 
subparagraph (J) of section 1861(s)(2) and an oral drug described in 
subparagraph (Q) or (T) of such section, the Secretary shall pay to the 
pharmacy a supplying fee for such a drug determined appropriate by the 
Secretary (less the applicable deductible and coinsurance amounts).''.
    (f) Linkage of Revised Drug Payments and Increases for Drug 
Administration.--The Secretary shall not implement the revisions in 
payment amounts for drugs and biologicals administered by physicians as 
a result of the amendments made by subsection (b) with respect to 2004 
unless the Secretary concurrently makes adjustments to the practice 
expense payment adjustment under the amendments made by subsection (a).
    (g) Prohibition of Administrative and Judicial Review.--
        (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), as previously 
    amended, is amended by adding at the end the following new 
    paragraph:
    ``(7) There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, of determinations of payment 
amounts, methods, or adjustments under paragraphs (4) through (6).''.
        (2) Physician fee schedule.--Section 1848(i)(1)(B) (42 U.S.C. 
    1395w-4(i)(1)(B)) is amended by striking ``subsection (c)(2)(F)'' 
    and inserting ``subsections (c)(2)(F), (c)(2)(H), and (c)(2)(I)''.
        (3) Multiple chemotherapy agents, other services currently on 
    the non-physician work pool, and transitional adjustment.--There 
    shall be no administrative or judicial review under section 1869, 
    section 1878, or otherwise, of determinations of payment amounts, 
    methods, or adjustments under paragraphs (2) through (4) of 
    subsection (a).
    (h) Continuation of Payment Methodology for Radiopharmaceuticals.--
Nothing in the amendments made by this section shall be construed as 
changing the payment methodology under part B of title XVIII of the 
Social Security Act for radiopharmaceuticals, including the use by 
carriers of invoice pricing methodology.
    (i) Conforming Amendments.--
        (1) Application of asp and competitive bidding.--Section 
    1842(o)(2) (42 U.S.C. 1395u(o)(2)) is amended by adding at the end 
    the following: ``This paragraph shall not apply in the case of 
    payment under paragraph (1)(C).''.
        (2) No change in coverage basis.--Section 1861(s)(2)(A) (42 
    U.S.C. 1395x(s)(2)(A)) is amended by inserting ``(or would have 
    been so included but for the application of section 1847B)'' after 
    ``included in the physicians' bills''.
        (3) Payment.--(A) Section 1833(a)(1)(S) (42 U.S.C. 
    1395l(a)(1)(S)) is amended by inserting ``(or, if applicable, under 
    section 1847, 1847A, or 1847B)'' after ``1842(o)''.
        (B) Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is amended--
            (i) by striking ``and'' at the end of subparagraph (H);
            (ii) by striking the semicolon at the end of subparagraph 
        (I) and inserting ``, and''; and
            (iii) by adding at the end the following new subparagraph:
        ``(J) in the case of a drug or biological specified in section 
    1847A(c)(6)(C) for which payment is made under part B that is 
    furnished in a competitive area under section 1847B, that is not 
    furnished by an entity under a contract under such section;''.
        (4) Consolidated reporting of pricing information.--Section 
    1927 (42 U.S.C. 1396r-8) is amended--
            (A) in subsection (a)(1), by inserting ``or under part B of 
        title XVIII'' after ``section 1903(a)'';
            (B) in subsection (b)(3)(A)--
                (i) in clause (i), by striking ``and'' at the end and 
            inserting a semicolon;
                (ii) in clause (ii), by striking the period and 
            inserting ``; and''; and
                (iii) by adding at the end the following:
                ``(iii) for calendar quarters beginning on or after 
            January 1, 2004, in conjunction with reporting required 
            under clause (i) and by National Drug Code (including 
            package size)--

                    ``(I) the manufacturer's average sales price (as 
                defined in section 1847A(c)) and the total number of 
                units specified under section 1847A(b)(2)(A);
                    ``(II) if required to make payment under section 
                1847A, the manufacturer's wholesale acquisition cost, 
                as defined in subsection (c)(6) of such section; and
                    ``(III) information on those sales that were made 
                at a nominal price or otherwise described in section 
                1847A(c)(2)(B);

            for a drug or biological described in subparagraph (C), 
            (D), (E), or (G) of section 1842(o)(1) or section 
            1881(b)(13)(A)(ii).
        Information reported under this subparagraph is subject to 
        audit by the Inspector General of the Department of Health and 
        Human Services.'';
            (C) in subsection (b)(3)(B)--
                (i) in the heading, by inserting ``and manufacturer's 
            average sales price'' after ``price''; and
                (ii) by inserting ``and manufacturer's average sales 
            prices (including wholesale acquisition cost) if required 
            to make payment'' after ``manufacturer prices''; and
            (D) in subsection (b)(3)(D)--
                (i) in the matter preceding clause (i), by inserting 
            ``(other than the wholesale acquisition cost for purposes 
            of carrying out section 1847A)'' after ``subsection 
            (a)(6)(A)(ii)''; and
                (ii) in clause (i), by inserting ``, to carry out 
            section 1847A (including the determination and 
            implementation of the payment amount), or to carry out 
            section 1847B'' after ``this section''.
        (5) Implementation.--The provisions of chapter 8 of title 5, 
    United States Code, shall not apply with respect to regulations 
    implementing the amendments made by subsections (a), (b), and 
    (e)(3), to regulations implementing section 304, and to regulations 
    implementing the amendment made by section 305(a), insofar as such 
    regulations apply in 2004.
        (6) Repeal of study.--Section 4556 of the Balanced Budget Act 
    of 1997 (42 U.S.C. 1395u note) is amended by striking subsection 
    (c).
    (j) Application to Certain Physician Specialties.--Insofar as the 
amendments made by this section apply to payments for drugs or 
biologicals and drug administration services furnished by physicians, 
such amendments shall only apply to physicians in the specialties of 
hematology, hematology/oncology, and medical oncology under title XVIII 
of the Social Security Act.

SEC. 304. EXTENSION OF APPLICATION OF PAYMENT REFORM FOR COVERED 
              OUTPATIENT DRUGS AND BIOLOGICALS TO OTHER PHYSICIAN 
              SPECIALTIES.

    Notwithstanding section 303(j), the amendments made by section 303 
shall also apply to payments for drugs or biologicals and drug 
administration services furnished by physicians in specialties other 
than the specialties of hematology, hematology/oncology, and medical 
oncology.

SEC. 305. PAYMENT FOR INHALATION DRUGS.

    (a) In General.--Section 1842(o)(1)(G) (42 U.S.C. 1395u(o)(1)(G)), 
as added by section 303(b), is amended to read as follows:
        ``(G) In the case of inhalation drugs or biologicals furnished 
    through durable medical equipment covered under section 1861(n) 
    that are furnished--
            ``(i) in 2004, the amount provided under paragraph (4) for 
        the drug or biological; and
            ``(ii) in 2005 and subsequent years, the amount provided 
        under section 1847A for the drug or biological.''.
    (b) GAO Study of Medicare Payment for Inhalation Therapy.--
        (1) Study.--The Comptroller General of the United States shall 
    conduct a study to examine the adequacy of current reimbursements 
    for inhalation therapy under the medicare program.
        (2) Report.--Not later than 1 year after the date of the 
    enactment of this Act, the Comptroller General shall submit to 
    Congress a report on the study conducted under paragraph (1).

SEC. 306. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

    (a) In General.--The Secretary shall conduct a demonstration 
project under this section (in this section referred to as the 
``project'') to demonstrate the use of recovery audit contractors under 
the Medicare Integrity Program in identifying underpayments and 
overpayments and recouping overpayments under the medicare program for 
services for which payment is made under part A or B of title XVIII of 
the Social Security Act. Under the project--
        (1) payment may be made to such a contractor on a contingent 
    basis;
        (2) such percentage as the Secretary may specify of the amount 
    recovered shall be retained by the Secretary and shall be available 
    to the program management account of the Centers for Medicare & 
    Medicaid Services; and
        (3) the Secretary shall examine the efficacy of such use with 
    respect to duplicative payments, accuracy of coding, and other 
    payment policies in which inaccurate payments arise.
    (b) Scope and Duration.--
        (1) Scope.--The project shall cover at least 2 States that are 
    among the States with--
            (A) the highest per capita utilization rates of medicare 
        services, and
            (B) at least 3 contractors.
        (2) Duration.--The project shall last for not longer than 3 
    years.
    (c) Waiver.--The Secretary shall waive such provisions of title 
XVIII of the Social Security Act as may be necessary to provide for 
payment for services under the project in accordance with subsection 
(a).
    (d) Qualifications of Contractors.--
        (1) In general.--The Secretary shall enter into a recovery 
    audit contract under this section with an entity only if the entity 
    has staff that has the appropriate clinical knowledge of and 
    experience with the payment rules and regulations under the 
    medicare program or the entity has or will contract with another 
    entity that has such knowledgeable and experienced staff.
        (2) Ineligibility of certain contractors.--The Secretary may 
    not enter into a recovery audit contract under this section with an 
    entity to the extent that the entity is a fiscal intermediary under 
    section 1816 of the Social Security Act (42 U.S.C. 1395h), a 
    carrier under section 1842 of such Act (42 U.S.C. 1395u), or a 
    Medicare Administrative Contractor under section 1874A of such Act.
        (3) Preference for entities with demonstrated proficiency.--In 
    awarding contracts to recovery audit contractors under this 
    section, the Secretary shall give preference to those risk entities 
    that the Secretary determines have demonstrated more than 3 years 
    direct management experience and a proficiency for cost control or 
    recovery audits with private insurers, health care providers, 
    health plans, or under the medicaid program under title XIX of the 
    Social Security Act.
    (e) Construction Relating to Conduct of Investigation of Fraud.--A 
recovery of an overpayment to a provider by a recovery audit contractor 
shall not be construed to prohibit the Secretary or the Attorney 
General from investigating and prosecuting, if appropriate, allegations 
of fraud or abuse arising from such overpayment.
    (f) Report.--The Secretary shall submit to Congress a report on the 
project not later than 6 months after the date of its completion. Such 
reports shall include information on the impact of the project on 
savings to the medicare program and recommendations on the cost-
effectiveness of extending or expanding the project.information' means 
information about a conviction for a relevant crime or a finding of 
patient or resident abuse.

SEC. 307. PILOT PROGRAM FOR NATIONAL AND STATE BACKGROUND CHECKS ON 
              DIRECT PATIENT ACCESS EMPLOYEES OF LONG-TERM CARE 
              FACILITIES OR PROVIDERS.

    (a) Authority To Conduct Program.--The Secretary, in consultation 
with the Attorney General, shall establish a pilot program to identify 
efficient, effective, and economical procedures for long term care 
facilities or providers to conduct background checks on prospective 
direct patient access employees.
    (b) Requirements.--
        (1) In general.--Under the pilot program, a long-term care 
    facility or provider in a participating State, prior to employing a 
    direct patient access employee that is first hired on or after the 
    commencement date of the pilot program in the State, shall conduct 
    a background check on the employee in accordance with such 
    procedures as the participating State shall establish.
        (2) Procedures.--
            (A) In general.--The procedures established by a 
        participating State under paragraph (1) should be designed to--
                (i) give a prospective direct access patient employee 
            notice that the long-term care facility or provider is 
            required to perform background checks with respect to new 
            employees;
                (ii) require, as a condition of employment, that the 
            employee--

                    (I) provide a written statement disclosing any 
                disqualifying information;
                    (II) provide a statement signed by the employee 
                authorizing the facility to request national and State 
                criminal history background checks;
                    (III) provide the facility with a rolled set of the 
                employee's fingerprints; and
                    (IV) provide any other identification information 
                the participating State may require;

                (iii) require the facility or provider to check any 
            available registries that would be likely to contain 
            disqualifying information about a prospective employee of a 
            long-term care facility or provider; and
                (iv) permit the facility or provider to obtain State 
            and national criminal history background checks on the 
            prospective employee through a 10-fingerprint check that 
            utilizes State criminal records and the Integrated 
            Automated Fingerprint Identification System of the Federal 
            Bureau of Investigation.
            (B) Elimination of unnecessary checks.--The procedures 
        established by a participating State under paragraph (1) shall 
        permit a long-term care facility or provider to terminate the 
        background check at any stage at which the facility or provider 
        obtains disqualifying information regarding a prospective 
        direct patient access employee.
        (3) Prohibition on hiring of abusive workers.--
            (A) In general.--A long-term care facility or provider may 
        not knowingly employ any direct patient access employee who has 
        any disqualifying information.
            (B) Provisional employment.--
                (i) In general.--Under the pilot program, a 
            participating State may permit a long-term care facility or 
            provider to provide for a provisional period of employment 
            for a direct patient access employee pending completion of 
            a background check, subject to such supervision during the 
            employee's provisional period of employment as the 
            participating State determines appropriate.
                (ii) Special consideration for certain facilities and 
            providers.--In determining what constitutes appropriate 
            supervision of a provisional employee, a participating 
            State shall take into account cost or other burdens that 
            would be imposed on small rural long-term care facilities 
            or providers, as well as the nature of care delivered by 
            such facilities or providers that are home health agencies 
            or providers of hospice care.
        (4) Use of information; immunity from liability.--
            (A) Use of information.--A participating State shall ensure 
        that a long-term care facility or provider that obtains 
        information about a direct patient access employee pursuant to 
        a background check uses such information only for the purpose 
        of determining the suitability of the employee for employment.
            (B) Immunity from liability.--A participating State shall 
        ensure that a long-term care facility or provider that, in 
        denying employment for an individual selected for hire as a 
        direct patient access employee (including during any period of 
        provisional employment), reasonably relies upon information 
        obtained through a background check of the individual, shall 
        not be liable in any action brought by the individual based on 
        the employment determination resulting from the information.
        (5) Agreements with employment agencies.--A participating State 
    may establish procedures for facilitating the conduct of background 
    checks on prospective direct patient access employees that are 
    hired by a long-term care facility or provider through an 
    employment agency (including a temporary employment agency).
        (6) Penalties.--A participating State may impose such penalties 
    as the State determines appropriate to enforce the requirements of 
    the pilot program conducted in that State.
    (c) Participating States.--
        (1) In general.--The Secretary shall enter into agreements with 
    not more than 10 States to conduct the pilot program under this 
    section in such States.
        (2) Requirements for states.--An agreement entered into under 
    paragraph (1) shall require that a participating State--
            (A) be responsible for monitoring compliance with the 
        requirements of the pilot program;
            (B) have procedures by which a provisional employee or an 
        employee may appeal or dispute the accuracy of the information 
        obtained in a background check performed under the pilot 
        program; and
            (C) agree to--
                (i) review the results of any State or national 
            criminal history background checks conducted regarding a 
            prospective direct patient access employee to determine 
            whether the employee has any conviction for a relevant 
            crime;
                (ii) immediately report to the entity that requested 
            the criminal history background checks the results of such 
            review; and
                (iii) in the case of an employee with a conviction for 
            a relevant crime that is subject to reporting under section 
            1128E of the Social Security Act (42 U.S.C. 1320a-7e), 
            report the existence of such conviction to the database 
            established under that section.
        (3) Application and selection criteria.--
            (A) Application.--A State seeking to participate in the 
        pilot program established under this section, shall submit an 
        application to the Secretary containing such information and at 
        such time as the Secretary may specify.
            (B) Selection criteria.--
                (i) In general.--In selecting States to participate in 
            the pilot program, the Secretary shall establish criteria 
            to ensure--

                    (I) geographic diversity;
                    (II) the inclusion of a variety of long-term care 
                facilities or providers;
                    (III) the evaluation of a variety of payment 
                mechanisms for covering the costs of conducting the 
                background checks required under the pilot program; and
                    (IV) the evaluation of a variety of penalties 
                (monetary and otherwise) used by participating States 
                to enforce the requirements of the pilot program in 
                such States.

                (ii) Additional criteria.--The Secretary shall, to the 
            greatest extent practicable, select States to participate 
            in the pilot program in accordance with the following:

                    (I) At least one participating State should permit 
                long-term care facilities or providers to provide for a 
                provisional period of employment pending completion of 
                a background check and at least one such State should 
                not permit such a period of employment.
                    (II) At least one participating State should 
                establish procedures under which employment agencies 
                (including temporary employment agencies) may contact 
                the State directly to conduct background checks on 
                prospective direct patient access employees.
                    (III) At least one participating State should 
                include patient abuse prevention training (including 
                behavior training and interventions) for managers and 
                employees of long-term care facilities and providers as 
                part of the pilot program conducted in that State.

                (iii) Inclusion of states with existing programs.--
            Nothing in this section shall be construed as prohibiting 
            any State which, as of the date of the enactment of this 
            Act, has procedures for conducting background checks on 
            behalf of any entity described in subsection (g)(5) from 
            being selected to participate in the pilot program 
            conducted under this section.
    (d) Payments.--Of the amounts made available under subsection (f) 
to conduct the pilot program under this section, the Secretary shall--
        (1) make payments to participating States for the costs of 
    conducting the pilot program in such States; and
        (2) reserve up to 4 percent of such amounts to conduct the 
    evaluation required under subsection (e).
    (e) Evaluation.--The Secretary, in consultation with the Attorney 
General, shall conduct by grant, contract, or interagency agreement an 
evaluation of the pilot program conducted under this section. Such 
evaluation shall--
        (1) review the various procedures implemented by participating 
    States for long-term care facilities or providers to conduct 
    background checks of direct patient access employees and identify 
    the most efficient, effective, and economical procedures for 
    conducting such background checks;
        (2) assess the costs of conducting such background checks 
    (including start-up and administrative costs);
        (3) consider the benefits and problems associated with 
    requiring employees or facilities or providers to pay the costs of 
    conducting such background checks;
        (4) consider whether the costs of conducting such background 
    checks should be allocated between the medicare and medicaid 
    programs and if so, identify an equitable methodology for doing so;
        (5) determine the extent to which conducting such background 
    checks leads to any unintended consequences, including a reduction 
    in the available workforce for such facilities or providers;
        (6) review forms used by participating States in order to 
    develop, in consultation with the Attorney General, a model form 
    for such background checks;
        (7) determine the effectiveness of background checks conducted 
    by employment agencies; and
        (8) recommend appropriate procedures and payment mechanisms for 
    implementing a national criminal background check program for such 
    facilities and providers.
    (f) Funding.--Out of any funds in the Treasury not otherwise 
appropriated, there are appropriated to the Secretary to carry out the 
pilot program under this section for the period of fiscal years 2004 
through 2007, $25,000,000.
    (g) Definitions.--In this section:
        (1) Conviction for a relevant crime.--The term ``conviction for 
    a relevant crime'' means any Federal or State criminal conviction 
    for--
            (A) any offense described in section 1128(a) of the Social 
        Security Act (42 U.S.C. 1320a-7); and
            (B) such other types of offenses as a participating State 
        may specify for purposes of conducting the pilot program in 
        such State.
        (2) Disqualifying information.--The term ``disqualifying 
    information'' means a conviction for a relevant crime or a finding 
    of patient or resident abuse.
        (3) Finding of patient or resident abuse.--The term ``finding 
    of patient or resident abuse'' means any substantiated finding by a 
    State agency under section 1819(g)(1)(C) or 1919(g)(1)(C) of the 
    Social Security Act (42 U.S.C. 1395i-3(g)(1)(C), 1396r(g)(1)(C)) or 
    a Federal agency that a direct patient access employee has 
    committed--
            (A) an act of patient or resident abuse or neglect or a 
        misappropriation of patient or resident property; or
            (B) such other types of acts as a participating State may 
        specify for purposes of conducting the pilot program in such 
        State.
        (4) Direct patient access employee.--The term ``direct patient 
    access employee'' means any individual (other than a volunteer) 
    that has access to a patient or resident of a long-term care 
    facility or provider through employment or through a contract with 
    such facility or provider, as determined by a participating State 
    for purposes of conducting the pilot program in such State.
        (5) Long-term care facility or provider.--
            (A) In general.--The term ``long-term care facility or 
        provider'' means the following facilities or providers which 
        receive payment for services under title XVIII or XIX of the 
        Social Security Act:
                (i) A skilled nursing facility (as defined in section 
            1819(a) of the Social Security Act) (42 U.S.C. 1395i-3(a)).
                (ii) A nursing facility (as defined in section 1919(a) 
            in such Act) (42 U.S.C. 1396r(a)).
                (iii) A home health agency.
                (iv) A provider of hospice care (as defined in section 
            1861(dd)(1) of such Act) (42 U.S.C. 1395x(dd)(1)).
                (v) A long-term care hospital (as described in section 
            1886(d)(1)(B)(iv) of such Act) (42 U.S.C. 
            1395ww(d)(1)(B)(iv)).
                (vi) A provider of personal care services.
                (vii) A residential care provider that arranges for, or 
            directly provides, long-term care services.
                (viii) An intermediate care facility for the mentally 
            retarded (as defined in section 1905(d) of such Act) 42 
            U.S.C. 1396d(d)).
            (B) Additional facilities or providers.--During the first 
        year in which a pilot program under this section is conducted 
        in a participating State, the State may expand the list of 
        facilities or providers under subparagraph (A) (on a phased-in 
        basis or otherwise) to include such other facilities or 
        providers of long-term care services under such titles as the 
        participating State determines appropriate.
            (C) Exceptions.--Such term does not include--
                (i) any facility or entity that provides, or is a 
            provider of, services described in subparagraph (A) that 
            are exclusively provided to an individual pursuant to a 
            self-directed arrangement that meets such requirements as 
            the participating State may establish in accordance with 
            guidance from the Secretary; or
                (ii) any such arrangement that is obtained by a patient 
            or resident functioning as an employer.
        (6) Participating state.--The term ``participating State'' 
    means a State with an agreement under subsection (c)(1).

                       TITLE IV--RURAL PROVISIONS
             Subtitle A--Provisions Relating to Part A Only

SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT AMOUNTS UNDER 
              THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE PAYMENT 
              SYSTEM.

    (a) In General.--Section 1886(d)(3)(A)(iv) (42 U.S.C. 
1395ww(d)(3)(A)(iv)) is amended--
        (1) by striking ``(iv) For discharges'' and inserting ``(iv)(I) 
    Subject to subclause (II), for discharges''; and
        (2) by adding at the end the following new subclause:
        ``(II) For discharges occurring in a fiscal year (beginning 
    with fiscal year 2004), the Secretary shall compute a standardized 
    amount for hospitals located in any area within the United States 
    and within each region equal to the standardized amount computed 
    for the previous fiscal year under this subparagraph for hospitals 
    located in a large urban area (or, beginning with fiscal year 2005, 
    for all hospitals in the previous fiscal year) increased by the 
    applicable percentage increase under subsection (b)(3)(B)(i) for 
    the fiscal year involved.''.
    (b) Conforming Amendments.--
        (1) Computing drg-specific rates.--Section 1886(d)(3)(D) (42 
    U.S.C. 1395ww(d)(3)(D)) is amended--
            (A) in the heading, by striking ``in different areas'';
            (B) in the matter preceding clause (i), by striking ``, 
        each of'';
            (C) in clause (i)--
                (i) in the matter preceding subclause (I), by inserting 
            ``for fiscal years before fiscal year 2004,'' before ``for 
            hospitals''; and
                (ii) in subclause (II), by striking ``and'' after the 
            semicolon at the end;
            (D) in clause (ii)--
                (i) in the matter preceding subclause (I), by inserting 
            ``for fiscal years before fiscal year 2004,'' before ``for 
            hospitals''; and
                (ii) in subclause (II), by striking the period at the 
            end and inserting ``; and''; and
            (E) by adding at the end the following new clause:
            ``(iii) for a fiscal year beginning after fiscal year 2003, 
        for hospitals located in all areas, to the product of--
                ``(I) the applicable standardized amount (computed 
            under subparagraph (A)), reduced under subparagraph (B), 
            and adjusted or reduced under subparagraph (C) for the 
            fiscal year; and
                ``(II) the weighting factor (determined under paragraph 
            (4)(B)) for that diagnosis-related group.''.
        (2) Technical conforming sunset.--Section 1886(d)(3) (42 U.S.C. 
    1395ww(d)(3)) is amended--
            (A) in the matter preceding subparagraph (A), by inserting 
        ``, for fiscal years before fiscal year 1997,'' before ``a 
        regional adjusted DRG prospective payment rate''; and
            (B) in subparagraph (D), in the matter preceding clause 
        (i), by inserting ``, for fiscal years before fiscal year 
        1997,'' before ``a regional DRG prospective payment rate for 
        each region,''.
        (3) Additional technical amendment.--Section 1886(d)(3)(A)(iii) 
    (42 U.S.C. 1395ww(d)(3)(A)(iii)) is amended by striking ``in an 
    other urban area'' and inserting ``in an urban area''.
    (c) Equalizing Urban and Rural Standardized Payment Amounts Under 
the Medicare Inpatient Hospital Prospective Payment System for 
Hospitals in Puerto Rico.--
        (1) In general.--Section 1886(d)(9)(A) (42 U.S.C. 
    1395ww(d)(9)(A)), as amended by section 504, is amended--
            (A) in clause (i), by striking ``and'' after the comma at 
        the end; and
            (B) by striking clause (ii) and inserting the following new 
        clause:
        ``(ii) the applicable Federal percentage (specified in 
    subparagraph (E)) of--
            ``(I) for discharges beginning in a fiscal year beginning 
        on or after October 1, 1997, and before October 1, 2003, the 
        discharge-weighted average of--
                ``(aa) the national adjusted DRG prospective payment 
            rate (determined under paragraph (3)(D)) for hospitals 
            located in a large urban area,
                ``(bb) such rate for hospitals located in other urban 
            areas, and
                ``(cc) such rate for hospitals located in a rural area,
        for such discharges, adjusted in the manner provided in 
        paragraph (3)(E) for different area wage levels; and
            ``(II) for discharges in a fiscal year beginning on or 
        after October 1, 2003, the national DRG prospective payment 
        rate determined under paragraph (3)(D)(iii) for hospitals 
        located in any area for such discharges, adjusted in the manner 
        provided in paragraph (3)(E) for different area wage levels.
As used in this section, the term `subsection (d) Puerto Rico hospital' 
means a hospital that is located in Puerto Rico and that would be a 
subsection (d) hospital (as defined in paragraph (1)(B)) if it were 
located in one of the 50 States.''.
        (2) Application of puerto rico standardized amount based on 
    large urban areas.--Section 1886(d)(9)(C) (42 U.S.C. 
    1395ww(d)(9)(C)) is amended--
            (A) in clause (i)--
                (i) by striking ``(i) The Secretary'' and inserting 
            ``(i)(I) For discharges in a fiscal year after fiscal year 
            1988 and before fiscal year 2004, the Secretary''; and
                (ii) by adding at the end the following new subclause:
        ``(II) For discharges occurring in a fiscal year (beginning 
    with fiscal year 2004), the Secretary shall compute an average 
    standardized amount for hospitals located in any area of Puerto 
    Rico that is equal to the average standardized amount computed 
    under subclause (I) for fiscal year 2003 for hospitals in a large 
    urban area (or, beginning with fiscal year 2005, for all hospitals 
    in the previous fiscal year) increased by the applicable percentage 
    increase under subsection (b)(3)(B) for the fiscal year 
    involved.'';
            (B) in clause (ii), by inserting ``(or for fiscal year 2004 
        and thereafter, the average standardized amount)'' after ``each 
        of the average standardized amounts''; and
            (C) in clause (iii)(I), by striking ``for hospitals located 
        in an urban or rural area, respectively''.
    (d) Implementation.--
        (1) In general.--The amendments made by subsections (a), (b), 
    and (c)(1) of this section shall have no effect on the authority of 
    the Secretary, under subsection (b)(2) of section 402 of Public Law 
    108-89, to delay implementation of the extension of provisions 
    equalizing urban and rural standardized inpatient hospital payments 
    under subsection (a) of such section 402.
        (2) Application of puerto rico standardized amount based on 
    large urban areas.--The authority of the Secretary referred to in 
    paragraph (1) shall apply with respect to the amendments made by 
    subsection (c)(2) of this section in the same manner as that 
    authority applies with respect to the extension of provisions 
    equalizing urban and rural standardized inpatient hospital payments 
    under subsection (a) of such section 402, except that any reference 
    in subsection (b)(2)(A) of such section 402 is deemed to be a 
    reference to April 1, 2004.

SEC. 402. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
              RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 100 
              BEDS.

    (a) Doubling the Cap.--Section 1886(d)(5)(F) (42 U.S.C. 
1395ww(d)(5)(F)) is amended by adding at the end the following new 
clause:
    ``(xiv)(I) In the case of discharges occurring on or after April 1, 
2004, subject to subclause (II), there shall be substituted for the 
disproportionate share adjustment percentage otherwise determined under 
clause (iv) (other than subclause (I)) or under clause (viii), (x), 
(xi), (xii), or (xiii), the disproportionate share adjustment 
percentage determined under clause (vii) (relating to large, urban 
hospitals).
    ``(II) Under subclause (I), the disproportionate share adjustment 
percentage shall not exceed 12 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).''.
    (b) Conforming Amendments.--Section 1886(d) (42 U.S.C. 1395ww(d)) 
is amended--
        (1) in paragraph (5)(F)--
            (A) in each of subclauses (II), (III), (IV), (V), and (VI) 
        of clause (iv), by inserting ``subject to clause (xiv) and'' 
        before ``for discharges occurring'';
            (B) in clause (viii), by striking ``The formula'' and 
        inserting ``Subject to clause (xiv), the formula''; and
            (C) in each of clauses (x), (xi), (xii), and (xiii), by 
        striking ``For purposes'' and inserting ``Subject to clause 
        (xiv), for purposes''; and
        (2) in paragraph (2)(C)(iv)--
            (A) by striking ``or'' before ``the enactment of section 
        303''; and
            (B) by inserting before the period at the end the 
        following: ``, or the enactment of section 402(a)(1) of the 
        Medicare Prescription Drug, Improvement, and Modernization Act 
        of 2003''.

SEC. 403. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE 
              PAYMENT SYSTEM WAGE INDEX TO REVISE THE LABOR-RELATED 
              SHARE OF SUCH INDEX.

    (a) Adjustment.--
        (1) In general.--Section 1886(d)(3)(E) (42 U.S.C. 
    1395ww(d)(3)(E)) is amended--
            (A) by striking ``wage levels.--The Secretary'' and 
        inserting ``wage levels.--
            ``(i) In general.--Except as provided in clause (ii), the 
        Secretary''; and
            (B) by adding at the end the following new clause:
            ``(ii) Alternative proportion to be adjusted beginning in 
        fiscal year 2005.--For discharges occurring on or after October 
        1, 2004, the Secretary shall substitute `62 percent' for the 
        proportion described in the first sentence of clause (i), 
        unless the application of this clause would result in lower 
        payments to a hospital than would otherwise be made.''.
        (2) Waiving budget neutrality.--Section 1886(d)(3)(E) (42 
    U.S.C. 1395ww(d)(3)(E)), as amended by subsection (a), is amended 
    by adding at the end of clause (i) the following new sentence: 
    ``The Secretary shall apply the previous sentence for any period as 
    if the amendments made by section 403(a)(1) of the Medicare 
    Prescription Drug, Improvement, and Modernization Act of 2003 had 
    not been enacted.''.
    (b) Application to Puerto Rico Hospitals.--Section 
1886(d)(9)(C)(iv) (42 U.S.C. 1395ww(d)(9)(C)(iv)) is amended--
        (1) by inserting ``(I)'' after ``(iv)'';
        (2) by striking ``paragraph (3)(E)'' and inserting ``paragraph 
    (3)(E)(i)''; and
        (3) by adding at the end the following new subclause:
        ``(II) For discharges occurring on or after October 1, 2004, 
    the Secretary shall substitute `62 percent' for the proportion 
    described in the first sentence of clause (i), unless the 
    application of this subclause would result in lower payments to a 
    hospital than would otherwise be made.''.

SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
              BASKET.

    (a) More Frequent Updates in Weights.--After revising the weights 
used in the hospital market basket under section 1886(b)(3)(B)(iii) of 
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the 
most current data available, the Secretary shall establish a frequency 
for revising such weights, including the labor share, in such market 
basket to reflect the most current data available more frequently than 
once every 5 years.
    (b) Incorporation of Explanation in Rulemaking.--The Secretary 
shall include in the publication of the final rule for payment for 
inpatient hospital services under section 1886(d) of the Social 
Security Act (42 U.S.C. 1395ww(d)) for fiscal year 2006, an explanation 
of the reasons for, and options considered, in determining frequency 
established under subsection (a).

SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

    (a) Increase in Payment Amounts.--
        (1) In general.--Sections 1814(l), 1834(g)(1), and 1883(a)(3) 
    (42 U.S.C. 1395f(l), 1395m(g)(1), and 1395tt(a)(3)) are each 
    amended by inserting ``equal to 101 percent of'' before ``the 
    reasonable costs''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to payments for services furnished during cost reporting 
    periods beginning on or after January 1, 2004.
    (b) Coverage of Costs for Certain Emergency Room On-Call 
Providers.--
        (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5)) is 
    amended--
            (A) in the heading--
                (i) by inserting ``certain'' before ``emergency''; and
                (ii) by striking ``physicians'' and inserting 
            ``providers'';
            (B) by striking ``emergency room physicians who are on-call 
        (as defined by the Secretary)'' and inserting ``physicians, 
        physician assistants, nurse practitioners, and clinical nurse 
        specialists who are on-call (as defined by the Secretary) to 
        provide emergency services''; and
            (C) by striking ``physicians' services'' and inserting 
        ``services covered under this title''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply with respect to costs incurred for services furnished on or 
    after January 1, 2005.
    (c) Authorization of Periodic Interim Payment (PIP).--
        (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is 
    amended--
            (A) in the matter before subparagraph (A), by inserting ``, 
        in the cases described in subparagraphs (A) through (D)'' after 
        ``1986'';
            (B) by striking ``and'' at the end of subparagraph (C);
            (C) by adding ``and'' at the end of subparagraph (D); and
            (D) by inserting after subparagraph (D) the following new 
        subparagraph:
        ``(E) inpatient critical access hospital services;''.
        (2) Development of alternative timing methods of periodic 
    interim payments.--With respect to periodic interim payments to 
    critical access hospitals for inpatient critical access hospital 
    services under section 1815(e)(2)(E) of the Social Security Act, as 
    added by paragraph (1), the Secretary shall develop alternative 
    methods for the timing of such payments.
        (3) Authorization of pip.--The amendments made by paragraph (1) 
    shall apply to payments made on or after July 1, 2004.
    (d) Condition for Application of Special Professional Service 
Payment Adjustment.--
        (1) In general.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) is 
    amended by adding after and below subparagraph (B) the following:
    ``The Secretary may not require, as a condition for applying 
    subparagraph (B) with respect to a critical access hospital, that 
    each physician or other practitioner providing professional 
    services in the hospital must assign billing rights with respect to 
    such services, except that such subparagraph shall not apply to 
    those physicians and practitioners who have not assigned such 
    billing rights.''.
        (2) Effective date.--
            (A) In general.--Except as provided in subparagraph (B), 
        the amendment made by paragraph (1) shall apply to cost 
        reporting periods beginning on or after July 1, 2004.
            (B) Rule of application.--In the case of a critical access 
        hospital that made an election under section 1834(g)(2) of the 
        Social Security Act (42 U.S.C. 1395m(g)(2)) before November 1, 
        2003, the amendment made by paragraph (1) shall apply to cost 
        reporting periods beginning on or after July 1, 2001.
    (e) Revision of Bed Limitation for Hospitals.--
        (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C. 1395i-
    4(c)(2)(B)(iii)) is amended by striking ``15 (or, in the case of a 
    facility under an agreement described in subsection (f), 25)'' and 
    inserting ``25''.
        (2) Conforming amendment.--Section 1820(f) (42 U.S.C. 1395i-
    4(f)) is amended by striking ``and the number of beds used at any 
    time for acute care inpatient services does not exceed 15 beds''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to designations made before, on, or after January 1, 
    2004, but any election made pursuant to regulations promulgated to 
    carry out such amendments shall only apply prospectively.
    (f) Provisions Relating to FLEX Grants.--
        (1) Additional 4-year period of funding.--Section 1820(j) (42 
    U.S.C. 1395i-4(j)) is amended by inserting before the period at the 
    end the following: ``, and for making grants to all States under 
    paragraphs (1) and (2) of subsection (g), $35,000,000 in each of 
    fiscal years 2005 through 2008''.
        (2) Additional requirements and administration.--Section 
    1820(g) (42 U.S.C. 1395i-4(g)) is amended by adding at the end the 
    following new paragraphs:
        ``(4) Additional requirements with respect to flex grants.--
    With respect to grants awarded under paragraph (1) or (2) from 
    funds appropriated for fiscal year 2005 and subsequent fiscal 
    years--
            ``(A) Consultation with the state hospital association and 
        rural hospitals on the most appropriate ways to use grants.--A 
        State shall consult with the hospital association of such State 
        and rural hospitals located in such State on the most 
        appropriate ways to use the funds under such grant.
            ``(B) Limitation on use of grant funds for administrative 
        expenses.--A State may not expend more than the lesser of--
                ``(i) 15 percent of the amount of the grant for 
            administrative expenses; or
                ``(ii) the State's federally negotiated indirect rate 
            for administering the grant.
        ``(5) Use of funds for federal administrative expenses.--Of the 
    total amount appropriated for grants under paragraphs (1) and (2) 
    for a fiscal year (beginning with fiscal year 2005), up to 5 
    percent of such amount shall be available to the Health Resources 
    and Services Administration for purposes of administering such 
    grants.''.
    (g) Authority To Establish Psychiatric and Rehabilitation Distinct 
Part Units.--
        (1) In general.--Section 1820(c)(2) (42 U.S.C. 1395i-4(c)(2)) 
    is amended by adding at the end the following:
            ``(E) Authority to establish psychiatric and rehabilitation 
        distinct part units.--
                ``(i) In general.--Subject to the succeeding provisions 
            of this subparagraph, a critical access hospital may 
            establish--

                    ``(I) a psychiatric unit of the hospital that is a 
                distinct part of the hospital; and
                    ``(II) a rehabilitation unit of the hospital that 
                is a distinct part of the hospital,

            if the distinct part meets the requirements (including 
            conditions of participation) that would otherwise apply to 
            the distinct part if the distinct part were established by 
            a subsection (d) hospital in accordance with the matter 
            following clause (v) of section 1886(d)(1)(B), including 
            any regulations adopted by the Secretary under such 
            section.
                ``(ii) Limitation on number of beds.--The total number 
            of beds that may be established under clause (i) for a 
            distinct part unit may not exceed 10.
                ``(iii) Exclusion of beds from bed count.--In 
            determining the number of beds of a critical access 
            hospital for purposes of applying the bed limitations 
            referred to in subparagraph (B)(iii) and subsection (f), 
            the Secretary shall not take into account any bed 
            established under clause (i).
                ``(iv) Effect of failure to meet requirements.--If a 
            psychiatric or rehabilitation unit established under clause 
            (i) does not meet the requirements described in such clause 
            with respect to a cost reporting period, no payment may be 
            made under this title to the hospital for services 
            furnished in such unit during such period. Payment to the 
            hospital for services furnished in the unit may resume only 
            after the hospital has demonstrated to the Secretary that 
            the unit meets such requirements.''.
        (2) Payment on a prospective payment basis.--Section 1814(l) 
    (42 U.S.C. 1395f(l)) is amended--
            (A) by striking ``(l) The amount'' and inserting ``(l)(1) 
        Except as provided in paragraph (2), the amount''; and
            (B) by adding at the end the following new paragraph:
    ``(2) In the case of a distinct part psychiatric or rehabilitation 
unit of a critical access hospital described in section 1820(c)(2)(E), 
the amount of payment for inpatient critical access hospital services 
of such unit shall be equal to the amount of the payment that would 
otherwise be made if such services were inpatient hospital services of 
a distinct part psychiatric or rehabilitation unit, respectively, 
described in the matter following clause (v) of section 
1886(d)(1)(B).''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to cost reporting periods beginning on or after October 
    1, 2004.
    (h) Waiver Authority.--
        (1) In general.--Section 1820(c)(2)(B)(i)(II) (42 U.S.C. 1395i-
    4(c)(2)(B)(i)(II)) is amended by inserting ``before January 1, 
    2006,'' after ``is certified''.
        (2) Grandfathering waiver authority for certain facilities.--
    Section 1820(h) (42 U.S.C. 1395i-4(h)) is amended--
            (A) in the heading preceding paragraph (1), by striking 
        ``of Certain Facilities'' and inserting ``Provisions''; and
            (B) by adding at the end the following new paragraph:
        ``(3) State authority to waive 35-mile rule.--In the case of a 
    facility that was designated as a critical access hospital before 
    January 1, 2006, and was certified by the State as being a 
    necessary provider of health care services to residents in the area 
    under subsection (c)(2)(B)(i)(II), as in effect before such date, 
    the authority under such subsection with respect to any 
    redesignation of such facility shall continue to apply 
    notwithstanding the amendment made by section 405(h)(1) of the 
    Medicare Prescription Drug, Improvement, and Modernization Act of 
    2003.''.

SEC. 406. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR LOW-VOLUME 
              HOSPITALS.

    (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)) is amended 
by adding at the end the following new paragraph:
        ``(12) Payment adjustment for low-volume hospitals.--
            ``(A) In general.--In addition to any payments calculated 
        under this section for a subsection (d) hospital, for 
        discharges occurring during a fiscal year (beginning with 
        fiscal year 2005), the Secretary shall provide for an 
        additional payment amount to each low-volume hospital (as 
        defined in subparagraph (C)(i)) for discharges occurring during 
        that fiscal year that is equal to the applicable percentage 
        increase (determined under subparagraph (B) for the hospital 
        involved) in the amount paid to such hospital under this 
        section for such discharges (determined without regard to this 
        paragraph).
            ``(B) Applicable percentage increase.--The Secretary shall 
        determine an applicable percentage increase for purposes of 
        subparagraph (A) as follows:
                ``(i) The Secretary shall determine the empirical 
            relationship for subsection (d) hospitals between the 
            standardized cost-per-case for such hospitals and the total 
            number of discharges of such hospitals and the amount of 
            the additional incremental costs (if any) that are 
            associated with such number of discharges.
                ``(ii) The applicable percentage increase shall be 
            determined based upon such relationship in a manner that 
            reflects, based upon the number of such discharges for a 
            subsection (d) hospital, such additional incremental costs.
                ``(iii) In no case shall the applicable percentage 
            increase exceed 25 percent.
            ``(C) Definitions.--
                ``(i) Low-volume hospital.--For purposes of this 
            paragraph, the term `low-volume hospital' means, for a 
            fiscal year, a subsection (d) hospital (as defined in 
            paragraph (1)(B)) that the Secretary determines is located 
            more than 25 road miles from another subsection (d) 
            hospital and has less than 800 discharges during the fiscal 
            year.
                ``(ii) Discharge.--For purposes of subparagraph (B) and 
            clause (i), the term `discharge' means an inpatient acute 
            care discharge of an individual regardless of whether the 
            individual is entitled to benefits under part A.''.
    (b) Judicial Review.--Section 1886(d)(7)(A) (42 U.S.C. 
1395ww(d)(7)(A)) is amended by inserting after ``to subsection (e)(1)'' 
the following: ``or the determination of the applicable percentage 
increase under paragraph (12)(A)(ii)''.

SEC. 407. TREATMENT OF MISSING COST REPORTING PERIODS FOR SOLE 
              COMMUNITY HOSPITALS.

    (a) In General.--Section 1886(b)(3)(I) (42 U.S.C. 1395ww(b)(3)(I)) 
is amended by adding at the end the following new clause:
    ``(iii) In no case shall a hospital be denied treatment as a sole 
community hospital or payment (on the basis of a target rate as such as 
a hospital) because data are unavailable for any cost reporting period 
due to changes in ownership, changes in fiscal intermediaries, or other 
extraordinary circumstances, so long as data for at least one 
applicable base cost reporting period is available.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to cost reporting periods beginning on or after January 1, 2004.

SEC. 408. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS ATTENDING 
              PHYSICIANS TO SERVE HOSPICE PATIENTS.

    (a) In General.--Section 1861(dd)(3)(B) (42 U.S.C. 1395x(dd)(3)(B)) 
is amended by inserting ``or nurse practitioner (as defined in 
subsection (aa)(5))'' after ``the physician (as defined in subsection 
(r)(1))''.
    (b) Clarification of Hospice Role of Nurse Practitioners.--Section 
1814(a)(7)(A)(i)(I) (42 U.S.C. 1395f(a)(7)(A)(i)(I)) is amended by 
inserting ``(which for purposes of this subparagraph does not include a 
nurse practitioner)'' after ``attending physician (as defined in 
section 1861(dd)(3)(B))''.

SEC. 409. RURAL HOSPICE DEMONSTRATION PROJECT.

    (a) In General.--The Secretary shall conduct a demonstration 
project for the delivery of hospice care to medicare beneficiaries in 
rural areas. Under the project medicare beneficiaries who are unable to 
receive hospice care in the facility for lack of an appropriate 
caregiver are provided such care in a facility of 20 or fewer beds 
which offers, within its walls, the full range of services provided by 
hospice programs under section 1861(dd) of the Social Security Act (42 
U.S.C. 1395x(dd)).
    (b) Scope of Project.--The Secretary shall conduct the project 
under this section with respect to no more than 3 hospice programs over 
a period of not longer than 5 years each.
    (c) Compliance With Conditions.--Under the demonstration project--
        (1) the hospice program shall comply with otherwise applicable 
    requirements, except that it shall not be required to offer 
    services outside of the home or to meet the requirements of section 
    1861(dd)(2)(A)(iii) of the Social Security Act; and
        (2) payments for hospice care shall be made at the rates 
    otherwise applicable to such care under title XVIII of such Act.
The Secretary may require the program to comply with such additional 
quality assurance standards for its provision of services in its 
facility as the Secretary deems appropriate.
    (d) Report.--Upon completion of the project, the Secretary shall 
submit a report to Congress on the project and shall include in the 
report recommendations regarding extension of such project to hospice 
programs serving rural areas.

SEC. 410. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDERALLY 
              QUALIFIED HEALTH CENTER SERVICES FROM THE PROSPECTIVE 
              PAYMENT SYSTEM FOR SKILLED NURSING FACILITIES.

    (a) In General.--Section 1888(e)(2)(A) (42 U.S.C. 1395yy(e)(2)(A)) 
is amended--
        (1) in clause (i)(II), by striking ``clauses (ii) and (iii)'' 
    and inserting ``clauses (ii), (iii), and (iv)''; and
        (2) by adding at the end the following new clause:
                ``(iv) Exclusion of certain rural health clinic and 
            federally qualified health center services.--Services 
            described in this clause are--

                    ``(I) rural health clinic services (as defined in 
                paragraph (1) of section 1861(aa)); and
                    ``(II) federally qualified health center services 
                (as defined in paragraph (3) of such section);

            that would be described in clause (ii) if such services 
            were furnished by an individual not affiliated with a rural 
            health clinic or a federally qualified health center.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to services furnished on or after January 1, 2005.

SEC. 410A. RURAL COMMUNITY HOSPITAL DEMONSTRATION PROGRAM.

    (a) Establishment of Rural Community Hospital (RCH) Demonstration 
Program.--
        (1) In general.--The Secretary shall establish a demonstration 
    program to test the feasibility and advisability of the 
    establishment of rural community hospitals (as defined in 
    subsection (f)(1)) to furnish covered inpatient hospital services 
    (as defined in subsection (f)(2)) to medicare beneficiaries.
        (2) Demonstration areas.--The program shall be conducted in 
    rural areas selected by the Secretary in States with low population 
    densities, as determined by the Secretary.
        (3) Application.--Each rural community hospital that is located 
    in a demonstration area selected under paragraph (2) that desires 
    to participate in the demonstration program under this section 
    shall submit an application to the Secretary at such time, in such 
    manner, and containing such information as the Secretary may 
    require.
        (4) Selection of hospitals.--The Secretary shall select from 
    among rural community hospitals submitting applications under 
    paragraph (3) not more than 15 of such hospitals to participate in 
    the demonstration program under this section.
        (5) Duration.--The Secretary shall conduct the demonstration 
    program under this section for a 5-year period.
        (6) Implementation.--The Secretary shall implement the 
    demonstration program not later than January 1, 2005, but may not 
    implement the program before October 1, 2004.
    (b) Payment.--
        (1) In general.--The amount of payment under the demonstration 
    program for covered inpatient hospital services furnished in a 
    rural community hospital, other than such services furnished in a 
    psychiatric or rehabilitation unit of the hospital which is a 
    distinct part, is--
            (A) for discharges occurring in the first cost reporting 
        period beginning on or after the implementation of the 
        demonstration program, the reasonable costs of providing such 
        services; and
            (B) for discharges occurring in a subsequent cost reporting 
        period under the demonstration program, the lesser of--
                (i) the reasonable costs of providing such services in 
            the cost reporting period involved; or
                (ii) the target amount (as defined in paragraph (2), 
            applicable to the cost reporting period involved.
        (2) Target amount.--For purposes of paragraph (1)(B)(ii), the 
    term ``target amount'' means, with respect to a rural community 
    hospital for a particular 12-month cost reporting period--
            (A) in the case of the second such reporting period for 
        which this subsection is in effect, the reasonable costs of 
        providing such covered inpatient hospital services as 
        determined under paragraph (1)(A), and
            (B) in the case of a later reporting period, the target 
        amount for the preceding 12-month cost reporting period,
    increased by the applicable percentage increase (under clause (i) 
    of section 1886(b)(3)(B) of the Social Security Act (42 U.S.C. 
    1395ww(b)(3)(B))) in the market basket percentage increase (as 
    defined in clause (iii) of such section) for that particular cost 
    reporting period.
    (c) Funding.--
        (1) In general.--The Secretary shall provide for the transfer 
    from the Federal Hospital Insurance Trust Fund under section 1817 
    of the Social Security Act (42 U.S.C. 1395i) of such funds as are 
    necessary for the costs of carrying out the demonstration program 
    under this section.
        (2) Budget neutrality.--In conducting the demonstration program 
    under this section, the Secretary shall ensure that the aggregate 
    payments made by the Secretary do not exceed the amount which the 
    Secretary would have paid if the demonstration program under this 
    section was not implemented.
    (d) Waiver Authority.--The Secretary may waive such requirements of 
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) as may 
be necessary for the purpose of carrying out the demonstration program 
under this section.
    (e) Report.--Not later than 6 months after the completion of the 
demonstration program under this section, the Secretary shall submit to 
Congress a report on such program, together with recommendations for 
such legislation and administrative action as the Secretary determines 
to be appropriate.
    (f) Definitions.--In this section:
        (1) Rural community hospital defined.--
            (A) In general.--The term ``rural community hospital'' 
        means a hospital (as defined in section 1861(e) of the Social 
        Security Act (42 U.S.C. 1395x(e))) that--
                (i) is located in a rural area (as defined in section 
            1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D))) or 
            treated as being so located pursuant to section 
            1886(d)(8)(E) of such Act (42 U.S.C. 1395ww(d)(8)(E));
                (ii) subject to paragraph (2), has fewer than 51 acute 
            care inpatient beds, as reported in its most recent cost 
            report;
                (iii) makes available 24-hour emergency care services; 
            and
                (iv) is not eligible for designation, or has not been 
            designated, as a critical access hospital under section 
            1820.
            (B) Treatment of psychiatric and rehabilitation units.--For 
        purposes of paragraph (1)(B), beds in a psychiatric or 
        rehabilitation unit of the hospital which is a distinct part of 
        the hospital shall not be counted.
        (2) Covered inpatient hospital services.--The term ``covered 
    inpatient hospital services'' means inpatient hospital services, 
    and includes extended care services furnished under an agreement 
    under section 1883 of the Social Security Act (42 U.S.C. 1395tt).

             Subtitle B--Provisions Relating to Part B Only

SEC. 411. TWO-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR SMALL 
              RURAL HOSPITALS AND SOLE COMMUNITY HOSPITALS UNDER THE 
              PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
              DEPARTMENT SERVICES.

    (a) Hold Harmless Provisions.--
        (1) In general.--Section 1833(t)(7)(D)(i) (42 U.S.C. 
    1395l(t)(7)(D)(i)) is amended--
            (A) in the heading, by striking ``small'' and inserting 
        ``certain'';
            (B) by inserting ``or a sole community hospital (as defined 
        in section 1886(d)(5)(D)(iii)) located in a rural area'' after 
        ``100 beds''; and
            (C) by striking ``2004'' and inserting ``2006''.
        (2) Effective date.--The amendment made by paragraph (1)(B) 
    shall apply with respect to cost reporting periods beginning on and 
    after January 1, 2004.
    (b) Study; Authorization of Adjustment.--Section 1833(t) (42 U.S.C. 
1395l(t)) is amended--
        (1) by redesignating paragraph (13) as paragraph (16); and
        (2) by inserting after paragraph (12) the following new 
    paragraph:
        ``(13) Authorization of adjustment for rural hospitals.--
            ``(A) Study.--The Secretary shall conduct a study to 
        determine if, under the system under this subsection, costs 
        incurred by hospitals located in rural areas by ambulatory 
        payment classification groups (APCs) exceed those costs 
        incurred by hospitals located in urban areas.
            ``(B) Authorization of adjustment.--Insofar as the 
        Secretary determines under subparagraph (A) that costs incurred 
        by hospitals located in rural areas exceed those costs incurred 
        by hospitals located in urban areas, the Secretary shall 
        provide for an appropriate adjustment under paragraph (2)(E) to 
        reflect those higher costs by January 1, 2006.''.

SEC. 412. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC ADJUSTMENT.

    Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) is amended--
        (1) in subparagraph (A), by striking ``subparagraphs (B) and 
    (C)'' and inserting ``subparagraphs (B), (C), and (E)''; and
        (2) by adding at the end the following new subparagraph:
            ``(E) Floor at 1.0 on work geographic index.--After 
        calculating the work geographic index in subparagraph (A)(iii), 
        for purposes of payment for services furnished on or after 
        January 1, 2004, and before January 1, 2007, the Secretary 
        shall increase the work geographic index to 1.00 for any 
        locality for which such work geographic index is less than 
        1.00.''.

SEC. 413. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS FOR PHYSICIAN 
              SCARCITY.

    (a) Additional Incentive Payment for Certain Physician Scarcity 
Areas.--Section 1833 (42 U.S.C. 1395l) is amended by adding at the end 
the following new subsection:
    ``(u) Incentive Payments for Physician Scarcity Areas.--
        ``(1) In general.--In the case of physicians' services 
    furnished on or after January 1, 2005, and before January 1, 2008--
            ``(A) by a primary care physician in a primary care 
        scarcity county (identified under paragraph (4)); or
            ``(B) by a physician who is not a primary care physician in 
        a specialist care scarcity county (as so identified),
    in addition to the amount of payment that would otherwise be made 
    for such services under this part, there also shall be paid an 
    amount equal to 5 percent of the payment amount for the service 
    under this part.
        ``(2) Determination of ratios of physicians to medicare 
    beneficiaries in area.--Based upon available data, the Secretary 
    shall establish for each county or equivalent area in the United 
    States, the following:
            ``(A) Number of physicians practicing in the area.--The 
        number of physicians who furnish physicians' services in the 
        active practice of medicine or osteopathy in that county or 
        area, other than physicians whose practice is exclusively for 
        the Federal Government, physicians who are retired, or 
        physicians who only provide administrative services. Of such 
        number, the number of such physicians who are--
                ``(i) primary care physicians; or
                ``(ii) physicians who are not primary care physicians.
            ``(B) Number of medicare beneficiaries residing in the 
        area.--The number of individuals who are residing in the county 
        and are entitled to benefits under part A or enrolled under 
        this part, or both (in this subsection referred to as 
        `individuals').
            ``(C) Determination of ratios.--
                ``(i) Primary care ratio.--The ratio (in this paragraph 
            referred to as the `primary care ratio') of the number of 
            primary care physicians (determined under subparagraph 
            (A)(i)), to the number of individuals determined under 
            subparagraph (B).
                ``(ii) Specialist care ratio.--The ratio (in this 
            paragraph referred to as the `specialist care ratio') of 
            the number of other physicians (determined under 
            subparagraph (A)(ii)), to the number of individuals 
            determined under subparagraph (B).
        ``(3) Ranking of counties.--The Secretary shall rank each such 
    county or area based separately on its primary care ratio and its 
    specialist care ratio.
        ``(4) Identification of counties.--
            ``(A) In general.--The Secretary shall identify--
                ``(i) those counties and areas (in this paragraph 
            referred to as `primary care scarcity counties') with the 
            lowest primary care ratios that represent, if each such 
            county or area were weighted by the number of individuals 
            determined under paragraph (2)(B), an aggregate total of 20 
            percent of the total of the individuals determined under 
            such paragraph; and
                ``(ii) those counties and areas (in this subsection 
            referred to as `specialist care scarcity counties') with 
            the lowest specialist care ratios that represent, if each 
            such county or area were weighted by the number of 
            individuals determined under paragraph (2)(B), an aggregate 
            total of 20 percent of the total of the individuals 
            determined under such paragraph.
            ``(B) Periodic revisions.--The Secretary shall periodically 
        revise the counties or areas identified in subparagraph (A) 
        (but not less often than once every three years) unless the 
        Secretary determines that there is no new data available on the 
        number of physicians practicing in the county or area or the 
        number of individuals residing in the county or area, as 
        identified in paragraph (2).
            ``(C) Identification of counties where service is 
        furnished.--For purposes of paying the additional amount 
        specified in paragraph (1), if the Secretary uses the 5-digit 
        postal ZIP Code where the service is furnished, the dominant 
        county of the postal ZIP Code (as determined by the United 
        States Postal Service, or otherwise) shall be used to determine 
        whether the postal ZIP Code is in a scarcity county identified 
        in subparagraph (A) or revised in subparagraph (B).
            ``(D) Judicial review.--There shall be no administrative or 
        judicial review under section 1869, 1878, or otherwise, 
        respecting--
                ``(i) the identification of a county or area;
                ``(ii) the assignment of a specialty of any physician 
            under this paragraph;
                ``(iii) the assignment of a physician to a county under 
            paragraph (2); or
                ``(iv) the assignment of a postal ZIP Code to a county 
            or other area under this subsection.
        ``(5) Rural census tracts.--To the extent feasible, the 
    Secretary shall treat a rural census tract of a metropolitan 
    statistical area (as determined under the most recent modification 
    of the Goldsmith Modification, originally published in the Federal 
    Register on February 27, 1992 (57 Fed. Reg. 6725)), as an 
    equivalent area for purposes of qualifying as a primary care 
    scarcity county or specialist care scarcity county under this 
    subsection.
        ``(6) Physician Defined.--For purposes of this paragraph, the 
    term `physician' means a physician described in section 1861(r)(1) 
    and the term `primary care physician' means a physician who is 
    identified in the available data as a general practitioner, family 
    practice practitioner, general internist, or obstetrician or 
    gynecologist.
        ``(7) Publication of list of counties; posting on website.--
    With respect to a year for which a county or area is identified or 
    revised under paragraph (4), the Secretary shall identify such 
    counties or areas as part of the proposed and final rule to 
    implement the physician fee schedule under section 1848 for the 
    applicable year. The Secretary shall post the list of counties 
    identified or revised under paragraph (4) on the Internet website 
    of the Centers for Medicare & Medicaid Services.''.
    (b) Improvement to Medicare Incentive Payment Program.--
        (1) In general.--Section 1833(m) (42 U.S.C. 1395l(m)) is 
    amended--
            (A) by inserting ``(1)'' after ``(m)'';
            (B) in paragraph (1), as designated by subparagraph (A)--
                (i) by inserting ``in a year'' after ``In the case of 
            physicians' services furnished''; and
                (ii) by inserting ``as identified by the Secretary 
            prior to the beginning of such year'' after ``as a health 
            professional shortage area''; and
            (C) by adding at the end the following new paragraphs:
    ``(2) For each health professional shortage area identified in 
paragraph (1) that consists of an entire county, the Secretary shall 
provide for the additional payment under paragraph (1) without any 
requirement on the physician to identify the health professional 
shortage area involved. The Secretary may implement the previous 
sentence using the method specified in subsection (u)(4)(C).
    ``(3) The Secretary shall post on the Internet website of the 
Centers for Medicare & Medicaid Services a list of the health 
professional shortage areas identified in paragraph (1) that consist of 
a partial county to facilitate the additional payment under paragraph 
(1) in such areas.
    ``(4) There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, respecting--
        ``(A) the identification of a county or area;
        ``(B) the assignment of a specialty of any physician under this 
    paragraph;
        ``(C) the assignment of a physician to a county under this 
    subsection; or
        ``(D) the assignment of a postal ZIP Code to a county or other 
    area under this subsection.''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to physicians' services furnished on or after January 1, 
    2005.
    (c) GAO Study of Geographic Differences in Payments for Physicians' 
Services.--
        (1) Study.--The Comptroller General of the United States shall 
    conduct a study of differences in payment amounts under the 
    physician fee schedule under section 1848 of the Social Security 
    Act (42 U.S.C. 1395w-4) for physicians' services in different 
    geographic areas. Such study shall include--
            (A) an assessment of the validity of the geographic 
        adjustment factors used for each component of the fee schedule;
            (B) an evaluation of the measures used for such adjustment, 
        including the frequency of revisions;
            (C) an evaluation of the methods used to determine 
        professional liability insurance costs used in computing the 
        malpractice component, including a review of increases in 
        professional liability insurance premiums and variation in such 
        increases by State and physician specialty and methods used to 
        update the geographic cost of practice index and relative 
        weights for the malpractice component; and
            (D) an evaluation of the effect of the adjustment to the 
        physician work geographic index under section 1848(e)(1)(E) of 
        the Social Security Act, as added by section 412, on physician 
        location and retention in areas affected by such adjustment, 
        taking into account--
                (i) differences in recruitment costs and retention 
            rates for physicians, including specialists, between large 
            urban areas and other areas; and
                (ii) the mobility of physicians, including specialists, 
            over the last decade.
        (2) Report.--Not later than 1 year after the date of the 
    enactment of this Act, the Comptroller General shall submit to 
    Congress a report on the study conducted under paragraph (1). The 
    report shall include recommendations regarding the use of more 
    current data in computing geographic cost of practice indices as 
    well as the use of data directly representative of physicians' 
    costs (rather than proxy measures of such costs).

SEC. 414. PAYMENT FOR RURAL AND URBAN AMBULANCE SERVICES.

    (a) Phase-In Providing Floor Using Blend of Fee Schedule and 
Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)) is 
amended--
        (1) in paragraph (2)(E), by inserting ``consistent with 
    paragraph (11)'' after ``in an efficient and fair manner''; and
        (2) by redesignating paragraph (8), as added by section 221(a) 
    of BIPA (114 Stat. 2763A-486), as paragraph (9); and
        (3) by adding at the end the following new paragraph:
        ``(10) Phase-in providing floor using blend of fee schedule and 
    regional fee schedules.--In carrying out the phase-in under 
    paragraph (2)(E) for each level of ground service furnished in a 
    year, the portion of the payment amount that is based on the fee 
    schedule shall be the greater of the amount determined under such 
    fee schedule (without regard to this paragraph) or the following 
    blended rate of the fee schedule under paragraph (1) and of a 
    regional fee schedule for the region involved:
            ``(A) For 2004 (for services furnished on or after July 1, 
        2004), the blended rate shall be based 20 percent on the fee 
        schedule under paragraph (1) and 80 percent on the regional fee 
        schedule.
            ``(B) For 2005, the blended rate shall be based 40 percent 
        on the fee schedule under paragraph (1) and 60 percent on the 
        regional fee schedule.
            ``(C) For 2006, the blended rate shall be based 60 percent 
        on the fee schedule under paragraph (1) and 40 percent on the 
        regional fee schedule.
            ``(D) For 2007, 2008, and 2009, the blended rate shall be 
        based 80 percent on the fee schedule under paragraph (1) and 20 
        percent on the regional fee schedule.
            ``(E) For 2010 and each succeeding year, the blended rate 
        shall be based 100 percent on the fee schedule under paragraph 
        (1).
    For purposes of this paragraph, the Secretary shall establish a 
    regional fee schedule for each of the nine census divisions 
    (referred to in section 1886(d)(2)) using the methodology (used in 
    establishing the fee schedule under paragraph (1)) to calculate a 
    regional conversion factor and a regional mileage payment rate and 
    using the same payment adjustments and the same relative value 
    units as used in the fee schedule under such paragraph.''.
    (b) Adjustment in Payment for Certain Long Trips.--Section 1834(l), 
as amended by subsection (a), is amended by adding at the end the 
following new paragraph:
        ``(11) Adjustment in payment for certain long trips.--In the 
    case of ground ambulance services furnished on or after July 1, 
    2004, and before January 1, 2009, regardless of where the 
    transportation originates, the fee schedule established under this 
    subsection shall provide that, with respect to the payment rate for 
    mileage for a trip above 50 miles the per mile rate otherwise 
    established shall be increased by \1/4\ of the payment per mile 
    otherwise applicable to miles in excess of 50 miles in such 
    trip.''.
    (c) Improvement in Payments To Retain Emergency Capacity for 
Ambulance Services in Rural Areas.--
        (1) In general.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
    amended by subsections (a) and (b), is amended by adding at the end 
    the following new paragraph:
        ``(12) Assistance for rural providers furnishing services in 
    low population density areas.--
            ``(A) In general.--In the case of ground ambulance services 
        furnished on or after July 1, 2004, and before January 1, 2010, 
        for which the transportation originates in a qualified rural 
        area (identified under subparagraph (B)(iii)), the Secretary 
        shall provide for a percent increase in the base rate of the 
        fee schedule for a trip established under this subsection. In 
        establishing such percent increase, the Secretary shall 
        estimate the average cost per trip for such services (not 
        taking into account mileage) in the lowest quartile as compared 
        to the average cost per trip for such services (not taking into 
        account mileage) in the highest quartile of all rural county 
        populations.
            ``(B) Identification of qualified rural areas.--
                ``(i) Determination of population density in area.--
            Based upon data from the United States decennial census for 
            the year 2000, the Secretary shall determine, for each 
            rural area, the population density for that area.
                ``(ii) Ranking of areas.--The Secretary shall rank each 
            such area based on such population density.
                ``(iii) Identification of qualified rural areas.--The 
            Secretary shall identify those areas (in subparagraph (A) 
            referred to as `qualified rural areas') with the lowest 
            population densities that represent, if each such area were 
            weighted by the population of such area (as used in 
            computing such population densities), an aggregate total of 
            25 percent of the total of the population of all such 
            areas.
                ``(iv) Rural area.--For purposes of this paragraph, the 
            term `rural area' has the meaning given such term in 
            section 1886(d)(2)(D). If feasible, the Secretary shall 
            treat a rural census tract of a metropolitan statistical 
            area (as determined under the most recent modification of 
            the Goldsmith Modification, originally published in the 
            Federal Register on February 27, 1992 (57 Fed. Reg. 6725) 
            as a rural area for purposes of this paragraph.
                ``(v) Judicial review.--There shall be no 
            administrative or judicial review under section 1869, 1878, 
            or otherwise, respecting the identification of an area 
            under this subparagraph.''.
        (2) Use of data.--In order to promptly implement section 
    1834(l)(12) of the Social Security Act, as added by paragraph (1), 
    the Secretary may use data furnished by the Comptroller General of 
    the United States.
    (d) Temporary Increase for Ground Ambulance Services.--Section 
1834(l) (42 U.S.C. 1395m(l)), as amended by subsections (a), (b), and 
(c), is amended by adding at the end the following new paragraph:
        ``(13) Temporary increase for ground ambulance services.--
            ``(A) In general.--After computing the rates with respect 
        to ground ambulance services under the other applicable 
        provisions of this subsection, in the case of such services 
        furnished on or after July 1, 2004, and before January 1, 2007, 
        for which the transportation originates in--
                ``(i) a rural area described in paragraph (9) or in a 
            rural census tract described in such paragraph, the fee 
            schedule established under this section shall provide that 
            the rate for the service otherwise established, after the 
            application of any increase under paragraphs (11) and (12), 
            shall be increased by 2 percent; and
                ``(ii) an area not described in clause (i), the fee 
            schedule established under this subsection shall provide 
            that the rate for the service otherwise established, after 
            the application of any increase under paragraph (11), shall 
            be increased by 1 percent.
            ``(B) Application of increased payments after 2006.--The 
        increased payments under subparagraph (A) shall not be taken 
        into account in calculating payments for services furnished 
        after the period specified in such subparagraph.''.
    (e) Implementation.--The Secretary may implement the amendments 
made by this section, and revise the conversion factor applicable under 
section 1834(l) of the Social Security Act (42 U.S.C. 1395m(l)) for 
purposes of implementing such amendments, on an interim final basis, or 
by program instruction.
    (f) GAO Report on Costs and Access.--Not later than December 31, 
2005, the Comptroller General of the United States shall submit to 
Congress an initial report on how costs differ among the types of 
ambulance providers and on access, supply, and quality of ambulance 
services in those regions and States that have a reduction in payment 
under the medicare ambulance fee schedule (under section 1834(l) of the 
Social Security Act, as amended by this Act). Not later than December 
31, 2007, the Comptroller General shall submit to Congress a final 
report on such access and supply.
    (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 Stat. 
2763A-487) is amended by striking ``subsection (b)(2)'' and inserting 
``subsection (b)(3)''.
    (2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by moving 
subparagraph (U) 4 ems to the left.

SEC. 415. PROVIDING APPROPRIATE COVERAGE OF RURAL AIR AMBULANCE 
              SERVICES.

    (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as amended by 
subsections (a), (b), (c), and (d) of section 414, is amended by adding 
at the end the following new paragraph:
        ``(14) Providing appropriate coverage of rural air ambulance 
    services.--
            ``(A) In general.--The regulations described in section 
        1861(s)(7) shall provide, to the extent that any ambulance 
        services (whether ground or air) may be covered under such 
        section, that a rural air ambulance service (as defined in 
        subparagraph (C)) is reimbursed under this subsection at the 
        air ambulance rate if the air ambulance service--
                ``(i) is reasonable and necessary based on the health 
            condition of the individual being transported at or 
            immediately prior to the time of the transport; and
                ``(ii) complies with equipment and crew requirements 
            established by the Secretary.
            ``(B) Satisfaction of requirement of medically necessary.--
        The requirement of subparagraph (A)(i) is deemed to be met for 
        a rural air ambulance service if--
                ``(i) subject to subparagraph (D), such service is 
            requested by a physician or other qualified medical 
            personnel (as specified by the Secretary) who reasonably 
            determines or certifies that the individual's condition is 
            such that the time needed to transport the individual by 
            land or the instability of transportation by land poses a 
            threat to the individual's survival or seriously endangers 
            the individual's health; or
                ``(ii) such service is furnished pursuant to a protocol 
            that is established by a State or regional emergency 
            medical service (EMS) agency and recognized or approved by 
            the Secretary under which the use of an air ambulance is 
            recommended, if such agency does not have an ownership 
            interest in the entity furnishing such service.
            ``(C) Rural air ambulance service defined.--For purposes of 
        this paragraph, the term `rural air ambulance service' means 
        fixed wing and rotary wing air ambulance service in which the 
        point of pick up of the individual occurs in a rural area (as 
        defined in section 1886(d)(2)(D)) or in a rural census tract of 
        a metropolitan statistical area (as determined under the most 
        recent modification of the Goldsmith Modification, originally 
        published in the Federal Register on February 27, 1992 (57 Fed. 
        Reg. 6725)).
            ``(D) Limitation.--
                ``(i) In general.--Subparagraph (B)(i) shall not apply 
            if there is a financial or employment relationship between 
            the person requesting the rural air ambulance service and 
            the entity furnishing the ambulance service, or an entity 
            under common ownership with the entity furnishing the air 
            ambulance service, or a financial relationship between an 
            immediate family member of such requester and such an 
            entity.
                ``(ii) Exception.--Where a hospital and the entity 
            furnishing rural air ambulance services are under common 
            ownership, clause (i) shall not apply to remuneration 
            (through employment or other relationship) by the hospital 
            of the requester or immediate family member if the 
            remuneration is for provider-based physician services 
            furnished in a hospital (as described in section 1887) 
            which are reimbursed under part A and the amount of the 
            remuneration is unrelated directly or indirectly to the 
            provision of rural air ambulance services.''.
    (b) Conforming Amendment.--Section 1861(s)(7) (42 U.S.C. 
1395x(s)(7)) is amended by inserting ``, subject to section 
1834(l)(14),'' after ``but''.
    (c) Effective Date.--The amendments made by this subsection shall 
apply to services furnished on or after January 1, 2005.

SEC. 416. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY TESTS 
              FURNISHED TO HOSPITAL OUTPATIENTS IN CERTAIN RURAL AREAS.

    (a) In General.--Notwithstanding subsections (a), (b), and (h) of 
section 1833 of the Social Security Act (42 U.S.C. 1395l) and section 
1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case of a 
clinical diagnostic laboratory test covered under part B of title XVIII 
of such Act that is furnished during a cost reporting period described 
in subsection (b) by a hospital with fewer than 50 beds that is located 
in a qualified rural area (identified under paragraph (12)(B)(iii) of 
section 1834(l) of the Social Security Act (42 U.S.C. 1395m(l)), as 
added by section 414(c)) as part of outpatient services of the 
hospital, the amount of payment for such test shall be 100 percent of 
the reasonable costs of the hospital in furnishing such test.
    (b) Application.--A cost reporting period described in this 
subsection is a cost reporting period beginning during the 2-year 
period beginning on July 1, 2004.
    (c) Provision as Part of Outpatient Hospital Services.--For 
purposes of subsection (a), in determining whether clinical diagnostic 
laboratory services are furnished as part of outpatient services of a 
hospital, the Secretary shall apply the same rules that are used to 
determine whether clinical diagnostic laboratory services are furnished 
as an outpatient critical access hospital service under section 
1834(g)(4) of the Social Security Act (42 U.S.C. 1395m(g)(4)).

SEC. 417. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

    Section 4207 of the Balanced Budget Act of 1997 (Public Law 105-33) 
is amended--
        (1) in subsection (a)(4), by striking ``4-year'' and inserting 
    ``8-year''; and
        (2) in subsection (d)(3), by striking ``$30,000,000'' and 
    inserting ``$60,000,000''.

SEC. 418. REPORT ON DEMONSTRATION PROJECT PERMITTING SKILLED NURSING 
              FACILITIES TO BE ORIGINATING TELEHEALTH SITES; AUTHORITY 
              TO IMPLEMENT.

    (a) Evaluation.--The Secretary, acting through the Administrator of 
the Health Resources and Services Administration in consultation with 
the Administrator of the Centers for Medicare & Medicaid Services, 
shall evaluate demonstration projects conducted by the Secretary under 
which skilled nursing facilities (as defined in section 1819(a) of the 
Social Security Act (42 U.S.C. 1395i-3(a)) are treated as originating 
sites for telehealth services.
    (b) Report.--Not later than January 1, 2005, the Secretary shall 
submit to Congress a report on the evaluation conducted under 
subsection (a). Such report shall include recommendations on mechanisms 
to ensure that permitting a skilled nursing facility to serve as an 
originating site for the use of telehealth services or any other 
service delivered via a telecommunications system does not serve as a 
substitute for in-person visits furnished by a physician, or for in-
person visits furnished by a physician assistant, nurse practitioner or 
clinical nurse specialist, as is otherwise required by the Secretary.
    (c) Authority To Expand Originating Telehealth Sites to Include 
Skilled Nursing Facilities.--Insofar as the Secretary concludes in the 
report required under subsection (b) that it is advisable to permit a 
skilled nursing facility to be an originating site for telehealth 
services under section 1834(m) of the Social Security Act (42 U.S.C. 
1395m(m)), and that the Secretary can establish the mechanisms to 
ensure such permission does not serve as a substitute for in-person 
visits furnished by a physician, or for in-person visits furnished by a 
physician assistant, nurse practitioner or clinical nurse specialist, 
the Secretary may deem a skilled nursing facility to be an originating 
site under paragraph (4)(C)(ii) of such section beginning on January 1, 
2006.

            Subtitle C--Provisions Relating to Parts A and B

SEC. 421. ONE-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A 
              RURAL AREA.

    (a) In General.--With respect to episodes and visits ending on or 
after April 1, 2004, and before April 1, 2005, in the case of home 
health services furnished in a rural area (as defined in section 
1886(d)(2)(D) of the Social Security Act (42 U.S.C. 1395ww(d)(2)(D))), 
the Secretary shall increase the payment amount otherwise made under 
section 1895 of such Act (42 U.S.C. 1395fff) for such services by 5 
percent.
    (b) Waiving Budget Neutrality.--The Secretary shall not reduce the 
standard prospective payment amount (or amounts) under section 1895 of 
the Social Security Act (42 U.S.C. 1395fff) applicable to home health 
services furnished during a period to offset the increase in payments 
resulting from the application of subsection (a).
    (c) No Effect on Subsequent Periods.--The payment increase provided 
under subsection (a) for a period under such subsection--
        (1) shall not apply to episodes and visits ending after such 
    period; and
        (2) shall not be taken into account in calculating the payment 
    amounts applicable for episodes and visits occurring after such 
    period.

SEC. 422. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

    (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)(4)) is 
amended--
        (1) in paragraph (4)(F)(i), by inserting ``subject to paragraph 
    (7),'' after ``October 1, 1997,'';
        (2) in paragraph (4)(H)(i), by inserting ``and subject to 
    paragraph (7)'' after ``subparagraphs (F) and (G)''; and
        (3) by adding at the end the following new paragraph:
        ``(7) Redistribution of unused resident positions.--
            ``(A) Reduction in limit based on unused positions.--
                ``(i) Programs subject to reduction.--

                    ``(I) In general.--Except as provided in subclause 
                (II), if a hospital's reference resident level 
                (specified in clause (ii)) is less than the otherwise 
                applicable resident limit (as defined in subparagraph 
                (C)(ii)), effective for portions of cost reporting 
                periods occurring on or after July 1, 2005, the 
                otherwise applicable resident limit shall be reduced by 
                75 percent of the difference between such otherwise 
                applicable resident limit and such reference resident 
                level.
                    ``(II) Exception for small rural hospitals.--This 
                subparagraph shall not apply to a hospital located in a 
                rural area (as defined in subsection (d)(2)(D)(ii)) 
                with fewer than 250 acute care inpatient beds.

                ``(ii) Reference resident level.--

                    ``(I) In general.--Except as otherwise provided in 
                subclauses (II) and (III), the reference resident level 
                specified in this clause for a hospital is the resident 
                level for the most recent cost reporting period of the 
                hospital ending on or before September 30, 2002, for 
                which a cost report has been settled (or, if not, 
                submitted (subject to audit)), as determined by the 
                Secretary.
                    ``(II) Use of most recent accounting period to 
                recognize expansion of existing programs.--If a 
                hospital submits a timely request to increase its 
                resident level due to an expansion of an existing 
                residency training program that is not reflected on the 
                most recent settled cost report, after audit and 
                subject to the discretion of the Secretary, the 
                reference resident level for such hospital is the 
                resident level for the cost reporting period that 
                includes July 1, 2003, as determined by the Secretary.
                    ``(III) Expansions under newly approved programs.--
                Upon the timely request of a hospital, the Secretary 
                shall adjust the reference resident level specified 
                under subclause (I) or (II) to include the number of 
                medical residents that were approved in an application 
                for a medical residency training program that was 
                approved by an appropriate accrediting organization (as 
                determined by the Secretary) before January 1, 2002, 
                but which was not in operation during the cost 
                reporting period used under subclause (I) or (II), as 
                the case may be, as determined by the Secretary.

                ``(iii) Affiliation.--The provisions of clause (i) 
            shall be applied to hospitals which are members of the same 
            affiliated group (as defined by the Secretary under 
            paragraph (4)(H)(ii)) as of July 1, 2003.
            ``(B) Redistribution.--
                ``(i) In general.--The Secretary is authorized to 
            increase the otherwise applicable resident limit for each 
            qualifying hospital that submits a timely application under 
            this subparagraph by such number as the Secretary may 
            approve for portions of cost reporting periods occurring on 
            or after July 1, 2005. The aggregate number of increases in 
            the otherwise applicable resident limits under this 
            subparagraph may not exceed the Secretary's estimate of the 
            aggregate reduction in such limits attributable to 
            subparagraph (A).
                ``(ii) Considerations in redistribution.--In 
            determining for which hospitals the increase in the 
            otherwise applicable resident limit is provided under 
            clause (i), the Secretary shall take into account the 
            demonstrated likelihood of the hospital filling the 
            positions within the first 3 cost reporting periods 
            beginning on or after July 1, 2005, made available under 
            this subparagraph, as determined by the Secretary.
                ``(iii) Priority for rural and small urban areas.--In 
            determining for which hospitals and residency training 
            programs an increase in the otherwise applicable resident 
            limit is provided under clause (i), the Secretary shall 
            distribute the increase to programs of hospitals located in 
            the following priority order:

                    ``(I) First, to hospitals located in rural areas 
                (as defined in subsection (d)(2)(D)(ii)).
                    ``(II) Second, to hospitals located in urban areas 
                that are not large urban areas (as defined for purposes 
                of subsection (d)).
                    ``(III) Third, to other hospitals in a State if the 
                residency training program involved is in a specialty 
                for which there are not other residency training 
                programs in the State.

            Increases of residency limits within the same priority 
            category under this clause shall be determined by the 
            Secretary.
                ``(iv) Limitation.--In no case shall more than 25 full-
            time equivalent additional residency positions be made 
            available under this subparagraph with respect to any 
            hospital.
                ``(v) Application of locality adjusted national average 
            per resident amount.--With respect to additional residency 
            positions in a hospital attributable to the increase 
            provided under this subparagraph, notwithstanding any other 
            provision of this subsection, the approved FTE resident 
            amount is deemed to be equal to the locality adjusted 
            national average per resident amount computed under 
            paragraph (4)(E) for that hospital.
                ``(vi) Construction.--Nothing in this subparagraph 
            shall be construed as permitting the redistribution of 
            reductions in residency positions attributable to voluntary 
            reduction programs under paragraph (6), under a 
            demonstration project approved as of October 31, 2003, 
            under the authority of section 402 of Public Law 90-248, or 
            as affecting the ability of a hospital to establish new 
            medical residency training programs under paragraph (4)(H).
            ``(C) Resident level and limit defined.--In this paragraph:
                ``(i) Resident level.--The term `resident level' means, 
            with respect to a hospital, the total number of full-time 
            equivalent residents, before the application of weighting 
            factors (as determined under paragraph (4)), in the fields 
            of allopathic and osteopathic medicine for the hospital.
                ``(ii) Otherwise applicable resident limit.--The term 
            `otherwise applicable resident limit' means, with respect 
            to a hospital, the limit otherwise applicable under 
            subparagraphs (F)(i) and (H) of paragraph (4) on the 
            resident level for the hospital determined without regard 
            to this paragraph.
            ``(D) Judicial review.--There shall be no administrative or 
        judicial review under section 1869, 1878, or otherwise, with 
        respect to determinations made under this paragraph.''.
    (b) Conforming Provisions.--(1) Section 1886(d)(5)(B) (42 U.S.C. 
1395ww(d)(5)(B)) is amended--
        (A) in the second sentence of clause (ii), by striking ``For 
    discharges'' and inserting ``Subject to clause (ix), for 
    discharges'';
        (B) in clause (v), by adding at the end the following: ``The 
    provisions of subsection (h)(7) shall apply with respect to the 
    first sentence of this clause in the same manner as it applies with 
    respect to subsection (h)(4)(F)(i).''; and
        (C) by adding at the end the following new clause:
        ``(ix) For discharges occurring on or after July 1, 2005, 
    insofar as an additional payment amount under this subparagraph is 
    attributable to resident positions redistributed to a hospital 
    under subsection (h)(7)(B), in computing the indirect teaching 
    adjustment factor under clause (ii) the adjustment shall be 
    computed in a manner as if `c' were equal to 0.66 with respect to 
    such resident positions.''.
    (2) Chapter 35 of title 44, United States Code, shall not apply 
with respect to applications under section 1886(h)(7) of the Social 
Security Act, as added by subsection (a)(3).
    (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2005, the Secretary shall submit to 
Congress a report containing recommendations regarding whether to 
extend the deadline for applications for an increase in resident limits 
under section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 
added by subsection (a)).

                      Subtitle D--Other Provisions

SEC. 431. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
              BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7(b)(3)), as 
amended by section 101(e)(2), is amended--
        (1) in subparagraph (F), by striking ``and'' after the 
    semicolon at the end;
        (2) in subparagraph (G), by striking the period at the end and 
    inserting ``; and''; and
        (3) by adding at the end the following new subparagraph:
            ``(H) any remuneration between a health center entity 
        described under clause (i) or (ii) of section 1905(l)(2)(B) and 
        any individual or entity providing goods, items, services, 
        donations, loans, or a combination thereof, to such health 
        center entity pursuant to a contract, lease, grant, loan, or 
        other agreement, if such agreement contributes to the ability 
        of the health center entity to maintain or increase the 
        availability, or enhance the quality, of services provided to a 
        medically underserved population served by the health center 
        entity.''.
    (b) Rulemaking for Exception for Health Center Entity 
Arrangements.--
        (1) Establishment.--
            (A) In general.--The Secretary shall establish, on an 
        expedited basis, standards relating to the exception described 
        in section 1128B(b)(3)(H) of the Social Security Act, as added 
        by subsection (a), for health center entity arrangements to the 
        antikickback penalties.
            (B) Factors to consider.--The Secretary shall consider the 
        following factors, among others, in establishing standards 
        relating to the exception for health center entity arrangements 
        under subparagraph (A):
                (i) Whether the arrangement between the health center 
            entity and the other party results in savings of Federal 
            grant funds or increased revenues to the health center 
            entity.
                (ii) Whether the arrangement between the health center 
            entity and the other party restricts or limits an 
            individual's freedom of choice.
                (iii) Whether the arrangement between the health center 
            entity and the other party protects a health care 
            professional's independent medical judgment regarding 
            medically appropriate treatment.
        The Secretary may also include other standards and criteria 
        that are consistent with the intent of Congress in enacting the 
        exception established under this section.
        (2) Deadline.--Not later than 1 year after the date of the 
    enactment of this Act the Secretary shall publish final regulations 
    establishing the standards described in paragraph (1).

SEC. 432. OFFICE OF RURAL HEALTH POLICY IMPROVEMENTS.

    Section 711(b) (42 U.S.C. 912(b)) is amended--
        (1) in paragraph (3), by striking ``and'' after the comma at 
    the end;
        (2) in paragraph (4), by striking the period at the end and 
    inserting ``, and''; and
        (3) by inserting after paragraph (4) the following new 
    paragraph:
        ``(5) administer grants, cooperative agreements, and contracts 
    to provide technical assistance and other activities as necessary 
    to support activities related to improving health care in rural 
    areas.''.

SEC. 433. MEDPAC STUDY ON RURAL HOSPITAL PAYMENT ADJUSTMENTS.

    (a) In General.--The Medicare Payment Advisory Commission shall 
conduct a study of the impact of sections 401 through 406, 411, 416, 
and 505. The Commission shall analyze the effect on total payments, 
growth in costs, capital spending, and such other payment effects under 
those sections.
    (b) Reports.--
        (1) Interim report.--Not later than 18 months after the date of 
    the enactment of this Act, the Commission shall submit to Congress 
    an interim report on the matters studied under subsection (a) with 
    respect only to changes to the critical access hospital provisions 
    under section 405.
        (2) Final report.--Not later than 3 years after the date of the 
    enactment of this Act, the Commission shall submit to Congress a 
    final report on all matters studied under subsection (a).

SEC. 434. FRONTIER EXTENDED STAY CLINIC DEMONSTRATION PROJECT.

    (a) Authority To Conduct Demonstration Project.--The Secretary 
shall waive such provisions of the medicare program established under 
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) as are 
necessary to conduct a demonstration project under which frontier 
extended stay clinics described in subsection (b) in isolated rural 
areas are treated as providers of items and services under the medicare 
program.
    (b) Clinics Described.--A frontier extended stay clinic is 
described in this subsection if the clinic--
        (1) is located in a community where the closest short-term 
    acute care hospital or critical access hospital is at least 75 
    miles away from the community or is inaccessible by public road; 
    and
        (2) is designed to address the needs of--
            (A) seriously or critically ill or injured patients who, 
        due to adverse weather conditions or other reasons, cannot be 
        transferred quickly to acute care referral centers; or
            (B) patients who need monitoring and observation for a 
        limited period of time.
    (c) Specification of Codes.--The Secretary shall determine the 
appropriate life-safety codes for such clinics that treat patients for 
needs referred to in subsection (b)(2).
    (d) Funding.--
        (1) In general.--Subject to paragraph (2), there are authorized 
    to be appropriated, in appropriate part from the Federal Hospital 
    Insurance Trust Fund and the Federal Supplementary Medical 
    Insurance Trust Fund, such sums as are necessary to conduct the 
    demonstration project under this section.
        (2) Budget neutral implementation.--In conducting the 
    demonstration project under this section, the Secretary shall 
    ensure that the aggregate payments made by the Secretary under the 
    medicare program do not exceed the amount which the Secretary would 
    have paid under the medicare program if the demonstration project 
    under this section was not implemented.
    (e) Three-Year Period.--The Secretary shall conduct the 
demonstration under this section for a 3-year period.
    (f) Report.--Not later than the date that is 1 year after the date 
on which the demonstration project concludes, the Secretary shall 
submit to Congress a report on the demonstration project, together with 
such recommendations for legislation or administrative action as the 
Secretary determines appropriate.
    (g) Definitions.--In this section, the terms ``hospital'' and 
``critical access hospital'' have the meanings given such terms in 
subsections (e) and (mm), respectively, of section 1861 of the Social 
Security Act (42 U.S.C. 1395x).

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

    (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended--
        (1) by striking ``and'' at the end of subclause (XVIII);
        (2) by striking subclause (XIX); and
        (3) by inserting after subclause (XVIII) the following new 
    subclauses:
        ``(XIX) for each of fiscal years 2004 through 2007, subject to 
    clause (vii), the market basket percentage increase for hospitals 
    in all areas; and
        ``(XX) for fiscal year 2008 and each subsequent fiscal year, 
    the market basket percentage increase for hospitals in all 
    areas.''.
    (b) Submission of Hospital Quality Data.--Section 1886(b)(3)(B) (42 
U.S.C. 1395ww(b)(3)(B)) is amended by adding at the end the following 
new clause:
    ``(vii)(I) For purposes of clause (i)(XIX) for each of fiscal years 
2005 through 2007, in a case of a subsection (d) hospital that does not 
submit data to the Secretary in accordance with subclause (II) with 
respect to such a fiscal year, the applicable percentage increase under 
such clause for such fiscal year shall be reduced by 0.4 percentage 
points. Such reduction shall apply only with respect to the fiscal year 
involved, and the Secretary shall not take into account such reduction 
in computing the applicable percentage increase under clause (i)(XIX) 
for a subsequent fiscal year.
    ``(II) Each subsection (d) hospital shall submit to the Secretary 
quality data (for a set of 10 indicators established by the Secretary 
as of November 1, 2003) that relate to the quality of care furnished by 
the hospital in inpatient settings in a form and manner, and at a time, 
specified by the Secretary for purposes of this clause, but with 
respect to fiscal year 2005, the Secretary shall provide for a 30-day 
grace period for the submission of data by a hospital.''.
    (c) GAO Study and Report on Appropriateness of Payments Under the 
Prospective Payment System for Inpatient Hospital Services.--
        (1) Study.--The Comptroller General of the United States, using 
    the most current data available, shall conduct a study to 
    determine--
            (A) the appropriate level and distribution of payments in 
        relation to costs under the prospective payment system under 
        section 1886 of the Social Security Act (42 U.S.C. 1395ww) for 
        inpatient hospital services furnished by subsection (d) 
        hospitals (as defined in subsection (d)(1)(B) of such section); 
        and
            (B) whether there is a need to adjust such payments under 
        such system to reflect legitimate differences in costs across 
        different geographic areas, kinds of hospitals, and types of 
        cases.
        (2) Report.--Not later than 24 months after the date of the 
    enactment of this Act, the Comptroller General of the United States 
    shall submit to Congress a report on the study conducted under 
    paragraph (1) together with such recommendations for legislative 
    and administrative action as the Comptroller General determines 
    appropriate.

SEC. 502. REVISION OF THE INDIRECT MEDICAL EDUCATION (IME) ADJUSTMENT 
              PERCENTAGE.

    (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
1395ww(d)(5)(B)(ii)) is amended--
        (1) in subclause (VI), by striking ``and'' after the semicolon 
    at the end;
        (2) in subclause (VII)--
            (A) by inserting ``and before April 1, 2004,'' after ``on 
        or after October 1, 2002,''; and
            (B) by striking the period at the end and inserting a 
        semicolon; and
        (3) by adding at the end the following new subclauses:
            ``(VIII) on or after April 1, 2004, and before October 1, 
        2004, `c' is equal to 1.47;
            ``(IX) during fiscal year 2005, `c' is equal to 1.42;
            ``(X) during fiscal year 2006, `c' is equal to 1.37;
            ``(XI) during fiscal year 2007, `c' is equal to 1.32; and
            ``(XII) on or after October 1, 2007, `c' is equal to 
        1.35.''.
    (b) Conforming Amendment Relating to Determination of Standardized 
Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is 
amended--
        (1) by striking ``1999 or'' and inserting ``1999,''; and
        (2) by inserting ``, or the Medicare Prescription Drug, 
    Improvement, and Modernization Act of 2003'' after ``2000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to discharges occurring on or after April 1, 2004.

SEC. 503. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
              HOSPITAL PROSPECTIVE PAYMENT SYSTEM.

    (a) Improving Timeliness of Data Collection.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the 
following new clause:
    ``(vii) Under the mechanism under this subparagraph, the Secretary 
shall provide for the addition of new diagnosis and procedure codes in 
April 1 of each year, but the addition of such codes shall not require 
the Secretary to adjust the payment (or diagnosis-related group 
classification) under this subsection until the fiscal year that begins 
after such date.''.
    (b) Eligibility Standard for Technology Outliers.--
        (1) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I) (42 
    U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting ``(applying 
    a threshold specified by the Secretary that is the lesser of 75 
    percent of the standardized amount (increased to reflect the 
    difference between cost and charges) or 75 percent of one standard 
    deviation for the diagnosis-related group involved)'' after ``is 
    inadequate''.
        (2) Process for public input.--Section 1886(d)(5)(K) (42 U.S.C. 
    1395ww(d)(5)(K)), as amended by subsection (a), is amended--
            (A) in clause (i), by adding at the end the following: 
        ``Such mechanism shall be modified to meet the requirements of 
        clause (viii).''; and
            (B) by adding at the end the following new clause:
    ``(viii) The mechanism established pursuant to clause (i) shall be 
adjusted to provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology represents an 
advance in medical technology that substantially improves the diagnosis 
or treatment of individuals entitled to benefits under part A as 
follows:
        ``(I) The Secretary shall make public and periodically update a 
    list of all the services and technologies for which an application 
    for additional payment under this subparagraph is pending.
        ``(II) The Secretary shall accept comments, recommendations, 
    and data from the public regarding whether the service or 
    technology represents a substantial improvement.
        ``(III) The Secretary shall provide for a meeting at which 
    organizations representing hospitals, physicians, such individuals, 
    manufacturers, and any other interested party may present comments, 
    recommendations, and data to the clinical staff of the Centers for 
    Medicare & Medicaid Services before publication of a notice of 
    proposed rulemaking regarding whether service or technology 
    represents a substantial improvement.''.
    (c) Preference for Use of DRG Adjustment.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)), as amended by subsections (a) and (b), is 
amended by adding at the end the following new clause:
    ``(ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary shall seek 
to identify one or more diagnosis-related groups associated with such 
technology, based on similar clinical or anatomical characteristics and 
the cost of the technology. Within such groups the Secretary shall 
assign an eligible new technology into a diagnosis-related group where 
the average costs of care most closely approximate the costs of care of 
using the new technology. No add-on payment under this subparagraph 
shall be made with respect to such new technology and this clause shall 
not affect the application of paragraph (4)(C)(iii).''.
    (d) Establishment of New Funding for Hospital Inpatient 
Technology.--
        (1) In general.--Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 
    1395ww(d)(5)(K)(ii)(III)) is amended by striking ``subject to 
    paragraph (4)(C)(iii),''.
        (2) Not budget neutral.--There shall be no reduction or other 
    adjustment in payments under section 1886 of the Social Security 
    Act because an additional payment is provided under subsection 
    (d)(5)(K)(ii)(III) of such section.
    (e) Effective Date.--
        (1) In general.--The Secretary shall implement the amendments 
    made by this section so that they apply to classification for 
    fiscal years beginning with fiscal year 2005.
        (2) Reconsiderations of applications for fiscal year 2004 that 
    are denied.--In the case of an application for a classification of 
    a medical service or technology as a new medical service or 
    technology under section 1886(d)(5)(K) of the Social Security Act 
    (42 U.S.C. 1395ww(d)(5)(K)) that was filed for fiscal year 2004 and 
    that is denied--
            (A) the Secretary shall automatically reconsider the 
        application as an application for fiscal year 2005 under the 
        amendments made by this section; and
            (B) the maximum time period otherwise permitted for such 
        classification of the service or technology shall be extended 
        by 12 months.

SEC. 504. INCREASE IN FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

    Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
        (1) in subparagraph (A)--
            (A) in clause (i), by striking ``for discharges beginning 
        on or after October 1, 1997, 50 percent (and for discharges 
        between October 1, 1987, and September 30, 1997, 75 percent)'' 
        and inserting ``the applicable Puerto Rico percentage 
        (specified in subparagraph (E))''; and
            (B) in clause (ii), by striking ``for discharges beginning 
        in a fiscal year beginning on or after October 1, 1997, 50 
        percent (and for discharges between October 1, 1987, and 
        September 30, 1997, 25 percent)'' and inserting ``the 
        applicable Federal percentage (specified in subparagraph 
        (E))''; and
        (2) by adding at the end the following new subparagraph:
    ``(E) For purposes of subparagraph (A), for discharges occurring--
        ``(i) on or after October 1, 1987, and before October 1, 1997, 
    the applicable Puerto Rico percentage is 75 percent and the 
    applicable Federal percentage is 25 percent;
        ``(ii) on or after October 1, 1997, and before April 1, 2004, 
    the applicable Puerto Rico percentage is 50 percent and the 
    applicable Federal percentage is 50 percent;
        ``(iii) on or after April 1, 2004, and before October 1, 2004, 
    the applicable Puerto Rico percentage is 37.5 percent and the 
    applicable Federal percentage is 62.5 percent; and
        ``(iv) on or after October 1, 2004, the applicable Puerto Rico 
    percentage is 25 percent and the applicable Federal percentage is 
    75 percent.''.

SEC. 505. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM.

    (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)), as amended 
by section 406, is amended by adding at the end the following new 
paragraph:
    ``(13)(A) In order to recognize commuting patterns among geographic 
areas, the Secretary shall establish a process through application or 
otherwise for an increase of the wage index applied under paragraph 
(3)(E) for subsection (d) hospitals located in a qualifying county 
described in subparagraph (B) in the amount computed under subparagraph 
(D) based on out-migration of hospital employees who reside in that 
county to any higher wage index area.
    ``(B) The Secretary shall establish criteria for a qualifying 
county under this subparagraph based on the out-migration referred to 
in subparagraph (A) and differences in the area wage indices. Under 
such criteria the Secretary shall, utilizing such data as the Secretary 
determines to be appropriate, establish--
        ``(i) a threshold percentage, established by the Secretary, of 
    the weighted average of the area wage index or indices for the 
    higher wage index areas involved;
        ``(ii) a threshold (of not less than 10 percent) for minimum 
    out-migration to a higher wage index area or areas; and
        ``(iii) a requirement that the average hourly wage of the 
    hospitals in the qualifying county equals or exceeds the average 
    hourly wage of all the hospitals in the area in which the 
    qualifying county is located.
    ``(C) For purposes of this paragraph, the term `higher wage index 
area' means, with respect to a county, an area with a wage index that 
exceeds that of the county.
    ``(D) The increase in the wage index under subparagraph (A) for a 
qualifying county shall be equal to the percentage of the hospital 
employees residing in the qualifying county who are employed in any 
higher wage index area multiplied by the sum of the products, for each 
higher wage index area of--
        ``(i) the difference between--
            ``(I) the wage index for such higher wage index area, and
            ``(II) the wage index of the qualifying county; and
        ``(ii) the number of hospital employees residing in the 
    qualifying county who are employed in such higher wage index area 
    divided by the total number of hospital employees residing in the 
    qualifying county who are employed in any higher wage index area.
    ``(E) The process under this paragraph may be based upon the 
process used by the Medicare Geographic Classification Review Board 
under paragraph (10). As the Secretary determines to be appropriate to 
carry out such process, the Secretary may require hospitals (including 
subsection (d) hospitals and other hospitals) and critical access 
hospitals, as required under section 1866(a)(1)(T), to submit data 
regarding the location of residence, or the Secretary may use data from 
other sources.
    ``(F) A wage index increase under this paragraph shall be effective 
for a period of 3 fiscal years, except that the Secretary shall 
establish procedures under which a subsection (d) hospital may elect to 
waive the application of such wage index increase.
    ``(G) A hospital in a county that has a wage index increase under 
this paragraph for a period and that has not waived the application of 
such an increase under subparagraph (F) is not eligible for 
reclassification under paragraph (8) or (10) during that period.
    ``(H) Any increase in a wage index under this paragraph for a 
county shall not be taken into account for purposes of--
        ``(i) computing the wage index for portions of the wage index 
    area (not including the county) in which the county is located; or
        ``(ii) applying any budget neutrality adjustment with respect 
    to such index under paragraph (8)(D).
    ``(I) The thresholds described in subparagraph (B), data on 
hospital employees used under this paragraph, and any determination of 
the Secretary under the process described in subparagraph (E) shall be 
final and shall not be subject to judicial review.''.
    (b) Conforming Amendments.--Section 1866(a)(1) (42 U.S.C. 
1395cc(a)(1)) is amended--
        (1) in subparagraph (R), by striking ``and'' at the end;
        (2) in subparagraph (S), by striking the period at the end and 
    inserting ``, and''; and
        (3) by inserting after subparagraph (S) the following new 
    subparagraph:
        ``(T) in the case of hospitals and critical access hospitals, 
    to furnish to the Secretary such data as the Secretary determines 
    appropriate pursuant to subparagraph (E) of section 1886(d)(12) to 
    carry out such section.''.
    (c) Effective Date.--The amendments made by this section shall 
first apply to the wage index for discharges occurring on or after 
October 1, 2004. In initially implementing such amendments, the 
Secretary may modify the deadlines otherwise applicable under clauses 
(ii) and (iii)(I) of section 1886(d)(10)(C) of the Social Security Act 
(42 U.S.C. 1395ww(d)(10)(C)), for submission of, and actions on, 
applications relating to changes in hospital geographic 
reclassification.

SEC. 506. LIMITATION ON CHARGES FOR INPATIENT HOSPITAL CONTRACT HEALTH 
              SERVICES PROVIDED TO INDIANS BY MEDICARE PARTICIPATING 
              HOSPITALS.

    (a) In General.--Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1)), as 
amended by section 505(b), is amended--
        (1) in subparagraph (S), by striking ``and'' at the end;
        (2) in subparagraph (T), by striking the period and inserting 
    ``, and''; and
        (3) by inserting after subparagraph (T) the following new 
    subparagraph:
        ``(U) in the case of hospitals which furnish inpatient hospital 
    services for which payment may be made under this title, to be a 
    participating provider of medical care both--
            ``(i) under the contract health services program funded by 
        the Indian Health Service and operated by the Indian Health 
        Service, an Indian tribe, or tribal organization (as those 
        terms are defined in section 4 of the Indian Health Care 
        Improvement Act), with respect to items and services that are 
        covered under such program and furnished to an individual 
        eligible for such items and services under such program; and
            ``(ii) under any program funded by the Indian Health 
        Service and operated by an urban Indian organization with 
        respect to the purchase of items and services for an eligible 
        urban Indian (as those terms are defined in such section 4),
    in accordance with regulations promulgated by the Secretary 
    regarding admission practices, payment methodology, and rates of 
    payment (including the acceptance of no more than such payment rate 
    as payment in full for such items and services.''.
    (b) Effective Date.--The amendments made by this section shall 
apply as of a date specified by the Secretary of Health and Human 
Services (but in no case later than 1 year after the date of enactment 
of this Act) to medicare participation agreements in effect (or entered 
into) on or after such date.
    (c) Promulgation of Regulations.--The Secretary shall promulgate 
regulations to carry out the amendments made by subsection (a).

SEC. 507. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE LIMITS ON 
              PHYSICIAN REFERRALS.

    (a) Limits on Physician Referrals.--
        (1) Ownership and investment interests in whole hospitals.--
            (A) In general.--Section 1877(d)(3) (42 U.S.C. 
        1395nn(d)(3)) is amended--
                (i) by striking ``, and'' at the end of subparagraph 
            (A) and inserting a semicolon; and
                (ii) by redesignating subparagraph (B) as subparagraph 
            (C) and inserting after subparagraph (A) the following new 
            subparagraph:
            ``(B) effective for the 18-month period beginning on the 
        date of the enactment of the Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003, the hospital is not 
        a specialty hospital (as defined in subsection (h)(7)); and''.
            (B) Definition.--Section 1877(h) (42 U.S.C. 1395nn(h)) is 
        amended by adding at the end the following:
        ``(7) Specialty hospital.--
            ``(A) In general.--For purposes of this section, except as 
        provided in subparagraph (B), the term `specialty hospital' 
        means a subsection (d) hospital (as defined in section 
        1886(d)(1)(B)) that is primarily or exclusively engaged in the 
        care and treatment of one of the following categories:
                ``(i) Patients with a cardiac condition.
                ``(ii) Patients with an orthopedic condition.
                ``(iii) Patients receiving a surgical procedure.
                ``(iv) Any other specialized category of services that 
            the Secretary designates as inconsistent with the purpose 
            of permitting physician ownership and investment interests 
            in a hospital under this section.
            ``(B) Exception.--For purposes of this section, the term 
        `specialty hospital' does not include any hospital--
                ``(i) determined by the Secretary--

                    ``(I) to be in operation before November 18, 2003; 
                or
                    ``(II) under development as of such date;

                ``(ii) for which the number of physician investors at 
            any time on or after such date is no greater than the 
            number of such investors as of such date;
                ``(iii) for which the type of categories described in 
            subparagraph (A) at any time on or after such date is no 
            different than the type of such categories as of such date;
                ``(iv) for which any increase in the number of beds 
            occurs only in the facilities on the main campus of the 
            hospital and does not exceed 50 percent of the number of 
            beds in the hospital as of November 18, 2003, or 5 beds, 
            whichever is greater; and
                ``(v) that meets such other requirements as the 
            Secretary may specify.''.
        (2) Ownership and investment interests in a rural provider.--
    Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) is amended to read as 
    follows:
        ``(2) Rural providers.--In the case of designated health 
    services furnished in a rural area (as defined in section 
    1886(d)(2)(D)) by an entity, if--
            ``(A) substantially all of the designated health services 
        furnished by the entity are furnished to individuals residing 
        in such a rural area; and
            ``(B) effective for the 18-month period beginning on the 
        date of the enactment of the Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003, the entity is not a 
        specialty hospital (as defined in subsection (h)(7)).''.
    (b) Application of Exception for Hospitals Under Development.--For 
purposes of section 1877(h)(7)(B)(i)(II) of the Social Security Act, as 
added by subsection (a)(1)(B), in determining whether a hospital is 
under development as of November 18, 2003, the Secretary shall 
consider--
        (1) whether architectural plans have been completed, funding 
    has been received, zoning requirements have been met, and necessary 
    approvals from appropriate State agencies have been received; and
        (2) any other evidence the Secretary determines would indicate 
    whether a hospital is under development as of such date.
    (c) Studies.--
        (1) MedPAC study.--The Medicare Payment Advisory Commission, in 
    consultation with the Comptroller General of the United States, 
    shall conduct a study to determine--
            (A) any differences in the costs of health care services 
        furnished to patients by physician-owned specialty hospitals 
        and the costs of such services furnished by local full-service 
        community hospitals within specific diagnosis-related groups;
            (B) the extent to which specialty hospitals, relative to 
        local full-service community hospitals, treat patients in 
        certain diagnosis-related groups within a category, such as 
        cardiology, and an analysis of the selection;
            (C) the financial impact of physician-owned specialty 
        hospitals on local full-service community hospitals;
            (D) how the current diagnosis-related group system should 
        be updated to better reflect the cost of delivering care in a 
        hospital setting; and
            (E) the proportions of payments received, by type of payer, 
        between the specialty hospitals and local full-service 
        community hospitals.
        (2) HHS study.--The Secretary shall conduct a study of a 
    representative sample of specialty hospitals--
            (A) to determine the percentage of patients admitted to 
        physician-owned specialty hospitals who are referred by 
        physicians with an ownership interest;
            (B) to determine the referral patterns of physician owners, 
        including the percentage of patients they referred to 
        physician-owned specialty hospitals and the percentage of 
        patients they referred to local full-service community 
        hospitals for the same condition;
            (C) to compare the quality of care furnished in physician-
        owned specialty hospitals and in local full-service community 
        hospitals for similar conditions and patient satisfaction with 
        such care; and
            (D) to assess the differences in uncompensated care, as 
        defined by the Secretary, between the specialty hospital and 
        local full-service community hospitals, and the relative value 
        of any tax exemption available to such hospitals.
        (3) Reports.--Not later than 15 months after the date of the 
    enactment of this Act, the Commission and the Secretary, 
    respectively, shall each submit to Congress a report on the studies 
    conducted under paragraphs (1) and (2), respectively, and shall 
    include any recommendations for legislation or administrative 
    changes.

SEC. 508. ONE-TIME APPEALS PROCESS FOR HOSPITAL WAGE INDEX 
              CLASSIFICATION.

    (a) Establishment of Process.--
        (1) In general.--The Secretary shall establish not later than 
    January 1, 2004, by instruction or otherwise a process under which 
    a hospital may appeal the wage index classification otherwise 
    applicable to the hospital and select another area within the State 
    (or, at the discretion of the Secretary, within a contiguous State) 
    to which to be reclassified.
        (2) Process requirements.--The process established under 
    paragraph (1) shall be consistent with the following:
            (A) Such an appeal may be filed as soon as possible after 
        the date of the enactment of this Act but shall be filed by not 
        later than February 15, 2004.
            (B) Such an appeal shall be heard by the Medicare 
        Geographic Reclassification Review Board.
            (C) There shall be no further administrative or judicial 
        review of a decision of such Board.
        (3) Reclassification upon successful appeal.--If the Medicare 
    Geographic Reclassification Review Board determines that the 
    hospital is a qualifying hospital (as defined in subsection (c)), 
    the hospital shall be reclassified to the area selected under 
    paragraph (1). Such reclassification shall apply with respect to 
    discharges occurring during the 3-year period beginning with April 
    1, 2004.
        (4) Inapplicability of certain provisions.--Except as the 
    Secretary may provide, the provisions of paragraphs (8) and (10) of 
    section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) 
    shall not apply to an appeal under this section.
    (b) Application of Reclassification.--In the case of an appeal 
decided in favor of a qualifying hospital under subsection (a), the 
wage index reclassification shall not affect the wage index computation 
for any area or for any other hospital and shall not be effected in a 
budget neutral manner. The provisions of this section shall not affect 
payment for discharges occurring after the end of the 3-year-period 
referred to in subsection (a).
    (c) Qualifying Hospital Defined.--For purposes of this section, the 
term ``qualifying hospital'' means a subsection (d) hospital (as 
defined in section 1886(d)(1)(B) of the Social Security Act, 42 U.S.C. 
1395ww(d)(1)(B)) that--
        (1) does not qualify for a change in wage index classification 
    under paragraph (8) or (10) of section 1886(d) of the Social 
    Security Act (42 U.S.C. 1395ww(d)) on the basis of requirements 
    relating to distance or commuting; and
        (2) meets such other criteria, such as quality, as the 
    Secretary may specify by instruction or otherwise.
The Secretary may modify the wage comparison guidelines promulgated 
under section 1886(d)(10)(D) of such Act (42 U.S.C. 1395ww(d)(10)(D)) 
in carrying out this section.
    (d) Wage Index Classification.--For purposes of this section, the 
term ``wage index classification'' means the geographic area in which 
it is classified for purposes of determining for a fiscal year the 
factor used to adjust the DRG prospective payment rate under section 
1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) for area 
differences in hospital wage levels that applies to such hospital under 
paragraph (3)(E) of such section.
    (e) Limitation on Expenditures.--The aggregate amount of additional 
expenditures resulting from the application of this section shall not 
exceed $900,000,000.
    (f) Transitional Extension.--Any reclassification of a county or 
other area made by Act of Congress for purposes of making payments 
under section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) 
that expired on September 30, 2003, shall be deemed to be in effect 
during the period beginning on January 1, 2004, and ending on September 
30, 2004.

                      Subtitle B--Other Provisions

SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

    (a) Adjustment to RUGs for AIDS Residents.--Paragraph (12) of 
section 1888(e) (42 U.S.C. 1395yy(e)) is amended to read as follows:
        ``(12) Adjustment for residents with aids.--
            ``(A) In general.--Subject to subparagraph (B), in the case 
        of a resident of a skilled nursing facility who is afflicted 
        with acquired immune deficiency syndrome (AIDS), the per diem 
        amount of payment otherwise applicable (determined without 
        regard to any increase under section 101 of the Medicare, 
        Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, or 
        under section 314(a) of Medicare, Medicaid, and SCHIP Benefits 
        Improvement and Protection Act of 2000), shall be increased by 
        128 percent to reflect increased costs associated with such 
        residents.
            ``(B) Sunset.--Subparagraph (A) shall not apply on and 
        after such date as the Secretary certifies that there is an 
        appropriate adjustment in the case mix under paragraph 
        (4)(G)(i) to compensate for the increased costs associated with 
        residents described in such subparagraph.''.
    (b) Effective Date.--The amendment made by paragraph (1) shall 
apply to services furnished on or after October 1, 2004.

SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERVICES.

    (a) Coverage of Hospice Consultation Services.--Section 1812(a) (42 
U.S.C. 1395d(a)) is amended--
        (1) by striking ``and'' at the end of paragraph (3);
        (2) by striking the period at the end of paragraph (4) and 
    inserting ``; and''; and
        (3) by inserting after paragraph (4) the following new 
    paragraph:
        ``(5) for individuals who are terminally ill, have not made an 
    election under subsection (d)(1), and have not previously received 
    services under this paragraph, services that are furnished by a 
    physician (as defined in section 1861(r)(1)) who is either the 
    medical director or an employee of a hospice program and that--
            ``(A) consist of--
                ``(i) an evaluation of the individual's need for pain 
            and symptom management, including the individual's need for 
            hospice care; and
                ``(ii) counseling the individual with respect to 
            hospice care and other care options; and
            ``(B) may include advising the individual regarding 
        advanced care planning.''.
    (b) Payment.--Section 1814(i) (42 U.S.C. 1395f(i)) is amended by 
adding at the end the following new paragraph:
    ``(4) The amount paid to a hospice program with respect to the 
services under section 1812(a)(5) for which payment may be made under 
this part shall be equal to an amount established for an office or 
other outpatient visit for evaluation and management associated with 
presenting problems of moderate severity and requiring medical 
decisionmaking of low complexity under the fee schedule established 
under section 1848(b), other than the portion of such amount 
attributable to the practice expense component.''.
    (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 U.S.C. 
1395x(dd)(2)(A)(i)) is amended by inserting before the comma at the end 
the following: ``and services described in section 1812(a)(5)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services provided by a hospice program on or after January 1, 
2005.

SEC. 513. STUDY ON PORTABLE DIAGNOSTIC ULTRASOUND SERVICES FOR 
              BENEFICIARIES IN SKILLED NURSING FACILITIES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study of portable diagnostic ultrasound services furnished to 
medicare beneficiaries in skilled nursing facilities. Such study shall 
consider the following:
        (1) Types of equipment; training.--The types of portable 
    diagnostic ultrasound services furnished to such beneficiaries, the 
    types of portable ultrasound equipment used to furnish such 
    services, and the technical skills, or training, or both, required 
    for technicians to furnish such services.
        (2) Clinical appropriateness.--The clinical appropriateness of 
    transporting portable diagnostic ultrasound diagnostic and 
    technicians to patients in skilled nursing facilities as opposed to 
    transporting such patients to a hospital or other facility that 
    furnishes diagnostic ultrasound services.
        (3) Financial impact.--The financial impact if Medicare were 
    make a separate payment for portable ultrasound diagnostic 
    services, including the impact of separate payments--
            (A) for transportation and technician services for 
        residents during a resident in a part A stay, that would 
        otherwise be paid for under the prospective payment system for 
        covered skilled nursing facility services (under section 
        1888(e) of the Social Security Act (42 U.S.C. 1395yy(e)); and
            (B) for such services for residents in a skilled nursing 
        facility after a part A stay.
        (4) Credentialing requirements.--Whether the Secretary should 
    establish credentialing or other requirements for technicians that 
    furnish diagnostic ultrasound services to medicare beneficiaries.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Comptroller General shall submit to Congress a report 
on the study conducted under subsection (a), and shall include any 
recommendations for legislation or administrative change as the 
Comptroller General determines appropriate.

                TITLE VI--PROVISIONS RELATING TO PART B
        Subtitle A--Provisions Relating to Physicians' Services

SEC. 601. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

    (a) Update for 2004 and 2005.--
        (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
    amended by adding at the end the following new paragraph:
        ``(5) Update for 2004 and 2005.--The update to the single 
    conversion factor established in paragraph (1)(C) for each of 2004 
    and 2005 shall be not less than 1.5 percent.''.
        (2) Conforming amendment.--Paragraph (4)(B) of such section is 
    amended, in the matter before clause (i), by inserting ``and 
    paragraph (5)'' after ``subparagraph (D)''.
        (3) Not treated as change in law and regulation in sustainable 
    growth rate determination.--The amendments made by this subsection 
    shall not be treated as a change in law for purposes of applying 
    section 1848(f)(2)(D) of the Social Security Act (42 U.S.C. 1395w-
    4(f)(2)(D)).
    (b) Use of 10-Year Rolling Average in Computing Gross Domestic 
Product.--
        (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 1395w-
    4(f)(2)(C)) is amended--
            (A) by striking ``projected'' and inserting ``annual 
        average''; and
            (B) by striking ``from the previous applicable period to 
        the applicable period involved'' and inserting ``during the 10-
        year period ending with the applicable period involved''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to computations of the sustainable growth rate for years 
    beginning with 2003.

SEC. 602. TREATMENT OF PHYSICIANS' SERVICES FURNISHED IN ALASKA.

    Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)), as amended by section 
421, is amended--
        (1) in subparagraph (A), by striking ``subparagraphs (B), (C), 
    (E), and (F)'' and inserting ``subparagraphs (B), (C), (E), (F) and 
    (G)''; and
        (2) by adding at the end the following new subparagraph:
            ``(G) Floor for practice expense, malpractice, and work 
        geographic indices for services furnished in alaska.--For 
        purposes of payment for services furnished in Alaska on or 
        after January 1, 2004, and before January 1, 2006, after 
        calculating the practice expense, malpractice, and work 
        geographic indices in clauses (i), (ii), and (iii) of 
        subparagraph (A) and in subparagraph (B), the Secretary shall 
        increase any such index to 1.67 if such index would otherwise 
        be less than 1.67.''.

SEC. 603. INCLUSION OF PODIATRISTS, DENTISTS, AND OPTOMETRISTS UNDER 
              PRIVATE CONTRACTING AUTHORITY.

    Section 1802(b)(5)(B) (42 U.S.C. 1395a(b)(5)(B)) is amended by 
striking ``section 1861(r)(1)'' and inserting ``paragraphs (1), (2), 
(3), and (4) of section 1861(r)''.

SEC. 604. GAO STUDY ON ACCESS TO PHYSICIANS' SERVICES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study on access of medicare beneficiaries to physicians' 
services under the medicare program. The study shall include--
        (1) an assessment of the use by beneficiaries of such services 
    through an analysis of claims submitted by physicians for such 
    services under part B of the medicare program;
        (2) an examination of changes in the use by beneficiaries of 
    physicians' services over time; and
        (3) an examination of the extent to which physicians are not 
    accepting new medicare beneficiaries as patients.
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Comptroller General shall submit to Congress 
a report on the study conducted under subsection (a). The report shall 
include a determination whether--
        (1) data from claims submitted by physicians under part B of 
    the medicare program indicate potential access problems for 
    medicare beneficiaries in certain geographic areas; and
        (2) access by medicare beneficiaries to physicians' services 
    may have improved, remained constant, or deteriorated over time.

SEC. 605. COLLABORATIVE DEMONSTRATION-BASED REVIEW OF PHYSICIAN 
              PRACTICE EXPENSE GEOGRAPHIC ADJUSTMENT DATA.

    (a) In General.--Not later than January 1, 2005, the Secretary 
shall, in collaboration with State and other appropriate organizations 
representing physicians, and other appropriate persons, review and 
consider alternative data sources than those currently used in 
establishing the geographic index for the practice expense component 
under the medicare physician fee schedule under section 
1848(e)(1)(A)(i) of the Social Security Act (42 U.S.C. 1395w-
4(e)(1)(A)(i)).
    (b) Sites.--The Secretary shall select two physician payment 
localities in which to carry out subsection (a). One locality shall 
include rural areas and at least one locality shall be a statewide 
locality that includes both urban and rural areas.
    (c) Report and Recommendations.--
        (1) Report.--Not later than January 1, 2006, the Secretary 
    shall submit to Congress a report on the review and consideration 
    conducted under subsection (a). Such report shall include 
    information on the alternative developed data sources considered by 
    the Secretary under subsection (a), including the accuracy and 
    validity of the data as measures of the elements of the geographic 
    index for practice expenses under the medicare physician fee 
    schedule as well as the feasibility of using such alternative data 
    nationwide in lieu of current proxy data used in such index, and 
    the estimated impacts of using such alternative data.
        (2) Recommendations.--The report submitted under paragraph (1) 
    shall contain recommendations on which data sources reviewed and 
    considered under subsection (a) are appropriate for use in 
    calculating the geographic index for practice expenses under the 
    medicare physician fee schedule.

SEC. 606. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

    (a) Practice Expense Component.--Not later than 1 year after the 
date of the enactment of this Act, the Medicare Payment Advisory 
Commission shall submit to Congress a report on the effect of 
refinements to the practice expense component of payments for 
physicians' services, after the transition to a full resource-based 
payment system in 2002, under section 1848 of the Social Security Act 
(42 U.S.C. 1395w-4). Such report shall examine the following matters by 
physician specialty:
        (1) The effect of such refinements on payment for physicians' 
    services.
        (2) The interaction of the practice expense component with 
    other components of and adjustments to payment for physicians' 
    services under such section.
        (3) The appropriateness of the amount of compensation by reason 
    of such refinements.
        (4) The effect of such refinements on access to care by 
    medicare beneficiaries to physicians' services.
        (5) The effect of such refinements on physician participation 
    under the medicare program.
    (b) Volume of Physicians' Services.--Not later than 1 year after 
the date of the enactment of this Act, the Medicare Payment Advisory 
Commission shall submit to Congress a report on the extent to which 
increases in the volume of physicians' services under part B of the 
medicare program are a result of care that improves the health and 
well-being of medicare beneficiaries. The study shall include the 
following:
        (1) An analysis of recent and historic growth in the components 
    that the Secretary includes under the sustainable growth rate 
    (under section 1848(f) of the Social Security Act (42 U.S.C. 1395w-
    4(f))).
        (2) An examination of the relative growth of volume in 
    physicians' services between medicare beneficiaries and other 
    populations.
        (3) An analysis of the degree to which new technology, 
    including coverage determinations of the Centers for Medicare & 
    Medicaid Services, has affected the volume of physicians' services.
        (4) An examination of the impact on volume of demographic 
    changes.
        (5) An examination of shifts in the site of service or services 
    that influence the number and intensity of services furnished in 
    physicians' offices and the extent to which changes in 
    reimbursement rates to other providers have effected these changes.
        (6) An evaluation of the extent to which the Centers for 
    Medicare & Medicaid Services takes into account the impact of law 
    and regulations on the sustainable growth rate.

                    Subtitle B--Preventive Services

SEC. 611. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINATION.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is 
amended--
        (1) in subparagraph (U), by striking ``and'' at the end;
        (2) in subparagraph (V)(iii), by inserting ``and'' at the end; 
    and
        (3) by adding at the end the following new subparagraph:
        ``(W) an initial preventive physical examination (as defined in 
    subsection (ww));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is amended 
by adding at the end the following new subsection:

               ``Initial Preventive Physical Examination

    ``(ww)(1) The term `initial preventive physical examination' means 
physicians' services consisting of a physical examination (including 
measurement of height, weight, and blood pressure, and an 
electrocardiogram) with the goal of health promotion and disease 
detection and includes education, counseling, and referral with respect 
to screening and other preventive services described in paragraph (2), 
but does not include clinical laboratory tests.
    ``(2) The screening and other preventive services described in this 
paragraph include the following:
        ``(A) Pneumococcal, influenza, and hepatitis B vaccine and 
    administration under subsection (s)(10).
        ``(B) Screening mammography as defined in subsection (jj).
        ``(C) Screening pap smear and screening pelvic exam as defined 
    in subsection (nn).
        ``(D) Prostate cancer screening tests as defined in subsection 
    (oo).
        ``(E) Colorectal cancer screening tests as defined in 
    subsection (pp).
        ``(F) Diabetes outpatient self-management training services as 
    defined in subsection (qq)(1).
        ``(G) Bone mass measurement as defined in subsection (rr).
        ``(H) Screening for glaucoma as defined in subsection (uu).
        ``(I) Medical nutrition therapy services as defined in 
    subsection (vv).
        ``(J) Cardiovascular screening blood tests as defined in 
    subsection (xx)(1).
        ``(K) Diabetes screening tests as defined in subsection 
    (yy).''.
    (c) Payment as Physicians' Services.--Section 1848(j)(3) (42 U.S.C. 
1395w-4(j)(3)) is amended by inserting ``(2)(W),'' after ``(2)(S),''.
    (d) Other Conforming Amendments.--(1) Section 1862(a) (42 U.S.C. 
1395y(a)), as amended by section 303(i)(3)(B), is amended--
        (A) in paragraph (1)--
            (i) by striking ``and'' at the end of subparagraph (I);
            (ii) by striking the semicolon at the end of subparagraph 
        (J) and inserting ``, and''; and
            (iii) by adding at the end the following new subparagraph:
        ``(K) in the case of an initial preventive physical 
    examination, which is performed not later than 6 months after the 
    date the individual's first coverage period begins under part B;''; 
    and
        (B) in paragraph (7), by striking ``or (H)'' and inserting 
    ``(H), or (K)''.
    (2) Clauses (i) and (ii) of section 1861(s)(2)(K) (42 U.S.C. 
1395x(s)(2)(K)) are each amended by inserting ``and services described 
in subsection (ww)(1)'' after ``services which would be physicians' 
services''.
    (e) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 2005, but only for 
individuals whose coverage period under part B begins on or after such 
date.

SEC. 612. COVERAGE OF CARDIOVASCULAR SCREENING BLOOD TESTS.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by section 611(a), is amended--
        (1) in subparagraph (V)(iii), by striking ``and'' at the end;
        (2) in subparagraph (W), by inserting ``and'' at the end; and
        (3) by adding at the end the following new subparagraph:
        ``(X) cardiovascular screening blood tests (as defined in 
    subsection (xx)(1));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is amended 
by adding at the end the following new subsection:

                 ``Cardiovascular Screening Blood Test

    ``(xx)(1) The term `cardiovascular screening blood test' means a 
blood test for the early detection of cardiovascular disease (or 
abnormalities associated with an elevated risk of cardiovascular 
disease) that tests for the following:
        ``(A) Cholesterol levels and other lipid or triglyceride 
    levels.
        ``(B) Such other indications associated with the presence of, 
    or an elevated risk for, cardiovascular disease as the Secretary 
    may approve for all individuals (or for some individuals determined 
    by the Secretary to be at risk for cardiovascular disease), 
    including indications measured by noninvasive testing.
The Secretary may not approve an indication under subparagraph (B) for 
any individual unless a blood test for such is recommended by the 
United States Preventive Services Task Force.
    ``(2) The Secretary shall establish standards, in consultation with 
appropriate organizations, regarding the frequency for each type of 
cardiovascular screening blood tests, except that such frequency may 
not be more often than once every 2 years.''.
    (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 611(d), is amended--
        (1) by striking ``and'' at the end of subparagraph (J);
        (2) by striking the semicolon at the end of subparagraph (K) 
    and inserting ``, and''; and
        (3) by adding at the end the following new subparagraph:
        ``(L) in the case of cardiovascular screening blood tests (as 
    defined in section 1861(xx)(1)), which are performed more 
    frequently than is covered under section 1861(xx)(2);''.
    (d) Effective Date.--The amendments made by this section shall 
apply to tests furnished on or after January 1, 2005.

SEC. 613. COVERAGE OF DIABETES SCREENING TESTS.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by section 612(a), is amended--
        (1) in subparagraph (W), by striking ``and'' at the end;
        (2) in subparagraph (X), by adding ``and'' at the end; and
        (3) by adding at the end the following new subparagraph:
        ``(Y) diabetes screening tests (as defined in subsection 
    (yy));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended 
by section 612(b), is amended by adding at the end the following new 
subsection:

                       ``Diabetes Screening Tests

    ``(yy)(1) The term `diabetes screening tests' means testing 
furnished to an individual at risk for diabetes (as defined in 
paragraph (2)) for the purpose of early detection of diabetes, 
including--
        ``(A) a fasting plasma glucose test; and
        ``(B) such other tests, and modifications to tests, as the 
    Secretary determines appropriate, in consultation with appropriate 
    organizations.
    ``(2) For purposes of paragraph (1), the term `individual at risk 
for diabetes' means an individual who has any of the following risk 
factors for diabetes:
        ``(A) Hypertension.
        ``(B) Dyslipidemia.
        ``(C) Obesity, defined as a body mass index greater than or 
    equal to 30 kg/m<SUP>2</SUP>.
        ``(D) Previous identification of an elevated impaired fasting 
    glucose.
        ``(E) Previous identification of impaired glucose tolerance.
        ``(F) A risk factor consisting of at least 2 of the following 
    characteristics:
            ``(i) Overweight, defined as a body mass index greater than 
        25, but less than 30, kg/m<SUP>2</SUP>.
            ``(ii) A family history of diabetes.
            ``(iii) A history of gestational diabetes mellitus or 
        delivery of a baby weighing greater than 9 pounds.
            ``(iv) 65 years of age or older.
    ``(3) The Secretary shall establish standards, in consultation with 
appropriate organizations, regarding the frequency of diabetes 
screening tests, except that such frequency may not be more often than 
twice within the 12-month period following the date of the most recent 
diabetes screening test of that individual.''.
    (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 612(c), is amended--
        (1) by striking ``and'' at the end of subparagraph (K);
        (2) by striking the semicolon at the end of subparagraph (L) 
    and inserting ``, and''; and
        (3) by adding at the end the following new subparagraph:
        ``(M) in the case of a diabetes screening test (as defined in 
    section 1861(yy)(1)), which is performed more frequently than is 
    covered under section 1861(yy)(3);''.
    (d) Effective Date.--The amendments made by this section shall 
apply to tests furnished on or after January 1, 2005.

SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

    (a) Exclusion From OPD Fee Schedule.--Section 1833(t)(1)(B)(iv) (42 
U.S.C. 1395l(t)(1)(B)(iv)) is amended by inserting before the period at 
the end the following: ``and does not include screening mammography (as 
defined in section 1861(jj)) and diagnostic mammography''.
    (b) Conforming Amendment.--Section 1833(a)(2)(E)(i) (42 U.S.C. 
1395l(a)(2)(E)(i)) is amended by inserting ``and, for services 
furnished on or after January 1, 2005, diagnostic mammography'' after 
``screening mammography''.
    (c) Effective Date.--The amendments made by this section shall 
apply--
        (1) in the case of screening mammography, to services furnished 
    on or after the date of the enactment of this Act; and
        (2) in the case of diagnostic mammography, to services 
    furnished on or after January 1, 2005.

                      Subtitle C--Other Provisions

SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) PAYMENT REFORM.

    (a) Payment for Drugs.--
        (1) Special rules for certain drugs and biologicals.--Section 
    1833(t) (42 U.S.C. 1395l(t)), as amended by section 411(b), is 
    amended by inserting after paragraph (13) the following new 
    paragraphs:
        ``(14) Drug apc payment rates.--
            ``(A) In general.--The amount of payment under this 
        subsection for a specified covered outpatient drug (defined in 
        subparagraph (B)) that is furnished as part of a covered OPD 
        service (or group of services)--
                ``(i) in 2004, in the case of--

                    ``(I) a sole source drug shall in no case be less 
                than 88 percent, or exceed 95 percent, of the reference 
                average wholesale price for the drug;
                    ``(II) an innovator multiple source drug shall in 
                no case exceed 68 percent of the reference average 
                wholesale price for the drug; or
                    ``(III) a noninnovator multiple source drug shall 
                in no case exceed 46 percent of the reference average 
                wholesale price for the drug;

                ``(ii) in 2005, in the case of--

                    ``(I) a sole source drug shall in no case be less 
                than 83 percent, or exceed 95 percent, of the reference 
                average wholesale price for the drug;
                    ``(II) an innovator multiple source drug shall in 
                no case exceed 68 percent of the reference average 
                wholesale price for the drug; or
                    ``(III) a noninnovator multiple source drug shall 
                in no case exceed 46 percent of the reference average 
                wholesale price for the drug; or

                ``(iii) in a subsequent year, shall be equal, subject 
            to subparagraph (E)--

                    ``(I) to the average acquisition cost for the drug 
                for that year (which, at the option of the Secretary, 
                may vary by hospital group (as defined by the Secretary 
                based on volume of covered OPD services or other 
                relevant characteristics)), as determined by the 
                Secretary taking into account the hospital acquisition 
                cost survey data under subparagraph (D); or
                    ``(II) if hospital acquisition cost data are not 
                available, the average price for the drug in the year 
                established under section 1842(o), section 1847A, or 
                section 1847B, as the case may be, as calculated and 
                adjusted by the Secretary as necessary for purposes of 
                this paragraph.

            ``(B) Specified covered outpatient drug defined.--
                ``(i) In general.--In this paragraph, the term 
            `specified covered outpatient drug' means, subject to 
            clause (ii), a covered outpatient drug (as defined in 
            section 1927(k)(2)) for which a separate ambulatory payment 
            classification group (APC) has been established and that 
            is--

                    ``(I) a radiopharmaceutical; or
                    ``(II) a drug or biological for which payment was 
                made under paragraph (6) (relating to pass-through 
                payments) on or before December 31, 2002.

                ``(ii) Exception.--Such term does not include--

                    ``(I) a drug or biological for which payment is 
                first made on or after January 1, 2003, under paragraph 
                (6);
                    ``(II) a drug or biological for which a temporary 
                HCPCS code has not been assigned; or
                    ``(III) during 2004 and 2005, an orphan drug (as 
                designated by the Secretary).

            ``(C) Payment for designated orphan drugs during 2004 and 
        2005.--The amount of payment under this subsection for an 
        orphan drug designated by the Secretary under subparagraph 
        (B)(ii)(III) that is furnished as part of a covered OPD service 
        (or group of services) during 2004 and 2005 shall equal such 
        amount as the Secretary may specify.
            ``(D) Acquisition cost survey for hospital outpatient 
        drugs.--
                ``(i) Annual gao surveys in 2004 and 2005.--

                    ``(I) In general.--The Comptroller General of the 
                United States shall conduct a survey in each of 2004 
                and 2005 to determine the hospital acquisition cost for 
                each specified covered outpatient drug. Not later than 
                April 1, 2005, the Comptroller General shall furnish 
                data from such surveys to the Secretary for use in 
                setting the payment rates under subparagraph (A) for 
                2006.
                    ``(II) Recommendations.--Upon the completion of 
                such surveys, the Comptroller General shall recommend 
                to the Secretary the frequency and methodology of 
                subsequent surveys to be conducted by the Secretary 
                under clause (ii).

                ``(ii) Subsequent secretarial surveys.--The Secretary, 
            taking into account such recommendations, shall conduct 
            periodic subsequent surveys to determine the hospital 
            acquisition cost for each specified covered outpatient drug 
            for use in setting the payment rates under subparagraph 
            (A).
                ``(iii) Survey requirements.--The surveys conducted 
            under clauses (i) and (ii) shall have a large sample of 
            hospitals that is sufficient to generate a statistically 
            significant estimate of the average hospital acquisition 
            cost for each specified covered outpatient drug. With 
            respect to the surveys conducted under clause (i), the 
            Comptroller General shall report to Congress on the 
            justification for the size of the sample used in order to 
            assure the validity of such estimates.
                ``(iv) Differentiation in cost.--In conducting surveys 
            under clause (i), the Comptroller General shall determine 
            and report to Congress if there is (and the extent of any) 
            variation in hospital acquisition costs for drugs among 
            hospitals based on the volume of covered OPD services 
            performed by such hospitals or other relevant 
            characteristics of such hospitals (as defined by the 
            Comptroller General).
                ``(v) Comment on proposed rates.--Not later than 30 
            days after the date the Secretary promulgated proposed 
            rules setting forth the payment rates under subparagraph 
            (A) for 2006, the Comptroller General shall evaluate such 
            proposed rates and submit to Congress a report regarding 
            the appropriateness of such rates based on the surveys the 
            Comptroller General has conducted under clause (i).
            ``(E) Adjustment in payment rates for overhead costs.--
                ``(i) Medpac report on drug apc design.--The Medicare 
            Payment Advisory Commission shall submit to the Secretary, 
            not later than July 1, 2005, a report on adjustment of 
            payment for ambulatory payment classifications for 
            specified covered outpatient drugs to take into account 
            overhead and related expenses, such as pharmacy services 
            and handling costs. Such report shall include--

                    ``(I) a description and analysis of the data 
                available with regard to such expenses;
                    ``(II) a recommendation as to whether such a 
                payment adjustment should be made; and
                    ``(III) if such adjustment should be made, a 
                recommendation regarding the methodology for making 
                such an adjustment.

                ``(ii) Adjustment authorized.--The Secretary may adjust 
            the weights for ambulatory payment classifications for 
            specified covered outpatient drugs to take into account the 
            recommendations contained in the report submitted under 
            clause (i).
            ``(F) Classes of drugs.--For purposes of this paragraph:
                ``(i) Sole source drugs.--The term `sole source drug' 
            means--

                    ``(I) a biological product (as defined under 
                section 1861(t)(1)); or
                    ``(II) a single source drug (as defined in section 
                1927(k)(7)(A)(iv)).

                ``(ii) Innovator multiple source drugs.--The term 
            `innovator multiple source drug' has the meaning given such 
            term in section 1927(k)(7)(A)(ii).
                ``(iii) Noninnovator multiple source drugs.--The term 
            `noninnovator multiple source drug' has the meaning given 
            such term in section 1927(k)(7)(A)(iii).
            ``(G) Reference average wholesale price.--The term 
        `reference average wholesale price' means, with respect to a 
        specified covered outpatient drug, the average wholesale price 
        for the drug as determined under section 1842(o) as of May 1, 
        2003.
            ``(H) Inapplicability of expenditures in determining 
        conversion, weighting, and other adjustment factors.--
        Additional expenditures resulting from this paragraph shall not 
        be taken into account in establishing the conversion, 
        weighting, and other adjustment factors for 2004 and 2005 under 
        paragraph (9), but shall be taken into account for subsequent 
        years.
        ``(15) Payment for new drugs and biologicals until hcpcs code 
    assigned.--With respect to payment under this part for an 
    outpatient drug or biological that is covered under this part and 
    is furnished as part of covered OPD services for which a HCPCS code 
    has not been assigned, the amount provided for payment for such 
    drug or biological under this part shall be equal to 95 percent of 
    the average wholesale price for the drug or biological.''.
        (2) Reduction in threshold for separate apcs for drugs.--
    Section 1833(t)(16), as redesignated section 411(b), is amended by 
    adding at the end the following new subparagraph:
            ``(B) Threshold for establishment of separate apcs for 
        drugs.--The Secretary shall reduce the threshold for the 
        establishment of separate ambulatory payment classification 
        groups (APCs) with respect to drugs or biologicals to $50 per 
        administration for drugs and biologicals furnished in 2005 and 
        2006.''.
        (3) Exclusion of separate drug apcs from outlier payments.--
    Section 1833(t)(5) is amended by adding at the end the following 
    new subparagraph:
            ``(E) Exclusion of separate drug and biological apcs from 
        outlier payments.--No additional payment shall be made under 
        subparagraph (A) in the case of ambulatory payment 
        classification groups established separately for drugs or 
        biologicals.''.
        (4) Payment for pass through drugs.--Section 1833(t)(6)(D)(i) 
    (42 U.S.C. 1395l(t)(6)(D)(i)) is amended by inserting after ``under 
    section 1842(o)'' the following: ``(or if the drug or biological is 
    covered under a competitive acquisition contract under section 
    1847B, an amount determined by the Secretary equal to the average 
    price for the drug or biological for all competitive acquisition 
    areas and year established under such section as calculated and 
    adjusted by the Secretary for purposes of this paragraph)''.
        (5) Conforming amendment to budget neutrality requirement.--
    Section 1833(t)(9)(B) (42 U.S.C. 1395l(t)(9)(B)) is amended by 
    adding at the end the following: ``In determining adjustments under 
    the preceding sentence for 2004 and 2005, the Secretary shall not 
    take into account under this subparagraph or paragraph (2)(E) any 
    expenditures that would not have been made but for the application 
    of paragraph (14).''.
        (6) Effective date.--The amendments made by this subsection 
    shall apply to items and services furnished on or after January 1, 
    2004.
    (b) Special Payment for Brachytherapy.--
        (1) In general.--Section 1833(t)(16), as redesignated by 
    section 411(b) and as amended by subsection (a)(2), is amended by 
    adding at the end the following new subparagraph:
            ``(C) Payment for devices of brachytherapy at charges 
        adjusted to cost.--Notwithstanding the preceding provisions of 
        this subsection, for a device of brachytherapy consisting of a 
        seed or seeds (or radioactive source) furnished on or after 
        January 1, 2004, and before January 1, 2007, the payment basis 
        for the device under this subsection shall be equal to the 
        hospital's charges for each device furnished, adjusted to cost. 
        Charges for such devices shall not be included in determining 
        any outlier payment under this subsection.''.
        (2) Specification of groups for brachytherapy devices.--Section 
    1833(t)(2) (42 U.S.C. 1395l(t)(2)) is amended--
            (A) in subparagraph (F), by striking ``and'' at the end;
            (B) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
            (C) by adding at the end the following new subparagraph:
            ``(H) with respect to devices of brachytherapy consisting 
        of a seed or seeds (or radioactive source), the Secretary shall 
        create additional groups of covered OPD services that classify 
        such devices separately from the other services (or group of 
        services) paid for under this subsection in a manner reflecting 
        the number, isotope, and radioactive intensity of such devices 
        furnished, including separate groups for palladium-103 and 
        iodine-125 devices.''.
        (3) GAO report.--The Comptroller General of the United States 
    shall conduct a study to determine appropriate payment amounts 
    under section 1833(t)(16)(C) of the Social Security Act, as added 
    by paragraph (1), for devices of brachytherapy. Not later than 
    January 1, 2005, the Comptroller General shall submit to Congress 
    and the Secretary a report on the study conducted under this 
    paragraph, and shall include specific recommendations for 
    appropriate payments for such devices.

SEC. 622. LIMITATION OF APPLICATION OF FUNCTIONAL EQUIVALENCE STANDARD.

    Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amended by adding at 
the end the following new subparagraph:
            ``(F) Limitation of application of functional equivalence 
        standard.--
                ``(i) In general.--The Secretary may not publish 
            regulations that apply a functional equivalence standard to 
            a drug or biological under this paragraph.
                ``(ii) Application.--Clause (i) shall apply to the 
            application of a functional equivalence standard to a drug 
            or biological on or after the date of enactment of the 
            Medicare Prescription Drug, Improvement, and Modernization 
            Act of 2003 unless--

                    ``(I) such application was being made to such drug 
                or biological prior to such date of enactment; and
                    ``(II) the Secretary applies such standard to such 
                drug or biological only for the purpose of determining 
                eligibility of such drug or biological for additional 
                payments under this paragraph and not for the purpose 
                of any other payments under this title.

                ``(iii) Rule of construction.--Nothing in this 
            subparagraph shall be construed to effect the Secretary's 
            authority to deem a particular drug to be identical to 
            another drug if the 2 products are pharmaceutically 
            equivalent and bioequivalent, as determined by the 
            Commissioner of Food and Drugs.''.

SEC. 623. PAYMENT FOR RENAL DIALYSIS SERVICES.

    (a) Increase in Renal Dialysis Composite Rate for Services 
Furnished.--The last sentence of section 1881(b)(7) (42 U.S.C. 
1395rr(b)(7)) is amended--
        (1) by striking ``and'' before ``for such services'' the second 
    place it appears;
        (2) by inserting ``and before January 1, 2005,'' after 
    ``January 1, 2001,''; and
        (3) by inserting before the period at the end the following: 
    ``, and for such services furnished on or after January 1, 2005, by 
    1.6 percent above such composite rate payment amounts for such 
    services furnished on December 31, 2004''.
    (b) Restoring Composite Rate Exceptions for Pediatric Facilities.--
        (1) In general.--Section 422(a)(2) of BIPA is amended--
            (A) in subparagraph (A), by striking ``and (C)'' and 
        inserting ``, (C), and (D)'';
            (B) in subparagraph (B), by striking ``In the case'' and 
        inserting ``Subject to subparagraph (D), in the case''; and
            (C) by adding at the end the following new subparagraph:
            ``(D) Inapplicability to pediatric facilities.--
        Subparagraphs (A) and (B) shall not apply, as of October 1, 
        2002, to pediatric facilities that do not have an exception 
        rate described in subparagraph (C) in effect on such date. For 
        purposes of this subparagraph, the term `pediatric facility' 
        means a renal facility at least 50 percent of whose patients 
        are individuals under 18 years of age.''.
        (2) Conforming amendment.--The fourth sentence of section 
    1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking ``The 
    Secretary'' and inserting ``Subject to section 422(a)(2) of the 
    Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
    Act of 2000, the Secretary''.
    (c) Inspector General Studies on ESRD Drugs.--
        (1) In general.--The Inspector General of the Department of 
    Health and Human Services shall conduct two studies with respect to 
    drugs and biologicals (including erythropoietin) furnished to end-
    stage renal disease patients under the medicare program which are 
    separately billed by end stage renal disease facilities.
        (2) Studies on esrd drugs.--
            (A) Existing drugs.--The first study under paragraph (1) 
        shall be conducted with respect to such drugs and biologicals 
        for which a billing code exists prior to January 1, 2004.
            (B) New drugs.--The second study under paragraph (1) shall 
        be conducted with respect to such drugs and biologicals for 
        which a billing code does not exist prior to January 1, 2004.
        (3) Matters studied.--Under each study conducted under 
    paragraph (1), the Inspector General shall--
            (A) determine the difference between the amount of payment 
        made to end stage renal disease facilities under title XVIII of 
        the Social Security Act for such drugs and biologicals and the 
        acquisition costs of such facilities for such drugs and 
        biologicals and which are separately billed by end stage renal 
        disease facilities, and
            (B) estimate the rates of growth of expenditures for such 
        drugs and biologicals billed by such facilities.
        (4) Reports.--
            (A) Existing esrd drugs.--Not later than April 1, 2004, the 
        Inspector General shall report to the Secretary on the study 
        described in paragraph (2)(A).
            (B) New esrd drugs.--Not later than April 1, 2006, the 
        Inspector General shall report to the Secretary on the study 
        described in paragraph (2)(B).
    (d) Basic Case-Mix Adjusted Composite Rate for Renal Dialysis 
Facility Services.--(1) Section 1881(b) (42 U.S.C. 1395rr(b)) is 
amended by adding at the end the following new paragraphs:
    ``(12)(A) In lieu of payment under paragraph (7) beginning with 
services furnished on January 1, 2005, the Secretary shall establish a 
basic case-mix adjusted prospective payment system for dialysis 
services furnished by providers of services and renal dialysis 
facilities in a year to individuals in a facility and to such 
individuals at home. The case-mix under such system shall be for a 
limited number of patient characteristics.
    ``(B) The system described in subparagraph (A) shall include--
        ``(i) the services comprising the composite rate established 
    under paragraph (7); and
        ``(ii) the difference between payment amounts under this title 
    for separately billed drugs and biologicals (including 
    erythropoietin) and acquisition costs of such drugs and 
    biologicals, as determined by the Inspector General reports to the 
    Secretary as required by section 623(c) of the Medicare 
    Prescription Drug, Improvement, and Modernization Act of 2003--
            ``(I) beginning with 2005, for such drugs and biologicals 
        for which a billing code exists prior to January 1, 2004; and
            ``(II) beginning with 2007, for such drugs and biologicals 
        for which a billing code does not exist prior to January 1, 
        2004,
    adjusted to 2005, or 2007, respectively, as determined to be 
    appropriate by the Secretary.
    ``(C)(i) In applying subparagraph (B)(ii) for 2005, such payment 
amounts under this title shall be determined using the methodology 
specified in paragraph (13)(A)(i).
    ``(ii) For 2006, the Secretary shall provide for an adjustment to 
the payments under clause (i) to reflect the difference between the 
payment amounts using the methodology under paragraph (13)(A)(i) and 
the payment amount determined using the methodology applied by the 
Secretary under paragraph (13)(A)(iii) of such paragraph, as estimated 
by the Secretary.
    ``(D) The Secretary shall adjust the payment rates under such 
system by a geographic index as the Secretary determines to be 
appropriate. If the Secretary applies a geographic index under this 
paragraph that differs from the index applied under paragraph (7) the 
Secretary shall phase-in the application of the index under this 
paragraph over a multiyear period.
    ``(E)(i) Such system shall be designed to result in the same 
aggregate amount of expenditures for such services, as estimated by the 
Secretary, as would have been made for 2005 if this paragraph did not 
apply.
    ``(ii) The adjustment made under subparagraph (B)(ii)(II) shall be 
done in a manner to result in the same aggregate amount of expenditures 
after such adjustment as would otherwise have been made for such 
services for 2006 or 2007, respectively, as estimated by the Secretary, 
if this paragraph did not apply.
    ``(F) Beginning with 2006, the Secretary shall annually increase 
the basic case-mix adjusted payment amounts established under this 
paragraph, by an amount determined by--
        ``(i) applying the estimated growth in expenditures for drugs 
    and biologicals (including erythropoietin) that are separately 
    billable to the component of the basic case-mix adjusted system 
    described in subparagraph (B)(ii); and
        ``(ii) converting the amount determined in clause (i) to an 
    increase applicable to the basic case-mix adjusted payment amounts 
    established under subparagraph (B).
Nothing in this paragraph shall be construed as providing for an update 
to the composite rate component of the basic case-mix adjusted system 
under subparagraph (B).
    ``(G) There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, of the case-mix system, 
relative weights, payment amounts, the geographic adjustment factor, or 
the update for the system established under this paragraph, or the 
determination of the difference between medicare payment amounts and 
acquisition costs for separately billed drugs and biologicals 
(including erythropoietin) under this paragraph and paragraph (13).
    ``(13)(A) The payment amounts under this title for separately 
billed drugs and biologicals furnished in a year, beginning with 2004, 
are as follows:
        ``(i) For such drugs and biologicals (other than 
    erythropoietin) furnished in 2004, the amount determined under 
    section 1842(o)(1)(A)(v) for the drug or biological.
        ``(ii) For such drugs and biologicals (including 
    erythropoietin) furnished in 2005, the acquisition cost of the drug 
    or biological, as determined by the Inspector General reports to 
    the Secretary as required by section 623(c) of the Medicare 
    Prescription Drug, Improvement, and Modernization Act of 2003. 
    Insofar as the Inspector General has not determined the acquisition 
    cost with respect to a drug or biological, the Secretary shall 
    determine the payment amount for such drug or biological.
        ``(iii) For such drugs and biologicals (including 
    erythropoietin) furnished in 2006 and subsequent years, such 
    acquisition cost or the amount determined under section 1847A for 
    the drug or biological, as the Secretary may specify.
    ``(B)(i) Drugs and biologicals (including erythropoietin) which 
were separately billed under this subsection on the day before the date 
of the enactment of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 shall continue to be separately billed on and 
after such date.
    ``(ii) Nothing in this paragraph, section 1842(o), section 1847A, 
or section 1847B shall be construed as requiring or authorizing the 
bundling of payment for drugs and biologicals into the basic case-mix 
adjusted payment system under this paragraph.''.
    (2) Paragraph (7) of such section is amended in the first sentence 
by striking ``The Secretary'' and inserting ``Subject to paragraph 
(12), the Secretary''.
    (3) Paragraph (11)(B) of such section is amended by inserting 
``subject to paragraphs (12) and (13)'' before ``payment for such 
item''.
    (e) Demonstration of Bundled Case-Mix Adjusted Payment System for 
ESRD Services.--
        (1) In general.--The Secretary shall establish a demonstration 
    project of the use of a fully case-mix adjusted payment system for 
    end stage renal disease services under section 1881 of the Social 
    Security Act (42 U.S.C. 1395rr) for patient characteristics 
    identified in the report under subsection (f) that bundles into 
    such payment rates amounts for--
            (A) drugs and biologicals (including erythropoietin) 
        furnished to end stage renal disease patients under the 
        medicare program which are separately billed by end stage renal 
        disease facilities (as of the date of the enactment of this 
        Act); and
            (B) clinical laboratory tests related to such drugs and 
        biologicals.
        (2) Facilities included in the demonstration.--In conducting 
    the demonstration under this subsection, the Secretary shall ensure 
    the participation of a sufficient number of providers of dialysis 
    services and renal dialysis facilities, but in no case to exceed 
    500. In selecting such providers and facilities, the Secretary 
    shall ensure that the following types of providers are included in 
    the demonstration:
            (A) Urban providers and facilities.
            (B) Rural providers and facilities.
            (C) Not-for-profit providers and facilities.
            (D) For-profit providers and facilities.
            (E) Independent providers and facilities.
            (F) Specialty providers and facilities, including pediatric 
        providers and facilities and small providers and facilities.
        (3) Temporary add-on payment for dialysis services furnished 
    under the demonstration.--
            (A) In general.--During the period of the demonstration 
        project, the Secretary shall increase payment rates that would 
        otherwise apply under section 1881(b) of such Act (42 U.S.C. 
        1395rr(b)) by 1.6 percent for dialysis services furnished in 
        facilities in the demonstration site.
            (B) Rules of construction.--Nothing in this subsection 
        shall be construed as--
                (i) as an annual update under section 1881(b) of the 
            Social Security Act (42 U.S.C. 1395rr(b));
                (ii) as increasing the baseline for payments under such 
            section; or
                (iii) requiring the budget neutral implementation of 
            the demonstration project under this subsection.
        (4) 3-year period.--The Secretary shall conduct the 
    demonstration under this subsection for the 3-year period beginning 
    on January 1, 2006.
        (5) Use of advisory board.--
            (A) In general.--In carrying out the demonstration under 
        this subsection, the Secretary shall establish an advisory 
        board comprised of representatives described in subparagraph 
        (B) to provide advice and recommendations with respect to the 
        establishment and operation of such demonstration.
            (B) Representatives.--Representatives referred to in 
        subparagraph (A) include representatives of the following:
                (i) Patient organizations.
                (ii) Individuals with expertise in end stage renal 
            dialysis services, such as clinicians, economists, and 
            researchers.
                (iii) The Medicare Payment Advisory Commission, 
            established under section 1805 of the Social Security Act 
            (42 U.S.C. 1395b-6).
                (iv) The National Institutes of Health.
                (v) Network organizations under section 1881(c) of the 
            Social Security Act (42 U.S.C. 1395rr(c)).
                (vi) Medicare contractors to monitor quality of care.
                (vii) Providers of services and renal dialysis 
            facilities furnishing end stage renal disease services.
            (C) Termination of advisory panel.--The advisory panel 
        shall terminate on December 31, 2008.
        (6) Authorization of appropriations.--There are authorized to 
    be appropriated, in appropriate part from the Federal Hospital 
    Insurance Trust Fund and the Federal Supplementary Medical 
    Insurance Trust Fund, $5,000,000 in fiscal year 2006 to conduct the 
    demonstration under this subsection.
    (f) Report on a Bundled Prospective Payment System for End Stage 
Renal Disease Services.--
        (1) Report.--
            (A) In general.--Not later than October 1, 2005, the 
        Secretary shall submit to Congress a report detailing the 
        elements and features for the design and implementation of a 
        bundled prospective payment system for services furnished by 
        end stage renal disease facilities including, to the maximum 
        extent feasible, bundling of drugs, clinical laboratory tests, 
        and other items that are separately billed by such facilities. 
        The report shall include a description of the methodology to be 
        used for the establishment of payment rates, including 
        components of the new system described in paragraph (2).
            (B) Recommendations.--The Secretary shall include in such 
        report recommendations on elements, features, and methodology 
        for a bundled prospective payment system or other issues 
        related to such system as the Secretary determines to be 
        appropriate.
        (2) Elements and features of a bundled prospective payment 
    system.--The report required under paragraph (1) shall include the 
    following elements and features of a bundled prospective payment 
    system:
            (A) Bundle of items and services.--A description of the 
        bundle of items and services to be included under the 
        prospective payment system.
            (B) Case mix.--A description of the case-mix adjustment to 
        account for the relative resource use of different types of 
        patients.
            (C) Wage index.--A description of an adjustment to account 
        for geographic differences in wages.
            (D) Rural areas.--The appropriateness of establishing a 
        specific payment adjustment to account for additional costs 
        incurred by rural facilities.
            (E) Other adjustments.--Such other adjustments as may be 
        necessary to reflect the variation in costs incurred by 
        facilities in caring for patients with end stage renal disease.
            (F) Update framework.--A methodology for appropriate 
        updates under the prospective payment system.
            (G) Additional recommendations.--Such other matters as the 
        Secretary determines to be appropriate.

SEC. 624. TWO-YEAR MORATORIUM ON THERAPY CAPS; PROVISIONS RELATING TO 
              REPORTS.

    (a) Additional Moratorium on Therapy Caps.--
        (1) 2004 and 2005.--Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) 
    is amended by striking ``and 2002'' and inserting ``2002, 2004, and 
    2005''.
        (2) Remainder of 2003.--For the period beginning on the date of 
    the enactment of this Act and ending of December 31, 2003, the 
    Secretary shall not apply the provisions of paragraphs (1), (2), 
    and (3) of section 1833(g) to expenses incurred with respect to 
    services described in such paragraphs during such period. Nothing 
    in the preceding sentence shall be construed as affecting the 
    application of such paragraphs by the Secretary before the date of 
    the enactment of this Act.
    (b) Prompt Submission of Overdue Reports on Payment and Utilization 
of Outpatient Therapy Services.--Not later than March 31, 2004, the 
Secretary shall submit to Congress the reports required under section 
4541(d)(2) of the Balanced Budget Act of 1997 (Public Law 105-33; 111 
Stat. 457) (relating to alternatives to a single annual dollar cap on 
outpatient therapy) and under section 221(d) of the Medicare, Medicaid, 
and SCHIP Balanced Budget Refinement Act of 1999 (Appendix F, 113 Stat. 
1501A-352), as enacted into law by section 1000(a)(6) of Public Law 
106-113 (relating to utilization patterns for outpatient therapy).
    (c) GAO Report Identifying Conditions and Diseases Justifying 
Waiver of Therapy Cap.--
        (1) Study.--The Comptroller General of the United States shall 
    identify conditions or diseases that may justify waiving the 
    application of the therapy caps under section 1833(g) of the Social 
    Security Act (42 U.S.C. 1395l(g)) with respect to such conditions 
    or diseases.
        (2) Report to congress.--Not later than October 1, 2004, the 
    Comptroller General shall submit to Congress a report on the 
    conditions and diseases identified under paragraph (1), and shall 
    include a recommendation of criteria, with respect to such 
    conditions and disease, under which a waiver of the therapy caps 
    would apply.

SEC. 625. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
              RETIREES; SPECIAL ENROLLMENT PERIOD.

    (a) Waiver of Penalty.--
        (1) In general.--Section 1839(b) (42 U.S.C. 1395r(b)) is 
    amended by adding at the end the following new sentence: ``No 
    increase in the premium shall be effected for a month in the case 
    of an individual who enrolls under this part during 2001, 2002, 
    2003, or 2004 and who demonstrates to the Secretary before December 
    31, 2004, that the individual is a covered beneficiary (as defined 
    in section 1072(5) of title 10, United States Code). The Secretary 
    of Health and Human Services shall consult with the Secretary of 
    Defense in identifying individuals described in the previous 
    sentence.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to premiums for months beginning with January 2004. The 
    Secretary shall establish a method for providing rebates of premium 
    penalties paid for months on or after January 2004 for which a 
    penalty does not apply under such amendment but for which a penalty 
    was previously collected.
    (b) Medicare Part B Special Enrollment Period.--
        (1) In general.--In the case of any individual who, as of the 
    date of the enactment of this Act, is eligible to enroll but is not 
    enrolled under part B of title XVIII of the Social Security Act and 
    is a covered beneficiary (as defined in section 1072(5) of title 
    10, United States Code), the Secretary of Health and Human Services 
    shall provide for a special enrollment period during which the 
    individual may enroll under such part. Such period shall begin as 
    soon as possible after the date of the enactment of this Act and 
    shall end on December 31, 2004.
        (2) Coverage period.--In the case of an individual who enrolls 
    during the special enrollment period provided under paragraph (1), 
    the coverage period under part B of title XVIII of the Social 
    Security Act shall begin on the first day of the month following 
    the month in which the individual enrolls.

SEC. 626. PAYMENT FOR SERVICES FURNISHED IN AMBULATORY SURGICAL 
              CENTERS.

    (a) Reductions in Payment Updates.--Section 1833(i)(2)(C) (42 
U.S.C. 1395l(i)(2)(C)) is amended to read as follows:
    ``(C)(i) Notwithstanding the second sentence of each of 
subparagraphs (A) and (B), except as otherwise specified in clauses 
(ii), (iii), and (iv), if the Secretary has not updated amounts 
established under such subparagraphs or under subparagraph (D), with 
respect to facility services furnished during a fiscal year (beginning 
with fiscal year 1986 or a calendar year (beginning with 2006)), such 
amounts shall be increased by the percentage increase in the Consumer 
Price Index for all urban consumers (U.S. city average) as estimated by 
the Secretary for the 12-month period ending with the midpoint of the 
year involved.
    ``(ii) In each of the fiscal years 1998 through 2002, the increase 
under this subparagraph shall be reduced (but not below zero) by 2.0 
percentage points.
    ``(iii) In fiscal year 2004, beginning with April 1, 2004, the 
increase under this subparagraph shall be the Consumer Price Index for 
all urban consumers (U.S. city average) as estimated by the Secretary 
for the 12-month period ending with March 31, 2003, minus 3.0 
percentage points.
    ``(iv) In fiscal year 2005, the last quarter of calendar year 2005, 
and each of calendar years 2006 through 2009, the increase under this 
subparagraph shall be 0 percent.''.
    (b) Repeal of Survey Requirement and Implementation of New 
System.--Section 1833(i)(2) (42 U.S.C. 1395l(i)(2)) is amended--
        (1) in subparagraph (A)--
            (A) in the matter preceding clause (i), by striking ``The'' 
        and inserting ``For services furnished prior to the 
        implementation of the system described in subparagraph (D), 
        the''; and
            (B) in clause (i), by striking ``taken not later than 
        January 1, 1995, and every 5 years thereafter,''; and
        (2) by adding at the end the following new subparagraph:
    ``(D)(i) Taking into account the recommendations in the report 
under section 626(d) of Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003, the Secretary shall implement a revised 
payment system for payment of surgical services furnished in ambulatory 
surgical centers.
    ``(ii) In the year the system described in clause (i) is 
implemented, such system shall be designed to result in the same 
aggregate amount of expenditures for such services as would be made if 
this subparagraph did not apply, as estimated by the Secretary.
    ``(iii) The Secretary shall implement the system described in 
clause (i) for periods in a manner so that it is first effective 
beginning on or after January 1, 2006, and not later than January 1, 
2008.
    ``(iv) There shall be no administrative or judicial review under 
section 1869, 1878, or otherwise, of the classification system, the 
relative weights, payment amounts, and the geographic adjustment 
factor, if any, under this subparagraph.''.
    (c) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
1395l(a)(1)) is amended by adding the following new subparagraph:
            ``(G) with respect to facility services furnished in 
        connection with a surgical procedure specified pursuant to 
        subsection (i)(1)(A) and furnished to an individual in an 
        ambulatory surgical center described in such subsection, for 
        services furnished beginning with the implementation date of a 
        revised payment system for such services in such facilities 
        specified in subsection (i)(2)(D), the amounts paid shall be 80 
        percent of the lesser of the actual charge for the services or 
        the amount determined by the Secretary under such revised 
        payment system,''.
    (d) GAO Study of Ambulatory Surgical Center Payments.--
        (1) Study.--
            (A) In general.--The Comptroller General of the United 
        States shall conduct a study that compares the relative costs 
        of procedures furnished in ambulatory surgical centers to the 
        relative costs of procedures furnished in hospital outpatient 
        departments under section 1833(t) of the Social Security Act 
        (42 U.S.C. 1395l(t)). The study shall also examine how 
        accurately ambulatory payment categories reflect procedures 
        furnished in ambulatory surgical centers.
            (B) Consideration of asc data.--In conducting the study 
        under paragraph (1), the Comptroller General shall consider 
        data submitted by ambulatory surgical centers regarding the 
        matters described in clauses (i) through (iii) of paragraph 
        (2)(B).
        (2) Report and recommendations.--
            (A) Report.--Not later than January 1, 2005, the 
        Comptroller General shall submit to Congress a report on the 
        study conducted under paragraph (1).
            (B) Recommendations.--The report submitted under 
        subparagraph (A) shall include recommendations on the following 
        matters:
                (i) The appropriateness of using the groups of covered 
            services and relative weights established under the 
            outpatient prospective payment system as the basis of 
            payment for ambulatory surgical centers.
                (ii) If the relative weights under such hospital 
            outpatient prospective payment system are appropriate for 
            such purpose--

                    (I) whether the payment rates for ambulatory 
                surgical centers should be based on a uniform 
                percentage of the payment rates or weights under such 
                outpatient system; or
                    (II) whether the payment rates for ambulatory 
                surgical centers should vary, or the weights should be 
                revised, based on specific procedures or types of 
                services (such as ophthalmology and pain management 
                services).

                (iii) Whether a geographic adjustment should be used 
            for payment of services furnished in ambulatory surgical 
            centers, and if so, the labor and nonlabor shares of such 
            payment.

SEC. 627. PAYMENT FOR CERTAIN SHOES AND INSERTS UNDER THE FEE SCHEDULE 
              FOR ORTHOTICS AND PROSTHETICS.

    (a) In General.--Section 1833(o) (42 U.S.C. 1395l(o)) is amended--
        (1) in paragraph (1)(B), by striking ``no more than the limits 
    established under paragraph (2)'' and inserting ``no more than the 
    amount of payment applicable under paragraph (2)''; and
        (2) in paragraph (2), to read as follows:
    ``(2)(A) Except as provided by the Secretary under subparagraphs 
(B) and (C), the amount of payment under this paragraph for custom 
molded shoes, extra-depth shoes, and inserts shall be the amount 
determined for such items by the Secretary under section 1834(h).
    ``(B) The Secretary may establish payment amounts for shoes and 
inserts that are lower than the amount established under section 
1834(h) if the Secretary finds that shoes and inserts of an appropriate 
quality are readily available at or below the amount established under 
such section.
    ``(C) In accordance with procedures established by the Secretary, 
an individual entitled to benefits with respect to shoes described in 
section 1861(s)(12) may substitute modification of such shoes instead 
of obtaining one (or more, as specified by the Secretary) pair of 
inserts (other than the original pair of inserts with respect to such 
shoes). In such case, the Secretary shall substitute, for the payment 
amount established under section 1834(h), a payment amount that the 
Secretary estimates will assure that there is no net increase in 
expenditures under this subsection as a result of this subparagraph.''.
    (b) Conforming Amendments.--(1) Section 1834(h)(4)(C) (42 U.S.C. 
1395m(h)(4)(C)) is amended by inserting ``(and includes shoes described 
in section 1861(s)(12))'' after ``in section 1861(s)(9)''.
    (2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is amended by 
striking subparagraph (C).
    (c) Effective Date.--The amendments made by this section shall 
apply to items furnished on or after January 1, 2005.

SEC. 628. PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY TESTS.

    Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 1395l(h)(2)(A)(ii)(IV)) is 
amended by striking ``and 1998 through 2002'' and inserting ``, 1998 
through 2002, and 2004 through 2008''.

SEC. 629. INDEXING PART B DEDUCTIBLE TO INFLATION.

    The first sentence of section 1833(b) (42 U.S.C. 1395l(b)) is 
amended by striking ``and $100 for 1991 and subsequent years'' and 
inserting the following: ``, $100 for 1991 through 2004, $110 for 2005, 
and for a subsequent year the amount of such deductible for the 
previous year increased by the annual percentage increase in the 
monthly actuarial rate under section 1839(a)(1) ending with such 
subsequent year (rounded to the nearest $1)''.

SEC. 630. FIVE-YEAR AUTHORIZATION OF REIMBURSEMENT FOR ALL MEDICARE 
              PART B SERVICES FURNISHED BY CERTAIN INDIAN HOSPITALS AND 
              CLINICS.

    Section 1880(e)(1)(A) (42 U.S.C. 1395qq(e)(1)(A)) is amended by 
inserting ``(and for items and services furnished during the 5-year 
period beginning on January 1, 2005, all items and services for which 
payment may be made under part B)'' after ``for services described in 
paragraph (2)''.

  Subtitle D--Additional Demonstrations, Studies, and Other Provisions

SEC. 641. DEMONSTRATION PROJECT FOR COVERAGE OF CERTAIN PRESCRIPTION 
              DRUGS AND BIOLOGICALS.

    (a) Demonstration Project.--The Secretary shall conduct a 
demonstration project under part B of title XVIII of the Social 
Security Act under which payment is made for drugs or biologicals that 
are prescribed as replacements for drugs and biologicals described in 
section 1861(s)(2)(A) or 1861(s)(2)(Q) of such Act (42 U.S.C. 
1395x(s)(2)(A), 1395x(s)(2)(Q)), or both, for which payment is made 
under such part. Such project shall provide for cost-sharing applicable 
with respect to such drugs or biologicals in the same manner as cost-
sharing applies with respect to part D drugs under standard 
prescription drug coverage (as defined in section 1860D-2(b) of the 
Social Security Act, as added by section 101(a)).
    (b) Demonstration Project Sites.--The project established under 
this section shall be conducted in sites selected by the Secretary.
    (c) Duration.--The Secretary shall conduct the demonstration 
project for the 2-year period beginning on the date that is 90 days 
after the date of the enactment of this Act, but in no case may the 
project extend beyond December 31, 2005.
    (d) Limitation.--Under the demonstration project over the duration 
of the project, the Secretary may not provide--
        (1) coverage for more than 50,000 patients; and
        (2) more than $500,000,000 in funding.
    (e) Report.--Not later than July 1, 2006, the Secretary shall 
submit to Congress a report on the project. The report shall include an 
evaluation of patient access to care and patient outcomes under the 
project, as well as an analysis of the cost effectiveness of the 
project, including an evaluation of the costs savings (if any) to the 
medicare program attributable to reduced physicians' services and 
hospital outpatient departments services for administration of the 
biological.

SEC. 642. EXTENSION OF COVERAGE OF INTRAVENOUS IMMUNE GLOBULIN (IVIG) 
              FOR THE TREATMENT OF PRIMARY IMMUNE DEFICIENCY DISEASES 
              IN THE HOME.

    (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended by 
sections 611(a) and 612(a) is amended--
        (1) in subsection (s)(2)--
            (A) by striking ``and'' at the end of subparagraph (X);
            (B) by adding ``and'' at the end of subparagraph (Y); and
            (C) by adding at the end the following new subparagraph:
            ``(Z) intravenous immune globulin for the treatment of 
        primary immune deficiency diseases in the home (as defined in 
        subsection (zz));''; and
        (2) by adding at the end the following new subsection:

                     ``Intravenous Immune Globulin

    ``(zz) The term `intravenous immune globulin' means an approved 
pooled plasma derivative for the treatment in the patient's home of a 
patient with a diagnosed primary immune deficiency disease, but not 
including items or services related to the administration of the 
derivative, if a physician determines administration of the derivative 
in the patient's home is medically appropriate.''.
    (b) Payment as a Drug or Biological.--Section 1833(a)(1)(S) (42 
U.S.C. 1395l(a)(1)(S)) is amended by inserting ``(including intravenous 
immune globulin (as defined in section 1861(zz)))'' after ``with 
respect to drugs and biologicals''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items furnished administered on or after January 1, 2004.

SEC. 643. MEDPAC STUDY OF COVERAGE OF SURGICAL FIRST ASSISTING SERVICES 
              OF CERTIFIED REGISTERED NURSE FIRST ASSISTANTS.

    (a) Study.--The Medicare Payment Advisory Commission (in this 
section referred to as the ``Commission'') shall conduct a study on the 
feasibility and advisability of providing for payment under part B of 
title XVIII of the Social Security Act for surgical first assisting 
services furnished by a certified registered nurse first assistant to 
medicare beneficiaries.
    (b) Report.--Not later than January 1, 2005, the Commission shall 
submit to Congress a report on the study conducted under subsection (a) 
together with recommendations for such legislation or administrative 
action as the Commission determines to be appropriate.
    (c) Definitions.--In this section:
        (1) Surgical first assisting services.--The term ``surgical 
    first assisting services'' means services consisting of first 
    assisting a physician with surgery and related preoperative, 
    intraoperative, and postoperative care (as determined by the 
    Secretary) furnished by a certified registered nurse first 
    assistant (as defined in paragraph (2)) which the certified 
    registered nurse first assistant is legally authorized to perform 
    by the State in which the services are performed.
        (2) Certified registered nurse first assistant.--The term 
    ``certified registered nurse first assistant'' means an individual 
    who--
            (A) is a registered nurse and is licensed to practice 
        nursing in the State in which the surgical first assisting 
        services are performed;
            (B) has completed a minimum of 2,000 hours of first 
        assisting a physician with surgery and related preoperative, 
        intraoperative, and postoperative care; and
            (C) is certified as a registered nurse first assistant by 
        an organization recognized by the Secretary.

SEC. 644. MEDPAC STUDY OF PAYMENT FOR CARDIO-THORACIC SURGEONS.

    (a) Study.--The Medicare Payment Advisory Commission (in this 
section referred to as the ``Commission'') shall conduct a study on the 
practice expense relative values established by the Secretary of Health 
and Human Services under the medicare physician fee schedule under 
section 1848 of the Social Security Act (42 U.S.C. 1395w-4) for 
physicians in the specialties of thoracic and cardiac surgery to 
determine whether such values adequately take into account the 
attendant costs that such physicians incur in providing clinical staff 
for patient care in hospitals.
    (b) Report.--Not later than January 1, 2005, the Commission shall 
submit to Congress a report on the study conducted under subsection (a) 
together with recommendations for such legislation or administrative 
action as the Commission determines to be appropriate.

SEC. 645. STUDIES RELATING TO VISION IMPAIRMENTS.

    (a) Coverage of Outpatient Vision Services Furnished by Vision 
Rehabilitation Professionals Under Part B.--
        (1) Study.--The Secretary shall conduct a study to determine 
    the feasibility and advisability of providing for payment for 
    vision rehabilitation services furnished by vision rehabilitation 
    professionals.
        (2) Report.--Not later than January 1, 2005, the Secretary 
    shall submit to Congress a report on the study conducted under 
    paragraph (1) together with recommendations for such legislation or 
    administrative action as the Secretary determines to be 
    appropriate.
        (3) Vision rehabilitation professional defined.--In this 
    subsection, the term ``vision rehabilitation professional'' means 
    an orientation and mobility specialist, a rehabilitation teacher, 
    or a low vision therapist.
    (b) Report on Appropriateness of a Demonstration Project To Test 
Feasibility of Using PPO Networks To Reduce Costs of Acquiring 
Eyeglasses for Medicare Beneficiaries After Cataract Surgery.--Not 
later than 1 year after the date of the enactment of this Act, the 
Secretary shall submit to Congress a report on the feasibility of 
establishing a two-year demonstration project under which the Secretary 
enters into arrangements with vision care preferred provider 
organization networks to furnish and pay for conventional eyeglasses 
subsequent to each cataract surgery with insertion of an intraocular 
lens on behalf of Medicare beneficiaries. In such report, the Secretary 
shall include an estimate of potential cost savings to the Medicare 
program through the use of such networks, taking into consideration 
quality of service and beneficiary access to services offered by vision 
care preferred provider organization networks.

SEC. 646. MEDICARE HEALTH CARE QUALITY DEMONSTRATION PROGRAMS.

    Title XVIII (42 U.S.C. 1395 et seq.) is amended by inserting after 
section 1866B the following new section:

               ``health care quality demonstration program

    ``Sec. 1866C. (a) Definitions.--In this section:
        ``(1) Beneficiary.--The term `beneficiary' means an individual 
    who is entitled to benefits under part A and enrolled under part B, 
    including any individual who is enrolled in a Medicare Advantage 
    plan under part C.
        ``(2) Health care group.--
            ``(A) In general.--The term `health care group' means--
                ``(i) a group of physicians that is organized at least 
            in part for the purpose of providing physician's services 
            under this title;
                ``(ii) an integrated health care delivery system that 
            delivers care through coordinated hospitals, clinics, home 
            health agencies, ambulatory surgery centers, skilled 
            nursing facilities, rehabilitation facilities and clinics, 
            and employed, independent, or contracted physicians; or
                ``(iii) an organization representing regional 
            coalitions of groups or systems described in clause (i) or 
            (ii).
            ``(B) Inclusion.--As the Secretary determines appropriate, 
        a health care group may include a hospital or any other 
        individual or entity furnishing items or services for which 
        payment may be made under this title that is affiliated with 
        the health care group under an arrangement structured so that 
        such hospital, individual, or entity participates in a 
        demonstration project under this section.
        ``(3) Physician.--Except as otherwise provided for by the 
    Secretary, the term `physician' means any individual who furnishes 
    services that may be paid for as physicians' services under this 
    title.
    ``(b) Demonstration Projects.--The Secretary shall establish a 5-
year demonstration program under which the Secretary shall approve 
demonstration projects that examine health delivery factors that 
encourage the delivery of improved quality in patient care, including--
        ``(1) the provision of incentives to improve the safety of care 
    provided to beneficiaries;
        ``(2) the appropriate use of best practice guidelines by 
    providers and services by beneficiaries;
        ``(3) reduced scientific uncertainty in the delivery of care 
    through the examination of variations in the utilization and 
    allocation of services, and outcomes measurement and research;
        ``(4) encourage shared decision making between providers and 
    patients;
        ``(5) the provision of incentives for improving the quality and 
    safety of care and achieving the efficient allocation of resources;
        ``(6) the appropriate use of culturally and ethnically 
    sensitive health care delivery; and
        ``(7) the financial effects on the health care marketplace of 
    altering the incentives for care delivery and changing the 
    allocation of resources.
    ``(c) Administration by Contract.--
        ``(1) In general.--Except as otherwise provided in this 
    section, the Secretary may administer the demonstration program 
    established under this section in a manner that is similar to the 
    manner in which the demonstration program established under section 
    1866A is administered in accordance with section 1866B.
        ``(2) Alternative payment systems.--A health care group that 
    receives assistance under this section may, with respect to the 
    demonstration project to be carried out with such assistance, 
    include proposals for the use of alternative payment systems for 
    items and services provided to beneficiaries by the group that are 
    designed to--
            ``(A) encourage the delivery of high quality care while 
        accomplishing the objectives described in subsection (b); and
            ``(B) streamline documentation and reporting requirements 
        otherwise required under this title.
        ``(3) Benefits.--A health care group that receives assistance 
    under this section may, with respect to the demonstration project 
    to be carried out with such assistance, include modifications to 
    the package of benefits available under the original medicare fee-
    for-service program under parts A and B or the package of benefits 
    available through a Medicare Advantage plan under part C. The 
    criteria employed under the demonstration program under this 
    section to evaluate outcomes and determine best practice guidelines 
    and incentives shall not be used as a basis for the denial of 
    medicare benefits under the demonstration program to patients 
    against their wishes (or if the patient is incompetent, against the 
    wishes of the patient's surrogate) on the basis of the patient's 
    age or expected length of life or of the patient's present or 
    predicted disability, degree of medical dependency, or quality of 
    life.
    ``(d) Eligibility Criteria.--To be eligible to receive assistance 
under this section, an entity shall--
        ``(1) be a health care group;
        ``(2) meet quality standards established by the Secretary, 
    including--
            ``(A) the implementation of continuous quality improvement 
        mechanisms that are aimed at integrating community-based 
        support services, primary care, and referral care;
            ``(B) the implementation of activities to increase the 
        delivery of effective care to beneficiaries;
            ``(C) encouraging patient participation in preference-based 
        decisions;
            ``(D) the implementation of activities to encourage the 
        coordination and integration of medical service delivery; and
            ``(E) the implementation of activities to measure and 
        document the financial impact on the health care marketplace of 
        altering the incentives of health care delivery and changing 
        the allocation of resources; and
        ``(3) meet such other requirements as the Secretary may 
    establish.
    ``(e) Waiver Authority.--The Secretary may waive such requirements 
of titles XI and XVIII as may be necessary to carry out the purposes of 
the demonstration program established under this section.
    ``(f) Budget Neutrality.--With respect to the 5-year period of the 
demonstration program under subsection (b), the aggregate expenditures 
under this title for such period shall not exceed the aggregate 
expenditures that would have been expended under this title if the 
program established under this section had not been implemented.
    ``(g) Notice Requirements.--In the case of an individual that 
receives health care items or services under a demonstration program 
carried out under this section, the Secretary shall ensure that such 
individual is notified of any waivers of coverage or payment rules that 
are applicable to such individual under this title as a result of the 
participation of the individual in such program.
    ``(h) Participation and Support by Federal Agencies.--In carrying 
out the demonstration program under this section, the Secretary may 
direct--
        ``(1) the Director of the National Institutes of Health to 
    expand the efforts of the Institutes to evaluate current medical 
    technologies and improve the foundation for evidence-based 
    practice;
        ``(2) the Administrator of the Agency for Healthcare Research 
    and Quality to, where possible and appropriate, use the program 
    under this section as a laboratory for the study of quality 
    improvement strategies and to evaluate, monitor, and disseminate 
    information relevant to such program; and
        ``(3) the Administrator of the Centers for Medicare & Medicaid 
    Services and the Administrator of the Center for Medicare Choices 
    to support linkages of relevant medicare data to registry 
    information from participating health care groups for the 
    beneficiary populations served by the participating groups, for 
    analysis supporting the purposes of the demonstration program, 
    consistent with the applicable provisions of the Health Insurance 
    Portability and Accountability Act of 1996.''.

SEC. 647. MEDPAC STUDY ON DIRECT ACCESS TO PHYSICAL THERAPY SERVICES.

    (a) Study.--The Medicare Payment Advisory Commission (in this 
section referred to as the ``Commission'') shall conduct a study on the 
feasibility and advisability of allowing medicare fee-for-service 
beneficiaries direct access to outpatient physical therapy services and 
physical therapy services furnished as comprehensive rehabilitation 
facility services.
    (b) Report.--Not later than January 1, 2005, the Commission shall 
submit to Congress a report on the study conducted under subsection (a) 
together with recommendations for such legislation or administrative 
action as the Commission determines to be appropriate.
    (c) Direct Access Defined.--The term ``direct access'' means, with 
respect to outpatient physical therapy services and physical therapy 
services furnished as comprehensive outpatient rehabilitation facility 
services, coverage of and payment for such services in accordance with 
the provisions of title XVIII of the Social Security Act, except that 
sections 1835(a)(2), 1861(p), and 1861(cc) of such Act (42 U.S.C. 
1395n(a)(2), 1395x(p), and 1395x(cc), respectively) shall be applied--
        (1) without regard to any requirement that--
            (A) an individual be under the care of (or referred by) a 
        physician; or
            (B) services be provided under the supervision of a 
        physician; and
        (2) by allowing a physician or a qualified physical therapist 
    to satisfy any requirement for--
            (A) certification and recertification; and
            (B) establishment and periodic review of a plan of care.

SEC. 648. DEMONSTRATION PROJECT FOR CONSUMER-DIRECTED CHRONIC 
              OUTPATIENT SERVICES.

    (a) Establishment.--
        (1) In general.--Subject to the succeeding provisions of this 
    section, the Secretary shall establish demonstration projects (in 
    this section referred to as ``demonstration projects'') under which 
    the Secretary shall evaluate methods that improve the quality of 
    care provided to individuals with chronic conditions and that 
    reduce expenditures that would otherwise be made under the medicare 
    program on behalf of such individuals for such chronic conditions, 
    such methods to include permitting those beneficiaries to direct 
    their own health care needs and services.
        (2) Individuals with chronic conditions defined.--In this 
    section, the term ``individuals with chronic conditions'' means an 
    individual entitled to benefits under part A of title XVIII of the 
    Social Security Act, and enrolled under part B of such title, but 
    who is not enrolled under part C of such title who is diagnosed as 
    having one or more chronic conditions (as defined by the 
    Secretary), such as diabetes.
    (b) Design of Projects.--
        (1) Evaluation before implementation of project.--
            (A) In general.--In establishing the demonstration projects 
        under this section, the Secretary shall evaluate best practices 
        employed by group health plans and practices under State plans 
        for medical assistance under the medicaid program under title 
        XIX of the Social Security Act, as well as best practices in 
        the private sector or other areas, of methods that permit 
        patients to self-direct the provision of personal care 
        services. The Secretary shall evaluate such practices for a 1-
        year period and, based on such evaluation, shall design the 
        demonstration project.
            (B) Requirement for estimate of budget neutral costs.--As 
        part of the evaluation under subparagraph (A), the Secretary 
        shall evaluate the costs of furnishing care under the projects. 
        The Secretary may not implement the demonstration projects 
        under this section unless the Secretary determines that the 
        costs of providing care to individuals with chronic conditions 
        under the project will not exceed the costs, in the aggregate, 
        of furnishing care to such individuals under title XVIII of the 
        Social Security Act, that would otherwise be paid without 
        regard to the demonstration projects for the period of the 
        project.
        (2) Scope of services.--The Secretary shall determine the 
    appropriate scope of personal care services that would apply under 
    the demonstration projects.
    (c) Voluntary Participation.--Participation of providers of 
services and suppliers, and of individuals with chronic conditions, in 
the demonstration projects shall be voluntary.
    (d) Demonstration Projects Sites.--Not later than 2 years after the 
date of the enactment of this Act, the Secretary shall conduct a 
demonstration project in at least one area that the Secretary 
determines has a population of individuals entitled to benefits under 
part A of title XVIII of the Social Security Act, and enrolled under 
part B of such title, with a rate of incidence of diabetes that 
significantly exceeds the national average rate of all areas.
    (e) Evaluation and Report.--
        (1) Evaluations.--The Secretary shall conduct evaluations of 
    the clinical and cost effectiveness of the demonstration projects.
        (2) Reports.--Not later than 2 years after the commencement of 
    the demonstration projects, and biannually thereafter, the 
    Secretary shall submit to Congress a report on the evaluation, and 
    shall include in the report the following:
            (A) An analysis of the patient outcomes and costs of 
        furnishing care to the individuals with chronic conditions 
        participating in the projects as compared to such outcomes and 
        costs to other individuals for the same health conditions.
            (B) Evaluation of patient satisfaction under the 
        demonstration projects.
            (C) Such recommendations regarding the extension, 
        expansion, or termination of the projects as the Secretary 
        determines appropriate.
    (f) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.) to such extent and for such period as the Secretary 
determines is necessary to conduct demonstration projects.
    (g) Authorization of Appropriations.--(1) Payments for the costs of 
carrying out the demonstration project under this section shall be made 
from the Federal Supplementary Medical Insurance Trust Fund under 
section 1841 of such Act (42 U.S.C. 1395t).
    (2) There are authorized to be appropriated from such Trust Fund 
such sums as may be necessary for the Secretary to enter into contracts 
with appropriate organizations for the deign, implementation, and 
evaluation of the demonstration project.
    (3) In no case may expenditures under this section exceed the 
aggregate expenditures that would otherwise have been made for the 
provision of personal care services.

SEC. 649. MEDICARE CARE MANAGEMENT PERFORMANCE DEMONSTRATION.

    (a) Establishment.--
        (1) In general.--The Secretary shall establish a pay-for-
    performance demonstration program with physicians to meet the needs 
    of eligible beneficiaries through the adoption and use of health 
    information technology and evidence-based outcomes measures for--
            (A) promoting continuity of care;
            (B) helping stabilize medical conditions;
            (C) preventing or minimizing acute exacerbations of chronic 
        conditions; and
            (D) reducing adverse health outcomes, such as adverse drug 
        interactions related to polypharmacy.
        (2) Sites.--The Secretary shall designate no more than 4 sites 
    at which to conduct the demonstration program under this section, 
    of which--
            (A) two shall be in an urban area;
            (B) one shall be in a rural area; and
            (C) one shall be in a State with a medical school with a 
        Department of Geriatrics that manages rural outreach sites and 
        is capable of managing patients with multiple chronic 
        conditions, one of which is dementia.
        (3) Duration.--The Secretary shall conduct the demonstration 
    program under this section for a 3-year period.
        (4) Consultation.--In carrying out the demonstration program 
    under this section, the Secretary shall consult with private sector 
    and non-profit groups that are undertaking similar efforts to 
    improve quality and reduce avoidable hospitalizations for 
    chronically ill patients.
    (b) Participation.--
        (1) In general.--A physician who provides care for a minimum 
    number of eligible beneficiaries (as specified by the Secretary) 
    may participate in the demonstration program under this section if 
    such physician agrees, to phase-in over the course of the 3-year 
    demonstration period and with the assistance provided under 
    subsection (d)(2)--
            (A) the use of health information technology to manage the 
        clinical care of eligible beneficiaries consistent with 
        paragraph (3); and
            (B) the electronic reporting of clinical quality and 
        outcomes measures in accordance with requirements established 
        by the Secretary under the demonstration program.
        (2) Special rule.--In the case of the sites referred to in 
    subparagraphs (B) and (C) of subsection (a)(2), a physician who 
    provides care for a minimum number of beneficiaries with two or 
    more chronic conditions, including dementia (as specified by the 
    Secretary), may participate in the program under this section if 
    such physician agrees to the requirements in subparagraphs (A) and 
    (B) of paragraph (1).
        (3) Practice standards.--Each physician participating in the 
    demonstration program under this section must demonstrate the 
    ability--
            (A) to assess each eligible beneficiary for conditions 
        other than chronic conditions, such as impaired cognitive 
        ability and co-morbidities, for the purposes of developing care 
        management requirements;
            (B) to serve as the primary contact of eligible 
        beneficiaries in accessing items and services for which payment 
        may be made under the medicare program;
            (C) to establish and maintain health care information 
        system for such beneficiaries;
            (D) to promote continuity of care across providers and 
        settings;
            (E) to use evidence-based guidelines and meet such clinical 
        quality and outcome measures as the Secretary shall require;
            (F) to promote self-care through the provision of patient 
        education and support for patients or, where appropriate, 
        family caregivers;
            (G) when appropriate, to refer such beneficiaries to 
        community service organizations; and
            (H) to meet such other complex care management requirements 
        as the Secretary may specify.
    The guidelines and measures required under subparagraph (E) shall 
    be designed to take into account beneficiaries with multiple 
    chronic conditions.
    (c) Payment Methodology.--Under the demonstration program under 
this section the Secretary shall pay a per beneficiary amount to each 
participating physician who meets or exceeds specific performance 
standards established by the Secretary with respect to the clinical 
quality and outcome measures reported under subsection (b)(1)(B). Such 
amount may vary based on different levels of performance or 
improvement.
    (d) Administration.--
        (1) Use of quality improvement organizations.--The Secretary 
    shall contract with quality improvement organizations or such other 
    entities as the Secretary deems appropriate to enroll physicians 
    and evaluate their performance under the demonstration program 
    under this section.
        (2) Technical assistance.--The Secretary shall require in such 
    contracts that the contractor be responsible for technical 
    assistance and education as needed to physicians enrolled in the 
    demonstration program under this section for the purpose of aiding 
    their adoption of health information technology, meeting practice 
    standards, and implementing required clinical and outcomes 
    measures.
    (e) Funding.--
        (1) In general.--The Secretary shall provide for the transfer 
    from the Federal Supplementary Medical Insurance Trust Fund 
    established under section 1841 of the Social Security Act (42 
    U.S.C. 1395t) of such funds as are necessary for the costs of 
    carrying out the demonstration program under this section.
        (2) Budget neutrality.--In conducting the demonstration program 
    under this section, the Secretary shall ensure that the aggregate 
    payments made by the Secretary do not exceed the amount which the 
    Secretary estimates would have been paid if the demonstration 
    program under this section was not implemented.
    (f) Waiver Authority.--The Secretary may waive such requirements of 
titles XI and XVIII of the Social Security Act (42 U.S.C. 1301 et seq. 
and 1395 et seq.) as may be necessary for the purpose of carrying out 
the demonstration program under this section.
    (g) Report.--Not later than 12 months after the date of completion 
of the demonstration program under this section, the Secretary shall 
submit to Congress a report on such program, together with 
recommendations for such legislation and administrative action as the 
Secretary determines to be appropriate.
    (h) Definitions.--In this section:
        (1) Eligible beneficiary.--The term ``eligible beneficiary'' 
    means any individual who--
            (A) is entitled to benefits under part A and enrolled for 
        benefits under part B of title XVIII of the Social Security Act 
        and is not enrolled in a plan under part C of such title; and
            (B) has one or more chronic medical conditions specified by 
        the Secretary (one of which may be cognitive impairment).
        (2) Health information technology.--The term ``health 
    information technology'' means email communication, clinical alerts 
    and reminders, and other information technology that meets such 
    functionality, interoperability, and other standards as prescribed 
    by the Secretary.

SEC. 650. GAO STUDY AND REPORT ON THE PROPAGATION OF CONCIERGE CARE.

    (a) Study.--
        (1) In general.--The Comptroller General of the United States 
    shall conduct a study on concierge care (as defined in paragraph 
    (2)) to determine the extent to which such care--
            (A) is used by medicare beneficiaries (as defined in 
        section 1802(b)(5)(A) of the Social Security Act (42 U.S.C. 
        1395a(b)(5)(A))); and
            (B) has impacted upon the access of medicare beneficiaries 
        (as so defined) to items and services for which reimbursement 
        is provided under the medicare program under title XVIII of the 
        Social Security Act (42 U.S.C. 1395 et seq.).
        (2) Concierge care.--In this section, the term ``concierge 
    care'' means an arrangement under which, as a prerequisite for the 
    provision of a health care item or service to an individual, a 
    physician, practitioner (as described in section 1842(b)(18)(C) of 
    the Social Security Act (42 U.S.C. 1395u(b)(18)(C))), or other 
    individual--
            (A) charges a membership fee or another incidental fee to 
        an individual desiring to receive the health care item or 
        service from such physician, practitioner, or other individual; 
        or
            (B) requires the individual desiring to receive the health 
        care item or service from such physician, practitioner, or 
        other individual to purchase an item or service.
    (b) Report.--Not later than the date that is 12 months after the 
date of enactment of this Act, the Comptroller General of the United 
States shall submit to Congress a report on the study conducted under 
subsection (a)(1) together with such recommendations for legislative or 
administrative action as the Comptroller General determines to be 
appropriate.

SEC. 651. DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERVICES UNDER 
              MEDICARE.

    (a) Definitions.--In this section:
        (1) Chiropractic services.--The term ``chiropractic services'' 
    has the meaning given that term by the Secretary for purposes of 
    the demonstration projects, but shall include, at a minimum--
            (A) care for neuromusculoskeletal conditions typical among 
        eligible beneficiaries; and
            (B) diagnostic and other services that a chiropractor is 
        legally authorized to perform by the State or jurisdiction in 
        which such treatment is provided.
        (2) Demonstration project.--The term ``demonstration project'' 
    means a demonstration project established by the Secretary under 
    subsection (b)(1).
        (3) Eligible beneficiary.--The term ``eligible beneficiary'' 
    means an individual who is enrolled under part B of the medicare 
    program.
        (4) Medicare program.--The term ``medicare program'' means the 
    health benefits program under title XVIII of the Social Security 
    Act (42 U.S.C. 1395 et seq.).
    (b) Demonstration of Coverage of Chiropractic Services Under 
Medicare.--
        (1) Establishment.--The Secretary shall establish demonstration 
    projects in accordance with the provisions of this section for the 
    purpose of evaluating the feasibility and advisability of covering 
    chiropractic services under the medicare program (in addition to 
    the coverage provided for services consisting of treatment by means 
    of manual manipulation of the spine to correct a subluxation 
    described in section 1861(r)(5) of the Social Security Act (42 
    U.S.C. 1395x(r)(5))).
        (2) No physician approval required.--In establishing the 
    demonstration projects, the Secretary shall ensure that an eligible 
    beneficiary who participates in a demonstration project, including 
    an eligible beneficiary who is enrolled for coverage under a 
    Medicare+Choice plan (or, on and after January 1, 2006, under a 
    Medicare Advantage plan), is not required to receive approval from 
    a physician or other health care provider in order to receive a 
    chiropractic service under a demonstration project.
        (3) Consultation.--In establishing the demonstration projects, 
    the Secretary shall consult with chiropractors, organizations 
    representing chiropractors, eligible beneficiaries, and 
    organizations representing eligible beneficiaries.
        (4) Participation.--Any eligible beneficiary may participate in 
    the demonstration projects on a voluntary basis.
    (c) Conduct of Demonstration Projects.--
        (1) Demonstration sites.--
            (A) Selection of demonstration sites.--The Secretary shall 
        conduct demonstration projects at 4 demonstration sites.
            (B) Geographic diversity.--Of the sites described in 
        subparagraph (A)--
                (i) two shall be in rural areas; and
                (ii) two shall be in urban areas.
            (C) Sites located in hpsas.--At least 1 site described in 
        clause (i) of subparagraph (B) and at least 1 site described in 
        clause (ii) of such subparagraph shall be located in an area 
        that is designated under section 332(a)(1)(A) of the Public 
        Health Service Act (42 U.S.C. 254e(a)(1)(A)) as a health 
        professional shortage area.
        (2) Implementation; duration.--
            (A) Implementation.--The Secretary shall not implement the 
        demonstration projects before October 1, 2004.
            (B) Duration.--The Secretary shall complete the 
        demonstration projects by the date that is 2 years after the 
        date on which the first demonstration project is implemented.
    (d) Evaluation and Report.--
        (1) Evaluation.--The Secretary shall conduct an evaluation of 
    the demonstration projects--
            (A) to determine whether eligible beneficiaries who use 
        chiropractic services use a lesser overall amount of items and 
        services for which payment is made under the medicare program 
        than eligible beneficiaries who do not use such services;
            (B) to determine the cost of providing payment for 
        chiropractic services under the medicare program;
            (C) to determine the satisfaction of eligible beneficiaries 
        participating in the demonstration projects and the quality of 
        care received by such beneficiaries; and
            (D) to evaluate such other matters as the Secretary 
        determines is appropriate.
        (2) Report.--Not later than the date that is 1 year after the 
    date on which the demonstration projects conclude, the Secretary 
    shall submit to Congress a report on the evaluation conducted under 
    paragraph (1) together with such recommendations for legislation or 
    administrative action as the Secretary determines is appropriate.
    (e) Waiver of Medicare Requirements.--The Secretary shall waive 
compliance with such requirements of the medicare program to the extent 
and for the period the Secretary finds necessary to conduct the 
demonstration projects.
    (f) Funding.--
        (1) Demonstration projects.--
            (A) In general.--Subject to subparagraph (B) and paragraph 
        (2), the Secretary shall provide for the transfer from the 
        Federal Supplementary Insurance Trust Fund under section 1841 
        of the Social Security Act (42 U.S.C. 1395t) of such funds as 
        are necessary for the costs of carrying out the demonstration 
        projects under this section.
            (B) Limitation.--In conducting the demonstration projects 
        under this section, the Secretary shall ensure that the 
        aggregate payments made by the Secretary under the medicare 
        program do not exceed the amount which the Secretary would have 
        paid under the medicare program if the demonstration projects 
        under this section were not implemented.
        (2) Evaluation and report.--There are authorized to be 
    appropriated such sums as are necessary for the purpose of 
    developing and submitting the report to Congress under subsection 
    (d).

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B
                    Subtitle A--Home Health Services

SEC. 701. UPDATE IN HOME HEALTH SERVICES.

    (a) Change to Calendar Year Update.--Section 1895(b) (42 U.S.C. 
1395fff(b)(3)) is amended--
        (1) in paragraph (3)(B)(i)--
            (A) by striking ``each fiscal year (beginning with fiscal 
        year 2002)'' and inserting ``fiscal year 2002 and for fiscal 
        year 2003 and for each subsequent year (beginning with 2004)''; 
        and
            (B) by inserting ``or year'' after ``the fiscal year'';
        (2) in paragraph (3)(B)(ii)--
            (A) in subclause (I), by striking ``or'' at the end;
            (B) by redesignating subclause (II) as subclause (III);
            (C) in subclause (III), as so redesignated, by striking 
        ``any subsequent fiscal year'' and inserting ``2004 and any 
        subsequent year''; and
            (D) by inserting after subclause (I) the following new 
        subclause:

                    ``(II) for the last calendar quarter of 2003 and 
                the first calendar quarter of 2004, the home health 
                market basket percentage increase; or'';

        (3) in paragraph (3)(B)(iii), by inserting ``or year'' after 
    ``fiscal year'' each place it appears; and
        (4) in paragraph (3)(B)(iv)--
            (A) by inserting ``or year'' after ``fiscal year'' each 
        place it appears; and
            (B) by inserting ``or years'' after ``fiscal years''; and
        (5) in paragraph (5), by inserting ``or year'' after ``fiscal 
    year''.
    (b) Adjustment to Updates for 2004, 2005, and 2006.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by 
subsection (a)(2), is amended--
        (1) by striking ``or'' at the end of subclause (II);
        (2) by redesignating subclause (III) as subclause (IV);
        (3) in subclause (IV), as so redesignated, by striking ``2004'' 
    and inserting ``2007''; and
        (4) by inserting after subclause (II) the following new 
    subclause:

                    ``(III) the last 3 calendar quarters of 2004, and 
                each of 2005 and 2006 the home health market basket 
                percentage increase minus 0.8 percentage points; or''.

SEC. 702. DEMONSTRATION PROJECT TO CLARIFY THE DEFINITION OF HOMEBOUND.

    (a) Demonstration Project.--Not later than 180 days after the date 
of the enactment of this Act, the Secretary shall conduct a 2-year 
demonstration project under part B of title XVIII of the Social 
Security Act under which medicare beneficiaries with chronic conditions 
described in subsection (b) are deemed to be homebound for purposes of 
receiving home health services under the medicare program.
    (b) Medicare Beneficiary Described.--For purposes of subsection 
(a), a medicare beneficiary is eligible to be deemed to be homebound, 
without regard to the purpose, frequency, or duration of absences from 
the home, if--
        (1) the beneficiary has been certified by one physician as an 
    individual who has a permanent and severe, disabling condition that 
    is not expected to improve;
        (2) the beneficiary is dependent upon assistance from another 
    individual with at least 3 out of the 5 activities of daily living 
    for the rest of the beneficiary's life;
        (3) the beneficiary requires skilled nursing services for the 
    rest of the beneficiary's life and the skilled nursing is more than 
    medication management;
        (4) an attendant is required to visit the beneficiary on a 
    daily basis to monitor and treat the beneficiary's medical 
    condition or to assist the beneficiary with activities of daily 
    living;
        (5) the beneficiary requires technological assistance or the 
    assistance of another person to leave the home; and
        (6) the beneficiary does not regularly work in a paid position 
    full-time or part-time outside the home.
    (c) Demonstration Project Sites.--The demonstration project 
established under this section shall be conducted in 3 States selected 
by the Secretary to represent the Northeast, Midwest, and Western 
regions of the United States.
    (d) Limitation on Number of Participants.--The aggregate number of 
such beneficiaries that may participate in the project may not exceed 
15,000.
    (e) Data.--The Secretary shall collect such data on the 
demonstration project with respect to the provision of home health 
services to medicare beneficiaries that relates to quality of care, 
patient outcomes, and additional costs, if any, to the medicare 
program.
    (f) Report to Congress.--Not later than 1 year after the date of 
the completion of the demonstration project under this section, the 
Secretary shall submit to Congress a report on the project using the 
data collected under subsection (e). The report shall include the 
following:
        (1) An examination of whether the provision of home health 
    services to medicare beneficiaries under the project has had any of 
    the following effects:
            (A) Has adversely affected the provision of home health 
        services under the medicare program.
            (B) Has directly caused an increase of expenditures under 
        the medicare program for the provision of such services that is 
        directly attributable to such clarification.
        (2) The specific data evidencing the amount of any increase in 
    expenditures that is directly attributable to the demonstration 
    project (expressed both in absolute dollar terms and as a 
    percentage) above expenditures that would otherwise have been 
    incurred for home health services under the medicare program.
        (3) Specific recommendations to exempt permanently and severely 
    disabled homebound beneficiaries from restrictions on the length, 
    frequency, and purpose of their absences from the home to qualify 
    for home health services without incurring additional costs to the 
    medicare program.
    (g) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.) to such extent and for such period as the Secretary 
determines is necessary to conduct demonstration projects.
    (h) Construction.--Nothing in this section shall be construed as 
waiving any applicable civil monetary penalty, criminal penalty, or 
other remedy available to the Secretary under title XI or title XVIII 
of the Social Security Act for acts prohibited under such titles, 
including penalties for false certifications for purposes of receipt of 
items or services under the medicare program.
    (i) Authorization of Appropriations.--Payments for the costs of 
carrying out the demonstration project under this section shall be made 
from the Federal Supplementary Medical Insurance Trust Fund under 
section 1841 of such Act (42 U.S.C. 1395t).
    (j) Definitions.--In this section:
        (1) Medicare beneficiary.--The term ``medicare beneficiary'' 
    means an individual who is enrolled under part B of title XVIII of 
    the Social Security Act.
        (2) Home health services.--The term ``home health services'' 
    has the meaning given such term in section 1861(m) of the Social 
    Security Act (42 U.S.C. 1395x(m)).
        (3) Activities of daily living defined.--The term ``activities 
    of daily living'' means eating, toileting, transferring, bathing, 
    and dressing.

SEC. 703. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY-CARE SERVICES.

    (a) Establishment.--Subject to the succeeding provisions of this 
section, the Secretary shall establish a demonstration project (in this 
section referred to as the ``demonstration project'') under which the 
Secretary shall, as part of a plan of an episode of care for home 
health services established for a medicare beneficiary, permit a home 
health agency, directly or under arrangements with a medical adult day-
care facility, to provide medical adult day-care services as a 
substitute for a portion of home health services that would otherwise 
be provided in the beneficiary's home.
    (b) Payment.--
        (1) In general.--Subject to paragraph (2), the amount of 
    payment for an episode of care for home health services, a portion 
    of which consists of substitute medical adult day-care services, 
    under the demonstration project shall be made at a rate equal to 95 
    percent of the amount that would otherwise apply for such home 
    health services under section 1895 of the Social Security Act (42 
    U.S.C. 1395fff). In no case may a home health agency, or a medical 
    adult day-care facility under arrangements with a home health 
    agency, separately charge a beneficiary for medical adult day-care 
    services furnished under the plan of care.
        (2) Adjustment in case of overutilization of substitute adult 
    day-care services to ensure budget neutrality.--The Secretary shall 
    monitor the expenditures under the demonstration project and under 
    title XVIII of the Social Security Act for home health services. If 
    the Secretary estimates that the total expenditures under the 
    demonstration project and under such title XVIII for home health 
    services for a period determined by the Secretary exceed 
    expenditures that would have been made under such title XVIII for 
    home health services for such period if the demonstration project 
    had not been conducted, the Secretary shall adjust the rate of 
    payment to medical adult day-care facilities under paragraph (1) in 
    order to eliminate such excess.
    (c) Demonstration Project Sites.--The demonstration project 
established under this section shall be conducted in not more than 5 
sites in States selected by the Secretary that license or certify 
providers of services that furnish medical adult day-care services.
    (d) Duration.--The Secretary shall conduct the demonstration 
project for a period of 3 years.
    (e) Voluntary Participation.--Participation of medicare 
beneficiaries in the demonstration project shall be voluntary. The 
total number of such beneficiaries that may participate in the project 
at any given time may not exceed 15,000.
    (f) Preference in Selecting Agencies.--In selecting home health 
agencies to participate under the demonstration project, the Secretary 
shall give preference to those agencies that are currently licensed or 
certified through common ownership and control to furnish medical adult 
day-care services.
    (g) Waiver Authority.--The Secretary may waive such requirements of 
title XVIII of the Social Security Act as may be necessary for the 
purposes of carrying out the demonstration project, other than waiving 
the requirement that an individual be homebound in order to be eligible 
for benefits for home health services.
    (h) Evaluation and Report.--The Secretary shall conduct an 
evaluation of the clinical and cost-effectiveness of the demonstration 
project. Not later than 6 months after the completion of the project, 
the Secretary shall submit to Congress a report on the evaluation, and 
shall include in the report the following:
        (1) An analysis of the patient outcomes and costs of furnishing 
    care to the medicare beneficiaries participating in the project as 
    compared to such outcomes and costs to beneficiaries receiving only 
    home health services for the same health conditions.
        (2) Such recommendations regarding the extension, expansion, or 
    termination of the project as the Secretary determines appropriate.
    (i) Definitions.--In this section:
        (1) Home health agency.--The term ``home health agency'' has 
    the meaning given such term in section 1861(o) of the Social 
    Security Act (42 U.S.C. 1395x(o)).
        (2) Medical adult day-care facility.--The term ``medical adult 
    day-care facility'' means a facility that--
            (A) has been licensed or certified by a State to furnish 
        medical adult day-care services in the State for a continuous 
        2-year period;
            (B) is engaged in providing skilled nursing services and 
        other therapeutic services directly or under arrangement with a 
        home health agency;
            (C) is licensed and certified by the State in which it 
        operates or meets such standards established by the Secretary 
        to assure quality of care and such other requirements as the 
        Secretary finds necessary in the interest of the health and 
        safety of individuals who are furnished services in the 
        facility; and
            (D) provides medical adult day-care services.
        (3) Medical adult day-care services.--The term ``medical adult 
    day-care services'' means--
            (A) home health service items and services described in 
        paragraphs (1) through (7) of section 1861(m) furnished in a 
        medical adult day-care facility;
            (B) a program of supervised activities furnished in a group 
        setting in the facility that--
                (i) meet such criteria as the Secretary determines 
            appropriate; and
                (ii) is designed to promote physical and mental health 
            of the individuals; and
            (C) such other services as the Secretary may specify.
        (4) Medicare beneficiary.--The term ``medicare beneficiary'' 
    means an individual entitled to benefits under part A of this 
    title, enrolled under part B of this title, or both.

SEC. 704. TEMPORARY SUSPENSION OF OASIS REQUIREMENT FOR COLLECTION OF 
              DATA ON NON-MEDICARE AND NON-MEDICAID PATIENTS.

    (a) In General.--During the period described in subsection (b), the 
Secretary may not require, under section 4602(e) of the Balanced Budget 
Act of 1997 (Public Law 105-33; 111 Stat. 467) or otherwise under 
OASIS, a home health agency to gather or submit information that 
relates to an individual who is not eligible for benefits under either 
title XVIII or title XIX of the Social Security Act (such information 
in this section referred to as ``non-medicare/medicaid OASIS 
information'').
    (b) Period of Suspension.--The period described in this 
subsection--
        (1) begins on the date of the enactment of this Act; and
        (2) ends on the last day of the second month beginning after 
    the date as of which the Secretary has published final regulations 
    regarding the collection and use by the Centers for Medicare & 
    Medicaid Services of non-medicare/medicaid OASIS information 
    following the submission of the report required under subsection 
    (c).
    (c) Report.--
        (1) Study.--The Secretary shall conduct a study on how non-
    medicare/medicaid OASIS information is and can be used by large 
    home health agencies. Such study shall examine--
            (A) whether there are unique benefits from the analysis of 
        such information that cannot be derived from other information 
        available to, or collected by, such agencies; and
            (B) the value of collecting such information by small home 
        health agencies compared to the administrative burden related 
        to such collection.
    In conducting the study the Secretary shall obtain recommendations 
    from quality assessment experts in the use of such information and 
    the necessity of small, as well as large, home health agencies 
    collecting such information.
        (2) Report.--The Secretary shall submit to Congress a report on 
    the study conducted under paragraph (1) by not later than 18 months 
    after the date of the enactment of this Act.
    (d) Construction.--Nothing in this section shall be construed as 
preventing home health agencies from collecting non-medicare/medicaid 
OASIS information for their own use.

SEC. 705. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH AGENCIES.

    (a) Study.--The Medicare Payment Advisory Commission shall conduct 
a study of payment margins of home health agencies under the home 
health prospective payment system under section 1895 of the Social 
Security Act (42 U.S.C. 1395fff). Such study shall examine whether 
systematic differences in payment margins are related to differences in 
case mix (as measured by home health resource groups (HHRGs)) among 
such agencies. The study shall use the partial or full-year cost 
reports filed by home health agencies.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Commission shall submit to Congress a report on the 
study under subsection (a).

SEC. 706. COVERAGE OF RELIGIOUS NONMEDICAL HEALTH CARE INSTITUTION 
              SERVICES FURNISHED IN THE HOME.

    (a) In General.--Section 1821(a) (42 U.S.C. 1395i-5(a)) is 
amended--
        (1) in the matter preceding paragraph (1), by inserting ``and 
    for home health services furnished an individual by a religious 
    nonmedical health care institution'' after ``religious nonmedical 
    health care institution''; and
        (2) in paragraph (2)--
            (A) by striking ``or extended care services'' and inserting 
        ``, extended care services, or home health services''; and
            (B) by inserting ``, or receiving services from a home 
        health agency,'' after ``skilled nursing facility''.
    (b) Definition.--Section 1861 (42 U.S.C. 1395x), as amended by 
section 642, is amended by adding at the end the following new section:

    ``Extended Care in Religious Nonmedical Health Care Institutions

    ``(aaa)(1) The term `home health agency' also includes a religious 
nonmedical health care institution (as defined in subsection (ss)(1)), 
but only with respect to items and services ordinarily furnished by 
such an institution to individuals in their homes, and that are 
comparable to items and services furnished to individuals by a home 
health agency that is not religious nonmedical health care institution.
    ``(2)(A) Subject to subparagraphs (B), payment may be made with 
respect to services provided by such an institution only to such extent 
and under such conditions, limitations, and requirements (in addition 
to or in lieu of the conditions, limitations, and requirements 
otherwise applicable) as may be provided in regulations consistent with 
section 1821.
    ``(B) Notwithstanding any other provision of this title, payment 
may not be made under subparagraph (A)--
        ``(i) in a year insofar as such payments exceed $700,000; and
        ``(ii) after December 31, 2006.''.

                 Subtitle B--Graduate Medical Education

SEC. 711. EXTENSION OF UPDATE LIMITATION ON HIGH COST PROGRAMS.

    Section 1886(h)(2)(D)(iv) (42 U.S.C. 1395ww(h)(2)(D)(iv)) is 
amended--
        (1) in subclause (I)--
            (A) by inserting ``and 2004 through 2013'' after ``and 
        2002''; and
            (B) by inserting ``or during the period beginning with 
        fiscal year 2004 and ending with fiscal year 2013'' after 
        ``during fiscal year 2001 or fiscal year 2002''; and
        (2) in subclause (II)--
            (A) by striking ``fiscal year 2004, or fiscal year 2005,'' 
        and
            (B) by striking ``For a'' and inserting ``For the''.

SEC. 712. EXCEPTION TO INITIAL RESIDENCY PERIOD FOR GERIATRIC RESIDENCY 
              OR FELLOWSHIP PROGRAMS.

    (a) Clarification of Congressional Intent.--Congress intended 
section 1886(h)(5)(F)(ii) of the Social Security Act (42 U.S.C. 
1395ww(h)(5)(F)(ii)), as added by section 9202 of the Consolidated 
Omnibus Budget Reconciliation Act of 1985 (Public Law 99-272), to 
provide an exception to the initial residency period for geriatric 
residency or fellowship programs such that, where a particular approved 
geriatric training program requires a resident to complete 2 years of 
training to initially become board eligible in the geriatric specialty, 
the 2 years spent in the geriatric training program are treated as part 
of the resident's initial residency period, but are not counted against 
any limitation on the initial residency period.
    (b) Interim Final Regulatory Authority and Effective Date.--The 
Secretary shall promulgate interim final regulations consistent with 
the congressional intent expressed in this section after notice and 
pending opportunity for public comment to be effective for cost 
reporting periods beginning on or after October 1, 2003.

SEC. 713. TREATMENT OF VOLUNTEER SUPERVISION.

    (a) Moratorium on Changes in Treatment.--During the 1-year period 
beginning on January 1, 2004, for purposes of applying subsections 
(d)(5)(B) and (h) of section 1886 of the Social Security Act (42 U.S.C. 
1395ww), the Secretary shall allow all hospitals to count residents in 
osteopathic and allopathic family practice programs in existence as of 
January 1, 2002, who are training at non-hospital sites, without regard 
to the financial arrangement between the hospital and the teaching 
physician practicing in the non-hospital site to which the resident has 
been assigned.
    (b) Study and Report.--
        (1) Study.--The Inspector General of the Department of Health 
    and Human Services shall conduct a study of the appropriateness of 
    alternative payment methodologies under such sections for the costs 
    of training residents in non-hospital settings.
        (2) Report.--Not later than 1 year after the date of the 
    enactment of this Act, the Inspector General shall submit to 
    Congress a report on the study conducted under paragraph (1), 
    together with such recommendations as the Inspector General 
    determines appropriate.

                  Subtitle C--Chronic Care Improvement

SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT UNDER TRADITIONAL FEE-FOR-
              SERVICE.

    (a) In General.--Title XVIII is amended by inserting after section 
1806 the following new section:

                        ``chronic care improvement

    ``Sec. 1807. (a) Implementation of Chronic Care Improvement 
Programs.--
        ``(1) In general.--The Secretary shall provide for the phased-
    in development, testing, evaluation, and implementation of chronic 
    care improvement programs in accordance with this section. Each 
    such program shall be designed to improve clinical quality and 
    beneficiary satisfaction and achieve spending targets with respect 
    to expenditures under this title for targeted beneficiaries with 
    one or more threshold conditions.
        ``(2) Definitions.--For purposes of this section:
            ``(A) Chronic care improvement program.--The term `chronic 
        care improvement program' means a program described in 
        paragraph (1) that is offered under an agreement under 
        subsection (b) or (c).
            ``(B) Chronic care improvement organization.--The term 
        `chronic care improvement organization' means an entity that 
        has entered into an agreement under subsection (b) or (c) to 
        provide, directly or through contracts with subcontractors, a 
        chronic care improvement program under this section. Such an 
        entity may be a disease management organization, health 
        insurer, integrated delivery system, physician group practice, 
        a consortium of such entities, or any other legal entity that 
        the Secretary determines appropriate to carry out a chronic 
        care improvement program under this section.
            ``(C) Care management plan.--The term `care management 
        plan' means a plan established under subsection (d) for a 
        participant in a chronic care improvement program.
            ``(D) Threshold condition.--The term `threshold condition' 
        means a chronic condition, such as congestive heart failure, 
        diabetes, chronic obstructive pulmonary disease (COPD), or 
        other diseases or conditions, as selected by the Secretary as 
        appropriate for the establishment of a chronic care improvement 
        program.
            ``(E) Targeted beneficiary.--The term `targeted 
        beneficiary' means, with respect to a chronic care improvement 
        program, an individual who--
                ``(i) is entitled to benefits under part A and enrolled 
            under part B, but not enrolled in a plan under part C;
                ``(ii) has one or more threshold conditions covered 
            under such program; and
                ``(iii) has been identified under subsection (d)(1) as 
            a potential participant in such program.
        ``(3) Construction.--Nothing in this section shall be construed 
    as--
            ``(A) expanding the amount, duration, or scope of benefits 
        under this title;
            ``(B) providing an entitlement to participate in a chronic 
        care improvement program under this section;
            ``(C) providing for any hearing or appeal rights under 
        section 1869, 1878, or otherwise, with respect to a chronic 
        care improvement program under this section; or
            ``(D) providing benefits under a chronic care improvement 
        program for which a claim may be submitted to the Secretary by 
        any provider of services or supplier (as defined in section 
        1861(d)).
    ``(b) Developmental Phase (Phase I).--
        ``(1) In general.--In carrying out this section, the Secretary 
    shall enter into agreements consistent with subsection (f) with 
    chronic care improvement organizations for the development, 
    testing, and evaluation of chronic care improvement programs using 
    randomized controlled trials. The first such agreement shall be 
    entered into not later than 12 months after the date of the 
    enactment of this section.
        ``(2) Agreement period.--The period of an agreement under this 
    subsection shall be for 3 years.
        ``(3) Minimum participation.--
            ``(A) In general.--The Secretary shall enter into 
        agreements under this subsection in a manner so that chronic 
        care improvement programs offered under this section are 
        offered in geographic areas that, in the aggregate, consist of 
        areas in which at least 10 percent of the aggregate number of 
        medicare beneficiaries reside.
            ``(B) Medicare beneficiary defined.--In this paragraph, the 
        term `medicare beneficiary' means an individual who is entitled 
        to benefits under part A, enrolled under part B, or both, and 
        who resides in the United States.
        ``(4) Site selection.--In selecting geographic areas in which 
    agreements are entered into under this subsection, the Secretary 
    shall ensure that each chronic care improvement program is 
    conducted in a geographic area in which at least 10,000 targeted 
    beneficiaries reside among other individuals entitled to benefits 
    under part A, enrolled under part B, or both to serve as a control 
    population.
        ``(5) Independent evaluations of phase i programs.--The 
    Secretary shall contract for an independent evaluation of the 
    programs conducted under this subsection. Such evaluation shall be 
    done by a contractor with knowledge of chronic care management 
    programs and demonstrated experience in the evaluation of such 
    programs. Each evaluation shall include an assessment of the 
    following factors of the programs:
            ``(A) Quality improvement measures, such as adherence to 
        evidence-based guidelines and rehospitalization rates.
            ``(B) Beneficiary and provider satisfaction.
            ``(C) Health outcomes.
            ``(D) Financial outcomes, including any cost savings to the 
        program under this title.
    ``(c) Expanded Implementation Phase (Phase II).--
        ``(1) In general.--With respect to chronic care improvement 
    programs conducted under subsection (b), if the Secretary finds 
    that the results of the independent evaluation conducted under 
    subsection (b)(6) indicate that the conditions specified in 
    paragraph (2) have been met by a program (or components of such 
    program), the Secretary shall enter into agreements consistent with 
    subsection (f) to expand the implementation of the program (or 
    components) to additional geographic areas not covered under the 
    program as conducted under subsection (b), which may include the 
    implementation of the program on a national basis. Such expansion 
    shall begin not earlier than 2 years after the program is 
    implemented under subsection (b) and not later than 6 months after 
    the date of completion of such program.
        ``(2) Conditions for expansion of programs.--The conditions 
    specified in this paragraph are, with respect to a chronic care 
    improvement program conducted under subsection (b) for a threshold 
    condition, that the program is expected to--
            ``(A) improve the clinical quality of care;
            ``(B) improve beneficiary satisfaction; and
            ``(C) achieve targets for savings to the program under this 
        title specified by the Secretary in the agreement within a 
        range determined to be appropriate by the Secretary, subject to 
        the application of budget neutrality with respect to the 
        program and not taking into account any payments by the 
        organization under the agreement under the program for risk 
        under subsection (f)(3)(B).
        ``(3) Independent evaluations of phase ii programs.--The 
    Secretary shall carry out evaluations of programs expanded under 
    this subsection as the Secretary determines appropriate. Such 
    evaluations shall be carried out in the similar manner as is 
    provided under subsection (b)(5).
    ``(d) Identification and Enrollment of Prospective Program 
Participants.--
        ``(1) Identification of prospective program participants.--The 
    Secretary shall establish a method for identifying targeted 
    beneficiaries who may benefit from participation in a chronic care 
    improvement program.
        ``(2) Initial contact by secretary.--The Secretary shall 
    communicate with each targeted beneficiary concerning participation 
    in a chronic care improvement program. Such communication may be 
    made by the Secretary and shall include information on the 
    following:
            ``(A) A description of the advantages to the beneficiary in 
        participating in a program.
            ``(B) Notification that the organization offering a program 
        may contact the beneficiary directly concerning such 
        participation.
            ``(C) Notification that participation in a program is 
        voluntary.
            ``(D) A description of the method for the beneficiary to 
        participate or for declining to participate and the method for 
        obtaining additional information concerning such participation.
        ``(3) Voluntary participation.--A targeted beneficiary may 
    participate in a chronic care improvement program on a voluntary 
    basis and may terminate participation at any time.
    ``(e) Chronic Care Improvement Programs.--
        ``(1) In general.--Each chronic care improvement program 
    shall--
            ``(A) have a process to screen each targeted beneficiary 
        for conditions other than threshold conditions, such as 
        impaired cognitive ability and co-morbidities, for the purposes 
        of developing an individualized, goal-oriented care management 
        plan under paragraph (2);
            ``(B) provide each targeted beneficiary participating in 
        the program with such plan; and
            ``(C) carry out such plan and other chronic care 
        improvement activities in accordance with paragraph (3).
        ``(2) Elements of care management plans.--A care management 
    plan for a targeted beneficiary shall be developed with the 
    beneficiary and shall, to the extent appropriate, include the 
    following:
            ``(A) A designated point of contact responsible for 
        communications with the beneficiary and for facilitating 
        communications with other health care providers under the plan.
            ``(B) Self-care education for the beneficiary (through 
        approaches such as disease management or medical nutrition 
        therapy) and education for primary caregivers and family 
        members.
            ``(C) Education for physicians and other providers and 
        collaboration to enhance communication of relevant clinical 
        information.
            ``(D) The use of monitoring technologies that enable 
        patient guidance through the exchange of pertinent clinical 
        information, such as vital signs, symptomatic information, and 
        health self-assessment.
            ``(E) The provision of information about hospice care, pain 
        and palliative care, and end-of-life care.
        ``(3) Conduct of programs.--In carrying out paragraph (1)(C) 
    with respect to a participant, the chronic care improvement 
    organization shall--
            ``(A) guide the participant in managing the participant's 
        health (including all co-morbidities, relevant health care 
        services, and pharmaceutical needs) and in performing 
        activities as specified under the elements of the care 
        management plan of the participant;
            ``(B) use decision-support tools such as evidence-based 
        practice guidelines or other criteria as determined by the 
        Secretary; and
            ``(C) develop a clinical information database to track and 
        monitor each participant across settings and to evaluate 
        outcomes.
        ``(4) Additional responsibilities.--
            ``(A) Outcomes report.--Each chronic care improvement 
        organization offering a chronic care improvement program shall 
        monitor and report to the Secretary, in a manner specified by 
        the Secretary, on health care quality, cost, and outcomes.
            ``(B) Additional requirements.--Each such organization and 
        program shall comply with such additional requirements as the 
        Secretary may specify.
        ``(5) Accreditation.--The Secretary may provide that chronic 
    care improvement programs and chronic care improvement 
    organizations that are accredited by qualified organizations (as 
    defined by the Secretary) may be deemed to meet such requirements 
    under this section as the Secretary may specify.
    ``(f) Terms of Agreements.--
        ``(1) Terms and conditions.--
            ``(A) In general.--An agreement under this section with a 
        chronic care improvement organization shall contain such terms 
        and conditions as the Secretary may specify consistent with 
        this section.
            ``(B) Clinical, quality improvement, and financial 
        requirements.--The Secretary may not enter into an agreement 
        with such an organization under this section for the operation 
        of a chronic care improvement program unless--
                ``(i) the program and organization meet the 
            requirements of subsection (e) and such clinical, quality 
            improvement, financial, and other requirements as the 
            Secretary deems to be appropriate for the targeted 
            beneficiaries to be served; and
                ``(ii) the organization demonstrates to the 
            satisfaction of the Secretary that the organization is able 
            to assume financial risk for performance under the 
            agreement (as applied under paragraph (3)(B)) with respect 
            to payments made to the organization under such agreement 
            through available reserves, reinsurance, withholds, or such 
            other means as the Secretary determines appropriate.
        ``(2) Manner of payment.--Subject to paragraph (3)(B), the 
    payment under an agreement under--
            ``(A) subsection (b) shall be computed on a per-member per-
        month basis; or
            ``(B) subsection (c) may be on a per-member per-month basis 
        or such other basis as the Secretary and organization may 
        agree.
        ``(3) Application of performance standards.--
            ``(A) Specification of performance standards.--Each 
        agreement under this section with a chronic care improvement 
        organization shall specify performance standards for each of 
        the factors specified in subsection (c)(2), including clinical 
        quality and spending targets under this title, against which 
        the performance of the chronic care improvement organization 
        under the agreement is measured.
            ``(B) Adjustment of payment based on performance.--
                ``(i) In general.--Each such agreement shall provide 
            for adjustments in payment rates to an organization under 
            the agreement insofar as the Secretary determines that the 
            organization failed to meet the performance standards 
            specified in the agreement under subparagraph (A).
                ``(ii) Financial risk for performance.--In the case of 
            an agreement under subsection (b) or (c), the agreement 
            shall provide for a full recovery for any amount by which 
            the fees paid to the organization under the agreement 
            exceed the estimated savings to the programs under this 
            title attributable to implementation of such agreement.
        ``(4) Budget neutral payment condition.--Under this section, 
    the Secretary shall ensure that the aggregate sum of medicare 
    program benefit expenditures for beneficiaries participating in 
    chronic care improvement programs and funds paid to chronic care 
    improvement organizations under this section, shall not exceed the 
    medicare program benefit expenditures that the Secretary estimates 
    would have been made for such targeted beneficiaries in the absence 
    of such programs.
    ``(g) Funding.--(1) Subject to paragraph (2), there are 
appropriated to the Secretary, in appropriate part from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary Medical 
Insurance Trust Fund, such sums as may be necessary to provide for 
agreements with chronic care improvement programs under this section.
    ``(2) In no case shall the funding under this section exceed 
$100,000,000 in aggregate increased expenditures under this title 
(after taking into account any savings attributable to the operation of 
this section) over the 3-fiscal-year period beginning on October 1, 
2003.''.
    (b) Reports.--The Secretary shall submit to Congress reports on the 
operation of section 1807 of the Social Security Act, as added by 
subsection (a), as follows:
        (1) Not later than 2 years after the date of the implementation 
    of such section, the Secretary shall submit to Congress an interim 
    report on the scope of implementation of the programs under 
    subsection (b) of such section, the design of the programs, and 
    preliminary cost and quality findings with respect to those 
    programs based on the following measures of the programs:
            (A) Quality improvement measures, such as adherence to 
        evidence-based guidelines and rehospitalization rates.
            (B) Beneficiary and provider satisfaction.
            (C) Health outcomes.
            (D) Financial outcomes.
        (2) Not later than 3 years and 6 months after the date of the 
    implementation of such section the Secretary shall submit to 
    Congress an update to the report required under paragraph (1) on 
    the results of such programs.
        (3) The Secretary shall submit to Congress 2 additional 
    biennial reports on the chronic care improvement programs conducted 
    under such section. The first such report shall be submitted not 
    later than 2 years after the report is submitted under paragraph 
    (2). Each such report shall include information on--
            (A) the scope of implementation (in terms of both regions 
        and chronic conditions) of the chronic care improvement 
        programs;
            (B) the design of the programs; and
            (C) the improvements in health outcomes and financial 
        efficiencies that result from such implementation.

SEC. 722. MEDICARE ADVANTAGE QUALITY IMPROVEMENT PROGRAMS.

    (a) In General.--Section 1852(e) (42 U.S.C. 1395w-22(e)) is 
amended--
        (1) in the heading, by striking ``Assurance'' and inserting 
    ``Improvement'';
        (2) by amending paragraphs (1) through (3) to read as follows:
        ``(1) In general.--Each MA organization shall have an ongoing 
    quality improvement program for the purpose of improving the 
    quality of care provided to enrollees in each MA plan offered by 
    such organization (other than an MA private fee-for-service plan or 
    an MSA plan).
        ``(2) Chronic care improvement programs.--As part of the 
    quality improvement program under paragraph (1), each MA 
    organization shall have a chronic care improvement program. Each 
    chronic care improvement program shall have a method for monitoring 
    and identifying enrollees with multiple or sufficiently severe 
    chronic conditions that meet criteria established by the 
    organization for participation under the program.
        ``(3) Data.--
            ``(A) Collection, analysis, and reporting.--
                ``(i) In general.--Except as provided in clauses (ii) 
            and (iii) with respect to plans described in such clauses 
            and subject to subparagraph (B), as part of the quality 
            improvement program under paragraph (1), each MA 
            organization shall provide for the collection, analysis, 
            and reporting of data that permits the measurement of 
            health outcomes and other indices of quality.
                ``(ii) Application to ma regional plans.--The Secretary 
            shall establish as appropriate by regulation requirements 
            for the collection, analysis, and reporting of data that 
            permits the measurement of health outcomes and other 
            indices of quality for MA organizations with respect to MA 
            regional plans. Such requirements may not exceed the 
            requirements under this subparagraph with respect to MA 
            local plans that are preferred provider organization plans.
                ``(iii) Application to preferred provider 
            organizations.--Clause (i) shall apply to MA organizations 
            with respect to MA local plans that are preferred provider 
            organization plans only insofar as services are furnished 
            by providers or services, physicians, and other health care 
            practitioners and suppliers that have contracts with such 
            organization to furnish services under such plans.
                ``(iv) Definition of preferred provider organization 
            plan.--In this subparagraph, the term `preferred provider 
            organization plan' means an MA plan that--

                    ``(I) has a network of providers that have agreed 
                to a contractually specified reimbursement for covered 
                benefits with the organization offering the plan;
                    ``(II) provides for reimbursement for all covered 
                benefits regardless of whether such benefits are 
                provided within such network of providers; and
                    ``(III) is offered by an organization that is not 
                licensed or organized under State law as a health 
                maintenance organization.

            ``(B) Limitations.--
                ``(i) Types of data.--The Secretary shall not collect 
            under subparagraph (A) data on quality, outcomes, and 
            beneficiary satisfaction to facilitate consumer choice and 
            program administration other than the types of data that 
            were collected by the Secretary as of November 1, 2003.
                ``(ii) Changes in types of data.--Subject to subclause 
            (iii), the Secretary may only change the types of data that 
            are required to be submitted under subparagraph (A) after 
            submitting to Congress a report on the reasons for such 
            changes that was prepared in consultation with MA 
            organizations and private accrediting bodies.
                ``(iii) Construction.--Nothing in the subsection shall 
            be construed as restricting the ability of the Secretary to 
            carry out the duties under section 1851(d)(4)(D).'';
        (3) in paragraph (4)(B)--
            (A) by amending clause (i) to read as follows:
                ``(i) Paragraphs (1) through (3) of this subsection 
            (relating to quality improvement programs).''; and
            (B) by adding at the end the following new clause:
                ``(vii) The requirements described in section 1860D-
            4(j), to the extent such requirements apply under section 
            1860D-21(c).''; and
        (4) by striking paragraph (5).
    (b) Conforming Amendment.--Section 1852(c)(1)(I) (42 U.S.C. 1395w-
22(c)(1)(I)) is amended to read as follows:
            ``(I) Quality improvement program.--A description of the 
        organization's quality improvement program under subsection 
        (e).''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to contract years beginning on and after January 1, 
2006.

SEC. 723. CHRONICALLY ILL MEDICARE BENEFICIARY RESEARCH, DATA, 
              DEMONSTRATION STRATEGY.

    (a) Development of Plan.--Not later than 6 months after the date of 
the enactment of this Act, the Secretary shall develop a plan to 
improve quality of care and reduce the cost of care for chronically ill 
medicare beneficiaries.
    (b) Plan Requirements.--The plan will utilize existing data and 
identify data gaps, develop research initiatives, and propose 
intervention demonstration programs to provide better health care for 
chronically ill medicare beneficiaries. The plan shall--
        (1) integrate existing data sets including, the Medicare 
    Current Beneficiary Survey (MCBS), Minimum Data Set (MDS), Outcome 
    and Assessment Information Set (OASIS), data from Quality 
    Improvement Organizations (QIO), and claims data;
        (2) identify any new data needs and a methodology to address 
    new data needs;
        (3) plan for the collection of such data in a data warehouse; 
    and
        (4) develop a research agenda using such data.
    (c) Consultation.--In developing the plan under this section, the 
Secretary shall consult with experts in the fields of care for the 
chronically ill (including clinicians).
    (d) Implementation.--Not later than 2 years after the date of the 
enactment of this Act, the Secretary shall implement the plan developed 
under this section. The Secretary may contract with appropriate 
entities to implement such plan.
    (e) Authorization of Appropriations.--There are authorized to be 
appropriated to the Secretary such sums as may be necessary in fiscal 
years 2004 and 2005 to carry out this section.

                      Subtitle D--Other Provisions

SEC. 731. IMPROVEMENTS IN NATIONAL AND LOCAL COVERAGE DETERMINATION 
              PROCESS TO RESPOND TO CHANGES IN TECHNOLOGY.

    (a) National and Local Coverage Determination Process.--
        (1) In general.--Section 1862 (42 U.S.C. 1395y), as amended by 
    sections 948 and 950, is amended--
            (A) in the third sentence of subsection (a), by inserting 
        ``consistent with subsection (l)'' after ``the Secretary shall 
        ensure''; and
            (B) by adding at the end the following new subsection:
    ``(l) National and Local Coverage Determination Process.--
        ``(1) Factors and evidence used in making national coverage 
    determinations.--The Secretary shall make available to the public 
    the factors considered in making national coverage determinations 
    of whether an item or service is reasonable and necessary. The 
    Secretary shall develop guidance documents to carry out this 
    paragraph in a manner similar to the development of guidance 
    documents under section 701(h) of the Federal Food, Drug, and 
    Cosmetic Act (21 U.S.C. 371(h)).
        ``(2) Timeframe for decisions on requests for national coverage 
    determinations.--In the case of a request for a national coverage 
    determination that--
            ``(A) does not require a technology assessment from an 
        outside entity or deliberation from the Medicare Coverage 
        Advisory Committee, the decision on the request shall be made 
        not later than 6 months after the date of the request; or
            ``(B) requires such an assessment or deliberation and in 
        which a clinical trial is not requested, the decision on the 
        request shall be made not later than 9 months after the date of 
        the request.
        ``(3) Process for public comment in national coverage 
    determinations.--
            ``(A) Period for proposed decision.--Not later than the end 
        of the 6-month period (or 9-month period for requests described 
        in paragraph (2)(B)) that begins on the date a request for a 
        national coverage determination is made, the Secretary shall 
        make a draft of proposed decision on the request available to 
        the public through the Internet website of the Centers for 
        Medicare & Medicaid Services or other appropriate means.
            ``(B) 30-day period for public comment.--Beginning on the 
        date the Secretary makes a draft of the proposed decision 
        available under subparagraph (A), the Secretary shall provide a 
        30-day period for public comment on such draft.
            ``(C) 60-day period for final decision.--Not later than 60 
        days after the conclusion of the 30-day period referred to 
        under subparagraph (B), the Secretary shall--
                ``(i) make a final decision on the request;
                ``(ii) include in such final decision summaries of the 
            public comments received and responses to such comments;
                ``(iii) make available to the public the clinical 
            evidence and other data used in making such a decision when 
            the decision differs from the recommendations of the 
            Medicare Coverage Advisory Committee; and
                ``(iv) in the case of a final decision under clause (i) 
            to grant the request for the national coverage 
            determination, the Secretary shall assign a temporary or 
            permanent code (whether existing or unclassified) and 
            implement the coding change.
        ``(4) Consultation with outside experts in certain national 
    coverage determinations.--With respect to a request for a national 
    coverage determination for which there is not a review by the 
    Medicare Coverage Advisory Committee, the Secretary shall consult 
    with appropriate outside clinical experts.
        ``(5) Local coverage determination process.--
            ``(A) Plan to promote consistency of coverage 
        determinations.--The Secretary shall develop a plan to evaluate 
        new local coverage determinations to determine which 
        determinations should be adopted nationally and to what extent 
        greater consistency can be achieved among local coverage 
        determinations.
            ``(B) Consultation.--The Secretary shall require the fiscal 
        intermediaries or carriers providing services within the same 
        area to consult on all new local coverage determinations within 
        the area.
            ``(C) Dissemination of information.--The Secretary should 
        serve as a center to disseminate information on local coverage 
        determinations among fiscal intermediaries and carriers to 
        reduce duplication of effort.
        ``(6) National and local coverage determination defined.--For 
    purposes of this subsection--
            ``(A) National coverage determination.--The term `national 
        coverage determination' means a determination by the Secretary 
        with respect to whether or not a particular item or service is 
        covered nationally under this title.
            ``(B) Local coverage determination.--The term `local 
        coverage determination' has the meaning given that in section 
        1869(f)(2)(B).''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to national coverage determinations as of January 1, 2004, 
    and section 1862(l)(5) of the Social Security Act, as added by such 
    paragraph, shall apply to local coverage determinations made on or 
    after July 1, 2004.
    (b) Medicare Coverage of Routine Costs Associated With Certain 
Clinical Trials of Category A Devices.--
        (1) In general.--Section 1862 (42 U.S.C. 1395y), as amended by 
    subsection (a), is amended by adding at the end the following new 
    subsection:
    ``(m) Coverage of Routine Costs Associated With Certain Clinical 
Trials of Category A Devices.--
        ``(1) In general.--In the case of an individual entitled to 
    benefits under part A, or enrolled under part B, or both who 
    participates in a category A clinical trial, the Secretary shall 
    not exclude under subsection (a)(1) payment for coverage of routine 
    costs of care (as defined by the Secretary) furnished to such 
    individual in the trial.
        ``(2) Category a clinical trial.--For purposes of paragraph 
    (1), a `category A clinical trial' means a trial of a medical 
    device if--
            ``(A) the trial is of an experimental/investigational 
        (category A) medical device (as defined in regulations under 
        section 405.201(b) of title 42, Code of Federal Regulations (as 
        in effect as of September 1, 2003));
            ``(B) the trial meets criteria established by the Secretary 
        to ensure that the trial conforms to appropriate scientific and 
        ethical standards; and
            ``(C) in the case of a trial initiated before January 1, 
        2010, the device involved in the trial has been determined by 
        the Secretary to be intended for use in the diagnosis, 
        monitoring, or treatment of an immediately life-threatening 
        disease or condition.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to routine costs incurred on and after January 1, 2005, and, 
    as of such date, section 411.15(o) of title 42, Code of Federal 
    Regulations, is superseded to the extent inconsistent with section 
    1862(m) of the Social Security Act, as added by such paragraph.
        (3) Rule of construction.--Nothing in the amendment made by 
    paragraph (1) shall be construed as applying to, or affecting, 
    coverage or payment for a nonexperimental/investigational (category 
    B) device.
    (c) Issuance of Temporary National Codes.--Not later than July 1, 
2004, the Secretary shall implement revised procedures for the issuance 
of temporary national HCPCS codes under part B of title XVIII of the 
Social Security Act.

SEC. 732. EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
              SERVICES UNDER MEDICARE.

    Section 542(c) of BIPA (114 Stat. 2763A-551) is amended by 
inserting ``, and for services furnished during 2005 and 2006'' before 
the period at the end.

SEC. 733. PAYMENT FOR PANCREATIC ISLET CELL INVESTIGATIONAL TRANSPLANTS 
              FOR MEDICARE BENEFICIARIES IN CLINICAL TRIALS.

    (a) Clinical Trial.--
        (1) In general.--The Secretary, acting through the National 
    Institute of Diabetes and Digestive and Kidney Disorders, shall 
    conduct a clinical investigation of pancreatic islet cell 
    transplantation which includes medicare beneficiaries.
        (2) Authorization of appropriations.--There are authorized to 
    be appropriated to the Secretary such sums as may be necessary to 
    conduct the clinical investigation under paragraph (1).
    (b) Medicare Payment.--Not earlier than October 1, 2004, the 
Secretary shall pay for the routine costs as well as transplantation 
and appropriate related items and services (as described in subsection 
(c)) in the case of medicare beneficiaries who are participating in a 
clinical trial described in subsection (a) as if such transplantation 
were covered under title XVIII of such Act and as would be paid under 
part A or part B of such title for such beneficiary.
    (c) Scope of Payment.--For purposes of subsection (b):
        (1) The term ``routine costs'' means reasonable and necessary 
    routine patient care costs (as defined in the Centers for Medicare 
    & Medicaid Services Coverage Issues Manual, section 30-1), 
    including immunosuppressive drugs and other followup care.
        (2) The term ``transplantation and appropriate related items 
    and services'' means items and services related to the acquisition 
    and delivery of the pancreatic islet cell transplantation, 
    notwithstanding any national noncoverage determination contained in 
    the Centers for Medicare & Medicaid Services Coverage Issues 
    Manual.
        (3) The term ``medicare beneficiary'' means an individual who 
    is entitled to benefits under part A of title XVIII of the Social 
    Security Act, or enrolled under part B of such title, or both.
    (d) Construction.--The provisions of this section shall not be 
construed--
        (1) to permit payment for partial pancreatic tissue or islet 
    cell transplantation under title XVIII of the Social Security Act 
    other than payment as described in subsection (b); or
        (2) as authorizing or requiring coverage or payment conveying--
            (A) benefits under part A of such title to a beneficiary 
        not entitled to such part A; or
            (B) benefits under part B of such title to a beneficiary 
        not enrolled in such part B.

SEC. 734. RESTORATION OF MEDICARE TRUST FUNDS.

    (a) Definitions.--In this section:
        (1) Clerical error.--The term ``clerical error'' means a 
    failure that occurs on or after April 15, 2001, to have transferred 
    the correct amount from the general fund of the Treasury to a Trust 
    Fund.
        (2) Trust fund.--The term ``Trust Fund'' means the Federal 
    Hospital Insurance Trust Fund established under section 1817 of the 
    Social Security Act (42 U.S.C. 1395i) and the Federal Supplementary 
    Medical Insurance Trust Fund established under section 1841 of such 
    Act (42 U.S.C. 1395t).
    (b) Correction of Trust Fund Holdings.--
        (1) In general.--The Secretary of the Treasury shall take the 
    actions described in paragraph (2) with respect to the Trust Fund 
    with the goal being that, after such actions are taken, the 
    holdings of the Trust Fund will replicate, to the extent 
    practicable in the judgment of the Secretary of the Treasury, in 
    consultation with the Secretary, the holdings that would have been 
    held by the Trust Fund if the clerical error involved had not 
    occurred.
        (2) Obligations issued and redeemed.--The Secretary of the 
    Treasury shall--
            (A) issue to the Trust Fund obligations under chapter 31 of 
        title 31, United States Code, that bear issue dates, interest 
        rates, and maturity dates that are the same as those for the 
        obligations that--
                (i) would have been issued to the Trust Fund if the 
            clerical error involved had not occurred; or
                (ii) were issued to the Trust Fund and were redeemed by 
            reason of the clerical error involved; and
            (B) redeem from the Trust Fund obligations that would have 
        been redeemed from the Trust Fund if the clerical error 
        involved had not occurred.
    (c) Appropriation.--There is appropriated to the Trust Fund, out of 
any money in the Treasury not otherwise appropriated, an amount 
determined by the Secretary of the Treasury, in consultation with the 
Secretary, to be equal to the interest income lost by the Trust Fund 
through the date on which the appropriation is being made as a result 
of the clerical error involved.
    (d) Congressional Notice.--In the case of a clerical error that 
occurs after April 15, 2001, the Secretary of the Treasury, before 
taking action to correct the error under this section, shall notify the 
appropriate committees of Congress concerning such error and the 
actions to be taken under this section in response to such error.
    (e) Deadline.--With respect to the clerical error that occurred on 
April 15, 2001, not later than 120 days after the date of the enactment 
of this Act--
        (1) the Secretary of the Treasury shall take the actions under 
    subsection (b)(1); and
        (2) the appropriation under subsection (c) shall be made.

SEC. 735. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION 
              (MEDPAC).

    (a) Examination of Budget Consequences.--Section 1805(b) (42 U.S.C. 
1395b-6(b)) is amended by adding at the end the following new 
paragraph:
        ``(8) Examination of budget consequences.--Before making any 
    recommendations, the Commission shall examine the budget 
    consequences of such recommendations, directly or through 
    consultation with appropriate expert entities.''.
    (b) Consideration of Efficient Provision of Services.--Section 
1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is amended by 
inserting ``the efficient provision of'' after ``expenditures for''.
    (c) Application of Disclosure Requirements.--
        (1) In general.--Section 1805(c)(2)(D) (42 U.S.C. 1395b-
    6(c)(2)(D)) is amended by adding at the end the following: 
    ``Members of the Commission shall be treated as employees of 
    Congress for purposes of applying title I of the Ethics in 
    Government Act of 1978 (Public Law 95-521).''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on January 1, 2004.
    (d) Additional Reports.--
        (1) Data needs and sources.--The Medicare Payment Advisory 
    Commission shall conduct a study, and submit a report to Congress 
    by not later than June 1, 2004, on the need for current data, and 
    sources of current data available, to determine the solvency and 
    financial circumstances of hospitals and other medicare providers 
    of services.
        (2) Use of tax-related returns.--Using return information 
    provided under Form 990 of the Internal Revenue Service, the 
    Commission shall submit to Congress, by not later than June 1, 
    2004, a report on the following:
            (A) Investments, endowments, and fundraising of hospitals 
        participating under the medicare program and related 
        foundations.
            (B) Access to capital financing for private and for not-
        for-profit hospitals.
    (e) Representation of Experts in Prescription Drugs.--
        (1) In general.--Section 1805(c)(2)(B) (42 U.S.C. 1395b-
    6(c)(2)(B)) is amended by inserting ``experts in the area of 
    pharmaco-economics or prescription drug benefit programs,'' after 
    ``other health professionals,''.
        (2) Appointment.--The Comptroller General of the United States 
    shall ensure that the membership of the Commission complies with 
    the amendment made by paragraph (1) with respect to appointments 
    made on or after the date of the enactment of this Act.

SEC. 736. TECHNICAL AMENDMENTS.

    (a) Part A.--(1) Section 1814(a) (42 U.S.C. 1395f(a)) is amended--
        (A) by striking the seventh sentence, as added by section 
    322(a)(1) of BIPA (114 Stat. 2763A-501); and
        (B) in paragraph (7)(A)--
            (i) in clause (i), by inserting before the comma at the end 
        the following: ``based on the physician's or medical director's 
        clinical judgment regarding the normal course of the 
        individual's illness''; and
            (ii) in clause (ii), by inserting before the semicolon at 
        the end the following: ``based on such clinical judgment''.
    (2) Section 1814(b) (42 U.S.C. 1395f(b)), in the matter preceding 
paragraph (1), is amended by inserting a comma after ``1813''.
    (3) Section 1815(e)(1)(B) (42 U.S.C. 1395g(e)(1)(B)), in the matter 
preceding clause (i), is amended by striking ``of hospital'' and 
inserting ``of a hospital''.
    (4) Section 1816(c)(2)(B)(ii) (42 U.S.C. 1395h(c)(2)(B)(ii)) is 
amended--
        (A) by striking ``and'' at the end of subclause (III); and
        (B) by striking the period at the end of subclause (IV) and 
    inserting ``, and''.
    (5) Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is amended--
        (A) in clause (i)(I), by striking the comma at the end and 
    inserting a semicolon; and
        (B) in clause (ii), by striking ``the Medicare and medicaid 
    programs'' and inserting ``the programs under this title and title 
    XIX''.
    (6) Section 1817(k)(6)(B) (42 U.S.C. 1395i(k)(6)(B)) is amended by 
striking ``Medicare program under title XVIII'' and inserting ``program 
under this title''.
    (7) Section 1818 (42 U.S.C. 1395i-2) is amended--
        (A) in subsection (d)(6)(A) is amended by inserting ``of such 
    Code'' after ``3111(b)''; and
        (B) in subsection (g)(2)(B) is amended by striking ``subsection 
    (b).'' and inserting ``subsection (b)''.
    (8) Section 1819 (42 U.S.C. 1395i-3) is amended--
        (A) in subsection (b)(4)(C)(i), by striking ``at least at 
    least'' and inserting ``at least'';
        (B) in subsection (d)(1)(A), by striking ``physical mental'' 
    and inserting ``physical, mental''; and
        (C) in subsection (f)(2)(B)(iii), by moving the last sentence 2 
    ems to the left.
    (9) Section 1886(b)(3)(I)(i)(I) (42 U.S.C. 1395ww(b)(3)(I)(i)(I)) 
is amended by striking ``the the'' and inserting ``the''.
    (10) The heading of subsection (mm) of section 1861 (42 U.S.C. 
1395x) is amended to read as follows:

    ``Critical Access Hospital; Critical Access Hospital Services''.

    (11) Paragraphs (1) and (2) of section 1861(tt) (42 U.S.C. 
1395x(tt)) are each amended by striking ``rural primary care'' and 
inserting ``critical access''.
    (12) Section 1865(b)(3)(B) (42 U.S.C. 1395bb(b)(3)(B)) is amended 
by striking ``section 1819 and 1861(j)'' and inserting ``sections 1819 
and 1861(j)''.
    (13) Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) is amended by 
moving subparagraph (D) 2 ems to the left.
    (14) Section 1867 (42 U.S.C. 1395dd) is amended--
        (A) in the matter following clause (ii) of subsection 
    (d)(1)(B), by striking ``is is'' and inserting ``is'';
        (B) in subsection (e)(1)(B), by striking ``a pregnant women'' 
    and inserting ``a pregnant woman''; and
        (C) in subsection (e)(2), by striking ``means hospital'' and 
    inserting ``means a hospital''.
    (15) Section 1886(g)(3)(B) (42 U.S.C. 1395ww(g)(3)(B)) is amended 
by striking ``(as defined in subsection (d)(5)(D)(iii)'' and inserting 
``(as defined in subsection (d)(5)(D)(iii))''.
    (b) Part B.--(1) Section 1833(h)(5)(D) (42 U.S.C. 1395l(h)(5)(D)) 
is amended by striking ``clinic,,'' and inserting ``clinic,''.
    (2) Section 1833(t)(3)(C)(ii) (42 U.S.C. 1395l(t)(3)(C)(ii)) is 
amended by striking ``clause (iii)'' and inserting ``clause (iv)''.
    (3) Section 1861(v)(1)(S)(ii)(III) (42 U.S.C. 
1395x(v)(1)(S)(ii)(III)) is amended by striking ``(as defined in 
section 1886(d)(5)(D)(iii)'' and inserting ``(as defined in section 
1886(d)(5)(D)(iii))''.
    (4) Section 1834(b)(4)(D)(iv) (42 U.S.C. 1395m(b)(4)(D)(iv)) is 
amended by striking ``clauses (vi)'' and inserting ``clause (vi)''.
    (5) Section 1834(m)(4)(C)(ii)(III) (42 U.S.C. 
1395m(m)(4)(C)(ii)(III)) is amended by striking ``1861(aa)(s)'' and 
inserting ``1861(aa)(2)''.
    (6) Section 1838(a)(1) (42 U.S.C. 1395q(a)(1)) is amended by 
inserting a comma after ``1966''.
    (7) The second sentence of section 1839(a)(4) (42 U.S.C. 
1395r(a)(4)) is amended by striking ``which will'' and inserting 
``will''.
    (8) Section 1842(c)(2)(B)(ii) (42 U.S.C. 1395u(c)(2)(B)(ii)) is 
amended--
        (A) by striking ``and'' at the end of subclause (III); and
        (B) by striking the period at the end of subclause (IV) and 
    inserting ``, and''.
    (9) Section 1842(i)(2) (42 U.S.C. 1395u(i)(2)) is amended by 
striking ``services, a physician'' and inserting ``services, to a 
physician''.
    (10) Section 1848(i)(3)(A) (42 U.S.C. 1395w-4(i)(3)(A)) is amended 
by striking ``a comparable services'' and inserting ``comparable 
services''.
    (11) Section 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) is 
amended by striking ``; and but'' and inserting ``, but''.
    (12) Section 1861(aa)(1)(B) (42 U.S.C. 1395x(aa)(1)(B)) is amended 
by striking ``,,'' and inserting a comma.
    (13) Section 128(b)(2) of BIPA (114 Stat. 2763A-480) is amended by 
striking ``Not later that'' and inserting ``Not later than'' each place 
it appears.
    (c) Parts A and B.--(1) Section 1812(a)(3) (42 U.S.C. 1395d(a)(3)) 
is amended--
        (A) by striking ``for individuals not'' and inserting ``in the 
    case of individuals not''; and
        (B) by striking ``for individuals so'' and inserting ``in the 
    case of individuals so''.
    (2)(A) Section 1814(a) (42 U.S.C. 1395f(a)) is amended in the sixth 
sentence by striking ``leave home,'' and inserting ``leave home and''.
    (B) Section 1835(a) (42 U.S.C. 1395n(a)) is amended in the seventh 
sentence by striking ``leave home,'' and inserting ``leave home and''.
    (3) Section 1891(d)(1) (42 U.S.C. 1395bbb(d)(1)) is amended by 
striking ``subsection (c)(2)(C)(I)'' and inserting ``subsection 
(c)(2)(C)(i)(I)''.
    (4) Section 1861(v) (42 U.S.C. 1395x(v)) is amended by moving 
paragraph (8) (including clauses (i) through (v) of such paragraph) 2 
ems to the left.
    (5) Section 1866B(b)(7)(D) (42 U.S.C. 1395cc-2(b)(7)(D)) is amended 
by striking ``(c)(2)(A)(ii)'' and inserting ``(c)(2)(B)''.
    (6) Section 1886(h)(3)(D)(ii)(III) (42 U.S.C. 
1395ww(h)(3)(D)(ii)(III)) is amended by striking ``and'' after the 
comma at the end.
    (7) Section 1893(a) (42 U.S.C. 1395ddd(a)) is amended by striking 
``Medicare program'' and inserting ``medicare program''.
    (8) Section 1896(b)(4) (42 U.S.C. 1395ggg(b)(4)) is amended by 
striking ``701(f)'' and inserting ``712(f)''.
    (d) Part C.--(1) Section 1853 (42 U.S.C. 1395w-23), as amended by 
section 607 of BIPA (114 Stat. 2763A-558), is amended--
        (A) in subsection (a)(3)(C)(ii), by striking ``clause (iii)'' 
    and inserting ``clause (iv)'';
        (B) in subsection (a)(3)(C), by redesignating the clause (iii) 
    added by such section 607 as clause (iv); and
        (C) in subsection (c)(5), by striking ``(a)(3)(C)(iii)'' and 
    inserting ``(a)(3)(C)(iv)''.
    (2) Section 1876 (42 U.S.C. 1395mm) is amended--
        (A) in subsection (c)(2)(B), by striking ``signifcant'' and 
    inserting ``significant''; and
        (B) in subsection (j)(2), by striking ``this setion'' and 
    inserting ``this section''.
    (e) Medigap.--Section 1882 (42 U.S.C. 1395ss) is amended--
        (1) in subsection (d)(3)(A)(i)(II), by striking ``plan a 
    medicare supplemental policy'' and inserting ``plan, a medicare 
    supplemental policy'';
        (2) in subsection (d)(3)(B)(iii)(II), by striking ``to the best 
    of the issuer or seller's knowledge'' and inserting ``to the best 
    of the issuer's or seller's knowledge'';
        (3) in subsection (g)(2)(A), by striking ``medicare supplement 
    policies'' and inserting ``medicare supplemental policies'';
        (4) in subsection (p)(2)(B), by striking ``, and'' and 
    inserting ``; and''; and
        (5) in subsection (s)(3)(A)(iii), by striking ``pre-existing'' 
    and inserting ``preexisting''.

                      TITLE VIII--COST CONTAINMENT
                      Subtitle A--Cost Containment

SEC. 801. INCLUSION IN ANNUAL REPORT OF MEDICARE TRUSTEES OF 
              INFORMATION ON STATUS OF MEDICARE TRUST FUNDS.

    (a) Determinations of Excess General Revenue Medicare Funding.--
        (1) In general.--The Board of Trustees of each medicare trust 
    fund shall include in the annual reports submitted under subsection 
    (b)(2) of sections 1817 and 1841 of the Social Security Act (42 
    U.S.C. 1395i and 1395t)--
            (A) the information described in subsection (b); and
            (B) a determination as to whether there is projected to be 
        excess general revenue medicare funding (as defined in 
        subsection (c)) for the fiscal year in which the report is 
        submitted or for any of the succeeding 6 fiscal years.
        (2) Medicare funding warning.--For purposes of section 1105(h) 
    of title 31, United States Code, and this subtitle, an affirmative 
    determination under paragraph (1)(B) in 2 consecutive annual 
    reports shall be treated as a medicare funding warning in the year 
    in which the second such report is made.
        (3) 7-fiscal-year reporting period.--For purposes of this 
    subtitle, the term ``7-fiscal-year reporting period'' means, with 
    respect to a year in which an annual report described in paragraph 
    (1) is made, the period of 7 consecutive fiscal years beginning 
    with the fiscal year in which the report is submitted.
    (b) Information.--The information described in this subsection for 
an annual report in a year is as follows:
        (1) Projections of growth of general revenue spending.--A 
    statement of the general revenue medicare funding as a percentage 
    of the total medicare outlays for each of the following:
            (A) Each fiscal year within the 7-fiscal-year reporting 
        period.
            (B) Previous fiscal years and as of 10, 50, and 75 years 
        after such year.
        (2) Comparison with other growth trends.--A comparison of the 
    trend of such percentages with the annual growth rate in the 
    following:
            (A) The gross domestic product.
            (B) Private health costs.
            (C) National health expenditures.
            (D) Other appropriate measures.
        (3) Part d spending.--Expenditures, including trends in 
    expenditures, under part D of title XVIII of the Social Security 
    Act, as added by section 101.
        (4) Combined medicare trust fund analysis.--A financial 
    analysis of the combined medicare trust funds if general revenue 
    medicare funding were limited to the percentage specified in 
    subsection (c)(1)(B) of total medicare outlays.
    (c) Definitions.--For purposes of this section:
        (1) Excess general revenue medicare funding.--The term ``excess 
    general revenue medicare funding'' means, with respect to a fiscal 
    year, that--
            (A) general revenue medicare funding (as defined in 
        paragraph (2)), expressed as a percentage of total medicare 
        outlays (as defined in paragraph (4)) for the fiscal year; 
        exceeds
            (B) 45 percent.
        (2) General revenue medicare funding.--The term ``general 
    revenue medicare funding'' means for a year--
            (A) the total medicare outlays (as defined in paragraph 
        (4)) for the year; minus
            (B) the dedicated medicare financing sources (as defined in 
        paragraph (3)) for the year.
        (3) Dedicated medicare financing sources.--The term ``dedicated 
    medicare financing sources'' means the following:
            (A) Hospital insurance tax.--Amounts appropriated to the 
        Hospital Insurance Trust Fund under the third sentence of 
        section 1817(a) of the Social Security Act (42 U.S.C. 1395i(a)) 
        and amounts transferred to such Trust Fund under section 
        7(c)(2) of the Railroad Retirement Act of 1974 (45 U.S.C. 
        231f(c)(2)).
            (B) Taxation of certain oasdi benefits.--Amounts 
        appropriated to the Hospital Insurance Trust Fund under section 
        121(e)(1)(B) of the Social Security Amendments of 1983 (Public 
        Law 98-21), as inserted by section 13215(c) of the Omnibus 
        Budget Reconciliation Act of 1993 (Public Law 103-66).
            (C) State transfers.--The State share of amounts paid to 
        the Federal Government by a State under section 1843 of the 
        Social Security Act (42 U.S.C. 1395v) or pursuant to section 
        1935(c) of such Act.
            (D) Premiums.--The following premiums:
                (i) Part a.--Premiums paid by non-Federal sources under 
            sections 1818 and section 1818A (42 U.S.C. 1395i-2 and 
            1395i-2a) of such Act.
                (ii) Part b.--Premiums paid by non-Federal sources 
            under section 1839 of such Act (42 U.S.C. 1395r), including 
            any adjustments in premiums under such section.
                (iii) Part d.--Monthly beneficiary premiums paid under 
            part D of title XVIII of such Act, as added by section 101, 
            and MA monthly prescription drug beneficiary premiums paid 
            under part C of such title insofar as they are attributable 
            to basic prescription drug coverage.
    Premiums under clauses (ii) and (iii) shall be determined without 
    regard to any reduction in such premiums attributable to a 
    beneficiary rebate under section 1854(b)(1)(C) of such title, as 
    amended by section 222(b)(1), and premiums under clause (iii) are 
    deemed to include any amounts paid under section 1860D-13(b) of 
    such title, as added by section 101.
            (E) Gifts.--Amounts received by the medicare trust funds 
        under section 201(i) of the Social Security Act (42 U.S.C. 
        401(i)).
        (4) Total medicare outlays.--The term ``total medicare 
    outlays'' means total outlays from the medicare trust funds and 
    shall--
            (A) include payments made to plans under part C of title 
        XVIII of the Social Security Act that are attributable to any 
        rebates under section 1854(b)(1)(C) of such Act (42 U.S.C. 
        1395w-24(b)(1)(C)), as amended by section 222(b)(1);
            (B) include administrative expenditures made in carrying 
        out title XVIII of such Act and Federal outlays under section 
        1935(b) of such Act, as added by section 103(a)(2); and
            (C) offset outlays by the amount of fraud and abuse 
        collections insofar as they are applied or deposited into a 
        medicare trust fund.
        (5) Medicare trust fund.--The term ``medicare trust fund'' 
    means--
            (A) the Federal Hospital Insurance Trust Fund established 
        under section 1817 of the Social Security Act (42 U.S.C. 
        1395i); and
            (B) the Federal Supplementary Medical Insurance Trust Fund 
        established under section 1841 of such Act (42 U.S.C. 1395t), 
        including the Medicare Prescription Drug Account under such 
        Trust Fund.
    (d) Conforming Amendments.--
        (1) Federal hospital insurance trust fund.--Section 1817(b)(2) 
    (42 U.S.C. 1395i(b)(2)) is amended by adding at the end the 
    following: ``Each report provided under paragraph (2) beginning 
    with the report in 2005 shall include the information specified in 
    section 801(a) of the Medicare Prescription Drug, Improvement, and 
    Modernization Act of 2003.''.
        (2) Federal supplementary medical insurance trust fund.--
    Section 1841(b)(2) (42 U.S.C. 1395t(b)(2)) is amended by adding at 
    the end the following: ``Each report provided under paragraph (2) 
    beginning with the report in 2005 shall include the information 
    specified in section 801(a) of the Medicare Prescription Drug, 
    Improvement, and Modernization Act of 2003.''.
    (e) Notice of Medicare Funding Warning.--Whenever any report 
described in subsection (a) contains a determination that for any 
fiscal year within the 7-fiscal-year reporting period there will be 
excess general revenue medicare funding, Congress and the President 
should address the matter under existing rules and procedures.

SEC. 802. PRESIDENTIAL SUBMISSION OF LEGISLATION.

    (a) In General.--Section 1105 of title 31, United States Code, is 
amended by adding at the end the following new subsection:
    ``(h)(1) If there is a medicare funding warning under section 
801(a)(2) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 made in a year, the President shall submit to 
Congress, within the 15-day period beginning on the date of the budget 
submission to Congress under subsection (a) for the succeeding year, 
proposed legislation to respond to such warning.
    ``(2) Paragraph (1) does not apply if, during the year in which the 
warning is made, legislation is enacted which eliminates excess general 
revenue medicare funding (as defined in section 801(c) of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003) for the 
7-fiscal-year reporting period, as certified by the Board of Trustees 
of each medicare trust fund (as defined in section 801(c)(5) of such 
Act) not later than 30 days after the date of the enactment of such 
legislation.''.
    (b) Sense of Congress.--It is the sense of Congress that 
legislation submitted pursuant to section 1105(h) of title 31, United 
States Code, in a year should be designed to eliminate excess general 
revenue medicare funding (as defined in section 801(c)) for the 7-
fiscal-year period that begins in such year.

SEC. 803. PROCEDURES IN THE HOUSE OF REPRESENTATIVES.

    (a) Introduction and Referral of President's Legislative 
Proposal.--
        (1) Introduction.--In the case of a legislative proposal 
    submitted by the President pursuant to section 1105(h) of title 31, 
    United States Code, within the 15-day period specified in paragraph 
    (1) of such section, the Majority Leader of the House of 
    Representatives (or his designee) and the Minority Leader of the 
    House of Representatives (or his designee) shall introduce such 
    proposal (by request), the title of which is as follows: ``A bill 
    to respond to a medicare funding warning.'' Such bill shall be 
    introduced within 3 legislative days after Congress receives such 
    proposal.
        (2) Referral.--Any legislation introduced pursuant to paragraph 
    (1) shall be referred to the appropriate committees of the House of 
    Representatives.
    (b) Direction to the Appropriate House Committees.--
        (1) In general.--In the House, in any year during which the 
    President is required to submit proposed legislation to Congress 
    under section 1105(h) of title 31, United States Code, the 
    appropriate committees shall report medicare funding legislation by 
    not later than June 30 of such year.
        (2) Medicare funding legislation.--For purposes of this 
    section, the term ``medicare funding legislation'' means--
            (A) legislation introduced pursuant to subsection (a)(1), 
        but only if the legislative proposal upon which the legislation 
        is based was submitted within the 15-day period referred to in 
        such subsection; or
            (B) any bill the title of which is as follows: ``A bill to 
        respond to a medicare funding warning.''.
        (3) Certification.--With respect to any medicare funding 
    legislation or any amendment to such legislation to respond to a 
    medicare funding warning, the chairman of the Committee on the 
    Budget of the House shall certify--
            (A) whether or not such legislation eliminates excess 
        general revenue medicare funding (as defined in section 801(c)) 
        for each fiscal year in the 7-fiscal-year reporting period; and
            (B) with respect to such an amendment, whether the 
        legislation, as amended, would eliminate excess general revenue 
        medicare funding (as defined in section 801(c)) for each fiscal 
        year in such 7-fiscal-year reporting period.
    (c) Fallback Procedure for Floor Consideration if the House Fails 
to Vote on Final Passage by July 30.--
        (1) After July 30 of any year during which the President is 
    required to submit proposed legislation to Congress under section 
    1105(h) of title 31, United States Code, unless the House of 
    Representatives has voted on final passage of any medicare funding 
    legislation for which there is an affirmative certification under 
    subsection (b)(3)(A), then, after the expiration of not less than 
    30 calendar days (and concurrently 5 legislative days), it is in 
    order to move to discharge any committee to which medicare funding 
    legislation which has such a certification and which has been 
    referred to such committee for 30 calendar days from further 
    consideration of the legislation.
        (2) A motion to discharge may be made only by an individual 
    favoring the legislation, may be made only if supported by one-
    fifth of the total membership of the House (a quorum being 
    present), and is highly privileged in the House. Debate thereon 
    shall be limited to not more than one hour, the time to be divided 
    in the House equally between those favoring and those opposing the 
    motion. An amendment to the motion is not in order, and it is not 
    in order to move to reconsider the vote by which the motion is 
    agreed to or disagreed to.
        (3) Only one motion to discharge a particular committee may be 
    adopted under this subsection in any session of a Congress.
        (4) Notwithstanding paragraph (1), it shall not be in order to 
    move to discharge a committee from further consideration of 
    medicare funding legislation pursuant to this subsection during a 
    session of a Congress if, during the previous session of the 
    Congress, the House passed medicare funding legislation for which 
    there is an affirmative certification under subsection (b)(3)(A).
    (d) Floor Consideration in the House of Discharged Legislation.--
        (1) In the House, not later than 3 legislative days after any 
    committee has been discharged from further consideration of 
    legislation under subsection (c), the Speaker shall resolve the 
    House into the Committee of the Whole for consideration of the 
    legislation.
        (2) The first reading of the legislation shall be dispensed 
    with. All points of order against consideration of the legislation 
    are waived. General debate shall be confined to the legislation and 
    shall not exceed five hours, which shall be divided equally between 
    those favoring and those opposing the legislation. After general 
    debate the legislation shall be considered for amendment under the 
    five-minute rule. During consideration of the legislation, no 
    amendments shall be in order in the House or in the Committee of 
    the Whole except those for which there has been an affirmative 
    certification under subsection (b)(3)(B). All points of order 
    against consideration of any such amendment in the Committee of the 
    Whole are waived. The legislation, together with any amendments 
    which shall be in order, shall be considered as read. During the 
    consideration of the bill for amendment, the Chairman of the 
    Committee of the Whole may accord priority in recognition on the 
    basis of whether the Member offering an amendment has caused it to 
    be printed in the portion of the Congressional Record designated 
    for that purpose in clause 8 of Rule XVIII of the Rules of the 
    House of Representatives. Debate on any amendment shall not exceed 
    one hour, which shall be divided equally between those favoring and 
    those opposing the amendment, and no pro forma amendments shall be 
    offered during the debate. The total time for debate on all 
    amendments shall not exceed 10 hours. At the conclusion of 
    consideration of the legislation for amendment, the Committee shall 
    rise and report the legislation to the House with such amendments 
    as may have been adopted. The previous question shall be considered 
    as ordered on the legislation and amendments thereto to final 
    passage without intervening motion except one motion to recommit 
    with or without instructions. If the Committee of the Whole rises 
    and reports that it has come to no resolution on the bill, then on 
    the next legislative day the House shall, immediately after the 
    third daily order of business under clause 1 of Rule XIV of the 
    Rules of the House of Representatives, resolve into the Committee 
    of the Whole for further consideration of the bill.
        (3) All appeals from the decisions of the Chair relating to the 
    application of the Rules of the House of Representatives to the 
    procedure relating to any such legislation shall be decided without 
    debate.
        (4) Except to the extent specifically provided in the preceding 
    provisions of this subsection, consideration of any such 
    legislation and amendments thereto (or any conference report 
    thereon) shall be governed by the Rules of the House of 
    Representatives applicable to other bills and resolutions, 
    amendments, and conference reports in similar circumstances.
    (e) Legislative Day Defined.--As used in this section, the term 
``legislative day'' means a day on which the House of Representatives 
is in session.
    (f) Restriction on Waiver.--In the House, the provisions of this 
section may be waived only by a rule or order proposing only to waive 
such provisions.
    (g) Rulemaking Power.--The provisions of this section are enacted 
by the Congress--
        (1) as an exercise of the rulemaking power of the House of 
    Representatives and, as such, shall be considered as part of the 
    rules of that House and shall supersede other rules only to the 
    extent that they are inconsistent therewith; and
        (2) with full recognition of the constitutional right of that 
    House to change the rules (so far as they relate to the procedures 
    of that House) at any time, in the same manner, and to the same 
    extent as in the case of any other rule of that House.

SEC. 804. PROCEDURES IN THE SENATE.

    (a) Introduction and Referral of President's Legislative 
Proposal.--
        (1) Introduction.--In the case of a legislative proposal 
    submitted by the President pursuant to section 1105(h) of title 31, 
    United States Code, within the 15-day period specified in paragraph 
    (1) of such section, the Majority Leader and Minority Leader of the 
    Senate (or their designees) shall introduce such proposal (by 
    request), the title of which is as follows: ``A bill to respond to 
    a medicare funding warning.'' Such bill shall be introduced within 
    3 days of session after Congress receives such proposal.
        (2) Referral.--Any legislation introduced pursuant to paragraph 
    (1) shall be referred to the Committee on Finance.
    (b) Medicare Funding Legislation.--For purposes of this section, 
the term ``medicare funding legislation'' means--
        (1) legislation introduced pursuant to subsection (a)(1), but 
    only if the legislative proposal upon which the legislation is 
    based was submitted within the 15-day period referred to in such 
    subsection; or
        (2) any bill the title of which is as follows: ``A bill to 
    respond to a medicare funding warning.''.
    (c) Qualification for Special Procedures.--
        (1) In general.--The special procedures set forth in 
    subsections (d) and (e) shall apply to medicare funding 
    legislation, as described in subsection (b), only if the 
    legislation--
            (A) is medicare funding legislation that is passed by the 
        House of Representatives; or
            (B) contains matter within the jurisdiction of the 
        Committee on Finance in the Senate.
        (2) Failure to qualify for special procedures.--If the medicare 
    funding legislation does not satisfy paragraph (1), then the 
    legislation shall be considered under the ordinary procedures of 
    the Standing Rules of the Senate.
    (d) Discharge.--
        (1) In general.--If the Committee on Finance has not reported 
    medicare funding legislation described in subsection (c)(1) by June 
    30 of a year in which the President is required to submit medicare 
    funding legislation to Congress under section 1105(h) of title 31, 
    United States Code, then any Senator may move to discharge the 
    Committee of any single medicare funding legislation measure. Only 
    one such motion shall be in order in any session of Congress.
        (2) Debate limits.--Debate in the Senate on any such motion to 
    discharge, and all appeals in connection therewith, shall be 
    limited to not more than 2 hours. The time shall be equally divided 
    between, and controlled by, the maker of the motion and the 
    Majority Leader, or their designees, except that in the event the 
    Majority Leader is in favor of such motion, the time in opposition 
    thereto shall be controlled by the Minority Leader or the Minority 
    Leader's designee. A point of order under this subsection may be 
    made at any time. It is not in order to move to proceed to another 
    measure or matter while such motion (or the motion to reconsider 
    such motion) is pending.
        (3) Amendments.--No amendment to the motion to discharge shall 
    be in order.
        (4) Exception if certified legislation enacted.--
    Notwithstanding paragraph (1), it shall not be in order to 
    discharge the Committee from further consideration of medicare 
    funding legislation pursuant to this subsection during a session of 
    a Congress if the chairman of the Committee on the Budget of the 
    Senate certifies that medicare funding legislation has been enacted 
    that eliminates excess general revenue medicare funding (as defined 
    in section 801(c)) for each fiscal year in the 7-fiscal-year 
    reporting period.
    (e) Consideration.--After the date on which the Committee on 
Finance has reported medicare funding legislation described in 
subsection (c)(1), or has been discharged (under subsection (d)) from 
further consideration of, such legislation, it is in order (even though 
a previous motion to the same effect has been disagreed to) for any 
Member of the Senate to move to proceed to the consideration of such 
legislation.
    (f) Rules of the Senate.--This section is enacted by the Senate--
        (1) as an exercise of the rulemaking power of the Senate and as 
    such it is deemed a part of the rules of the Senate, but applicable 
    only with respect to the procedure to be followed in the Senate in 
    the case of a bill described in this paragraph, and it supersedes 
    other rules only to the extent that it is inconsistent with such 
    rules; and
        (2) with full recognition of the constitutional right of the 
    Senate to change the rules (so far as relating to the procedure of 
    the Senate) at any time, in the same manner, and to the same extent 
    as in the case of any other rule of the Senate.

     Subtitle B--Income-Related Reduction in Part B Premium Subsidy

SEC. 811. INCOME-RELATED REDUCTION IN PART B PREMIUM SUBSIDY.

    (a) In General.--Section 1839 (42 U.S.C. 1395r), as amended by 
section 241(c), is amended by adding at the end the following:
    ``(i) Reduction in Premium Subsidy Based on Income.--
        ``(1) In general.--In the case of an individual whose modified 
    adjusted gross income exceeds the threshold amount under paragraph 
    (2), the monthly amount of the premium subsidy applicable to the 
    premium under this section for a month after December 2006 shall be 
    reduced (and the monthly premium shall be increased) by the monthly 
    adjustment amount specified in paragraph (3).
        ``(2) Threshold amount.--For purposes of this subsection, the 
    threshold amount is--
            ``(A) except as provided in subparagraph (B), $80,000, and
            ``(B) in the case of a joint return, twice the amount 
        applicable under subparagraph (A) for the calendar year.
        ``(3) Monthly adjustment amount.--
            ``(A) In general.--Subject to subparagraph (B), the monthly 
        adjustment amount specified in this paragraph for an individual 
        for a month in a year is equal to the product of the following:
                ``(i) Sliding scale percentage.--The applicable 
            percentage specified in the table in subparagraph (C) for 
            the individual minus 25 percentage points.
                ``(ii) Unsubsidized part b premium amount.--200 percent 
            of the monthly actuarial rate for enrollees age 65 and over 
            (as determined under subsection (a)(1) for the year).
            ``(B) 5-year phase in.--The monthly adjustment amount 
        specified in this paragraph for an individual for a month in a 
        year before 2011 is equal to the following percentage of the 
        monthly adjustment amount specified in subparagraph (A):
                ``(i) For 2007, 20 percent.
                ``(ii) For 2008, 40 percent.
                ``(iii) For 2009, 60 percent.
                ``(iv) for 2010, 80 percent.
            ``(C) Applicable percentage.--
                ``(i) In general.--

``If the modified adjusted gross income is:
                                                          The applicable
                                                          percentage is:

    More than $80,000 but not more than $100,000..............

                                                             35 percent 

    More than $100,000 but not more than $150,000.............

                                                             50 percent 

    More than $150,000 but not more than $200,000.............

                                                             65 percent 

    More than $200,000........................................

                                                             80 percent.

                ``(ii) Joint returns.--In the case of a joint return, 
            clause (i) shall be applied by substituting dollar amounts 
            which are twice the dollar amounts otherwise applicable 
            under clause (i) for the calendar year.
                ``(iii) Married individuals filing separate returns.--
            In the case of an individual who--

                    ``(I) is married as of the close of the taxable 
                year (within the meaning of section 7703 of the 
                Internal Revenue Code of 1986) but does not file a 
                joint return for such year, and
                    ``(II) does not live apart from such individual's 
                spouse at all times during the taxable year,

            clause (i) shall be applied by reducing each of the dollar 
            amounts otherwise applicable under such clause for the 
            calendar year by the threshold amount for such year 
            applicable to an unmarried individual.
        ``(4) Modified adjusted gross income.--
            ``(A) In general.--For purposes of this subsection, the 
        term `modified adjusted gross income' means adjusted gross 
        income (as defined in section 62 of the Internal Revenue Code 
        of 1986)--
                ``(i) determined without regard to sections 135, 911, 
            931, and 933 of such Code; and
                ``(ii) increased by the amount of interest received or 
            accrued during the taxable year which is exempt from tax 
            under such Code.
        In the case of an individual filing a joint return, any 
        reference in this subsection to the modified adjusted gross 
        income of such individual shall be to such return's modified 
        adjusted gross income.
            ``(B) Taxable year to be used in determining modified 
        adjusted gross income.--
                ``(i) In general.--In applying this subsection for an 
            individual's premiums in a month in a year, subject to 
            clause (ii) and subparagraph (C), the individual's modified 
            adjusted gross income shall be such income determined for 
            the individual's last taxable year beginning in the second 
            calendar year preceding the year involved.
                ``(ii) Temporary use of other data.--If, as of October 
            15 before a calendar year, the Secretary of the Treasury 
            does not have adequate data for an individual in 
            appropriate electronic form for the taxable year referred 
            to in clause (i), the individual's modified adjusted gross 
            income shall be determined using the data in such form from 
            the previous taxable year. Except as provided in 
            regulations prescribed by the Commissioner of Social 
            Security in consultation with the Secretary, the preceding 
            sentence shall cease to apply when adequate data in 
            appropriate electronic form are available for the 
            individual for the taxable year referred to in clause (i), 
            and proper adjustments shall be made to the extent that the 
            premium adjustments determined under the preceding sentence 
            were inconsistent with those determined using such taxable 
            year.
                ``(iii) Non-filers.--In the case of individuals with 
            respect to whom the Secretary of the Treasury does not have 
            adequate data in appropriate electronic form for either 
            taxable year referred to in clause (i) or clause (ii), the 
            Commissioner of Social Security, in consultation with the 
            Secretary, shall prescribe regulations which provide for 
            the treatment of the premium adjustment with respect to 
            such individual under this subsection, including 
            regulations which provide for--

                    ``(I) the application of the highest applicable 
                percentage under paragraph (3)(C) to such individual if 
                the Commissioner has information which indicates that 
                such individual's modified adjusted gross income might 
                exceed the threshold amount for the taxable year 
                referred to in clause (i), and
                    ``(II) proper adjustments in the case of the 
                application of an applicable percentage under subclause 
                (I) to such individual which is inconsistent with such 
                individual's modified adjusted gross income for such 
                taxable year.

            ``(C) Use of more recent taxable year.--
                ``(i) In general.--The Commissioner of Social Security 
            in consultation with the Secretary of the Treasury shall 
            establish a procedures under which an individual's modified 
            adjusted gross income shall, at the request of such 
            individual, be determined under this subsection--

                    ``(I) for a more recent taxable year than the 
                taxable year otherwise used under subparagraph (B), or
                    ``(II) by such methodology as the Commissioner, in 
                consultation with such Secretary, determines to be 
                appropriate, which may include a methodology for 
                aggregating or disaggregating information from tax 
                returns in the case of marriage or divorce.

                ``(ii) Standard for granting requests.--A request under 
            clause (i)(I) to use a more recent taxable year may be 
            granted only if--

                    ``(I) the individual furnishes to such Commissioner 
                with respect to such year such documentation, such as a 
                copy of a filed Federal income tax return or an 
                equivalent document, as the Commissioner specifies for 
                purposes of determining the premium adjustment (if any) 
                under this subsection; and
                    ``(II) the individual's modified adjusted gross 
                income for such year is significantly less than such 
                income for the taxable year determined under 
                subparagraph (B) by reason of the death of such 
                individual's spouse, the marriage or divorce of such 
                individual, or other major life changing events 
                specified in regulations prescribed by the Commissioner 
                in consultation with the Secretary.

        ``(5) Inflation adjustment.--
            ``(A) In general.--In the case of any calendar year 
        beginning after 2007, each dollar amount in paragraph (2) or 
        (3) shall be increased by an amount equal to--
                ``(i) such dollar amount, multiplied by
                ``(ii) the percentage (if any) by which the average of 
            the Consumer Price Index for all urban consumers (United 
            States city average) for the 12-month period ending with 
            August of the preceding calendar year exceeds such average 
            for the 12-month period ending with August 2006.
            ``(B) Rounding.--If any dollar amount after being increased 
        under subparagraph (A) is not a multiple of $1,000, such dollar 
        amount shall be rounded to the nearest multiple of $1,000.
        ``(6) Joint return defined.--For purposes of this subsection, 
    the term `joint return' has the meaning given to such term by 
    section 7701(a)(38) of the Internal Revenue Code of 1986.''.
    (b) Conforming Amendments.--
        (1) Section 1839 (42 U.S.C. 1395r) is amended--
            (A) in subsection (a)(2), by striking ``and (f)'' and 
        inserting ``(f), and (i)'';
            (B) in subsection (b), inserting ``(without regard to any 
        adjustment under subsection (i))'' after ``subsection (a)''; 
        and
            (C) in subsection (f)--
                (i) by striking ``and if'' and inserting ``if''; and
                (ii) by inserting ``and if the amount of the 
            individual's premium is not adjusted for such January under 
            subsection (i),'' after ``section 1840(b)(1),''.
        (2) Section 1844 (42 U.S.C. 1395w) is amended--
            (A) in subsection (a)(1)--
                (i) in subparagraph (B), by striking ``plus'' at the 
            end and inserting ``minus''; and
                (ii) by adding at the end the following new 
            subparagraph:
        ``(C) the aggregate amount of additional premium payments 
    attributable to the application of section 1839(i); plus''; and
            (B) in subsection (c), by inserting before the period at 
        the end the following: ``and without regard to any premium 
        adjustment under section 1839(i)''.
    (c) Reporting Requirements for Secretary of the Treasury.--
        (1) In general.--Subsection (l) of section 6103 of the Internal 
    Revenue Code of 1986 (relating to disclosure of returns and return 
    information for purposes other than tax administration), as amended 
    by section 105(e), is amended by adding at the end the following 
    new paragraph:
        ``(20) Disclosure of return information to carry out medicare 
    part b premium subsidy adjustment.--
            ``(A) In general.--The Secretary shall, upon written 
        request from the Commissioner of Social Security, disclose to 
        officers, employees, and contractors of the Social Security 
        Administration return information of a taxpayer whose premium 
        (according to the records of the Secretary) may be subject to 
        adjustment under section 1839(i) of the Social Security Act. 
        Such return information shall be limited to--
                ``(i) taxpayer identity information with respect to 
            such taxpayer,
                ``(ii) the filing status of such taxpayer,
                ``(iii) the adjusted gross income of such taxpayer,
                ``(iv) the amounts excluded from such taxpayer's gross 
            income under sections 135 and 911 to the extent such 
            information is available,
                ``(v) the interest received or accrued during the 
            taxable year which is exempt from the tax imposed by 
            chapter 1 to the extent such information is available,
                ``(vi) the amounts excluded from such taxpayer's gross 
            income by sections 931 and 933 to the extent such 
            information is available,
                ``(vii) such other information relating to the 
            liability of the taxpayer as is prescribed by the Secretary 
            by regulation as might indicate in the case of a taxpayer 
            who is an individual described in subsection (i)(4)(B)(iii) 
            of section 1839 of the Social Security Act that the amount 
            of the premium of the taxpayer under such section may be 
            subject to adjustment under subsection (i) of such section 
            and the amount of such adjustment, and
                ``(viii) the taxable year with respect to which the 
            preceding information relates.
            ``(B) Restriction on use of disclosed information.--Return 
        information disclosed under subparagraph (A) may be used by 
        officers, employees, and contractors of the Social Security 
        Administration only for the purposes of, and to the extent 
        necessary in, establishing the appropriate amount of any 
        premium adjustment under such section 1839(i).''
        (2) Conforming amendments.--
            (A) Paragraph (3) of section 6103(a) of such Code, as 
        amended by section 105(e)(1), is amended by striking ``or 
        (19)'' and inserting ``(19), or (20)''.
            (B) Paragraph (4) of section 6103(p) of such Code, as 
        amended by section 105(e)(3), is amended by striking ``(l)(16), 
        (17), or (19)'' each place it appears and inserting ``(l)(16), 
        (17), (19), or (20)''.
            (C) Paragraph (2) of section 7213(a) of such Code, as 
        amended by section 105(e)(4), is amended by striking ``or 
        (19)'' and inserting ``(19), or (20)''.

   TITLE IX--ADMINISTRATIVE IMPROVEMENTS, REGULATORY REDUCTION, AND 
                           CONTRACTING REFORM

SEC. 900. ADMINISTRATIVE IMPROVEMENTS WITHIN THE CENTERS FOR MEDICARE & 
              MEDICAID SERVICES (CMS).

    (a) Coordinated Administration of Medicare Prescription Drug and 
Medicare Advantage Programs.--Title XVIII (42 U.S.C. 1395 et seq.), as 
amended by section 721, is amended by inserting after 1807 the 
following new section:

                 ``provisions relating to administration

    ``Sec. 1808. (a) Coordinated Administration of Medicare 
Prescription Drug and Medicare Advantage Programs.--
        ``(1) In general.--There is within the Centers for Medicare & 
    Medicaid Services a center to carry out the duties described in 
    paragraph (3).
        ``(2) Director.--Such center shall be headed by a director who 
    shall report directly to the Administrator of the Centers for 
    Medicare & Medicaid Services.
        ``(3) Duties.--The duties described in this paragraph are the 
    following:
            ``(A) The administration of parts C and D.
            ``(B) The provision of notice and information under section 
        1804.
            ``(C) Such other duties as the Secretary may specify.
        ``(4) Deadline.--The Secretary shall ensure that the center is 
    carrying out the duties described in paragraph (3) by not later 
    than January 1, 2008.''.
    (b) Management Staff for the Centers for Medicare & Medicaid 
Services.--Such section is further amended by adding at the end the 
following new subsection:
    ``(b) Employment of Management Staff.--
        ``(1) In general.--The Secretary may employ, within the Centers 
    for Medicare & Medicaid Services, such individuals as management 
    staff as the Secretary determines to be appropriate. With respect 
    to the administration of parts C and D, such individuals shall 
    include individuals with private sector expertise in negotiations 
    with health benefits plans.
        ``(2) Eligibility.--To be eligible for employment under 
    paragraph (1) an individual shall be required to have demonstrated, 
    by their education and experience (either in the public or private 
    sector), superior expertise in at least one of the following areas:
        ``(A) The review, negotiation, and administration of health 
    care contracts.
        ``(B) The design of health care benefit plans.
        ``(C) Actuarial sciences.
        ``(D) Compliance with health plan contracts.
        ``(E) Consumer education and decision making.
        ``(F) Any other area specified by the Secretary that requires 
    specialized management or other expertise.
        ``(3) Rates of payment.--
            ``(A) Performance-related pay.--Subject to subparagraph 
        (B), the Secretary shall establish the rate of pay for an 
        individual employed under paragraph (1). Such rate shall take 
        into account expertise, experience, and performance.
            ``(B) Limitation.--In no case may the rate of compensation 
        determined under subparagraph (A) exceed the highest rate of 
        basic pay for the Senior Executive Service under section 
        5382(b) of title 5, United States Code.''.
    (c) Requirement for Dedicated Actuary for Private Health Plans.--
Section 1117(b) (42 U.S.C. 1317(b)) is amended by adding at the end the 
following new paragraph:
    ``(3) In the office of the Chief Actuary there shall be an actuary 
whose duties relate exclusively to the programs under parts C and D of 
title XVIII and related provisions of such title.''.
    (d) Increase in Grade to Executive Level III for the Administrator 
of the Centers for Medicare & Medicaid Services.--
        (1) In general.--Section 5314 of title 5, United States Code, 
    is amended by adding at the end the following:
        ``Administrator of the Centers for Medicare & Medicaid 
    Services.''.
        (2) Conforming amendment.--Section 5315 of such title is 
    amended by striking ``Administrator of the Health Care Financing 
    Administration.''.
        (3) Effective date.--The amendments made by this subsection 
    take effect on January 1, 2004.
    (e) Conforming Amendments Relating to Health Care Financing 
Administration.--
        (1) Amendments to the social security act.--The Social Security 
    Act is amended--
            (A) in section 1117 (42 U.S.C. 1317)--
                (i) in the heading to read as follows:

   ``appointment of the administrator and chief actuary of the centers 
                  for medicare & medicaid services'';

                (ii) in subsection (a), by striking ``Health Care 
            Financing Administration'' and inserting ``Centers for 
            Medicare & Medicaid Services''; and
                (iii) in subsection (b)(1)--

                    (I) by striking ``Health Care Financing 
                Administration'' and inserting ``Centers for Medicare & 
                Medicaid Services''; and
                    (II) by striking ``Administration'' and inserting 
                ``Centers'';

            (B) in section 1140(a) (42 U.S.C. 1320b-10(a))--
                (i) in paragraph (1), by striking ``Health Care 
            Financing Administration'' both places it appears in the 
            matter following subparagraph (B) and inserting ``Centers 
            for Medicare & Medicaid Services'';
                (ii) in paragraph (1)(A)--

                    (I) by striking ``Health Care Financing 
                Administration'' and inserting ``Centers for Medicare & 
                Medicaid Services''; and
                    (II) by striking ``HCFA'' and inserting ``CMS''; 
                and

                (iii) in paragraph (1)(B), by striking ``Health Care 
            Financing Administration'' both places it appears and 
            inserting ``Centers for Medicare & Medicaid Services'';
            (C) in section 1142(b)(3) (42 U.S.C. 1320b-12(b)(3)), by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services'';
            (D) in section 1817(b) (42 U.S.C. 1395i(b))--
                (i) by striking ``Health Care Financing 
            Administration'', both in the fifth sentence of the matter 
            preceding paragraph (1) and in the second sentence of the 
            matter following paragraph (4), and inserting ``Centers for 
            Medicare & Medicaid Services''; and
                (ii) by striking ``Chief Actuarial Officer'' in the 
            second sentence of the matter following paragraph (4) and 
            inserting ``Chief Actuary'';
            (E) in section 1841(b) (42 U.S.C. 1395t(b))--
                (i) by striking ``Health Care Financing 
            Administration'', both in the fifth sentence of the matter 
            preceding paragraph (1) and in the second sentence of the 
            matter following paragraph (4), and inserting ``Centers for 
            Medicare & Medicaid Services''; and
                (ii) by striking ``Chief Actuarial Officer'' in the 
            second sentence of the matter following paragraph (4) and 
            inserting ``Chief Actuary'';
            (F) in section 1852(a)(5) (42 U.S.C. 1395w-22(a)(5)), by 
        striking ``Health Care Financing Administration'' in the matter 
        following subparagraph (B) and inserting ``Centers for Medicare 
        & Medicaid Services'';
            (G) in section 1853 (42 U.S.C. 1395w-23)--
                (i) in subsection (b)(4), by striking ``Health Care 
            Financing Administration'' in the first sentence and 
            inserting ``Centers for Medicare & Medicaid Services''; and
                (ii) in subsection (c)(7), by striking ``Health Care 
            Financing Administration'' in the last sentence and 
            inserting ``Centers for Medicare & Medicaid Services'';
            (H) in section 1854(a)(5)(A) (42 U.S.C. 1395w-24(a)(5)(A)), 
        by striking ``Health Care Financing Administration''and 
        inserting ``Centers for Medicare & Medicaid Services'';
            (I) in section 1857(d)(4)(A)(ii) (42 U.S.C. 1395w-
        27(d)(4)(A)(ii)), by striking ``Health Care Financing 
        Administration'' and inserting ``Secretary'';
            (J) in section 1862(b)(5)(A)(ii) (42 U.S.C. 
        1395y(b)(5)(A)(ii)), by striking ``Health Care Financing 
        Administration'' and inserting ``Centers for Medicare & 
        Medicaid Services'';
            (K) in section 1927(e)(4) (42 U.S.C. 1396r-8(e)(4)), by 
        striking ``HCFA'' and inserting ``The Secretary'';
            (L) in section 1927(f)(2) (42 U.S.C. 1396r-8(f)(2)), by 
        striking ``HCFA'' and inserting ``The Secretary''; and
            (M) in section 2104(g)(3) (42 U.S.C. 1397dd(g)(3)) by 
        inserting ``or CMS Form 64 or CMS Form 21, as the case may 
        be,'' after ``HCFA Form 64 or HCFA Form 21''.
        (2) Amendments to the public health service act.--The Public 
    Health Service Act is amended--
            (A) in section 501(d)(18) (42 U.S.C. 290aa(d)(18)), by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services'';
            (B) in section 507(b)(6) (42 U.S.C. 290bb(b)(6)), by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services'';
            (C) in section 916 (42 U.S.C. 299b-5)--
                (i) in subsection (b)(2), by striking ``Health Care 
            Financing Administration'' and inserting ``Centers for 
            Medicare & Medicaid Services''; and
                (ii) in subsection (c)(2), by striking ``Health Care 
            Financing Administration'' and inserting ``Centers for 
            Medicare & Medicaid Services'';
            (D) in section 921(c)(3)(A) (42 U.S.C. 299c(c)(3)(A)), by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services'';
            (E) in section 1318(a)(2) (42 U.S.C. 300e-17(a)(2)), by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services'';
            (F) in section 2102(a)(7) (42 U.S.C. 300aa-2(a)(7)), by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services''; and
            (G) in section 2675(a) (42 U.S.C. 300ff-75(a)), by striking 
        ``Health Care Financing Administration'' in the first sentence 
        and inserting ``Centers for Medicare & Medicaid Services''.
        (3) Amendments to the internal revenue code of 1986.--Section 
    6103(l)(12) of the Internal Revenue Code of 1986 is amended--
            (A) in subparagraph (B), by striking ``Health Care 
        Financing Administration'' in the matter preceding clause (i) 
        and inserting ``Centers for Medicare & Medicaid Services''; and
            (B) in subparagraph (C)--
                (i) by striking ``health care financing 
            administration'' in the heading and inserting ``centers for 
            medicare & medicaid services''; and
                (ii) by striking ``Health Care Financing 
            Administration'' in the matter preceding clause (i) and 
            inserting ``Centers for Medicare & Medicaid Services''.
        (4) Amendments to title 10, united states code.--Title 10, 
    United States Code, is amended--
            (A) in section 1086(d)(4), by striking ``administrator of 
        the Health Care Financing Administration'' in the last sentence 
        and inserting ``Administrator of the Centers for Medicare & 
        Medicaid Services''; and
            (B) in section 1095(k)(2), by striking ``Health Care 
        Financing Administration'' in the second sentence and inserting 
        ``Centers for Medicare & Medicaid Services''.
        (5) Amendments to the alzheimer's disease and related dementias 
    services research act of 1992.--The Alzheimer's Disease and Related 
    Dementias Research Act of 1992 (42 U.S.C. 11271 et seq.) is 
    amended--
            (A) in the heading of subpart 3 of part D to read as 
        follows:

 ``Subpart 3--Responsibilities of the Centers for Medicare & Medicaid 
                              Services'';

            (B) in section 937 (42 U.S.C. 11271)--
                (i) in subsection (a), by striking ``National Health 
            Care Financing Administration'' and inserting ``Centers for 
            Medicare & Medicaid Services'';
                (ii) in subsection (b)(1), by striking ``Health Care 
            Financing Administration'' and inserting ``Centers for 
            Medicare & Medicaid Services'';
                (iii) in subsection (b)(2), by striking ``Health Care 
            Financing Administration'' and inserting ``Centers for 
            Medicare & Medicaid Services''; and
                (iv) in subsection (c), by striking ``Health Care 
            Financing Administration'' and inserting ``Centers for 
            Medicare & Medicaid Services''; and
            (C) in section 938 (42 U.S.C. 11272), by striking ``Health 
        Care Financing Administration'' and inserting ``Centers for 
        Medicare & Medicaid Services''.
        (6) Miscellaneous amendments.--
            (A) Rehabilitation act of 1973.--Section 202(b)(8) of the 
        Rehabilitation Act of 1973 (29 U.S.C. 762(b)(8)) is amended by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services''.
            (B) Indian health care improvement act.--Section 405(d)(1) 
        of the Indian Health Care Improvement Act (25 U.S.C. 
        1645(d)(1)) is amended by striking ``Health Care Financing 
        Administration'' in the matter preceding subparagraph (A) and 
        inserting ``Centers for Medicare & Medicaid Services''.
            (C) Individuals with disabilities education act.--Section 
        644(b)(5) of the Individuals with Disabilities Education Act 
        (20 U.S.C. 1444(b)(5)) is amended by striking ``Health Care 
        Financing Administration'' and inserting ``Centers for Medicare 
        & Medicaid Services''.
            (D) The home health care and alzheimer's disease amendments 
        of 1990.--Section 302(a)(9) of the Home Health Care and 
        Alzheimer's Disease Amendments of 1990 (42 U.S.C. 242q-1(a)(9)) 
        is amended by striking ``Health Care Financing Administration'' 
        and inserting ``Centers for Medicare & Medicaid Services''.
            (E) The children's health act of 2000.--Section 2503(a) of 
        the Children's Health Act of 2000 (42 U.S.C. 247b-3a(a)) is 
        amended by striking ``Health Care Financing Administration'' 
        and inserting ``Centers for Medicare & Medicaid Services''.
            (F) The national institutes of health revitalization act of 
        1993.--Section 1909 of the National Institutes of Health 
        Revitalization Act of 1993 (42 U.S.C. 299a note) is amended by 
        striking ``Health Care Financing Administration'' and inserting 
        ``Centers for Medicare & Medicaid Services''.
            (G) The omnibus budget reconciliation act of 1990.--Section 
        4359(d) of the Omnibus Budget Reconciliation Act of 1990 (42 
        U.S.C. 1395b-3(d)) is amended by striking ``Health Care 
        Financing Administration'' and inserting ``Centers for Medicare 
        & Medicaid Services''.
            (H) The medicare, medicaid, and schip benefits improvement 
        and protection act of 2000.--Section 104(d)(4) of the Medicare, 
        Medicaid, and SCHIP Benefits Improvement and Protection Act of 
        2000 (42 U.S.C. 1395m note) is amended by striking ``Health 
        Care Financing Administration'' and inserting ``Health Care''.
        (7) Additional amendment.--Section 403 of the Act entitled, 
    ``An Act to authorize certain appropriations for the territories of 
    the United States, to amend certain Acts relating thereto, and for 
    other purposes'', enacted October 15, 1977 (48 U.S.C. 1574-1; 48 
    U.S.C. 1421q-1), is amended by striking ``Health Care Financing 
    Administration'' and inserting ``Centers for Medicare & Medicaid 
    Services''.

                     Subtitle A--Regulatory Reform

SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER.

    (a) Construction.--Nothing in this title shall be construed--
        (1) to compromise or affect existing legal remedies for 
    addressing fraud or abuse, whether it be criminal prosecution, 
    civil enforcement, or administrative remedies, including under 
    sections 3729 through 3733 of title 31, United States Code 
    (commonly known as the ``False Claims Act''); or
        (2) to prevent or impede the Department of Health and Human 
    Services in any way from its ongoing efforts to eliminate waste, 
    fraud, and abuse in the medicare program.
Furthermore, the consolidation of medicare administrative contracting 
set forth in this division does not constitute consolidation of the 
Federal Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund or reflect any position on that issue.
    (b) Definition of Supplier.--Section 1861 (42 U.S.C. 1395x) is 
amended by inserting after subsection (c) the following new subsection:

                               ``Supplier

    ``(d) The term `supplier' means, unless the context otherwise 
requires, a physician or other practitioner, a facility, or other 
entity (other than a provider of services) that furnishes items or 
services under this title.''.

SEC. 902. ISSUANCE OF REGULATIONS.

    (a) Regular Timeline for Publication of Final Rules.--
        (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)) is 
    amended by adding at the end the following new paragraph:
    ``(3)(A) The Secretary, in consultation with the Director of the 
Office of Management and Budget, shall establish and publish a regular 
timeline for the publication of final regulations based on the previous 
publication of a proposed regulation or an interim final regulation.
    ``(B) Such timeline may vary among different regulations based on 
differences in the complexity of the regulation, the number and scope 
of comments received, and other relevant factors, but shall not be 
longer than 3 years except under exceptional circumstances. If the 
Secretary intends to vary such timeline with respect to the publication 
of a final regulation, the Secretary shall cause to have published in 
the Federal Register notice of the different timeline by not later than 
the timeline previously established with respect to such regulation. 
Such notice shall include a brief explanation of the justification for 
such variation.
    ``(C) In the case of interim final regulations, upon the expiration 
of the regular timeline established under this paragraph for the 
publication of a final regulation after opportunity for public comment, 
the interim final regulation shall not continue in effect unless the 
Secretary publishes (at the end of the regular timeline and, if 
applicable, at the end of each succeeding 1-year period) a notice of 
continuation of the regulation that includes an explanation of why the 
regular timeline (and any subsequent 1-year extension) was not complied 
with. If such a notice is published, the regular timeline (or such 
timeline as previously extended under this paragraph) for publication 
of the final regulation shall be treated as having been extended for 1 
additional year.
    ``(D) The Secretary shall annually submit to Congress a report that 
describes the instances in which the Secretary failed to publish a 
final regulation within the applicable regular timeline under this 
paragraph and that provides an explanation for such failures.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on the date of the enactment of this Act. The Secretary 
    shall provide for an appropriate transition to take into account 
    the backlog of previously published interim final regulations.
    (b) Limitations on New Matter in Final Regulations.--
        (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)), as 
    amended by subsection (a), is amended by adding at the end the 
    following new paragraph:
    ``(4) If the Secretary publishes a final regulation that includes a 
provision that is not a logical outgrowth of a previously published 
notice of proposed rulemaking or interim final rule, such provision 
shall be treated as a proposed regulation and shall not take effect 
until there is the further opportunity for public comment and a 
publication of the provision again as a final regulation.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to final regulations published on or after the date of the 
    enactment of this Act.

SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS AND POLICIES.

    (a) No Retroactive Application of Substantive Changes.--
        (1) In general.--Section 1871 (42 U.S.C. 1395hh), as amended by 
    section 902(a), is amended by adding at the end the following new 
    subsection:
    ``(e)(1)(A) A substantive change in regulations, manual 
instructions, interpretative rules, statements of policy, or guidelines 
of general applicability under this title shall not be applied (by 
extrapolation or otherwise) retroactively to items and services 
furnished before the effective date of the change, unless the Secretary 
determines that--
        ``(i) such retroactive application is necessary to comply with 
    statutory requirements; or
        ``(ii) failure to apply the change retroactively would be 
    contrary to the public interest.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to substantive changes issued on or after the date of the 
    enactment of this Act.
    (b) Timeline for Compliance With Substantive Changes After 
Notice.--
        (1) In general.--Section 1871(e)(1), as added by subsection 
    (a), is amended by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), a substantive change 
referred to in subparagraph (A) shall not become effective before the 
end of the 30-day period that begins on the date that the Secretary has 
issued or published, as the case may be, the substantive change.
    ``(ii) The Secretary may provide for such a substantive change to 
take effect on a date that precedes the end of the 30-day period under 
clause (i) if the Secretary finds that waiver of such 30-day period is 
necessary to comply with statutory requirements or that the application 
of such 30-day period is contrary to the public interest. If the 
Secretary provides for an earlier effective date pursuant to this 
clause, the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first sentence, and a 
brief statement of the reasons for such finding.
    ``(C) No action shall be taken against a provider of services or 
supplier with respect to noncompliance with such a substantive change 
for items and services furnished before the effective date of such a 
change.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to compliance actions undertaken on or after the date of the 
    enactment of this Act.
    (c) Reliance on Guidance.--
        (1) In general.--Section 1871(e), as added by subsection (a), 
    is further amended by adding at the end the following new 
    paragraph:
    ``(2)(A) If--
        ``(i) a provider of services or supplier follows the written 
    guidance (which may be transmitted electronically) provided by the 
    Secretary or by a medicare contractor (as defined in section 
    1889(g)) acting within the scope of the contractor's contract 
    authority, with respect to the furnishing of items or services and 
    submission of a claim for benefits for such items or services with 
    respect to such provider or supplier;
        ``(ii) the Secretary determines that the provider of services 
    or supplier has accurately presented the circumstances relating to 
    such items, services, and claim to the contractor in writing; and
        ``(iii) the guidance was in error;
the provider of services or supplier shall not be subject to any 
penalty or interest under this title or the provisions of title XI 
insofar as they relate to this title (including interest under a 
repayment plan under section 1893 or otherwise) relating to the 
provision of such items or service or such claim if the provider of 
services or supplier reasonably relied on such guidance.
    ``(B) Subparagraph (A) shall not be construed as preventing the 
recoupment or repayment (without any additional penalty) relating to an 
overpayment insofar as the overpayment was solely the result of a 
clerical or technical operational error.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on the date of the enactment of this Act and shall only 
    apply to a penalty or interest imposed with respect to guidance 
    provided on or after July 24, 2003.

SEC. 904. REPORTS AND STUDIES RELATING TO REGULATORY REFORM.

    (a) GAO Study on Advisory Opinion Authority.--
        (1) Study.--The Comptroller General of the United States shall 
    conduct a study to determine the feasibility and appropriateness of 
    establishing in the Secretary authority to provide legally binding 
    advisory opinions on appropriate interpretation and application of 
    regulations to carry out the medicare program under title XVIII of 
    the Social Security Act. Such study shall examine the appropriate 
    timeframe for issuing such advisory opinions, as well as the need 
    for additional staff and funding to provide such opinions.
        (2) Report.--The Comptroller General shall submit to Congress a 
    report on the study conducted under paragraph (1) by not later than 
    1 year after the date of the enactment of this Act.
    (b) Report on Legal and Regulatory Inconsistencies.--Section 1871 
(42 U.S.C. 1395hh), as amended by section 903(a)(1), is amended by 
adding at the end the following new subsection:
    ``(f)(1) Not later than 2 years after the date of the enactment of 
this subsection, and every 3 years thereafter, the Secretary shall 
submit to Congress a report with respect to the administration of this 
title and areas of inconsistency or conflict among the various 
provisions under law and regulation.
    ``(2) In preparing a report under paragraph (1), the Secretary 
shall collect--
        ``(A) information from individuals entitled to benefits under 
    part A or enrolled under part B, or both, providers of services, 
    and suppliers and from the Medicare Beneficiary Ombudsman with 
    respect to such areas of inconsistency and conflict; and
        ``(B) information from medicare contractors that tracks the 
    nature of written and telephone inquiries.
    ``(3) A report under paragraph (1) shall include a description of 
efforts by the Secretary to reduce such inconsistency or conflicts, and 
recommendations for legislation or administrative action that the 
Secretary determines appropriate to further reduce such inconsistency 
or conflicts.''.

                     Subtitle B--Contracting Reform

SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

    (a) Consolidation and Flexibility in Medicare Administration.--
        (1) In general.--Title XVIII is amended by inserting after 
    section 1874 the following new section:

           ``contracts with medicare administrative contractors

    ``Sec. 1874A. (a) Authority.--
        ``(1) Authority to enter into contracts.--The Secretary may 
    enter into contracts with any eligible entity to serve as a 
    medicare administrative contractor with respect to the performance 
    of any or all of the functions described in paragraph (4) or parts 
    of those functions (or, to the extent provided in a contract, to 
    secure performance thereof by other entities).
        ``(2) Eligibility of entities.--An entity is eligible to enter 
    into a contract with respect to the performance of a particular 
    function described in paragraph (4) only if--
            ``(A) the entity has demonstrated capability to carry out 
        such function;
            ``(B) the entity complies with such conflict of interest 
        standards as are generally applicable to Federal acquisition 
        and procurement;
            ``(C) the entity has sufficient assets to financially 
        support the performance of such function; and
            ``(D) the entity meets such other requirements as the 
        Secretary may impose.
        ``(3) Medicare administrative contractor defined.--For purposes 
    of this title and title XI--
            ``(A) In general.--The term `medicare administrative 
        contractor' means an agency, organization, or other person with 
        a contract under this section.
            ``(B) Appropriate medicare administrative contractor.--With 
        respect to the performance of a particular function in relation 
        to an individual entitled to benefits under part A or enrolled 
        under part B, or both, a specific provider of services or 
        supplier (or class of such providers of services or suppliers), 
        the `appropriate' medicare administrative contractor is the 
        medicare administrative contractor that has a contract under 
        this section with respect to the performance of that function 
        in relation to that individual, provider of services or 
        supplier or class of provider of services or supplier.
        ``(4) Functions described.--The functions referred to in 
    paragraphs (1) and (2) are payment functions (including the 
    function of developing local coverage determinations, as defined in 
    section 1869(f)(2)(B)), provider services functions, and functions 
    relating to services furnished to individuals entitled to benefits 
    under part A or enrolled under part B, or both, as follows:
            ``(A) Determination of payment amounts.--Determining 
        (subject to the provisions of section 1878 and to such review 
        by the Secretary as may be provided for by the contracts) the 
        amount of the payments required pursuant to this title to be 
        made to providers of services, suppliers and individuals.
            ``(B) Making payments.--Making payments described in 
        subparagraph (A) (including receipt, disbursement, and 
        accounting for funds in making such payments).
            ``(C) Beneficiary education and assistance.--Providing 
        education and outreach to individuals entitled to benefits 
        under part A or enrolled under part B, or both, and providing 
        assistance to those individuals with specific issues, concerns, 
        or problems.
            ``(D) Provider consultative services.--Providing 
        consultative services to institutions, agencies, and other 
        persons to enable them to establish and maintain fiscal records 
        necessary for purposes of this title and otherwise to qualify 
        as providers of services or suppliers.
            ``(E) Communication with providers.--Communicating to 
        providers of services and suppliers any information or 
        instructions furnished to the medicare administrative 
        contractor by the Secretary, and facilitating communication 
        between such providers and suppliers and the Secretary.
            ``(F) Provider education and technical assistance.--
        Performing the functions relating to provider education, 
        training, and technical assistance.
            ``(G) Additional functions.--Performing such other 
        functions, including (subject to paragraph (5)) functions under 
        the Medicare Integrity Program under section 1893, as are 
        necessary to carry out the purposes of this title.
        ``(5) Relationship to mip contracts.--
            ``(A) Nonduplication of duties.--In entering into contracts 
        under this section, the Secretary shall assure that functions 
        of medicare administrative contractors in carrying out 
        activities under parts A and B do not duplicate activities 
        carried out under a contract entered into under the Medicare 
        Integrity Program under section 1893. The previous sentence 
        shall not apply with respect to the activity described in 
        section 1893(b)(5) (relating to prior authorization of certain 
        items of durable medical equipment under section 1834(a)(15)).
            ``(B) Construction.--An entity shall not be treated as a 
        medicare administrative contractor merely by reason of having 
        entered into a contract with the Secretary under section 1893.
        ``(6) Application of federal acquisition regulation.--Except to 
    the extent inconsistent with a specific requirement of this 
    section, the Federal Acquisition Regulation applies to contracts 
    under this section.
    ``(b) Contracting Requirements.--
        ``(1) Use of competitive procedures.--
            ``(A) In general.--Except as provided in laws with general 
        applicability to Federal acquisition and procurement or in 
        subparagraph (B), the Secretary shall use competitive 
        procedures when entering into contracts with medicare 
        administrative contractors under this section, taking into 
        account performance quality as well as price and other factors.
            ``(B) Renewal of contracts.--The Secretary may renew a 
        contract with a medicare administrative contractor under this 
        section from term to term without regard to section 5 of title 
        41, United States Code, or any other provision of law requiring 
        competition, if the medicare administrative contractor has met 
        or exceeded the performance requirements applicable with 
        respect to the contract and contractor, except that the 
        Secretary shall provide for the application of competitive 
        procedures under such a contract not less frequently than once 
        every 5 years.
            ``(C) Transfer of functions.--The Secretary may transfer 
        functions among medicare administrative contractors consistent 
        with the provisions of this paragraph. The Secretary shall 
        ensure that performance quality is considered in such 
        transfers. The Secretary shall provide public notice (whether 
        in the Federal Register or otherwise) of any such transfer 
        (including a description of the functions so transferred, a 
        description of the providers of services and suppliers affected 
        by such transfer, and contact information for the contractors 
        involved).
            ``(D) Incentives for quality.--The Secretary shall provide 
        incentives for medicare administrative contractors to provide 
        quality service and to promote efficiency.
        ``(2) Compliance with requirements.--No contract under this 
    section shall be entered into with any medicare administrative 
    contractor unless the Secretary finds that such medicare 
    administrative contractor will perform its obligations under the 
    contract efficiently and effectively and will meet such 
    requirements as to financial responsibility, legal authority, 
    quality of services provided, and other matters as the Secretary 
    finds pertinent.
        ``(3) Performance requirements.--
            ``(A) Development of specific performance requirements.--
                ``(i) In general.--The Secretary shall develop contract 
            performance requirements to carry out the specific 
            requirements applicable under this title to a function 
            described in subsection (a)(4) and shall develop standards 
            for measuring the extent to which a contractor has met such 
            requirements.
                ``(ii) Consultation.--In developing such performance 
            requirements and standards for measurement, the Secretary 
            shall consult with providers of services, organizations 
            representative of beneficiaries under this title, and 
            organizations and agencies performing functions necessary 
            to carry out the purposes of this section with respect to 
            such performance requirements.
                ``(iii) Publication of standards.--The Secretary shall 
            make such performance requirements and measurement 
            standards available to the public.
            ``(B) Considerations.--The Secretary shall include, as one 
        of the standards developed under subparagraph (A), provider and 
        beneficiary satisfaction levels.
            ``(C) Inclusion in contracts.--All contractor performance 
        requirements shall be set forth in the contract between the 
        Secretary and the appropriate medicare administrative 
        contractor. Such performance requirements--
                ``(i) shall reflect the performance requirements 
            published under subparagraph (A), but may include 
            additional performance requirements;
                ``(ii) shall be used for evaluating contractor 
            performance under the contract; and
                ``(iii) shall be consistent with the written statement 
            of work provided under the contract.
        ``(4) Information requirements.--The Secretary shall not enter 
    into a contract with a medicare administrative contractor under 
    this section unless the contractor agrees--
            ``(A) to furnish to the Secretary such timely information 
        and reports as the Secretary may find necessary in performing 
        his functions under this title; and
            ``(B) to maintain such records and afford such access 
        thereto as the Secretary finds necessary to assure the 
        correctness and verification of the information and reports 
        under subparagraph (A) and otherwise to carry out the purposes 
        of this title.
        ``(5) Surety bond.--A contract with a medicare administrative 
    contractor under this section may require the medicare 
    administrative contractor, and any of its officers or employees 
    certifying payments or disbursing funds pursuant to the contract, 
    or otherwise participating in carrying out the contract, to give 
    surety bond to the United States in such amount as the Secretary 
    may deem appropriate.
    ``(c) Terms and Conditions.--
        ``(1) In general.--A contract with any medicare administrative 
    contractor under this section may contain such terms and conditions 
    as the Secretary finds necessary or appropriate and may provide for 
    advances of funds to the medicare administrative contractor for the 
    making of payments by it under subsection (a)(4)(B).
        ``(2) Prohibition on mandates for certain data collection.--The 
    Secretary may not require, as a condition of entering into, or 
    renewing, a contract under this section, that the medicare 
    administrative contractor match data obtained other than in its 
    activities under this title with data used in the administration of 
    this title for purposes of identifying situations in which the 
    provisions of section 1862(b) may apply.
    ``(d) Limitation on Liability of Medicare Administrative 
Contractors and Certain Officers.--
        ``(1) Certifying officer.--No individual designated pursuant to 
    a contract under this section as a certifying officer shall, in the 
    absence of the reckless disregard of the individual's obligations 
    or the intent by that individual to defraud the United States, be 
    liable with respect to any payments certified by the individual 
    under this section.
        ``(2) Disbursing officer.--No disbursing officer shall, in the 
    absence of the reckless disregard of the officer's obligations or 
    the intent by that officer to defraud the United States, be liable 
    with respect to any payment by such officer under this section if 
    it was based upon an authorization (which meets the applicable 
    requirements for such internal controls established by the 
    Comptroller General of the United States) of a certifying officer 
    designated as provided in paragraph (1) of this subsection.
        ``(3) Liability of medicare administrative contractor.--
            ``(A) In general.--No medicare administrative contractor 
        shall be liable to the United States for a payment by a 
        certifying or disbursing officer unless, in connection with 
        such payment, the medicare administrative contractor acted with 
        reckless disregard of its obligations under its medicare 
        administrative contract or with intent to defraud the United 
        States.
            ``(B) Relationship to false claims act.--Nothing in this 
        subsection shall be construed to limit liability for conduct 
        that would constitute a violation of sections 3729 through 3731 
        of title 31, United States Code.
        ``(4) Indemnification by secretary.--
            ``(A) In general.--Subject to subparagraphs (B) and (D), in 
        the case of a medicare administrative contractor (or a person 
        who is a director, officer, or employee of such a contractor or 
        who is engaged by the contractor to participate directly in the 
        claims administration process) who is made a party to any 
        judicial or administrative proceeding arising from or relating 
        directly to the claims administration process under this title, 
        the Secretary may, to the extent the Secretary determines to be 
        appropriate and as specified in the contract with the 
        contractor, indemnify the contractor and such persons.
            ``(B) Conditions.--The Secretary may not provide 
        indemnification under subparagraph (A) insofar as the liability 
        for such costs arises directly from conduct that is determined 
        by the judicial proceeding or by the Secretary to be criminal 
        in nature, fraudulent, or grossly negligent. If indemnification 
        is provided by the Secretary with respect to a contractor 
        before a determination that such costs arose directly from such 
        conduct, the contractor shall reimburse the Secretary for costs 
        of indemnification.
            ``(C) Scope of indemnification.--Indemnification by the 
        Secretary under subparagraph (A) may include payment of 
        judgments, settlements (subject to subparagraph (D)), awards, 
        and costs (including reasonable legal expenses).
            ``(D) Written approval for settlements or compromises.--A 
        contractor or other person described in subparagraph (A) may 
        not propose to negotiate a settlement or compromise of a 
        proceeding described in such subparagraph without the prior 
        written approval of the Secretary to negotiate such settlement 
        or compromise. Any indemnification under subparagraph (A) with 
        respect to amounts paid under a settlement or compromise of a 
        proceeding described in such subparagraph are conditioned upon 
        prior written approval by the Secretary of the final settlement 
        or compromise.
            ``(E) Construction.--Nothing in this paragraph shall be 
        construed--
                ``(i) to change any common law immunity that may be 
            available to a medicare administrative contractor or person 
            described in subparagraph (A); or
                ``(ii) to permit the payment of costs not otherwise 
            allowable, reasonable, or allocable under the Federal 
            Acquisition Regulation.''.
        (2) Consideration of incorporation of current law standards.--
    In developing contract performance requirements under section 
    1874A(b) of the Social Security Act, as inserted by paragraph (1), 
    the Secretary shall consider inclusion of the performance standards 
    described in sections 1816(f)(2) of such Act (relating to timely 
    processing of reconsiderations and applications for exemptions) and 
    section 1842(b)(2)(B) of such Act (relating to timely review of 
    determinations and fair hearing requests), as such sections were in 
    effect before the date of the enactment of this Act.
    (b) Conforming Amendments to Section 1816 (Relating to Fiscal 
Intermediaries).--Section 1816 (42 U.S.C. 1395h) is amended as follows:
        (1) The heading is amended to read as follows:

         ``provisions relating to the administration of part a''.

        (2) Subsection (a) is amended to read as follows:
    ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
        (3) Subsection (b) is repealed.
        (4) Subsection (c) is amended--
            (A) by striking paragraph (1); and
            (B) in each of paragraphs (2)(A) and (3)(A), by striking 
        ``agreement under this section'' and inserting ``contract under 
        section 1874A that provides for making payments under this 
        part''.
        (5) Subsections (d) through (i) are repealed.
        (6) Subsections (j) and (k) are each amended--
            (A) by striking ``An agreement with an agency or 
        organization under this section'' and inserting ``A contract 
        with a medicare administrative contractor under section 1874A 
        with respect to the administration of this part''; and
            (B) by striking ``such agency or organization'' and 
        inserting ``such medicare administrative contractor'' each 
        place it appears.
        (7) Subsection (l) is repealed.
    (c) Conforming Amendments to Section 1842 (Relating to Carriers).--
Section 1842 (42 U.S.C. 1395u) is amended as follows:
        (1) The heading is amended to read as follows:

         ``provisions relating to the administration of part b''.

        (2) Subsection (a) is amended to read as follows:
    ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
        (3) Subsection (b) is amended--
            (A) by striking paragraph (1);
            (B) in paragraph (2)--
                (i) by striking subparagraphs (A) and (B);
                (ii) in subparagraph (C), by striking ``carriers'' and 
            inserting ``medicare administrative contractors''; and
                (iii) by striking subparagraphs (D) and (E);
            (C) in paragraph (3)--
                (i) in the matter before subparagraph (A), by striking 
            ``Each such contract shall provide that the carrier'' and 
            inserting ``The Secretary'';
                (ii) by striking ``will'' the first place it appears in 
            each of subparagraphs (A), (B), (F), (G), (H), and (L) and 
            inserting ``shall'';
                (iii) in subparagraph (B), in the matter before clause 
            (i), by striking ``to the policyholders and subscribers of 
            the carrier'' and inserting ``to the policyholders and 
            subscribers of the medicare administrative contractor'';
                (iv) by striking subparagraphs (C), (D), and (E);
                (v) in subparagraph (H)--

                    (I) by striking ``if it makes determinations or 
                payments with respect to physicians' services,'' in the 
                matter preceding clause (i); and
                    (II) by striking ``carrier'' and inserting 
                ``medicare administrative contractor'' in clause (i);

                (vi) by striking subparagraph (I);
                (vii) in subparagraph (L), by striking the semicolon 
            and inserting a period;
                (viii) in the first sentence, after subparagraph (L), 
            by striking ``and shall contain'' and all that follows 
            through the period; and
                (ix) in the seventh sentence, by inserting ``medicare 
            administrative contractor,'' after ``carrier,'';
            (D) by striking paragraph (5);
            (E) in paragraph (6)(D)(iv), by striking ``carrier'' and 
        inserting ``medicare administrative contractor''; and
            (F) in paragraph (7), by striking ``the carrier'' and 
        inserting ``the Secretary'' each place it appears.
        (4) Subsection (c) is amended--
            (A) by striking paragraph (1);
            (B) in paragraph (2)(A), by striking ``contract under this 
        section which provides for the disbursement of funds, as 
        described in subsection (a)(1)(B),'' and inserting ``contract 
        under section 1874A that provides for making payments under 
        this part'';
            (C) in paragraph (3)(A), by striking ``subsection 
        (a)(1)(B)'' and inserting ``section 1874A(a)(3)(B)'';
            (D) in paragraph (4), in the matter preceding subparagraph 
        (A), by striking ``carrier'' and inserting ``medicare 
        administrative contractor''; and
            (E) by striking paragraphs (5) and (6).
        (5) Subsections (d), (e), and (f) are repealed.
        (6) Subsection (g) is amended by striking ``carrier or 
    carriers'' and inserting ``medicare administrative contractor or 
    contractors''.
        (7) Subsection (h) is amended--
            (A) in paragraph (2)--
                (i) by striking ``Each carrier having an agreement with 
            the Secretary under subsection (a)'' and inserting ``The 
            Secretary''; and
                (ii) by striking ``Each such carrier'' and inserting 
            ``The Secretary'';
            (B) in paragraph (3)(A)--
                (i) by striking ``a carrier having an agreement with 
            the Secretary under subsection (a)'' and inserting 
            ``medicare administrative contractor having a contract 
            under section 1874A that provides for making payments under 
            this part''; and
                (ii) by striking ``such carrier'' and inserting ``such 
            contractor'';
            (C) in paragraph (3)(B)--
                (i) by striking ``a carrier'' and inserting ``a 
            medicare administrative contractor'' each place it appears; 
            and
                (ii) by striking ``the carrier'' and inserting ``the 
            contractor'' each place it appears; and
            (D) in paragraphs (5)(A) and (5)(B)(iii), by striking 
        ``carriers'' and inserting ``medicare administrative 
        contractors'' each place it appears.
        (8) Subsection (l) is amended--
            (A) in paragraph (1)(A)(iii), by striking ``carrier'' and 
        inserting ``medicare administrative contractor''; and
            (B) in paragraph (2), by striking ``carrier'' and inserting 
        ``medicare administrative contractor''.
        (9) Subsection (p)(3)(A) is amended by striking ``carrier'' and 
    inserting ``medicare administrative contractor''.
        (10) Subsection (q)(1)(A) is amended by striking ``carrier''.
    (d) Effective Date; Transition Rule.--
        (1) Effective date.--
            (A) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall take 
        effect on October 1, 2005, and the Secretary is authorized to 
        take such steps before such date as may be necessary to 
        implement such amendments on a timely basis.
            (B) Construction for current contracts.--Such amendments 
        shall not apply to contracts in effect before the date 
        specified under subparagraph (A) that continue to retain the 
        terms and conditions in effect on such date (except as 
        otherwise provided under this Act, other than under this 
        section) until such date as the contract is let out for 
        competitive bidding under such amendments.
            (C) Deadline for competitive bidding.--The Secretary shall 
        provide for the letting by competitive bidding of all contracts 
        for functions of medicare administrative contractors for annual 
        contract periods that begin on or after October 1, 2011.
        (2) General transition rules.--
            (A) Authority to continue to enter into new agreements and 
        contracts and waiver of provider nomination provisions during 
        transition.--Prior to October 1, 2005, the Secretary may, 
        consistent with subparagraph (B), continue to enter into 
        agreements under section 1816 and contracts under section 1842 
        of the Social Security Act (42 U.S.C. 1395h, 1395u). The 
        Secretary may enter into new agreements under section 1816 
        prior to October 1, 2005, without regard to any of the provider 
        nomination provisions of such section.
            (B) Appropriate transition.--The Secretary shall take such 
        steps as are necessary to provide for an appropriate transition 
        from agreements under section 1816 and contracts under section 
        1842 of the Social Security Act (42 U.S.C. 1395h, 1395u) to 
        contracts under section 1874A, as added by subsection (a)(1).
        (3) Authorizing continuation of mip functions under current 
    contracts and agreements and under transition contracts.--
    Notwithstanding the amendments made by this section, the provisions 
    contained in the exception in section 1893(d)(2) of the Social 
    Security Act (42 U.S.C. 1395ddd(d)(2)) shall continue to apply 
    during the period that begins on the date of the enactment of this 
    Act and ends on October 1, 2011, and any reference in such 
    provisions to an agreement or contract shall be deemed to include a 
    contract under section 1874A of such Act, as inserted by subsection 
    (a)(1), that continues the activities referred to in such 
    provisions.
    (e) References.--On and after the effective date provided under 
subsection (d)(1), any reference to a fiscal intermediary or carrier 
under title XI or XVIII of the Social Security Act (or any regulation, 
manual instruction, interpretative rule, statement of policy, or 
guideline issued to carry out such titles) shall be deemed a reference 
to a medicare administrative contractor (as provided under section 
1874A of the Social Security Act).
    (f) Secretarial Submission of Legislative Proposal.--Not later than 
6 months after the date of the enactment of this Act, the Secretary 
shall submit to the appropriate committees of Congress a legislative 
proposal providing for such technical and conforming amendments in the 
law as are required by the provisions of this section.
    (g) Reports on Implementation.--
        (1) Plan for implementation.--By not later than October 1, 
    2004, the Secretary shall submit a report to Congress and the 
    Comptroller General of the United States that describes the plan 
    for implementation of the amendments made by this section. The 
    Comptroller General shall conduct an evaluation of such plan and 
    shall submit to Congress, not later than 6 months after the date 
    the report is received, a report on such evaluation and shall 
    include in such report such recommendations as the Comptroller 
    General deems appropriate.
        (2) Status of implementation.--The Secretary shall submit a 
    report to Congress not later than October 1, 2008, that describes 
    the status of implementation of such amendments and that includes a 
    description of the following:
            (A) The number of contracts that have been competitively 
        bid as of such date.
            (B) The distribution of functions among contracts and 
        contractors.
            (C) A timeline for complete transition to full competition.
            (D) A detailed description of how the Secretary has 
        modified oversight and management of medicare contractors to 
        adapt to full competition.

SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDICARE 
              ADMINISTRATIVE CONTRACTORS.

    (a) In General.--Section 1874A, as added by section 911(a)(1), is 
amended by adding at the end the following new subsection:
    ``(e) Requirements for Information Security.--
        ``(1) Development of information security program.--A medicare 
    administrative contractor that performs the functions referred to 
    in subparagraphs (A) and (B) of subsection (a)(4) (relating to 
    determining and making payments) shall implement a contractor-wide 
    information security program to provide information security for 
    the operation and assets of the contractor with respect to such 
    functions under this title. An information security program under 
    this paragraph shall meet the requirements for information security 
    programs imposed on Federal agencies under paragraphs (1) through 
    (8) of section 3544(b) of title 44, United States Code (other than 
    the requirements under paragraphs (2)(D)(i), (5)(A), and (5)(B) of 
    such section).
        ``(2) Independent audits.--
            ``(A) Performance of annual evaluations.--Each year a 
        medicare administrative contractor that performs the functions 
        referred to in subparagraphs (A) and (B) of subsection (a)(4) 
        (relating to determining and making payments) shall undergo an 
        evaluation of the information security of the contractor with 
        respect to such functions under this title. The evaluation 
        shall--
                ``(i) be performed by an entity that meets such 
            requirements for independence as the Inspector General of 
            the Department of Health and Human Services may establish; 
            and
                ``(ii) test the effectiveness of information security 
            control techniques of an appropriate subset of the 
            contractor's information systems (as defined in section 
            3502(8) of title 44, United States Code) relating to such 
            functions under this title and an assessment of compliance 
            with the requirements of this subsection and related 
            information security policies, procedures, standards and 
            guidelines, including policies and procedures as may be 
            prescribed by the Director of the Office of Management and 
            Budget and applicable information security standards 
            promulgated under section 11331 of title 40, United States 
            Code.
            ``(B) Deadline for initial evaluation.--
                ``(i) New contractors.--In the case of a medicare 
            administrative contractor covered by this subsection that 
            has not previously performed the functions referred to in 
            subparagraphs (A) and (B) of subsection (a)(4) (relating to 
            determining and making payments) as a fiscal intermediary 
            or carrier under section 1816 or 1842, the first 
            independent evaluation conducted pursuant to subparagraph 
            (A) shall be completed prior to commencing such functions.
                ``(ii) Other contractors.--In the case of a medicare 
            administrative contractor covered by this subsection that 
            is not described in clause (i), the first independent 
            evaluation conducted pursuant to subparagraph (A) shall be 
            completed within 1 year after the date the contractor 
            commences functions referred to in clause (i) under this 
            section.
            ``(C) Reports on evaluations.--
                ``(i) To the department of health and human services.--
            The results of independent evaluations under subparagraph 
            (A) shall be submitted promptly to the Inspector General of 
            the Department of Health and Human Services and to the 
            Secretary.
                ``(ii) To congress.--The Inspector General of the 
            Department of Health and Human Services shall submit to 
            Congress annual reports on the results of such evaluations, 
            including assessments of the scope and sufficiency of such 
            evaluations.
                ``(iii) Agency reporting.--The Secretary shall address 
            the results of such evaluations in reports required under 
            section 3544(c) of title 44, United States Code.''.
    (b) Application of Requirements to Fiscal Intermediaries and 
Carriers.--
        (1) In general.--The provisions of section 1874A(e)(2) of the 
    Social Security Act (other than subparagraph (B)), as added by 
    subsection (a), shall apply to each fiscal intermediary under 
    section 1816 of the Social Security Act (42 U.S.C. 1395h) and each 
    carrier under section 1842 of such Act (42 U.S.C. 1395u) in the 
    same manner as they apply to medicare administrative contractors 
    under such provisions.
        (2) Deadline for initial evaluation.--In the case of such a 
    fiscal intermediary or carrier with an agreement or contract under 
    such respective section in effect as of the date of the enactment 
    of this Act, the first evaluation under section 1874A(e)(2)(A) of 
    the Social Security Act (as added by subsection (a)), pursuant to 
    paragraph (1), shall be completed (and a report on the evaluation 
    submitted to the Secretary) by not later than 1 year after such 
    date.

                   Subtitle C--Education and Outreach

SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

    (a) Coordination of Education Funding.--
        (1) In general.--Title XVIII is amended by inserting after 
    section 1888 the following new section:

              ``provider education and technical assistance

    ``Sec. 1889. (a) Coordination of Education Funding.--The Secretary 
shall coordinate the educational activities provided through medicare 
contractors (as defined in subsection (g), including under section 
1893) in order to maximize the effectiveness of Federal education 
efforts for providers of services and suppliers.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on the date of the enactment of this Act.
        (3) Report.--Not later than October 1, 2004, the Secretary 
    shall submit to Congress a report that includes a description and 
    evaluation of the steps taken to coordinate the funding of provider 
    education under section 1889(a) of the Social Security Act, as 
    added by paragraph (1).
    (b) Incentives To Improve Contractor Performance.--
        (1) In general.--Section 1874A, as added by section 911(a)(1) 
    and as amended by section 912(a), is amended by adding at the end 
    the following new subsection:
    ``(f) Incentives To Improve Contractor Performance in Provider 
Education and Outreach.--The Secretary shall use specific claims 
payment error rates or similar methodology of medicare administrative 
contractors in the processing or reviewing of medicare claims in order 
to give such contractors an incentive to implement effective education 
and outreach programs for providers of services and suppliers.''.
        (2) Application to fiscal intermediaries and carriers.--The 
    provisions of section 1874A(f) of the Social Security Act, as added 
    by paragraph (1), shall apply to each fiscal intermediary under 
    section 1816 of the Social Security Act (42 U.S.C. 1395h) and each 
    carrier under section 1842 of such Act (42 U.S.C. 1395u) in the 
    same manner as they apply to medicare administrative contractors 
    under such provisions.
        (3) GAO report on adequacy of methodology.--Not later than 
    October 1, 2004, the Comptroller General of the United States shall 
    submit to Congress and to the Secretary a report on the adequacy of 
    the methodology under section 1874A(f) of the Social Security Act, 
    as added by paragraph (1), and shall include in the report such 
    recommendations as the Comptroller General determines appropriate 
    with respect to the methodology.
        (4) Report on use of methodology in assessing contractor 
    performance.--Not later than October 1, 2004, the Secretary shall 
    submit to Congress a report that describes how the Secretary 
    intends to use such methodology in assessing medicare contractor 
    performance in implementing effective education and outreach 
    programs, including whether to use such methodology as a basis for 
    performance bonuses. The report shall include an analysis of the 
    sources of identified errors and potential changes in systems of 
    contractors and rules of the Secretary that could reduce claims 
    error rates.
    (c) Provision of Access to and Prompt Responses From Medicare 
Administrative Contractors.--
        (1) In general.--Section 1874A, as added by section 911(a)(1) 
    and as amended by section 912(a) and subsection (b), is further 
    amended by adding at the end the following new subsection:
    ``(g) Communications With Beneficiaries, Providers of Services and 
Suppliers.--
        ``(1) Communication strategy.--The Secretary shall develop a 
    strategy for communications with individuals entitled to benefits 
    under part A or enrolled under part B, or both, and with providers 
    of services and suppliers under this title.
        ``(2) Response to written inquiries.--Each medicare 
    administrative contractor shall, for those providers of services 
    and suppliers which submit claims to the contractor for claims 
    processing and for those individuals entitled to benefits under 
    part A or enrolled under part B, or both, with respect to whom 
    claims are submitted for claims processing, provide general written 
    responses (which may be through electronic transmission) in a 
    clear, concise, and accurate manner to inquiries of providers of 
    services, suppliers, and individuals entitled to benefits under 
    part A or enrolled under part B, or both, concerning the programs 
    under this title within 45 business days of the date of receipt of 
    such inquiries.
        ``(3) Response to toll-free lines.--The Secretary shall ensure 
    that each medicare administrative contractor shall provide, for 
    those providers of services and suppliers which submit claims to 
    the contractor for claims processing and for those individuals 
    entitled to benefits under part A or enrolled under part B, or 
    both, with respect to whom claims are submitted for claims 
    processing, a toll-free telephone number at which such individuals, 
    providers of services, and suppliers may obtain information 
    regarding billing, coding, claims, coverage, and other appropriate 
    information under this title.
        ``(4) Monitoring of contractor responses.--
            ``(A) In general.--Each medicare administrative contractor 
        shall, consistent with standards developed by the Secretary 
        under subparagraph (B)--
                ``(i) maintain a system for identifying who provides 
            the information referred to in paragraphs (2) and (3); and
                ``(ii) monitor the accuracy, consistency, and 
            timeliness of the information so provided.
            ``(B) Development of standards.--
                ``(i) In general.--The Secretary shall establish and 
            make public standards to monitor the accuracy, consistency, 
            and timeliness of the information provided in response to 
            written and telephone inquiries under this subsection. Such 
            standards shall be consistent with the performance 
            requirements established under subsection (b)(3).
                ``(ii) Evaluation.--In conducting evaluations of 
            individual medicare administrative contractors, the 
            Secretary shall take into account the results of the 
            monitoring conducted under subparagraph (A) taking into 
            account as performance requirements the standards 
            established under clause (i). The Secretary shall, in 
            consultation with organizations representing providers of 
            services, suppliers, and individuals entitled to benefits 
            under part A or enrolled under part B, or both, establish 
            standards relating to the accuracy, consistency, and 
            timeliness of the information so provided.
            ``(C) Direct monitoring.--Nothing in this paragraph shall 
        be construed as preventing the Secretary from directly 
        monitoring the accuracy, consistency, and timeliness of the 
        information so provided.
        ``(5) Authorization of appropriations.--There are authorized to 
    be appropriated such sums as are necessary to carry out this 
    subsection.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect October 1, 2004.
        (3) Application to fiscal intermediaries and carriers.--The 
    provisions of section 1874A(g) of the Social Security Act, as added 
    by paragraph (1), shall apply to each fiscal intermediary under 
    section 1816 of the Social Security Act (42 U.S.C. 1395h) and each 
    carrier under section 1842 of such Act (42 U.S.C. 1395u) in the 
    same manner as they apply to medicare administrative contractors 
    under such provisions.
    (d) Improved Provider Education and Training.--
        (1) In general.--Section 1889, as added by subsection (a), is 
    amended by adding at the end the following new subsections:
    ``(b) Enhanced Education and Training.--
        ``(1) Additional resources.--There are authorized to be 
    appropriated to the Secretary (in appropriate part from the Federal 
    Hospital Insurance Trust Fund and the Federal Supplementary Medical 
    Insurance Trust Fund) such sums as may be necessary for fiscal 
    years beginning with fiscal year 2005.
        ``(2) Use.--The funds made available under paragraph (1) shall 
    be used to increase the conduct by medicare contractors of 
    education and training of providers of services and suppliers 
    regarding billing, coding, and other appropriate items and may also 
    be used to improve the accuracy, consistency, and timeliness of 
    contractor responses.
    ``(c) Tailoring Education and Training Activities for Small 
Providers or Suppliers.--
        ``(1) In general.--Insofar as a medicare contractor conducts 
    education and training activities, it shall tailor such activities 
    to meet the special needs of small providers of services or 
    suppliers (as defined in paragraph (2)). Such education and 
    training activities for small providers of services and suppliers 
    may include the provision of technical assistance (such as review 
    of billing systems and internal controls to determine program 
    compliance and to suggest more efficient and effective means of 
    achieving such compliance).
        ``(2) Small provider of services or supplier.--In this 
    subsection, the term `small provider of services or supplier' 
    means--
            ``(A) a provider of services with fewer than 25 full-time-
        equivalent employees; or
            ``(B) a supplier with fewer than 10 full-time-equivalent 
        employees.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on October 1, 2004.
    (e) Requirement To Maintain Internet Websites.--
        (1) In general.--Section 1889, as added by subsection (a) and 
    as amended by subsection (d), is further amended by adding at the 
    end the following new subsection:
    ``(d) Internet Websites; FAQs.--The Secretary, and each medicare 
contractor insofar as it provides services (including claims 
processing) for providers of services or suppliers, shall maintain an 
Internet website which--
        ``(1) provides answers in an easily accessible format to 
    frequently asked questions, and
        ``(2) includes other published materials of the contractor,
that relate to providers of services and suppliers under the programs 
under this title (and title XI insofar as it relates to such 
programs).''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on October 1, 2004.
    (f) Additional Provider Education Provisions.--
        (1) In general.--Section 1889, as added by subsection (a) and 
    as amended by subsections (d) and (e), is further amended by adding 
    at the end the following new subsections:
    ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of attendance 
at (or failure to attend) educational activities or other information 
gathered during an educational program conducted under this section or 
otherwise by the Secretary to select or track providers of services or 
suppliers for the purpose of conducting any type of audit or prepayment 
review.
    ``(f) Construction.--Nothing in this section or section 1893(g) 
shall be construed as providing for disclosure by a medicare 
contractor--
        ``(1) of the screens used for identifying claims that will be 
    subject to medical review; or
        ``(2) of information that would compromise pending law 
    enforcement activities or reveal findings of law enforcement-
    related audits.
    ``(g) Definitions.--For purposes of this section, the term 
`medicare contractor' includes the following:
        ``(1) A medicare administrative contractor with a contract 
    under section 1874A, including a fiscal intermediary with a 
    contract under section 1816 and a carrier with a contract under 
    section 1842.
        ``(2) An eligible entity with a contract under section 1893.
Such term does not include, with respect to activities of a specific 
provider of services or supplier an entity that has no authority under 
this title or title IX with respect to such activities and such 
provider of services or supplier.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on the date of the enactment of this Act.

SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

    (a) Establishment.--
        (1) In general.--The Secretary shall establish a demonstration 
    program (in this section referred to as the ``demonstration 
    program'') under which technical assistance described in paragraph 
    (2) is made available, upon request and on a voluntary basis, to 
    small providers of services or suppliers in order to improve 
    compliance with the applicable requirements of the programs under 
    medicare program under title XVIII of the Social Security Act 
    (including provisions of title XI of such Act insofar as they 
    relate to such title and are not administered by the Office of the 
    Inspector General of the Department of Health and Human Services).
        (2) Forms of technical assistance.--The technical assistance 
    described in this paragraph is--
            (A) evaluation and recommendations regarding billing and 
        related systems; and
            (B) information and assistance regarding policies and 
        procedures under the medicare program, including coding and 
        reimbursement.
        (3) Small providers of services or suppliers.--In this section, 
    the term ``small providers of services or suppliers'' means--
            (A) a provider of services with fewer than 25 full-time-
        equivalent employees; or
            (B) a supplier with fewer than 10 full-time-equivalent 
        employees.
    (b) Qualification of Contractors.--In conducting the demonstration 
program, the Secretary shall enter into contracts with qualified 
organizations (such as peer review organizations or entities described 
in section 1889(g)(2) of the Social Security Act, as inserted by 
section 921(f)(1)) with appropriate expertise with billing systems of 
the full range of providers of services and suppliers to provide the 
technical assistance. In awarding such contracts, the Secretary shall 
consider any prior investigations of the entity's work by the Inspector 
General of Department of Health and Human Services or the Comptroller 
General of the United States.
    (c) Description of Technical Assistance.--The technical assistance 
provided under the demonstration program shall include a direct and in-
person examination of billing systems and internal controls of small 
providers of services or suppliers to determine program compliance and 
to suggest more efficient or effective means of achieving such 
compliance.
    (d) GAO Evaluation.--Not later than 2 years after the date the 
demonstration program is first implemented, the Comptroller General, in 
consultation with the Inspector General of the Department of Health and 
Human Services, shall conduct an evaluation of the demonstration 
program. The evaluation shall include a determination of whether claims 
error rates are reduced for small providers of services or suppliers 
who participated in the program and the extent of improper payments 
made as a result of the demonstration program. The Comptroller General 
shall submit a report to the Secretary and the Congress on such 
evaluation and shall include in such report recommendations regarding 
the continuation or extension of the demonstration program.
    (e) Financial Participation by Providers.--The provision of 
technical assistance to a small provider of services or supplier under 
the demonstration program is conditioned upon the small provider of 
services or supplier paying an amount estimated (and disclosed in 
advance of a provider's or supplier's participation in the program) to 
be equal to 25 percent of the cost of the technical assistance.
    (f) Authorization of Appropriations.--There are authorized to be 
appropriated, from amounts not otherwise appropriated in the Treasury, 
such sums as may be necessary to carry out this section.

SEC. 923. MEDICARE BENEFICIARY OMBUDSMAN.

    (a) In General.--Section 1808, as added and amended by section 900, 
is amended by adding at the end the following new subsection:
    ``(c) Medicare Beneficiary Ombudsman.--
        ``(1) In general.--The Secretary shall appoint within the 
    Department of Health and Human Services a Medicare Beneficiary 
    Ombudsman who shall have expertise and experience in the fields of 
    health care and education of (and assistance to) individuals 
    entitled to benefits under this title.
        ``(2) Duties.--The Medicare Beneficiary Ombudsman shall--
            ``(A) receive complaints, grievances, and requests for 
        information submitted by individuals entitled to benefits under 
        part A or enrolled under part B, or both, with respect to any 
        aspect of the medicare program;
            ``(B) provide assistance with respect to complaints, 
        grievances, and requests referred to in subparagraph (A), 
        including--
                ``(i) assistance in collecting relevant information for 
            such individuals, to seek an appeal of a decision or 
            determination made by a fiscal intermediary, carrier, MA 
            organization, or the Secretary;
                ``(ii) assistance to such individuals with any problems 
            arising from disenrollment from an MA plan under part C; 
            and
                ``(iii) assistance to such individuals in presenting 
            information under section 1839(i)(4)(C) (relating to 
            income-related premium adjustment; and
            ``(C) submit annual reports to Congress and the Secretary 
        that describe the activities of the Office and that include 
        such recommendations for improvement in the administration of 
        this title as the Ombudsman determines appropriate.
    The Ombudsman shall not serve as an advocate for any increases in 
    payments or new coverage of services, but may identify issues and 
    problems in payment or coverage policies.
        ``(3) Working with health insurance counseling programs.--To 
    the extent possible, the Ombudsman shall work with health insurance 
    counseling programs (receiving funding under section 4360 of 
    Omnibus Budget Reconciliation Act of 1990) to facilitate the 
    provision of information to individuals entitled to benefits under 
    part A or enrolled under part B, or both regarding MA plans and 
    changes to those plans. Nothing in this paragraph shall preclude 
    further collaboration between the Ombudsman and such programs.''.
    (b) Deadline for Appointment.--By not later than 1 year after the 
date of the enactment of this Act, the Secretary shall appoint the 
Medicare Beneficiary Ombudsman under section 1808(c) of the Social 
Security Act, as added by subsection (a).
    (c) Funding.--There are authorized to be appropriated to the 
Secretary (in appropriate part from the Federal Hospital Insurance 
Trust Fund, established under section 1817 of the Social Security Act 
(42 U.S.C. 1395i), and the Federal Supplementary Medical Insurance 
Trust Fund, established under section 1841 of such Act (42 U.S.C. 
1395t)) to carry out section 1808(c) of such Act (relating to the 
Medicare Beneficiary Ombudsman), as added by subsection (a), such sums 
as are necessary for fiscal year 2004 and each succeeding fiscal year.
    (d) Use of Central, Toll-Free Number (1-800-MEDICARE).--
        (1) Phone triage system; listing in medicare handbook instead 
    of other toll-free numbers.--Section 1804(b) (42 U.S.C. 1395b-2(b)) 
    is amended by adding at the end the following: ``The Secretary 
    shall provide, through the toll-free telephone number 1-800-
    MEDICARE, for a means by which individuals seeking information 
    about, or assistance with, such programs who phone such toll-free 
    number are transferred (without charge) to appropriate entities for 
    the provision of such information or assistance. Such toll-free 
    number shall be the toll-free number listed for general information 
    and assistance in the annual notice under subsection (a) instead of 
    the listing of numbers of individual contractors.''.
        (2) Monitoring accuracy.--
            (A) Study.--The Comptroller General of the United States 
        shall conduct a study to monitor the accuracy and consistency 
        of information provided to individuals entitled to benefits 
        under part A or enrolled under part B, or both, through the 
        toll-free telephone number 1-800-MEDICARE, including an 
        assessment of whether the information provided is sufficient to 
        answer questions of such individuals. In conducting the study, 
        the Comptroller General shall examine the education and 
        training of the individuals providing information through such 
        number.
            (B) Report.--Not later than 1 year after the date of the 
        enactment of this Act, the Comptroller General shall submit to 
        Congress a report on the study conducted under subparagraph 
        (A).

SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

    (a) In General.--The Secretary shall establish a demonstration 
program (in this section referred to as the ``demonstration program'') 
under which medicare specialists employed by the Department of Health 
and Human Services provide advice and assistance to individuals 
entitled to benefits under part A of title XVIII of the Social Security 
Act, or enrolled under part B of such title, or both, regarding the 
medicare program at the location of existing local offices of the 
Social Security Administration.
    (b) Locations.--
        (1) In general.--The demonstration program shall be conducted 
    in at least 6 offices or areas. Subject to paragraph (2), in 
    selecting such offices and areas, the Secretary shall provide 
    preference for offices with a high volume of visits by individuals 
    referred to in subsection (a).
        (2) Assistance for rural beneficiaries.--The Secretary shall 
    provide for the selection of at least 2 rural areas to participate 
    in the demonstration program. In conducting the demonstration 
    program in such rural areas, the Secretary shall provide for 
    medicare specialists to travel among local offices in a rural area 
    on a scheduled basis.
    (c) Duration.--The demonstration program shall be conducted over a 
3-year period.
    (d) Evaluation and Report.--
        (1) Evaluation.--The Secretary shall provide for an evaluation 
    of the demonstration program. Such evaluation shall include an 
    analysis of--
            (A) utilization of, and satisfaction of those individuals 
        referred to in subsection (a) with, the assistance provided 
        under the program; and
            (B) the cost-effectiveness of providing beneficiary 
        assistance through out-stationing medicare specialists at local 
        offices of the Social Security Administration.
        (2) Report.--The Secretary shall submit to Congress a report on 
    such evaluation and shall include in such report recommendations 
    regarding the feasibility of permanently out-stationing medicare 
    specialists at local offices of the Social Security Administration.

SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NOTICES TO 
              BENEFICIARIES ABOUT SKILLED NURSING FACILITY BENEFITS.

    (a) In General.--The Secretary shall provide that in medicare 
beneficiary notices provided (under section 1806(a) of the Social 
Security Act, 42 U.S.C. 1395b-7(a)) with respect to the provision of 
post-hospital extended care services under part A of title XVIII of the 
Social Security Act, there shall be included information on the number 
of days of coverage of such services remaining under such part for the 
medicare beneficiary and spell of illness involved.
    (b) Effective Date.--Subsection (a) shall apply to notices provided 
during calendar quarters beginning more than 6 months after the date of 
the enactment of this Act.

SEC. 926. INFORMATION ON MEDICARE-CERTIFIED SKILLED NURSING FACILITIES 
              IN HOSPITAL DISCHARGE PLANS.

    (a) Availability of Data.--The Secretary shall publicly provide 
information that enables hospital discharge planners, medicare 
beneficiaries, and the public to identify skilled nursing facilities 
that are participating in the medicare program.
    (b) Inclusion of Information in Certain Hospital Discharge Plans.--
        (1) In general.--Section 1861(ee)(2)(D) (42 U.S.C. 
    1395x(ee)(2)(D)) is amended--
            (A) by striking ``hospice services'' and inserting 
        ``hospice care and post-hospital extended care services''; and
            (B) by inserting before the period at the end the 
        following: ``and, in the case of individuals who are likely to 
        need post-hospital extended care services, the availability of 
        such services through facilities that participate in the 
        program under this title and that serve the area in which the 
        patient resides''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to discharge plans made on or after such date as the 
    Secretary shall specify, but not later than 6 months after the date 
    the Secretary provides for availability of information under 
    subsection (a).

                    Subtitle D--Appeals and Recovery

SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

    (a) Transition Plan.--
        (1) In general.--Not later than April 1, 2004, the Commissioner 
    of Social Security and the Secretary shall develop and transmit to 
    Congress and the Comptroller General of the United States a plan 
    under which the functions of administrative law judges responsible 
    for hearing cases under title XVIII of the Social Security Act (and 
    related provisions in title XI of such Act) are transferred from 
    the responsibility of the Commissioner and the Social Security 
    Administration to the Secretary and the Department of Health and 
    Human Services.
        (2) Contents.--The plan shall include information on the 
    following:
            (A) Workload.--The number of such administrative law judges 
        and support staff required now and in the future to hear and 
        decide such cases in a timely manner, taking into account the 
        current and anticipated claims volume, appeals, number of 
        beneficiaries, and statutory changes.
            (B) Cost projections and financing.--Funding levels 
        required for fiscal year 2005 and subsequent fiscal years to 
        carry out the functions transferred under the plan.
            (C) Transition timetable.--A timetable for the transition.
            (D) Regulations.--The establishment of specific regulations 
        to govern the appeals process.
            (E) Case tracking.--The development of a unified case 
        tracking system that will facilitate the maintenance and 
        transfer of case specific data across both the fee-for-service 
        and managed care components of the medicare program.
            (F) Feasibility of precedential authority.--The feasibility 
        of developing a process to give decisions of the Departmental 
        Appeals Board in the Department of Health and Human Services 
        addressing broad legal issues binding, precedential authority.
            (G) Access to administrative law judges.--The feasibility 
        of--
                (i) filing appeals with administrative law judges 
            electronically; and
                (ii) conducting hearings using tele- or video-
            conference technologies.
            (H) Independence of administrative law judges.--The steps 
        that should be taken to ensure the independence of 
        administrative law judges consistent with the requirements of 
        subsection (b)(2).
            (I) Geographic distribution.--The steps that should be 
        taken to provide for an appropriate geographic distribution of 
        administrative law judges throughout the United States to carry 
        out subsection (b)(3).
            (J) Hiring.--The steps that should be taken to hire 
        administrative law judges (and support staff) to carry out 
        subsection (b)(4).
            (K) Performance standards.--The appropriateness of 
        establishing performance standards for administrative law 
        judges with respect to timelines for decisions in cases under 
        title XVIII of the Social Security Act taking into account 
        requirements under subsection (b)(2) for the independence of 
        such judges and consistent with the applicable provisions of 
        title 5, United States Code relating to impartiality.
            (L) Shared resources.--The steps that should be taken to 
        carry out subsection (b)(6) (relating to the arrangements with 
        the Commissioner of Social Security to share office space, 
        support staff, and other resources, with appropriate 
        reimbursement).
            (M) Training.--The training that should be provided to 
        administrative law judges with respect to laws and regulations 
        under title XVIII of the Social Security Act.
        (3) Additional information.--The plan may also include 
    recommendations for further congressional action, including 
    modifications to the requirements and deadlines established under 
    section 1869 of the Social Security Act (42 U.S.C. 1395ff) (as 
    amended by this Act).
        (4) GAO evaluation.--The Comptroller General of the United 
    States shall evaluate the plan and, not later than the date that is 
    6 months after the date on which the plan is received by the 
    Comptroller General, shall submit to Congress a report on such 
    evaluation.
    (b) Transfer of Adjudication Authority.--
        (1) In general.--Not earlier than July 1, 2005, and not later 
    than October 1, 2005, the Commissioner of Social Security and the 
    Secretary shall implement the transition plan under subsection (a) 
    and transfer the administrative law judge functions described in 
    such subsection from the Social Security Administration to the 
    Secretary.
        (2) Assuring independence of judges.--The Secretary shall 
    assure the independence of administrative law judges performing the 
    administrative law judge functions transferred under paragraph (1) 
    from the Centers for Medicare & Medicaid Services and its 
    contractors. In order to assure such independence, the Secretary 
    shall place such judges in an administrative office that is 
    organizationally and functionally separate from such Centers. Such 
    judges shall report to, and be under the general supervision of, 
    the Secretary, but shall not report to, or be subject to 
    supervision by, another officer of the Department of Health and 
    Human Services.
        (3) Geographic distribution.--The Secretary shall provide for 
    an appropriate geographic distribution of administrative law judges 
    performing the administrative law judge functions transferred under 
    paragraph (1) throughout the United States to ensure timely access 
    to such judges.
        (4) Hiring authority.--Subject to the amounts provided in 
    advance in appropriations Acts, the Secretary shall have authority 
    to hire administrative law judges to hear such cases, taking into 
    consideration those judges with expertise in handling medicare 
    appeals and in a manner consistent with paragraph (3), and to hire 
    support staff for such judges.
        (5) Financing.--Amounts payable under law to the Commissioner 
    for administrative law judges performing the administrative law 
    judge functions transferred under paragraph (1) from the Federal 
    Hospital Insurance Trust Fund and the Federal Supplementary Medical 
    Insurance Trust Fund shall become payable to the Secretary for the 
    functions so transferred.
        (6) Shared resources.--The Secretary shall enter into such 
    arrangements with the Commissioner as may be appropriate with 
    respect to transferred functions of administrative law judges to 
    share office space, support staff, and other resources, with 
    appropriate reimbursement from the Trust Funds described in 
    paragraph (5).
    (c) Increased Financial Support.--In addition to any amounts 
otherwise appropriated, to ensure timely action on appeals before 
administrative law judges and the Departmental Appeals Board consistent 
with section 1869 of the Social Security Act (42 U.S.C. 1395ff) (as 
amended by this Act), there are authorized to be appropriated (in 
appropriate part from the Federal Hospital Insurance Trust Fund, 
established under section 1817 of the Social Security Act (42 U.S.C. 
1395i), and the Federal Supplementary Medical Insurance Trust Fund, 
established under section 1841 of such Act (42 U.S.C. 1395t)) to the 
Secretary such sums as are necessary for fiscal year 2005 and each 
subsequent fiscal year to--
        (1) increase the number of administrative law judges (and their 
    staffs) under subsection (b)(4);
        (2) improve education and training opportunities for 
    administrative law judges (and their staffs); and
        (3) increase the staff of the Departmental Appeals Board.
    (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 U.S.C. 
1395ff(f)(2)(A)(i)) is amended by striking ``of the Social Security 
Administration''.

SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

    (a) Expedited Access to Judicial Review.--
        (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)) is 
    amended--
            (A) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the Secretary's 
        final decision''; and
            (B) by adding at the end the following new paragraph:
        ``(2) Expedited access to judicial review.--
            ``(A) In general.--The Secretary shall establish a process 
        under which a provider of services or supplier that furnishes 
        an item or service or an individual entitled to benefits under 
        part A or enrolled under part B, or both, who has filed an 
        appeal under paragraph (1) (other than an appeal filed under 
        paragraph (1)(F)(i)) may obtain access to judicial review when 
        a review entity (described in subparagraph (D)), on its own 
        motion or at the request of the appellant, determines that the 
        Departmental Appeals Board does not have the authority to 
        decide the question of law or regulation relevant to the 
        matters in controversy and that there is no material issue of 
        fact in dispute. The appellant may make such request only once 
        with respect to a question of law or regulation for a specific 
        matter in dispute in a case of an appeal.
            ``(B) Prompt determinations.--If, after or coincident with 
        appropriately filing a request for an administrative hearing, 
        the appellant requests a determination by the appropriate 
        review entity that the Departmental Appeals Board does not have 
        the authority to decide the question of law or regulations 
        relevant to the matters in controversy and that there is no 
        material issue of fact in dispute, and if such request is 
        accompanied by the documents and materials as the appropriate 
        review entity shall require for purposes of making such 
        determination, such review entity shall make a determination on 
        the request in writing within 60 days after the date such 
        review entity receives the request and such accompanying 
        documents and materials. Such a determination by such review 
        entity shall be considered a final decision and not subject to 
        review by the Secretary.
            ``(C) Access to judicial review.--
                ``(i) In general.--If the appropriate review entity--

                    ``(I) determines that there are no material issues 
                of fact in dispute and that the only issues to be 
                adjudicated are ones of law or regulation that the 
                Departmental Appeals Board does not have authority to 
                decide; or
                    ``(II) fails to make such determination within the 
                period provided under subparagraph (B),

            then the appellant may bring a civil action as described in 
            this subparagraph.
                ``(ii) Deadline for filing.--Such action shall be 
            filed, in the case described in--

                    ``(I) clause (i)(I), within 60 days of the date of 
                the determination described in such clause; or
                    ``(II) clause (i)(II), within 60 days of the end of 
                the period provided under subparagraph (B) for the 
                determination.

                ``(iii) Venue.--Such action shall be brought in the 
            district court of the United States for the judicial 
            district in which the appellant is located (or, in the case 
            of an action brought jointly by more than one applicant, 
            the judicial district in which the greatest number of 
            applicants are located) or in the District Court for the 
            District of Columbia.
                ``(iv) Interest on any amounts in controversy.--Where a 
            provider of services or supplier is granted judicial review 
            pursuant to this paragraph, the amount in controversy (if 
            any) shall be subject to annual interest beginning on the 
            first day of the first month beginning after the 60-day 
            period as determined pursuant to clause (ii) and equal to 
            the rate of interest on obligations issued for purchase by 
            the Federal Supplementary Medical Insurance Trust Fund for 
            the month in which the civil action authorized under this 
            paragraph is commenced, to be awarded by the reviewing 
            court in favor of the prevailing party. No interest awarded 
            pursuant to the preceding sentence shall be deemed income 
            or cost for the purposes of determining reimbursement due 
            providers of services or suppliers under this title.
            ``(D) Review entity defined.--For purposes of this 
        subsection, the term `review entity' means an entity of up to 
        three reviewers who are administrative law judges or members of 
        the Departmental Appeals Board selected for purposes of making 
        determinations under this paragraph.''.
        (2) Conforming amendment.--Section 1869(b)(1)(F)(ii) (42 U.S.C. 
    1395ff(b)(1)(F)(ii)) is amended to read as follows:
                ``(ii) Reference to expedited access to judicial 
            review.--For the provision relating to expedited access to 
            judicial review, see paragraph (2).''.
    (b) Application to Provider Agreement Determinations.--Section 
1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
        (1) by inserting ``(A)'' after ``(h)(1)''; and
        (2) by adding at the end the following new subparagraph:
    ``(B) An institution or agency described in subparagraph (A) that 
has filed for a hearing under subparagraph (A) shall have expedited 
access to judicial review under this subparagraph in the same manner as 
providers of services, suppliers, and individuals entitled to benefits 
under part A or enrolled under part B, or both, may obtain expedited 
access to judicial review under the process established under section 
1869(b)(2). Nothing in this subparagraph shall be construed to affect 
the application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.''.
    (c) Expedited Review of Certain Provider Agreement 
Determinations.--
        (1) Termination and certain other immediate remedies.--Section 
    1866(h)(1) (42 U.S.C. 1395cc(h)(1)), as amended by subsection (b), 
    is amended by adding at the end the following new subparagraph:
    ``(C)(i) The Secretary shall develop and implement a process to 
expedite proceedings under this subsection in which--
        ``(I) the remedy of termination of participation has been 
    imposed;
        ``(II) a remedy described in clause (i) or (iii) of section 
    1819(h)(2)(B) has been imposed, but only if such remedy has been 
    imposed on an immediate basis; or
        ``(III) a determination has been made as to a finding of 
    substandard quality of care that results in the loss of approval of 
    a skilled nursing facility's nurse aide training program.
    ``(ii) Under such process under clause (i), priority shall be 
provided in cases of termination described in clause (i)(I).
    ``(iii) Nothing in this subparagraph shall be construed to affect 
the application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.''.
        (2) Waiver of disapproval of nurse-aide training programs.--
    Sections 1819(f)(2) and section 1919(f)(2) (42 U.S.C. 1395i-3(f)(2) 
    and 1396r(f)(2)) are each amended--
            (A) in subparagraph (B)(iii), by striking ``subparagraph 
        (C)'' and inserting ``subparagraphs (C) and (D)''; and
            (B) by adding at the end the following new subparagraph:
            ``(D) Waiver of disapproval of nurse-aide training 
        programs.--Upon application of a nursing facility, the 
        Secretary may waive the application of subparagraph 
        (B)(iii)(I)(c) if the imposition of the civil monetary penalty 
        was not related to the quality of care provided to residents of 
        the facility. Nothing in this subparagraph shall be construed 
        as eliminating any requirement upon a facility to pay a civil 
        monetary penalty described in the preceding sentence.''.
        (3) Increased financial support.--In addition to any amounts 
    otherwise appropriated, to reduce by 50 percent the average time 
    for administrative determinations on appeals under section 1866(h) 
    of the Social Security Act (42 U.S.C. 1395cc(h)), there are 
    authorized to be appropriated (in appropriate part from the Federal 
    Hospital Insurance Trust Fund, established under section 1817 of 
    the Social Security Act (42 U.S.C. 1395i), and the Federal 
    Supplementary Medical Insurance Trust Fund, established under 
    section 1841 of such Act (42 U.S.C. 1395t)) to the Secretary such 
    additional sums for fiscal year 2004 and each subsequent fiscal 
    year as may be necessary. The purposes for which such amounts are 
    available include increasing the number of administrative law 
    judges (and their staffs) and the appellate level staff at the 
    Departmental Appeals Board of the Department of Health and Human 
    Services and educating such judges and staffs on long-term care 
    issues.
    (d) Effective Date.--The amendments made by this section shall 
apply to appeals filed on or after October 1, 2004.

SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS.

    (a) Requiring Full and Early Presentation of Evidence.--
        (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)), as 
    amended by section 932(a), is further amended by adding at the end 
    the following new paragraph:
        ``(3) Requiring full and early presentation of evidence by 
    providers.--A provider of services or supplier may not introduce 
    evidence in any appeal under this section that was not presented at 
    the reconsideration conducted by the qualified independent 
    contractor under subsection (c), unless there is good cause which 
    precluded the introduction of such evidence at or before that 
    reconsideration.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    take effect on October 1, 2004.
    (b) Use of Patients' Medical Records.--Section 1869(c)(3)(B)(i) (42 
U.S.C. 1395ff(c)(3)(B)(i)) is amended by inserting ``(including the 
medical records of the individual involved)'' after ``clinical 
experience''.
    (c) Notice Requirements for Medicare Appeals.--
        (1) Initial determinations and redeterminations.--Section 
    1869(a) (42 U.S.C. 1395ff(a)) is amended by adding at the end the 
    following new paragraphs:
        ``(4) Requirements of notice of determinations.--With respect 
    to an initial determination insofar as it results in a denial of a 
    claim for benefits--
            ``(A) the written notice on the determination shall 
        include--
                ``(i) the reasons for the determination, including 
            whether a local medical review policy or a local coverage 
            determination was used;
                ``(ii) the procedures for obtaining additional 
            information concerning the determination, including the 
            information described in subparagraph (B); and
                ``(iii) notification of the right to seek a 
            redetermination or otherwise appeal the determination and 
            instructions on how to initiate such a redetermination 
            under this section;
            ``(B) such written notice shall be provided in printed form 
        and written in a manner calculated to be understood by the 
        individual entitled to benefits under part A or enrolled under 
        part B, or both; and
            ``(C) the individual provided such written notice may 
        obtain, upon request, information on the specific provision of 
        the policy, manual, or regulation used in making the 
        redetermination.
        ``(5) Requirements of notice of redeterminations.--With respect 
    to a redetermination insofar as it results in a denial of a claim 
    for benefits--
            ``(A) the written notice on the redetermination shall 
        include--
                ``(i) the specific reasons for the redetermination;
                ``(ii) as appropriate, a summary of the clinical or 
            scientific evidence used in making the redetermination;
                ``(iii) a description of the procedures for obtaining 
            additional information concerning the redetermination; and
                ``(iv) notification of the right to appeal the 
            redetermination and instructions on how to initiate such an 
            appeal under this section;
            ``(B) such written notice shall be provided in printed form 
        and written in a manner calculated to be understood by the 
        individual entitled to benefits under part A or enrolled under 
        part B, or both; and
            ``(C) the individual provided such written notice may 
        obtain, upon request, information on the specific provision of 
        the policy, manual, or regulation used in making the 
        redetermination.''.
        (2) Reconsiderations.--Section 1869(c)(3)(E) (42 U.S.C. 
    1395ff(c)(3)(E)) is amended--
            (A) by inserting ``be written in a manner calculated to be 
        understood by the individual entitled to benefits under part A 
        or enrolled under part B, or both, and shall include (to the 
        extent appropriate)'' after ``in writing,''; and
            (B) by inserting ``and a notification of the right to 
        appeal such determination and instructions on how to initiate 
        such appeal under this section'' after ``such decision,''.
        (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)) is 
    amended--
            (A) in the heading, by inserting ``; Notice'' after 
        ``Secretary''; and
            (B) by adding at the end the following new paragraph:
        ``(4) Notice.--Notice of the decision of an administrative law 
    judge shall be in writing in a manner calculated to be understood 
    by the individual entitled to benefits under part A or enrolled 
    under part B, or both, and shall include--
            ``(A) the specific reasons for the determination 
        (including, to the extent appropriate, a summary of the 
        clinical or scientific evidence used in making the 
        determination);
            ``(B) the procedures for obtaining additional information 
        concerning the decision; and
            ``(C) notification of the right to appeal the decision and 
        instructions on how to initiate such an appeal under this 
        section.''.
        (4) Submission of record for appeal.--Section 1869(c)(3)(J)(i) 
    (42 U.S.C. 1395ff(c)(3)(J)(i)) is amended by striking ``prepare'' 
    and inserting ``submit'' and by striking ``with respect to'' and 
    all that follows through ``and relevant policies''.
    (d) Qualified Independent Contractors.--
        (1) Eligibility requirements of qualified independent 
    contractors.--Section 1869(c)(3) (42 U.S.C. 1395ff(c)(3)) is 
    amended--
            (A) in subparagraph (A), by striking ``sufficient training 
        and expertise in medical science and legal matters'' and 
        inserting ``sufficient medical, legal, and other expertise 
        (including knowledge of the program under this title) and 
        sufficient staffing''; and
            (B) by adding at the end the following new subparagraph:
            ``(K) Independence requirements.--
                ``(i) In general.--Subject to clause (ii), a qualified 
            independent contractor shall not conduct any activities in 
            a case unless the entity--

                    ``(I) is not a related party (as defined in 
                subsection (g)(5));
                    ``(II) does not have a material familial, 
                financial, or professional relationship with such a 
                party in relation to such case; and
                    ``(III) does not otherwise have a conflict of 
                interest with such a party.

                ``(ii) Exception for reasonable compensation.--Nothing 
            in clause (i) shall be construed to prohibit receipt by a 
            qualified independent contractor of compensation from the 
            Secretary for the conduct of activities under this section 
            if the compensation is provided consistent with clause 
            (iii).
                ``(iii) Limitations on entity compensation.--
            Compensation provided by the Secretary to a qualified 
            independent contractor in connection with reviews under 
            this section shall not be contingent on any decision 
            rendered by the contractor or by any reviewing 
            professional.''.
        (2) Eligibility requirements for reviewers.--Section 1869 (42 
    U.S.C. 1395ff) is amended--
            (A) by amending subsection (c)(3)(D) to read as follows:
            ``(D) Qualifications for reviewers.--The requirements of 
        subsection (g) shall be met (relating to qualifications of 
        reviewing professionals).''; and
            (B) by adding at the end the following new subsection:
    ``(g) Qualifications of Reviewers.--
        ``(1) In general.--In reviewing determinations under this 
    section, a qualified independent contractor shall assure that--
            ``(A) each individual conducting a review shall meet the 
        qualifications of paragraph (2);
            ``(B) compensation provided by the contractor to each such 
        reviewer is consistent with paragraph (3); and
            ``(C) in the case of a review by a panel described in 
        subsection (c)(3)(B) composed of physicians or other health 
        care professionals (each in this subsection referred to as a 
        `reviewing professional'), a reviewing professional meets the 
        qualifications described in paragraph (4) and, where a claim is 
        regarding the furnishing of treatment by a physician 
        (allopathic or osteopathic) or the provision of items or 
        services by a physician (allopathic or osteopathic), a 
        reviewing professional shall be a physician (allopathic or 
        osteopathic).
        ``(2) Independence.--
            ``(A) In general.--Subject to subparagraph (B), each 
        individual conducting a review in a case shall--
                ``(i) not be a related party (as defined in paragraph 
            (5));
                ``(ii) not have a material familial, financial, or 
            professional relationship with such a party in the case 
            under review; and
                ``(iii) not otherwise have a conflict of interest with 
            such a party.
            ``(B) Exception.--Nothing in subparagraph (A) shall be 
        construed to--
                ``(i) prohibit an individual, solely on the basis of a 
            participation agreement with a fiscal intermediary, 
            carrier, or other contractor, from serving as a reviewing 
            professional if--

                    ``(I) the individual is not involved in the 
                provision of items or services in the case under 
                review;
                    ``(II) the fact of such an agreement is disclosed 
                to the Secretary and the individual entitled to 
                benefits under part A or enrolled under part B, or 
                both, or such individual's authorized representative, 
                and neither party objects; and
                    ``(III) the individual is not an employee of the 
                intermediary, carrier, or contractor and does not 
                provide services exclusively or primarily to or on 
                behalf of such intermediary, carrier, or contractor;

                ``(ii) prohibit an individual who has staff privileges 
            at the institution where the treatment involved takes place 
            from serving as a reviewer merely on the basis of having 
            such staff privileges if the existence of such privileges 
            is disclosed to the Secretary and such individual (or 
            authorized representative), and neither party objects; or
                ``(iii) prohibit receipt of compensation by a reviewing 
            professional from a contractor if the compensation is 
            provided consistent with paragraph (3).
        For purposes of this paragraph, the term `participation 
        agreement' means an agreement relating to the provision of 
        health care services by the individual and does not include the 
        provision of services as a reviewer under this subsection.
        ``(3) Limitations on reviewer compensation.--Compensation 
    provided by a qualified independent contractor to a reviewer in 
    connection with a review under this section shall not be contingent 
    on the decision rendered by the reviewer.
        ``(4) Licensure and expertise.--Each reviewing professional 
    shall be--
            ``(A) a physician (allopathic or osteopathic) who is 
        appropriately credentialed or licensed in one or more States to 
        deliver health care services and has medical expertise in the 
        field of practice that is appropriate for the items or services 
        at issue; or
            ``(B) a health care professional who is legally authorized 
        in one or more States (in accordance with State law or the 
        State regulatory mechanism provided by State law) to furnish 
        the health care items or services at issue and has medical 
        expertise in the field of practice that is appropriate for such 
        items or services.
        ``(5) Related party defined.--For purposes of this section, the 
    term `related party' means, with respect to a case under this title 
    involving a specific individual entitled to benefits under part A 
    or enrolled under part B, or both, any of the following:
            ``(A) The Secretary, the medicare administrative contractor 
        involved, or any fiduciary, officer, director, or employee of 
        the Department of Health and Human Services, or of such 
        contractor.
            ``(B) The individual (or authorized representative).
            ``(C) The health care professional that provides the items 
        or services involved in the case.
            ``(D) The institution at which the items or services (or 
        treatment) involved in the case are provided.
            ``(E) The manufacturer of any drug or other item that is 
        included in the items or services involved in the case.
            ``(F) Any other party determined under any regulations to 
        have a substantial interest in the case involved.''.
        (3) Reducing minimum number of qualified independent 
    contractors.--Section 1869(c)(4) (42 U.S.C. 1395ff(c)(4)) is 
    amended by striking ``not fewer than 12 qualified independent 
    contractors under this subsection'' and inserting ``a sufficient 
    number of qualified independent contractors (but not fewer than 4 
    such contractors) to conduct reconsiderations consistent with the 
    timeframes applicable under this subsection''.
        (4) Effective date.--The amendments made by paragraphs (1) and 
    (2) shall be effective as if included in the enactment of the 
    respective provisions of subtitle C of title V of BIPA (114 Stat. 
    2763A-534).
        (5) Transition.--In applying section 1869(g) of the Social 
    Security Act (as added by paragraph (2)), any reference to a 
    medicare administrative contractor shall be deemed to include a 
    reference to a fiscal intermediary under section 1816 of the Social 
    Security Act (42 U.S.C. 1395h) and a carrier under section 1842 of 
    such Act (42 U.S.C. 1395u).

SEC. 934. PREPAYMENT REVIEW.

    (a) In General.--Section 1874A, as added by section 911(a)(1) and 
as amended by sections 912(b), 921(b)(1), and 921(c)(1), is further 
amended by adding at the end the following new subsection:
    ``(h) Conduct of Prepayment Review.--
        ``(1) Conduct of random prepayment review.--
            ``(A) In general.--A medicare administrative contractor may 
        conduct random prepayment review only to develop a contractor-
        wide or program-wide claims payment error rates or under such 
        additional circumstances as may be provided under regulations, 
        developed in consultation with providers of services and 
        suppliers.
            ``(B) Use of standard protocols when conducting prepayment 
        reviews.--When a medicare administrative contractor conducts a 
        random prepayment review, the contractor may conduct such 
        review only in accordance with a standard protocol for random 
        prepayment audits developed by the Secretary.
            ``(C) Construction.--Nothing in this paragraph shall be 
        construed as preventing the denial of payments for claims 
        actually reviewed under a random prepayment review.
            ``(D) Random prepayment review.--For purposes of this 
        subsection, the term `random prepayment review' means a demand 
        for the production of records or documentation absent cause 
        with respect to a claim.
        ``(2) Limitations on non-random prepayment review.--
            ``(A) Limitations on initiation of non-random prepayment 
        review.--A medicare administrative contractor may not initiate 
        non-random prepayment review of a provider of services or 
        supplier based on the initial identification by that provider 
        of services or supplier of an improper billing practice unless 
        there is a likelihood of sustained or high level of payment 
        error under section 1893(f)(3)(A).
            ``(B) Termination of non-random prepayment review.--The 
        Secretary shall issue regulations relating to the termination, 
        including termination dates, of non-random prepayment review. 
        Such regulations may vary such a termination date based upon 
        the differences in the circumstances triggering prepayment 
        review.''.
    (b) Effective Date.--
        (1) In general.--Except as provided in this subsection, the 
    amendment made by subsection (a) shall take effect 1 year after the 
    date of the enactment of this Act.
        (2) Deadline for promulgation of certain regulations.--The 
    Secretary shall first issue regulations under section 1874A(h) of 
    the Social Security Act, as added by subsection (a), by not later 
    than 1 year after the date of the enactment of this Act.
        (3) Application of standard protocols for random prepayment 
    review.--Section 1874A(h)(1)(B) of the Social Security Act, as 
    added by subsection (a), shall apply to random prepayment reviews 
    conducted on or after such date (not later than 1 year after the 
    date of the enactment of this Act) as the Secretary shall specify.
    (c) Application to Fiscal Intermediaries and Carriers.--The 
provisions of section 1874A(h) of the Social Security Act, as added by 
subsection (a), shall apply to each fiscal intermediary under section 
1816 of the Social Security Act (42 U.S.C. 1395h) and each carrier 
under section 1842 of such Act (42 U.S.C. 1395u) in the same manner as 
they apply to medicare administrative contractors under such 
provisions.

SEC. 935. RECOVERY OF OVERPAYMENTS.

    (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is amended by 
adding at the end the following new subsection:
    ``(f) Recovery of Overpayments.--
        ``(1) Use of repayment plans.--
            ``(A) In general.--If the repayment, within 30 days by a 
        provider of services or supplier, of an overpayment under this 
        title would constitute a hardship (as described in subparagraph 
        (B)), subject to subparagraph (C), upon request of the provider 
        of services or supplier the Secretary shall enter into a plan 
        with the provider of services or supplier for the repayment 
        (through offset or otherwise) of such overpayment over a period 
        of at least 6 months but not longer than 3 years (or not longer 
        than 5 years in the case of extreme hardship, as determined by 
        the Secretary). Interest shall accrue on the balance through 
        the period of repayment. Such plan shall meet terms and 
        conditions determined to be appropriate by the Secretary.
            ``(B) Hardship.--
                ``(i) In general.--For purposes of subparagraph (A), 
            the repayment of an overpayment (or overpayments) within 30 
            days is deemed to constitute a hardship if--

                    ``(I) in the case of a provider of services that 
                files cost reports, the aggregate amount of the 
                overpayments exceeds 10 percent of the amount paid 
                under this title to the provider of services for the 
                cost reporting period covered by the most recently 
                submitted cost report; or
                    ``(II) in the case of another provider of services 
                or supplier, the aggregate amount of the overpayments 
                exceeds 10 percent of the amount paid under this title 
                to the provider of services or supplier for the 
                previous calendar year.

                ``(ii) Rule of application.--The Secretary shall 
            establish rules for the application of this subparagraph in 
            the case of a provider of services or supplier that was not 
            paid under this title during the previous year or was paid 
            under this title only during a portion of that year.
                ``(iii) Treatment of previous overpayments.--If a 
            provider of services or supplier has entered into a 
            repayment plan under subparagraph (A) with respect to a 
            specific overpayment amount, such payment amount under the 
            repayment plan shall not be taken into account under clause 
            (i) with respect to subsequent overpayment amounts.
            ``(C) Exceptions.--Subparagraph (A) shall not apply if--
                ``(i) the Secretary has reason to suspect that the 
            provider of services or supplier may file for bankruptcy or 
            otherwise cease to do business or discontinue participation 
            in the program under this title; or
                ``(ii) there is an indication of fraud or abuse 
            committed against the program.
            ``(D) Immediate collection if violation of repayment 
        plan.--If a provider of services or supplier fails to make a 
        payment in accordance with a repayment plan under this 
        paragraph, the Secretary may immediately seek to offset or 
        otherwise recover the total balance outstanding (including 
        applicable interest) under the repayment plan.
            ``(E) Relation to no fault provision.--Nothing in this 
        paragraph shall be construed as affecting the application of 
        section 1870(c) (relating to no adjustment in the cases of 
        certain overpayments).
        ``(2) Limitation on recoupment.--
            ``(A) In general.--In the case of a provider of services or 
        supplier that is determined to have received an overpayment 
        under this title and that seeks a reconsideration by a 
        qualified independent contractor on such determination under 
        section 1869(b)(1), the Secretary may not take any action (or 
        authorize any other person, including any medicare contractor, 
        as defined in subparagraph (C)) to recoup the overpayment until 
        the date the decision on the reconsideration has been rendered. 
        If the provisions of section 1869(b)(1) (providing for such a 
        reconsideration by a qualified independent contractor) are not 
        in effect, in applying the previous sentence any reference to 
        such a reconsideration shall be treated as a reference to a 
        redetermination by the fiscal intermediary or carrier involved.
            ``(B) Collection with interest.--Insofar as the 
        determination on such appeal is against the provider of 
        services or supplier, interest on the overpayment shall accrue 
        on and after the date of the original notice of overpayment. 
        Insofar as such determination against the provider of services 
        or supplier is later reversed, the Secretary shall provide for 
        repayment of the amount recouped plus interest at the same rate 
        as would apply under the previous sentence for the period in 
        which the amount was recouped.
            ``(C) Medicare contractor defined.--For purposes of this 
        subsection, the term `medicare contractor' has the meaning 
        given such term in section 1889(g).
        ``(3) Limitation on use of extrapolation.--A medicare 
    contractor may not use extrapolation to determine overpayment 
    amounts to be recovered by recoupment, offset, or otherwise unless 
    the Secretary determines that--
            ``(A) there is a sustained or high level of payment error; 
        or
            ``(B) documented educational intervention has failed to 
        correct the payment error.
There shall be no administrative or judicial review under section 1869, 
section 1878, or otherwise, of determinations by the Secretary of 
sustained or high levels of payment errors under this paragraph.
        ``(4) Provision of supporting documentation.--In the case of a 
    provider of services or supplier with respect to which amounts were 
    previously overpaid, a medicare contractor may request the periodic 
    production of records or supporting documentation for a limited 
    sample of submitted claims to ensure that the previous practice is 
    not continuing.
        ``(5) Consent settlement reforms.--
            ``(A) In general.--The Secretary may use a consent 
        settlement (as defined in subparagraph (D)) to settle a 
        projected overpayment.
            ``(B) Opportunity to submit additional information before 
        consent settlement offer.--Before offering a provider of 
        services or supplier a consent settlement, the Secretary 
        shall--
                ``(i) communicate to the provider of services or 
            supplier--

                    ``(I) that, based on a review of the medical 
                records requested by the Secretary, a preliminary 
                evaluation of those records indicates that there would 
                be an overpayment;
                    ``(II) the nature of the problems identified in 
                such evaluation; and
                    ``(III) the steps that the provider of services or 
                supplier should take to address the problems; and

                ``(ii) provide for a 45-day period during which the 
            provider of services or supplier may furnish additional 
            information concerning the medical records for the claims 
            that had been reviewed.
            ``(C) Consent settlement offer.--The Secretary shall review 
        any additional information furnished by the provider of 
        services or supplier under subparagraph (B)(ii). Taking into 
        consideration such information, the Secretary shall determine 
        if there still appears to be an overpayment. If so, the 
        Secretary--
                ``(i) shall provide notice of such determination to the 
            provider of services or supplier, including an explanation 
            of the reason for such determination; and
                ``(ii) in order to resolve the overpayment, may offer 
            the provider of services or supplier--

                    ``(I) the opportunity for a statistically valid 
                random sample; or
                    ``(II) a consent settlement.

        The opportunity provided under clause (ii)(I) does not waive 
        any appeal rights with respect to the alleged overpayment 
        involved.
            ``(D) Consent settlement defined.--For purposes of this 
        paragraph, the term `consent settlement' means an agreement 
        between the Secretary and a provider of services or supplier 
        whereby both parties agree to settle a projected overpayment 
        based on less than a statistically valid sample of claims and 
        the provider of services or supplier agrees not to appeal the 
        claims involved.
        ``(6) Notice of over-utilization of codes.--The Secretary shall 
    establish, in consultation with organizations representing the 
    classes of providers of services and suppliers, a process under 
    which the Secretary provides for notice to classes of providers of 
    services and suppliers served by the contractor in cases in which 
    the contractor has identified that particular billing codes may be 
    overutilized by that class of providers of services or suppliers 
    under the programs under this title (or provisions of title XI 
    insofar as they relate to such programs).
        ``(7) Payment audits.--
            ``(A) Written notice for post-payment audits.--Subject to 
        subparagraph (C), if a medicare contractor decides to conduct a 
        post-payment audit of a provider of services or supplier under 
        this title, the contractor shall provide the provider of 
        services or supplier with written notice (which may be in 
        electronic form) of the intent to conduct such an audit.
            ``(B) Explanation of findings for all audits.--Subject to 
        subparagraph (C), if a medicare contractor audits a provider of 
        services or supplier under this title, the contractor shall--
                ``(i) give the provider of services or supplier a full 
            review and explanation of the findings of the audit in a 
            manner that is understandable to the provider of services 
            or supplier and permits the development of an appropriate 
            corrective action plan;
                ``(ii) inform the provider of services or supplier of 
            the appeal rights under this title as well as consent 
            settlement options (which are at the discretion of the 
            Secretary);
                ``(iii) give the provider of services or supplier an 
            opportunity to provide additional information to the 
            contractor; and
                ``(iv) take into account information provided, on a 
            timely basis, by the provider of services or supplier under 
            clause (iii).
            ``(C) Exception.--Subparagraphs (A) and (B) shall not apply 
        if the provision of notice or findings would compromise pending 
        law enforcement activities, whether civil or criminal, or 
        reveal findings of law enforcement-related audits.
        ``(8) Standard methodology for probe sampling.--The Secretary 
    shall establish a standard methodology for medicare contractors to 
    use in selecting a sample of claims for review in the case of an 
    abnormal billing pattern.''.
    (b) Effective Dates and Deadlines.--
        (1) Use of repayment plans.--Section 1893(f)(1) of the Social 
    Security Act, as added by subsection (a), shall apply to requests 
    for repayment plans made after the date of the enactment of this 
    Act.
        (2) Limitation on recoupment.--Section 1893(f)(2) of the Social 
    Security Act, as added by subsection (a), shall apply to actions 
    taken after the date of the enactment of this Act.
        (3) Use of extrapolation.--Section 1893(f)(3) of the Social 
    Security Act, as added by subsection (a), shall apply to 
    statistically valid random samples initiated after the date that is 
    1 year after the date of the enactment of this Act.
        (4) Provision of supporting documentation.--Section 1893(f)(4) 
    of the Social Security Act, as added by subsection (a), shall take 
    effect on the date of the enactment of this Act.
        (5) Consent settlement.--Section 1893(f)(5) of the Social 
    Security Act, as added by subsection (a), shall apply to consent 
    settlements entered into after the date of the enactment of this 
    Act.
        (6) Notice of overutilization.--Not later than 1 year after the 
    date of the enactment of this Act, the Secretary shall first 
    establish the process for notice of overutilization of billing 
    codes under section 1893A(f)(6) of the Social Security Act, as 
    added by subsection (a).
        (7) Payment audits.--Section 1893A(f)(7) of the Social Security 
    Act, as added by subsection (a), shall apply to audits initiated 
    after the date of the enactment of this Act.
        (8) Standard for abnormal billing patterns.--Not later than 1 
    year after the date of the enactment of this Act, the Secretary 
    shall first establish a standard methodology for selection of 
    sample claims for abnormal billing patterns under section 
    1893(f)(8) of the Social Security Act, as added by subsection (a).

SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.

    (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
        (1) by adding at the end of the heading the following: ``; 
    enrollment processes''; and
        (2) by adding at the end the following new subsection:
    ``(j) Enrollment Process for Providers of Services and Suppliers.--
        ``(1) Enrollment process.--
            ``(A) In general.--The Secretary shall establish by 
        regulation a process for the enrollment of providers of 
        services and suppliers under this title.
            ``(B) Deadlines.--The Secretary shall establish by 
        regulation procedures under which there are deadlines for 
        actions on applications for enrollment (and, if applicable, 
        renewal of enrollment). The Secretary shall monitor the 
        performance of medicare administrative contractors in meeting 
        the deadlines established under this subparagraph.
            ``(C) Consultation before changing provider enrollment 
        forms.--The Secretary shall consult with providers of services 
        and suppliers before making changes in the provider enrollment 
        forms required of such providers and suppliers to be eligible 
        to submit claims for which payment may be made under this 
        title.
        ``(2) Hearing rights in cases of denial or non-renewal.--A 
    provider of services or supplier whose application to enroll (or, 
    if applicable, to renew enrollment) under this title is denied may 
    have a hearing and judicial review of such denial under the 
    procedures that apply under subsection (h)(1)(A) to a provider of 
    services that is dissatisfied with a determination by the 
    Secretary.''.
    (b) Effective Dates.--
        (1) Enrollment process.--The Secretary shall provide for the 
    establishment of the enrollment process under section 1866(j)(1) of 
    the Social Security Act, as added by subsection (a)(2), within 6 
    months after the date of the enactment of this Act.
        (2) Consultation.--Section 1866(j)(1)(C) of the Social Security 
    Act, as added by subsection (a)(2), shall apply with respect to 
    changes in provider enrollment forms made on or after January 1, 
    2004.
        (3) Hearing rights.--Section 1866(j)(2) of the Social Security 
    Act, as added by subsection (a)(2), shall apply to denials 
    occurring on or after such date (not later than 1 year after the 
    date of the enactment of this Act) as the Secretary specifies.

SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMISSIONS WITHOUT 
              PURSUING APPEALS PROCESS.

    (a) Claims.--The Secretary shall develop, in consultation with 
appropriate medicare contractors (as defined in section 1889(g) of the 
Social Security Act, as inserted by section 301(a)(1)) and 
representatives of providers of services and suppliers, a process 
whereby, in the case of minor errors or omissions (as defined by the 
Secretary) that are detected in the submission of claims under the 
programs under title XVIII of such Act, a provider of services or 
supplier is given an opportunity to correct such an error or omission 
without the need to initiate an appeal. Such process shall include the 
ability to resubmit corrected claims.
    (b) Deadline.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary shall first develop the process 
under subsection (a).

SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND SERVICES; 
              ADVANCE BENEFICIARY NOTICES.

    (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as amended by 
section 933(d)(2)(B), is further amended by adding at the end the 
following new subsection:
    ``(h) Prior Determination Process for Certain Items and Services.--
        ``(1) Establishment of process.--
            ``(A) In general.--With respect to a medicare 
        administrative contractor that has a contract under section 
        1874A that provides for making payments under this title with 
        respect to physicians' services (as defined in section 
        1848(j)(3)), the Secretary shall establish a prior 
        determination process that meets the requirements of this 
        subsection and that shall be applied by such contractor in the 
        case of eligible requesters.
            ``(B) Eligible requester.--For purposes of this subsection, 
        each of the following shall be an eligible requester:
                ``(i) A participating physician, but only with respect 
            to physicians' services to be furnished to an individual 
            who is entitled to benefits under this title and who has 
            consented to the physician making the request under this 
            subsection for those physicians' services.
                ``(ii) An individual entitled to benefits under this 
            title, but only with respect to a physicians' service for 
            which the individual receives, from a physician, an advance 
            beneficiary notice under section 1879(a).
        ``(2) Secretarial flexibility.--The Secretary shall establish 
    by regulation reasonable limits on the physicians' services for 
    which a prior determination of coverage may be requested under this 
    subsection. In establishing such limits, the Secretary may consider 
    the dollar amount involved with respect to the physicians' service, 
    administrative costs and burdens, and other relevant factors.
        ``(3) Request for prior determination.--
            ``(A) In general.--Subject to paragraph (2), under the 
        process established under this subsection an eligible requester 
        may submit to the contractor a request for a determination, 
        before the furnishing of a physicians' service, as to whether 
        the physicians' service is covered under this title consistent 
        with the applicable requirements of section 1862(a)(1)(A) 
        (relating to medical necessity).
            ``(B) Accompanying documentation.--The Secretary may 
        require that the request be accompanied by a description of the 
        physicians' service, supporting documentation relating to the 
        medical necessity for the physicians' service, and any other 
        appropriate documentation. In the case of a request submitted 
        by an eligible requester who is described in paragraph 
        (1)(B)(ii), the Secretary may require that the request also be 
        accompanied by a copy of the advance beneficiary notice 
        involved.
        ``(4) Response to request.--
            ``(A) In general.--Under such process, the contractor shall 
        provide the eligible requester with written notice of a 
        determination as to whether--
                ``(i) the physicians' service is so covered;
                ``(ii) the physicians' service is not so covered; or
                ``(iii) the contractor lacks sufficient information to 
            make a coverage determination with respect to the 
            physicians' service.
            ``(B) Contents of notice for certain determinations.--
                ``(i) Noncoverage.--If the contractor makes the 
            determination described in subparagraph (A)(ii), the 
            contractor shall include in the notice a brief explanation 
            of the basis for the determination, including on what 
            national or local coverage or noncoverage determination (if 
            any) the determination is based, and a description of any 
            applicable rights under subsection (a).
                ``(ii) Insufficient information.--If the contractor 
            makes the determination described in subparagraph (A)(iii), 
            the contractor shall include in the notice a description of 
            the additional information required to make the coverage 
            determination.
            ``(C) Deadline to respond.--Such notice shall be provided 
        within the same time period as the time period applicable to 
        the contractor providing notice of initial determinations on a 
        claim for benefits under subsection (a)(2)(A).
            ``(D) Informing beneficiary in case of physician request.--
        In the case of a request by a participating physician under 
        paragraph (1)(B)(i), the process shall provide that the 
        individual to whom the physicians' service is proposed to be 
        furnished shall be informed of any determination described in 
        subparagraph (A)(ii) (relating to a determination of non-
        coverage) and the right (referred to in paragraph (6)(B)) to 
        obtain the physicians' service and have a claim submitted for 
        the physicians' service.
        ``(5) Binding nature of positive determination.--If the 
    contractor makes the determination described in paragraph 
    (4)(A)(i), such determination shall be binding on the contractor in 
    the absence of fraud or evidence of misrepresentation of facts 
    presented to the contractor.
        ``(6) Limitation on further review.--
            ``(A) In general.--Contractor determinations described in 
        paragraph (4)(A)(ii) or (4)(A)(iii) (relating to pre-service 
        claims) are not subject to further administrative appeal or 
        judicial review under this section or otherwise.
            ``(B) Decision not to seek prior determination or negative 
        determination does not impact right to obtain services, seek 
        reimbursement, or appeal rights.--Nothing in this subsection 
        shall be construed as affecting the right of an individual 
        who--
                ``(i) decides not to seek a prior determination under 
            this subsection with respect to physicians' services; or
                ``(ii) seeks such a determination and has received a 
            determination described in paragraph (4)(A)(ii),
        from receiving (and submitting a claim for) such physicians' 
        services and from obtaining administrative or judicial review 
        respecting such claim under the other applicable provisions of 
        this section. Failure to seek a prior determination under this 
        subsection with respect to physicians' service shall not be 
        taken into account in such administrative or judicial review.
            ``(C) No prior determination after receipt of services.--
        Once an individual is provided physicians' services, there 
        shall be no prior determination under this subsection with 
        respect to such physicians' services.''.
    (b) Effective Date; Sunset; Transition.--
        (1) Effective date.--The Secretary shall establish the prior 
    determination process under the amendment made by subsection (a) in 
    such a manner as to provide for the acceptance of requests for 
    determinations under such process filed not later than 18 months 
    after the date of the enactment of this Act.
        (2) Sunset.--Such prior determination process shall not apply 
    to requests filed after the end of the 5-year period beginning on 
    the first date on which requests for determinations under such 
    process are accepted.
        (3) Transition.--During the period in which the amendment made 
    by subsection (a) has become effective but contracts are not 
    provided under section 1874A of the Social Security Act with 
    medicare administrative contractors, any reference in section 
    1869(g) of such Act (as added by such amendment) to such a 
    contractor is deemed a reference to a fiscal intermediary or 
    carrier with an agreement under section 1816, or contract under 
    section 1842, respectively, of such Act.
        (4) Limitation on application to sgr.--For purposes of applying 
    section 1848(f)(2)(D) of the Social Security Act (42 U.S.C. 1395w-
    4(f)(2)(D)), the amendment made by subsection (a) shall not be 
    considered to be a change in law or regulation.
    (c) Provisions Relating to Advance Beneficiary Notices; Report on 
Prior Determination Process.--
        (1) Data collection.--The Secretary shall establish a process 
    for the collection of information on the instances in which an 
    advance beneficiary notice (as defined in paragraph (5)) has been 
    provided and on instances in which a beneficiary indicates on such 
    a notice that the beneficiary does not intend to seek to have the 
    item or service that is the subject of the notice furnished.
        (2) Outreach and education.--The Secretary shall establish a 
    program of outreach and education for beneficiaries and providers 
    of services and other persons on the appropriate use of advance 
    beneficiary notices and coverage policies under the medicare 
    program.
        (3) GAO report on use of advance beneficiary notices.--Not 
    later than 18 months after the date on which section 1869(h) of the 
    Social Security Act (as added by subsection (a)) takes effect, the 
    Comptroller General of the United States shall submit to Congress a 
    report on the use of advance beneficiary notices under title XVIII 
    of such Act. Such report shall include information concerning the 
    providers of services and other persons that have provided such 
    notices and the response of beneficiaries to such notices.
        (4) GAO report on use of prior determination process.--Not 
    later than 36 months after the date on which section 1869(h) of the 
    Social Security Act (as added by subsection (a)) takes effect, the 
    Comptroller General of the United States shall submit to Congress a 
    report on the use of the prior determination process under such 
    section. Such report shall include--
            (A) information concerning--
                (i) the number and types of procedures for which a 
            prior determination has been sought;
                (ii) determinations made under the process;
                (iii) the percentage of beneficiaries prevailing;
                (iv) in those cases in which the beneficiaries do not 
            prevail, the reasons why such beneficiaries did not 
            prevail; and
                (v) changes in receipt of services resulting from the 
            application of such process;
            (B) an evaluation of whether the process was useful for 
        physicians (and other suppliers) and beneficiaries, whether it 
        was timely, and whether the amount of information required was 
        burdensome to physicians and beneficiaries; and
            (C) recommendations for improvements or continuation of 
        such process.
        (5) Advance beneficiary notice defined.--In this subsection, 
    the term ``advance beneficiary notice'' means a written notice 
    provided under section 1879(a) of the Social Security Act (42 
    U.S.C. 1395pp(a)) to an individual entitled to benefits under part 
    A or enrolled under part B of title XVIII of such Act before items 
    or services are furnished under such part in cases where a provider 
    of services or other person that would furnish the item or service 
    believes that payment will not be made for some or all of such 
    items or services under such title.

SEC. 939. APPEALS BY PROVIDERS WHEN THERE IS NO OTHER PARTY AVAILABLE.

    (a) In General.--Section 1870 (42 U.S.C. 1395gg) is amended by 
adding at the end the following new subsection:
    ``(h) Notwithstanding subsection (f) or any other provision of law, 
the Secretary shall permit a provider of services or supplier to appeal 
any determination of the Secretary under this title relating to 
services rendered under this title to an individual who subsequently 
dies if there is no other party available to appeal such 
determination.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act and shall apply to 
items and services furnished on or after such date.

SEC. 940. REVISIONS TO APPEALS TIMEFRAMES AND AMOUNTS.

    (a) Timeframes.--Section 1869 (42 U.S.C. 1395ff) is amended--
        (1) in subsection (a)(3)(C)(ii), by striking ``30-day period'' 
    each place it appears and inserting ``60-day period''; and
        (2) in subsection (c)(3)(C)(i), by striking ``30-day period'' 
    and inserting ``60-day period''.
    (b) Amounts.--
        (1) In general.--Section 1869(b)(1)(E) (42 U.S.C. 
    1395ff(b)(1)(E)) is amended by adding at the end the following new 
    clause:
                ``(iii) Adjustment of dollar amounts.--For requests for 
            hearings or judicial review made in a year after 2004, the 
            dollar amounts specified in clause (i) shall be equal to 
            such dollar amounts increased by the percentage increase in 
            the medical care component of the consumer price index for 
            all urban consumers (U.S. city average) for July 2003 to 
            the July preceding the year involved. Any amount determined 
            under the previous sentence that is not a multiple of $10 
            shall be rounded to the nearest multiple of $10.''.
        (2) Conforming amendments.--(A) Section 1852(g)(5) (42 U.S.C. 
    1395w-22(g)(5)) is amended by adding at the end the following: 
    ``The provisions of section 1869(b)(1)(E)(iii) shall apply with 
    respect to dollar amounts specified in the first 2 sentences of 
    this paragraph in the same manner as they apply to the dollar 
    amounts specified in section 1869(b)(1)(E)(i).''.
    (B) Section 1876(b)(5)(B) (42 U.S.C. 1395mm(b)(5)(B)) is amended by 
adding at the end the following: ``The provisions of section 
1869(b)(1)(E)(iii) shall apply with respect to dollar amounts specified 
in the first 2 sentences of this subparagraph in the same manner as 
they apply to the dollar amounts specified in section 
1869(b)(1)(E)(i).''.

SEC. 940A. MEDIATION PROCESS FOR LOCAL COVERAGE DETERMINATIONS.

    (a) In General.--Section 1869 (42 U.S.C. 1395ff), as amended by 
section 938(a), is amended by adding at the end the following new 
subsection:
    ``(i) Mediation Process for Local Coverage Determinations.--
        ``(1) Establishment of process.--The Secretary shall establish 
    a mediation process under this subsection through the use of a 
    physician trained in mediation and employed by the Centers for 
    Medicare & Medicaid Services.
        ``(2) Responsibility of mediator.--Under the process 
    established in paragraph (1), such a mediator shall mediate in 
    disputes between groups representing providers of services, 
    suppliers (as defined in section 1861(d)), and the medical director 
    for a medicare administrative contractor whenever the regional 
    administrator (as defined by the Secretary) involved determines 
    that there was a systematic pattern and a large volume of 
    complaints from such groups regarding decisions of such director or 
    there is a complaint from the co-chair of the advisory committee 
    for that contractor to such regional administrator regarding such 
    dispute.''.
    (b) Inclusion in mac contracts.--Section 1874A(b)(3)(A)(i), as 
added by section 911(a)(1), is amended by adding at the end the 
following: ``Such requirements shall include specific performance 
duties expected of a medical director of a medicare administrative 
contractor, including requirements relating to professional relations 
and the availability of such director to conduct medical determination 
activities within the jurisdiction of such a contractor.''.

                  Subtitle E--Miscellaneous Provisions

SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION AND MANAGEMENT (E & 
              M) DOCUMENTATION GUIDELINES.

    (a) In General.--The Secretary may not implement any new or 
modified documentation guidelines (which for purposes of this section 
includes clinical examples) for evaluation and management physician 
services under the title XVIII of the Social Security Act on or after 
the date of the enactment of this Act unless the Secretary--
        (1) has developed the guidelines in collaboration with 
    practicing physicians (including both generalists and specialists) 
    and provided for an assessment of the proposed guidelines by the 
    physician community;
        (2) has established a plan that contains specific goals, 
    including a schedule, for improving the use of such guidelines;
        (3) has conducted appropriate and representative pilot projects 
    under subsection (b) to test such guidelines;
        (4) finds, based on reports submitted under subsection (b)(5) 
    with respect to pilot projects conducted for such or related 
    guidelines, that the objectives described in subsection (c) will be 
    met in the implementation of such guidelines; and
        (5) has established, and is implementing, a program to educate 
    physicians on the use of such guidelines and that includes 
    appropriate outreach.
The Secretary shall make changes to the manner in which existing 
evaluation and management documentation guidelines are implemented to 
reduce paperwork burdens on physicians.
    (b) Pilot Projects to Test Modified or New Evaluation and 
Management Documentation Guidelines.--
        (1) In general.--With respect to proposed new or modified 
    documentation guidelines referred to in subsection (a), the 
    Secretary shall conduct under this subsection appropriate and 
    representative pilot projects to test the proposed guidelines.
        (2) Length and consultation.--Each pilot project under this 
    subsection shall--
            (A) be voluntary;
            (B) be of sufficient length as determined by the Secretary 
        (but in no case to exceed 1 year) to allow for preparatory 
        physician and medicare contractor education, analysis, and use 
        and assessment of potential evaluation and management 
        guidelines; and
            (C) be conducted, in development and throughout the 
        planning and operational stages of the project, in consultation 
        with practicing physicians (including both generalists and 
        specialists).
        (3) Range of pilot projects.--Of the pilot projects conducted 
    under this subsection with respect to proposed new or modified 
    documentation guidelines--
            (A) at least one shall focus on a peer review method by 
        physicians (not employed by a medicare contractor) which 
        evaluates medical record information for claims submitted by 
        physicians identified as statistical outliers relative to codes 
        used for billing purposes for such services;
            (B) at least one shall focus on an alternative method to 
        detailed guidelines based on physician documentation of face to 
        face encounter time with a patient;
            (C) at least one shall be conducted for services furnished 
        in a rural area and at least one for services furnished outside 
        such an area; and
            (D) at least one shall be conducted in a setting where 
        physicians bill under physicians' services in teaching settings 
        and at least one shall be conducted in a setting other than a 
        teaching setting.
        (4) Study of impact.--Each pilot project shall examine the 
    effect of the proposed guidelines on--
            (A) different types of physician practices, including those 
        with fewer than 10 full-time-equivalent employees (including 
        physicians); and
            (B) the costs of physician compliance, including education, 
        implementation, auditing, and monitoring.
        (5) Report on pilot projects.--Not later than 6 months after 
    the date of completion of pilot projects carried out under this 
    subsection with respect to a proposed guideline described in 
    paragraph (1), the Secretary shall submit to Congress a report on 
    the pilot projects. Each such report shall include a finding by the 
    Secretary of whether the objectives described in subsection (c) 
    will be met in the implementation of such proposed guideline.
    (c) Objectives for Evaluation and Management Guidelines.--The 
objectives for modified evaluation and management documentation 
guidelines developed by the Secretary shall be to--
        (1) identify clinically relevant documentation needed to code 
    accurately and assess coding levels accurately;
        (2) decrease the level of non-clinically pertinent and 
    burdensome documentation time and content in the physician's 
    medical record;
        (3) increase accuracy by reviewers; and
        (4) educate both physicians and reviewers.
    (d) Study of Simpler, Alternative Systems of Documentation for 
Physician Claims.--
        (1) Study.--The Secretary shall carry out a study of the 
    matters described in paragraph (2).
        (2) Matters described.--The matters referred to in paragraph 
    (1) are--
            (A) the development of a simpler, alternative system of 
        requirements for documentation accompanying claims for 
        evaluation and management physician services for which payment 
        is made under title XVIII of the Social Security Act; and
            (B) consideration of systems other than current coding and 
        documentation requirements for payment for such physician 
        services.
        (3) Consultation with practicing physicians.--In designing and 
    carrying out the study under paragraph (1), the Secretary shall 
    consult with practicing physicians, including physicians who are 
    part of group practices and including both generalists and 
    specialists.
        (4) Application of hipaa uniform coding requirements.--In 
    developing an alternative system under paragraph (2), the Secretary 
    shall consider requirements of administrative simplification under 
    part C of title XI of the Social Security Act.
        (5) Report to congress.--(A) Not later than October 1, 2005, 
    the Secretary shall submit to Congress a report on the results of 
    the study conducted under paragraph (1).
        (B) The Medicare Payment Advisory Commission shall conduct an 
    analysis of the results of the study included in the report under 
    subparagraph (A) and shall submit a report on such analysis to 
    Congress.
    (e) Study on Appropriate Coding of Certain Extended Office 
Visits.--The Secretary shall conduct a study of the appropriateness of 
coding in cases of extended office visits in which there is no 
diagnosis made. Not later than October 1, 2005, the Secretary shall 
submit a report to Congress on such study and shall include 
recommendations on how to code appropriately for such visits in a 
manner that takes into account the amount of time the physician spent 
with the patient.
    (f) Definitions.--In this section--
        (1) the term ``rural area'' has the meaning given that term in 
    section 1886(d)(2)(D) of the Social Security Act (42 U.S.C. 
    1395ww(d)(2)(D)); and
        (2) the term ``teaching settings'' are those settings described 
    in section 415.150 of title 42, Code of Federal Regulations.

SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND COVERAGE.

    (a) Council for Technology and Innovation.--Section 1868 (42 U.S.C. 
1395ee) is amended--
        (1) by adding at the end of the heading the following: ``; 
    council for technology and innovation'';
        (2) by inserting ``Practicing Physicians Advisory Council.--
    (1)'' after ``(a)'';
        (3) in paragraph (1), as so redesignated under paragraph (2), 
    by striking ``in this section'' and inserting ``in this 
    subsection'';
        (4) by redesignating subsections (b) and (c) as paragraphs (2) 
    and (3), respectively; and
        (5) by adding at the end the following new subsection:
    ``(b) Council for Technology and Innovation.--
        ``(1) Establishment.--The Secretary shall establish a Council 
    for Technology and Innovation within the Centers for Medicare & 
    Medicaid Services (in this section referred to as `CMS').
        ``(2) Composition.--The Council shall be composed of senior CMS 
    staff and clinicians and shall be chaired by the Executive 
    Coordinator for Technology and Innovation (appointed or designated 
    under paragraph (4)).
        ``(3) Duties.--The Council shall coordinate the activities of 
    coverage, coding, and payment processes under this title with 
    respect to new technologies and procedures, including new drug 
    therapies, and shall coordinate the exchange of information on new 
    technologies between CMS and other entities that make similar 
    decisions.
        ``(4) Executive coordinator for technology and innovation.--The 
    Secretary shall appoint (or designate) a noncareer appointee (as 
    defined in section 3132(a)(7) of title 5, United States Code) who 
    shall serve as the Executive Coordinator for Technology and 
    Innovation. Such executive coordinator shall report to the 
    Administrator of CMS, shall chair the Council, shall oversee the 
    execution of its duties, and shall serve as a single point of 
    contact for outside groups and entities regarding the coverage, 
    coding, and payment processes under this title.''.
    (b) Methods for Determining Payment Basis for New Lab Tests.--
Section 1833(h) (42 U.S.C. 1395l(h)) is amended by adding at the end 
the following:
    ``(8)(A) The Secretary shall establish by regulation procedures for 
determining the basis for, and amount of, payment under this subsection 
for any clinical diagnostic laboratory test with respect to which a new 
or substantially revised HCPCS code is assigned on or after January 1, 
2005 (in this paragraph referred to as `new tests').
    ``(B) Determinations under subparagraph (A) shall be made only 
after the Secretary--
        ``(i) makes available to the public (through an Internet 
    website and other appropriate mechanisms) a list that includes any 
    such test for which establishment of a payment amount under this 
    subsection is being considered for a year;
        ``(ii) on the same day such list is made available, causes to 
    have published in the Federal Register notice of a meeting to 
    receive comments and recommendations (and data on which 
    recommendations are based) from the public on the appropriate basis 
    under this subsection for establishing payment amounts for the 
    tests on such list;
        ``(iii) not less than 30 days after publication of such notice 
    convenes a meeting, that includes representatives of officials of 
    the Centers for Medicare & Medicaid Services involved in 
    determining payment amounts, to receive such comments and 
    recommendations (and data on which the recommendations are based);
        ``(iv) taking into account the comments and recommendations 
    (and accompanying data) received at such meeting, develops and 
    makes available to the public (through an Internet website and 
    other appropriate mechanisms) a list of proposed determinations 
    with respect to the appropriate basis for establishing a payment 
    amount under this subsection for each such code, together with an 
    explanation of the reasons for each such determination, the data on 
    which the determinations are based, and a request for public 
    written comments on the proposed determination; and
        ``(v) taking into account the comments received during the 
    public comment period, develops and makes available to the public 
    (through an Internet website and other appropriate mechanisms) a 
    list of final determinations of the payment amounts for such tests 
    under this subsection, together with the rationale for each such 
    determination, the data on which the determinations are based, and 
    responses to comments and suggestions received from the public.
    ``(C) Under the procedures established pursuant to subparagraph 
(A), the Secretary shall--
        ``(i) set forth the criteria for making determinations under 
    subparagraph (A); and
        ``(ii) make available to the public the data (other than 
    proprietary data) considered in making such determinations.
    ``(D) The Secretary may convene such further public meetings to 
receive public comments on payment amounts for new tests under this 
subsection as the Secretary deems appropriate.
    ``(E) For purposes of this paragraph:
        ``(i) The term `HCPCS' refers to the Health Care Procedure 
    Coding System.
        ``(ii) A code shall be considered to be `substantially revised' 
    if there is a substantive change to the definition of the test or 
    procedure to which the code applies (such as a new analyte or a new 
    methodology for measuring an existing analyte-specific test).''.
    (c) GAO Study on Improvements in External Data Collection for Use 
in the Medicare Inpatient Payment System.--
        (1) Study.--The Comptroller General of the United States shall 
    conduct a study that analyzes which external data can be collected 
    in a shorter timeframe by the Centers for Medicare & Medicaid 
    Services for use in computing payments for inpatient hospital 
    services. The study may include an evaluation of the feasibility 
    and appropriateness of using quarterly samples or special surveys 
    or any other methods. The study shall include an analysis of 
    whether other executive agencies, such as the Bureau of Labor 
    Statistics in the Department of Commerce, are best suited to 
    collect this information.
        (2) Report.--By not later than October 1, 2004, the Comptroller 
    General shall submit a report to Congress on the study under 
    paragraph (1).

SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERVICES UNDER MEDICARE 
              SECONDARY PAYOR (MSP) PROVISIONS.

    (a) In General.--The Secretary shall not require a hospital 
(including a critical access hospital) to ask questions (or obtain 
information) relating to the application of section 1862(b) of the 
Social Security Act (relating to medicare secondary payor provisions) 
in the case of reference laboratory services described in subsection 
(b), if the Secretary does not impose such requirement in the case of 
such services furnished by an independent laboratory.
    (b) Reference Laboratory Services Described.--Reference laboratory 
services described in this subsection are clinical laboratory 
diagnostic tests (or the interpretation of such tests, or both) 
furnished without a face-to-face encounter between the individual 
entitled to benefits under part A or enrolled under part B, or both, 
and the hospital involved and in which the hospital submits a claim 
only for such test or interpretation.

SEC. 944. EMTALA IMPROVEMENTS.

    (a) Payment for EMTALA-Mandated Screening and Stabilization 
Services.--
        (1) In general.--Section 1862 (42 U.S.C. 1395y) is amended by 
    inserting after subsection (c) the following new subsection:
    ``(d) For purposes of subsection (a)(1)(A), in the case of any item 
or service that is required to be provided pursuant to section 1867 to 
an individual who is entitled to benefits under this title, 
determinations as to whether the item or service is reasonable and 
necessary shall be made on the basis of the information available to 
the treating physician or practitioner (including the patient's 
presenting symptoms or complaint) at the time the item or service was 
ordered or furnished by the physician or practitioner (and not on the 
patient's principal diagnosis). When making such determinations with 
respect to such an item or service, the Secretary shall not consider 
the frequency with which the item or service was provided to the 
patient before or after the time of the admission or visit.''.
        (2) Effective date.--The amendment made by paragraph (1) shall 
    apply to items and services furnished on or after January 1, 2004.
    (b) Notification of Providers When EMTALA Investigation Closed.--
Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is amended by adding at 
the end the following new paragraph:
        ``(4) Notice upon closing an investigation.--The Secretary 
    shall establish a procedure to notify hospitals and physicians when 
    an investigation under this section is closed.''.
    (c) Prior Review by Peer Review Organizations in EMTALA Cases 
Involving Termination of Participation.--
        (1) In general.--Section 1867(d)(3) (42 U.S.C. 1395dd(d)(3)) is 
    amended--
            (A) in the first sentence, by inserting ``or in terminating 
        a hospital's participation under this title'' after ``in 
        imposing sanctions under paragraph (1)''; and
            (B) by adding at the end the following new sentences: 
        ``Except in the case in which a delay would jeopardize the 
        health or safety of individuals, the Secretary shall also 
        request such a review before making a compliance determination 
        as part of the process of terminating a hospital's 
        participation under this title for violations related to the 
        appropriateness of a medical screening examination, stabilizing 
        treatment, or an appropriate transfer as required by this 
        section, and shall provide a period of 5 days for such review. 
        The Secretary shall provide a copy of the organization's report 
        to the hospital or physician consistent with confidentiality 
        requirements imposed on the organization under such part B.''.
        (2) Effective date.--The amendments made by paragraph (1) shall 
    apply to terminations of participation initiated on or after the 
    date of the enactment of this Act.

SEC. 945. EMERGENCY MEDICAL TREATMENT AND LABOR ACT (EMTALA) TECHNICAL 
              ADVISORY GROUP.

    (a) Establishment.--The Secretary shall establish a Technical 
Advisory Group (in this section referred to as the ``Advisory Group'') 
to review issues related to the Emergency Medical Treatment and Labor 
Act (EMTALA) and its implementation. In this section, the term 
``EMTALA'' refers to the provisions of section 1867 of the Social 
Security Act (42 U.S.C. 1395dd).
    (b) Membership.--The Advisory Group shall be composed of 19 
members, including the Administrator of the Centers for Medicare & 
Medicaid Services and the Inspector General of the Department of Health 
and Human Services and of which--
        (1) 4 shall be representatives of hospitals, including at least 
    one public hospital, that have experience with the application of 
    EMTALA and at least 2 of which have not been cited for EMTALA 
    violations;
        (2) 7 shall be practicing physicians drawn from the fields of 
    emergency medicine, cardiology or cardiothoracic surgery, 
    orthopedic surgery, neurosurgery, pediatrics or a pediatric 
    subspecialty, obstetrics-gynecology, and psychiatry, with not more 
    than one physician from any particular field;
        (3) 2 shall represent patients;
        (4) 2 shall be staff involved in EMTALA investigations from 
    different regional offices of the Centers for Medicare & Medicaid 
    Services; and
        (5) 1 shall be from a State survey office involved in EMTALA 
    investigations and 1 shall be from a peer review organization, both 
    of whom shall be from areas other than the regions represented 
    under paragraph (4).
In selecting members described in paragraphs (1) through (3), the 
Secretary shall consider qualified individuals nominated by 
organizations representing providers and patients.
    (c) General Responsibilities.--The Advisory Group--
        (1) shall review EMTALA regulations;
        (2) may provide advice and recommendations to the Secretary 
    with respect to those regulations and their application to 
    hospitals and physicians;
        (3) shall solicit comments and recommendations from hospitals, 
    physicians, and the public regarding the implementation of such 
    regulations; and
        (4) may disseminate information on the application of such 
    regulations to hospitals, physicians, and the public.
    (d) Administrative Matters.--
        (1) Chairperson.--The members of the Advisory Group shall elect 
    a member to serve as chairperson of the Advisory Group for the life 
    of the Advisory Group.
        (2) Meetings.--The Advisory Group shall first meet at the 
    direction of the Secretary. The Advisory Group shall then meet 
    twice per year and at such other times as the Advisory Group may 
    provide.
    (e) Termination.--The Advisory Group shall terminate 30 months 
after the date of its first meeting.
    (f) Waiver of Administrative Limitation.--The Secretary shall 
establish the Advisory Group notwithstanding any limitation that may 
apply to the number of advisory committees that may be established 
(within the Department of Health and Human Services or otherwise).

SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PROVIDE CORE HOSPICE 
              SERVICES IN CERTAIN CIRCUMSTANCES.

    (a) In General.--Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is 
amended by adding at the end the following:
    ``(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high patient loads, 
staffing shortages due to illness or other events, or temporary travel 
of a patient outside a hospice program's service area, a hospice 
program may enter into arrangements with another hospice program for 
the provision by that other program of services described in paragraph 
(2)(A)(ii)(I). The provisions of paragraph (2)(A)(ii)(II) shall apply 
with respect to the services provided under such arrangements.
    ``(E) A hospice program may provide services described in paragraph 
(1)(A) other than directly by the program if the services are highly 
specialized services of a registered professional nurse and are 
provided non-routinely and so infrequently so that the provision of 
such services directly would be impracticable and prohibitively 
expensive.''.
    (b) Conforming Payment Provision.--Section 1814(i) (42 U.S.C. 
1395f(i)), as amended by section 512(b), is amended by adding at the 
end the following new paragraph:
    ``(5) In the case of hospice care provided by a hospice program 
under arrangements under section 1861(dd)(5)(D) made by another hospice 
program, the hospice program that made the arrangements shall bill and 
be paid for the hospice care.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to hospice care provided on or after the date of the enactment of 
this Act.

SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHOGENS STANDARD TO CERTAIN 
              HOSPITALS.

    (a) In General.--Section 1866 (42 U.S.C. 1395cc), as amended by 
section 506, is amended--
        (1) in subsection (a)(1)--
            (A) in subparagraph (T), by striking ``and'' at the end;
            (B) in subparagraph (U), by striking the period at the end 
        and inserting ``, and''; and
            (C) by inserting after subparagraph (U) the following new 
        subparagraph:
        ``(V) in the case of hospitals that are not otherwise subject 
    to the Occupational Safety and Health Act of 1970 (or a State 
    occupational safety and health plan that is approved under 18(b) of 
    such Act), to comply with the Bloodborne Pathogens standard under 
    section 1910.1030 of title 29 of the Code of Federal Regulations 
    (or as subsequently redesignated).''; and
        (2) by adding at the end of subsection (b) the following new 
    paragraph:
    ``(4)(A) A hospital that fails to comply with the requirement of 
subsection (a)(1)(V) (relating to the Bloodborne Pathogens standard) is 
subject to a civil money penalty in an amount described in subparagraph 
(B), but is not subject to termination of an agreement under this 
section.
    ``(B) The amount referred to in subparagraph (A) is an amount that 
is similar to the amount of civil penalties that may be imposed under 
section 17 of the Occupational Safety and Health Act of 1970 for a 
violation of the Bloodborne Pathogens standard referred to in 
subsection (a)(1)(U) by a hospital that is subject to the provisions of 
such Act.
    ``(C) A civil money penalty under this paragraph shall be imposed 
and collected in the same manner as civil money penalties under 
subsection (a) of section 1128A are imposed and collected under that 
section.''.
    (b) Effective Date.--The amendments made by this subsection (a) 
shall apply to hospitals as of July 1, 2004.

SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND CORRECTIONS.

    (a) Technical Amendments Relating to Advisory Committee Under BIPA 
Section 522.--(1) Subsection (i) of section 1114 (42 U.S.C. 1314)--
        (A) is transferred to section 1862 and added at the end of such 
    section; and
        (B) is redesignated as subsection (j).
    (2) Section 1862 (42 U.S.C. 1395y) is amended--
        (A) in the last sentence of subsection (a), by striking 
    ``established under section 1114(f)''; and
        (B) in subsection (j), as so transferred and redesignated--
            (i) by striking ``under subsection (f)''; and
            (ii) by striking ``section 1862(a)(1)'' and inserting 
        ``subsection (a)(1)''.
    (b) Terminology Corrections.--(1) Section 1869(c)(3)(I)(ii) (42 
U.S.C. 1395ff(c)(3)(I)(ii)) is amended--
        (A) in subclause (III), by striking ``policy'' and inserting 
    ``determination''; and
        (B) in subclause (IV), by striking ``medical review policies'' 
    and inserting ``coverage determinations''.
    (2) Section 1852(a)(2)(C) (42 U.S.C. 1395w-22(a)(2)(C)) is amended 
by striking ``policy'' and ``policy'' and inserting ``determination'' 
each place it appears and ``determination'', respectively.
    (c) Reference Corrections.--Section 1869(f)(4) (42 U.S.C. 
1395ff(f)(4)) is amended--
        (1) in subparagraph (A)(iv), by striking ``subclause (I), (II), 
    or (III)'' and inserting ``clause (i), (ii), or (iii)'';
        (2) in subparagraph (B), by striking ``clause (i)(IV)'' and 
    ``clause (i)(III)'' and inserting ``subparagraph (A)(iv)'' and 
    ``subparagraph (A)(iii)'', respectively; and
        (3) in subparagraph (C), by striking ``clause (i)'', 
    ``subclause (IV)'' and ``subparagraph (A)'' and inserting 
    ``subparagraph (A)'', ``clause (iv)'' and ``paragraph (1)(A)'', 
    respectively each place it appears.
    (d) Other Corrections.--Effective as if included in the enactment 
of section 521(c) of BIPA, section 1154(e) (42 U.S.C. 1320c-3(e)) is 
amended by striking paragraph (5).
    (e) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall be effective as if included in the enactment 
of BIPA.

SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

    The first sentence of section 1128(c)(3)(B) (42 U.S.C. 1320a-
7(c)(3)(B)) is amended to read as follows: ``Subject to subparagraph 
(G), in the case of an exclusion under subsection (a), the minimum 
period of exclusion shall be not less than five years, except that, 
upon the request of the administrator of a Federal health care program 
(as defined in section 1128B(f)) who determines that the exclusion 
would impose a hardship on individuals entitled to benefits under part 
A of title XVIII or enrolled under part B of such title, or both, the 
Secretary may, after consulting with the Inspector General of the 
Department of Health and Human Services, waive the exclusion under 
subsection (a)(1), (a)(3), or (a)(4) with respect to that program in 
the case of an individual or entity that is the sole community 
physician or sole source of essential specialized services in a 
community.''.

SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.

    (a) In General.--Section 1862 (42 U.S.C. 1395y) is amended by 
adding at the end, after the subsection transferred and redesignated by 
section 948(a), the following new subsection:
    ``(k)(1) Subject to paragraph (2), a group health plan (as defined 
in subsection (a)(1)(A)(v)) providing supplemental or secondary 
coverage to individuals also entitled to services under this title 
shall not require a medicare claims determination under this title for 
dental benefits specifically excluded under subsection (a)(12) as a 
condition of making a claims determination for such benefits under the 
group health plan.
    ``(2) A group health plan may require a claims determination under 
this title in cases involving or appearing to involve inpatient dental 
hospital services or dental services expressly covered under this title 
pursuant to actions taken by the Secretary.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date that is 60 days after the date of the enactment 
of this Act.

SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO COMPUTE DSH FORMULA.

    Beginning not later than 1 year after the date of the enactment of 
this Act, the Secretary shall arrange to furnish to subsection (d) 
hospitals (as defined in section 1886(d)(1)(B) of the Social Security 
Act, 42 U.S.C. 1395ww(d)(1)(B)) the data necessary for such hospitals 
to compute the number of patient days used in computing the 
disproportionate patient percentage under such section for that 
hospital for the current cost reporting year. Such data shall also be 
furnished to other hospitals which would qualify for additional 
payments under part A of title XVIII of the Social Security Act on the 
basis of such data.

SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

    (a) In General.--Section 1842(b)(6)(A) (42 U.S.C. 1395u(b)(6)(A)) 
is amended by striking ``or (ii) (where the service was provided in a 
hospital, critical access hospital, clinic, or other facility) to the 
facility in which the service was provided if there is a contractual 
arrangement between such physician or other person and such facility 
under which such facility submits the bill for such service,'' and 
inserting ``or (ii) where the service was provided under a contractual 
arrangement between such physician or other person and an entity, to 
the entity if, under the contractual arrangement, the entity submits 
the bill for the service and the contractual arrangement meets such 
program integrity and other safeguards as the Secretary may determine 
to be appropriate,''.
    (b) Conforming Amendment.--The second sentence of section 
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by striking ``except to 
an employer or facility as described in clause (A)'' and inserting 
``except to an employer or entity as described in subparagraph (A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made on or after the date of the enactment of this 
Act.

SEC. 953. OTHER PROVISIONS.

    (a) GAO Reports on the Physician Compensation.--
        (1) Sustainable growth rate and updates.--Not later than 6 
    months after the date of the enactment of this Act, the Comptroller 
    General of the United States shall submit to Congress a report on 
    the appropriateness of the updates in the conversion factor under 
    subsection (d)(3) of section 1848 of the Social Security Act (42 
    U.S.C. 1395w-4), including the appropriateness of the sustainable 
    growth rate formula under subsection (f) of such section for 2002 
    and succeeding years. Such report shall examine the stability and 
    predictability of such updates and rate and alternatives for the 
    use of such rate in the updates.
        (2) Physician compensation generally.--Not later than 12 months 
    after the date of the enactment of this Act, the Comptroller 
    General shall submit to Congress a report on all aspects of 
    physician compensation for services furnished under title XVIII of 
    the Social Security Act, and how those aspects interact and the 
    effect on appropriate compensation for physician services. Such 
    report shall review alternatives for the physician fee schedule 
    under section 1848 of such title (42 U.S.C. 1395w-4).
    (b) Annual Publication of List of National Coverage 
Determinations.--The Secretary shall provide, in an appropriate annual 
publication available to the public, a list of national coverage 
determinations made under title XVIII of the Social Security Act in the 
previous year and information on how to get more information with 
respect to such determinations.
    (c) GAO Report on Flexibility in Applying Home Health Conditions of 
Participation to Patients Who Are Not Medicare Beneficiaries.--Not 
later than 6 months after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to Congress a 
report on the implications if there were flexibility in the application 
of the medicare conditions of participation for home health agencies 
with respect to groups or types of patients who are not medicare 
beneficiaries. The report shall include an analysis of the potential 
impact of such flexible application on clinical operations and the 
recipients of such services and an analysis of methods for monitoring 
the quality of care provided to such recipients.
    (d) OIG Report on Notices Relating to Use of Hospital Lifetime 
Reserve Days.--Not later than 1 year after the date of the enactment of 
this Act, the Inspector General of the Department of Health and Human 
Services shall submit a report to Congress on--
        (1) the extent to which hospitals provide notice to medicare 
    beneficiaries in accordance with applicable requirements before 
    they use the 60 lifetime reserve days described in section 
    1812(a)(1) of the Social Security Act (42 U.S.C. 1395d(a)(1)); and
        (2) the appropriateness and feasibility of hospitals providing 
    a notice to such beneficiaries before they completely exhaust such 
    lifetime reserve days.

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS
                    Subtitle A--Medicaid Provisions

SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS.

    (a) Temporary Increase.--Section 1923(f)(3) (42 U.S.C. 1396r-
4(f)(3)) is amended--
        (1) in subparagraph (A), by striking ``subparagraph (B)'' and 
    inserting ``subparagraphs (B) and (C)''; and
        (2) by adding at the end the following new subparagraphs:
            ``(C) Special, temporary increase in allotments on a one-
        time, non-cumulative basis.--The DSH allotment for any State 
        (other than a State with a DSH allotment determined under 
        paragraph (5))--
                ``(i) for fiscal year 2004 is equal to 116 percent of 
            the DSH allotment for the State for fiscal year 2003 under 
            this paragraph, notwithstanding subparagraph (B); and
                ``(ii) for each succeeding fiscal year is equal to the 
            DSH allotment for the State for fiscal year 2004 or, in the 
            case of fiscal years beginning with the fiscal year 
            specified in subparagraph (D) for that State, the DSH 
            allotment for the State for the previous fiscal year 
            increased by the percentage change in the consumer price 
            index for all urban consumers (all items; U.S. city 
            average), for the previous fiscal year.
            ``(D) Fiscal year specified.--For purposes of subparagraph 
        (C)(ii), the fiscal year specified in this subparagraph for a 
        State is the first fiscal year for which the Secretary 
        estimates that the DSH allotment for that State will equal (or 
        no longer exceed) the DSH allotment for that State under the 
        law as in effect before the date of the enactment of this 
        subparagraph.''.
    (b) Increase in Floor for Treatment as a Low DSH State.--Section 
1923(f)(5) (42 U.S.C. 1396r-4(f)(5)) is amended--
        (1) in the paragraph heading, by striking ``extremely'';
        (2) by striking ``In the case of'' and inserting the following:
            ``(A) For fiscal years 2001 through 2003 for extremely low 
        dsh states.--In the case of'';
        (3) by inserting ``before fiscal year 2004'' after ``In 
    subsequent years''; and
        (4) by adding at the end the following:
            ``(B) For fiscal year 2004 and subsequent fiscal years.--In 
        the case of a State in which the total expenditures under the 
        State plan (including Federal and State shares) for 
        disproportionate share hospital adjustments under this section 
        for fiscal year 2000, as reported to the Administrator of the 
        Centers for Medicare & Medicaid Services as of August 31, 2003, 
        is greater than 0 but less than 3 percent of the State's total 
        amount of expenditures under the State plan for medical 
        assistance during the fiscal year, the DSH allotment for the 
        State with respect to--
                ``(i) fiscal year 2004 shall be the DSH allotment for 
            the State for fiscal year 2003 increased by 16 percent;
                ``(ii) each succeeding fiscal year before fiscal year 
            2009 shall be the DSH allotment for the State for the 
            previous fiscal year increased by 16 percent; and
                ``(iii) fiscal year 2009 and any subsequent fiscal 
            year, shall be the DSH allotment for the State for the 
            previous year subject to an increase for inflation as 
            provided in paragraph (3)(A).''.
    (c) Allotment Adjustment.--Section 1923(f) (42 U.S.C. 1396r-4(f)) 
is amended--
        (1) in paragraph (3)(A), by striking ``The DSH'' and inserting 
    ``Except as provided in paragraph (6), the DSH'';
        (2) by redesignating paragraph (6) as paragraph (7); and
        (3) by inserting after paragraph (5) the following:
        ``(6) Allotment adjustment.--Only with respect to fiscal year 
    2004 or 2005, if a statewide waiver under section 1115 is revoked 
    or terminated before the end of either such fiscal year and there 
    is no DSH allotment for the State, the Secretary shall--
            ``(A) permit the State whose waiver was revoked or 
        terminated to submit an amendment to its State plan that would 
        describe the methodology to be used by the State (after the 
        effective date of such revocation or termination) to identify 
        and make payments to disproportionate share hospitals, 
        including children's hospitals and institutions for mental 
        diseases or other mental health facilities (other than State-
        owned institutions or facilities), on the basis of the 
        proportion of patients served by such hospitals that are low-
        income patients with special needs; and
            ``(B) provide for purposes of this subsection for 
        computation of an appropriate DSH allotment for the State for 
        fiscal year 2004 or 2005 (or both) that would not exceed the 
        amount allowed under paragraph (3)(B)(ii) and that does not 
        result in greater expenditures under this title than would have 
        been made if such waiver had not been revoked or terminated.
    In determining the amount of an appropriate DSH allotment under 
    subparagraph (B) for a State, the Secretary shall take into account 
    the level of DSH expenditures for the State for the fiscal year 
    preceding the fiscal year in which the waiver commenced.''.
    (d) Increased Reporting and Other Requirements To Ensure the 
Appropriate Use of Medicaid DSH Payment Adjustments.--Section 1923 (42 
U.S.C. 1396r-4) is amended by adding at the end the following new 
subsection:
    ``(j) Annual Reports and Other Requirements Regarding Payment 
Adjustments.--With respect to fiscal year 2004 and each fiscal year 
thereafter, the Secretary shall require a State, as a condition of 
receiving a payment under section 1903(a)(1) with respect to a payment 
adjustment made under this section, to do the following:
        ``(1) Report.--The State shall submit an annual report that 
    includes the following:
            ``(A) An identification of each disproportionate share 
        hospital that received a payment adjustment under this section 
        for the preceding fiscal year and the amount of the payment 
        adjustment made to such hospital for the preceding fiscal year.
            ``(B) Such other information as the Secretary determines 
        necessary to ensure the appropriateness of the payment 
        adjustments made under this section for the preceding fiscal 
        year.
        ``(2) Independent certified audit.--The State shall annually 
    submit to the Secretary an independent certified audit that 
    verifies each of the following:
            ``(A) The extent to which hospitals in the State have 
        reduced their uncompensated care costs to reflect the total 
        amount of claimed expenditures made under this section.
            ``(B) Payments under this section to hospitals that comply 
        with the requirements of subsection (g).
            ``(C) Only the uncompensated care costs of providing 
        inpatient hospital and outpatient hospital services to 
        individuals described in paragraph (1)(A) of such subsection 
        are included in the calculation of the hospital-specific limits 
        under such subsection.
            ``(D) The State included all payments under this title, 
        including supplemental payments, in the calculation of such 
        hospital-specific limits.
            ``(E) The State has separately documented and retained a 
        record of all of its costs under this title, claimed 
        expenditures under this title, uninsured costs in determining 
        payment adjustments under this section, and any payments made 
        on behalf of the uninsured from payment adjustments under this 
        section.''.
    (e) Clarification Regarding Non-Regulation of Transfers.--
        (1) In general.--Nothing in section 1903(w) of the Social 
    Security Act (42 U.S.C. 1396b(w)) shall be construed by the 
    Secretary as prohibiting a State's use of funds as the non-Federal 
    share of expenditures under title XIX of such Act where such funds 
    are transferred from or certified by a publicly-owned regional 
    medical center located in another State and described in paragraph 
    (2), so long as the Secretary determines that such use of funds is 
    proper and in the interest of the program under title XIX.
        (2) Center described.--A center described in this paragraph is 
    a publicly-owned regional medical center that--
            (A) provides level 1 trauma and burn care services;
            (B) provides level 3 neonatal care services;
            (C) is obligated to serve all patients, regardless of State 
        of origin;
            (D) is located within a Standard Metropolitan Statistical 
        Area (SMSA) that includes at least 3 States, including the 
        States described in paragraph (1);
            (E) serves as a tertiary care provider for patients 
        residing within a 125 mile radius; and
            (F) meets the criteria for a disproportionate share 
        hospital under section 1923 of such Act in at least one State 
        other than the one in which the center is located.
        (3) Effective period.--This subsection shall apply through 
    December 31, 2005.

SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT DRUG PRICES CHARGED 
              TO CERTAIN PUBLIC HOSPITALS IN THE BEST PRICE EXEMPTIONS 
              FOR THE MEDICAID DRUG REBATE PROGRAM.

    (a) In General.--Section 1927(c)(1)(C)(i)(I) (42 U.S.C. 1396r-
8(c)(1)(C)(i)(I)) is amended by inserting before the semicolon the 
following: ``(including inpatient prices charged to hospitals described 
in section 340B(a)(4)(L) of the Public Health Service Act)''.
    (b) Anti-Diversion Protection.--Section 1927(c)(1)(C) (42 U.S.C. 
1396r-8(c)(1)(C)) is amended by adding at the end the following:
                ``(iii) Application of auditing and recordkeeping 
            requirements.--With respect to a covered entity described 
            in section 340B(a)(4)(L) of the Public Health Service Act, 
            any drug purchased for inpatient use shall be subject to 
            the auditing and recordkeeping requirements described in 
            section 340B(a)(5)(C) of the Public Health Service Act.''.

SEC. 1003. EXTENSION OF MORATORIUM.

    (a) In General.--Section 6408(a)(3) of the Omnibus Budget 
Reconciliation Act of 1989, as amended by section 13642 of the Omnibus 
Budget Reconciliation Act of 1993 and section 4758 of the Balanced 
Budget Act of 1997, is amended--
        (1) by striking ``until December 31, 2002'', and
        (2) by striking ``Kent Community Hospital Complex in Michigan 
    or.''
    (b) Effective Dates.--
        (1) Permanent extension.--The amendment made by subsection 
    (a)(1) shall take effect as if included in the amendment made by 
    section 4758 of the Balanced Budget Act of 1997.
        (2) Modification.--The amendment made by subsection (a)(2) 
    shall take effect on the date of enactment of this Act.

                  Subtitle B--Miscellaneous Provisions

SEC. 1011. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERVICES FURNISHED 
              TO UNDOCUMENTED ALIENS.

    (a) Total Amount Available for Allotment.--
        (1) In general.--Out of any funds in the Treasury not otherwise 
    appropriated, there are appropriated to the Secretary $250,000,000 
    for each of fiscal years 2005 through 2008 for the purpose of 
    making allotments under this section for payments to eligible 
    providers in States described in paragraph (1) or (2) of subsection 
    (b).
        (2) Availability.--Funds appropriated under paragraph (1) shall 
    remain available until expended.
    (b) State Allotments.--
        (1) Based on percentage of undocumented aliens.--
            (A) In general.--Out of the amount appropriated under 
        subsection (a) for a fiscal year, the Secretary shall use 
        $167,000,000 of such amount to make allotments for such fiscal 
        year in accordance with subparagraph (B).
            (B) Formula.--The amount of the allotment for payments to 
        eligible providers in each State for a fiscal year shall be 
        equal to the product of--
                (i) the total amount available for allotments under 
            this paragraph for the fiscal year; and
                (ii) the percentage of undocumented aliens residing in 
            the State as compared to the total number of such aliens 
            residing in all States, as determined by the Statistics 
            Division of the Immigration and Naturalization Service, as 
            of January 2003, based on the 2000 decennial census.
        (2) Based on number of undocumented alien apprehension 
    states.--
            (A) In general.--Out of the amount appropriated under 
        subsection (a) for a fiscal year, the Secretary shall use 
        $83,000,000 of such amount to make allotments, in addition to 
        amounts allotted under paragraph (1), for such fiscal year for 
        each of the 6 States with the highest number of undocumented 
        alien apprehensions for such fiscal year.
            (B) Determination of allotments.--The amount of the 
        allotment for each State described in subparagraph (A) for a 
        fiscal year shall be equal to the product of--
                (i) the total amount available for allotments under 
            this paragraph for the fiscal year; and
                (ii) the percentage of undocumented alien apprehensions 
            in the State in that fiscal year as compared to the total 
            of such apprehensions for all such States for the preceding 
            fiscal year.
            (C) Data.--For purposes of this paragraph, the highest 
        number of undocumented alien apprehensions for a fiscal year 
        shall be based on the apprehension rates for the 4-consecutive-
        quarter period ending before the beginning of the fiscal year 
        for which information is available for undocumented aliens in 
        such States, as reported by the Department of Homeland 
        Security.
    (c) Use of Funds.--
        (1) Authority to make payments.--From the allotments made for a 
    State under subsection (b) for a fiscal year, the Secretary shall 
    pay the amount (subject to the total amount available from such 
    allotments) determined under paragraph (2) directly to eligible 
    providers located in the State for the provision of eligible 
    services to aliens described in paragraph (5) to the extent that 
    the eligible provider was not otherwise reimbursed (through 
    insurance or otherwise) for such services during that fiscal year.
        (2) Determination of payment amounts.--
            (A) In general.--Subject to subparagraph (B), the payment 
        amount determined under this paragraph shall be an amount 
        determined by the Secretary that is equal to the lesser of--
                (i) the amount that the provider demonstrates was 
            incurred for the provision of such services; or
                (ii) amounts determined under a methodology established 
            by the Secretary for purposes of this subsection.
            (B) Pro-rata reduction.--If the amount of funds allotted to 
        a State under subsection (b) for a fiscal year is insufficient 
        to ensure that each eligible provider in that State receives 
        the amount of payment calculated under subparagraph (A), the 
        Secretary shall reduce that amount of payment with respect to 
        each eligible provider to ensure that the entire amount 
        allotted to the State for that fiscal year is paid to such 
        eligible providers.
        (3) Methodology.--In establishing a methodology under paragraph 
    (2)(A)(ii), the Secretary--
            (A) may establish different methodologies for types of 
        eligible providers;
            (B) may base payments for hospital services on estimated 
        hospital charges, adjusted to estimated cost, through the 
        application of hospital-specific cost-to-charge ratios;
            (C) shall provide for the election by a hospital to receive 
        either payments to the hospital for--
                (i) hospital and physician services; or
                (ii) hospital services and for a portion of the on-call 
            payments made by the hospital to physicians; and
            (D) shall make quarterly payments under this section to 
        eligible providers.
    If a hospital makes the election under subparagraph (C)(i), the 
    hospital shall pass on payments for services of a physician to the 
    physician and may not charge any administrative or other fee with 
    respect to such payments.
        (4) Limitation on use of funds.--Payments made to eligible 
    providers in a State from allotments made under subsection (b) for 
    a fiscal year may only be used for costs incurred in providing 
    eligible services to aliens described in paragraph (5).
        (5) Aliens described.--For purposes of paragraphs (1) and (2), 
    aliens described in this paragraph are any of the following:
            (A) Undocumented aliens.
            (B) Aliens who have been paroled into the United States at 
        a United States port of entry for the purpose of receiving 
        eligible services.
            (C) Mexican citizens permitted to enter the United States 
        for not more than 72 hours under the authority of a biometric 
        machine readable border crossing identification card (also 
        referred to as a ``laser visa'') issued in accordance with the 
        requirements of regulations prescribed under section 101(a)(6) 
        of the Immigration and Nationality Act (8 U.S.C. 1101(a)(6)).
    (d) Applications; Advance Payments.--
        (1) Deadline for establishment of application process.--
            (A) In general.--Not later than September 1, 2004, the 
        Secretary shall establish a process under which eligible 
        providers located in a State may request payments under 
        subsection (c).
            (B) Inclusion of measures to combat fraud and abuse.--The 
        Secretary shall include in the process established under 
        subparagraph (A) measures to ensure that inappropriate, 
        excessive, or fraudulent payments are not made from the 
        allotments determined under subsection (b), including 
        certification by the eligible provider of the veracity of the 
        payment request.
        (2) Advance payment; retrospective adjustment.--The process 
    established under paragraph (1) may provide for making payments 
    under this section for each quarter of a fiscal year on the basis 
    of advance estimates of expenditures submitted by applicants for 
    such payments and such other investigation as the Secretary may 
    find necessary, and for making reductions or increases in the 
    payments as necessary to adjust for any overpayment or underpayment 
    for prior quarters of such fiscal year.
    (e) Definitions.--In this section:
        (1) Eligible provider.--The term ``eligible provider'' means a 
    hospital, physician, or provider of ambulance services (including 
    an Indian Health Service facility whether operated by the Indian 
    Health Service or by an Indian tribe or tribal organization).
        (2) Eligible services.--The term ``eligible services'' means 
    health care services required by the application of section 1867 of 
    the Social Security Act (42 U.S.C. 1395dd), and related hospital 
    inpatient and outpatient services and ambulance services (as 
    defined by the Secretary).
        (3) Hospital.--The term ``hospital'' has the meaning given such 
    term in section 1861(e) of the Social Security Act (42 U.S.C. 
    1395x(e)), except that such term shall include a critical access 
    hospital (as defined in section 1861(mm)(1) of such Act (42 U.S.C. 
    1395x(mm)(1)).
        (4) Physician.--The term ``physician'' has the meaning given 
    that term in section 1861(r) of the Social Security Act (42 U.S.C. 
    1395x(r)).
        (5) Indian tribe; tribal organization.--The terms ``Indian 
    tribe'' and ``tribal organization'' have the meanings given such 
    terms in section 4 of the Indian Health Care Improvement Act (25 
    U.S.C. 1603).
        (6) State.--The term ``State'' means the 50 States and the 
    District of Columbia.

SEC. 1012. COMMISSION ON SYSTEMIC INTEROPERABILITY.

    (a) Establishment.--The Secretary shall establish a commission to 
be known as the ``Commission on Systemic Interoperability'' (in this 
section referred to as the ``Commission'').
    (b) Duties.--
        (1) In general.--The Commission shall develop a comprehensive 
    strategy for the adoption and implementation of health care 
    information technology standards, that includes a timeline and 
    prioritization for such adoption and implementation.
        (2) Considerations.--In developing the comprehensive health 
    care information technology strategy under paragraph (1), the 
    Commission shall consider--
            (A) the costs and benefits of the standards, both financial 
        impact and quality improvement;
            (B) the current demand on industry resources to implement 
        this Act and other electronic standards, including HIPAA 
        standards; and
            (C) the most cost-effective and efficient means for 
        industry to implement the standards.
        (3) Noninterference.--In carrying out this section, the 
    Commission shall not interfere with any standards development of 
    adoption processes underway in the private or public sector and 
    shall not replicate activities related to such standards or the 
    national health information infrastructure underway within the 
    Department of Health and Human Services.
        (4) Report.--Not later than October 31, 2005, the Commission 
    shall submit to the Secretary and to Congress a report describing 
    the strategy developed under paragraph (1), including an analysis 
    of the matters considered under paragraph (2).
    (c) Membership.--
        (1) Number and appointment.--The Commission shall be composed 
    of 11 members appointed as follows:
            (A) The President shall appoint three members, one of whom 
        the President shall designate as Chairperson.
            (B) The Majority Leader of the Senate shall appoint two 
        members.
            (C) The Minority Leader of the Senate shall appoint two 
        members.
            (D) The Speaker of the House of Representatives shall 
        appoint two members.
            (E) The Minority Leader of the House of Representatives 
        shall appoint two members.
        (2) Qualifications.--The membership of the Commission shall 
    include individuals with national recognition for their expertise 
    in health finance and economics, health plans and integrated 
    delivery systems, reimbursement of health facilities, practicing 
    physicians, practicing pharmacists, and other providers of health 
    services, health care technology and information systems, and other 
    related fields, who provide a mix of different professionals, broad 
    geographic representation, and a balance between urban and rural 
    representatives.
    (d) Terms.--Each member shall be appointed for the life of the 
Commission.
    (e) Compensation.--
        (1) Rates of pay.--Members shall each be paid at a rate not to 
    exceed the daily equivalent of the rate of basic pay for level IV 
    of the Executive Schedule for each day (including travel time) 
    during which they are engaged in the actual performance of duties 
    vested in the Commission.
        (2) Prohibition of compensation of federal employees.--Members 
    of the Commission who are full-time officers or employees of the 
    United States or Members of Congress may not receive additional 
    pay, allowances, or benefits by reason of their service on the 
    Commission.
        (3) Travel expenses.--Each member shall receive travel 
    expenses, including per diem in lieu of subsistence, in accordance 
    with applicable provisions under subchapter I of chapter 57 of 
    title 5, United States Code.
    (f) Quorum.--A majority of the members of the Commission shall 
constitute a quorum but a lesser number may hold hearings.
    (g) Director and Staff of Commission; Experts and Consultants.--
        (1) Director.--The Commission shall have a Director who shall 
    be appointed by the Chairperson. The Director shall be paid at a 
    rate not to exceed the rate of basic pay for level IV of the 
    Executive Schedule.
        (2) Staff.--With the approval of the Commission, the Director 
    may appoint and fix the pay of such additional personnel as the 
    Director considers appropriate.
        (3) Applicability of certain civil service laws.--The Director 
    and staff of the Commission may be appointed without regard to the 
    provisions of title 5, United States Code, governing appointments 
    in the competitive service, and may be paid without regard to the 
    provisions of chapter 51 and subchapter III of chapter 53 of that 
    title relating to classification and General Schedule pay rates, 
    except that an individual so appointed may not receive pay in 
    excess of level IV of the Executive Schedule.
        (4) Experts and consultants.--With the approval of the 
    Commission, the Director may procure temporary and intermittent 
    services under section 3109(b) of title 5, United States Code.
        (5) Staff of federal agencies.--Upon request of the 
    Chairperson, the head of any Federal department or agency may 
    detail, on a reimbursable basis, any of the personnel of that 
    department or agency to the Commission to assist it in carrying out 
    its duties under this Act.
    (h) Powers of Commission.--
        (1) Hearings and sessions.--The Commission may, for the purpose 
    of carrying out this Act, hold hearings, sit and act at times and 
    places, take testimony, and receive evidence as the Commission 
    considers appropriate.
        (2) Powers of members and agents.--Any member or agent of the 
    Commission may, if authorized by the Commission, take any action 
    which the Commission is authorized to take by this section.
        (3) Obtaining official data.--The Commission may secure 
    directly from any department or agency of the United States 
    information necessary to enable it to carry out this Act. Upon 
    request of the Chairperson of the Commission, the head of that 
    department or agency shall furnish that information to the 
    Commission.
        (4) Gifts, bequests, and devises.--The Commission may accept, 
    use, and dispose of gifts, bequests, or devises of services or 
    property, both real and personal, for the purpose of aiding or 
    facilitating the work of the Commission. Gifts, bequests, or 
    devises of money and proceeds from sales of other property received 
    as gifts, bequests, or devises shall be deposited in the Treasury 
    and shall be available for disbursement upon order of the 
    Commission. For purposes of Federal income, estate, and gift taxes, 
    property accepted under this subsection shall be considered as a 
    gift, bequest, or devise to the United States.
        (5) Mails.--The Commission may use the United States mails in 
    the same manner and under the same conditions as other departments 
    and agencies of the United States.
        (6) Administrative support services.--Upon the request of the 
    Commission, the Administrator of General Services shall provide to 
    the Commission, on a reimbursable basis, the administrative support 
    services necessary for the Commission to carry out its 
    responsibilities under this Act.
        (7) Contract authority.--The Commission may enter into 
    contracts or make other arrangements, as may be necessary for the 
    conduct of the work of the Commission (without regard to section 
    3709 of the Revised Statutes (41 U.S.C. 5)).
    (i) Termination.--The Commission shall terminate on 30 days after 
submitting its report pursuant to subsection (b)(3).
    (j) Authorization of Appropriations.--There is authorized to be 
appropriated such sums as may be necessary to carry out this section.

SEC. 1013. RESEARCH ON OUTCOMES OF HEALTH CARE ITEMS AND SERVICES.

    (a) Research, Demonstrations, and Evaluations.--
        (1) Improvement of effectiveness and efficiency.--
            (A) In general.--To improve the quality, effectiveness, and 
        efficiency of health care delivered pursuant to the programs 
        established under titles XVIII, XIX, and XXI of the Social 
        Security Act, the Secretary acting through the Director of the 
        Agency for Healthcare Research and Quality (in this section 
        referred to as the ``Director''), shall conduct and support 
        research to meet the priorities and requests for scientific 
        evidence and information identified by such programs with 
        respect to--
                (i) the outcomes, comparative clinical effectiveness, 
            and appropriateness of health care items and services 
            (including prescription drugs); and
                (ii) strategies for improving the efficiency and 
            effectiveness of such programs, including the ways in which 
            such items and services are organized, managed, and 
            delivered under such programs.
            (B) Specification.--To respond to priorities and 
        information requests in subparagraph (A), the Secretary may 
        conduct or support, by grant, contract, or interagency 
        agreement, research, demonstrations, evaluations, technology 
        assessments, or other activities, including the provision of 
        technical assistance, scientific expertise, or methodological 
        assistance.
        (2) Priorities.--
            (A) In general.--The Secretary shall establish a process to 
        develop priorities that will guide the research, 
        demonstrations, and evaluation activities undertaken pursuant 
        to this section.
            (B) Initial list.--Not later than 6 months after the date 
        of the enactment of this Act, the Secretary shall establish an 
        initial list of priorities for research related to health care 
        items and services (including prescription drugs).
            (C) Process.--In carrying out subparagraph (A), the 
        Secretary--
                (i) shall ensure that there is broad and ongoing 
            consultation with relevant stakeholders in identifying the 
            highest priorities for research, demonstrations, and 
            evaluations to support and improve the programs established 
            under titles XVIII, XIX, and XXI of the Social Security 
            Act;
                (ii) may include health care items and services which 
            impose a high cost on such programs, as well as those which 
            may be underutilized or overutilized and which may 
            significantly improve the prevention, treatment, or cure of 
            diseases and conditions (including chronic conditions) 
            which impose high direct or indirect costs on patients or 
            society; and
                (iii) shall ensure that the research and activities 
            undertaken pursuant to this section are responsive to the 
            specified priorities and are conducted in a timely manner.
        (3) Evaluation and synthesis of scientific evidence.--
            (A) In general.--The Secretary shall--
                (i) evaluate and synthesize available scientific 
            evidence related to health care items and services 
            (including prescription drugs) identified as priorities in 
            accordance with paragraph (2) with respect to the 
            comparative clinical effectiveness, outcomes, 
            appropriateness, and provision of such items and services 
            (including prescription drugs);
                (ii) identify issues for which existing scientific 
            evidence is insufficient with respect to such health care 
            items and services (including prescription drugs);
                (iii) disseminate to prescription drug plans and MA-PD 
            plans under part D of title XVIII of the Social Security 
            Act, other health plans, and the public the findings made 
            under clauses (i) and (ii); and
                (iv) work in voluntary collaboration with public and 
            private sector entities to facilitate the development of 
            new scientific knowledge regarding health care items and 
            services (including prescription drugs).
            (B) Initial research.--The Secretary shall complete the 
        evaluation and synthesis of the initial research required by 
        the priority list developed under paragraph (2)(B) not later 
        than 18 months after the development of such list.
            (C) Dissemination.--
                (i) In general.--To enhance patient safety and the 
            quality of health care, the Secretary shall make available 
            and disseminate in appropriate formats to prescription 
            drugs plans under part D, and MA-PD plans under part C, of 
            title XVIII of the Social Security Act, other health plans, 
            and the public the evaluations and syntheses prepared 
            pursuant to subparagraph (A) and the findings of research 
            conducted pursuant to paragraph (1). In carrying out this 
            clause the Secretary, in order to facilitate the 
            availability of such evaluations and syntheses or findings 
            at every decision point in the health care system, shall--

                    (I) present such evaluations and syntheses or 
                findings in a form that is easily understood by the 
                individuals receiving health care items and services 
                (including prescription drugs) under such plans and 
                periodically assess that the requirements of this 
                subclause have been met; and
                    (II) provide such evaluations and syntheses or 
                findings and other relevant information through easily 
                accessible and searchable electronic mechanisms, and in 
                hard copy formats as appropriate.

                (ii) Rule of construction.--Nothing in this section 
            shall be construed as--

                    (I) affecting the authority of the Secretary or the 
                Commissioner of Food and Drugs under the Federal Food, 
                Drug, and Cosmetic Act or the Public Health Service 
                Act; or
                    (II) conferring any authority referred to in 
                subclause (I) to the Director.

            (D) Accountability.--In carrying out this paragraph, the 
        Secretary shall implement activities in a manner that--
                (i) makes publicly available all scientific evidence 
            relied upon and the methodologies employed, provided such 
            evidence and method are not protected from public 
            disclosure by section 1905 of title 18, United States Code, 
            or other applicable law so that the results of the 
            research, analyses, or syntheses can be evaluated or 
            replicated; and
                (ii) ensures that any information needs and unresolved 
            issues identified in subparagraph (A)(ii) are taken into 
            account in priority-setting for future research conducted 
            by the Secretary.
        (4) Confidentiality.--
            (A) In general.--In making use of administrative, clinical, 
        and program data and information developed or collected with 
        respect to the programs established under titles XVIII, XIX, 
        and XXI of the Social Security Act, for purposes of carrying 
        out the requirements of this section or the activities 
        authorized under title IX of the Public Health Service Act (42 
        U.S.C. 299 et seq.), such data and information shall be 
        protected in accordance with the confidentiality requirements 
        of title IX of the Public Health Service Act.
            (B) Rule of construction.--Nothing in this section shall be 
        construed to require or permit the disclosure of data provided 
        to the Secretary that is otherwise protected from disclosure 
        under the Federal Food, Drug, and Cosmetic Act, section 1905 of 
        title 18, United States Code, or other applicable law.
        (5) Evaluations.--The Secretary shall conduct and support 
    evaluations of the activities carried out under this section to 
    determine the extent to which such activities have had an effect on 
    outcomes and utilization of health care items and services.
        (6) Improving information available to health care providers, 
    patients, and policymakers.--Not later than 18 months after the 
    date of enactment of this Act, the Secretary shall identify options 
    that could be undertaken in voluntary collaboration with private 
    and public entities (as appropriate) for the--
            (A) provision of more timely information through the 
        programs established under titles XVIII, XIX, and XXI of the 
        Social Security Act, regarding the outcomes and quality of 
        patient care, including clinical and patient-reported outcomes, 
        especially with respect to interventions and conditions for 
        which clinical trials would not be feasible or raise ethical 
        concerns that are difficult to address;
            (B) acceleration of the adoption of innovation and quality 
        improvement under such programs; and
            (C) development of management tools for the programs 
        established under titles XIX and XXI of the Social Security 
        Act, and with respect to the programs established under such 
        titles, assess the feasibility of using administrative or 
        claims data, to--
                (i) improve oversight by State officials;
                (ii) support Federal and State initiatives to improve 
            the quality, safety, and efficiency of services provided 
            under such programs; and
                (iii) provide a basis for estimating the fiscal and 
            coverage impact of Federal or State program and policy 
            changes.
    (b) Recommendations.--
        (1) Disclaimer.--In carrying out this section, the Director 
    shall--
            (A) not mandate national standards of clinical practice or 
        quality health care standards; and
            (B) include in any recommendations resulting from projects 
        funded and published by the Director, a corresponding reference 
        to the prohibition described in subparagraph (A).
        (2) Requirement for implementation.--Research, evaluation, and 
    communication activities performed pursuant to this section shall 
    reflect the principle that clinicians and patients should have the 
    best available evidence upon which to make choices in health care 
    items and services, in providers, and in health care delivery 
    systems, recognizing that patient subpopulations and patient and 
    physician preferences may vary.
        (3) Rule of construction.--Nothing in this section shall be 
    construed to provide the Director with authority to mandate a 
    national standard or require a specific approach to quality 
    measurement and reporting.
    (c) Research With Respect to Dissemination.--The Secretary, acting 
through the Director, may conduct or support research with respect to 
improving methods of disseminating information in accordance with 
subsection (a)(3)(C).
    (d) Limitation on CMS.--The Administrator of the Centers for 
Medicare & Medicaid Services may not use data obtained in accordance 
with this section to withhold coverage of a prescription drug.
    (e) Authorization of Appropriations.--There is authorized to be 
appropriated to carry out this section, $50,000,000 for fiscal year 
2004, and such sums as may be necessary for each fiscal year 
thereafter.

SEC. 1014. HEALTH CARE THAT WORKS FOR ALL AMERICANS: CITIZENS HEALTH 
              CARE WORKING GROUP.

    (a) Findings.--Congress finds the following:
        (1) In order to improve the health care system, the American 
    public must engage in an informed national public debate to make 
    choices about the services they want covered, what health care 
    coverage they want, and how they are willing to pay for coverage.
        (2) More than a trillion dollars annually is spent on the 
    health care system, yet--
            (A) 41,000,000 Americans are uninsured;
            (B) insured individuals do not always have access to 
        essential, effective services to improve and maintain their 
        health; and
            (C) employers, who cover over 170,000,000 Americans, find 
        providing coverage increasingly difficult because of rising 
        costs and double digit premium increases.
        (3) Despite increases in medical care spending that are greater 
    than the rate of inflation, population growth, and Gross Domestic 
    Product growth, there has not been a commensurate improvement in 
    our health status as a nation.
        (4) Health care costs for even just 1 member of a family can be 
    catastrophic, resulting in medical bills potentially harming the 
    economic stability of the entire family.
        (5) Common life occurrences can jeopardize the ability of a 
    family to retain private coverage or jeopardize access to public 
    coverage.
        (6) Innovations in health care access, coverage, and quality of 
    care, including the use of technology, have often come from States, 
    local communities, and private sector organizations, but more 
    creative policies could tap this potential.
        (7) Despite our Nation's wealth, the health care system does 
    not provide coverage to all Americans who want it.
    (b) Purposes.--The purposes of this section are--
        (1) to provide for a nationwide public debate about improving 
    the health care system to provide every American with the ability 
    to obtain quality, affordable health care coverage; and
        (2) to provide for a vote by Congress on the recommendations 
    that result from the debate.
    (c) Establishment.--The Secretary, acting through the Agency for 
Healthcare Research and Quality, shall establish an entity to be known 
as the Citizens' Health Care Working Group (referred to in this section 
as the ``Working Group'').
    (d) Membership.--
        (1) Number and appointment.--The Working Group shall be 
    composed of 15 members. One member shall be the Secretary. The 
    Comptroller General of the United States shall appoint 14 members.
        (2) Qualifications.--
            (A) In general.--The membership of the Working Group shall 
        include--
                (i) consumers of health services that represent those 
            individuals who have not had insurance within 2 years of 
            appointment, that have had chronic illnesses, including 
            mental illness, are disabled, and those who receive 
            insurance coverage through medicare and medicaid; and
                (ii) individuals with expertise in financing and paying 
            for benefits and access to care, business and labor 
            perspectives, and providers of health care.
        The membership shall reflect a broad geographic representation 
        and a balance between urban and rural representatives.
            (B) Prohibited appointments.--Members of the Working Group 
        shall not include Members of Congress or other elected 
        government officials (Federal, State, or local). Individuals 
        appointed to the Working Group shall not be paid employees or 
        representatives of associations or advocacy organizations 
        involved in the health care system.
    (e) Period of Appointment.--Members of the Working Group shall be 
appointed for a life of the Working Group. Any vacancies shall not 
affect the power and duties of the Working Group but shall be filled in 
the same manner as the original appointment.
    (f) Designation of the Chairperson.--Not later than 15 days after 
the date on which all members of the Working Group have been appointed 
under subsection (d)(1), the Comptroller General shall designate the 
chairperson of the Working Group.
    (g) Subcommittees.--The Working Group may establish subcommittees 
if doing so increases the efficiency of the Working Group in completing 
its tasks.
    (h) Duties.--
        (1) Hearings.--Not later than 90 days after the date of the 
    designation of the chairperson under subsection (f), the Working 
    Group shall hold hearings to examine--
            (A) the capacity of the public and private health care 
        systems to expand coverage options;
            (B) the cost of health care and the effectiveness of care 
        provided at all stages of disease;
            (C) innovative State strategies used to expand health care 
        coverage and lower health care costs;
            (D) local community solutions to accessing health care 
        coverage;
            (E) efforts to enroll individuals currently eligible for 
        public or private health care coverage;
            (F) the role of evidence-based medical practices that can 
        be documented as restoring, maintaining, or improving a 
        patient's health, and the use of technology in supporting 
        providers in improving quality of care and lowering costs; and
            (G) strategies to assist purchasers of health care, 
        including consumers, to become more aware of the impact of 
        costs, and to lower the costs of health care.
        (2) Additional hearings.--The Working Group may hold additional 
    hearings on subjects other than those listed in paragraph (1) so 
    long as such hearings are determined to be necessary by the Working 
    Group in carrying out the purposes of this section. Such additional 
    hearings do not have to be completed within the time period 
    specified in paragraph (1) but shall not delay the other activities 
    of the Working Group under this section.
        (3) The health report to the american people.--Not later than 
    90 days after the hearings described in paragraphs (1) and (2) are 
    completed, the Working Group shall prepare and make available to 
    health care consumers through the Internet and other appropriate 
    public channels, a report to be entitled, ``The Health Report to 
    the American People''. Such report shall be understandable to the 
    general public and include--
            (A) a summary of--
                (i) health care and related services that may be used 
            by individuals throughout their life span;
                (ii) the cost of health care services and their medical 
            effectiveness in providing better quality of care for 
            different age groups;
                (iii) the source of coverage and payment, including 
            reimbursement, for health care services;
                (iv) the reasons people are uninsured or underinsured 
            and the cost to taxpayers, purchasers of health services, 
            and communities when Americans are uninsured or 
            underinsured;
                (v) the impact on health care outcomes and costs when 
            individuals are treated in all stages of disease;
                (vi) health care cost containment strategies; and
                (vii) information on health care needs that need to be 
            addressed;
            (B) examples of community strategies to provide health care 
        coverage or access;
            (C) information on geographic-specific issues relating to 
        health care;
            (D) information concerning the cost of care in different 
        settings, including institutional-based care and home and 
        community-based care;
            (E) a summary of ways to finance health care coverage; and
            (F) the role of technology in providing future health care 
        including ways to support the information needs of patients and 
        providers.
        (4) Community meetings.--
            (A) In general.--Not later than 1 year after the date on 
        which all the members of the Working Group have been appointed 
        under subsection (d)(1) and appropriations are first made 
        available to carry out this section, the Working Group shall 
        initiate health care community meetings throughout the United 
        States (in this paragraph referred to as ``community 
        meetings''). Such community meetings may be geographically or 
        regionally based and shall be completed within 180 days after 
        the initiation of the first meeting.
            (B) Number of meetings.--The Working Group shall hold a 
        sufficient number of community meetings in order to receive 
        information that reflects--
                (i) the geographic differences throughout the United 
            States;
                (ii) diverse populations; and
                (iii) a balance among urban and rural populations.
            (C) Meeting requirements.--
                (i) Facilitator.--A State health officer may be the 
            facilitator at the community meetings.
                (ii) Attendance.--At least 1 member of the Working 
            Group shall attend and serve as chair of each community 
            meeting. Other members may participate through interactive 
            technology.
                (iii) Topics.--The community meetings shall, at a 
            minimum, address the following questions:

                    (I) What health care benefits and services should 
                be provided?
                    (II) How does the American public want health care 
                delivered?
                    (III) How should health care coverage be financed?
                    (IV) What trade-offs are the American public 
                willing to make in either benefits or financing to 
                ensure access to affordable, high quality health care 
                coverage and services?

                (iv) Interactive technology.--The Working Group may 
            encourage public participation in community meetings 
            through interactive technology and other means as 
            determined appropriate by the Working Group.
            (D) Interim requirements.--Not later than 180 days after 
        the date of completion of the community meetings, the Working 
        Group shall prepare and make available to the public through 
        the Internet and other appropriate public channels, an interim 
        set of recommendations on health care coverage and ways to 
        improve and strengthen the health care system based on the 
        information and preferences expressed at the community 
        meetings. There shall be a 90-day public comment period on such 
        recommendations.
    (i) Recommendations.--Not later than 120 days after the expiration 
of the public comment period described in subsection (h)(4)(D), the 
Working Group shall submit to Congress and the President a final set of 
recommendations.
    (j) Administration.--
        (1) Executive director.--There shall be an Executive Director 
    of the Working Group who shall be appointed by the chairperson of 
    the Working Group in consultation with the members of the Working 
    Group.
        (2) Compensation.--While serving on the business of the Working 
    Group (including travel time), a member of the Working Group shall 
    be entitled to compensation at the per diem equivalent of the rate 
    provided for level IV of the Executive Schedule under section 5315 
    of title 5, United States Code, and while so serving away from home 
    and the member's regular place of business, a member may be allowed 
    travel expenses, as authorized by the chairperson of the Working 
    Group. For purposes of pay and employment benefits, rights, and 
    privileges, all personnel of the Working Group shall be treated as 
    if they were employees of the Senate.
        (3) Information from federal agencies.--The Working Group may 
    secure directly from any Federal department or agency such 
    information as the Working Group considers necessary to carry out 
    this section. Upon request of the Working Group, the head of such 
    department or agency shall furnish such information.
        (4) Postal services.--The Working Group may use the United 
    States mails in the same manner and under the same conditions as 
    other departments and agencies of the Federal Government.
    (k) Detail.--Not more than 10 Federal Government employees employed 
by the Department of Labor and 10 Federal Government employees employed 
by the Department of Health and Human Services may be detailed to the 
Working Group under this section without further reimbursement. Any 
detail of an employee shall be without interruption or loss of civil 
service status or privilege.
    (l) Temporary and Intermittent Services.--The chairperson of the 
Working Group may procure temporary and intermittent services under 
section 3109(b) of title 5, United States Code, at rates for 
individuals which do not exceed the daily equivalent of the annual rate 
of basic pay prescribed for level V of the Executive Schedule under 
section 5316 of such title.
    (m) Annual Report.--Not later than 1 year after the date of 
enactment of this Act, and annually thereafter during the existence of 
the Working Group, the Working Group shall report to Congress and make 
public a detailed description of the expenditures of the Working Group 
used to carry out its duties under this section.
    (n) Sunset of Working Group.--The Working Group shall terminate on 
the date that is 2 years after the date on which all the members of the 
Working Group have been appointed under subsection (d)(1) and 
appropriations are first made available to carry out this section.
    (o) Administration Review and Comments.--Not later than 45 days 
after receiving the final recommendations of the Working Group under 
subsection (i), the President shall submit a report to Congress which 
shall contain--
        (1) additional views and comments on such recommendations; and
        (2) recommendations for such legislation and administrative 
    actions as the President considers appropriate.
    (p) Required Congressional Action.--Not later than 45 days after 
receiving the report submitted by the President under subsection (o), 
each committee of jurisdiction of Congress, the Committee on Finance of 
the Senate, the Committee on Health, Education, Labor, and Pensions of 
the Senate, the Committee on Ways and Means of the House of 
Representatives, the Committee on Energy and Commerce of the House of 
Representatives, Committee on Education and the Workforce of the House 
of Representatives, shall hold at least 1 hearing on such report and on 
the final recommendations of the Working Group submitted under 
subsection (i).
    (q) Authorization of Appropriations.--
        (1) In general.--There are authorized to be appropriated to 
    carry out this section, other than subsection (h)(3), $3,000,000 
    for each of fiscal years 2005 and 2006.
        (2) Health report to the american people.--There are authorized 
    to be appropriated for the preparation and dissemination of the 
    Health Report to the American People described in subsection 
    (h)(3), such sums as may be necessary for the fiscal year in which 
    the report is required to be submitted.

SEC. 1015. FUNDING START-UP ADMINISTRATIVE COSTS FOR MEDICARE REFORM.

    (a) In General.--There are appropriated to carry out this Act 
(including the amendments made by this Act), to be transferred from the 
Federal Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund--
        (1) not to exceed $1,000,000,000 for the Centers for Medicare & 
    Medicaid Services; and
        (2) not to exceed $500,000,000 for the Social Security 
    Administration.
    (b) Availability.--Amounts provided under subsection (a) shall 
remain available until September 30, 2005.
    (c) Application.--From amounts provided under subsection (a)(2), 
the Social Security Administration may reimburse the Internal Revenue 
Service for expenses in carrying out this Act (and the amendments made 
by this Act).
    (d) Transfer.--The President may transfer amounts provided under 
subsection (a) between the Centers for Medicare & Medicaid Services and 
the Social Security Administration. Notice of such transfers shall be 
transmitted within 15 days to the authorizing committees of the House 
of Representatives and of the Senate.

SEC. 1016. HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM.

    Title XVIII is amended by adding at the end the following new 
section:

             ``health care infrastructure improvement program

    ``Sec. 1897. (a) Establishment.--The Secretary shall establish a 
loan program that provides loans to qualifying hospitals for payment of 
the capital costs of projects described in subsection (d).
    ``(b) Application.--No loan may be provided under this section to a 
qualifying hospital except pursuant to an application that is submitted 
and approved in a time, manner, and form specified by the Secretary. A 
loan under this section shall be on such terms and conditions and meet 
such requirements as the Secretary determines appropriate.
    ``(c) Selection Criteria.--
        ``(1) In general.--The Secretary shall establish criteria for 
    selecting among qualifying hospitals that apply for a loan under 
    this section. Such criteria shall consider the extent to which the 
    project for which loan is sought is nationally or regionally 
    significant, in terms of expanding or improving the health care 
    infrastructure of the United States or the region or in terms of 
    the medical benefit that the project will have.
        ``(2) Qualifying hospital defined.--For purposes of this 
    section, the term `qualifying hospital' means a hospital that--
            ``(A) is engaged in research in the causes, prevention, and 
        treatment of cancer; and
            ``(B) is designated as a cancer center for the National 
        Cancer Institute or is designated by the State as the official 
        cancer institute of the State.
    ``(d) Projects.--A project described in this subsection is a 
project of a qualifying hospital that is designed to improve the health 
care infrastructure of the hospital, including construction, 
renovation, or other capital improvements.
    ``(e) State and Local Permits.--The provision of a loan under this 
section with respect to a project shall not--
        ``(1) relieve any recipient of the loan of any obligation to 
    obtain any required State or local permit or approval with respect 
    to the project;
        ``(2) limit the right of any unit of State or local government 
    to approve or regulate any rate of return on private equity 
    invested in the project; or
        ``(3) otherwise supersede any State or local law (including any 
    regulation) applicable to the construction or operation of the 
    project.
    ``(f) Forgiveness of Indebtedness.--The Secretary may forgive a 
loan provided to a qualifying hospital under this section under terms 
and conditions that are analogous to the loan forgiveness provision for 
student loans under part D of title IV of the Higher Education Act of 
1965 (20 U.S.C. 1087a et seq.), except that the Secretary shall 
condition such forgiveness on the establishment by the hospital of--
            ``(A) an outreach program for cancer prevention, early 
        diagnosis, and treatment that provides services to a 
        substantial majority of the residents of a State or region, 
        including residents of rural areas;
            ``(B) an outreach program for cancer prevention, early 
        diagnosis, and treatment that provides services to multiple 
        Indian tribes; and
            ``(C)(i) unique research resources (such as population 
        databases); or
            ``(ii) an affiliation with an entity that has unique 
        research resources.
    ``(g) Funding.--
        ``(1) In general.--There are appropriated, out of amounts in 
    the Treasury not otherwise appropriated, to carry out this section, 
    $200,000,000, to remain available during the period beginning on 
    July 1, 2004, and ending on September 30, 2008.
        ``(2) Administrative costs.--From funds made available under 
    paragraph (1), the Secretary may use, for the administration of 
    this section, not more than $2,000,000 for each of fiscal years 
    2004 through 2008.
        ``(3) Availability.--Amounts appropriated under this section 
    shall be available for obligation on July 1, 2004.
    ``(h) Report to Congress.--Not later than 4 years after the date of 
the enactment of this section, the Secretary shall submit to Congress a 
report on the projects for which loans are provided under this section 
and a recommendation as to whether the Congress should authorize the 
Secretary to continue loans under this section beyond fiscal year 
2008.''.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS
            Subtitle A--Access to Affordable Pharmaceuticals

SEC. 1101. THIRTY-MONTH STAY-OF-EFFECTIVENESS PERIOD.

    (a) Abbreviated New Drug Applications.--Section 505(j) of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) is amended--
        (1) in paragraph (2)--
            (A) by striking subparagraph (B) and inserting the 
        following:
    ``(B) Notice of opinion that patent is invalid or will not be 
infringed.--
        ``(i) Agreement to give notice.--An applicant that makes a 
    certification described in subparagraph (A)(vii)(IV) shall include 
    in the application a statement that the applicant will give notice 
    as required by this subparagraph.
        ``(ii) Timing of notice.--An applicant that makes a 
    certification described in subparagraph (A)(vii)(IV) shall give 
    notice as required under this subparagraph--
            ``(I) if the certification is in the application, not later 
        than 20 days after the date of the postmark on the notice with 
        which the Secretary informs the applicant that the application 
        has been filed; or
            ``(II) if the certification is in an amendment or 
        supplement to the application, at the time at which the 
        applicant submits the amendment or supplement, regardless of 
        whether the applicant has already given notice with respect to 
        another such certification contained in the application or in 
        an amendment or supplement to the application.
        ``(iii) Recipients of notice.--An applicant required under this 
    subparagraph to give notice shall give notice to--
            ``(I) each owner of the patent that is the subject of the 
        certification (or a representative of the owner designated to 
        receive such a notice); and
            ``(II) the holder of the approved application under 
        subsection (b) for the drug that is claimed by the patent or a 
        use of which is claimed by the patent (or a representative of 
        the holder designated to receive such a notice).
        ``(iv) Contents of notice.--A notice required under this 
    subparagraph shall--
            ``(I) state that an application that contains data from 
        bioavailability or bioequivalence studies has been submitted 
        under this subsection for the drug with respect to which the 
        certification is made to obtain approval to engage in the 
        commercial manufacture, use, or sale of the drug before the 
        expiration of the patent referred to in the certification; and
            ``(II) include a detailed statement of the factual and 
        legal basis of the opinion of the applicant that the patent is 
        invalid or will not be infringed.''; and
            (B) by adding at the end the following subparagraph:
    ``(D)(i) An applicant may not amend or supplement an application to 
seek approval of a drug referring to a different listed drug from the 
listed drug identified in the application as submitted to the 
Secretary.
    ``(ii) With respect to the drug for which an application is 
submitted, nothing in this subsection prohibits an applicant from 
amending or supplementing the application to seek approval of a 
different strength.
    ``(iii) Within 60 days after the date of the enactment of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 
the Secretary shall issue guidance defining the term `listed drug' for 
purposes of this subparagraph.''; and
        (2) in paragraph (5)--
            (A) in subparagraph (B)--
                (i) by striking ``under the following'' and inserting 
            ``by applying the following to each certification made 
            under paragraph (2)(A)(vii)''; and
                (ii) in clause (iii)--

                    (I) in the first sentence, by striking ``unless'' 
                and all that follows and inserting ``unless, before the 
                expiration of 45 days after the date on which the 
                notice described in paragraph (2)(B) is received, an 
                action is brought for infringement of the patent that 
                is the subject of the certification and for which 
                information was submitted to the Secretary under 
                subsection (b)(1) or (c)(2) before the date on which 
                the application (excluding an amendment or supplement 
                to the application), which the Secretary later 
                determines to be substantially complete, was 
                submitted.''; and
                    (II) in the second sentence--

                        (aa) by striking subclause (I) and inserting 
                    the following:
            ``(I) if before the expiration of such period the district 
        court decides that the patent is invalid or not infringed 
        (including any substantive determination that there is no cause 
        of action for patent infringement or invalidity), the approval 
        shall be made effective on--
                ``(aa) the date on which the court enters judgment 
            reflecting the decision; or
                ``(bb) the date of a settlement order or consent decree 
            signed and entered by the court stating that the patent 
            that is the subject of the certification is invalid or not 
            infringed;'';
                        (bb) by striking subclause (II) and inserting 
                    the following:
            ``(II) if before the expiration of such period the district 
        court decides that the patent has been infringed--
                ``(aa) if the judgment of the district court is 
            appealed, the approval shall be made effective on--

                    ``(AA) the date on which the court of appeals 
                decides that the patent is invalid or not infringed 
                (including any substantive determination that there is 
                no cause of action for patent infringement or 
                invalidity); or
                    ``(BB) the date of a settlement order or consent 
                decree signed and entered by the court of appeals 
                stating that the patent that is the subject of the 
                certification is invalid or not infringed; or

                ``(bb) if the judgment of the district court is not 
            appealed or is affirmed, the approval shall be made 
            effective on the date specified by the district court in a 
            court order under section 271(e)(4)(A) of title 35, United 
            States Code;'';
                        (cc) in subclause (III), by striking ``on the 
                    date of such court decision.'' and inserting ``as 
                    provided in subclause (I); or'';
                        (dd) by inserting after subclause (III) the 
                    following:
            ``(IV) if before the expiration of such period the court 
        grants a preliminary injunction prohibiting the applicant from 
        engaging in the commercial manufacture or sale of the drug 
        until the court decides the issues of patent validity and 
        infringement and if the court decides that such patent has been 
        infringed, the approval shall be made effective as provided in 
        subclause (II).''; and
                        (ee) in the matter after and below subclause 
                    (IV) (as added by item (dd)), by striking ``Until 
                    the expiration'' and all that follows;
            (B) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (E) and (F), respectively; and
            (C) by inserting after subparagraph (B) the following:
            ``(C) Civil action to obtain patent certainty.--
                ``(i) Declaratory judgment absent infringement 
            action.--

                    ``(I) In general.--No action may be brought under 
                section 2201 of title 28, United States Code, by an 
                applicant under paragraph (2) for a declaratory 
                judgment with respect to a patent which is the subject 
                of the certification referred to in subparagraph 
                (B)(iii) unless--

                        ``(aa) the 45-day period referred to in such 
                    subparagraph has expired;
                        ``(bb) neither the owner of such patent nor the 
                    holder of the approved application under subsection 
                    (b) for the drug that is claimed by the patent or a 
                    use of which is claimed by the patent brought a 
                    civil action against the applicant for infringement 
                    of the patent before the expiration of such period; 
                    and
                        ``(cc) in any case in which the notice provided 
                    under paragraph (2)(B) relates to noninfringement, 
                    the notice was accompanied by a document described 
                    in subclause (III).

                    ``(II) Filing of civil action.--If the conditions 
                described in items (aa), (bb), and as applicable, (cc) 
                of subclause (I) have been met, the applicant referred 
                to in such subclause may, in accordance with section 
                2201 of title 28, United States Code, bring a civil 
                action under such section against the owner or holder 
                referred to in such subclause (but not against any 
                owner or holder that has brought such a civil action 
                against the applicant, unless that civil action was 
                dismissed without prejudice) for a declaratory judgment 
                that the patent is invalid or will not be infringed by 
                the drug for which the applicant seeks approval, except 
                that such civil action may be brought for a declaratory 
                judgment that the patent will not be infringed only in 
                a case in which the condition described in subclause 
                (I)(cc) is applicable. A civil action referred to in 
                this subclause shall be brought in the judicial 
                district where the defendant has its principal place of 
                business or a regular and established place of 
                business.
                    ``(III) Offer of confidential access to 
                application.--For purposes of subclause (I)(cc), the 
                document described in this subclause is a document 
                providing an offer of confidential access to the 
                application that is in the custody of the applicant 
                under paragraph (2) for the purpose of determining 
                whether an action referred to in subparagraph (B)(iii) 
                should be brought. The document providing the offer of 
                confidential access shall contain such restrictions as 
                to persons entitled to access, and on the use and 
                disposition of any information accessed, as would apply 
                had a protective order been entered for the purpose of 
                protecting trade secrets and other confidential 
                business information. A request for access to an 
                application under an offer of confidential access shall 
                be considered acceptance of the offer of confidential 
                access with the restrictions as to persons entitled to 
                access, and on the use and disposition of any 
                information accessed, contained in the offer of 
                confidential access, and those restrictions and other 
                terms of the offer of confidential access shall be 
                considered terms of an enforceable contract. Any person 
                provided an offer of confidential access shall review 
                the application for the sole and limited purpose of 
                evaluating possible infringement of the patent that is 
                the subject of the certification under paragraph 
                (2)(A)(vii)(IV) and for no other purpose, and may not 
                disclose information of no relevance to any issue of 
                patent infringement to any person other than a person 
                provided an offer of confidential access. Further, the 
                application may be redacted by the applicant to remove 
                any information of no relevance to any issue of patent 
                infringement.

                ``(ii) Counterclaim to infringement action.--

                    ``(I) In general.--If an owner of the patent or the 
                holder of the approved application under subsection (b) 
                for the drug that is claimed by the patent or a use of 
                which is claimed by the patent brings a patent 
                infringement action against the applicant, the 
                applicant may assert a counterclaim seeking an order 
                requiring the holder to correct or delete the patent 
                information submitted by the holder under subsection 
                (b) or (c) on the ground that the patent does not claim 
                either--

                        ``(aa) the drug for which the application was 
                    approved; or
                        ``(bb) an approved method of using the drug.

                    ``(II) No independent cause of action.--Subclause 
                (I) does not authorize the assertion of a claim 
                described in subclause (I) in any civil action or 
                proceeding other than a counterclaim described in 
                subclause (I).

                ``(iii) No damages.--An applicant shall not be entitled 
            to damages in a civil action under clause (i) or a 
            counterclaim under clause (ii).''.
    (b) Applications Generally.--Section 505 of the Federal Food, Drug, 
and Cosmetic Act (21 U.S.C. 355) is amended--
        (1) in subsection (b)--
            (A) by striking paragraph (3) and inserting the following:
    ``(3) Notice of opinion that patent is invalid or will not be 
infringed.--
        ``(A) Agreement to give notice.--An applicant that makes a 
    certification described in paragraph (2)(A)(iv) shall include in 
    the application a statement that the applicant will give notice as 
    required by this paragraph.
        ``(B) Timing of notice.--An applicant that makes a 
    certification described in paragraph (2)(A)(iv) shall give notice 
    as required under this paragraph--
            ``(i) if the certification is in the application, not later 
        than 20 days after the date of the postmark on the notice with 
        which the Secretary informs the applicant that the application 
        has been filed; or
            ``(ii) if the certification is in an amendment or 
        supplement to the application, at the time at which the 
        applicant submits the amendment or supplement, regardless of 
        whether the applicant has already given notice with respect to 
        another such certification contained in the application or in 
        an amendment or supplement to the application.
        ``(C) Recipients of notice.--An applicant required under this 
    paragraph to give notice shall give notice to--
            ``(i) each owner of the patent that is the subject of the 
        certification (or a representative of the owner designated to 
        receive such a notice); and
            ``(ii) the holder of the approved application under this 
        subsection for the drug that is claimed by the patent or a use 
        of which is claimed by the patent (or a representative of the 
        holder designated to receive such a notice).
        ``(D) Contents of notice.--A notice required under this 
    paragraph shall--
            ``(i) state that an application that contains data from 
        bioavailability or bioequivalence studies has been submitted 
        under this subsection for the drug with respect to which the 
        certification is made to obtain approval to engage in the 
        commercial manufacture, use, or sale of the drug before the 
        expiration of the patent referred to in the certification; and
            ``(ii) include a detailed statement of the factual and 
        legal basis of the opinion of the applicant that the patent is 
        invalid or will not be infringed.''; and
            (B)(i) by redesignating paragraph (4) as paragraph (5); and
            (ii) by inserting after paragraph (3) the following 
        paragraph:
    ``(4)(A) An applicant may not amend or supplement an application 
referred to in paragraph (2) to seek approval of a drug that is a 
different drug than the drug identified in the application as submitted 
to the Secretary.
    ``(B) With respect to the drug for which such an application is 
submitted, nothing in this subsection or subsection (c)(3) prohibits an 
applicant from amending or supplementing the application to seek 
approval of a different strength.''; and
        (2) in subsection (c)(3)--
            (A) in the first sentence, by striking ``under the 
        following'' and inserting ``by applying the following to each 
        certification made under subsection (b)(2)(A)'';
            (B) in subparagraph (C)--
                (i) in the first sentence, by striking ``unless'' and 
            all that follows and inserting ``unless, before the 
            expiration of 45 days after the date on which the notice 
            described in subsection (b)(3) is received, an action is 
            brought for infringement of the patent that is the subject 
            of the certification and for which information was 
            submitted to the Secretary under paragraph (2) or 
            subsection (b)(1) before the date on which the application 
            (excluding an amendment or supplement to the application) 
            was submitted.'';
                (ii) in the second sentence--

                    (I) by striking ``paragraph (3)(B)'' and inserting 
                ``subsection (b)(3)'';
                    (II) by striking clause (i) and inserting the 
                following:

            ``(i) if before the expiration of such period the district 
        court decides that the patent is invalid or not infringed 
        (including any substantive determination that there is no cause 
        of action for patent infringement or invalidity), the approval 
        shall be made effective on--
                ``(I) the date on which the court enters judgment 
            reflecting the decision; or
                ``(II) the date of a settlement order or consent decree 
            signed and entered by the court stating that the patent 
            that is the subject of the certification is invalid or not 
            infringed;'';

                    (III) by striking clause (ii) and inserting the 
                following:

            ``(ii) if before the expiration of such period the district 
        court decides that the patent has been infringed--
                ``(I) if the judgment of the district court is 
            appealed, the approval shall be made effective on--

                    ``(aa) the date on which the court of appeals 
                decides that the patent is invalid or not infringed 
                (including any substantive determination that there is 
                no cause of action for patent infringement or 
                invalidity); or
                    ``(bb) the date of a settlement order or consent 
                decree signed and entered by the court of appeals 
                stating that the patent that is the subject of the 
                certification is invalid or not infringed; or

                ``(II) if the judgment of the district court is not 
            appealed or is affirmed, the approval shall be made 
            effective on the date specified by the district court in a 
            court order under section 271(e)(4)(A) of title 35, United 
            States Code;'';

                    (IV) in clause (iii), by striking ``on the date of 
                such court decision.'' and inserting ``as provided in 
                clause (i); or'';
                    (V) by inserting after clause (iii), the following:

            ``(iv) if before the expiration of such period the court 
        grants a preliminary injunction prohibiting the applicant from 
        engaging in the commercial manufacture or sale of the drug 
        until the court decides the issues of patent validity and 
        infringement and if the court decides that such patent has been 
        infringed, the approval shall be made effective as provided in 
        clause (ii).''; and

                    (VI) in the matter after and below clause (iv) (as 
                added by subclause (V)), by striking ``Until the 
                expiration'' and all that follows; and

                (iii) in the third sentence, by striking ``paragraph 
            (3)(B)'' and inserting ``subsection (b)(3)'';
            (C) by redesignating subparagraph (D) as subparagraph (E); 
        and
            (D) by inserting after subparagraph (C) the following:
            ``(D) Civil action to obtain patent certainty.--
                ``(i) Declaratory judgment absent infringement 
            action.--

                    ``(I) In general.--No action may be brought under 
                section 2201 of title 28, United States Code, by an 
                applicant referred to in subsection (b)(2) for a 
                declaratory judgment with respect to a patent which is 
                the subject of the certification referred to in 
                subparagraph (C) unless--

                        ``(aa) the 45-day period referred to in such 
                    subparagraph has expired;
                        ``(bb) neither the owner of such patent nor the 
                    holder of the approved application under subsection 
                    (b) for the drug that is claimed by the patent or a 
                    use of which is claimed by the patent brought a 
                    civil action against the applicant for infringement 
                    of the patent before the expiration of such period; 
                    and
                        ``(cc) in any case in which the notice provided 
                    under paragraph (2)(B) relates to noninfringement, 
                    the notice was accompanied by a document described 
                    in subclause (III).

                    ``(II) Filing of civil action.--If the conditions 
                described in items (aa), (bb), and as applicable, (cc) 
                of subclause (I) have been met, the applicant referred 
                to in such subclause may, in accordance with section 
                2201 of title 28, United States Code, bring a civil 
                action under such section against the owner or holder 
                referred to in such subclause (but not against any 
                owner or holder that has brought such a civil action 
                against the applicant, unless that civil action was 
                dismissed without prejudice) for a declaratory judgment 
                that the patent is invalid or will not be infringed by 
                the drug for which the applicant seeks approval, except 
                that such civil action may be brought for a declaratory 
                judgment that the patent will not be infringed only in 
                a case in which the condition described in subclause 
                (I)(cc) is applicable. A civil action referred to in 
                this subclause shall be brought in the judicial 
                district where the defendant has its principal place of 
                business or a regular and established place of 
                business.
                    ``(III) Offer of confidential access to 
                application.--For purposes of subclause (I)(cc), the 
                document described in this subclause is a document 
                providing an offer of confidential access to the 
                application that is in the custody of the applicant 
                referred to in subsection (b)(2) for the purpose of 
                determining whether an action referred to in 
                subparagraph (C) should be brought. The document 
                providing the offer of confidential access shall 
                contain such restrictions as to persons entitled to 
                access, and on the use and disposition of any 
                information accessed, as would apply had a protective 
                order been entered for the purpose of protecting trade 
                secrets and other confidential business information. A 
                request for access to an application under an offer of 
                confidential access shall be considered acceptance of 
                the offer of confidential access with the restrictions 
                as to persons entitled to access, and on the use and 
                disposition of any information accessed, contained in 
                the offer of confidential access, and those 
                restrictions and other terms of the offer of 
                confidential access shall be considered terms of an 
                enforceable contract. Any person provided an offer of 
                confidential access shall review the application for 
                the sole and limited purpose of evaluating possible 
                infringement of the patent that is the subject of the 
                certification under subsection (b)(2)(A)(iv) and for no 
                other purpose, and may not disclose information of no 
                relevance to any issue of patent infringement to any 
                person other than a person provided an offer of 
                confidential access. Further, the application may be 
                redacted by the applicant to remove any information of 
                no relevance to any issue of patent infringement.

                ``(ii) Counterclaim to infringement action.--

                    ``(I) In general.--If an owner of the patent or the 
                holder of the approved application under subsection (b) 
                for the drug that is claimed by the patent or a use of 
                which is claimed by the patent brings a patent 
                infringement action against the applicant, the 
                applicant may assert a counterclaim seeking an order 
                requiring the holder to correct or delete the patent 
                information submitted by the holder under subsection 
                (b) or this subsection on the ground that the patent 
                does not claim either--

                        ``(aa) the drug for which the application was 
                    approved; or
                        ``(bb) an approved method of using the drug.

                    ``(II) No independent cause of action.--Subclause 
                (I) does not authorize the assertion of a claim 
                described in subclause (I) in any civil action or 
                proceeding other than a counterclaim described in 
                subclause (I).

                ``(iii) No damages.--An applicant shall not be entitled 
            to damages in a civil action under clause (i) or a 
            counterclaim under clause (ii).''.
    (c) Applicability.--
        (1) In general.--Except as provided in paragraphs (2) and (3), 
    the amendments made by subsections (a) and (b) apply to any 
    proceeding under section 505 of the Federal Food, Drug, and 
    Cosmetic Act (21 U.S.C. 355) that is pending on or after the date 
    of the enactment of this Act regardless of the date on which the 
    proceeding was commenced or is commenced.
        (2) Notice of opinion that patent is invalid or will not be 
    infringed.--The amendments made by subsections (a)(1) and (b)(1) 
    apply with respect to any certification under subsection 
    (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of the Federal 
    Food, Drug, and Cosmetic Act (21 U.S.C. 355) submitted on or after 
    August 18, 2003, in an application filed under subsection (b) or 
    (j) of that section or in an amendment or supplement to an 
    application filed under subsection (b) or (j) of that section.
        (3) Effective date of approval.--The amendments made by 
    subsections (a)(2)(A)(ii)(I) and (b)(2)(B)(i) apply with respect to 
    any patent information submitted under subsection (b)(1) or (c)(2) 
    of section 505 of the Federal Food, Drug, and Cosmetic Act (21 
    U.S.C. 355) on or after August 18, 2003.
    (d) Infringement Actions.--Section 271(e) of title 35, United 
States Code, is amended by adding at the end the following:
    ``(5) Where a person has filed an application described in 
paragraph (2) that includes a certification under subsection 
(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 355), and neither the owner of the 
patent that is the subject of the certification nor the holder of the 
approved application under subsection (b) of such section for the drug 
that is claimed by the patent or a use of which is claimed by the 
patent brought an action for infringement of such patent before the 
expiration of 45 days after the date on which the notice given under 
subsection (b)(3) or (j)(2)(B) of such section was received, the courts 
of the United States shall, to the extent consistent with the 
Constitution, have subject matter jurisdiction in any action brought by 
such person under section 2201 of title 28 for a declaratory judgment 
that such patent is invalid or not infringed.''.

SEC. 1102. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.

    (a) In General.--Section 505(j)(5) of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by section 1101) is 
amended--
        (1) in subparagraph (B), by striking clause (iv) and inserting 
    the following:
        ``(iv) 180-day exclusivity period.--
            ``(I) Effectiveness of application.--Subject to 
        subparagraph (D), if the application contains a certification 
        described in paragraph (2)(A)(vii)(IV) and is for a drug for 
        which a first applicant has submitted an application containing 
        such a certification, the application shall be made effective 
        on the date that is 180 days after the date of the first 
        commercial marketing of the drug (including the commercial 
        marketing of the listed drug) by any first applicant.
            ``(II) Definitions.--In this paragraph:
                ``(aa) 180-day exclusivity period.--The term `180-day 
            exclusivity period' means the 180-day period ending on the 
            day before the date on which an application submitted by an 
            applicant other than a first applicant could become 
            effective under this clause.
                ``(bb) First applicant.--As used in this subsection, 
            the term `first applicant' means an applicant that, on the 
            first day on which a substantially complete application 
            containing a certification described in paragraph 
            (2)(A)(vii)(IV) is submitted for approval of a drug, 
            submits a substantially complete application that contains 
            and lawfully maintains a certification described in 
            paragraph (2)(A)(vii)(IV) for the drug.
                ``(cc) Substantially complete application.--As used in 
            this subsection, the term `substantially complete 
            application' means an application under this subsection 
            that on its face is sufficiently complete to permit a 
            substantive review and contains all the information 
            required by paragraph (2)(A).
                ``(dd) Tentative approval.--

                    ``(AA) In general.--The term `tentative approval' 
                means notification to an applicant by the Secretary 
                that an application under this subsection meets the 
                requirements of paragraph (2)(A), but cannot receive 
                effective approval because the application does not 
                meet the requirements of this subparagraph, there is a 
                period of exclusivity for the listed drug under 
                subparagraph (F) or section 505A, or there is a 7-year 
                period of exclusivity for the listed drug under section 
                527.
                    ``(BB) Limitation.--A drug that is granted 
                tentative approval by the Secretary is not an approved 
                drug and shall not have an effective approval until the 
                Secretary issues an approval after any necessary 
                additional review of the application.''; and

        (2) by inserting after subparagraph (C) the following:
            ``(D) Forfeiture of 180-day exclusivity period.--
                ``(i) Definition of forfeiture event.--In this 
            subparagraph, the term `forfeiture event', with respect to 
            an application under this subsection, means the occurrence 
            of any of the following:

                    ``(I) Failure to market.--The first applicant fails 
                to market the drug by the later of--

                        ``(aa) the earlier of the date that is--
                            ``(AA) 75 days after the date on which the 
                        approval of the application of the first 
                        applicant is made effective under subparagraph 
                        (B)(iii); or
                            ``(BB) 30 months after the date of 
                        submission of the application of the first 
                        applicant; or
                        ``(bb) with respect to the first applicant or 
                    any other applicant (which other applicant has 
                    received tentative approval), the date that is 75 
                    days after the date as of which, as to each of the 
                    patents with respect to which the first applicant 
                    submitted and lawfully maintained a certification 
                    qualifying the first applicant for the 180-day 
                    exclusivity period under subparagraph (B)(iv), at 
                    least 1 of the following has occurred:
                            ``(AA) In an infringement action brought 
                        against that applicant with respect to the 
                        patent or in a declaratory judgment action 
                        brought by that applicant with respect to the 
                        patent, a court enters a final decision from 
                        which no appeal (other than a petition to the 
                        Supreme Court for a writ of certiorari) has 
                        been or can be taken that the patent is invalid 
                        or not infringed.
                            ``(BB) In an infringement action or a 
                        declaratory judgment action described in 
                        subitem (AA), a court signs a settlement order 
                        or consent decree that enters a final judgment 
                        that includes a finding that the patent is 
                        invalid or not infringed.
                            ``(CC) The patent information submitted 
                        under subsection (b) or (c) is withdrawn by the 
                        holder of the application approved under 
                        subsection (b).

                    ``(II) Withdrawal of application.--The first 
                applicant withdraws the application or the Secretary 
                considers the application to have been withdrawn as a 
                result of a determination by the Secretary that the 
                application does not meet the requirements for approval 
                under paragraph (4).
                    ``(III) Amendment of certification.--The first 
                applicant amends or withdraws the certification for all 
                of the patents with respect to which that applicant 
                submitted a certification qualifying the applicant for 
                the 180-day exclusivity period.
                    ``(IV) Failure to obtain tentative approval.--The 
                first applicant fails to obtain tentative approval of 
                the application within 30 months after the date on 
                which the application is filed, unless the failure is 
                caused by a change in or a review of the requirements 
                for approval of the application imposed after the date 
                on which the application is filed.
                    ``(V) Agreement with another applicant, the listed 
                drug application holder, or a patent owner.--The first 
                applicant enters into an agreement with another 
                applicant under this subsection for the drug, the 
                holder of the application for the listed drug, or an 
                owner of the patent that is the subject of the 
                certification under paragraph (2)(A)(vii)(IV), the 
                Federal Trade Commission or the Attorney General files 
                a complaint, and there is a final decision of the 
                Federal Trade Commission or the court with regard to 
                the complaint from which no appeal (other than a 
                petition to the Supreme Court for a writ of certiorari) 
                has been or can be taken that the agreement has 
                violated the antitrust laws (as defined in section 1 of 
                the Clayton Act (15 U.S.C. 12), except that the term 
                includes section 5 of the Federal Trade Commission Act 
                (15 U.S.C. 45) to the extent that that section applies 
                to unfair methods of competition).
                    ``(VI) Expiration of all patents.--All of the 
                patents as to which the applicant submitted a 
                certification qualifying it for the 180-day exclusivity 
                period have expired.

                ``(ii) Forfeiture.--The 180-day exclusivity period 
            described in subparagraph (B)(iv) shall be forfeited by a 
            first applicant if a forfeiture event occurs with respect 
            to that first applicant.
                ``(iii) Subsequent applicant.--If all first applicants 
            forfeit the 180-day exclusivity period under clause (ii)--

                    ``(I) approval of any application containing a 
                certification described in paragraph (2)(A)(vii)(IV) 
                shall be made effective in accordance with subparagraph 
                (B)(iii); and
                    ``(II) no applicant shall be eligible for a 180-day 
                exclusivity period.''.

    (b) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendment made by subsection (a) shall be effective only with 
    respect to an application filed under section 505(j) of the Federal 
    Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) after the date of 
    the enactment of this Act for a listed drug for which no 
    certification under section 505(j)(2)(A)(vii)(IV) of that Act was 
    made before the date of the enactment of this Act.
        (2) Collusive agreements.--If a forfeiture event described in 
    section 505(j)(5)(D)(i)(V) of that Act occurs in the case of an 
    applicant, the applicant shall forfeit the 180-day period under 
    section 505(j)(5)(B)(iv) of that Act without regard to when the 
    first certification under section 505(j)(2)(A)(vii)(IV) of that Act 
    for the listed drug was made.
        (3) Decision of a court when the 180-day exclusivity period has 
    not been triggered.--With respect to an application filed before, 
    on, or after the date of the enactment of this Act for a listed 
    drug for which a certification under section 505(j)(2)(A)(vii)(IV) 
    of that Act was made before the date of the enactment of this Act 
    and for which neither of the events described in subclause (I) or 
    (II) of section 505(j)(5)(B)(iv) of that Act (as in effect on the 
    day before the date of the enactment of this Act) has occurred on 
    or before the date of the enactment of this Act, the term 
    ``decision of a court'' as used in clause (iv) of section 
    505(j)(5)(B) of that Act means a final decision of a court from 
    which no appeal (other than a petition to the Supreme Court for a 
    writ of certiorari) has been or can be taken.

SEC. 1103. BIOAVAILABILITY AND BIOEQUIVALENCE.

    (a) In General.--Section 505(j)(8) of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 355(j)(8)) is amended--
        (1) by striking subparagraph (A) and inserting the following:
        ``(A)(i) The term `bioavailability' means the rate and extent 
    to which the active ingredient or therapeutic ingredient is 
    absorbed from a drug and becomes available at the site of drug 
    action.
        ``(ii) For a drug that is not intended to be absorbed into the 
    bloodstream, the Secretary may assess bioavailability by 
    scientifically valid measurements intended to reflect the rate and 
    extent to which the active ingredient or therapeutic ingredient 
    becomes available at the site of drug action.''; and
        (2) by adding at the end the following:
        ``(C) For a drug that is not intended to be absorbed into the 
    bloodstream, the Secretary may establish alternative, 
    scientifically valid methods to show bioequivalence if the 
    alternative methods are expected to detect a significant difference 
    between the drug and the listed drug in safety and therapeutic 
    effect.''.
    (b) Effect of Amendment.--The amendment made by subsection (a) does 
not alter the standards for approval of drugs under section 505(j) of 
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)).

SEC. 1104. CONFORMING AMENDMENTS.

    Section 505A of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
355a) is amended--
        (1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), by striking 
    ``(j)(5)(D)(ii)'' each place it appears and inserting 
    ``(j)(5)(F)(ii)'';
        (2) in subsections (b)(1)(A)(ii) and (c)(1)(A)(ii), by striking 
    ``(j)(5)(D)'' each place it appears and inserting ``(j)(5)(F)''; 
    and
        (3) in subsections (e) and (l), by striking ``505(j)(5)(D)'' 
    each place it appears and inserting ``505(j)(5)(F)''.

              Subtitle B--Federal Trade Commission Review

SEC. 1111. DEFINITIONS.

    In this subtitle:
        (1) ANDA.--The term ``ANDA'' means an abbreviated drug 
    application, as defined under section 201(aa) of the Federal Food, 
    Drug, and Cosmetic Act.
        (2) Assistant attorney general.--The term ``Assistant Attorney 
    General'' means the Assistant Attorney General in charge of the 
    Antitrust Division of the Department of Justice.
        (3) Brand name drug.--The term ``brand name drug'' means a drug 
    for which an application is approved under section 505(c) of the 
    Federal Food, Drug, and Cosmetic Act, including an application 
    referred to in section 505(b)(2) of such Act.
        (4) Brand name drug company.--The term ``brand name drug 
    company'' means the party that holds the approved application 
    referred to in paragraph (3) for a brand name drug that is a listed 
    drug in an ANDA, or a party that is the owner of a patent for which 
    information is submitted for such drug under subsection (b) or (c) 
    of section 505 of the Federal Food, Drug, and Cosmetic Act.
        (5) Commission.--The term ``Commission'' means the Federal 
    Trade Commission.
        (6) Generic drug.--The term ``generic drug'' means a drug for 
    which an application under section 505(j) of the Federal Food, 
    Drug, and Cosmetic Act is approved.
        (7) Generic drug applicant.--The term ``generic drug 
    applicant'' means a person who has filed or received approval for 
    an ANDA under section 505(j) of the Federal Food, Drug, and 
    Cosmetic Act.
        (8) Listed drug.--The term ``listed drug'' means a brand name 
    drug that is listed under section 505(j)(7) of the Federal Food, 
    Drug, and Cosmetic Act.

SEC. 1112. NOTIFICATION OF AGREEMENTS.

    (a) Agreement With Brand Name Drug Company.--
        (1) Requirement.--A generic drug applicant that has submitted 
    an ANDA containing a certification under section 
    505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic Act 
    and a brand name drug company that enter into an agreement 
    described in paragraph (2) shall each file the agreement in 
    accordance with subsection (c). The agreement shall be filed prior 
    to the date of the first commercial marketing of the generic drug 
    that is the subject of the ANDA.
        (2) Subject matter of agreement.--An agreement described in 
    this paragraph between a generic drug applicant and a brand name 
    drug company is an agreement regarding--
            (A) the manufacture, marketing or sale of the brand name 
        drug that is the listed drug in the ANDA involved;
            (B) the manufacture, marketing, or sale of the generic drug 
        for which the ANDA was submitted; or
            (C) the 180-day period referred to in section 
        505(j)(5)(B)(iv) of the Federal Food, Drug, and Cosmetic Act as 
        it applies to such ANDA or to any other ANDA based on the same 
        brand name drug.
    (b) Agreement With Another Generic Drug Applicant.--
        (1) Requirement.--A generic drug applicant that has submitted 
    an ANDA containing a certification under section 
    505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic Act 
    with respect to a listed drug and another generic drug applicant 
    that has submitted an ANDA containing such a certification for the 
    same listed drug shall each file the agreement in accordance with 
    subsection (c). The agreement shall be filed prior to the date of 
    the first commercial marketing of either of the generic drugs for 
    which such ANDAs were submitted.
        (2) Subject matter of agreement.--An agreement described in 
    this paragraph between two generic drug applicants is an agreement 
    regarding the 180-day period referred to in section 
    505(j)(5)(B)(iv) of the Federal Food, Drug, and Cosmetic Act as it 
    applies to the ANDAs with which the agreement is concerned.
    (c) Filing.--
        (1) Agreement.--The parties that are required in subsection (a) 
    or (b) to file an agreement in accordance with this subsection 
    shall file with the Assistant Attorney General and the Commission 
    the text of any such agreement, except that such parties are not 
    required to file an agreement that solely concerns--
            (A) purchase orders for raw material supplies;
            (B) equipment and facility contracts;
            (C) employment or consulting contracts; or
            (D) packaging and labeling contracts.
        (2) Other agreements.--The parties that are required in 
    subsection (a) or (b) to file an agreement in accordance with this 
    subsection shall file with the Assistant Attorney General and the 
    Commission the text of any agreements between the parties that are 
    not described in such subsections and are contingent upon, provide 
    a contingent condition for, or are otherwise related to an 
    agreement that is required in subsection (a) or (b) to be filed in 
    accordance with this subsection.
        (3) Description.--In the event that any agreement required in 
    subsection (a) or (b) to be filed in accordance with this 
    subsection has not been reduced to text, each of the parties 
    involved shall file written descriptions of such agreement that are 
    sufficient to disclose all the terms and conditions of the 
    agreement.

SEC. 1113. FILING DEADLINES.

    Any filing required under section 1112 shall be filed with the 
Assistant Attorney General and the Commission not later than 10 
business days after the date the agreements are executed.

SEC. 1114. DISCLOSURE EXEMPTION.

    Any information or documentary material filed with the Assistant 
Attorney General or the Commission pursuant to this subtitle shall be 
exempt from disclosure under section 552 of title 5, United States 
Code, and no such information or documentary material may be made 
public, except as may be relevant to any administrative or judicial 
action or proceeding. Nothing in this section is intended to prevent 
disclosure to either body of the Congress or to any duly authorized 
committee or subcommittee of the Congress.

SEC. 1115. ENFORCEMENT.

    (a) Civil Penalty.--Any brand name drug company or generic drug 
applicant which fails to comply with any provision of this subtitle 
shall be liable for a civil penalty of not more than $11,000, for each 
day during which such entity is in violation of this subtitle. Such 
penalty may be recovered in a civil action brought by the United 
States, or brought by the Commission in accordance with the procedures 
established in section 16(a)(1) of the Federal Trade Commission Act (15 
U.S.C. 56(a)).
    (b) Compliance and Equitable Relief.--If any brand name drug 
company or generic drug applicant fails to comply with any provision of 
this subtitle, the United States district court may order compliance, 
and may grant such other equitable relief as the court in its 
discretion determines necessary or appropriate, upon application of the 
Assistant Attorney General or the Commission.

SEC. 1116. RULEMAKING.

    The Commission, with the concurrence of the Assistant Attorney 
General and by rule in accordance with section 553 of title 5, United 
States Code, consistent with the purposes of this subtitle--
        (1) may define the terms used in this subtitle;
        (2) may exempt classes of persons or agreements from the 
    requirements of this subtitle; and
        (3) may prescribe such other rules as may be necessary and 
    appropriate to carry out the purposes of this subtitle.

SEC. 1117. SAVINGS CLAUSE.

    Any action taken by the Assistant Attorney General or the 
Commission, or any failure of the Assistant Attorney General or the 
Commission to take action, under this subtitle shall not at any time 
bar any proceeding or any action with respect to any agreement between 
a brand name drug company and a generic drug applicant, or any 
agreement between generic drug applicants, under any other provision of 
law, nor shall any filing under this subtitle constitute or create a 
presumption of any violation of any competition laws.

SEC. 1118. EFFECTIVE DATE.

    This subtitle shall--
        (1) take effect 30 days after the date of the enactment of this 
    Act; and
        (2) shall apply to agreements described in section 1112 that 
    are entered into 30 days after the date of the enactment of this 
    Act.

             Subtitle C--Importation of Prescription Drugs

SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS.

    (a) In General.--Chapter VIII of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 381 et seq.) is amended by striking section 804 
and inserting the following:

``SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.

    ``(a) Definitions.--In this section:
        ``(1) Importer.--The term `importer' means a pharmacist or 
    wholesaler.
        ``(2) Pharmacist.--The term `pharmacist' means a person 
    licensed by a State to practice pharmacy, including the dispensing 
    and selling of prescription drugs.
        ``(3) Prescription drug.--The term `prescription drug' means a 
    drug subject to section 503(b), other than--
            ``(A) a controlled substance (as defined in section 102 of 
        the Controlled Substances Act (21 U.S.C. 802));
            ``(B) a biological product (as defined in section 351 of 
        the Public Health Service Act (42 U.S.C. 262));
            ``(C) an infused drug (including a peritoneal dialysis 
        solution);
            ``(D) an intravenously injected drug;
            ``(E) a drug that is inhaled during surgery; or
            ``(F) a drug which is a parenteral drug, the importation of 
        which pursuant to subsection (b) is determined by the Secretary 
        to pose a threat to the public health, in which case section 
        801(d)(1) shall continue to apply.
        ``(4) Qualifying laboratory.--The term `qualifying laboratory' 
    means a laboratory in the United States that has been approved by 
    the Secretary for the purposes of this section.
        ``(5) Wholesaler.--
            ``(A) In general.--The term `wholesaler' means a person 
        licensed as a wholesaler or distributor of prescription drugs 
        in the United States under section 503(e)(2)(A).
            ``(B) Exclusion.--The term `wholesaler' does not include a 
        person authorized to import drugs under section 801(d)(1).
    ``(b) Regulations.--The Secretary, after consultation with the 
United States Trade Representative and the Commissioner of Customs, 
shall promulgate regulations permitting pharmacists and wholesalers to 
import prescription drugs from Canada into the United States.
    ``(c) Limitation.--The regulations under subsection (b) shall--
        ``(1) require that safeguards be in place to ensure that each 
    prescription drug imported under the regulations complies with 
    section 505 (including with respect to being safe and effective for 
    the intended use of the prescription drug), with sections 501 and 
    502, and with other applicable requirements of this Act;
        ``(2) require that an importer of a prescription drug under the 
    regulations comply with subsections (d)(1) and (e); and
        ``(3) contain any additional provisions determined by the 
    Secretary to be appropriate as a safeguard to protect the public 
    health or as a means to facilitate the importation of prescription 
    drugs.
    ``(d) Information and Records.--
        ``(1) In general.--The regulations under subsection (b) shall 
    require an importer of a prescription drug under subsection (b) to 
    submit to the Secretary the following information and 
    documentation:
            ``(A) The name and quantity of the active ingredient of the 
        prescription drug.
            ``(B) A description of the dosage form of the prescription 
        drug.
            ``(C) The date on which the prescription drug is shipped.
            ``(D) The quantity of the prescription drug that is 
        shipped.
            ``(E) The point of origin and destination of the 
        prescription drug.
            ``(F) The price paid by the importer for the prescription 
        drug.
            ``(G) Documentation from the foreign seller specifying--
                ``(i) the original source of the prescription drug; and
                ``(ii) the quantity of each lot of the prescription 
            drug originally received by the seller from that source.
            ``(H) The lot or control number assigned to the 
        prescription drug by the manufacturer of the prescription drug.
            ``(I) The name, address, telephone number, and professional 
        license number (if any) of the importer.
            ``(J)(i) In the case of a prescription drug that is shipped 
        directly from the first foreign recipient of the prescription 
        drug from the manufacturer:
                ``(I) Documentation demonstrating that the prescription 
            drug was received by the recipient from the manufacturer 
            and subsequently shipped by the first foreign recipient to 
            the importer.
                ``(II) Documentation of the quantity of each lot of the 
            prescription drug received by the first foreign recipient 
            demonstrating that the quantity being imported into the 
            United States is not more than the quantity that was 
            received by the first foreign recipient.
                ``(III)(aa) In the case of an initial imported 
            shipment, documentation demonstrating that each batch of 
            the prescription drug in the shipment was statistically 
            sampled and tested for authenticity and degradation.
                ``(bb) In the case of any subsequent shipment, 
            documentation demonstrating that a statistically valid 
            sample of the shipment was tested for authenticity and 
            degradation.
            ``(ii) In the case of a prescription drug that is not 
        shipped directly from the first foreign recipient of the 
        prescription drug from the manufacturer, documentation 
        demonstrating that each batch in each shipment offered for 
        importation into the United States was statistically sampled 
        and tested for authenticity and degradation.
            ``(K) Certification from the importer or manufacturer of 
        the prescription drug that the prescription drug--
                ``(i) is approved for marketing in the United States 
            and is not adulterated or misbranded; and
                ``(ii) meets all labeling requirements under this Act.
            ``(L) Laboratory records, including complete data derived 
        from all tests necessary to ensure that the prescription drug 
        is in compliance with established specifications and standards.
            ``(M) Documentation demonstrating that the testing required 
        by subparagraphs (J) and (L) was conducted at a qualifying 
        laboratory.
            ``(N) Any other information that the Secretary determines 
        is necessary to ensure the protection of the public health.
        ``(2) Maintenance by the secretary.--The Secretary shall 
    maintain information and documentation submitted under paragraph 
    (1) for such period of time as the Secretary determines to be 
    necessary.
    ``(e) Testing.--The regulations under subsection (b) shall 
require--
        ``(1) that testing described in subparagraphs (J) and (L) of 
    subsection (d)(1) be conducted by the importer or by the 
    manufacturer of the prescription drug at a qualified laboratory;
        ``(2) if the tests are conducted by the importer--
            ``(A) that information needed to--
                ``(i) authenticate the prescription drug being tested; 
            and
                ``(ii) confirm that the labeling of the prescription 
            drug complies with labeling requirements under this Act;
        be supplied by the manufacturer of the prescription drug to the 
        pharmacist or wholesaler; and
            ``(B) that the information supplied under subparagraph (A) 
        be kept in strict confidence and used only for purposes of 
        testing or otherwise complying with this Act; and
        ``(3) may include such additional provisions as the Secretary 
    determines to be appropriate to provide for the protection of trade 
    secrets and commercial or financial information that is privileged 
    or confidential.
    ``(f) Registration of Foreign Sellers.--Any establishment within 
Canada engaged in the distribution of a prescription drug that is 
imported or offered for importation into the United States shall 
register with the Secretary the name and place of business of the 
establishment and the name of the United States agent for the 
establishment.
    ``(g) Suspension of Importation.--The Secretary shall require that 
importations of a specific prescription drug or importations by a 
specific importer under subsection (b) be immediately suspended on 
discovery of a pattern of importation of that specific prescription 
drug or by that specific importer of drugs that are counterfeit or in 
violation of any requirement under this section, until an investigation 
is completed and the Secretary determines that the public is adequately 
protected from counterfeit and violative prescription drugs being 
imported under subsection (b).
    ``(h) Approved Labeling.--The manufacturer of a prescription drug 
shall provide an importer written authorization for the importer to 
use, at no cost, the approved labeling for the prescription drug.
    ``(i) Charitable Contributions.--Notwithstanding any other 
provision of this section, section 801(d)(1) continues to apply to a 
prescription drug that is donated or otherwise supplied at no charge by 
the manufacturer of the drug to a charitable or humanitarian 
organization (including the United Nations and affiliates) or to a 
government of a foreign country.
    ``(j) Waiver Authority for Importation by Individuals.--
        ``(1) Declarations.--Congress declares that in the enforcement 
    against individuals of the prohibition of importation of 
    prescription drugs and devices, the Secretary should--
            ``(A) focus enforcement on cases in which the importation 
        by an individual poses a significant threat to public health; 
        and
            ``(B) exercise discretion to permit individuals to make 
        such importations in circumstances in which--
                ``(i) the importation is clearly for personal use; and
                ``(ii) the prescription drug or device imported does 
            not appear to present an unreasonable risk to the 
            individual.
        ``(2) Waiver authority.--
            ``(A) In general.--The Secretary may grant to individuals, 
        by regulation or on a case-by-case basis, a waiver of the 
        prohibition of importation of a prescription drug or device or 
        class of prescription drugs or devices, under such conditions 
        as the Secretary determines to be appropriate.
            ``(B) Guidance on case-by-case waivers.--The Secretary 
        shall publish, and update as necessary, guidance that 
        accurately describes circumstances in which the Secretary will 
        consistently grant waivers on a case-by-case basis under 
        subparagraph (A), so that individuals may know with the 
        greatest practicable degree of certainty whether a particular 
        importation for personal use will be permitted.
        ``(3) Drugs imported from canada.--In particular, the Secretary 
    shall by regulation grant individuals a waiver to permit 
    individuals to import into the United States a prescription drug 
    that--
            ``(A) is imported from a licensed pharmacy for personal use 
        by an individual, not for resale, in quantities that do not 
        exceed a 90-day supply;
            ``(B) is accompanied by a copy of a valid prescription;
            ``(C) is imported from Canada, from a seller registered 
        with the Secretary;
            ``(D) is a prescription drug approved by the Secretary 
        under chapter V;
            ``(E) is in the form of a final finished dosage that was 
        manufactured in an establishment registered under section 510; 
        and
            ``(F) is imported under such other conditions as the 
        Secretary determines to be necessary to ensure public safety.
    ``(k) Construction.--Nothing in this section limits the authority 
of the Secretary relating to the importation of prescription drugs, 
other than with respect to section 801(d)(1) as provided in this 
section.
    ``(l) Effectiveness of Section.--
        ``(1) Commencement of program.--This section shall become 
    effective only if the Secretary certifies to the Congress that the 
    implementation of this section will--
            (A) pose no additional risk to the public's health and 
        safety; and
            (B) result in a significant reduction in the cost of 
        covered products to the American consumer.
        ``(2) Termination of program.--
            ``(A) In general.--If, after the date that is 1 year after 
        the effective date of the regulations under subsection (b) and 
        before the date that is 18 months after the effective date, the 
        Secretary submits to Congress a certification that, in the 
        opinion of the Secretary, based on substantial evidence 
        obtained after the effective date, the benefits of 
        implementation of this section do not outweigh any detriment of 
        implementation of this section, this section shall cease to be 
        effective as of the date that is 30 days after the date on 
        which the Secretary submits the certification.
            ``(B) Procedure.--The Secretary shall not submit a 
        certification under subparagraph (A) unless, after a hearing on 
        the record under sections 556 and 557 of title 5, United States 
        Code, the Secretary--
                ``(i)(I) determines that it is more likely than not 
            that implementation of this section would result in an 
            increase in the risk to the public health and safety;
                ``(II) identifies specifically, in qualitative and 
            quantitative terms, the nature of the increased risk;
                ``(III) identifies specifically the causes of the 
            increased risk; and
                ``(IV)(aa) considers whether any measures can be taken 
            to avoid, reduce, or mitigate the increased risk; and
                ``(bb) if the Secretary determines that any measures 
            described in item (aa) would require additional statutory 
            authority, submits to Congress a report describing the 
            legislation that would be required;
                ``(ii) identifies specifically, in qualitative and 
            quantitative terms, the benefits that would result from 
            implementation of this section (including the benefit of 
            reductions in the cost of covered products to consumers in 
            the United States, allowing consumers to procure needed 
            medication that consumers might not otherwise be able to 
            procure without foregoing other necessities of life); and
                ``(iii)(I) compares in specific terms the detriment 
            identified under clause (i) with the benefits identified 
            under clause (ii); and
                ``(II) determines that the benefits do not outweigh the 
            detriment.
    ``(m) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to carry out this section.''.
    (b) Conforming Amendments.--The Federal Food, Drug, and Cosmetic 
Act is amended--
        (1) in section 301(aa) (21 U.S.C. 331(aa)), by striking 
    ``covered product in violation of section 804'' and inserting 
    ``prescription drug in violation of section 804''; and
        (2) in section 303(a)(6) (21 U.S.C. 333(a)(6), by striking 
    ``covered product pursuant to section 804(a)'' and inserting 
    ``prescription drug under section 804(b)''.

SEC. 1122. STUDY AND REPORT ON IMPORTATION OF DRUGS.

    The Secretary, in consultation with appropriate government 
agencies, shall conduct a study on the importation of drugs into the 
United States pursuant to section 804 of the Federal Food, Drug, and 
Cosmetic Act (as added by section 1121 of this Act). Not later than 12 
months after the date of the enactment of this Act, the Secretary shall 
submit to the appropriate committees of the Congress a report providing 
the findings of such study.

SEC. 1123. STUDY AND REPORT ON TRADE IN PHARMACEUTICALS.

    The President's designees shall conduct a study and report on 
issues related to trade and pharmaceuticals.

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

SEC. 1201. HEALTH SAVINGS ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 223 as 
section 224 and by inserting after section 222 the following new 
section:

``SEC. 223. HEALTH SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual who is an 
eligible individual for any month during the taxable year, there shall 
be allowed as a deduction for the taxable year an amount equal to the 
aggregate amount paid in cash during such taxable year by or on behalf 
of such individual to a health savings account of such individual.
    ``(b) Limitations.--
        ``(1) In general.--The amount allowable as a deduction under 
    subsection (a) to an individual for the taxable year shall not 
    exceed the sum of the monthly limitations for months during such 
    taxable year that the individual is an eligible individual.
        ``(2) Monthly limitation.--The monthly limitation for any month 
    is \1/12\ of--
            ``(A) in the case of an eligible individual who has self-
        only coverage under a high deductible health plan as of the 
        first day of such month, the lesser of--
                ``(i) the annual deductible under such coverage, or
                ``(ii) $2,250, or
            ``(B) in the case of an eligible individual who has family 
        coverage under a high deductible health plan as of the first 
        day of such month, the lesser of--
                ``(i) the annual deductible under such coverage, or
                ``(ii) $4,500.
        ``(3) Additional contributions for individuals 55 or older.--
            ``(A) In general.--In the case of an individual who has 
        attained age 55 before the close of the taxable year, the 
        applicable limitation under subparagraphs (A) and (B) of 
        paragraph (2) shall be increased by the additional contribution 
        amount.
            ``(B) Additional contribution amount.--For purposes of this 
        section, the additional contribution amount is the amount 
        determined in accordance with the following table:

``For taxable years beginning in:
                                                          The additional
                                                 contribution amount is:

    2004......................................................

                                                                   $500 

    2005......................................................

                                                                   $600 

    2006......................................................

                                                                   $700 

    2007......................................................

                                                                   $800 

    2008......................................................

                                                                   $900 

    2009 and thereafter.......................................

                                                                 $1,000.

        ``(4) Coordination with other contributions.--The limitation 
    which would (but for this paragraph) apply under this subsection to 
    an individual for any taxable year shall be reduced (but not below 
    zero) by the sum of--
            ``(A) the aggregate amount paid for such taxable year to 
        Archer MSAs of such individual, and
            ``(B) the aggregate amount contributed to health savings 
        accounts of such individual which is excludable from the 
        taxpayer's gross income for such taxable year under section 
        106(d) (and such amount shall not be allowed as a deduction 
        under subsection (a)).
    Subparagraph (A) shall not apply with respect to any individual to 
    whom paragraph (5) applies.
        ``(5) Special rule for married individuals.--In the case of 
    individuals who are married to each other, if either spouse has 
    family coverage--
            ``(A) both spouses shall be treated as having only such 
        family coverage (and if such spouses each have family coverage 
        under different plans, as having the family coverage with the 
        lowest annual deductible), and
            ``(B) the limitation under paragraph (1) (after the 
        application of subparagraph (A) and without regard to any 
        additional contribution amount under paragraph (3))--
                ``(i) shall be reduced by the aggregate amount paid to 
            Archer MSAs of such spouses for the taxable year, and
                ``(ii) after such reduction, shall be divided equally 
            between them unless they agree on a different division.
        ``(6) Denial of deduction to dependents.--No deduction shall be 
    allowed under this section to any individual with respect to whom a 
    deduction under section 151 is allowable to another taxpayer for a 
    taxable year beginning in the calendar year in which such 
    individual's taxable year begins.
        ``(7) Medicare eligible individuals.--The limitation under this 
    subsection for any month with respect to an individual shall be 
    zero for the first month such individual is entitled to benefits 
    under title XVIII of the Social Security Act and for each month 
    thereafter.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Eligible individual.--
            ``(A) In general.--The term `eligible individual' means, 
        with respect to any month, any individual if--
                ``(i) such individual is covered under a high 
            deductible health plan as of the 1st day of such month, and
                ``(ii) such individual is not, while covered under a 
            high deductible health plan, covered under any health 
            plan--

                    ``(I) which is not a high deductible health plan, 
                and
                    ``(II) which provides coverage for any benefit 
                which is covered under the high deductible health plan.

            ``(B) Certain coverage disregarded.--Subparagraph (A)(ii) 
        shall be applied without regard to--
                ``(i) coverage for any benefit provided by permitted 
            insurance, and
                ``(ii) coverage (whether through insurance or 
            otherwise) for accidents, disability, dental care, vision 
            care, or long-term care.
        ``(2) High deductible health plan.--
            ``(A) In general.--The term `high deductible health plan' 
        means a health plan--
                ``(i) which has an annual deductible which is not less 
            than--

                    ``(I) $1,000 for self-only coverage, and
                    ``(II) twice the dollar amount in subclause (I) for 
                family coverage, and

                ``(ii) the sum of the annual deductible and the other 
            annual out-of-pocket expenses required to be paid under the 
            plan (other than for premiums) for covered benefits does 
            not exceed--

                    ``(I) $5,000 for self-only coverage, and
                    ``(II) twice the dollar amount in subclause (I) for 
                family coverage.

            ``(B) Exclusion of certain plans.--Such term does not 
        include a health plan if substantially all of its coverage is 
        coverage described in paragraph (1)(B).
            ``(C) Safe harbor for absence of preventive care 
        deductible.--A plan shall not fail to be treated as a high 
        deductible health plan by reason of failing to have a 
        deductible for preventive care (within the meaning of section 
        1871 of the Social Security Act, except as otherwise provided 
        by the Secretary).
            ``(D) Special rules for network plans.--In the case of a 
        plan using a network of providers--
                ``(i) Annual out-of-pocket limitation.--Such plan shall 
            not fail to be treated as a high deductible health plan by 
            reason of having an out-of-pocket limitation for services 
            provided outside of such network which exceeds the 
            applicable limitation under subparagraph (A)(ii).
                ``(ii) Annual deductible.--Such plan's annual 
            deductible for services provided outside of such network 
            shall not be taken into account for purposes of subsection 
            (b)(2).
        ``(3) Permitted insurance.--The term `permitted insurance' 
    means--
            ``(A) insurance if substantially all of the coverage 
        provided under such insurance relates to--
                ``(i) liabilities incurred under workers' compensation 
            laws,
                ``(ii) tort liabilities,
                ``(iii) liabilities relating to ownership or use of 
            property, or
                ``(iv) such other similar liabilities as the Secretary 
            may specify by regulations,
            ``(B) insurance for a specified disease or illness, and
            ``(C) insurance paying a fixed amount per day (or other 
        period) of hospitalization.
        ``(4) Family coverage.--The term `family coverage' means any 
    coverage other than self-only coverage.
        ``(5) Archer msa.--The term `Archer MSA' has the meaning given 
    such term in section 220(d).
    ``(d) Health Savings Account.--For purposes of this section--
        ``(1) In general.--The term `health savings account' means a 
    trust created or organized in the United States as a health savings 
    account exclusively for the purpose of paying the qualified medical 
    expenses of the account beneficiary, but only if the written 
    governing instrument creating the trust meets the following 
    requirements:
            ``(A) Except in the case of a rollover contribution 
        described in subsection (f)(5) or section 220(f)(5), no 
        contribution will be accepted--
                ``(i) unless it is in cash, or
                ``(ii) to the extent such contribution, when added to 
            previous contributions to the trust for the calendar year, 
            exceeds the sum of--

                    ``(I) the dollar amount in effect under subsection 
                (b)(2)(B)(ii), and
                    ``(II) the dollar amount in effect under subsection 
                (b)(3)(B).

            ``(B) The trustee is a bank (as defined in section 408(n)), 
        an insurance company (as defined in section 816), or another 
        person who demonstrates to the satisfaction of the Secretary 
        that the manner in which such person will administer the trust 
        will be consistent with the requirements of this section.
            ``(C) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(D) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(E) The interest of an individual in the balance in his 
        account is nonforfeitable.
        ``(2) Qualified medical expenses.--
            ``(A) In general.--The term `qualified medical expenses' 
        means, with respect to an account beneficiary, amounts paid by 
        such beneficiary for medical care (as defined in section 213(d) 
        for such individual, the spouse of such individual, and any 
        dependent (as defined in section 152) of such individual, but 
        only to the extent such amounts are not compensated for by 
        insurance or otherwise.
            ``(B) Health insurance may not be purchased from account.--
        Subparagraph (A) shall not apply to any payment for insurance.
            ``(C) Exceptions.--Subparagraph (B) shall not apply to any 
        expense for coverage under--
                ``(i) a health plan during any period of continuation 
            coverage required under any Federal law,
                ``(ii) a qualified long-term care insurance contract 
            (as defined in section 7702B(b)),
                ``(iii) a health plan during a period in which the 
            individual is receiving unemployment compensation under any 
            Federal or State law, or
                ``(iv) in the case of an account beneficiary who has 
            attained the age specified in section 1811 of the Social 
            Security Act, any health insurance other than a medicare 
            supplemental policy (as defined in section 1882 of the 
            Social Security Act).
        ``(3) Account beneficiary.--The term `account beneficiary' 
    means the individual on whose behalf the health savings account was 
    established.
        ``(4) Certain rules to apply.--Rules similar to the following 
    rules shall apply for purposes of this section:
            ``(A) Section 219(d)(2) (relating to no deduction for 
        rollovers).
            ``(B) Section 219(f)(3) (relating to time when 
        contributions deemed made).
            ``(C) Except as provided in section 106(d), section 
        219(f)(5) (relating to employer payments).
            ``(D) Section 408(g) (relating to community property laws).
            ``(E) Section 408(h) (relating to custodial accounts).
    ``(e) Tax Treatment of Accounts.--
        ``(1) In general.--A health savings account is exempt from 
    taxation under this subtitle unless such account has ceased to be a 
    health savings account. Notwithstanding the preceding sentence, any 
    such account is subject to the taxes imposed by section 511 
    (relating to imposition of tax on unrelated business income of 
    charitable, etc. organizations).
        ``(2) Account terminations.--Rules similar to the rules of 
    paragraphs (2) and (4) of section 408(e) shall apply to health 
    savings accounts, and any amount treated as distributed under such 
    rules shall be treated as not used to pay qualified medical 
    expenses.
    ``(f) Tax Treatment of Distributions.--
        ``(1) Amounts used for qualified medical expenses.--Any amount 
    paid or distributed out of a health savings account which is used 
    exclusively to pay qualified medical expenses of any account 
    beneficiary shall not be includible in gross income.
        ``(2) Inclusion of amounts not used for qualified medical 
    expenses.--Any amount paid or distributed out of a health savings 
    account which is not used exclusively to pay the qualified medical 
    expenses of the account beneficiary shall be included in the gross 
    income of such beneficiary.
        ``(3) Excess contributions returned before due date of 
    return.--
            ``(A) In general.--If any excess contribution is 
        contributed for a taxable year to any health savings account of 
        an individual, paragraph (2) shall not apply to distributions 
        from the health savings accounts of such individual (to the 
        extent such distributions do not exceed the aggregate excess 
        contributions to all such accounts of such individual for such 
        year) if--
                ``(i) such distribution is received by the individual 
            on or before the last day prescribed by law (including 
            extensions of time) for filing such individual's return for 
            such taxable year, and
                ``(ii) such distribution is accompanied by the amount 
            of net income attributable to such excess contribution.
        Any net income described in clause (ii) shall be included in 
        the gross income of the individual for the taxable year in 
        which it is received.
            ``(B) Excess contribution.--For purposes of subparagraph 
        (A), the term `excess contribution' means any contribution 
        (other than a rollover contribution described in paragraph (5) 
        or section 220(f)(5)) which is neither excludable from gross 
        income under section 106(d) nor deductible under this section.
        ``(4) Additional tax on distributions not used for qualified 
    medical expenses.--
            ``(A) In general.--The tax imposed by this chapter on the 
        account beneficiary for any taxable year in which there is a 
        payment or distribution from a health savings account of such 
        beneficiary which is includible in gross income under paragraph 
        (2) shall be increased by 10 percent of the amount which is so 
        includible.
            ``(B) Exception for disability or death.--Subparagraph (A) 
        shall not apply if the payment or distribution is made after 
        the account beneficiary becomes disabled within the meaning of 
        section 72(m)(7) or dies.
            ``(C) Exception for distributions after medicare 
        eligibility.--Subparagraph (A) shall not apply to any payment 
        or distribution after the date on which the account beneficiary 
        attains the age specified in section 1811 of the Social 
        Security Act.
        ``(5) Rollover contribution.--An amount is described in this 
    paragraph as a rollover contribution if it meets the requirements 
    of subparagraphs (A) and (B).
            ``(A) In general.--Paragraph (2) shall not apply to any 
        amount paid or distributed from a health savings account to the 
        account beneficiary to the extent the amount received is paid 
        into a health savings account for the benefit of such 
        beneficiary not later than the 60th day after the day on which 
        the beneficiary receives the payment or distribution.
            ``(B) Limitation.--This paragraph shall not apply to any 
        amount described in subparagraph (A) received by an individual 
        from a health savings account if, at any time during the 1-year 
        period ending on the day of such receipt, such individual 
        received any other amount described in subparagraph (A) from a 
        health savings account which was not includible in the 
        individual's gross income because of the application of this 
        paragraph.
        ``(6) Coordination with medical expense deduction.--For 
    purposes of determining the amount of the deduction under section 
    213, any payment or distribution out of a health savings account 
    for qualified medical expenses shall not be treated as an expense 
    paid for medical care.
        ``(7) Transfer of account incident to divorce.--The transfer of 
    an individual's interest in a health savings account to an 
    individual's spouse or former spouse under a divorce or separation 
    instrument described in subparagraph (A) of section 71(b)(2) shall 
    not be considered a taxable transfer made by such individual 
    notwithstanding any other provision of this subtitle, and such 
    interest shall, after such transfer, be treated as a health savings 
    account with respect to which such spouse is the account 
    beneficiary.
        ``(8) Treatment after death of account beneficiary.--
            ``(A) Treatment if designated beneficiary is spouse.--If 
        the account beneficiary's surviving spouse acquires such 
        beneficiary's interest in a health savings account by reason of 
        being the designated beneficiary of such account at the death 
        of the account beneficiary, such health savings account shall 
        be treated as if the spouse were the account beneficiary.
            ``(B) Other cases.--
                ``(i) In general.--If, by reason of the death of the 
            account beneficiary, any person acquires the account 
            beneficiary's interest in a health savings account in a 
            case to which subparagraph (A) does not apply--

                    ``(I) such account shall cease to be a health 
                savings account as of the date of death, and
                    ``(II) an amount equal to the fair market value of 
                the assets in such account on such date shall be 
                includible if such person is not the estate of such 
                beneficiary, in such person's gross income for the 
                taxable year which includes such date, or if such 
                person is the estate of such beneficiary, in such 
                beneficiary's gross income for the last taxable year of 
                such beneficiary.

                ``(ii) Special rules.--

                    ``(I) Reduction of inclusion for predeath 
                expenses.--The amount includible in gross income under 
                clause (i) by any person (other than the estate) shall 
                be reduced by the amount of qualified medical expenses 
                which were incurred by the decedent before the date of 
                the decedent's death and paid by such person within 1 
                year after such date.
                    ``(II) Deduction for estate taxes.--An appropriate 
                deduction shall be allowed under section 691(c) to any 
                person (other than the decedent or the decedent's 
                spouse) with respect to amounts included in gross 
                income under clause (i) by such person.

    ``(g) Cost-of-Living Adjustment.--
        ``(1) In general.--Each dollar amount in subsections (b)(2) and 
    (c)(2)(A) shall be increased by an amount equal to--
            ``(A) such dollar amount, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which such taxable 
        year begins determined by substituting for `calendar year 1992' 
        in subparagraph (B) thereof--
                ``(i) except as provided in clause (ii), `calendar year 
            1997', and
                ``(ii) in the case of each dollar amount in subsection 
            (c)(2)(A), `calendar year 2003'.
        ``(2) Rounding.--If any increase under paragraph (1) is not a 
    multiple of $50, such increase shall be rounded to the nearest 
    multiple of $50.
    ``(h) Reports.--The Secretary may require--
        ``(1) the trustee of a health savings account to make such 
    reports regarding such account to the Secretary and to the account 
    beneficiary with respect to contributions, distributions, the 
    return of excess contributions, and such other matters as the 
    Secretary determines appropriate, and
        ``(2) any person who provides an individual with a high 
    deductible health plan to make such reports to the Secretary and to 
    the account beneficiary with respect to such plan as the Secretary 
    determines appropriate.
The reports required by this subsection shall be filed at such time and 
in such manner and furnished to such individuals at such time and in 
such manner as may be required by the Secretary.''.
    (b) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code is amended by 
inserting after paragraph (18) the following new paragraph:
        ``(19) Health savings accounts.--The deduction allowed by 
    section 223.''.
    (c) Rollovers from Archer MSAs Permitted.--Subparagraph (A) of 
section 220(f)(5) of such Code (relating to rollover contribution) is 
amended by inserting ``or a health savings account (as defined in 
section 223(d))'' after ``paid into an Archer MSA''.
    (d) Exclusions for Employer Contributions to Health Savings 
Accounts.--
        (1) Exclusion from income tax.--Section 106 of such Code 
    (relating to contributions by employer to accident and health 
    plans) is amended by adding at the end the following new 
    subsection:
    ``(d) Contributions to Health Savings Accounts.--
        ``(1) In general.--In the case of an employee who is an 
    eligible individual (as defined in section 223(c)(1)), amounts 
    contributed by such employee's employer to any health savings 
    account (as defined in section 223(d)) of such employee shall be 
    treated as employer-provided coverage for medical expenses under an 
    accident or health plan to the extent such amounts do not exceed 
    the limitation under section 223(b) (determined without regard to 
    this subsection) which is applicable to such employee for such 
    taxable year.
        ``(2) Special rules.--Rules similar to the rules of paragraphs 
    (2), (3), (4), and (5) of subsection (b) shall apply for purposes 
    of this subsection.
        ``(3) Cross reference.--

          ``For penalty on failure by employer to make comparable 
        contributions to the health savings accounts of comparable 
        employees, see section 4980G.''.

        (2) Exclusion from employment taxes.--
            (A) Railroad retirement tax.--Subsection (e) of section 
        3231 of such Code is amended by adding at the end the following 
        new paragraph:
        ``(11) Health savings account contributions.--The term 
    `compensation' shall not include any payment made to or for the 
    benefit of an employee if at the time of such payment it is 
    reasonable to believe that the employee will be able to exclude 
    such payment from income under section 106(d).''.
            (B) Unemployment tax.--Subsection (b) of section 3306 of 
        such Code is amended by striking ``or'' at the end of paragraph 
        (16), by striking the period at the end of paragraph (17) and 
        inserting ``; or'', and by inserting after paragraph (17) the 
        following new paragraph:
        ``(18) any payment made to or for the benefit of an employee if 
    at the time of such payment it is reasonable to believe that the 
    employee will be able to exclude such payment from income under 
    section 106(d).''.
            (C) Withholding tax.--Subsection (a) of section 3401 of 
        such Code is amended by striking ``or'' at the end of paragraph 
        (20), by striking the period at the end of paragraph (21) and 
        inserting ``; or'', and by inserting after paragraph (21) the 
        following new paragraph:
        ``(22) any payment made to or for the benefit of an employee if 
    at the time of such payment it is reasonable to believe that the 
    employee will be able to exclude such payment from income under 
    section 106(d).''.
        (3) Employer contributions required to be shown on w-2.--
    Subsection (a) of section 6051 of such Code is amended by striking 
    ``and'' at the end of paragraph (10), by striking the period at the 
    end of paragraph (11) and inserting ``, and'', and by inserting 
    after paragraph (11) the following new paragraph:
        ``(12) the amount contributed to any health savings account (as 
    defined in section 223(d)) of such employee or such employee's 
    spouse.''.
        (4) Penalty for failure of employer to make comparable health 
    savings account contributions.--
            (A) In general.--Chapter 43 of such Code is amended by 
        adding after section 4980F the following new section:

``SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH SAVINGS 
              ACCOUNT CONTRIBUTIONS.

    ``(a) General Rule.--In the case of an employer who makes a 
contribution to the health savings account of any employee during a 
calendar year, there is hereby imposed a tax on the failure of such 
employer to meet the requirements of subsection (b) for such calendar 
year.
    ``(b) Rules and Requirements.--Rules and requirements similar to 
the rules and requirements of section 4980E shall apply for purposes of 
this section.
    ``(c) Regulations.--The Secretary shall issue regulations to carry 
out the purposes of this section, including regulations providing 
special rules for employers who make contributions to Archer MSAs and 
health savings accounts during the calendar year.''.
            (B) Clerical amendment.--The table of sections for chapter 
        43 of such Code is amended by adding after the item relating to 
        section 4980F the following new item:

``Sec. 4980G. Failure of employer to make comparable health savings 
          account contributions.''.

    (e) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to certain tax-favored 
accounts and annuities) is amended--
        (1) by striking ``or'' at the end of subsection (a)(3), by 
    inserting ``or'' at the end of subsection (a)(4), and by inserting 
    after subsection (a)(4) the following new paragraph:
        ``(5) a health savings account (within the meaning of section 
    223(d)),'', and
        (2) by adding at the end the following new subsection:
    ``(g) Excess Contributions to Health Savings Accounts.--For 
purposes of this section, in the case of health savings accounts 
(within the meaning of section 223(d)), the term `excess contributions' 
means the sum of--
        ``(1) the aggregate amount contributed for the taxable year to 
    the accounts (other than a rollover contribution described in 
    section 220(f)(5) or 223(f)(5)) which is neither excludable from 
    gross income under section 106(d) nor allowable as a deduction 
    under section 223 for such year, and
        ``(2) the amount determined under this subsection for the 
    preceding taxable year, reduced by the sum of--
            ``(A) the distributions out of the accounts which were 
        included in gross income under section 223(f)(2), and
            ``(B) the excess (if any) of--
                ``(i) the maximum amount allowable as a deduction under 
            section 223(b) (determined without regard to section 
            106(d)) for the taxable year, over
                ``(ii) the amount contributed to the accounts for the 
            taxable year.
For purposes of this subsection, any contribution which is distributed 
out of the health savings account in a distribution to which section 
223(f)(3) applies shall be treated as an amount not contributed.''.
    (f) Tax on Prohibited Transactions.--
        (1) Section 4975 of such Code (relating to tax on prohibited 
    transactions) is amended by adding at the end of subsection (c) the 
    following new paragraph:
        ``(6) Special rule for health savings accounts.--An individual 
    for whose benefit a health savings account (within the meaning of 
    section 223(d)) is established shall be exempt from the tax imposed 
    by this section with respect to any transaction concerning such 
    account (which would otherwise be taxable under this section) if, 
    with respect to such transaction, the account ceases to be a health 
    savings account by reason of the application of section 223(e)(2) 
    to such account.''.
        (2) Paragraph (1) of section 4975(e) of such Code is amended by 
    redesignating subparagraphs (E) and (F) as subparagraphs (F) and 
    (G), respectively, and by inserting after subparagraph (D) the 
    following new subparagraph:
            ``(E) a health savings account described in section 
        223(d),''.
    (g) Failure To Provide Reports on Health Savings Accounts.--
Paragraph (2) of section 6693(a) of such Code (relating to reports) is 
amended by redesignating subparagraphs (C) and (D) as subparagraphs (D) 
and (E), respectively, and by inserting after subparagraph (B) the 
following new subparagraph:
            ``(C) section 223(h) (relating to health savings 
        accounts),''.
    (h) Exception From Capitalization of Policy Acquisition Expenses.--
Subparagraph (B) of section 848(e)(1) of such Code (defining specified 
insurance contract) is amended by striking ``and'' at the end of clause 
(iii), by striking the period at the end of clause (iv) and inserting 
``, and'', and by adding at the end the following new clause:
                ``(v) any contract which is a health savings account 
            (as defined in section 223(d)).''.
    (i) Health Savings Accounts May Be Offered Under Cafeteria Plans.--
Paragraph (2) of section 125(d) (relating to cafeteria plan defined) is 
amended by adding at the end the following new subparagraph:
            ``(D) Exception for health savings accounts.--Subparagraph 
        (A) shall not apply to a plan to the extent of amounts which a 
        covered employee may elect to have the employer pay as 
        contributions to a health savings account established on behalf 
        of the employee.''.
    (j) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by striking the last 
item and inserting the following:

``Sec. 223. Health savings accounts.
``Sec. 224. Cross reference.''.

    (k) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 1202. EXCLUSION FROM GROSS INCOME OF CERTAIN FEDERAL SUBSIDIES FOR 
              PRESCRIPTION DRUG PLANS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 139 
the following new section:

``SEC. 139A. FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG PLANS.

    ``Gross income shall not include any special subsidy payment 
received under section 1860D-22 of the Social Security Act. This 
section shall not be taken into account for purposes of determining 
whether any deduction is allowable with respect to any cost taken into 
account in determining such payment.''.
    (b) Alternative Minimum Tax Relief.--Section 56(g)(4)(B) of such 
Code is amended by inserting ``or 139A'' after ``section 114''.
    (c) Conforming Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
the item relating to section 139 the following new item:

        ``Sec. 139A. Federal subsidies for prescription drug plans.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 1203. EXCEPTION TO INFORMATION REPORTING REQUIREMENTS RELATED TO 
              CERTAIN HEALTH ARRANGEMENTS.

    (a) In General.--Section 6041 of the Internal Revenue Code of 1986 
(relating to information at source) is amended by adding at the end the 
following new subsection:
    ``(f) Section Does Not Apply to Certain Health Arrangements.--This 
section shall not apply to any payment for medical care (as defined in 
section 213(d)) made under--
        ``(1) a flexible spending arrangement (as defined in section 
    106(c)(2)), or
        ``(2) a health reimbursement arrangement which is treated as 
    employer-provided coverage under an accident or health plan for 
    purposes of section 106.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 2002.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
```